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Report to Committees on the Budget:

August 2003:

Opportunities For Oversight and Improved Use of Taxpayer Funds:

Examples from Selected GAO Work:

GAO-03-1006:

Contents:

Letter:

Appendixes:

Appendix I: Opportunities to Improve the Economy, Efficiency, and 
Effectiveness of Federal Programs: 

050 National Defense:

Examples from Selected GAO Work:

Reduce the Number of Carrier Battle Group Expansions and Upgrades:

Limit Commitment to Production of the F/A-22 Fighter until Operational 
Testing Is Complete:

Reassess the Need for the Selective Service System:

Consolidate Military Exchange Stores:

Reorganize C-130 Reserve Squadrons:

Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers:

Improve the Administration of Defense Health Care:

Seek Additional Opportunities for VA and DOD to Increase Joint 
Activities to Enhance Services to Beneficiaries and Reduce Costs:

Continue Defense Infrastructure Reform:

Reduce Funding for Renovation and Replacement of Military Housing until 
DOD Completes Housing Assessment:

Improve DOD Procurement Practices Regarding Canceling Orders:

Reduce Planned Military Construction Costs for Barracks:

Take a Strategic Approach to Department of Defense Acquisition of 
Services:

Address Overpayments to Defense Contractors:

CBO Options Where Related GAO Work Is Identified:

050-05 Cancel the Army's Comanche Helicopter Program:

050-10 Reduce Purchases of the Air Force's F/A-22 Fighter:

050-11 Slow the Schedule of the F-35 Joint Strike Fighter Program:

050-19 Replace Military Personnel in Some Support Positions with 
Civilian Employees of the Department of Defense:

050-22 Have the Departments of Defense and Veterans Affairs Purchase 
Drugs Jointly:

150 International Affairs:

Examples from Selected GAO Work:

Eliminate U.S. Contributions to Administrative Costs in Rogue States:

Streamline U.S. Overseas Presence:

CBO Options Where Related GAO Work Is Identified:

150-01 Eliminate the Export-Import Bank, the Overseas Private 
Investment Corporation, and the Trade and Development Agency:

150-02 End the United States' Capital Subscriptions to the European 
Bank for Reconstruction and Development:

250 General Science, Space, and Technology:

Example from Selected GAO Work:

Continue Oversight of the International Space Station and Related 
Support Systems:

270 Energy:

Examples from Selected GAO Work:

Corporatize or Divest Selected Power Marketing Administrations:

Recover Power Marketing Administrations' Costs:

Increase Nuclear Waste Disposal Fees:

Recover Federal Investment in Successfully Commercialized 
Technologies:

Reduce the Costs of the Rural Utilities Service's Electricity and 
Telecommunications Loan Programs:

300 Natural Resources and Environment:

Examples from Selected GAO Work:

Terminate Land-Exchange Programs:

Deny Additional Funding for Commercial Fisheries Buyback Programs:

Revise the Mining Law of 1872:

Reexamine Federal Policies for Subsidizing Water for Agriculture and 
Rural Uses:

Reassess Federal Land Management Agencies' Functions and Programs:

350 Agriculture:

Examples from Selected GAO Work:

Terminate or Significantly Reduce the U.S. Department of Agriculture's 
Market Access Program:

Consolidate Common Administrative Functions at the U.S. Department of 
Agriculture:

Further Consolidate the U.S. Department of Agriculture's County 
Offices:

370 Commerce and Housing Credit:

Examples from Selected GAO Work:

Recapture Interest on Rural Housing Loans:

Require Self-Financing of Mission Oversight by Fannie Mae and Freddie 
Mac:

Reduce Federal Housing Administration's Insurance Coverage:

Merging U.S. Department of Agriculture and Department of Housing and 
Urban Development Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs:

Consolidate Homeless Assistance Programs:

Reorganize and Consolidate Small Business Administration's 
Administrative Structure:

Improve Reviews of Small Business Administration's Preferred Lenders:

CBO Options Where Related GAO Work Is Identified:

370-01 End the Credit Subsidy for the Small Business Administration's 
Major Business Loan Guarantee Programs:

370-05 Charge All Banks and Thrifts Deposit Insurance Premiums:

400 Transportation:

Examples from Selected GAO Work:

Eliminate the Pulsed Fast Neutron Analysis Inspection System:

Develop a Passenger Intercity Rail Policy to Meet National Goals:

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs:

Increase Aircraft Registration Fees to Enable the Federal Aviation 
Administration to Recover Actual Costs:

Apply Cost-Benefit Analysis to Replacement Plans for Airport 
Surveillance Radars:

Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities:

Convert Some Support Officer Positions to Civilian Status:

CBO Options Where Related GAO Work Is Identified:

400-01 Reduce Federal Subsidies for Amtrak:

400-02 Eliminate the Essential Air Service Program:

400-03 Eliminate Grants to Large and Medium-Sized Hub Airports:

400-04 Increase Fees for Certificates and Registrations Issued by the 
Federal Aviation Administration:

400-08 Eliminate Funding for the "New Starts" Transit Program:

450 Community and Regional Development:

Examples from Selected GAO Work:

Limit Eligibility for Federal Emergency Management Agency Public 
Assistance:

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 
Greatest Flood Loss:

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties:

Consolidate or Terminate the Department of Commerce's Trade Adjustment 
Assistance for Firms Program:

Improve Federal Foreclosure and Property Sales Processes:

CBO Options Where Related GAO Work Is Identified:

450-02 Eliminate Region-Specific Development Agencies:

450-05 Drop Flood Insurance for Certain Repeatedly Flooded Properties:

500 Education, Training, Employment, and Social Services:

CBO Options Where Related GAO Work Is Identified:

500-02 Repeal the Safe and Drug-Free Schools and Communities Act:

500-11 Eliminate the Senior Community Service Employment Program:

550 Health:

Examples from Selected GAO Work:

Improve Fairness of Medicaid Matching Formula:

Charge Beneficiaries for Food Inspection Costs:

Implement Risk-Based Meat and Poultry Inspections at USDA:

Prevent States from Using Illusory Approaches to Shift Medicaid Program 
Costs to the Federal Government:

Create a Uniform Federal Mechanism for Food Safety:

Control Provider Enrollment Fraud in Medicaid:

Eliminate Federal Funding for SCHIP Covering Adults without Children:

CBO Option Where Related GAO Work Is Identified:

550-06 Require All States to Comply with New Rules About Medicaid's 
Upper Payment Limit by 2004:

570 Medicare:

Examples from Selected GAO Work:

Reassess Medicare Incentive Payments in Health Care Shortage Areas:

Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, 
and Market Prices:

Increase Medicare Program Safeguard Funding:

Modify the New Skilled Nursing Facility Payment Method to Ensure 
Appropriate Payments:

Implement Risk-Sharing in Conjunction with Medicare Home Health Agency 
Prospective Payment System:

Eliminate Medicare Competitive Sourcing Restrictions:

Change Pricing Formula for Medicare-Covered Drugs and Biologicals:

CBO Options Where Related GAO Work Is Identified:

570-10 Reduce Medicare Payments for Currently Covered Prescription 
Drugs:

570-11 Require Competitive Bidding for High-Volume Items of Durable 
Medical Equipment:

570-15 Simplify and Limit Medicare's Cost-Sharing Requirements:

570-19 Reduce Medicare Payments for Home Health Care:

600 Income Security:

Examples from Selected GAO Work:

Develop Comprehensive Return-to-Work Strategies for People with 
Disabilities:

Revise Benefit Payments under the Federal Employees' Compensation Act:

Increase Congressional Oversight of PBGC's Budget:

Share the Savings from Bond Refundings:

Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections:

Improve Reporting of DOD Reserve Employee Payroll Data to State 
Unemployment Insurance Programs:

Improve Social Security Benefit Payment Controls:

Simplify Supplemental Security Income Recipient Living Arrangements:

Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems:

Obtain and Share Information on Medical Providers and Middlemen to 
Reduce Improper Payments to Supplemental Security Income Recipients:

Sustain/Expand Range of SSI Program Integrity Activities:

Revise Government Pension Offset (GPO) Exemption:

Better Congressional Oversight of PRWORA's Fugitive Felon Provisions:

Improve the Administrative Oversight of Food Assistance Programs:

CBO Option Where Related GAO Work Is Identified:

600-07 Reduce the Federal Matching Rate for Administrative and Training 
Costs in the Foster Care and Adoption Assistance Programs:

700 Veterans Benefits and Services:

Examples from Selected GAO Work:

Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses:

Discontinue Veterans' Disability Compensation for Nonservice Connected 
Diseases:

Reassess Unneeded Health Care Assets within the Department of Veterans 
Affairs:

Reducing VA Inpatient Food and Laundry Service Costs:

CBO Options Where Related GAO Work Is Identified:

700-01 Narrow the Eligibility for Veterans' Disability Compensation to 
Include Only Veterans with High-Rated Disabilities:

700-02 Narrow the Eligibility for Veterans' Disability Compensation to 
Veterans Whose Disabilities Are Related to Their Military Duties:

700-03 Increase Beneficiaries' Cost Sharing for Care at Nursing 
Facilities Operated by the Department of Veterans Affairs:

800 General Government; 900 Net Interest; and 999 Multiple:

Examples from Selected GAO Work:

Prevent Delinquent Taxpayers from Benefiting from Federal Programs:

Target Funding Reductions in Formula Grant Programs:

Adjust Federal Grant Matching Requirements:

Replace the 1-Dollar Note with a 1-Dollar Coin:

Increase Fee Revenue from Federal Reserve Operations:

Recognize the Costs Up-front of Long-term Space Acquisitions:

Seek Alternative Ways to Address Federal Building Repair Needs:

Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared:

Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals:

Information Sharing Could Improve Accuracy of Workers' Compensation 
Offset Payments:

Determine Feasibility of Locating Federal Facilities in Rural Areas:

Leverage Buying Power to Reduce Costs of Supplies and Services:

Consolidate Grants for First Responders to Improve Efficiency:

CBO Options Where Related GAO Work Is Identified:

800-03 Eliminate Federal Antidrug Advertising:

920-03 Impose a Fee on the Investment Portfolios of Government-
Sponsored Enterprises:

Receipts:

Examples from Selected GAO Work:

Tax Interest Earned on Life Insurance Policies and Deferred Annuities:

Further Limit the Deductibility of Home Equity Loan Interest:

Limit the Tax Exemption for Employer-Paid Health Insurance:

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels:

Index Excise Tax Rates for Inflation:

Increase Highway User Fees on Heavy Trucks:

Require Corporate Tax Document Matching:

Improve Administration of the Tax Deduction for Real Estate Taxes:

Increase Collection of Returns Filed by U.S. Citizens Living Abroad:

Increase the Use of Seizure Authority to Collect Delinquent Taxes:

Increase Collection of Self-employment Taxes:

Increase the Use of Electronic Funds Transfer for Installment Tax 
Payments:

Reduce Gasoline Excise Tax Evasion:

Improve Independent Contractor Tax Compliance:

Expand the Use of IRS's TIN-Matching Program:

Improve Administration of the Federal Payment Levy Program:

Enhance Nontax Debt Collection Using Available Tools:

Slowing the Long-Term Growth of Social Security and Medicare:

CBO Options Where Related GAO Work Is Identified:

Constrain the Increase in Initial Benefits:

Raise the Retirement Age:

Letter August 1, 2003:

The Honorable Jim Nussle 
Chairman 
The Honorable John Spratt 
Ranking Minority Member
Committee on the Budget 
House of Representatives:

The Honorable Don Nickles 
Chairman 
The Honorable Kent Conrad 
Ranking Minority Member 
Committee on the Budget 
United States Senate:

This report is submitted pursuant to section 301(e) of the Concurrent 
Resolution on the Budget for Fiscal Year 2004,[Footnote 1] which 
directs the Comptroller General to submit to the Committees on the 
Budget a comprehensive report identifying instances in which the 
committees of jurisdiction may make legislative changes to improve the 
economy, efficiency, and effectiveness of federal programs within their 
jurisdiction.

In this report, we highlight opportunities for and specific examples of 
legislative and administrative change that might yield budgetary 
savings. We identify illustrative examples from GAO work of changes or 
steps that would improve the economy, efficiency, and effectiveness of 
given programs, sorted by budget function. We indicate whether an 
example appeared in our 2002 report, Supporting Congressional 
Oversight: Budgetary Implications of Selected GAO Work for Fiscal Year 
2003,[Footnote 2] and whether a Congressional Budget Office (CBO) 
estimate was included in that report. Each specific example included in 
this report is not presented as the only way to address the significant 
economy, efficiency, and effectiveness issues identified in our reviews 
of federal programs and operations but rather as one of many possible 
approaches available to the Congress. The inclusion of a specific 
example does not mean we endorse it as the only feasible or appropriate 
approach.

We drew on GAO's work that highlights opportunities to improve the 
economy, efficiency, and effectiveness of government programs. The 
report is based on program design and operational issues that we have 
identified in reports for the Congress. Major risks and challenges 
faced by federal agencies are summarized in the Performance and 
Accountability Series.[Footnote 3] The High-Risk Series[Footnote 4] is 
designed to help the Congress focus its attention on the most important 
issues and challenges facing the federal government.

Although we derived the examples presented in this report from our 
existing body of work, there are similarities between the specific 
examples presented here and those presented by CBO's annual spending 
and revenue options report. To assist the Congress, we also have listed 
GAO reports identified as relating to options included in the CBO March 
2003 Budget Options report.[Footnote 5] We included GAO reports if they 
related to the topic of the CBO option, regardless of whether our work 
supported the option or not.

Addressing the myriad of issues reflected in this volume will help 
improve economy, efficiency, and effectiveness and reduce costs. The 
budget process should prompt us to periodically focus not only on new 
proposals but on existing programs. Hard questions need to be asked not 
only about the economy and efficiency of our existing programs, but 
about their need, fit, relevance, priority and sustainability in the 
21ST century. Given the fiscal challenges the United States faces in 
both the near and the longer term, tough choices will be required in 
connection with what government does, how it does business, and 
sometimes even who does the federal government's business.

We are also sending copies of this report to other interested 
committees of the Congress. Copies will be made available to others 
upon request.

This report was prepared under the coordination of Paul L. Posner, 
Managing Director and Susan J. Irving, Director, Federal Budget 
Analysis, Strategic Issues, who may be reached at (202) 512-9573 or 
(202) 512-9142, respectively. The examples provided in the appendix 
draw on work from across GAO. Specific questions about individual 
examples may be directed to the GAO contact listed with each example.

Signed by:

David M. Walker 
Comptroller General of the United States:

[End of section]

Appendixes:

Appendix I: Opportunities to Improve the Economy, Efficiency, and 
Effectiveness of Federal Programs:

This appendix is organized by budget function. The following two 
sections are included, where available, for each budget function.

Examples from Selected GAO Work:

We identify illustrative examples based on GAO's work that highlight 
opportunities to improve the economy, efficiency, and effectiveness of 
federal programs. We indicate whether an example appeared in our 2002 
report Supporting Congressional Oversight: Budgetary Implications of 
Selected GAO Work for Fiscal Year 2003[Footnote 6] and whether a CBO 
estimate was included in that report.

CBO Options Where Related GAO Work Is Identified:

We list GAO reports identified as relating to options included in the 
CBO March 2003 Budget Options report.[Footnote 7] Only those CBO 
options for which we identified related GAO products are included. We 
included GAO reports if they related to the topic of the CBO option, 
regardless of whether our work supported the option or not.

050 National Defense:

Examples from Selected GAO Work:

Reduce the Number of Carrier Battle Group Expansions and Upgrades:

Limit Commitment to Production of the F/A-22 Fighter until Operational 
Testing Is Complete:

Reassess the Need for the Selective Service System:

Consolidate Military Exchange Stores:

Reorganize C-130 Reserve Squadrons:

Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers:

Improve the Administration of Defense Health Care:

Seek Additional Opportunities for VA and DOD to Increase Joint 
Activities to Enhance Services to Beneficiaries and Reduce Costs:

Continue Defense Infrastructure Reform:

Reduce Funding for Renovation and Replacement of Military Housing until 
DOD Completes Housing Needs Assessment:

Improve DOD Procurement Practices Regarding Canceling Orders:

Reduce Planned Military Construction Costs for Barracks:

Take a Strategic Approach to Department of Defense Acquisition of 
Services:

Address Overpayments to Defense Contractors:

CBO Options Where Related GAO Work Is Identified:

050-05 Cancel the Army's Comanche Helicopter Program:

050-10 Reduce Purchases of the Air Force's F/A-22 Fighter:

050-11 Slow the Schedule of the F-35 Joint Strike Fighter Program:

050-19 Replace Military Personnel in Some Support Positions with 
Civilian Employees of the Department of Defense:

050-22 Have the Departments of Defense and Veterans Affairs Purchase 
Drugs Jointly:

Examples from Selected GAO Work:

Reduce the Number of Carrier Battle Group Expansions and Upgrades:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



Aircraft carrier battle groups are the centerpiece of the Navy's 
surface force and significantly influence the size, composition, and 
cost of the fleet. The annualized cost to acquire, operate, and support 
a single navy carrier battle group is about $2 billion (in fiscal year 
2000 dollars) and is likely to increase as older units are replaced and 
modernized. The Navy has several costly ongoing carrier-related 
programs: two nuclear-powered Nimitz-class carriers are under 
construction ($9.6 billion); a research and development program ($3.6 
billion) for a new nuclear-powered carrier design is underway; the 
second ship of the 10-ship Nimitz-class began its 3-year refueling 
complex overhaul in 2001 ($2.5 billion) and the third ship is scheduled 
to begin in 2005; AEGIS destroyers are being procured and the next 
generation of surface combatants is being designed; and carrier-based 
aircraft are expected to be replaced/upgraded by a new generation of 
strike fighters and mission support aircraft throughout the next 
decade.

Our analysis indicates that there are opportunities to use less costly 
options to satisfy many of the carrier battle groups' traditional roles 
without unreasonably increasing the risk that U.S. national security 
would be threatened. For example, one less costly option would be to 
rely more on battle groups centered around increasingly capable 
amphibious assault ships, surface combatants and Trident SSGNs for 
overseas presence and crisis response. In the past, CBO concluded that 
savings could be achieved if the Congress chose to retire one aircraft 
carrier, the CVN-70, and one active air wing in 2005.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report: Yes.[Footnote 8]

Related GAO Products:

Force Structure: Options for Enhancing the Navy's Attack Submarine 
Force. GAO-02-97. Washington, D.C.: November 14, 2001.

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 
Nuclear-Powered Carriers. GAO/NSIAD-98-1. Washington, D.C.: August 27, 
1998.

Aircraft Acquisition: Affordability of DOD's Investment Strategy. GAO/
NSIAD-97-88. Washington, D.C.: September 8, 1997.

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

Cruise Missiles: Proven Capability Should Affect Aircraft and Force 
Structure Requirements. GAO/NSIAD-95-116. Washington, D.C.: April 20, 
1995.

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

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

GAO Contact:

Henry L. Hinton, Jr., (202) 512-4300:

Limit Commitment to Production of the F/A-22 Fighter until Operational 
Testing Is Complete:

Primary agency: Department of Defense.

Account: Aircraft Procurement, Air Force (57-3010).

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



The fiscal year 2003 Defense Appropriations Act provided funds for low-
rate initial production of 20 F/A-22 aircraft, and DOD plans to procure 
22 aircraft in fiscal year 2004, 24 aircraft in fiscal year 2005, 26 
aircraft in fiscal year 2006, and begin full-rate production of 32 
aircraft in fiscal year 2007.

In several reports over the last 8 years, and as recently as March 
2003, GAO concluded that the Department of Defense (DOD) should 
minimize commitments to F/A-22 production until completion of 
operational testing, now planned for fiscal year 2004. Limiting initial 
production rates until completion of operational testing affords the 
opportunity to confirm the stability and soundness of a new system 
before committing large amounts of production funding to purchase 
aircraft. In the past, buying production articles before they could be 
adequately tested has resulted in buying systems that require 
modifications to achieve satisfactory performance. The F/A-22 
development program did not meet key performance, schedule, and cost 
goals in fiscal year 2002. We reported in March 2003 that the program 
continues to address technical problems that have limited the 
performance of test aircraft, including excessive movement or 
"buffeting" of the vertical tail fins, weakening of materials in the 
horizontal tail, and instability of avionics software. Air Force 
officials cannot predict when they will resolve the avionics problem.

Further, commercial and DOD best practices have shown that completing a 
system's testing prior to producing significant quantities will 
substantially lower the risk of costly fixes and retrofits. Conversely, 
lower production rates could increase average procurement cost over the 
life of the program and, if the Air Force maintains its plan to procure 
276 production aircraft, lead to difficulties in completing the 
production program within the production cost estimate.

Low-rate initial production of 20 aircraft has been approved by the 
Congress for fiscal year 2003. The Air Force subsequently determined 
that 21 aircraft could be purchased for the amount of funding provided 
in the fiscal year 2003 defense appropriations act. To avoid the 
acceleration of production until completion of operational testing, 
low-rate initial production could be maintained at 21 aircraft through 
fiscal year 2004. If the Congress were to limit funding to no more than 
21 aircraft in fiscal year 2004, and then proceed with the planned 
acceleration of production to 24 aircraft in fiscal year 2005, 26 
aircraft in 2006, and 32 aircraft in 2007, budget savings could be 
achieved.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No--the number of aircraft associated with this option has increased 
since the CBO estimates were published.

Related GAO Products:

Best Practices: Better Acquisition Outcomes Are Possible If DOD Can 
Apply Lessons from F/A-22 Program. GAO-03-645T, Washington, D.C.: April 
11, 2003.

Tactical Aircraft: Status of the F/A-22 Program. GAO-03-603T. 
Washington, D.C.: April 2, 2003.

Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22 
Production Rates While Development Risks Continue. GAO-03-431. 
Washington, D.C.: March 14, 2003.

Tactical Aircraft: DOD Needs to Better Inform Congress about 
Implications of Continuing F/A-22 Cost Growth. GAO-03-280. Washington, 
D.C.: February 28, 2003.

Tactical Aircraft: F/A-22 Delays Indicate Initial Production Rates 
Should Be Lower to Reduce Risks. GAO-02-298. Washington, D.C.: March 5, 
2002.

Tactical Aircraft: Continuing Difficulty Keeping F-22 Production Costs 
Within the Congressional Limitation. GAO-01-782. Washington, D.C.: July 
16, 2001.

Tactical Aircraft: F-22 Development and Testing Delays Indicate Need 
for Limit on Low-Rate Production. GAO-01-310. Washington, D.C.: March 
15, 2001.

Defense Acquisitions: Recent F-22 Production Cost Estimates Exceeded 
Congressional Limitation. GAO/NSIAD-00-178. Washington, D.C.: August 
15, 2000.

F-22 Aircraft: Development Cost Goal Achievable If Major Problems Are 
Avoided. GAO/NSIAD-00-68. Washington, D.C.: March 14, 2000.

Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals. 
GAO/T-NSIAD-00-58. Washington, D.C.: December 7, 1999.

Fiscal Year 2000 Budget: DOD's Procurement and RDT&E Programs. GAO/
NSIAD-99-233R. Washington, D.C.: September 23, 1999.

Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering 
and Manufacturing Development Programs. GAO/T-NSIAD-99-113. 
Washington, D.C.: March 17, 1999.

F-22 Aircraft: Issues in Achieving Engineering and Manufacturing 
Development Goals. GAO/NSIAD-99-55. Washington, D.C.: March 15, 1999.

1999 DOD Budget: DOD's Procurement and RDT&E Programs. GAO/NSIAD-98-
216R. Washington, D.C.: August 14, 1998.

F-22 Aircraft: Progress of the Engineering and Manufacturing 
Development Program. GAO/T-NSIAD-98-137. Washington, D.C.: March 25, 
1998.

F-22 Aircraft: Progress in Achieving Engineering and Manufacturing 
Development Goals. GAO/NSIAD-98-67. Washington, D.C.: March 10, 1998.

Aircraft Acquisition: Affordability of DOD's Investment Strategy. GAO/
NSIAD-97-88. Washington, D.C.: September 8, 1997.

F-22 Restructuring. GAO/NSIAD-97-100BR. Washington, D.C.: February 28, 
1997.

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

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

Tactical Aircraft: F-15 Replacement Is Premature As Currently Planned. 
GAO/NSIAD-94-118. Washington, D.C.: March 25, 1994.

GAO Contact:

Allen Li, (202) 512-4841:

Reassess the Need for the Selective Service System:

Primary agency: Department of Defense.

Spending type: Discretionary.

Budget subfunction: 054/Defense-related activities.



No one has been drafted since 1973 and the advent of the all-volunteer 
force. Since 1980, after the Soviet invasion of Afghanistan, males from 
ages of 18 through 26 have continued registering with the Selective 
Service System for a potential draft in the event of a national 
emergency. However, it would still require congressional action to 
actually draft anyone into the military. A return to a military draft 
seems unlikely. One reason for this is that any recruiting shortfalls 
represent only a minute percentage of the over 13 million males of 
draft age and it would be very difficult to ensure a fair and equitable 
draft to cover such shortfalls. The likelihood of the United States 
engaging in a manpower-intensive conflict in the future is very remote, 
so alternative approaches to a draft could be devised to fill personnel 
needs.

Supporters of continuing registration maintain that it is a relatively 
inexpensive insurance policy in case the government underestimates the 
threat level the U.S. military may face in a future contingency. 
Supporters also contend that registration maintains the link between 
the military and society-at-large and reinforces the notion that 
citizenship involves an obligation to the nation. They also maintain 
that it would ensure a fair and equitable draft should one need to be 
reinstated in the future. Nevertheless, it was estimated in 1997 that 
it would take a little more than a year and cost about $23 million (or 
about 1 year's appropriation) to bring the Selective Service System 
back from a "deep standby" status. In the past, CBO concluded that 
savings could be achieved if the Congress chose to terminate the 
Selective Service System.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report: 

Yes.

Related GAO Product:

Selective Service: Cost and Implications of Two Alternatives to the 
Present System. GAO/NSIAD-97-225. Washington, D.C.: September 10, 1997.

GAO Contact:

Henry L. Hinton, Jr., (202) 512-4300:

Consolidate Military Exchange Stores:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



Since 1968, studies by GAO, the Department of Defense (DOD), and others 
have concluded that financial benefits could be achieved through 
consolidation of military exchange stores into a single entity. The 
Office of the Secretary of Defense in a decision memorandum dated May 
9, 2003, decided that a single optimized Armed Service exchange system 
would best serve the department and exchange patrons. DOD has 
established a task force to produce, within 24 months, a plan to 
consolidate the three exchange systems (Army and Air Forces Exchange 
Service, Navy Exchange, and the Marine Corps Exchange) into one. The 
consolidation will affect management and "back room" operations of the 
exchanges. However, it will be transparent to the exchange workers and 
shoppers as sailors, for example, will still go to a Navy Exchange. The 
director of this effort believes it is too early in the process to 
estimate savings from the consolidation. While savings are expected to 
accrue to the exchange system and benefit Morale, Welfare and 
Recreation funding, it appears that any savings to appropriation 
accounts would be limited because the exchanges only indirectly receive 
benefits from appropriated funds. For example, they do not pay (1) rent 
for use of properties owned by the U.S. government, (2) the salaries of 
military personnel working for the exchanges, and (3) utilities 
associated with overseas exchanges. Significant savings to appropriated 
funds are likely to result only to the extent that reductions occur in 
military personnel and facilities. It is not clear at this point to 
what extent, if any, that will occur as part of this effort.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Defense Management: Industry Practices Can Help Military Exchanges 
Better Assure That Their Goods Are Not Made by Child or Forced Labor. 
GAO-02-256. Washington, D.C.: January 31, 2002.

Excess Equipment for Former Castle AFB (BXMART). GAO/NSIAD-98-94R. 
Washington, D.C.: February 27, 1998.

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

GAO Contact:

Barry W. Holman, (202) 512-8412:

Reorganize C-130 Reserve Squadrons:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



Currently, the majority of the Air Force's C-130 aircraft are in the 
reserve component--that is, assigned to the Air Force Reserve and the 
Air National Guard. Typically, reserve component wings are organized in 
one squadron of 8 C-130 aircraft. However, active Air Force wings 
flying the same aircraft are generally organized in two to three 
squadrons of 14 C-130 aircraft. Given this organizational approach, 
reserve component C-130 aircraft are widely dispersed throughout the 
continental United States, Hawaii, and Alaska.

The Air Force could reduce costs and meet peacetime and wartime 
commitments if it reorganized its reserve component C-130 aircraft into 
larger squadrons and wings at fewer locations. These savings would 
primarily result from fewer people being needed to operate these 
aircraft. For example, we reported in 1998 that redistributing 16 C-130 
aircraft from two 8-aircraft reserve wings to one 16-aircraft reserve 
wing could save about $11 million dollars annually. This reorganization 
could eliminate about 155 full-time positions and 245 part-time 
positions; the decrease in full-time positions is especially 
significant, since the savings associated with these positions 
represents about $8 million, or 75 percent of the total savings. Fewer 
people would be needed in areas such as wing headquarters, logistics, 
operations, and support group staffs as well as maintenance, support, 
and military police squadrons.[Footnote 9]

Several alternatives could be developed to redistribute existing 
reserve component C-130 aircraft into larger squadrons. Sufficient 
personnel could be recruited for the larger squadrons, and most 
locations' facilities could be inexpensively expanded to accommodate 
the unit sizes. Overall savings will depend on the organizational model 
selected, but each should produce savings to help make additional 
funding available for force modernization. The alternative that 
requires the most reorganizing would increase the squadron size to 16 
aircraft for the C-130 by redistributing aircraft from 13 C-130 
squadrons to other squadrons.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Air Force Aircraft: Reorganizing Mobility Aircraft Units Could Reduce 
Costs. GAO/NSIAD-98-55. Washington, D.C.: January 21, 1998.

GAO Contact:

Henry L. Hinton, Jr., (202) 512-4300:

Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



Throughout the 1960s and most of the 1970s, the Navy pursued a goal of 
creating a fleet of nuclear carrier task forces. The centerpiece of 
these task forces, the nuclear-powered aircraft carrier, would be 
escorted by nuclear-powered surface combatants and nuclear-powered 
submarines. In deciding to build nuclear-powered surface combatants, 
the Navy believed that the greatest benefit would be achieved when all 
the combatant ships in the task force were nuclear-powered. However, 
the Navy stopped building nuclear-powered surface combatants after 1975 
because of the high cost. The last nuclear-powered surface combatants 
were decommissioned in the late 1990s because they were not cost-
effective to operate and maintain.

Our analysis shows that both conventional and nuclear aircraft carriers 
have been effective in fulfilling U.S. forward presence, crisis 
response, and war-fighting requirements and share many characteristics 
and capabilities. Conventionally and nuclear-powered carriers both have 
the same standard air wing and train to the same mission requirements. 
Each type of carrier offers certain advantages. For example, 
conventionally powered carriers spend less time in extended maintenance 
and, as a result, can provide more forward presence coverage. By the 
same token, nuclear carriers can store larger quantities of aviation 
fuel and munitions and, as a result, are less dependent upon at-sea 
replenishment. There was little difference in the operational 
effectiveness of nuclear and conventional carriers in the 1991 Persian 
Gulf War.

The United States maintains a continuous presence in the Pacific region 
by homeporting a conventionally powered carrier in Japan. If the Navy 
switches to an all-nuclear carrier force, it would need to homeport a 
nuclear-powered carrier there to maintain the current level of 
worldwide overseas presence with a 12-carrier force. Homeporting a 
nuclear-powered carrier in Japan could prove difficult and costly 
because of the need for 
support facilities, infrastructure improvements, and additional 
personnel.[Footnote 10] The United States would need a larger carrier 
force if it wanted to maintain a similar level of presence in the 
Pacific region with nuclear-powered carriers homeported in the United 
States. During fiscal year 2003, a new nuclear-powered carrier replaced 
a retiring conventionally powered carrier, leaving a mix of 10 nuclear 
and 2 conventionally powered carriers.

The life-cycle costs--investment, operating and support, and 
inactivation and disposal costs--are greater for nuclear-powered 
carriers than conventionally powered carriers. Our analysis, based on 
historical and projected costs, shows that life-cycle costs for 
conventionally powered and nuclear-powered carriers (for a notional 50-
year service life) are estimated at $14.1 billion and $22.2 billion (in 
fiscal year 1997 dollars), respectively.

In assessing design concepts for the next class of aircraft carriers--
and consistent with the Navy's objectives to reduce life-cycle costs by 
20 percent--our analysis indicates that national security requirements 
can be met at less cost with conventionally powered carriers rather 
than nuclear-powered carriers. In the past, CBO concluded that savings 
could be achieved if the Congress chose to acquire a conventionally 
powered carrier in 2007 instead of a nuclear-powered carrier.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 
Nuclear-Powered Carriers. GAO/NSIAD-98-1. Washington, D.C.: August 27, 
1998.

Nuclear Waste: Impediments to Completing the Yucca Mountain Repository 
Project. GAO/RCED-97-30. Washington, D.C.: January 17, 1997.

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

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

GAO Contact:

Henry L. Hinton, Jr., (202) 512-4300:

Improve the Administration of Defense Health Care:

Primary agency: Department of Defense.

Account: Defense Health Program (97-0130).

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



Each of the three military departments (Army, Navy, and Air Force) 
operates its own health care system, providing medical care to active 
duty personnel, their dependents, retirees, and survivors of military 
personnel. To a large extent, these separate, costly systems perform 
many of the same administrative, management, and operational functions.

Numerous studies since 1949, with the most recent completed in 2001, 
have reviewed whether a central entity should be created within the 
Department of Defense (DOD) for the centralized management and 
administration of the three systems. Most of these studies encouraged 
some form of organizational consolidation. A Defense health agency 
would consolidate the three military medical systems into one centrally 
managed system, eliminating duplicate administrative, management, and 
operational functions. No specific budget estimate can be developed 
until numerous variables, such as the extent of consolidation and the 
impact on command and support structures, are determined.

Although in the past CBO agreed that improving the administration of 
Defense health care had the potential to create savings, it could not 
develop a savings estimate without a specific legislative proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Defense Health Care: TRICARE Resource Sharing Program Failing to 
Achieve Expected Savings. GAO/HEHS-97-130. Washington, D.C.: August 22, 
1997.

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

TRICARE Administrative Prices in the Northwest Region May Be Too High. 
GAO/HEHS-97-149R. Washington, D.C.: June 24, 1997.

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

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

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

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

GAO Contact:

Marjorie E. Kanof, (202) 512-7101:

Seek Additional Opportunities for VA and DOD to Increase Joint 
Activities to Enhance Services to Beneficiaries and Reduce Costs:

Primary agencies; Department of Defense; Department of Veterans 
Affairs.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.



Together, the Department of Veterans Affairs (VA) and the Department of 
Defense (DOD) provide health care services to more than 12 million 
beneficiaries at a cost of about $34 billion annually. To promote more 
cost-effective use of these health care resources and more efficient 
delivery of care, in 1982 the Congress passed the VA and DOD Health 
Resources Sharing and Emergency Operations Act (Sharing Act). 
Specifically, the act authorizes VA medical centers (VAMC) and military 
treatment facilities (MTF) to become partners and enter into sharing 
agreements to buy, sell, and barter medical and support services.

VA and DOD continue to be hampered by long-standing barriers, including 
inconsistent reimbursement and budgeting policies and burdensome 
agreement approval processes. These long-standing barriers, along with 
changes in how VA and DOD provide medical care, present challenges for 
future collaboration and cost efficiencies. Although VA and DOD have 
taken some actions to address these barriers and seek more 
opportunities to maximize resources, challenges still remain. In a 
February 2002 staff report to the House Committee on Veterans' Affairs, 
new opportunities for enhancing sharing authority between the VA and 
DOD were discussed and legislation recommended to achieve more VA and 
DOD resource sharing. Further, in May 2003, the President's Task Force 
to Improve Health Care Delivery For Our Nation's Veterans submitted its 
final report, which includes a series of recommendations to remove 
barriers and improve collaboration between VA and DOD. It is too early 
to determine what impact the findings and recommendations of the 
Presidential Task Force will have on joint activities between VA and 
DOD.

VA and DOD sharing partners generally believe the sharing program 
yielded benefits in both dollar savings and qualitative gains. 
Recognizing joint purchasing as an area where efficiencies could be 
achieved, in June 1999, VA and DOD signed a memorandum of agreement to 
combine their buying power and eliminate contracting redundancies for 
certain items, including pharmaceuticals and medical and surgical 
supplies. In 2001, we reported that VA and DOD saved over $170 million 
annually by jointly procuring pharmaceuticals. However, as we testified 
in June 2002, VA and DOD had not awarded joint contracts for medical 
and surgical supplies, as envisioned by their memorandum of agreement. 
In fiscal year 2001, VA spent about $500 million and DOD spent about 
$240 million for medical and surgical supplies. Our analysis of about 
100 identical medical and surgical items that VA and DOD now contract 
for separately indicates that jointly purchasing these items will yield 
additional savings, although we were unable to quantify the full 
potential. For example, in fiscal year 2001, if VA had collaborated 
with DOD and obtained a discounted price from one of DOD's regions for 
needle and syringe disposal containers, VA could have saved tens of 
thousands of dollars on this one item alone. Similarly, DOD could have 
realized additional savings if it had obtained VA's lower national 
contract price on one type of intravenous tubing.

While it is difficult to quantify the potential savings that joint 
contracting and other shared approaches could yield, as we reported in 
2002, these savings could be meaningful given that VA's and DOD's 
separate approaches to procuring surgical and medical supplies have 
yielded an estimated $19 million annually in savings. However, much 
needs to be done to take advantage of additional savings opportunities. 
At this point, neither department has accurate, reliable, and 
comprehensive procurement information--a basic requirement for 
identifying potential medical and surgical items to standardize. 
Furthermore, because DOD has opted to follow a regional rather than a 
national approach to standardization, opportunities for national joint 
procurement will be more difficult to achieve.

Other types of potential sharing exist to maximize each system's 
capacities and result in the most effective delivery of health care. 
For example, having DOD use VA's consolidated mail outpatient 
pharmacies could yield additional significant savings. VA and DOD need 
to continue to work together to determine an appropriate course of 
action to ensure that resource-sharing opportunities are realized to 
the maximum extent possible.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

VA and Defense Health Care: Potential Exists for Savings through Joint 
Purchasing of Medical and Surgical Supplies. GAO-02-872T. Washington, 
D.C.: June 26, 2002.

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 
Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.: May 25, 
2001.

DOD and VA Health Care: Jointly Buying and Mailing Out Pharmaceuticals 
Could Save Millions of Dollars. GAO/T-HEHS-00-121. Washington, D.C.: 
May 25, 2000.

VA and Defense Health Care: Rethinking of Resource Sharing Strategies 
Is Needed. GAO/T-HEHS-00-117. Washington, D.C.: May 17, 2000.

VA and Defense Health Care: Evolving Systems Require Rethinking of 
Resource Sharing Strategies. GAO/HEHS-00-52. Washington, D.C.: May 17, 
2000.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

Continue Defense Infrastructure Reform:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



Although the Department of Defense (DOD) has made significant 
reductions in defense force structure and military spending since the 
end of the Cold War, it has not achieved commensurate reductions in 
infrastructure[Footnote 11] costs. We previously reported that the 
proportion of planned infrastructure funding in DOD's budgets would 
remain relatively constant at about 60 percent through 2005. DOD 
recognized that it must make better use of its scarce resources and 
announced a major reform effort--the Defense Reform Initiative (DRI). 
This effort began in November 1997. A major thrust of the DRI was to 
reduce unneeded infrastructure, primarily through a number of 
initiatives aimed at substantially streamlining and improving the 
economy and efficiency of DOD's business operations and support 
activities. The resulting savings were expected to help DOD modernize 
its war fighting forces.

While the administration has not continued the formal DRI program, it 
has recognized the need to continue reform efforts. Secretary of 
Defense Rumsfeld announced on June 18, 2001, the creation of two new 
management committees to recommend ways to improve DOD's business 
activities and transform the U.S. military into a 21st century fighting 
force. The Senior Executive Committee, which includes the Secretary and 
deputy secretaries of Defense and the service secretaries, is expected 
to meet monthly and use its members' unique qualifications as business 
leaders to recommend changes to DOD's business practices. The second 
committee, the Business Initiative Council, also includes the service 
secretaries but is chaired by the Under Secretary of Defense for 
Acquisition, Technology, and Logistics. Its mission is to recommend 
good business practices and achieve cost savings that will help pay for 
other DOD priorities. Although the agendas of these committees are not 
clear at this time, their members have endorsed several initiatives 
that were part of the DRI program (e.g., family housing and utilities 
privatization) and indicated that they would consider 25 other areas 
that impact readiness and quality of life. They also emphasized that 
the committees do not intend to conduct another study. Rather, they 
will execute those initiatives or ideas that have already been 
researched and offer opportunities to fundamentally change DOD's 
business practices and reduce infrastructure costs.

Despite the change in the management structure, a number of old 
initiatives continue. However, progress in achieving the goals is 
mixed, as the following illustrate.

* A major efficiency initiative is to subject 226,000 government 
positions to public-private competition using OMB Circular A-76 or to 
subject those positions to alternative sourcing such as partnering or 
divestiture. Competitive sourcing is one of the five governmentwide 
initiatives in the President's Management Agenda. Under this 
initiative, OMB has directed agencies to compete 15 percent of 
positions deemed commercial in their fiscal year 2000 Federal 
Activities Inventory Reform Act inventories by the end of fiscal year 
2003, with the ultimate goal of at least 50 percent through fiscal year 
2008. DOD expects that they will meet these goals predominately through 
A-76 competitions. DOD has not attached savings targets to these goals, 
although it has in the past. Nevertheless, we have noted that these 
efforts can produce significant savings regardless of whether 
governmental organizations or private contractors win the competitions. 
However, we have raised questions about the precision of DOD's past 
savings estimates and the likelihood that the savings will not be 
realized as quickly as DOD projected.

* DOD has initiated a program to demolish and dispose of over 80 
million square feet of excess buildings on military facilities. The 
military services were each given a demolition goal and expect to meet 
their goals and complete the program by 2003.

* Closing unneeded research development test and evaluation (RDT&E) 
facilities has proved to be more difficult. DOD's RDT&E infrastructure 
consists of 131 facilities that develop and test military technologies. 
Over the years, DOD has tried to reduce the size of its RDT&E 
infrastructure. In addition, DOD reduced its RTD&E personnel by about 
40,000 between fiscal years 1990 and 1997, saving an estimated $2.4 
billion annually in personnel costs. Despite these reductions, the 
RDT&E infrastructure continues to have excess capacity. DOD estimates 
that excess capacity, in terms of square footage, is between 20 percent 
and 60 percent, depending on the military service and the method of 
estimation used. Moreover, DOD has stated that estimated personnel 
reductions are somewhat inflated because many government employees were 
replaced by on-site contractor employees who are conducting essentially 
the same tasks as government employees.

* Privatizing utilities has also proved to be more complicated and 
costly than anticipated and, consequently, progress has been very 
limited. The department established the goal of privatizing utility 
systems on military bases by September 30, 2003. However, as of March 
2003, almost 6 years after the goal was established, DOD had privatized 
only 38 of the approximately 1,700 systems being considered for 
privatization under existing legislation. The effort has proven to be 
more complex, time-consuming, and expensive than originally 
anticipated. Although exact costs are not known, DOD estimates that it 
could cost hundreds of millions of dollars to complete required 
feasibility and environmental studies and upgrade the facilities to 
make them attractive to private investors. Additionally, instead of 
realizing significant savings, as once envisioned, the program might 
instead increase costs to the department's operations and maintenance 
budgets to pay for privatized utility services. By not privatizing, 
however, DOD faces large capital costs (possibly in the billions) to 
repair the utility systems and ensure they continue to operate at an 
acceptable level. DOD sees privatization as a way to use private 
resources to finance these needed capital repairs and to get out of a 
business that is clearly not central to its mission.

* Privatizing family housing through private sector financing, 
ownership, operation, and maintenance has also experienced delays. 
Since the program began, the department has awarded a small number of 
contracts. DOD has not implemented a departmentwide standard process 
for determining housing requirements. DOD and the services have worked 
to develop the framework for this process, but technical concerns--such 
as standards for affordable housing and commuting distance--have 
stalled its adoption. Also, DOD's life-cycle cost analyses for housing 
privatization have been incomplete and inaccurate, and have overstated 
savings. Moreover, increasing military members' housing allowance to 
secure private sector housing may be a better alternative to more 
quickly increase the availability of quality housing to military 
members.

The administration also continues to emphasize the need for at least 
one additional base realignment and closure round in 2005 to reduce 
unneeded infrastructure and free up funds for readiness, weapon 
modernization, and other needs.[Footnote 12] DOD projects that 
additional base closure rounds could save several billion dollars 
annually once realignment and closure actions are completed and the 
costs of implementing the actions are offset by savings. While we have 
previously raised questions about the precision of DOD's savings 
estimate, our work has nevertheless shown that the department will 
realize net annual recurring savings once initial investment costs from 
implementing realignment and closure decisions have been offset.

Undoubtedly, opportunities remain for DOD to reduce its infrastructure 
costs through additional strategic sourcing, streamlining, 
consolidating, and possibly privatizing. However, DOD needs a plan and 
investment strategy to maximize the results of these efforts. In 
particular, a comprehensive integrated consolidation and downsizing 
plan that sets goals, identifies specific initiatives, and sets 
priorities across DOD is needed to guide and sustain reform efforts. 
Ongoing DRI initiatives from the previous administration as well as 
initiatives involving the 25 business areas being evaluated by the 
Business Initiatives Council need to be addressed by the plan. Savings 
for this option cannot be fully estimated until such a plan is 
developed.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Defense Management: New Management Reform Program Still Evolving. GAO-
03-58. Washington, D.C.: December 12, 2002.

Major Management Challenges and Program Risks, Department of Defense. 
GAO-01-244. Washington, D.C.: January 2001.

Future Years Defense Program: Risks in Operation and Maintenance and 
Procurement Programs. GAO-01-33. Washington, D.C.: October 5, 2000.

Defense Infrastructure: Improved Performance Measures Would Enhance 
Defense Reform Initiative. GAO/NSIAD-99-169. Washington, D.C.: August 
4, 1999.

Defense Reform Initiative: Organization, Status and Challenges. GAO/
NSIAD-99-87. Washington, D.C.: April 21, 1999.

Defense Reform Initiative: Progress, Opportunities, and Challenges. 
GAO/T-NSIAD-99-95. Washington, D.C.: March 2, 1999.

Force Structure: A-76 Not Applicable to Air Force 38th Engineering 
Installation Wing Plan. GAO/NSIAD-99-73. Washington, D.C.: February 26, 
1999.

Major Management Challenges and Program Risks: Department of Defense. 
GAO/OCG-99-4. Washington, D.C.: January 1999.

Army Industrial Facilities: Workforce Requirements and Related Issues 
Affecting Depots and Arsenals. GAO/NSIAD-99-31. Washington, D.C.: 
November 30, 1998.

Military Bases: Review of DOD's 1998 Report on Base Realignment and 
Closure. GAO/NSIAD-99-17. Washington, D.C.: November 13, 1998.

Defense Infrastructure: Challenges Facing DOD in Implementing Reform 
Initiatives. GAO/T-NSIAD-98-115. Washington, D.C.: March 18, 1998.

Best Practices: Elements Critical to Successfully Reducing Unneeded 
RDT&E Infrastructure. GAO/NSIAD/RCED-98-23. Washington, D.C.: January 
8, 1998.

Future Years Defense Program: DOD's 1998 Plan Has Substantial Risk in 
Execution. GAO/NSIAD-98-26. Washington, D.C.: October 23, 1997.

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

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

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

Defense Acquisition Organizations: Linking Workforce Reductions With 
Better Program Outcomes. GAO/T-NSIAD-97-140. Washington, D.C.: April 8, 
1997.

Defense Budget: Observations on Infrastructure Activities. GAO/NSIAD-
97-127BR. Washington, D.C.: April 4, 1997.

GAO Contact:

Henry L. Hinton, Jr., (202) 512-4300:

Reduce Funding for Renovation and Replacement of Military Housing until 
DOD Completes Housing Assessment:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



One of the Department of Defense's (DOD's) most pressing problems is 
its outsized and decaying infrastructure, and this problem is prominent 
in the family housing program. By DOD's March 2002 estimates, about 60 
percent of military housing is inadequate and would require as much as 
$16 billion to renovate or replace using traditional military 
construction. Efforts to use private contractors to build and operate 
housing are off to a slow start and may require a long-term (50 years 
or more) commitment from the government. DOD's policy is to rely on the 
private sector first for housing, but military members that receive a 
cash allowance to live in private sector housing must often pay out-of-
pocket costs also. These additional costs have been a significant 
disincentive for living in civilian housing. However, in 2001, an 
initiative started to eliminate the service members' out-of-pocket 
costs for living in civilian housing by fiscal year 2005. While the 
full impact of this initiative on military housing requirements is not 
known, it will provide added incentive for service members to move into 
civilian housing, thereby reducing the potential need for DOD 
constructed housing.

Despite efforts to improve the quality and availability of housing for 
military families, DOD has not implemented a departmentwide standard 
process for determining military housing requirements. A requirements-
setting process that first considers the housing available around 
installations would likely decrease the amount of needed military 
housing. Without an accurate requirements-setting process based on the 
availability of private sector housing, DOD will continue to have 
inadequate information with which to make decisions about where it 
should renovate, build, or seek to privatize military housing. 
Increasing the housing allowance heightens the urgency for a consistent 
process to determine military housing requirements because it is 
expected to increase demand for civilian housing, and lessen the demand 
for military housing. Considerable evidence suggests that it is less 
expensive to provide allowances for military personnel to live within 
the civilian market than to provide military housing. While overall 
program costs are increasing significantly over the short term to cover 
increased allowances, DOD could save money in the longer term by 
encouraging more personnel to move into civilian housing. In the 
meantime, without an accurate determination of military housing needs, 
the department may spend millions of dollars to construct, renovate, or 
privatize housing that in some locations is unnecessary.

In order to better ensure that DOD's renovation and replacement of 
military housing is needed, the Congress may wish to reduce spending on 
noncritical housing construction and renovation until DOD completes a 
full needs assessment to determine if less expensive alternatives exist 
in the private market. Such a needs assessment would better enable DOD 
to target its limited financial resources to where military housing 
needs are most immediate. In the past, CBO could not estimate the 
savings for this option unless the funds needed for noncritical 
construction and renovation projects were identified. Although CBO 
agreed some savings would result from this option, it estimated that 
some of those savings would be offset in future years by additional 
spending for projects that are delayed but ultimately funded.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Military Housing: DOD Needs to Address Long-Standing Requirements 
Determination Problems. GAO-01-889. Washington, D.C.: August 3, 2001.

GAO Contact:

Barry W. Holman, (202) 512-8412:

Improve DOD Procurement Practices Regarding Canceling Orders:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



As of September 30, 2001, Department of Defense (DOD) records showed 
that the department had inventory on order valued at about $1.6 billion 
that would not have been ordered based on current requirements. We have 
issued several reports in the past few years highlighting weaknesses in 
the department's requirements determination processes for materials and 
its procedures for canceling orders for items that are no longer 
needed. For example, we reported in May 2001 that the Army was unable 
to accurately identify its requirements for war reserve spare parts 
because (1) it was not using the best available data concerning the 
rate at which spares would be consumed during wartime and (2) a 
potential mismatch existed between how the Army determined spare parts 
requirements for war reserves and how the Army plans to repair 
equipment on the battlefield.

Additional budgetary savings in this area can be anticipated because 
the department has a number of initiatives underway to better define 
spare parts requirements and to more efficiently cancel orders for 
items it determines are no longer needed.

The Congress may wish to continue to monitor the DOD's annual reports 
on the value of its unneeded inventory in order to ensure that the 
value continues to decrease. In addition, the Congress could consider 
requiring that the department's logistics transformation initiatives 
include (1) enhancements to its models for computing inventory 
requirements to ensure greater accuracy and (2) more efficient 
procedures for canceling orders it determines are no longer needed.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Product:

Major Management Challenges and Program Risks: Department of Defense. 
GAO-03-98. Washington, D.C.: January 2003.

GAO Contact:

William Solis, (202) 512-8365:

Reduce Planned Military Construction Costs for Barracks:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



In January 2003, GAO reported that over the next few years the military 
services plan to eliminate barracks with gang latrines and provide 
private sleeping rooms (to meet the Department of Defense's (DOD) 1+1 
barracks design standard) for all permanent party service members. The 
Navy has an additional goal to provide barracks for sailors who 
currently live aboard ships when in homeport. To implement these goals, 
the services plan to spend about $6 billion over the next 7 years to 
construct new barracks.

GAO reported that the DOD Housing Management manual, which provides 
policy guidance about who should live in barracks, appears to be out of 
date and is under revision, and the military services have adopted 
different barracks occupancy requirements. The rationale for the 
services' requirements, and in particular for the requirement that more 
experienced junior service members live in barracks, appears to be a 
matter of military judgment and preference with less emphasis on 
systematic, objective analyses. Requiring more personnel (more pay 
grades) to live in barracks than is justified results in increased 
barracks program and construction costs and may be inconsistent with 
DOD's policy to maximize reliance on civilian housing to the extent 
this policy is applied to barracks. There are also quality-of-life 
implications because most junior service members prefer to live off 
base. GAO reported that the timely resolution of these matters could 
potentially affect future budget decisions by reducing the number of 
new barracks to construct.

GAO recommended that DOD revise its barracks occupancy guidance based, 
at least in part, on the results of objective, systematic analyses to 
determine who should be required to live in barracks on base or 
permitted to reside off base and seek to ensure greater consistency in 
requirements among the military services to the extent practical. DOD 
agreed, in principle, to base the department's barracks policy revision 
and the services' barracks occupancy requirements--at least in part--on 
the results of systematic analyses, but left unclear the extent to 
which it is likely to do so. GAO continues to believe that, given the 
variations noted in the report, the services requirements 
determinations should be supported with more objective analyses to the 
extent practical. If the Congress required DOD to revise its barracks 
occupancy guidance according to GAO recommendations, then future 
construction and operation costs for barracks could be significantly 
lowered.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example.

Related GAO Product:

Military Housing: Opportunity for Reducing Planned Military 
Construction Costs for Barracks. GAO-03-257R. Washington, D.C.: January 
7, 2003.

GAO Contact:

Barry W. Holman, (202) 512-8412:

Take a Strategic Approach to Department of Defense Acquisition of 
Services:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.



Over the last decade, much of the Department of Defense's (DOD) 
management control of the billions it has spent in procuring services 
has been inefficient and ineffective. Today, DOD spending on a wide 
range of services--such as information technology, administrative 
support, and research and development--is approaching $100 billion 
annually. All too often, our work--and the work of the DOD Inspector 
General--has found that DOD organizations have not clearly defined 
service contract requirements nor adequately pursued competition. Award 
of these contracts has been widely dispersed, and DOD or the military 
services have had limited control on a servicewide or DOD-wide basis. 
Recent legislation requires DOD to improve procurement practices to 
achieve savings and other benefits.

Like the federal government, private companies increasingly rely on 
services and also struggle with methods to better manage their 
purchasing. To reduce costs and more effectively procure services, many 
companies have adopted a strategic approach--centralizing and 
reorganizing their operations to get the best value for the company as 
a whole--that is based on the implementation of a variety of best 
practices. These range from learning much more about their service 
spending to buying services on an enterprisewide rather than business 
unit basis.

A strategic approach pulls together participants from a variety of 
places within an organization who recommend changes that can constrain 
rising acquisition costs. These changes can include analyzing spending 
to identify opportunities to leverage their buying power; instituting 
companywide purchasing of specific services; reshaping a decentralized 
process to follow a more center-led, strategic approach; and increasing 
the involvement of the enterprise procurement organization, including 
working across units to help identify service needs, select providers, 
and manage contractor performance.

Studies have reported significant cost savings in the private sector, 
with some companies achieving reported savings of 10 to 20 percent of 
their total procurement costs through the use of a strategic approach 
to buying goods and services. A recent Purchasing Magazine poll finds 
that companies employing procurement best practices--including 
employing effective spend analysis processes--are routinely delivering 
a 3 percent to 7 percent savings on their procurement costs.

One option for achieving significant savings is for DOD to adopt the 
very same strategic approach and practices employed by the private 
sector. In response to recent legislation requiring management 
improvements in service contracts, DOD is beginning a pilot to analyze 
spending data from a DOD-wide perspective. The pilot is expected to 
identify 5 to 10 categories of smaller service requirements that can be 
consolidated for large-scale savings opportunities and other 
efficiencies over the current decentralized contracting environment. 
Although moving in the right direction, DOD has not yet adopted best 
practices to the same extent as the companies we studied. Whether DOD 
can adopt these practices depends on its ability to make long-term 
management changes necessary to implement a more strategic approach to 
service contracts. DOD cites a number of challenges that may hamper 
adoption of these practices. These include the size and complexity of 
DOD's service needs, the fragmentation of spending data across multiple 
financial and procurement systems, and socioeconomic goals for 
contracting with small businesses that may constrain its ability to 
consolidate smaller requirements into larger contracts.

While seemingly daunting, each of the challenges to be faced by DOD has 
been faced and overcome by private sector companies. Given that DOD's 
spending on service contracts is approaching $100 billion annually, the 
potential benefits of overcoming the challenges and using best 
practices to establish an effective spending analysis program are 
significant--achieving total spending perspective across DOD; making 
the business case for collaboration in joint purchasing rather than 
fragmented purchasing; organizing an effective management structure to 
assign accountability and exercise oversight; and identifying 
potentially billions of dollars in procurement savings opportunities by 
leveraging buying power.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Products:

Best Practices: Improved Knowledge of DOD Service Contracts Could 
Reveal Significant Savings. GAO-03-661. Washington, D.C.: June 10, 
2003.

Sourcing and Acquisition: Challenges Facing the Department of Defense. 
GAO-03-574T. Washington, D.C.: March 19, 2003.

Major Management Challenges and Program Risks: Department of Defense. 
GAO-03-98. Washington, D.C.: January 2003.

Best Practices: Taking a Strategic Approach Could Improve DOD's 
Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 
2002.

Contract Management: Trends and Challenges in Acquiring Services. GAO-
01-753T. Washington, D.C.: May 22, 2001.

GAO Contact:

David E. Cooper, (617) 788-0555:

Address Overpayments to Defense Contractors:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.



Ensuring prompt, proper, and accurate payments is a key element of a 
sound contract management process. Yet, for the Department of Defense 
(DOD), completing such basic tasks has long been a challenge. GAO first 
reported problems with contractor overpayments in 1994. That report, 
and those issued subsequently, noted that contractors were refunding 
hundreds of millions of dollars to DOD each year, for a total of about 
$6.7 billion between fiscal year 1994 and 2001. GAO also found that a 
substantial portion of overpayments was not repaid promptly--in some 
cases for years. As an example, in a 1999 review of 13 contractors, GAO 
found that it took about a year, on average, before overpayments of 
$56.2 million were refunded to DOD. The time taken for repayment ranged 
from 2 weeks to nearly 6 years.

While DOD has a number of initiatives underway to address its payment 
problems, it will be some time before the problems are resolved. Until 
then, DOD contractors will continue receiving a sizable amount of cash 
beyond what is intended to finance and pay for the goods and services 
DOD is purchasing. In effect, such overpayments provide an interes-free 
loan to contractors.

In December 2001, in response to GAO's work, the Federal Acquisition 
Regulation (FAR) was revised to require contractors receiving 
overpayments on invoice payments to notify the government and seek 
instructions for disposing of the overpayment. However, the revision 
does not address overpayments stemming from financing payments[Footnote 
13]--although GAO found that most overpayments involve contracts with 
financing payments. In June 2003, the Civilian Agency Acquisition 
Council and the Defense Acquisition Regulations Council were proposing 
to require contractors to notify the government when they received 
overpayments stemming from either invoice or financing payments on 
commercial item and non-commercial item contracts.

While we have recommended that the Secretary of Defense require 
contractors to promptly notify the government of overpayments made to 
them, given the extent of the overpayment problem, one option is for 
the Congress to require contractors to notify the government of 
overpayments when they become aware of them, for all types of 
contracts, and to return the money promptly upon becoming aware of the 
overpayments. Additional steps could be taken to create incentives for 
contractors to refund money they have not earned. For example, a 
requirement could be established for contractors to pay interest on 
overpayments at the discretion of DOD on a facts and circumstances 
basis if they do not return the money promptly.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. However, CBO indicated it could probably 
make an estimate for this example.

Related GAO Products:

Major Management Challenges and Program Risks: Department of Defense. 
GAO-03-98. Washington, D.C.: January 2003.

Financial Management: Coordinated Approach Needed to Address the 
Government's Improper Payments Problems. GAO-02-749. Washington, D.C.: 
August 9, 2002.

DOD Contract Management: Overpayments Continue and Management and 
Accounting Issues Remain. GAO-02-635. Washington, D.C.: May 30, 2002.

Department of Defense: Status of Achieving Outcomes and Addressing 
Major Management Challenges. GAO-01-783. Washington, D.C.: June 25, 
2001.

Contract Management: Excess Payments and Underpayments Continue to Be a 
Problem at DOD. GAO-01-309. Washington, D.C.: February 22, 2001.

DOD Contract Management: Greater Attention Needed to Identify and 
Recover Overpayments. GAO/NSIAD-99-131. Washington, D.C.: July 19, 
1999.

Recovery Auditing: Reducing Overpayments, Achieving Accountability, 
and the Government Waste Corrections Act of 1999. GAO/T-NSIAD-99-213. 
Washington, D.C.: June 29, 1999.

DOD Procurement: Millions in Contract Payment Errors Not Detected and 
Resolved Promptly. GAO/NSIAD-96-8. Washington, D.C.: October 6, 1995.

GAO Contact:

David E. Cooper, (617) 788-0555:

CBO Options Where Related GAO Work Is Identified:

[Footnote 14]

050-05 Cancel the Army's Comanche Helicopter Program:

Related GAO Product:

Defense Acquisition: Comanche Program Objectives Need to Be Revised to 
More Achievable Levels. GAO-01-450. Washington, D.C.: June 7, 2001.

GAO Contact:

William Graveline, (256) 922-7514:

050-10 Reduce Purchases of the Air Force's F/A-22 Fighter:

Related GAO Products:

Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22 
Production Rates While Development Risks Continue. GAO-03-431. 
Washington, D.C.: March 14, 2003.

Tactical Aircraft: DOD Needs to Better Inform Congress about 
Implications of Continuing F/A-22 Cost Growth. GAO-03-280. Washington, 
D.C.: February 28, 2003.

GAO Contact:

Michael Hazard, (937) 258-7917:

050-11 Slow the Schedule of the F-35 Joint Strike Fighter Program:

Related GAO Product:

Joint Strike Fighter Acquisition: Mature Critical Technologies Needed 
to Reduce Risk. GAO-02-39. Washington, D.C.: October 19, 2001.

GAO Contact:

Brian Mullins, (202) 512-4384:

050-19 Replace Military Personnel in Some Support Positions with 
Civilian Employees of the Department of Defense:

Related GAO Product:

DOD Competitive Sourcing: Some Progress, but Continuing Challenges 
Remain in Meeting Program Goals. GAO/NSIAD-00-106. Washington, D.C.: 
August 8, 2000.

GAO Contact:

Barry W. Holman, (202) 512-5581:

050-22 Have the Departments of Defense and Veterans Affairs Purchase 
Drugs Jointly:

Related GAO Products:

VA and DOD Health Care: Factors Contributing to Reduced Pharmacy Costs 
and Continuing Challenges. GAO-02-969T. Washington, D.C.: July 22, 
2002.

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 
Buying and Mailing Out Drugs. GAO-01-588. Washington, D.C.: May 25, 
2001.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

150 International Affairs:

Examples from Selected GAO Work:

Eliminate U.S. Contributions to Administrative Costs in Rogue States:

Streamline U.S. Overseas Presence:

CBO Options Where Related GAO Work Is Identified:

150-01 Eliminate the Export-Import Bank, the Overseas Private 
Investment Corporation, and the Trade and Development Agency:

150-02 End the United States' Capital Subscriptions to the European 
Bank for Reconstruction and Development:

Examples from Selected GAO Work:

Eliminate U.S. Contributions to Administrative Costs in Rogue States:

Primary agency: Department of State.

Account: International Organizations and Programs (19-1005).

Spending type: Discretionary.

Budget subfunction: 151/International development and humanitarian 
assistance.



International organizations, such as the United Nations Development 
Program, fund projects in countries that are legislatively prohibited 
from receiving U.S. funding under section 307 of the Foreign Assistance 
Act of 1961, as amended. The list of countries varies over time but has 
included Afghanistan, Burma, Cuba, Iran, Iraq, Libya, Serbia, and 
Syria. To comply with the legislation, the Department of State 
withholds from its voluntary contributions to international 
organizations the U.S. share of funding for projects in these 
countries.

However, the department does not withhold administrative expenditures 
associated with the operation of field offices in these countries. 
Consequently, a portion of the U.S. contribution still goes to projects 
in states prohibited from receiving U.S. funds. We did not attempt to 
calculate the total amount that the United States contributes to all 
international organizations for administrative expenses in rogue 
states. However, in 1998 GAO estimated that the amount for one United 
Nations organization, the United Nations Development Program, was about 
$600,000.

The Department of State has indicated that it would not, as a matter of 
policy, withhold U.S. contributions to United Nations organizations for 
administrative expenses in these countries. The department believes the 
legislative restriction invites politicization and contradicts the 
principle of universality for participating in United Nations 
organizations.

Savings may be achieved if the Department of State were to include 
field office administrative costs when calculating the amount of U.S. 
withholdings for all international organizations that are subject to 
section 307 of the Foreign Assistance Act of 1961.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Multilateral Organizations: U.S. Contributions to International 
Organizations for Fiscal Years 1993-95. GAO/NSIAD-97-42. Washington, 
D.C.: May 1, 1997.

International Organizations: U.S. Participation in the United Nations 
Development Program. GAO/NSIAD-97-8. Washington, D.C.: April 17, 1997.

GAO Contact:

Susan S. Westin, (202) 512-4128:

Streamline U.S. Overseas Presence:

Primary agency: Department of State.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 153/Conduct of foreign affairs.



The U.S. overseas presence at more than 260 overseas posts consists of 
more than 90,000 people (including dependents). The workforce has been 
estimated at as many as 60,000 personnel representing over 30 U.S. 
agencies. The Department of State employs about a third of the U.S. 
workforce overseas and its embassies and consulates have become bases 
for the operations of agencies involved in hundreds of activities. U.S. 
direct hire staffing levels have increased over the years, most notably 
in the nonforeign affairs agencies.

The costs of overseas operations and related security requirements are 
directly linked to the size of the overseas workforce. By reducing the 
number of employees at posts where U.S. interests are lower priority, 
consolidating functions, establishing regional centers, or relocating 
personnel to the United States, the costs of overseas operations could 
be significantly reduced. The average annual cost of an American at a 
post overseas varies by location, but can cost several hundred thousand 
dollars, not including salary. The costs to station an American 
overseas have been estimated to be about two times as much as for 
Washington-based staff. In addition, reductions in the number of 
personnel overseas could substantially enhance the safety of Americans 
and other U.S. employees, reduce the costly security demands placed on 
the State Department, and help control the costs of new embassy 
construction estimated to cost as much as $16 billion.

Since the mid-1990s, we have encouraged actions to reevaluate overseas 
staffing requirements and levels. In late 1999, the Overseas Presence 
Advisory Panel concluded that substantial monetary savings and 
reductions in security vulnerabilities could be achieved through 
streamlining posts. In August 2001, The President's Management Agenda 
noted that the U.S. overseas presence is costly, increasingly complex, 
and of growing security concern. The President's Management Agenda 
concluded that cost and security considerations demand that the 
overseas staffing process be improved. We have developed a rightsizing 
framework that encourages overseas staffing decisions to be based on a 
full consideration of cost, security, and mission factors. In the past, 
CBO estimated that savings could be achieved if the Congress chose to 
reduce overseas staffing by 1 percent, either through domestic 
reallocation or elimination.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Embassy Construction: Process for Determining Staffing Requirements 
Needs Improvement. GAO-03-411. Washington, D.C.: April 7, 2003.

Overseas Presence: Rightsizing Framework Can Be Applied at U.S. 
Diplomatic Posts in Developing Countries. GAO-03-396. Washington, D.C.: 
April 7, 2003.

Overseas Presence: Systematic Processes Needed to Rightsize Posts and 
Guide Embassy Construction. GAO-03-582T. Washington, D.C.: April 7, 
2003.

Overseas Presence: Conditions of Overseas Diplomatic Facilities. GAO-
03-557T. Washington, D.C.: March 20, 2003.

GAO Contact:

Jess T. Ford, (202) 512-4128:

CBO Options Where Related GAO Work Is Identified:

150-01 Eliminate the Export-Import Bank, the Overseas Private 
Investment Corporation, and the Trade and Development Agency:

[Footnote 15]

Related GAO Product:

Export Promotion: Mixed Progress in Achieving a Governmentwide 
Strategy. GAO-02-850. Washington, D.C.: September 4, 2002.

GAO Contact:

Ginny Hughes, (202) 512-5481:

150-02 End the United States' Capital Subscriptions to the European 
Bank for Reconstruction and Development:

Related GAO Product:

Foreign Assistance: International Efforts to Aid Russia's Transition 
Have Had Mixed Results. GAO-01-8. Washington, D.C.: November 1, 2000.

GAO Contact:

Celia Thomas, (202) 512-8987:

250 General Science, Space, and Technology:

Example from Selected GAO Work:

Continue Oversight of the International Space Station and Related 
Support Systems:

Example from Selected GAO Work:

Continue Oversight of the International Space Station and Related 
Support Systems:

Primary agency: National Aeronautics and Space Administration.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 252/Space flight, research, and supporting 
activities.



Recent events associated with the National Aeronautics and Space 
Administration's (NASA) human space flight programs have generated 
major congressional concern. First, the Space Launch Initiative--a 
planned $4.8 billion research and development effort--was significantly 
downsized in November 2002. This decision made the prospect of a 
Shuttle replacement unlikely for the foreseeable future and 
necessitated investment in extending the life of the Shuttle fleet. 
Second, the tragic loss of Shuttle Columbia has engendered intense 
scrutiny by the Columbia Accident Investigation Board and NASA's 
congressional oversight committees into various aspects of the agency's 
activities--from budgetary decisions to emphasis on flight safety. 
Third, the uncertain status of the unfinished International Space 
Station (ISS) is worrisome. Construction has halted due to postponement 
of shuttle flights and a crew size larger than three is still being 
negotiated among the international partners. As a result, the projected 
scientific benefits from this orbital laboratory have been further 
delayed.

The Congress is well aware of the challenges NASA faces in developing, 
building, and transporting crew to the ISS--challenges that have in the 
past resulted in schedule delays and higher program cost estimates to 
complete development. Although assembly of the ISS is well underway, it 
warrants continued congressional oversight because the ISS will impose 
continued demands on future budgets and will require critical decisions 
on Shuttle modernization and replacement efforts. As NASA returns the 
Space Shuttle fleet to safe flight by incorporating the accident 
board's recommendations and more clearly defines the future of human 
space flight and commensurate financial commitments, continued 
congressional oversight will help to ensure that NASA's priorities and 
supporting funding are appropriately matched.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

NASA: Major Management Challenges and Program Risks. GAO-03-849T. 
Washington, D.C.: June 12, 2003.

Major Management Challenges and Program Risks: National Aeronautics and 
Space Administration. GAO-03-114. Washington, D.C.: January 1, 2003.

Relocation of Space Shuttle Major Modification Work. GAO-03-294R. 
Washington, D.C.: December 2, 2002.

Space Transportation: Challenges Facing NASA's Space Launch Initiative. 
GAO-02-1020. Washington, D.C.: September 17, 2002.

NASA Management Challenges: Human Capital and Other Critical Areas Need 
to be Addressed. GAO-02-945T. Washington, D.C.: July 18, 2002.

Space Station: Actions Under Way to Manage Cost, but Significant 
Challenges Remain. GAO-02-735. Washington, D.C.: July 17, 2002.

NASA: Compliance With Cost Limits Cannot Be Verified. GAO-02-504R. 
Washington, D.C.: April 10, 2002.

GAO Contact:

Allen Li, (202) 512-4841:

270 Energy:

Examples from Selected GAO Work:

Corporatize or Divest Selected Power Marketing Administrations:

Recover Power Marketing Administrations' Costs:

Increase Nuclear Waste Disposal Fees:

Recover Federal Investment in Successfully Commercialized 
Technologies:

Reduce the Costs of the Rural Utilities Service's Electricity and 
Telecommunications Loan Programs:

Examples from Selected GAO Work:

Corporatize or Divest Selected Power Marketing Administrations:

Primary agency: Department of Energy.

Spending type: Direct.



The federal government began to market electricity after the Congress 
authorized the construction of dams and established major water 
projects, primarily in the 1930s to the 1960s. The Department of 
Energy's (DOE) power marketing administrations (PMA)--Bonneville Power 
Administration, Southeastern Power Administration, Southwestern Power 
Administration, and Western Area Power Administration--market 
primarily wholesale power in 33 states produced at large, multiple-
purpose water projects. Our March 1998 report identified options that 
the Congress and other policymakers can pursue to address concerns 
about the role of three PMAs--Southeastern, Southwestern, and Western-
-in emerging restructured markets or to manage them in a more business-
like fashion. Our work has demonstrated that, although federal laws and 
regulations generally require that the PMAs recover the full costs of 
building, operating, and maintaining the federal power plants and 
transmission assets, in some cases federal statutes and DOE's rules are 
ambiguous about or prohibit the recovery of certain costs. For fiscal 
years 1992 through 1996, the federal government incurred a net cost of 
$1.5 billion from its involvement in the electricity-related activities 
of Southeastern, Southwestern, and Western. We also reported that the 
appropriated and other debt that is recoverable through the PMAs' power 
sales totaled about $22 billion at the end of fiscal year 1997 and 
included nearly $2.5 billion in irrigation costs. In addition, our work 
has demonstrated that the availability of federal power plants to 
generate electricity has been below that of nonfederal plants because 
the federal planning and budgeting processes do not always ensure that 
funds are available to make repairs when needed.

Our March 1998 report outlined three general options to address the 
federal role in restructuring markets: (1) maintaining the status quo 
of federal ownership and operation of the power generating projects, 
(2) maintaining the federal ownership of these assets but improving how 
they are operated (an example of which is reorganizing the PMAs to 
operate as federally owned corporations), and (3) divesting these 
assets. The third option 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. Corporatization or 
divestitures of government assets have been accomplished in the United 
States and also overseas, and corporatization could serve as an interim 
step toward ultimate divestiture. Our March 1997 report concluded that 
divesting the federal hydropower assets would be complicated but not 
impossible. Such a transaction would need to balance the multiple 
purposes of the water project as well as other claims on the water.

CBO estimated previously that divesting the federal hydropower assets 
for Southeastern, Southwestern, and Western would result in budgetary 
savings. The savings assumed that the divestiture would not occur for 2 
years and was based on the net present value of outstanding debt for 
the Southeastern, Southwestern, and Western PMAs.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Budget Issues: Effective Oversight and Budget Discipline Are Essential-
-Even in a Time of Surplus. GAO/T-AIMD-00-73. Washington, D.C.: 
February 1, 2000.

Potential Candidates for Congressional Oversight. GAO/OGC-00-3R. 
Washington, D.C.: November 1, 1999.

Federal Power: The Role of the Power Marketing Administrations in a 
Restructured Electricity Industry. GAO/T-RCED/AIMD-99-229. Washington, 
D.C.: June 24, 1999.

Federal Power: PMA Rate Impacts by Service Area. GAO/RCED-99-55. 
Washington, D.C.: January 28, 1999.

Federal Power: Regional Effects of Changes in PMAs' Rates. GAO/RCED-99-
15. Washington, D.C.: November 16, 1998.

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

Federal Power: Options for Selected Power Marketing Administrations' 
Role in a Changing Electricity Industry. GAO/RCED-98-43. Washington, 
D.C.: March 6, 1998.

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses. GAO/AIMD-97-110 and 110A. Washington, 
D.C.: September 19, 1997.

Federal Power: Issues Related to the Divestiture of Federal Hydropower 
Resources. GAO/RCED-97-48. Washington, D.C.: March 31, 1997.

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities. GAO/AIMD-96-145. Washington, D.C.: 
September 19, 1996.

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

GAO Contacts:

Bob Robinson, (202) 512-3841 Jim Wells, (202) 512-3841:

Recover Power Marketing Administrations' Costs:

Primary agency: Department of Energy.

Spending type: Direct.



Four of the Department of Energy's (DOE) power marketing 
administrations (PMA)--Bonneville Power Administration, Southeastern 
Power Administration, Southwestern Power Administration, and Western 
Area Power Administration--market primarily wholesale power in 33 
states produced at large, multiple-purpose water projects. Except for 
Bonneville, these PMAs receive annual appropriations to cover operating 
and maintenance (O&M) expenses and, if applicable, the capital 
investment in transmission assets.[Footnote 16] Federal law requires 
the PMAs to repay these appropriations as well as the power-related O&M 
and the capital appropriations expended by the operating agencies 
generating the power.

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

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

In part because the PMAs sell power generated almost exclusively from 
hydropower, are not required to earn a profit, and do not fully recover 
the government's costs in their rates, they are generally able to sell 
power more cheaply than other providers. Southeastern, Southwestern, 
and Western sold wholesale power to their preference customers, such as 
public entities and rural cooperatives, from 1990 through 1995, at 
average rates from 40 to 50 percent below the rates nonfederal 
utilities charged. If the PMAs were authorized to charge market rates 
for power in conjunction with federal restructuring legislation, some 
preference customers who now purchase power from the PMAs at rates that 
are less than those available from other sources would see their rates 
increase. However, we have reported that slightly more than two-thirds 
of the preference customers, which are located in varying portions of 
29 states, that purchased power directly from Southeastern, 
Southwestern, and Western would experience small or no rate increases-
-increases of one-half cent per kilowatt hour or less--if those PMAs 
charged market rates.

The Congress and/or the Secretary of Energy may wish to consider 
directing the PMAs to more fully recover power-related costs or 
revising DOE's policy on high-interest debt repayment. We have 
recommended a number of specific actions aimed at enhancing DOE's 
oversight. For example, changes could be implemented to recover the 
full costs to the federal government of providing postretirement health 
benefits and pensions for current employees and operating agency 
employees engaged in producing and marketing the power sold by the 
PMAs. We and CBO agree that several PMAs have begun to address some of 
these actions. The Congress has the option of requiring the PMAs to 
sell their power at market rates to better ensure the full recovery of 
the appropriated and other debt that is recoverable through the PMAs' 
power sales. This debt totaled about $22 billion at the end of fiscal 
year 1997 and included nearly $2.5 billion in irrigation costs that are 
to be recovered through the PMAs' power sales. This option would likely 
also lead to more efficient management of the taxpayers' assets.

Although in the past, CBO agreed that savings would occur if the PMAs 
were directed to fully recover power-related costs or set their power 
at market rates, it could not develop an estimate for this option 
without a specific proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Congressional Oversight: Opportunities to Address Risks, Reduce Costs, 
and Improve Performance. GAO/T-AIMD-00-96. Washington, D.C.: February 
17, 2000.

Federal Power: The Role of the Power Marketing Administrations in a 
Restructured Electricity Industry. GAO/T-RCED/AIMD-99-229. Washington, 
D.C.: June 24, 1999.

Federal Power: PMA Rate Impacts, by Service Area. GAO/RCED-99-55. 
Washington, D.C.: January 28, 1999.

Federal Power: Regional Effects of Changes in PMAs' Rates. GAO/RCED-99-
15. Washington, D.C.: November 16, 1998.

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

Federal Power: Options for Selected Power Marketing Administrations' 
Role in a Changing Electricity Industry. GAO/RCED-98-43. Washington, 
D.C.: March 6, 1998.

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses. GAO/AIMD-97-110 and 110A. Washington, 
D.C.: September 19, 1997.

Federal Power: Issues Related to the Divestiture of Federal Hydropower 
Resources. GAO/RCED-97-48. Washington, D.C.: March 31, 1997.

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities. GAO/AIMD-96-145. Washington, D.C.: 
September 19, 1996.

Federal Power: Outages Reduce the Reliability of Hydroelectric Power 
Plants in the Southeast. GAO/T-RCED-96-180. Washington, D.C.: July 25, 
1996.

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

Federal Electric Power: Operating and Financial Status of DOE's Power 
Marketing Administrations. GAO/RCED/AIMD-96-9FS. Washington, D.C.: 
October 13, 1995.

GAO Contacts:

Bob Robinson, (202) 512-3841 Jim Wells, (202) 512-3841:


Increase Nuclear Waste Disposal Fees:

Primary agency: Department of Energy.

Spending type: Direct.



Utilities pay a fee to the Nuclear Waste Fund to finance the 
development of storage and permanent disposal facilities for high-level 
radioactive wastes. The amount of this fee has not changed since 1983, 
making the fund susceptible to future budget shortfalls. To help ensure 
that sufficient revenues are collected to cover increases in cost 
estimates caused by price inflation, the Congress should amend the 
Nuclear Waste Policy Act of 1982 to direct the Secretary of Energy to 
automatically adjust for inflation the nuclear waste disposal fee that 
utilities pay into the Nuclear Waste Fund.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Status of Actions to Improve DOE User-Fee Assessments. GAO/RCED-92-165. 
Washington, D.C.: June 10, 1992.

Changes Needed in DOE User-Fee Assessments. GAO/T-RCED-91-52. 
Washington, D.C.: May 8, 1991.

Changes Needed in DOE User-Fee Assessments to Avoid Funding Shortfall. 
GAO/RCED-90-65. Washington, D.C.: June 7, 1990.

GAO Contacts:

Bob Robinson, (202) 512-3841 Ms. Gary Jones, (202) 512-3841:

Recover Federal Investment in Successfully Commercialized 
Technologies:

Primary agency: Department of Energy.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.



The Department of Energy (DOE) and the private sector are involved in 
hundreds of cost-shared projects aimed at developing a broad spectrum 
of cost-effective, energy-efficiency technologies that protect the 
environment, support the nation's economic competitiveness, and promote 
the increased use of oil, gas, coal, nuclear, and renewable energy 
resources. In June 1996, we reported that DOE generally does not 
require repayment of its investment in technologies that are 
successfully commercialized. Our review identified four DOE programs 
that require industry repayment if the technologies are ultimately 
commercialized. The offices in which we focused most of our work 
planned to devote about $8 billion in federal funds to cost-shared 
projects over their lifetime, of which about $2.5 billion would be 
subject to repayment.

Our June 1996 report discussed the advantages and disadvantages of 
having a repayment policy and pointed out that many of the 
disadvantages can be mitigated by structuring a flexible repayment 
requirement with the disadvantages in mind. It also discussed the types 
of programs and projects that would be the most appropriate or suitable 
for repayment of the federal investment.

Because opportunities exist for substantial repayment in some of DOE's 
programs, requiring repayment under a flexible policy would allow the 
government to share in the benefits of successfully commercialized 
technologies that could amount to significant cost savings. However, 
repayment provisions would only apply to future technology development 
projects not yet negotiated with industry.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

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

GAO Contacts:

Bob Robinson, (202) 512-3841 Jim Wells, (202) 512-3841:

Reduce the Costs of the Rural Utilities Service's Electricity and 
Telecommunications Loan Programs:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 271/Energy supply.



The Rural Utilities Service (RUS), created by the Federal Crop 
Insurance Reform and Department of Agriculture Reorganization Act of 
1994 (P.L. 103-354, Oct. 13, 1994), was established to provide loan 
funds intended to assist in the development of the utility 
infrastructure in the nation's rural areas. RUS finances the 
construction, improvement, and repair of electrical, 
telecommunications, and water and waste facility systems through direct 
loans and through repayment guarantees on loans made by other lenders. 
According to the Financial Statements For Fiscal Year 2002 of Rural 
Development (the U.S. Department of Agriculture agency responsible for 
administering RUS), RUS loans receivable totaled about $39.5 billion as 
of September 30, 2002. 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, since fiscal year 1992, 
RUS wrote off the debt of 9 electricity loan borrowers totaling more 
than $4.9 billion.

RUS needs to take steps to increase the effectiveness and reduce the 
costs of its loan programs. RUS could, for example, (1) target loans to 
borrowers that provide services to areas with low populations, (2) 
target subsidized direct loans to borrowers that have a financial need 
for the agency's assistance, and (3) graduate the agency's financially 
viable borrowers from direct loans to commercial credit. Also, to 
reduce its vulnerability to losses, RUS could (1) establish loan and 
indebtedness limits, (2) set the repayment guarantee at a level below 
100 percent, and (3) prohibit loans to delinquent borrowers or to 
borrowers who have caused the agency to incur loan losses. In the past, 
CBO could not develop an estimate for this option unless specific 
proposals to improve efficiency were identified.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Rural Utilities Service: Status of Electric Loan Portfolio. GAO/AIMD-
99-264R. Washington, D.C.: August 17, 1999.

Rural Water Projects: Federal Assistance Criteria and Potential 
Benefits of the Proposed Lewis and Clark Project. GAO/T-RCED-99-252. 
Washington, D.C.: July 29, 1999.

Rural Water Projects: Identifying Benefits of the Proposed Lewis and 
Clark Project. GAO/RCED-99-115. Washington, D.C.: May 28, 1999.

Rural Water Projects: Federal Assistance Criteria Related to the Fort 
Peck Reservation Rural Water Project. GAO/T-RCED-98-230. Washington, 
D.C.: June 18, 1998.

Rural Utilities Service: Risk Assessment for the Electric Loan 
Portfolio. GAO/T-AIMD-98-123. Washington, D.C.: March 30, 1998.

Rural Utilities Service: Opportunities to Operate Electricity and 
Telecommunications Loan Programs More Effectively. GAO/AIMD-98-42. 
Washington, D.C.: January 21, 1998.

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses. GAO/AIMD-97-110. Washington, D.C.: 
September 19, 1997.

Rural Development: Financial Condition of the Rural Utilities Service's 
Electricity Loan Portfolio. GAO/T-RCED-97-198. Washington, D.C.: July 
8, 1997.

Rural Development: Financial Condition of the Rural Utilities Service's 
Loan Portfolio. GAO/RCED-97-82. Washington, D.C.: April 11, 1997.

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841 McCoy 
Williams, (202) 512-6906:

300 Natural Resources and Environment:

Examples from Selected GAO Work:

Terminate Land-Exchange Programs:

Deny Additional Funding for Commercial Fisheries Buyback Programs:

Revise the Mining Law of 1872:

Reexamine Federal Policies for Subsidizing Water for Agriculture and 
Rural Uses:

Reassess Federal Land Management Agencies Functions and Programs:

Examples from Selected GAO Work:

Terminate Land-Exchange Programs:

Primary agencies; Department of the Interior; Department of 
Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 302/Conservation and land management.



The Bureau of Land Management (BLM) and the Forest Service have long 
used land exchanges--trading federal lands for lands that are owned by 
corporations, individuals, or state or local governments--as a tool for 
acquiring nonfederal land and conveying federal land. By law, for an 
exchange to occur, the estimated value of the nonfederal land must be 
within 25 percent of the estimated value of the federal land, the 
public interest must be well served, and certain other exchange 
requirements must be met. Recognizing the importance of land exchanges 
in supplementing the federal funds that were available for purchasing 
land, the Congress, in 1988, passed legislation to facilitate and 
expedite land exchanges. Between fiscal years 1989 and 1999, BLM and 
the Forest Service acquired about 1,500 total square miles of land 
through land exchanges.

Several fundamental issues create significant problems in the use of 
land exchanges. For instance, in 1998, the cognizant inspectors general 
identified exchanges in which lands were inappropriately valued and the 
public interest was not well served. Also, although current law does 
not authorize BLM to retain or use proceeds from selling federal land, 
BLM sold federal land and retained the sales proceeds in escrow 
accounts. Further, BLM did not track these sales proceeds in its 
financial management system. At least some of BLM's and the Forest 
Service's continuing problems may reflect inherent underlying 
difficulties associated with exchanging land--rather than buying and 
selling land for cash. In fiscal year 2002, BLM contracted with the 
Appraisal Foundation to conduct a review of the agency's appraisal 
organization, policies, and procedures. The Appraisal Foundation's 
report listed numerous problems with BLM's appraisal process and 
concluded "violations of law may have occurred." The report contained 
seven principal recommendations including the recommendation that the 
"previously recommended moratorium on BLM land exchanges be implemented 
immediately." The Foundation performed a similar evaluation for the 
U.S. Department of Agriculture (USDA) Forest Service in 2000. That 
study resulted in a number of recommendations, which the Foundation 
noted, "have been successfully implemented." In most circumstances, 
cash-based transactions would be simpler and less costly.

While both agencies have taken steps to improve their land-exchange 
programs, the many controversies and problems associated with their 
programs reflect, in part, the difficulties and inefficiencies inherent 
in these exchange programs. On the basis of these difficulties and 
inefficiencies, the Congress may wish to consider directing both 
agencies to terminate their land-exchange programs. In the past, CBO 
was unable to develop a savings estimate for this option.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

National Park Service: Federal Taxpayers Could Have Benefited More From 
Potomac Yard Land Exchange. GAO-01-292. Washington, D.C.: March 15, 
2001.

BLM and the Forest Service: Land Exchanges Need to Reflect Appropriate 
Value and Serve the Public Interest. GAO/RCED-00-73. Washington, D.C.: 
June 22, 2000.

GAO Contacts:

Bob Robinson, (202) 512-3841 Barry Hill, (202) 512-3841:

Deny Additional Funding for Commercial Fisheries Buyback Programs:

Primary agency: Department of Commerce.

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

Spending type: Discretionary.

Budget subfunction: 306/Other natural resources.



Fish populations in many commercial fisheries are declining, resulting 
in a growing imbalance between the number of vessels in fishing fleets 
and the number of fish available for harvest. In response to this 
growing imbalance, the federal government has provided $140 million 
from 1994 to 2002 to purchase fishing permits, fishing vessels, and 
related gear from fishermen, thereby reducing the capacity of fishermen 
to harvest fish. Generally, the government designed these purchases, 
called buybacks, to achieve multiple goals, such as reducing the 
capacity to harvest fish, providing economic assistance to fishermen, 
and improving the conservation of fish. Coastal states issue permits 
and develop and enforce regulations for fishing in waters that are near 
their shores. In areas outside state jurisdiction, the National Marine 
Fisheries Service (NMFS) within the Department of Commerce is 
responsible for issuing permits and developing and enforcing 
regulations for harvesting fish. Because excessive fishing capacity has 
been a continuing problem in many fisheries, several additional 
buybacks have been proposed that, if implemented, would be in excess of 
$250 million.

GAO found that buyback programs in three fisheries we evaluated removed 
from 10 to 24 percent of their respective fishing capacities. However, 
the experiences of these three cases demonstrate that the long-term 
effectiveness of buyback programs depends upon whether previously 
inactive fishermen or buyback beneficiaries return to the fishery. For 
example, while 79 boats were sold in the New England buyback, 62 
previously inactive boats have begun catching groundfish since the 
buyback. In addition, several buyback participants purchased boats with 
buyback funds and returned to the fishery. Long-term effectiveness of 
buyback programs may also depend on whether fishermen have incentives 
to increase remaining fishing capacity in a fishery. Importantly, 
buyback programs by themselves do not address the root cause of excess 
fishing capacity, that being the ongoing incentives fishermen have to 
invest in larger or better equipped fishing vessels in order to catch 
fish before someone else does.

The problems of past buyback programs should be addressed as part of 
the design of any future programs. Given the experiences of buyback 
programs to date--both in terms of their limited effects on reducing 
fishing capacity and in terms of their inability to effectively address 
the root causes of over-fishing--one option the Congress may wish to 
consider is denying additional funding for proposed programs until 
these fundamental weaknesses are resolved. In the past, CBO could not 
develop a savings estimate without a more specific proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Commercial Fisheries: Effectiveness of Fishing Buyback Programs Can Be 
Improved. GAO-01-699T. Washington, D.C.: May 10, 2001.

Commercial Fisheries: Entry of Fishermen Limits Benefits of Buyback 
Programs. GAO/RCED-00-120. Washington, D.C.: June 14, 2000.

GAO Contact:

Anu Mittal, (202) 512-9846:

Revise the Mining Law of 1872:

Primary agencies; Department of the Interior; Department of 
Agriculture.

Spending type: Direct.



The Mining Law of 1872 allows holders of economically minable claims on 
federal lands to obtain all rights and interests to both the land and 
the hardrock minerals by patenting the claims for $2.50 or $5.00 an 
acre--amounts that do not necessarily reflect the market value of such 
lands today. Since 1872, the federal government has patented more than 
3 million acres of mining claims (an area about the size of 
Connecticut), and some patent holders have reaped huge profits by 
reselling their lands. Furthermore, miners do not pay royalties to the 
government on hardrock minerals they extract from federal lands.

Among the options that are available are to prohibit the issuance of 
new patents, require the payment of fair market value for a patent, or 
otherwise modify the requirements for patenting. Legislation could also 
be enacted to impose royalties on hardrock minerals extracted from 
federal lands, such as a 5 percent royalty on net smelter returns.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Bureau of Land Management: Improper Charges Made to Mining Law 
Administration Program. GAO-01-491T. Washington, D.C.: March 29, 2001.

Bureau of Land Management: Improper Charges Made to Mining Law 
Administration Program. GAO-01-356. Washington, D.C.: March 8, 2001.

National Park Service: Agency Should Recover Costs of Validity 
Examinations for Mining Claims. GAO/RCED-00-265. Washington, D.C.: 
September 19, 2000.

Review of the Bureau of Land Management's Administration and Use of 
Mining Maintenance Fees. GAO/AIMD-00-184R. Washington, D.C.: June 2, 
2000.

Mineral Royalties: Royalties in the Western States and in Major 
Mineral-Producing Countries. GAO/RCED-93-109. Washington, D.C.: March 
29, 1993.

Natural Resources Management Issues. GAO/OCG-93-17TR. Washington, 
D.C.: December 1992.

Mineral Resources: Value of Hardrock Minerals Extracted From and 
Remaining on Federal Lands. GAO/RCED-92-192. Washington, D.C.: August 
24, 1992.

Federal Land Management: The Mining Law of 1872 Needs Revision. GAO/
RCED-89-72. Washington, D.C.: March 10, 1989.

GAO Contacts:

Bob Robinson, (202) 512-3841 Barry Hill, (202) 512-3841:

Reexamine Federal Policies for Subsidizing Water for Agriculture and 
Rural Uses:

Primary agency: Department of the Interior.

Spending type: Direct.



Federal water programs to promote efficient use of finite water 
resources for the nation's agricultural and rural water systems have 
been used to provide higher subsidies than Congress may have intended. 
To improve the effectiveness and efficiency of federal water programs, 
the Congress could consider several options to reduce duplication or 
inconsistencies.

The Congress could, for example, consider collecting the full costs of 
federal water for large farms. Under the Reclamation Reform Act of 
1982, as amended, some farmers have reorganized large farming 
operations into multiple, smaller landholdings to be eligible to 
receive additional federally subsidized irrigation water. The act 
limits to 960 the maximum number of owned or leased acres that 
individuals or legal entities (such as partnerships or corporations) 
can irrigate with federal water at rates that exclude interest on the 
government's investment in the irrigation component of its water 
resource projects. However, due to the vague definition of the term 
"farm," the flow of federally subsidized water to land holdings above 
the 960 acre-limit has not been stopped, and the federal government is 
not collecting revenues to which it is entitled under the act. 
According to the Department of Interior, a portion of the acreage 
served by the Bureau of Reclamation was used to produce crops that were 
also eligible for USDA commodity subsidies. Farmers received the water 
subsidy for using irrigated water from Interior as well as USDA 
subsidies per crop production. Another option would be for the Congress 
to consider restructuring the subsidies for crops produced with 
federally subsidized water.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Rural Water Projects: Federal Assistance Criteria and Potential 
Benefits of the Proposed Lewis and Clark Project. GAO/RCED-99-252T. 
Washington, D.C.: July 29, 1999.

Rural Water Projects: Identifying the Benefits of the Proposed Lewis 
and Clark Project. GAO/RCED-99-115. Washington, D.C.: May 28, 1999.

Rural Water Projects: Federal Assistance Criteria Related to the Lewis 
and Clark Rural Water Project. GAO/RCED-98-231T. Washington, D.C.: June 
18, 1998.

Rural Water Projects: Federal Assistance Criteria Related to the Fort 
Peck Reservation Rural Water Project. GAO/RCED-98-230. Washington, 
D.C.: June 18, 1998.

Rural Water Projects: Federal Assistance Criteria. GAO/RCED-98-204R. 
Washington, D.C.: May 29, 1998.

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

Rural Development: Patchwork of Federal Water and Sewer Programs Is 
Difficult to Use. GAO/RCED-95-160BR. Washington, D.C.: April 13, 1995.

Water Subsidies: Impact of Higher Irrigation Rates on Central Valley 
Project Farmers. GAO/RCED-94-8. Washington, D.C.: April 19, 1994.

Natural Resources Management Issues. GAO/OCG-93-17TR. Washington, 
D.C.: December 1992.

Reclamation Law: Changes Needed Before Water Service Contracts Are 
Renewed. GAO/RCED-91-175. Washington, D.C.: August 22, 1991.

Water Subsidies: The Westhaven Trust Reinforces the Need to Change 
Reclamation Law. GAO/RCED-90-198. Washington, D.C.: June 5, 1990.

Water Subsidies: Basic Changes Needed to Avoid Abuse of the 960-Acre 
Limit. GAO/RCED-90-6. Washington, D.C.: October 12, 1989.

GAO Contacts:

Bob Robinson, (202) 512-3841 Barry Hill, (202) 512-3841:

Reassess Federal Land Management Agencies' Functions and Programs:

Primary agencies; Department of the Interior; Department of 
Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 302/Conservation and land management.



The responsibilities of the four major federal land management 
agencies--the National Park Service, the Bureau of Land Management 
(BLM), the Fish and Wildlife Service within the Department of the 
Interior, and the Forest Service within the Department of Agriculture-
-have grown more similar over time. Most notably, the Forest Service 
and BLM now provide more noncommodity uses, including recreation and 
protection for fish and wildlife, on their lands. In addition, managing 
federal lands has become more complex. Managers have to reconcile 
differences among a growing number of laws and regulations, and the 
authority for these laws is dispersed among several federal agencies 
and state and local agencies. These changes have coincided with two 
other developments--the federal government's increased emphasis on 
downsizing and budgetary constraint and scientists' increased 
understanding of the importance and functioning of natural systems 
whose boundaries may not be consistent with existing jurisdictional and 
administrative boundaries. Together, these changes and developments 
suggest a basis for reexamining the processes and structures under 
which the federal land management agencies operate.

Two basic strategies have been proposed to improve federal land 
management: (1) streamlining the existing structure by coordinating and 
integrating functions, systems, activities, programs, and field 
locations and (2) reorganizing the structure by combining agencies. The 
two strategies are not mutually exclusive and some prior proposals have 
encompassed both.

Over the last several years, the Forest Service and BLM have colocated 
some offices or shared space with other federal agencies. They have 
also pursued other means of streamlining, sharing resources, and saving 
rental costs. However, no significant legislation has been enacted to 
streamline or reorganize federal land management agencies and the four 
major federal land management agencies have not, to date, developed a 
strategy to coordinate and integrate their functions, systems, 
activities, and programs. In the past, CBO was unable to estimate 
savings without a specific restructuring proposal that would eliminate 
certain programs or revise how the land is managed, due to shared 
resources among the four major land management agencies. Savings would 
depend on the extent of a workforce restructuring and implementation 
proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Wildland Fires: Better Information Needed on Effectiveness of Emergency 
Stabilization and Rehabilitation Treatments. GAO-03-430. Washington, 
D.C.: April 4, 2003.

Severe Wildland Fires: Leadership and Accountability Needed to Reduce 
Risks to Communities and Resources. GAO-02-259. Washington, D.C.: 
January 31, 2002.

The National Fire Plan: Federal Agencies Are Not Organized to 
Effectively and Efficiently Implement the Plan. GAO-01-1022T. 
Washington, D.C.: July 31, 2001.

Land Management Agencies: Ongoing Initiative to Share Activities and 
Facilities Needs Management Attention. GAO-01-50. Washington, D.C.: 
November 21, 2000.

Federal Wildfire Activities: Current Strategy and Issues Needing 
Attention. GAO/RCED-99-223. Washington, D.C.: August 13, 1999.

Land Management: The Forest Service's and BLM's Organizational 
Structures and Responsibilities. GAO/RCED-99-227. Washington, D.C.: 
July 29, 1999.

Ecosystem Planning: Northwest Forest and Interior Columbia River Basin 
Plans Demonstrate Improvements in Land-Use Planning. GAO/RCED-99-64. 
Washington, D.C.: May 26, 1999.

Land Management Agencies: Revenue Sharing Payments to States and 
Counties. GAO/RCED-98-261. Washington, D.C.: September 17, 1998.

Federal Land Management: Streamlining and Reorganization Issues. GAO/T-
RCED-96-209. Washington, D.C.: June 27, 1996.

National Park Service: Better Management and Broader Restructuring 
Efforts Are Needed. GAO/T-RCED-95-101. Washington, D.C.: February 9, 
1995.

Forestry Functions: Unresolved Issues Affect Forest Service and BLM 
Organizations in Western Oregon. GAO/RCED-94-124. Washington, D.C.: May 
17, 1994.

Forest Service Management: Issues to Be Considered in Developing a New 
Stewardship Strategy. GAO/T-RCED-94-116. Washington, D.C.: February 1, 
1994.

GAO Contacts:

Bob Robinson, (202) 512-3841 Barry Hill, (202) 512-3841:

350 Agriculture:

Examples from Selected GAO Work:

Terminate or Significantly Reduce the U.S. Department of Agriculture's 
Market Access Program:

Consolidate Common Administrative Functions at the U.S. Department of 
Agriculture:

Further Consolidate the U.S. Department of Agriculture's County 
Offices:

Examples from Selected GAO Work:

Terminate or Significantly Reduce the U.S. Department of Agriculture's 
Market Access Program:

Primary agency: Department of Agriculture.

Account: Commodity Credit Corporation (12-4336).

Spending type: Mandatory.

Budget subfunction: 351/Farm income stabilization.



The Market Access Program is an export promotion program operated by 
the Foreign Agricultural Service of the Department of Agriculture. The 
program subsidizes the promotion of U.S. agricultural products in 
overseas markets. Through a cost-sharing arrangement, the program helps 
fund overseas promotions conducted by U.S. agricultural producers, 
cooperatives, exporters, and trade associations. Under the Farm 
Security and Rural Development Act of 2002, authorized funding for the 
program has increased from $100 million in fiscal year 2002 to $110 
million in fiscal year 2003, $125 million in fiscal year 2004, $140 
million in fiscal year 2005, and rising to $200 million in fiscal years 
2006 and 2007. About three-quarters of the program budget supports 
generic promotions, with the remaining funds supporting brand-name 
promotions.

Beginning in fiscal year 1993, the Congress directed that changes be 
made to the program in order to increase the emphasis on small 
businesses, establish a graduation limit, and certify that program 
funds supplement, not supplant, private sector expenditures. From 
fiscal year 1994 through fiscal year 1997, program reforms resulted in 
increases to the number of small businesses participating in the 
program as well as small businesses' share of program funds. In 
addition, in 1998, the Foreign Agricultural Service prohibited direct 
and indirect assistance to large companies for brand-name promotions 
unless the assistance was provided through cooperatives and certain 
associations. The Service also implemented a 5-year graduation 
requirement for brand-name promotional activities but waived this 
requirement for cooperatives. As a result, promotional activities by 
cooperatives for brand-name products remained eligible for program 
funding.

Questions remain about the overall economic benefits derived from the 
Market Access Program. Estimates of the program's macroeconomic impact 
developed by the Foreign Agricultural Service are overstated and rely 
on a methodology that is inconsistent with Office of Management and 
Budget cost/benefit guidelines. In addition, the evidence from market-
level studies is inconclusive regarding program impact on specific 
commodities in specific markets. Furthermore, it is difficult to ensure 
that funds for promotional activities are in addition to private sector 
expenditures because it is hard to determine what would have been spent 
in the absence of program funds.

The Conference Report on the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act of 1999 directed the Secretary of 
Agriculture to submit a report that, among other things, estimates the 
economic impact of the Market Access Program, analyzes the costs and 
benefits of the program in a manner consistent with government cost/
benefit guidelines, and evaluates the additional spending of 
participants and additional exports resulting from the program. The 
Foreign Agricultural Service has not completed this report. Absent 
convincing evidence that the program has a positive economic impact, 
results in increased exports that would not have occurred without the 
program, and supplements and does not supplant private sector 
expenditures, the Congress might choose to terminate the program or 
significantly reduce its funding. In the past, CBO estimated that 
savings could be achieved if the Market Access Program was eliminated.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Agricultural Trade: Changes Made to Market Access Program, but 
Questions Remain on Economic Impact. GAO/NSIAD-99-38. Washington, D.C.: 
April 5, 1999.

U.S. Agricultural Exports: Strong Growth Likely, but U.S. Export 
Assistance Programs' Contribution Uncertain. GAO/NSIAD-97-260. 
Washington, D.C.: September 30, 1997.

Farm Bill Export Options. GAO/GGD-96-39R. Washington, D.C.: December 
15, 1995.

Agricultural Trade: Competitor Countries' Foreign Market Development 
Program. GAO/T-GGD-95-184. Washington, D.C.: June 14, 1995.

International Trade: Changes Needed to Improve Effectiveness of the 
Market Promotion Program. GAO/GGD-93-125. Washington, D.C.: July 7, 
1993.

U.S. Department of Agriculture: Improvements Needed in Market Promotion 
Program. GAO/T-GGD-93-17. Washington, D.C.: March 25, 1993.

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841:

Consolidate Common Administrative Functions at the U.S. Department of 
Agriculture:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending types; Discretionary/Direct.

Budget subfunction: 352/Agricultural research and services.



In accordance with the Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994, the U.S. Department of 
Agriculture (USDA) has engaged in a reorganization and modernization 
effort targeted at achieving greater economy and efficiency and better 
customer service by the Farm Service Agency, the Natural Resources and 
Conservation Service, and the agencies in the Rural Development 
mission. USDA's efforts consist of five interrelated initiatives: (1) 
colocating the agencies' county and state offices, (2) merging the 
agencies' administrative functions at the state and headquarters level 
under a single support organization, (3) redesigning agencies' business 
processes, (4) modernizing information technology, and (5) changing the 
agencies' cultures to improve customer services.

USDA's progress in these initiatives has been mixed. For example, 
despite the agencies' colocation of county offices, little has changed 
in how the three agencies serve their customers. Each of its agencies 
emphasizes a different client base and the delivery of different 
programs. Consequently, little has changed in how the three agencies 
work together to serve their customers, particularly in terms of cross-
servicing and sharing of information. On the other hand, USDA has made 
substantial progress in deploying personal computers and a 
telecommunications network to link its service centers, and deployed a 
shared network server. However, the full range of service delivery 
efficiencies has not yet been realized because the agencies' program 
applications are not fully integrated and all service center employees 
have not been trained to use the system.

In terms of merging and streamlining administrative functions, some 
progress has been made in sharing space and equipment and agreeing upon 
some common human capital practices. However, to further streamline its 
organization, increase efficiency, and reduce overhead costs associated 
with running separate offices, USDA could do more to combine agencies' 
support functions, such as legislative and legal affairs and public 
information, into a single office serving the needs of all mission 
component agencies. In addition, even though USDA has developed a plan 
to converge administrative functions for county-based agencies, a 
number of obstacles need to be overcome if the plan is to be 
successfully implemented, including the selection of a strong 
leadership team to implement the convergence plan. In the past, CBO 
agreed that this option could potentially yield savings, but did not 
develop a savings estimate due to uncertainty of the extent to which 
improved efficiencies actually could lead to budgetary savings.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Major Management Challenges and Program Risks: Department of 
Agriculture. GAO/00-96. Washington, D.C.: January 2003.

U.S. Department of Agriculture: State Office Collocation. GAO/RCED-00-
208R. Washington, D.C.: June 30, 2000.

USDA Reorganization: Progress Mixed in Modernizing the Delivery of 
Services. GAO/RCED-00-43. Washington, D.C.: February 3, 2000.

U.S. Department of Agriculture: Administrative Streamlining is Expected 
to Continue Through 2002. GAO/RCED-99-34. Washington, D.C.: December 
11, 1998.

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

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841:

Further Consolidate the U.S. Department of Agriculture's County 
Offices:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 351/Farm income stabilization.



The U.S. Department of Agriculture (USDA) maintains a field office 
structure that dates back to the 1930s when transportation and 
communication systems limited the geographic boundaries covered by a 
single field office and when there were a greater number of small, 
widely disbursed, family-owned farms. In 1933, the United States had 
more than 6 million farmers; today the number of farms in the United 
States is less than 2 million and a small fraction of these produce 
more than 70 percent of the nation's agricultural output. About one-
third of USDA's over 100,000 employees are involved in delivering the 
$55 billion a year farm program. As the client base for the USDA 
programs changes and as technology offers opportunities for program 
delivery efficiencies, USDA needs to consider alternative program 
delivery approaches. In this regard, the service center agencies need 
to reassess the types of services they now provide and how they can 
work more efficiently to deliver these services in the future with 
fewer office locations.

At various times, the Congress has attempted to reduce the number of 
county offices serving farmers and/or reduce county office staffing. 
The Federal Crop Insurance Reform and Department of Agriculture 
Reorganization Act of 1994 (P.L. 103-354, Oct. 13, 1994) directed the 
Secretary of Agriculture to streamline departmental operations by 
consolidating county offices. In response to the Agriculture 
Reorganization Act, USDA has closed over 1,000 county office locations 
and reduced staffing at its county offices. However, as the agency 
states in its September 2001 Food and Agricultural Policy: Taking Stock 
for the New Century, "Further actions are necessary to ensure that the 
USDA farm service structure is appropriately sized, configured, and 
located for efficient provision of the new services demanded by a 
rapidly evolving food and agriculture system.":

USDA could further consolidate its county office field structure, for 
example, by closing more of its small county offices. Criteria for 
determining which small county offices to close could include the (1) 
distance from another county office, (2) time spent on administrative 
duties, and (3) number of farmers who receive USDA financial benefits. 
Although in the past CBO agreed that closing offices that serve few 
farmers would produce savings, it could not develop a savings estimate 
without a specific proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Major Management Challenges and Program Risks: Department of 
Agriculture. GAO-03-96. Washington, D.C.: January 2003.

USDA Reorganization: Progress Mixed in Modernizing the Delivery of 
Services. GAO/RCED-00-43. Washington, D.C.: February 3, 2000.

Farm Service Agency: Characteristics of Small County Offices. GAO/RCED-
99-102. Washington, D.C.: May 28, 1999.

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

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

Farm Programs: Administrative Requirements Reduced and Further Program 
Delivery Changes Possible. GAO/RCED-98-98. Washington, D.C.: April 20, 
1998.

Farm Programs: Impact of the 1996 Farm Act on County Office Workload. 
GAO/RCED-97-214. Washington, D.C.: August 19, 1997.

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841:

370 Commerce and Housing Credit:

Examples from Selected GAO Work:

Recapture Interest on Rural Housing Loans:

Require Self-Financing of Mission Oversight by Fannie Mae and Freddie 
Mac:

Reduce Federal Housing Administration's Insurance Coverage:

Merging U.S. Department of Agriculture and Department of Housing and 
Urban Development Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs:

Consolidate Homeless Assistance Programs:

Reorganize and Consolidate Small Business Administration's 
Administrative Structure:

Improve Reviews of Small Business Administration's Preferred Lenders:

CBO Options Where Related GAO Work Is Identified:

370-01 End the Credit Subsidy for the Small Business Administration's 
Major Business Loan Guarantee Programs:

370-05 Charge All Banks and Thrifts Deposit Insurance Premiums:

Examples from Selected GAO Work:

Recapture Interest on Rural Housing Loans:

Primary agency: Department of Agriculture.

Account: Rural Housing Insurance Fund (12-2081).

Spending type: Direct.

Budget subfunction: 371/Mortgage credit.



The Housing Act of 1949, as amended, requires U.S. Department of 
Agriculture's (USDA) Rural Housing Service (RHS) to recapture a portion 
of the subsidy provided over the life of direct housing loans it makes 
when the borrower sells or vacates a property. The rationale is that 
because taxpayers paid a portion of the mortgage, they are entitled to 
a portion of the property's appreciation. Because recapture is not 
mandated when homes are refinanced, RHS's policy allows borrowers who 
pay off direct RHS loans but continue to occupy the properties to defer 
the payments for recapturing the subsidies. As of July 31, 1999, RHS's 
records showed that about $140 million was owed by borrowers who had 
refinanced their mortgages but continued to occupy the properties. RHS 
does not charge interest on the amounts owed by these borrowers.

Legislative changes could be made to allow RHS to charge market rate 
interest on recapture amounts owed by borrowers to help recoup the 
government's administrative and borrowing costs. Actual savings could 
differ depending on how this proposal would affect the rate at which 
homes are sold.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Rural Housing Programs: Opportunities Exist for Cost Savings and 
Management Improvement. GAO/RCED-96-11. Washington, D.C.: November 16, 
1995.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Require Self-Financing of Mission Oversight by Fannie Mae and Freddie 
Mac:

Primary agency: Department of Housing and Urban Development.

Account: Office of Federal Housing Enterprise Oversight, Salaries and 
Expenses (86-5272).

Spending type: Direct.

Budget subfunction: 371/Mortgage credit.



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

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

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

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Housing Enterprises: The Roles of Fannie Mae and Freddie Mac in the 
U.S. Housing Finance System. T-GGD-00-182. Washington, D.C.: July 25, 
2000.

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

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

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

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Reduce Federal Housing Administration's Insurance Coverage:

Primary agency: Department of Housing and Urban Development.

Account: FHA-Mutual Mortgage Insurance Program Account (86-0183).

Spending types; Discretionary/Direct.

Budget subfunction: 371/Mortgage credit.



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

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

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

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

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Mortgage Financing: Changes in the Performance of FHA-Insured Loans. 
GAO-02-773. Washington, D.C.: July 10, 2002.

Mortgage Financing: FHA's Fund Has Grown, but Options for Drawing on 
the Fund Have Uncertain Outcomes. GAO-01-460. Washington, D.C.: 
February 28, 2001.

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

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Merging U.S. Department of Agriculture and Department of Housing and 
Urban Development Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs:

Primary agencies; Department of Agriculture; Department of Housing and 
Urban Development.

Accounts: Multiple.

Spending types; Direct/Discretionary.

Budget subfunction: 371/Mortgage credit.



The U.S. Department of Agriculture (USDA), primarily through its Rural 
Housing Service (RHS), has jurisdiction over most federal rural housing 
programs. HUD, primarily through its Federal Housing Administration 
(FHA), has jurisdiction over the major nationwide federal housing 
programs. As the distinctions between rural and urban life have blurred 
and federal budgets have tightened, the need for the separate rural 
housing programs, first created in the mid-1930s to stimulate the rural 
economy and assist needy rural families, is questionable.

Similarities exist between the RHS and FHA programs for delivering 
rural housing, and efficiencies could be achieved by merging the two 
programs. For instance, RHS's single-family guaranteed loan program and 
FHA's single-family insured loan program both primarily target low-and 
moderate-income households, use the same qualifying ratios, and operate 
in the same markets. Even though RHS's program offers more attractive 
terms for the borrower and is available only in rural areas, whereas 
FHA's program is available nationwide, both programs could be offered 
through the same network of lenders. Adapting each one's best practices 
for use by the other and eliminating inconsistencies in the rules 
applicable to private owners under the current programs would improve 
the efficiency with which the federal government delivers rural housing 
programs.

As we reported, to optimize the federal role in rural housing, the 
Congress may wish to consider requiring USDA and HUD to examine the 
benefits and costs of merging those programs that serve similar markets 
and provide similar products. As a first step, the Congress could 
consider requiring RHS and HUD to explore merging their single-family 
insured lending programs and multifamily portfolio management programs, 
taking advantage of the best practices of each and ensuring that 
targeted populations are not adversely affected. In the past, CBO could 
not estimate savings for this option without a more specific proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Rural Housing: Options for Optimizing the Federal Role in Rural Housing 
Development. GAO/RCED-00-241. Washington, D.C.: September 15, 2000.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Consolidate Homeless Assistance Programs:

Primary agency: Department of Housing and Urban Development.

Accounts: Multiple.

Spending types; Direct/Discretionary.

Budget subfunctions: Multiple.



In 1987, the Congress passed the Stewart B. McKinney Act (P.L. 100-77) 
to provide a comprehensive federal response to address the multiple 
needs of homeless people. The act encompassed both existing and new 
programs, including those providing emergency food and shelter, those 
offering long-term housing and supportive services, and those designed 
to demonstrate effective approaches for providing homeless people with 
services. Over the years, some of the original McKinney programs have 
been consolidated or eliminated, and some new programs have been added. 
Today homeless people receive assistance through these programs as well 
as other federal programs that are not authorized under the McKinney 
Act but are nevertheless specifically targeted to serve the homeless 
population. In February 1999, we reported that seven federal agencies 
administer 16 programs that are targeted to serve the homeless 
population. In fiscal year 1997, these agencies obligated over $1.2 
billion for homeless assistance programs, and the programs administered 
by the Department of Housing and Urban Development (HUD) accounted for 
about 70 percent of this total.

While these federal programs offer a wide range of services to the 
homeless population, some of these services appear similar. For 
example, food and nutrition services can be provided to homeless people 
through eight different programs administered by five different 
agencies. Moreover, our work at the state and local level has found 
that state and local government officials generally believe that the 
federal government has not done a good job of coordinating its various 
homeless assistance programs. This perceived lack of coordination could 
adversely affect the ability of states and localities to integrate 
their own programs. Also, we reported that, because different homeless 
assistance programs have varying sets of eligibility and funding 
requirements, they can cause coordination difficulties for the federal 
agencies administering them as well as administrative and coordination 
burdens for the states and communities that have to apply for and use 
these funds.

The Congress may wish to consider consolidating all homeless assistance 
programs under HUD because HUD (1) has taken a leadership role in the 
area of homelessness, (2) has developed a well-respected approach for 
delivering homeless assistance programs called the Continuum of Care, 
and (3) is responsible for administering most of the funds for programs 
targeted to the homeless. Consolidating all of the homeless assistance 
programs under HUD should result in administrative and operational 
efficiencies at the federal level as well as reduce the administrative 
and coordination burdens of state and local governments. In the past, 
CBO was unable to estimate the potential savings for this option 
without a specific legislative proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Homelessness: Improving Program Coordination and Client Access to 
Program. GAO-02-485T. Washington, D.C.: March 6, 2002.

Homelessness: Consolidating HUD's McKinney Programs. GAO/T-RCED-00-
187. Washington, D.C.: May 23, 2000.

Homelessness: State and Local Efforts to Integrate and Evaluate 
Homeless Assistance Programs. GAO/RCED-99-178. Washington, D.C.: June 
29, 1999.

Homelessness: Coordination and Evaluation of Programs Are Essential. 
GAO/RCED-99-49. Washington, D.C.: February 26, 1999.

Homelessness: McKinney Act Programs Provide Assistance but Are Not 
Designed to Be the Solution. GAO/RCED-94-37. Washington, D.C.: May 31, 
1994.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Reorganize and Consolidate Small Business Administration's 
Administrative Structure:

Primary agency: Small Business Administration.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 376/Other advancement of commerce.



The Small Business Administration's (SBA) complicated and overlapping 
organizational relationships and a field structure that does not 
consistently match mission requirements have combined to impede staff 
efforts to deliver services effectively. Some of the complex 
organizational relationships stem from legislative requirement. Others 
result from past SBA realignment efforts that changed how the agency 
performs its functions but left aspects of the previous structure 
intact.

For example, district staff working on SBA loan programs report to 
their district management, while loan processing and servicing center 
staff report directly to the Office of Capital Access in headquarters. 
Yet, district office loan program staffs sometimes need to work with 
the loan processing and servicing centers to get information or to 
expedite loans for lenders in their district. Because loan processing 
and servicing centers report directly to the Office of Capital Access, 
requests that are directed to the centers sometimes must go from the 
district through the Office of Capital Access then back to the centers. 
District managers and staff said that sometimes they cannot get answers 
to questions when lenders call and that they have trouble expediting 
loans because they lack authority to direct the centers to take any 
action. Lender association representatives said that the lines of 
authority between headquarters and the field can be confusing and that 
practices vary from district to district.

In 2002, GAO reported that SBA drafted a 5-year workforce 
transformation plan. The draft plan recognizes SBA's need to 
restructure its workforce, privatize noncore functions, adjust 
incentives and goals, and streamline its headquarters' operation. 
Improvements in SBA's organizational structure could lead to savings in 
human capital and office space costs.

Some options that the Congress could consider to assist SBA in its 
transformation effort include:

* rescinding or combining some of the legislatively mandated offices, 
programs, or aspects of existing programs,

* rescinding some of the reporting relationships, grades, or types of 
appointments for senior SBA officials, and:

* giving the agency the ability to close or consolidate some of its 
inefficiently located field offices.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Products:

Small Business Administration: Workforce Transformation Plan Is 
Evolving. GAO-02-931T. Washington, D.C.: July 16, 2002.

Small Business Administration: Current Structure Presents Challenges 
for Service Delivery. GAO-02-17. Washington, D.C.: October 26, 2001.

GAO Contact:

Davi D'Agostino, (202) 512-8678:

Improve Reviews of Small Business Administration's Preferred Lenders:

Primary agency: Small Business Administration.

Account: Business Loans Program Account (73-1154).

Spending types; Direct/Discretionary.

Budget subfunction: 376/Other advancement of commerce.



The Small Business Administration's (SBA) largest business loan 
program, the "7(a) program," is intended to serve small business 
borrowers who cannot otherwise obtain financing under reasonable terms 
and conditions from the private sector. As of September 30, 2002, SBA 
had a total portfolio of about $46 billion, including $42 billion in 
direct and guaranteed small business loans and other guarantees. SBA 
delegates full authority to preferred lenders to make loans without 
prior SBA approval. In fiscal year 2002, preferred lenders approved 55 
percent of the dollar value of all 7(a) loans--about $7 billion. 
Because SBA guarantees up to 85 percent of the 7(a) loans made by its 
lending partners, there is risk to SBA if the loans are not repaid. The 
default rate for each of the last 3 fiscal years has been around 14 
percent.

SBA is required by law to review preferred lenders at least annually. 
SBA has made progress in developing its lender oversight program, but 
it has not fully developed effective oversight programs that assess 
lenders' decisions on borrowers' creditworthiness and eligibility and 
the impact of lenders' decisions regarding risk posed to SBA's 
portfolio.

SBA should incorporate strategies into its reviews of preferred lenders 
to adequately measure the financial risk lenders pose to SBA, develop 
specific criteria to apply to the "credit elsewhere" standard,[Footnote 
17] and perform qualitative assessments of lenders' performance and 
lending decisions. Implementation of these recommendations could lead 
to lower defaults on 7(a) loans and/or a smaller 7(a) loan program.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Product:

Small Business Administration: Progress Made but Improvements Needed in 
Lender Oversight. GAO-03-90. Washington, D.C.: December 9, 2002.

GAO Contact:

Davi D'Agostino, (202) 512-8678:

CBO Options Where Related GAO Work Is Identified:

370-01 End the Credit Subsidy for the Small Business Administration's 
Major Business Loan Guarantee Programs:

Related GAO Products:

Small Business Administration: Progress Made but Improvements Needed in 
Lender Oversight. GAO-03-90. Washington, D.C.: December 9, 2002.

Small Business Administration: Section 7(a) General Business Loans 
Credit Subsidy Estimates. GAO-01-1095R. Washington, D.C.: August 21, 
2001.[Footnote 18]

GAO Contacts:

Davi D'Agostino, (202) 512-8678 Linda Calbom, (202) 512-8341:

370-05 Charge All Banks and Thrifts Deposit Insurance Premiums:

Related GAO Product:

Deposit Insurance Funds: Analysis of Insurance Premium Disparity 
Between Banks and Thrifts. GAO/AIMD-95-84. Washington, D.C.: March 3, 
1995.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

400 Transportation:

Examples from Selected GAO Work:

Eliminate the Pulsed Fast Neutron Analysis Inspection System:

Develop a Passenger Intercity Rail Policy to Meet National Goals:

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs:

Increase Aircraft Registration Fees to Enable the Federal Aviation 
Administration to Recover Actual Costs:

Apply Cost-Benefit Analysis to Replacement Plans for Airport 
Surveillance Radars:

Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities:

Convert Some Support Officer Positions to Civilian Status:

CBO Options Where Related GAO Work Is Identified:

400-01 Reduce Federal Subsidies for Amtrak:

400-02 Eliminate the Essential Air Service Program:

400-03 Eliminate Grants to Large and Medium-Sized Hub Airports:

400-04 Increase Fees for Certificates and Registrations Issued by the 
Federal Aviation Administration:

400-08 Eliminate Funding for the "New Starts" Transit Program:

Examples from Selected GAO Work:

Eliminate the Pulsed Fast Neutron Analysis Inspection System:

Primary agency: Multiple.

Account: FAA--Research, Engineering and Development (69-8108).

Spending type: Discretionary.

Budget subfunction: 402/Air transportation.



One type of technology under development for detecting explosives and 
narcotics is a pulsed fast neutron analysis (PFNA) inspection system. 
PFNA is designed to directly and automatically detect and measure the 
presence of specific materials (e.g., cocaine) by exposing their 
constituent chemical elements to short bursts of subatomic particles 
called neutrons. As we reported in our April 1999 report, officials 
from the government agencies responsible for developing PFNA still do 
not believe that the current PFNA system would meet their operational 
requirements because it is too expensive (estimated at between $10 
million to $15 million per unit to acquire) and too large for 
operational use in most ports of entry or other sites. Those 
responsible agencies are the Bureau of Customs and Border Protection 
(CBP), Transportation Security Administration (TSA), and Department of 
Defense (DOD).[Footnote 19] However, at the direction of the 
Congress,[Footnote 20] DOD is currently leading a joint effort with CBP 
and TSA to conduct an operational evaluation of PFNA at the Ysleta 
border crossing in El Paso, Texas. This evaluation will test PFNA's 
ability to detect drugs, explosives, chemical warfare agents, currency, 
and nuclear materials. It is currently scheduled for completion by June 
2004 and estimated to cost $13.9 million to the government, which 
includes $8.5 million for a firm, fixed-price contract with PFNA's 
manufacturer, The Ancore Corporation, to deliver a system to Ysleta and 
provide support and maintenance for the test. The $13.9 million total 
consists of $5.4 million from DOD, $3.5 million from TSA, and $5 
million from CBP.

DOD officials stated that its lead role in the joint Ysleta operational 
test is as an independent evaluator and does not indicate an 
endorsement of the system for use by DOD. CBP officials question 
whether PFNA will be a viable and affordable technology for widespread 
use but stated that PFNA shows enough promise that CBP agreed to help 
fund the joint operational test. Similarly, while TSA officials do not 
believe the current PFNA system will meet operational requirements for 
maritime and land applications, they stated that a definitive 
assessment would be made at the completion of the joint test. For 
aviation applications, TSA has decided to pursue a cooperative 
agreement with The Ancore Corporation to test a PFNA system design in 
the laboratory, which could lead to an operational test at an airport 
if the system meets specific detection criteria. TSA officials stated 
that dates and costs for this separate effort would not be available 
until after The Ancore Corporation completes its systems development.

One option is for the Congress to eliminate the PFNA. In the past, CBO 
estimated that savings could be achieved if the PFNA was eliminated.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Terrorism and Drug Trafficking: Testing Status and Views on Operational 
Viability of Pulsed Fast Neutron Analysis Technology. GAO/GGD-99-54. 
Washington, D.C.: April 13, 1999.

GAO Contact:

Laurie E. Ekstrand, (202) 512-8777:

Develop a Passenger Intercity Rail Policy to Meet National Goals:

Primary agency: National Railroad Passenger Corporation.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 401/Ground transportation.



The National Railroad Passenger Corporation (Amtrak) operates the 
nation's intercity passenger rail service. As a private corporation, it 
operates trains in 46 states, serving about 23.4 million riders (about 
64,000 per day). Amtrak plays only a small part in the nation's overall 
transportation system with the exception of some short-distance routes. 
It has sizeable market shares (compared to travel by air) between 
certain relatively close cities. However, by far, the automobile 
dominates most intercity travel. Like major national intercity 
passenger rail systems outside the United States, Amtrak receives 
government support. Since Amtrak's creation in 1970, the federal 
government has provided Amtrak with operating and capital assistance 
and in the past 5 years, it has provided Amtrak an average of about $1 
billion each year.

Throughout its existence, Amtrak's financial condition has never been 
strong and the corporation has been on the edge of bankruptcy several 
times, most recently in 2002. Current levels of federal funding are not 
sufficient to support the existing level of intercity passenger rail 
service being provided by Amtrak. Amtrak has indicated that it will 
need about $2 billion annually--about twice the amount provided in 
recent years--in federal operating and capital assistance over the next 
few years to stabilize its system and to cover operating losses. 
Additional assistance would be needed to expand or enhance service or 
develop high-speed rail corridors.

Amtrak and the administration have offered differing views on Amtrak 
and the future of intercity passenger rail service in America. Amtrak 
focuses primarily on the importance of Amtrak's receiving the funding 
it needs to improve the condition of its equipment, its reliability and 
utilization, and its infrastructure. In contrast, the administration is 
looking toward a fundamental restructuring of the manner in which 
federal assistance is provided for intercity passenger rail service 
that it argues will create a rail service driven by sound economics, 
competition, and a long-term partnership between states and the federal 
government to sustain an economically viable system.

An evaluation framework could be useful to help the Congress consider 
intercity passenger rail policy. Based on extensive analyses of federal 
investment approaches across a broad stratum of national activities, we 
have found that the key components of a framework for evaluating 
federal investments include (1) establishing clear, nonconflicting 
goals, (2) establishing the roles of governmental and private entities, 
(3) establishing funding approaches that focus on and provide 
incentives for results and accountability, and (4) ensuring that the 
strategies developed address diverse stakeholder interests and limit 
unintended consequences.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Intercity Passenger Rail: Issues for Consideration in Developing an 
Intercity Passenger Rail Policy. GAO-03-712T. Washington, D.C.: April 
30, 2003.

Intercity Passenger Rail: Potential Financial Issues in the Event That 
Amtrak Undergoes Liquidation. GAO-02-871. Washington, D.C.: September 
20, 2002.

Intercity Passenger Rail: Amtrak Needs to Improve Its Decisionmaking 
Process for Its Route and Service Proposals. GAO-02-398. Washington, 
D.C.: April 12, 2002.

Intercity Passenger Rail: Congress Faces Critical Decisions in 
Developing a National Policy. GAO-02-522T. Washington, D.C.: April 11, 
2002.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs:

Primary agencies; Multiple.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 403/Water transportation.



Cargo preference laws require that certain government-owned or financed 
cargo shipped internationally be carried on U.S.-flagged vessels. Cargo 
preference laws are intended to guarantee a minimum amount of business 
for the U.S.-flagged vessels. These vessels are required by law to be 
crewed by U.S. mariners, are generally required to be built in U.S. 
shipyards, and are encouraged to be maintained and repaired in U.S. 
shipyards. In addition, U.S.-flag carriers commit to providing capacity 
in times of national emergencies.

The effect of cargo preference laws has been mixed. These 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. 
However, because U.S.-flagged vessels often charge higher rates to 
transport cargo than foreign-flagged vessels, cargo preference laws 
increase the government's transportation costs. For fiscal years 1989 
through 1993, four federal agencies--the Departments of Defense, 
Agriculture, Energy, and the Agency for International Development--were 
responsible for more than 99 percent of the government cargo subject to 
cargo preference laws. Cargo preference laws increased these federal 
agencies' transportation costs by an estimated $578 million per year in 
fiscal years 1989 through 1993 over the cost of using foreign-flagged 
vessels. If the laws were eliminated, savings could be achieved.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Management Reform: Implementation of the National Performance Review's 
Recommendations. GAO/OCG-95-1. Washington, D.C.: December 5, 1994.

Maritime Industry: Cargo Preference Laws--Their Estimated Costs and 
Effects. GAO/RCED-95-34. Washington, D.C.: November 30, 1994.

Cargo Preference: Effects of U.S. Export-Import Cargo Preference Laws 
on Exporters. GAO/GGD-95-2BR. Washington, D.C.: October 31, 1994.

Cargo Preference Requirements: Objectives Not Significantly Advanced 
When Used in U.S. Food Aid Programs. GAO/GGD-94-215. Washington, D.C.: 
September 29, 1994.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

Increase Aircraft Registration Fees to Enable the Federal Aviation 
Administration to Recover Actual Costs:

Primary agency: Department of Transportation.

Spending type: Direct.



In 1977, the Congress amended the Federal Aviation Act and identified 
three categories of aircraft owners--U.S. citizens, resident aliens, 
and U.S.-based foreign companies--that may register aircraft in the 
United States. To register an aircraft, an eligible owner submits a $5 
fee. As of the end of fiscal year 1999, 355,518 aircraft were 
registered in the United States. In fiscal year 1999, 54,329 
certificate registrations were issued.

In 1993, we reported that the Federal Aviation Administration (FAA) was 
not fully recovering the cost of processing aircraft registration 
applications and estimated that, by not increasing fees since 1968 to 
recover costs, FAA had foregone about $6.5 million in additional 
revenue. To recover the costs of services provided to aircraft 
registrants, we have recommended that FAA increase its aircraft 
registration fees to more accurately reflect actual costs. FAA plans to 
coordinate aircraft registration changes with the Drug Enforcement 
Agency and the U.S. Customs Service by the end of 2004. If those two 
agencies approve the proposed changes, FAA will prepare legislation for 
congressional approval for a rate increase for registration fees. FAA 
plans to complete changes to its aircraft registration system by mid-
2005.

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

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

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

GAO Contact:

Gerald Dillingham, (202) 512-4803:

Apply Cost-Benefit Analysis to Replacement Plans for Airport 
Surveillance Radars:

Primary agency: Department of Transportation.

Account: Facilities and Equipment (69-8107).

Spending type: Discretionary.

Budget subfunction: 402/Air transportation.



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

In 1999, FAA had planned to install technologically advanced ASR-11 
radars to replace its model ASR-7 and ASR-8 radars at 101 airports, 
without applying its cost-benefit criteria. FAA's rationale for not 
applying its cost-benefit criteria to these 101 airports was its belief 
that discontinuing radar operations at airports that no longer qualify 
could lead to public perceptions that safety was being reduced, even if 
safety was not compromised. However, some of these airports may no 
longer qualify for a radar based on FAA's cost-benefit criteria and 75 
of them have less air traffic than an airport whose radar request FAA 
has denied using its cost-benefit criteria. Furthermore, at some of 
these airports, the circumstances that originally justified a radar no 
longer exist.

GAO recommended that FAA apply its cost-benefit criteria to all 101 
airports where it plans to replace the ASR-7 and ASR-8 radars and 
determine whether those airports had a continuing operational need for 
radar. In response to GAO's recommendation, FAA asked its regional 
offices to verify the operational need for radars at the 75 airports 
that had less traffic than the airport whose radar was denied. As of 
May 2003, FAA was still planning to replace aging ASR-7/8 systems with 
ASR-11 radar without the cost-benefit analysis. FAA said the analysis 
was used to determine the siting of eight other new ASR-11 radar 
systems. We continue to believe that savings may result if FAA were to 
perform the cost-benefit studies at the 101 airports.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

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

GAO Contact:

Gerald Dillingham, (202) 512-4803:

Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities:

Primary agency: Department of Homeland Security.

Account: United States Coast Guard (70-0600).

Spending type: Discretionary.

Budget subfunctions: Multiple.



The Coast Guard could achieve budget savings by downsizing its 
facilities. The Coast Guard abandoned plans to close its Curtis Bay 
facility in 1988, when GAO reported that it lacked supporting data. 
While the cost effectiveness of this facility had been questioned, the 
Coast Guard had not conducted a detailed study to compare the 
facility's cost effectiveness with that of commercial shipyards. In 
fiscal year 1996, GAO testified that the Coast Guard could save $6 
million by closing or consolidating over 20 small boat stations. Also 
in 1996, GAO recommended that the Coast Guard consider other 
alternatives--such as privatization--to operate its vessel traffic 
service centers, which cost $20.2 million to operate in fiscal year 
1999. Furthermore, in fiscal 1995, GAO recommended that the Coast Guard 
close one of its large training centers in Petaluma, Cal.--at a savings 
of $9 million annually. The Coast Guard agreed that this may be 
possible but did not close it largely because of public opposition.

Given the serious budget constraints the Coast Guard now faces and the 
fundamental challenges in being able to accomplish new homeland 
security responsibilities it has been given while maintaining levels of 
effort in its traditional missions, it will need to achieve significant 
budgetary savings to offset the increased budgetary needs of the 
future. Closing, consolidating, or privatizing training and operating 
facilities, including the Curtis Bay facility, 20 small boat stations, 
the vessel traffic service centers, and one of its training centers in 
Petaluma, Cal., would help the Coast Guard to achieve these required 
savings. While in the past, CBO agreed that closing, consolidating, or 
privatizing Coast Guard facilities could yield savings, it could not 
develop an estimate without specific proposals.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Coast Guard: Challenges During the Transition to the Department of 
Homeland Security. GAO-03-594T. Washington, D.C.: April 1, 2003.

Coast Guard: Comprehensive Blueprint Needed to Balance and Monitor 
Resource Use and Measure Performance for All Missions. GAO-03-544T. 
Washington, D.C.: March 12, 2003.

Coast Guard: Strategy Needed for Setting and Monitoring Levels of 
Effort for All Missions. GAO-03-155. Washington, D.C.: November 12, 
2002.

Coast Guard: Budget Challenges for 2001 and Beyond. GAO/T-RCED-00-103. 
Washington, D.C.: March 15, 2000.

Coast Guard: Review of Administrative and Support Functions. GAO/RCED-
99-62R. Washington, D.C.: March 10, 1999.

Coast Guard: Challenges for Addressing Budget Constraints. GAO/RCED-97-
110. Washington, D.C.: May 14, 1997.

Marine Safety: Coast Guard Should Address Alternatives as It Proceeds 
With VTS 2000. GAO/RCED-96-83. Washington, D.C.: April 22, 1996.

Coast Guard: Issues Related to the Fiscal Year 1996 Budget Request. 
GAO/T-RCED-95-130. Washington, D.C.: March 13, 1995.

Coast Guard: Improved Process Exists to Evaluate Changes to Small Boat 
Stations. GAO/RCED-94-147. Washington, D.C.: April 1, 1994.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

Convert Some Support Officer Positions to Civilian Status:

Primary agency: Department of Homeland Security.

Account: United States Coast Guard (70-0600).

Spending type: Discretionary.

Budget subfunctions: Multiple.



The Coast Guard uses officers in operational positions--to command 
boats, ships, and aircraft that can be deployed during times of war--
and in support positions, such as personnel, public affairs, data 
processing, and financial management. Military standard personnel costs 
are paid out of the Coast Guard's discretionary budget and include all 
pay and allowances, permanent change of station costs, training costs, 
and active-duty medical costs associated with each pay grade. Certain 
allowances--housing and subsistence--are provided to military 
personnel tax free. Additionally, military retirement costs are funded 
by an annual permanent appropriation separate from the Coast Guard's 
discretionary budget. Civilian standard personnel costs are also paid 
out of the Coast Guard's discretionary budget and include basic, 
locality, overtime, and special pay as well as the costs associated 
with permanent change of station, training, health insurance, life 
insurance, and the accrued cost of civilian retirement.

Of 5,760 commissioned officer positions in the Coast Guard's workforce 
(as of the end of fiscal year 1999), GAO selectively evaluated nearly 
1,000 in 75 units likely to have support positions. Of these positions, 
GAO found about 800 in which officers were performing duties that 
offered opportunities for conversion to civilian positions. Such 
positions include those in, among other things, personnel, public 
affairs, civil rights, and data processing. In comparing all of the 
relevant costs associated with military and civilian positions, GAO 
found that employing active-duty commissioned officers in the positions 
we reviewed is, on average, 21 percent more costly than filling the 
same positions with comparable civilian employees. The cost 
differential is based on a comparison of average annual pay, benefits, 
and expenses associated with the Coast Guard's commissioned officers at 
different military ranks and federal civilian employees at comparable 
civilian grades for fiscal year 1999.

From July 31, 2001 through February 28, 2003, the Coast Guard had 
converted 68 commissioned officer positions to civilian positions. 
Converting support positions currently filled by military officers to 
civilian status would reduce costs associated with delivering these 
services with no apparent impact on performance. By converting 
commissioned officer positions to civilian positions, savings would 
accrue to the federal government in the form of retirement savings, tax 
advantage savings, and savings to the Coast Guard's discretionary 
budget. In the past, CBO agreed that this option would lead to savings, 
but that those savings would primarily result from differences between 
military and civilian retirement plans. Consequently, the budgetary 
savings resulting from this shift would not begin until "new" civilian 
employees began to retire, which will occur after the 5-year projection 
period.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Coast Guard Workforce Mix: Phased-In Conversion of Some Support Officer 
Positions Would Produce Savings. GAO/RCED-00-60. Washington, D.C.: 
March 1, 2000.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

CBO Options Where Related GAO Work Is Identified:

400-01 Reduce Federal Subsidies for Amtrak:

Related GAO Products:

Intercity Passenger Rail: Potential Financial Issues in the Event That 
Amtrak Undergoes Liquidation. GAO-02-871. Washington, D.C.: September 
20, 2002.[Footnote 21]

Intercity Passenger Rail: Amtrak Needs to Improve Its Decisionmaking 
Process for Its Route and Service Proposals. GAO-02-398. Washington, 
D.C.: April 12, 2002.

Intercity Passenger Rail: The Congress Faces Critical Decisions About 
the Role of and Funding for Intercity Passenger Rail Systems. GAO-01-
820T. Washington, D.C.: July 25, 2001.

High-Speed Rail Investment Act of 2001. GAO-01-756R. Washington, D.C.: 
June 25, 2001.

Intercity Passenger Rail: Amtrak Will Continue to Have Difficulty 
Controlling Its Costs and Meeting Capital Needs. GAO/RCED-00-138. 
Washington, D.C.: May 31, 2000.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

400-02 Eliminate the Essential Air Service Program:

Related GAO Products:

Commercial Aviation: Issues Regarding Federal Assistance for Enhancing 
Air Service to Small Communities. GAO-03-540T. Washington, D.C.: March 
11, 2003.

Commercial Aviation: Factors Affecting Efforts to Improve Air Service 
at Small Community Airports. GAO-03-330. Washington, D.C.: January 17, 
2003.

Options to Enhance the Long-Term Viability of the Essential Air Service 
Program. GAO-02-997R. Washington, D.C.: August 30, 2002.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

400-03 Eliminate Grants to Large and Medium-Sized Hub Airports:

Related GAO Products:

Airport Finance: Past Funding Levels May Not Be Sufficient to Cover 
Airports' Planned Capital Development. GAO-03-497T. Washington, D.C.: 
February 25, 2003.

Aviation Finance: Implementation of General Aviation Entitlement 
Grants. GAO-03-347. Washington, D.C.: February 11, 2003.

Aviation Infrastructure: Challenges Related to Building Runways and 
Actions to Address Them. GAO-03-164. Washington, D.C.: January 30, 
2003.

Airport Finance: Using Airport Grant Funds for Security Projects Has 
Affected Some Development Projects. GAO-03-27. Washington, D.C.: 
October 15, 2002.

Aviation Finance: Distribution of Airport Grant Funds Complied with 
Statutory Requirements. GAO-02-283. Washington, D.C.: April 30, 2002.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

400-04 Increase Fees for Certificates and Registrations Issued by the 
Federal Aviation Administration:

Related GAO Product:

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

GAO Contact:

Gerald Dillingham, (202) 512-4803:

400-08 Eliminate Funding for the "New Starts" Transit Program:

Related GAO Products:

Mass Transit: Status of New Starts Program and Potential for Bus Rapid 
Transit Projects. GAO-02-840T. Washington, D.C.: June 20, 2002.

Mass Transit: FTA's New Starts Commitments for Fiscal Year 2003. GAO-
02-603. Washington, D.C.: April 30, 2002.

GAO Contact:

Katherine Siggerud, (202) 512-6570:

450 Community and Regional Development:

Examples from Selected GAO Work:

Limit Eligibility for Federal Emergency Management Agency Public 
Assistance:

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 
Greatest Flood Loss:

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties:

Consolidate or Terminate the Department of Commerce's Trade Adjustment 
Assistance for Firms Program:

Improve Federal Foreclosure and Property Sales Processes:

CBO Options Where Related GAO Work Is Identified:

450-02 Eliminate Region-Specific Development Agencies:

450-05 Drop Flood Insurance for Certain Repeatedly Flooded Properties:

Examples from Selected GAO Work:

Limit Eligibility for Federal Emergency Management Agency Public 
Assistance:

Primary agency: Department of Homeland Security.

Account: Emergency Preparedness and Response (70-0700).

Spending type: Discretionary.

Budget subfunctions: Multiple.



The Federal Emergency Management Agency's (FEMA) Public Assistance 
Program helps pay state and local governments' costs of repairing and 
replacing eligible public facilities and equipment damaged by natural 
disasters. Many private nonprofit organizations, such as schools, 
hospitals, and utilities, are also eligible for assistance. From 1990 
through 2001, FEMA has expended over $39 billion (in fiscal year 2001 
dollars) in disaster assistance, over half of which was spent for 
public assistance projects such as repairs of roads, government 
buildings, utilities, and hospitals damaged in declared disasters.

A number of options identified by program officials in FEMA's 10 
regional offices, if implemented, could reduce program costs. The 
agency has acted to address some of these options. However, FEMA has 
not addressed some other identified options, stating that congressional 
direction would be needed for the agency to change policies. These 
include eliminating the eligibility for facilities not actively used to 
deliver government services, postdisaster beach renourishment, as well 
as increasing the damage threshold for replacing a facility.[Footnote 
22] In addition, program costs could be reduced by policy changes such 
as eliminating eligibility for all private nonprofit organizations--
many of which are revenue-generating facilities such as utilities, 
hospitals, and universities--or eliminating funding for publicly owned 
recreational facilities (e.g., boat docks, piers, and golf courses) 
which generate portions of their operational revenue through user fees, 
rents, admission charges, or similar fees. In the past, CBO estimated 
that eliminating eligibility for all private nonprofit organizations 
would yield budgetary savings.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Disaster Assistance: Improvement Needed in Disaster Declaration 
Criteria and Eligibility Assurance Procedures. GAO-01-837. Washington, 
D.C.: August 31, 2001.

Disaster Assistance: Information on Federal Costs and Approaches for 
Reducing Them. GAO/T-RCED-98-139. Washington, D.C.: March 26, 1998.

Disaster Assistance: Improvements Needed in Determining Eligibility for 
Public Assistance. GAO/RCED-96-113. Washington, D.C.: May 23, 1996.

Disaster Assistance: Improvements Needed in Determining Eligibility for 
Public Assistance. GAO/T-RCED-96-166. Washington, D.C.: April 30, 1996.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 
Greatest Flood Loss:

Primary agency: Department of Homeland Security.

Account: National Flood Insurance (70-4236).

Spending type: Mandatory.

Budget subfunction: 453/Disaster relief and insurance.



The National Flood Insurance Program is not actuarially sound because 
approximately 30 percent of the 4.3 million policies in force are 
subsidized. Federal Insurance Administration officials estimate that 
total premium income from subsidized policyholders is about $500 
million less than it would be if these rates had been actuarially based 
and participation had remained the same. According to a Federal 
Insurance Administration official, if true actuarial rates were 
charged, insurance rates on currently subsidized policies would need to 
rise, on average, slightly more than twofold (to an annual average 
premium of about $1,500 to $1,600). Significant rate increases for 
subsidized policies, including charging actuarial rates, would likely 
cause some owners of properties built before the publication of the 
Flood Insurance Rate Map to cancel their flood insurance. However, the 
ultimate cost or savings to the federal government would depend on the 
actions of property owners. If these property owners, who suffer the 
greatest flood loss, canceled their insurance and subsequently suffered 
losses due to future floods, they could apply for low-interest loans 
from the Small Business Administration or grants from FEMA, which would 
increase the overall cost to the federal government.

FEMA received a May 1999 contractor's study concerning the economic 
effects of eliminating subsidized rates, and in June 2000 the agency 
transmitted the study to the Congress with recommendations for reducing 
the subsidy. According to FEMA, it is analyzing the impacts of specific 
alternatives for carrying out the recommendations, as well as working 
with stakeholders to refine and develop a comprehensive strategy to 
help it decide how to implement the study's recommendations. Some of 
the recommendations for reducing the subsidy depend on legislative 
change. In light of the potential savings associated with addressing 
this issue, FEMA should develop and advance legislative options for 
eliminating the National Flood Insurance Program's subsidy for 
properties that are more likely to suffer losses.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-00-23. Washington, D.C.: October 27, 
1999.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-99-280. Washington, D.C.: August 25, 
1999.

Flood Insurance: Financial Resources May Not Be Sufficient to Meet 
Future Expected Losses. GAO/RCED-94-80. Washington, D.C.: March 21, 
1994.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties:

Primary agency: Department of Homeland Security.

Account: National Flood Insurance (70-4236).

Spending type: Mandatory.

Budget subfunction: 453/Disaster relief and insurance.



Repetitive flood losses are one of the major factors contributing to 
the financial difficulties facing the National Flood Insurance Program 
(NFIP). A repetitive-loss property is one that has two or more losses 
greater than $1,000 each within any 10-year period. In 2002, 
approximately 45,000 buildings insured under the NFIP have been flooded 
on more than one occasion and have received flood insurance claims 
payments of $1,000 or more for each loss. As we reported in July 2001, 
these repetitive losses account for about 38 percent of all program 
claims historically (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, from 1 to 2 percent. The 
cost of these multiple-loss properties over the years to the program 
has been $3.8 billion. Under its repetitive-loss strategy, the Federal 
Insurance Administration intends to target for mitigation the most 
flood-prone repetitive-loss properties, such as those that are 
currently insured and have had four or more losses, by acquiring, 
relocating, or elevating them. The Federal Emergency Management Agency 
(FEMA) reports NFIP paid out over $800 million in claims for the most 
vulnerable repetitive loss properties (about 10,000) over the last 21 
years.

One option that would increase savings would be for FEMA to consider 
eliminating flood insurance for certain repeatedly flooded properties. 
In its fiscal year 2002 budget proposal, FEMA requested to transfer $20 
million in fees from the NFIP to increase the number of buyouts of 
properties that suffer repetitive losses.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Flood Insurance: Information on the Financial Condition of the National 
Flood Insurance Program. GAO-01-992T. Washington, D.C.: July 19, 2001.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-00-23. Washington, D.C.: October 27, 
1999.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-99-280. Washington, D.C.: August 25, 
1999.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

Consolidate or Terminate the Department of Commerce's Trade Adjustment 
Assistance for Firms Program:

Primary agency: Department of Commerce.

Account: Economic Development Assistance Programs (13-2050).

Spending type: Discretionary.

Budget subfunction: 452/Area and regional development.



The Trade Adjustment Assistance (TAA) for firms program is administered 
by the Department of Commerce's Economic Development Administration. 
This $11 million program (obligations in fiscal year 2002) is designed 
to assist domestic firms that have been adversely affected by imports. 
Twelve regional centers help firms become certified for benefits, 
assess their economic viability, and develop business recovery plans.

For fiscal years 1995 through 1999, an average of 157 firms were 
annually certified as eligible for assistance and 127 (an average of 11 
for each regional center) had certified recovery plans. During this 
period, however, most of the program funding--61 percent--was used to 
fund operational and administrative costs at the 12 regional centers, 
including helping firms become certified for assistance and developing 
firm-specific recovery plans. The remainder--an annual average of $3.8 
million, or approximately 39 percent of the total--was used to fund 
direct technical assistance. The Economic Development Administration 
added performance measures in fiscal year 2002 to better track outcomes 
of the assistance provided by the regional centers. However, we have 
not evaluated whether these new data are sufficient to assess how the 
program is helping firms adjust to import competition.

Given the lack of information on the impact of the program, the 
Congress may wish to consider several options for this program. First, 
the Congress may wish to have the Department of Commerce consolidate 
the regional centers and therefore reduce administrative and overhead 
costs. Another alternative would be to colocate the TAA centers with an 
existing program such as the Department of Commerce's Manufacturing 
Extension Partnership, reducing overhead and perhaps providing some 
synergy with other government efforts to assist firms. In the past, CBO 
estimtated that budgetary savings would occur if the Congress chooses 
to terminate the TAA for Firms Program.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is 
Unclear. GAO-01-12. Washington, D.C.: December 15, 2000.

GAO Contact:

Loren Yager, (202) 512-4128:

Improve Federal Foreclosure and Property Sales Processes:

Primary agencies: Department of Housing and Urban Development; 
Department of Veterans Affairs.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunctions: Multiple.



Opportunities exist to reduce the time necessary to sell foreclosed 
properties and minimize costs to the federal government. Federal 
programs in the Department of Housing and Urban Development's Federal 
Housing Administration (FHA), the Department of Veterans Affairs (VA), 
and the Department of Agriculture's Rural Housing Service (RHS) promote 
mortgage financing for, among other groups, low-income, first-time, 
minority, veteran, and rural home buyers. Fannie Mae and Freddie Mac 
are private corporations chartered by the Congress that also promote 
mortgage financing and home ownership opportunities. Although these 
programs have expanded home ownership opportunities, many home owners 
fall behind in their mortgage payments each year due to unemployment, 
health problems, or the death of a provider. When mortgage lenders 
cannot assist home owners in meeting their payments, FHA, VA, RHS, 
Fannie Mae, and Freddie Mac (the organizations) may instruct the 
lenders to begin foreclosure proceedings. Once foreclosure proceedings 
have been initiated, it is generally in the best interests of the 
organizations and communities that foreclosed properties are adequately 
maintained and resold as quickly as feasible. Otherwise, property 
conditions can deteriorate, thereby resulting in lower sales prices, 
which could limit the government's ability to recover the costs that it 
incurs.[Footnote 23] In addition, vacant and poorly maintained 
properties that are on the market for extended periods contribute to 
neighborhood decay.

FHA procedures can delay the initiation of critical steps necessary to 
preserve the value of foreclosed properties and to sell them quickly. 
While Fannie Mae, Freddie Mac, VA, and RHS designate one entity as 
responsible for the custody, maintenance, and sale of foreclosed 
properties, FHA divides these responsibilities between its mortgage 
servicers and management and marketing contractors. We found that FHA's 
divided approach to foreclosed property custody can prevent the 
initiation of critical maintenance necessary to make properties 
attractive to potential buyers, such as the timely removal of all 
exterior and interior debris, and results in disputes between servicers 
and contractors. Because FHA's divided approach delays maintenance and 
other steps necessary to preserve the value and marketability of 
foreclosed properties, the properties may be sold at lower prices than 
would otherwise be the case. In fact, we estimated that FHA takes about 
55 to 110 days longer to sell foreclosed properties than the other 
organizations. In a June 2003 conversation, an FHA official said that 
the agency continues to consider unified custody as the best means of 
managing its inventory of foreclosed properties. Given legal and other 
complexities associated with changing its approach to selling 
foreclosed properties, FHA does not expect to complete its ongoing 
review of the best means of implementing unified custody until October 
2004.

FHA and VA together spent about $31.5 million in 2000 on new title 
insurance policies to help establish that they had clear title to 
foreclosed properties, while Fannie Mae, Freddie Mac, and RHS generally 
did not purchase new title insurance policies. Neither FHA nor VA 
collects data to determine the need for these expenditures, and 
available information suggests they are not cost effective. In 1995, 
VA's Office of Inspector General (OIG) issued a report that questioned 
whether VA's title insurance expenditures offered value to the 
government, and VA has not implemented recommendations contained in the 
report to assess the expenditures' cost effectiveness. In addition, 
Fannie Mae, Freddie Mac, and RHS report few title-related problems when 
they sell foreclosed properties. We make recommendations that FHA and 
VA collect additional data and reevaluate the cost effectiveness of 
their title insurance expenditures. In a June 2003 conversation, an FHA 
official said that FHA expects to complete its review of purchasing 
title insurance during the foreclosure process by October 2004. In a 
June 2003 conversation, a VA official said that the department expects 
to complete its review during the fall of 2003.

As an option, Congress may wish to consider enacting legislation to 
establish unified custody as a priority for the sale of foreclosed 
properties that FHA takes into its inventory and directing the agency 
to complete its review of the best means of implementing unified 
custody by the close of fiscal year 2004.

As an option, Congress may wish to consider enacting legislation 
directing FHA and VA to complete their ongoing reviews of the cost 
effectiveness of purchasing new title insurance policies during the 
foreclosure process by the close of fiscal year 2004.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Product:

Single-Family Housing: Opportunities to Improve Federal Foreclosure and 
Property Sales Processes. GAO-02-305. Washington, D.C.: April 17, 2002.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

CBO Options Where Related GAO Work Is Identified:

450-02 Eliminate Region-Specific Development Agencies:

Related GAO Products:

Economic Development: Multiple Federal Programs Fund Similar Economic 
Development Activities. GAO/RCED/GGD-00-220. Washington, D.C.: 
September 29, 2000.[Footnote 24]

Budget Issues: Effective Oversight and Budget Discipline Are Essential-
-Even in a Time of Surplus. GAO/T-AIMD-00-73. Washington, D.C.: 
February 1, 2000.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

450-05 Drop Flood Insurance for Certain Repeatedly Flooded Properties:

Related GAO Products:

Flood Insurance: Challenges Facing the National Flood Insurance 
Program, Statement for the Record. GAO-03-606T. Washington, D.C.: April 
1, 2003.

Flood Insurance: Extent of Noncompliance with Purchase Requirements Is 
Unknown. GAO-02-396. Washington, D.C.: June 21, 2002.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-00-23. Washington, D.C.: October 27, 
1999.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program. GAO/T-RCED-99-280. Washington, D.C.: August 25, 
1999.

Flood Insurance: Financial Resources May Not Be Sufficient to Meet 
Future Expected Losses. GAO/RCED-94-80. Washington, D.C.: March 21, 
1994.

GAO Contact:

JayEtta Z. Hecker, (202) 512-8984:

500 Education, Training, Employment, and Social Services:

CBO Options Where Related GAO Work Is Identified:

500-02 Repeal the Safe and Drug-Free Schools and Communities Act:

500-11 Eliminate the Senior Community Service Employment Program:

CBO Options Where Related GAO Work Is Identified:

500-02 Repeal the Safe and Drug-Free Schools and Communities Act:

Related GAO Product:

Safe and Drug-Free Schools: Balancing Accountability With State and 
Local Flexibility. GAO/HEHS-98-3. Washington, D.C.: October 10, 
1997.[Footnote 25]

GAO Contact:

Marnie S. Shaul, (202) 512-6778:

500-11 Eliminate the Senior Community Service Employment Program:

Related GAO Product:

Older Workers: Employment Assistance Focuses on Subsidized Jobs and Job 
Search, but Revised Performance Measures Could Improve Access to Other 
Services. GAO-03-350. Washington, D.C.: January 24, 2003.

GAO Contact:

Sigurd R. Nilsen, (202) 512-7033:

550 Health:

Examples from Selected GAO Work:

Improve Fairness of Medicaid Matching Formula:

Charge Beneficiaries for Food Inspection Costs:

Implement Risk-Based Meat and Poultry Inspections at USDA:

Prevent States from Using Illusory Approaches to Shift Medicaid Program 
Costs to the Federal Government:

Create a Uniform Federal Mechanism for Food Safety:

Control Provider Enrollment Fraud in Medicaid:

Eliminate Federal Funding for SCHIP Covering Adults without Children:

CBO Option Where Related GAO Work Is Identified:

550-06 Require All States to Comply with New Rules About Medicaid's 
Upper Payment Limit by 2004:

Examples from Selected GAO Work:

Improve Fairness of Medicaid Matching Formula:

Primary agency: Department of Health and Human Services.

Account: Grant to States for Medicaid (75-0512).

Spending type: Direct.

Budget subfunction: 551/Health care services.



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

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

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 
State Spending. GAO/HEHS-99-29R. Washington, D.C.: February 19, 1999.

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

Medicaid: Matching Formula's Performance and Potential Modifications. 
GAO/T-HEHS-95-226. Washington, D.C.: July 27, 1995.

Medicaid Formula: Fairness Could Be Improved. GAO/T-HRD-91-5. 
Washington, D.C.: December 7, 1990.

GAO Contact:

William J. Scanlon, (202) 512-7114:

Charge Beneficiaries for Food Inspection Costs:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 554/Consumer and occupational health and safety.



User fees--charges individuals or firms pay for services they receive 
from the federal government--are not new but play an increasingly 
important role in financing federal programs, particularly since the 
Balanced Budget Act of 1985. In general, federal food inspection 
agencies have charged user fees only to beneficiaries of premarket 
reviews, such as the grading of grain and other commodities for 
quality. Federal food inspection agencies generally do not charge user 
fees or fully cover the cost of services provided 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. Office of Management and 
Budget (OMB) Circular A-25, User Charges, states that user fees should 
be charged to cover the full cost of federal services when the service 
recipient receives special benefits beyond those received by the 
general public. The U.S. Department of Agriculture (USDA) Food Safety 
and Inspection Service (FSIS) provides a special benefit to meat and 
poultry slaughter and processing plants that incidentally benefits the 
general public.

USDA inspection agencies recovered through user fees only about $403 
million of the $1.3 billion they spent in 2002 to inspect, test, grade, 
and approve agricultural commodities and products. Federal 
appropriations have traditionally funded the agencies' remaining 
inspection expenses.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 
1998.

Food-Related Services: Opportunities Exist to Recover Costs by Charging 
Beneficiaries. GAO/RCED-97-57. Washington, D.C.: March 20, 1997.

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

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841:

Implement Risk-Based Meat and Poultry Inspections at USDA:

Primary agency: Department of Agriculture.

Account: Food Safety and Inspection Service (12-3700).

Spending type: Discretionary.

Budget subfunction: 554/Consumer and occupational health and safety.



Foodborne illness in the United States is extensive and expensive. 
Foodborne diseases cause about 76 million illnesses, 325,000 
hospitalizations, and 5,200 deaths annually. In terms of medical costs 
and productivity losses, illness from just the five principal foodborne 
pathogens alone costs the nation about $7 billion annually, according 
to U.S. Department of Agriculture (USDA) estimates.

USDA's meat and poultry inspection system does not efficiently and 
effectively use its resources to protect the public from foodborne 
illness. USDA's system is hampered by inflexible legal requirements and 
relies on outdated, labor-intensive inspection methods. Under current 
law, each of the over 8 billion livestock and bird carcasses 
slaughtered annually must be inspected. Further, USDA's Food Safety and 
Inspection Service (FSIS) states that current law requires it to 
inspect each of the approximately 6,000 processing plants at least once 
during each operating shift. While these inspections consume most of 
FSIS's budget ($730 million in 2002), they are unable to detect 
microbial contamination, such as listeria, E. coli, and salmonella. 
While USDA has increased its microbial testing, it has not been 
successful in implementing regulatory changes in inspection practices-
-inspectors still rely on their sense of sight, smell, and touch to 
make judgments about disease conditions, contamination, and sanitation.

Legislative revisions could allow FSIS to emphasize risk-based 
inspections. Much of the funding used to fulfill current meat and 
poultry inspection activities could be redirected to support more 
effective food safety initiatives, such as increasing the frequency of 
inspections at high-risk food plants. In the past, CBO agreed that this 
option could potentially yield savings, but could not develop an 
estimate without specific proposals.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Food Safety: Overview of Federal and State Expenditures. GAO-01-177. 
Washington, D.C.: February 20, 2001.

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 
1998.

Food Safety: Risk-Based Inspections and Microbial Monitoring Needed for 
Meat and Poultry. GAO/RCED-94-192. Washington, D.C.: September 26, 
1994.

Food Safety and Quality: Uniform Risk-Based Inspection System Needed to 
Ensure Safe Food Supply. GAO/RCED-92-152. Washington, D.C.: June 26, 
1992.

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841:

Prevent States from Using Illusory Approaches to Shift Medicaid Program 
Costs to the Federal Government:

Primary agency: Department of Health and Human Services.

Account: Grants to States for Medicaid; (75-0512).

Spending type: Direct.

Budget subfunction: 551/Health care services.



Since 1993, we have reported on a number of state financing schemes 
that inappropriately shift Medicaid costs to the federal government. In 
an early report, we documented that Michigan, Texas, and Tennessee used 
illusory financing approaches to obtain about $800 million in federal 
Medicaid funds without effectively committing their share of matching 
funds. Under these approaches, facilities that received increased 
Medicaid payments from the states, in turn, paid the states almost as 
much as they received. Consequently, the states realized increased 
revenue that was used to reduce their state Medicaid contributions, 
fund other health care needs, and supplement general revenue funding. 
For the period from fiscal year 1991 to fiscal year 1995, Michigan 
alone reduced its share of Medicaid costs by almost $1.8 billion 
through financing partnerships with medical providers and local units 
of government. Our analysis of Michigan's transactions showed that even 
though legislation curtailed certain creative financing practices, the 
state was able to reduce its share of Medicaid costs at the expense of 
the federal government by $428 million through other mechanisms. We 
subsequently reported on similar schemes involving state psychiatric 
hospitals and local government facilities, such as county nursing 
homes.

The state schemes that involve excessive federal payments have been 
restricted by (1) the Omnibus Budget Reconciliation Act of 1993 that 
limits such payments to unreimbursed Medicaid and uninsured costs for 
state-owned facilities, (2) the Balanced Budget Act of 1997 that 
further limits Medicaid payments to state psychiatric hospitals, and 
(3) the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000,[Footnote 26] which mandated that the Health 
Care Financing Administration (HCFA) issue regulations to curtail 
financing schemes involving excessive payments to local government 
providers.

Despite these legislative and regulatory restrictions, states continue 
to develop schemes to draw down federal Medicaid payments that grossly 
exceed costs. Moreover, the Centers for Medicare & Medicaid Services 
(formerly HCFA) do not verify that such moneys are used for the 
purposes for which they were obtained.

We believe that the Medicaid program should not allow states to benefit 
from illusory arrangements and that Medicaid funds should only be used 
to help cover the costs of medical care incurred by those medical 
facilities that provide care to Medicaid beneficiaries. We believe the 
Congress should continue its legislative efforts to minimize the 
likelihood that states can develop arrangements that claim excessive 
federal Medicaid payments and that inappropriately shift Medicaid costs 
to the federal government. Specifically, the Congress should consider 
legislation that would prohibit Medicaid payments that exceed costs to 
any government-owned facility.

Savings are difficult to estimate for this option because national data 
on these practices are not readily available. In addition, Medicaid 
spending is influenced by the use of waivers from federal requirements, 
which allows states to alter Medicaid financing formulas. Future 
requests and use of waivers by states are uncertain.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Major Management Challenges and Program Risks: Department of Health and 
Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 
Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.

Medicaid: HCFA Reversed Its Position and Approved Additional State 
Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.

Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/
T-HEHS-00-193. Washington, D.C.: September 6, 2000.

Medicaid: Managed Care and Individual Hospital Limits for 
Disproportionate Share Hospital Payments. GAO/HEHS-98-73R. Washington, 
D.C.: January 28, 1998.

Medicaid: Disproportionate Share Payments to State Psychiatric 
Hospitals. GAO/HEHS-98-52. Washington, D.C.: January 23, 1998.

Medicaid: Disproportionate Share Hospital Payments to Institutions for 
Mental Disease. GAO/HEHS-97-181R. Washington, D.C.: July 15, 1997.

State Medicaid Financing Practices. GAO/HEHS-96-76R. Washington, D.C.: 
January 23, 1996.

Michigan Financing Arrangements. GAO/HEHS-95-146R. Washington, D.C.: 
May 5, 1995.

Medicaid: States Use Illusory Approaches to Shift Program Costs to the 
Federal Government. GAO/HEHS-94-133. Washington, D.C.: August 1, 1994.

Medicaid: The Texas Disproportionate Share Program Favors Public 
Hospitals. GAO/HRD-93-86. Washington, D.C.: March 30, 1993.

GAO Contact:

William J. Scanlon, (202) 512-7114:

Create a Uniform Federal Mechanism for Food Safety:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 554/Consumer and occupational health and safety.



A multitude of agencies oversee food safety, with two agencies 
accounting for most federal spending on, and regulatory 
responsibilities for, food safety. The Food Safety and Inspection 
Service (FSIS), under the U.S. Department of Agriculture (USDA), is 
responsible for the safety of meat, poultry, eggs, and some egg 
products, while the Food and Drug Administration (FDA), under the 
Department of Health and Human Services (HHS), is responsible for the 
safety of most other foods.

The current food safety system emerged from a patchwork of often 
archaic laws and grew into a structure that actually hampers efforts to 
address existing and emerging food safety risks. Moreover, the current 
regulatory framework addresses only a segment--primarily food 
processing--of the continuum of activities that bring food from the 
farm to the table. Finally, scientific and technical advances in the 
production of food, such as the development of genetically modified 
foods, have further complicated the responsibilities of the existing 
federal food safety structure. Indeed, the food safety system suffers 
from gaps, overlapping and duplicative inspections, poor coordination, 
and inefficient allocation of resources.

The Congress could consider the following options to improve the 
effectiveness and efficiency of the federal food safety system and 
ensure a comprehensive farm-to-table approach--one that starts with 
growers and extends to retailers. One option would be to consolidate 
federal food safety agencies and activities under a single, 
independent, risk-based food safety agency responsible for 
administering a uniform set of laws. A second option would be to 
consolidate food safety activities in an existing department, such as 
USDA or HHS. In the past, CBO agreed that these options could 
potentially yield savings, but could not develop savings estimates due 
to the uncertainty of the extent to which improved efficiencies could 
actually lead to budgetary savings.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Food Safety: CDC Is Working to Address Limitations in Several of Its 
Foodborne Surveillance Systems. GAO-01-973. Washington, D.C.: 
September 7, 2001.

Food Safety: Federal Oversight of Shellfish Safety Needs Improvement. 
GAO-01-702. Washington, D.C.: July 9, 2001.

Food Safety: Overview of Federal and State Expenditures. GAO-01-177. 
Washington, D.C.: February 20, 2001.

Food Safety: Federal Oversight of Seafood Does Not Sufficiently Protect 
Consumers. GAO-01-204. Washington, D.C.: January 31, 2001.

Food Safety: Actions Needed by USDA and FDA to Ensure That Companies 
Promptly Carry Out Recalls. GAO/RCED-00-195. Washington, D.C.: August 
17, 2000.

Food Safety: Improvements Needed in Overseeing the Safety of Dietary 
Supplements and "Functional Foods." GAO/RCED-00-156. Washington, D.C.: 
July 11, 2000.

Meat and Poultry: Improved Oversight and Training Will Strengthen New 
Food Safety System. GAO/RCED-00-16. Washington, D.C.: December 8, 1999.

Food Safety: Agencies Should Further Test Plans for Responding to 
Deliberate Contamination. GAO/RCED-00-3. Washington, D.C.: October 27, 
1999.

Food Safety: U.S. Needs a Single Agency to Administer a Unified, Risk-
Based Inspection System. GAO/T-RCED-99-256. Washington, D.C.: August 4, 
1999.

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness. GAO/RCED-98-224. Washington, D.C.: August 6, 
1998.

Food Safety: Federal Efforts to Ensure the Safety of Imported Foods Are 
Inconsistent and Unreliable. GAO/RCED-98-103. Washington, D.C.: April 
30, 1998.

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food. GAO/
RCED-94-192. Washington, D.C.: September 26, 1994.

Food Safety and Quality: Uniform Risk-Based Inspection System Needed to 
Ensure Safe Food Supply. GAO/RCED-92-152. Washington, D.C.: June 26, 
1992.

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841:

Control Provider Enrollment Fraud in Medicaid:

Primary agency: Department of Health and Human Services.

Account: Grants to States for Medicaid (75-0512).

Spending type: Direct.

Budget subfunction: 551/Health care services.



Recent investigations of fraud in the California Medicaid program, 
which could exceed $1 billion in program losses, involve cases in which 
closer scrutiny would have raised questions about the legitimacy of the 
providers involved. State Medicaid programs are responsible for 
processing millions of providers' claims each year, making it 
impossible to perform detailed checks on a significant portion of them. 
While most providers bill appropriately, states need enrollment 
procedures to help prevent entry into Medicaid by providers intent on 
committing fraud. Preventing such providers from billing the program is 
more efficient than attempted recovery once payments have already been 
made.

Our July 2000 testimony highlighted several Medicaid programs that have 
comprehensive procedures to check the legitimacy of providers before 
they can bill the program. These states check that a provider has a 
valid license (if required) and no criminal record, has not been 
excluded from other federal health programs, and practices from a 
legitimate business location. However, only nine states report that 
they conduct all of these checks. In addition, we found that many 
states poorly control provider billing numbers. They either allow 
providers to bill indefinitely or fail to cancel inactive numbers. 
Since billing numbers are necessary to submit claims, poor control of 
them may allow fraudulent providers to obtain other providers' numbers 
and bill the program inappropriately.

At present, the federal government has no uniform or minimum 
requirements in approving providers' applications. As a result, we 
believe that it would be beneficial for the Centers for Medicare and 
Medicaid Services (CMS)--the agency formerly called the Health Care 
Financing Administration (HCFA)--to assist states in developing 
effective provider enrollment procedures. If states could limit 
entrance of even a small percentage of dishonest providers by adopting 
such procedures, future Medicaid costs would be reduced substantially. 
CMS has a work group that is considering options for a limited pilot 
project to study coordinating aspects of Medicaid and Medicare provider 
enrollment activities. However, in the past CBO could not develop an 
estimate of the savings for this option without specific strategies. 
Moreover, savings would be net of the additional resources required to 
implement such procedures.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Medicaid: State Efforts to Control Improper Payment Vary. GAO-01-662. 
Washington, D.C.: June 7, 2001.

Medicaid: HCFA and States Could Work Together to Better Ensure the 
Integrity of Providers. GAO/T-HEHS-00-159. Washington, D.C.: July 18, 
2000.

Medicaid: Federal and State Leadership Needed to Control Fraud and 
Abuse. GAO/T-HEHS-00-30. Washington, D.C.: November 9, 1999.

Health Care: Fraud Schemes Committed by Career Criminals and Organized 
Criminal Groups and Impact on Consumers and Legitimate Health Care 
Providers. GAO/OSI-00-1R. Washington, D.C.: October 5, 1999.

Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded 
Providers From Federal Health Programs. GAO/HEHS-97-63. Washington, 
D.C.: March 31, 1997.

Fraud and Abuse: Providers Excluded From Medicaid Continue to 
Participate in Federal Health Programs. GAO/T-HEHS-96-205. Washington, 
D.C.: September 5, 1996.

Prescription Drugs and Medicaid: Automated Review Systems Can Help 
Promote Safety, Save Money. GAO/AIMD-96-72. Washington, D.C.: June 11, 
1996.

GAO Contact:

William J. Scanlon, (202) 512-7114:

Eliminate Federal Funding for SCHIP Covering Adults without Children:

Primary agency: Department of Health and Human Services.

Account: State Children's Health Insurance Fund (75-0515).

Spending type: Mandatory.

Budget subfunction: 551/Health care service.



In July 2002, we reported both legal and policy concerns about the 
extent to which the Department of Health and Human Services (HHS) has 
ensured that approved demonstration waivers, authorized under Section 
1115 of the Social Security Act, were consistent with the goals and 
fiscal integrity of the Medicaid and State Children's Health Insurance 
Program (SCHIP). The legal concern was that HHS approved a waiver to 
allow a state to use unspent SCHIP funding to cover adults without 
children, despite the program's statutory objective of expanding health 
coverage to low-income children. We also reported policy concerns that 
approved waivers may increase the federal liability for program 
expenditures. Specifically, despite HHS's oversight responsibilities 
for ensuring that states' demonstration programs do not put the federal 
government at risk for spending more on Medicaid than it would have 
without such programs, two of the four approved waivers we reviewed 
could potentially cost the federal government at least $330 million 
more than if they had not been approved. We recommended that the 
Congress consider amending title XXI of the Social Security Act to 
specify that SCHIP funds are not available to provide health insurance 
coverage for childless adults. We also recommended that the Secretary 
of HHS better ensure that valid methods are used to demonstrate budget 
neutrality and appropriately adjust the federal obligation for the 
reviewed waivers.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. However, CBO indicated it could probably 
make an estimate for this example.

Related GAO Product:

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 
Projects Raise Concerns. GAO-02-817. Washington, D.C.: July 12, 2002.

GAO Contact:

Kathryn G. Allen, (202) 512-7114:

CBO Option Where Related GAO Work Is Identified22:

550-06 Require All States to Comply with New Rules About Medicaid's 
Upper Payment Limit by 2004:

Related GAO Products:

Major Management Challenges and Program Risks: Department of Health and 
Human Services. GAO-03-101. Washington, D.C.: January 2003.[Footnote 
27]

Medicaid: HCFA Reversed Its Position and Approved Additional State 
Financing Schemes. GAO-02-147. Washington, D.C.: October 30, 2001.

Medicaid: State Financing Schemes Again Drive Up Federal Payments. GAO/
T-HEHS-00-193. Washington, D.C.: September 6, 2000.

GAO Contacts:

Kathryn G. Allen, (202) 512-7114 Katherine Iritani, (206) 287-4820:

570 Medicare:

Examples from Selected GAO Work:

Reassess Medicare Incentive Payments in Health Care Shortage Areas:

Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, 
and Market Prices:

Increase Medicare Program Safeguard Funding:

Modify the Skilled Nursing Facility Payment Method to Ensure 
Appropriate Payments:

Implement Risk-Sharing in Conjunction with Medicare Home Health Agency 
Prospective Payment System:

Eliminate Medicare Competitive Sourcing Restrictions:

Change Pricing Formula for Medicare-Covered Drugs and Biologicals:

CBO Options Where Related GAO Work Is Identified:

570-10 Reduce Medicare Payments for Currently Covered Prescription 
Drugs:

570-11 Require Competitive Bidding for High-Volume Items of Durable 
Medical Equipment:

570-15 Simplify and Limit Medicare's Cost-Sharing Requirements:

570-19 Reduce Medicare Payments for Home Health Care:

Examples from Selected GAO Work:

Reassess Medicare Incentive Payments in Health Care Shortage Areas:

Primary agency: Department of Health and Human Services.

Account: Federal Supplemental Insurance Trust Fund Account (20-8004).

Spending type: Direct.

Budget subfunction: 571/Medicare.



The Medicare Incentive Payment program was established in 1987 amid 
concerns that low Medicare reimbursement rates for primary care 
services cause access problems for Medicare beneficiaries in 
underserved areas. The program pays physicians a 10-percent bonus 
payment for Medicare services they provide in areas identified by the 
Department of Health and Human Services (HHS) as having a shortage of 
primary care physicians. In 1997, bonus payments paid from the Medicare 
Supplemental Medical Insurance trust fund amounted to over $90 million.

This program, however, may not be the most appropriate means of 
addressing medical underservice.

* The need for this program may have changed; since 1987 the Congress 
generally increased reimbursement rates for primary care services and 
reduced the geographic variation in physician reimbursement rates. In 
addition, surveys of Medicare beneficiaries who have access problems, 
including those who may live in underserved areas, generally cite 
reasons other than the unavailability of a physician--such as the cost 
of services not paid by Medicare--for their access problems.

* The relatively small bonus payments most physicians receive--a median 
payment of $341 for the year in 1996--are unlikely to have a 
significant impact on physician recruitment and retention.

* Specialists receive most of the program dollars, even though primary 
care physicians have been identified as being in short supply, while 
shortages of specialists, if any, have not been determined.

* The program provides no incentives or assurances that physicians 
receiving bonuses will actually treat people who have problems 
obtaining health care.

* Centers for Medicare & Medicaid Services--formerly the Health Care 
Financing Administration--oversight of the program also has limitations 
that allow physicians and other providers to receive and retain bonus 
payments claimed in error.

HHS has acknowledged problems in the program and agrees that making 
incentive payments to specialists in urban areas appears to be 
unnecessary. The department has stated that it is clear that certain 
structural changes to this program are necessary to better target 
incentive payments to rural areas with the highest degree of shortage.

If the Congress determines that this program is not an appropriate 
vehicle for addressing medical underservice, then termination is a 
reasonable option. However, if it is decided to continue the program, 
then the Congress could consider reforms that clarify the program's 
goals and better structure the program to link limited federal funds to 
intended outcomes. For example, if the program's goal is to improve 
access to primary care services in underserved rural areas, the bonus 
payments should be limited to physicians providing primary care 
services to underserved populations in rural areas with the greatest 
need. Better targeting of the payments and evaluations would also be 
needed to provide assurances that the payments are achieving their 
intended outcomes.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Physician Shortage Areas: Medicare Incentive Payments Not an Effective 
Approach to Improve Access. GAO/HEHS-99-36. Washington, D.C.: February 
26, 1999.

Health Care Shortage Areas: Designations Not a Useful Tool for 
Directing Resources to the Underserved. GAO/HEHS-95-200. Washington, 
D.C.: September 8, 1995.

GAO Contact:

William J. Scanlon, (202) 512-7114:

Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, 
and Market Prices:

Primary agency: Department of Health and Human Services.

Account: Federal Supplementary Medical Insurance Trust Fund (20-8004).

Spending type: Direct.

Budget subfunction: 571/Medicare.



Medicare's supplementary medical insurance program (Medicare Part B) 
spent almost $7 billion for durable medical equipment, prosthetics, 
orthotics, and supplies in 2002 on behalf of its beneficiaries. For 
most medical equipment and supplies, Medicare payments are primarily 
based on historical charges, indexed forward, rather than current costs 
or market prices.

We have reported that Medicare payments for some medical equipment and 
supplies are out of line with actual market prices. This can occur when 
providers' costs for some procedures, equipment, and supplies have 
declined over time as competition and efficiencies increased. For 
example, when Medicare sets its payment rates for new items, the rates 
typically are based on the high initial unit costs. Over time, 
providers' unit costs decline as the equipment improves, utilization 
increases, and experience in using the equipment results in 
efficiencies. In other cases, medical innovations and advances have 
increased the cost of some procedures and products. However, Medicare 
did not have a process to routinely and systematically review these 
factors and make timely adjustments to the Medicare payment rates. In 
fact, through the years, the Congress has legislatively adjusted 
Medicare rates for some products and services, such as home oxygen, 
clinical laboratory tests, intraocular lenses, computed tomography 
scans, and magnetic resonance imaging scans.

To address problems with excessive payments, the Balanced Budget Act of 
1997 provided the Health Care Financing Administration (HCFA)--the 
agency now called the Centers for Medicare & Medicaid Services (CMS)--
the authority to use a streamlined process for adjusting Medicare Part 
B payments by up to 15 percent per year. (This revised authority does 
not extend to adjusting Medicare payments for physician services.) The 
agency issued an interim final rule to implement its authority in 
December 2002. However, in the rule, the agency severely limited its 
ability to use its new authority to bring its payment rates into line 
with market prices by indicating that it would adjust Medicare payment 
rates only when they were at least 15 percent above or below a 
realistic and equitable amount.

An additional limitation to effectively using this new authority is 
that CMS frequently does not know specifically what Medicare is paying 
for. CMS does not require suppliers to identify on Medicare claims the 
specific items billed. Instead, suppliers are required to use CMS 
billing codes, most of which cover a broad range of products of various 
types, qualities, and market prices. For example, one Medicare billing 
code is used for more than 200 different urological catheters, even 
though some of these catheters sell at a fraction of the price of 
others billed under the same code. Unless Medicare claims contain more 
product-specific information, CMS cannot track what items are billed to 
ensure that each billing code is used for products of comparable 
quality and price. Although the health care industry is increasingly 
using more specific universal product numbers and bar codes for 
inventory control, CMS does not currently require suppliers to use 
these identifiers on Medicare claims.

Several options could help to better align Medicare fees with actual 
costs and market prices. One option would be for the Congress to give 
CMS the authority to implement competitive bidding for durable medical 
equipment, prosthetics, orthotics, and supplies. Competitive bidding 
uses the dynamics of the marketplace to create incentives for providers 
to provide items and services efficiently. In the Balanced Budget Act 
of 1997, the Congress required the agency to test competitive bidding 
for Part B services and supplies (except for physician services) 
through a demonstration. In the spring of 1999, HCFA selected competing 
suppliers to provide oxygen supplies and other supplies and equipment 
to beneficiaries in Polk County, Fla. In 2000, HCFA began competitive 
bidding in a second site--three counties near San Antonio, Tex.--for 
oxygen supplies, nebulizer inhalation drugs, and other equipment. The 
new payment rates for the items bid averaged 17 to 22 percent below 
existing Medicare rates for those states. Despite this reduction in the 
amount paid, the demonstration's evaluators found little evidence of 
problems with beneficiary access to products. In addition, the 
demonstration required bidders to meet more stringent quality standards 
than are customary in the Medicare program. CMS's authority to conduct 
these competitive bidding demonstrations ended December 31, 2002. 
Without new legislative authority, the agency cannot use a competitive 
bidding approach.

A second option for paying more appropriately for medical equipment and 
supplies would be to base Medicare payments on the lower of the fee 
schedule allowance or the lowest amount a provider has agreed to accept 
from other payers. CMS would also need legislative authority to pursue 
this option. Yet another approach would be to develop separate fee 
schedules that distinguish between wholesale and retail acquisition to 
ensure that large suppliers do not receive inappropriately large 
Medicare reimbursements. Although none of these options specifically 
targets expensive, evolving technologies, we believe significant 
program savings would result from an ongoing, systematic process for 
evaluating the reasonableness of Medicare payment rates for new medical 
technologies as those technologies mature.

In 2002, CBO agreed that aligning Medicare payment rates with costs and 
market prices could yield savings and estimated that giving CMS 
authority to conduct competitive bidding for durable medical equipment, 
prosthetics, orthotics and supplies could result in a net reduction of 
Medicare spending of $5.8 billion from fiscal years 2003 through 2012.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Medicare: Challenges Remain in Setting Payments for Medical Equipment 
and Supplies and Covered Drugs. GAO-02-833T. Washington, D.C.: June 12, 
2002.

Medicare Payments: Use of Revised "Inherent Reasonableness" Process 
Generally Appropriate. GAO/HEHS-00-79. Washington, D.C.: July 5, 2000.

Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA 
Monitoring Needed. GAO/HEHS-99-56. Washington, D.C.: April 5, 1999.

Medicare: Progress to Date in Implementing Certain Major Balanced 
Budget Act Reforms. GAO/T-HEHS-99-87. Washington, D.C.: March 17, 1999.

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

Medicare: Home Oxygen Program Warrants Continued HCFA Attention. GAO/
HEHS-98-17. Washington, D.C.: November 7, 1997.

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

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

Medicare Spending: Modern Management Strategies Needed to Curb Billions 
in Unnecessary Payments. GAO/HEHS-95-210. Washington, D.C.: September 
19, 1995.

Medicare High Spending Growth Calls for Aggressive Action. GAO/T-HEHS-
95-75. Washington, D.C.: February 6, 1995.

Medicare: Excessive Payments Support the Proliferation of Costly 
Technology. GAO/HRD-92-59. Washington, D.C.: May 27, 1992.

GAO Contact:

William J. Scanlon, (202) 512-7114:

Increase Medicare Program Safeguard Funding:

Primary agency: Department of Health and Human Services.

Accounts: Multiple.

Spending type: Discretionary/Direct.

Budget subfunction: 571/Medicare.



Medicare program safeguard activities designed to combat fraud, waste, 
and abuse have historically returned about $10 in savings for each 
dollar spent, and Centers for Medicare & Medicaid Services (CMS) 
reported a return of $16 for each dollar spent in fiscal year 2002. 
These types of activities include pre-and post-payment medical review 
of claims to determine if services are medically necessary and 
appropriate, audits, and fraud unit investigations. The Health 
Insurance Portability and Accountability Act of 1996 established the 
Medicare Integrity Program (MIP) and provided the agency now called CMS 
with increased funding for program safeguard activities. CMS has taken 
a number of actions under MIP to promote more efficient and effective 
contractor safeguard operations.

While funding has increased, in 2002 it remained below program 
safeguard funding levels in the previous decade, adjusted for 
inflation. Comparing program safeguard expenditures from fiscal years 
1995 through 1998--2 years before and after MIP implementation--shows 
that expenditures increased by more than one-quarter to $544.6 million. 
However, in constant 1998 dollars, the amount spent on program 
safeguards per claim processed is still almost one-third less than was 
spent in fiscal year 1989. Further, the combined effects of increased 
claims volume of 3 to 5 percent annually in recent years and inflation 
will erode part of the benefits of increased funding authorized for 
future years. In response to reduced resources, contractors apply fewer 
or less stringent payment controls resulting in payment of claims that 
otherwise would not be paid.

We believe that additional program safeguard funding might better 
protect Medicare from erroneous payments and yield net savings. As a 
result, we have suggested that the Congress consider increasing the 
agency's MIP funds to allow an expansion of postpayment medical review 
and other effective program safeguard activities. However, CMS needs a 
better understanding of costs and savings from particular activities--
such as desk reviews and cost audits. It also needs to consistently 
code savings from different activities to understand their relative 
value, as well as determine which contractors are realizing the highest 
return on investment from their program safeguard activities. 
Therefore, we also recommended that CMS evaluate the effectiveness of 
prepayment and postpayment activities to determine the relative 
benefits of various safeguards.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Major Management Challenges and Program Risks: Department of Health and 
Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicare: Opportunities and Challenges in Contracting for Program 
Safeguards. GAO-01-616. Washington, D.C.: May 18, 2001.

Major Management Challenges and Program Risks: Department of Health and 
Human Services. GAO-01-247. Washington, D.C.: January 2001.

Medicare: HCFA Could Do More to Identify and Collect Overpayments. GAO/
HEHS/AIMD-00-304. Washington, D.C.: September 7, 2000.

Medicare: Health Care Fraud and Abuse Control Program Financial Reports 
for Fiscal Years 1998 and 1999. GAO/AIMD-00-257R. Washington, D.C.: 
July 31, 2000.

Medicare Contractors: Further Improvement Needed in Headquarters and 
Regional Office Oversight. GAO/HEHS-00-46. Washington, D.C.: March 23, 
2000.

Medicare: Program Safeguard Activities Expand, but Results Difficult to 
Measure. GAO/HEHS-99-165. Washington, D.C.: August 4, 1999.

Medicare Contractors: Despite Its Efforts, HCFA Cannot Assure Their 
Effectiveness or Integrity. GAO/HEHS-99-115. Washington, D.C.: July 14, 
1999.

Medicare: Improprieties by Contractors Compromised Medicare Program 
Integrity. GAO/OSI-99-7. Washington, D.C.: July 14, 1999.

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

Medicare: Health Care Fraud and Abuse Control Program Financial Report 
for Fiscal Year 1997. GAO/AIMD-98-157. Washington, D.C.: June 1, 1998.

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

Medicare: Improper Activities by Mid-Delta Home Health. GAO/OSI-98-5. 
Washington, D.C.: March 12, 1998.

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

Medicare: Recent Legislation to Minimize Fraud and Abuse Requires 
Effective Implementation. GAO/T-HEHS-98-9. Washington, D.C.: October 
9, 1997.

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

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

Nursing Homes: Too Early to Assess New Efforts to Control Fraud and 
Abuse. GAO/T-HEHS-97-114. Washington, D.C.: April 16, 1997.

Medicare: Inherent Program Risks and Management Challenges Require 
Continued Federal Attention. GAO/T-HEHS-97-89. Washington, D.C.: March 
4, 1997.

Medicare. GAO/HR-97-10. Washington, D.C.: February 1, 1997.

GAO Contact:

William J. Scanlon, (202) 512-7114:

Modify the New Skilled Nursing Facility Payment Method to Ensure 
Appropriate Payments:

Primary agency: Department of Health and Human Services.

Account: Federal Hospital Insurance Trust Fund (20-8005).

Spending type: Direct.

Budget subfunction: 571/Medicare.



The Balanced Budget Act of 1997 mandated the implementation of a 
prospective payment system (PPS) for skilled nursing facilities (SNF) 
to help address concerns about dramatic growth in Medicare spending for 
these services. A PPS provides incentives to deliver services 
efficiently by paying providers--regardless of their costs--fixed, 
predetermined rates that vary according to expected patient service 
needs. The Health Care Financing Administration (HCFA), now called the 
Centers for Medicare & Medicaid Services (CMS), began phasing in such a 
system for SNFs in July 1998.

However, problems with the design of the PPS, the services excluded 
from the daily rate, and inadequate data used to establish rates could 
compromise Medicare's ability to stem spending growth while maintaining 
beneficiary access. We are concerned that the PPS preserves the 
opportunity for providers to increase their compensation by supplying 
unnecessary services, such as additional therapy services, and by 
changing their patient assessment practices to qualify patients into 
higher paying payment categories. Consistent with the PPS incentives to 
minimize costs, SNFs have provided fewer therapy services to patients 
categorized into rehabilitation payment groups. Without adequate 
adjustments, this could result in payments for some categories of 
patients that are higher relative to service costs than payments for 
other groups of patients. We are also concerned that increases in 
payments intended to encourage SNFs to increase their nursing staff 
appear to have been ineffective in increasing staffing ratios. In 
addition, excluding certain services from the daily rate, and paying 
for them separately, may encourage service provision and unnecessarily 
increase Medicare spending. For example, some services are excluded 
only when provided in hospital outpatient departments, which may 
encourage providers to use this setting when other, less costly 
ambulatory settings could be appropriate. Furthermore, the payment 
rates were computed using data that may overstate the reasonable cost 
of providing care and may not appropriately reflect the differences in 
costs for patients with different care needs.

Changes in beneficiary eligibility and inadequate planned oversight of 
claims for payment may undermine efforts to control Medicare spending 
on SNF services. As part of the PPS, Medicare appears to have changed 
the process for determining eligibility for the Medicare SNF benefit. 
Beneficiaries with certain care needs are automatically eligible for 
the SNF benefit, while other beneficiaries with different care needs 
are required to be reviewed to ensure that they meet the eligibility 
criteria. This could expand the number of beneficiaries who will be 
covered. The planned oversight of claims to determine if a beneficiary 
is entitled to Medicare coverage and how much payment a SNF should 
receive is insufficient, increasing the potential to compromise 
expected savings.

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

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Skilled Nursing Facilities: Available Data Show Average Nursing Staff 
Time Changed Little after Medicare Payment Increase. GAO-03-176. 
Washington, D.C.: November 13, 2002.

Skilled Nursing Facilities: Providers Have Responded to Medicare 
Payment System By Changing Practices. GAO-02-841. Washington, D.C.: 
August 23, 2002.

Skilled Nursing Facilities: Services Excluded From Medicare's Daily 
Rate Need to be Reevaluated. GAO-01-816. Washington, D.C.: August 22, 
2001.

Nursing Homes: Aggregate Medicare Payments Are Adequate Despite 
Bankruptcies. GAO/T-HEHS-00-192. Washington, D.C.: September 5, 2000.

Skilled Nursing Facilities: Medicare Payments Changes Require Provider 
Adjustments But Maintain Access. GAO/HEHS-00-23. Washington, D.C.: 
December 14, 1999.

Medicare: Better Information Can Help Ensure That Refinements to BBA 
Reforms Lead to Appropriate Payments. GAO/T-HEHS-00-14. Washington, 
D.C.: October 1, 1999.

Skilled Nursing Facilities: Medicare Payments Need to Better Account 
for Nontherapy Ancillary Cost Variation. GAO/HEHS-99-185. Washington, 
D.C.: September 30, 1999.

Medicare Post-Acute Care: Better Information Needed Before Modifying 
BBA Reforms. GAO/T-HEHS-99-192. Washington, D.C.: September 15, 1999.

Balanced Budget Act: Any Proposed Fee-for-Service Payment Modifications 
Need Thorough Evaluation. GAO/T-HEHS-99-139. Washington, D.C.: June 10, 
1999.

Medicare: Progress to Date in Implementing Certain Major Balanced 
Budget Act Reforms. GAO/T-HEHS-99-87. Washington, D.C.: March 17, 1999.

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

Long-Term Care: Baby Boom Generation Presents Financing Challenges. 
GAO/T-HEHS-98-107. Washington, D.C.: March 9, 1998.

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

GAO Contact:

William J. Scanlon, (202) 512-7114:

Implement Risk-Sharing in Conjunction with Medicare Home Health Agency 
Prospective Payment System:

Primary agency: Department of Health and Human Services.

Account: Federal Supplementary Medical Insurance Trust Fund (20-8004).

Spending type: Direct.

Budget subfunction: 571/Medicare.



Medicare spending for home health care rose from $3.7 billion in 1990 
to $17.8 billion in 1997--an annual growth rate of over 25 percent--
making it one of the fastest growing components of the Medicare 
program. This spending growth was primarily due to more beneficiaries 
receiving services and more visits provided per user, because 
Medicare's cost-based payment method reimbursed home health agencies 
(HHA) for each visit provided. To control spending, the Balanced Budget 
Act of 1997 (BBA) required the implementation of a prospective payment 
system (PPS) for home health agencies. Beginning October 1, 2000, 
Medicare paid a fixed, predetermined amount for each 60-day episode of 
care, adjusted for patient characteristics that affect the costs of 
providing care. Under this system, agencies will be rewarded 
financially for keeping their per-episode costs below the payment rate 
and thus will have a strong incentive to reduce the number of visits 
provided during an episode and to shift to a less costly mix of visits.

However, under an episode-based payment system, HHAs will have an 
incentive to provide the minimum number of visits necessary to receive 
a full episode payment, or to lower the number of visits provided below 
that used to develop the episode payment, thereby increasing their 
profits. While the episode payment was set based on the assumption that 
about 32 visits would be provided, agencies can provide as few as 5 
visits. In fact, since the PPS, agencies have reduced the number of 
visits provided to beneficiaries and furnished on average about 22 
visits per episode by the first half of 2001. As a result, the Medicare 
program is paying HHAs for services that beneficiaries did not receive 
and on average considerably more than the estimated costs of care 
beneficiaries are receiving. Some HHAs that face extraordinary costs 
not accounted for by the payment groups, however, may be financially 
disadvantaged.

In order to reduce these incentives, the Congress could require CMS to 
implement a risk-sharing arrangement, in which total Medicare PPS 
payments to an HHA are adjusted at year-end in light of the provider's 
actual costs, to mitigate any unintended consequences of the payment 
change. Such an arrangement could moderate the incentive to manipulate 
services to maximize profits and the uncertainties associated with 
payment rates that are based on averages when so little is known about 
appropriate patterns of home health care. Limiting an HHA's losses or 
gains would help protect the industry, the Medicare program, and 
beneficiaries from possible negative effects of the PPS until more is 
known about how best to design the PPS and the most appropriate home 
health treatment patterns.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Medicare Home Health Care: Payments to Home Health Agencies Are 
Considerably Higher than Costs. GAO-02-663. Washington, D.C.: May 6, 
2002.

Medicare Home Health Care: Prospective Payment System Could Reverse 
Recent Declines in Spending. GAO/HEHS-00-176. Washington, D.C.: 
September 8, 2000.

Medicare Home Health Care: Prospective Payment System Will Need 
Refinement as Data Become Available. GAO/HEHS-00-9. Washington, D.C.: 
April 7, 2000.

GAO Contact:

William J. Scanlon, (202) 512-7114:

Eliminate Medicare Competitive Sourcing Restrictions:

Primary agency: Department of Health and Human Services.

Account: Program Management (75-0511).

Spending type: Discretionary.

Budget subfunction: 571/Medicare.



Medicare is a federal health insurance program designed to assist 
elderly and disabled beneficiaries. Hospital insurance, or Part A, 
covers inpatient hospital, skilled nursing facility, hospice care, and 
certain home health services. Supplemental medical insurance, or Part 
B, covers physician and outpatient hospital services, laboratory and 
other services. Claims are paid by a network of 49 claims 
administration contractors called fiscal intermediaries and carriers. 
Fiscal intermediaries process claims from hospitals and other 
institutional providers, generally for Part A services, while carriers 
process Part B claims. The fiscal intermediaries' and carriers' 
responsibilities include reviewing and paying claims, maintaining 
program safeguards to prevent inappropriate payment, and educating and 
responding to provider and beneficiary concerns.

Medicare contracting for fiscal intermediaries and carriers differs 
from that of most federal programs. Most federal agencies, under the 
Competition in Contracting Act and its implementing regulations known 
as the Federal Acquisition Regulation (FAR), generally may contract 
with any qualified entity for any authorized purpose so long as that 
entity is not debarred from government contracting and the contract is 
not for what is essentially a government function. The FAR generally 
requires agencies to conduct full and open competition for contracts, 
allows contractors to earn profits, and requires contractors to perform 
until the end of the contract term.

The Secretary of the Department of Health and Human Services (HHS), 
however, is authorized to enter into contracts with fiscal 
intermediaries and carriers without regard to federal procurement 
statutes under Social Security Act provisions that originated when 
Medicare was established. There is no full and open competition for 
fiscal intermediary or carrier contracts. Rather, fiscal intermediaries 
are selected in a process called nomination by provider associations, 
such as the American Hospital Association. Because the statutory 
language authorizing Medicare claims administration contracting 
described a set of functions to be performed, claims administration 
contractors have generally been expected to perform the full set of 
functions, except when the Congress gave specific authority to contract 
separately for a function. The Social Security Act also generally calls 
for the use of cost-based reimbursement contracts under which 
contractors are reimbursed for necessary and proper costs of carrying 
out Medicare activities, but the act does not expressly provide for 
profit. Furthermore, the Medicare statute limits the government's 
ability to terminate these contracts at its convenience, while allowing 
the claims administration contractors to terminate their contracts 
without penalty by providing the government with 180 days notice.

Freeing the Medicare program to directly choose contractors on a 
competitive basis from a broader array of entities able to perform 
needed tasks would enable Medicare to benefit from efficiency and 
performance improvements related to competition. Allowing Medicare to 
have contractors specialize in specific functions rather than assume 
all claims-related activities, as is the case now, also could lead to 
greater efficiency and better performance.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Major Management Challenges and Program Risks: Department of Health and 
Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicare: Improvements Needed in Provider Communications and 
Contracting Procedures. GAO-01-1141T. Washington, D.C.: September 25, 
2001.

Medicare: Comments on HHS' Claims Administration Contracting Reform 
Proposal. GAO-01-1046R. Washington, D.C.: August 17, 2001.

Medicare Contracting Reform: Opportunities and Challenges in 
Contracting for Claims Administration Services. GAO-01-918T. 
Washington, D.C.: June 28, 2001.

Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their 
Effectiveness or Integrity. GAO/HEHS-99-115. Washington, D.C.: July 14, 
1999.

GAO Contact:

Leslie G. Aronovitz, (312) 220-7600:

Change Pricing Formula for Medicare-Covered Drugs and Biologicals:

Primary agency: Department of Health and Human Services.

Account: Federal Supplementary Medical Insurance Trust Fund (20-8004).

Spending type: Direct.

Budget subfunction: 571/Medicare.



While Medicare does not have a comprehensive outpatient drug benefit, 
certain drugs and biologicals are covered under Part B of the program. 
In general, drugs are covered if they cannot be self-administered and 
are related to a physician's services, such as cancer chemotherapy, or 
are provided in conjunction with covered durable medical equipment. In 
addition, Medicare covers selected immunizations and certain drugs that 
can be self-administered, such as blood clotting factors.

Medicare spending for drugs and biologicals--by the program and its 
beneficiaries through their copayments--has been increasing rapidly. 
Between 1997 and 2001, spending more than doubled--from $2.76 billion 
to $6.41 billion.

Medicare bases its reimbursement to physicians and other providers of 
drugs on average wholesale price (AWP). Manufacturers periodically 
report AWPs to publishers of drug pricing data. Medicare carriers, the 
contractors responsible for paying Part B claims, use published AWPs to 
determine the Medicare-allowed payment level, which is 95 percent of 
the AWP.

Physicians and other providers of Medicare-covered drugs are able to 
obtain thesed drugs at prices significantly below current Medicare 
payments. We reported in 2001 that the difference between widely 
available prices and AWP for physician-administered drugs in a GAO 
sample study varied from 13 percent to 34 percent. For a sample of 
pharmacy-supplier-provided drugs, prices ranged from 14 percent to 85 
percent. In 2003, we reported that the two main types of suppliers of 
blood clotting factor to beneficiaries also were able to obtain the 
product at prices considerably below the Medicare payment.

Medicare could achieve significant savings on Part B drug benefits if 
it reimbursed providers at levels that reflected actual acquisition 
costs.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Medicare: Payment for Blood Clotting Factor Exceeds Providers' 
Acquisition Cost. GAO-03-184. Washington, D.C.: January 10, 2003.

Major Management Challenges and Program Risks: Department of Health and 
Human Services. GAO-03-101. Washington, D.C.: January 2003.

Medicare: Challenges Remain in Setting Payments for Medical Equipment 
and Supplies and Covered Drugs. GAO-02-833T. Washington, D.C.: June 12, 
2002.

Medicare Outpatient Drugs: Program Payments Should Better Reflect 
Market Prices. GAO-02-531T. Washington, D.C.: March 14, 2002.

Medicare: Payments for Covered Outpatient Drugs Exceed Providers' Cost. 
GAO-01-1118. Washington, D.C.: September 21, 2001.

Medicare Part B Drugs: Program Payments Should Reflect Market Prices. 
GAO-01-1142T. Washington, D.C.: September 21, 2001.

GAO Contact:

William J. Scanlon, (202) 512-7114:

CBO Options Where Related GAO Work Is Identified:

570-10 Reduce Medicare Payments for Currently Covered Prescription 
Drugs:

Related GAO Products:

Medicare: Payment for Blood Clotting Factor Exceeds Providers' 
Acquisition Cost. GAO-03-184. Washington, D.C.: January 10, 
2003.[Footnote 28]

Medicare: Challenges Remain in Setting Payments for Medical Equipment 
and Supplies and Covered Drugs. GAO-02-833T. Washington, D.C.: June 12, 
2002.

Medicare Outpatient Drugs: Program Payments Should Better Reflect 
Market Prices. GAO-02-531T. Washington, D.C.: March 14, 2002.

Medicare: Payments for Covered Outpatient Drugs Exceed Providers' Cost. 
GAO-01-1118. September 21, 2001.

GAO Contact:

Laura A. Dummit, (202) 512-7119:

570-11 Require Competitive Bidding for High-Volume Items of Durable 
Medical Equipment:

Related GAO Product:

Medicare: Challenges Remain in Setting Payments for Medical Equipment 
and Supplies and Covered Drugs. GAO-02-833T. Washington, D.C.: June 12, 
2002.

GAO Contacts:

Leslie G. Aronovitz, (312) 220-7600 Sheila Avruch, (202) 512-7277:

570-15 Simplify and Limit Medicare's Cost-Sharing Requirements:

Related GAO Products:

Medicare Reform: Modernization Requires Comprehensive Program View. 
GAO-01-862T. Washington, D.C.: June 14, 2001.

Medicare: Cost-Sharing Policies Problematic for Beneficiaries and 
Program. GAO-01-713T. Washington, D.C.: May 9, 2001.

GAO Contact:

Laura A. Dummit, (202) 512-7119:

570-19 Reduce Medicare Payments for Home Health Care:

Related GAO Products:

Medicare: Utilization of Home Health Care by State. GAO-02-782R. 
Washington, D.C.: May 23, 2002.

Medicare Home Health Care: Payments to Home Health Agencies Are 
Considerably Higher than Costs. GAO-02-663. Washington, D.C.: May 6, 
2002.

Medicare Home Health Care: Prospective Payment System Could Reverse 
Recent Declines in Spending. GAO/HEHS-00-176. Washington, D.C.: 
September 8, 2000.

GAO Contact:

Laura A. Dummit, (202) 512-7119:

600 Income Security:

Examples from Selected GAO Work:

Develop Comprehensive Return-to-Work Strategies for People with 
Disabilities:

Revise Benefit Payments under the Federal Employees' Compensation Act:

Increase Congressional Oversight of PBGC's Budget:

Share the Savings from Bond Refundings:

Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections:

Improve Reporting of DOD Reserve Employee Payroll Data to State 
Unemployment Insurance Programs:

Improve Social Security Benefit Payment Controls:

Simplify Supplemental Security Income Recipient Living Arrangements:

Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems:

Obtain and Share Information on Medical Providers and Middlemen to 
Reduce Improper Payments to Supplemental Security Income Recipients:

Sustain/Expand Range of SSI Program Integrity Activities:

Revise Government Pension Offset (GPO) Exemption:

Better Congressional Oversight of PRWORA's Fugitive Felon Provisions:

Improve the Administrative Oversight of Food Assistance Programs:

CBO Option Where Related GAO Work Is Identified:

600-07 Reduce the Federal Matching Rate for Administrative and Training 
Costs in the Foster Care and Adoption Assistance Programs:

Examples from Selected GAO Work:

Develop Comprehensive Return-to-Work Strategies for People with 
Disabilities:

Primary agency: Social Security Administration.

Accounts: Multiple.

Spending type: Direct.

Budget subfunctions: Multiple.



The Social Security Administration (SSA) operates the Disability 
Insurance (DI) and Supplemental Security Income (SSI) programs--the 
nation's two largest federal programs providing cash benefits to people 
with disabilities. For fiscal year 2002, DI benefits paid to disabled 
workers totaled about $59.9 billion and SSI benefits paid to 
beneficiaries with disabilities amounted to about $26.2 billion. SSA 
data show that over the past 10 years, the size of the working-age 
disabled beneficiary population increased 38 percent, from about 6.0 
million to 8.2 million. Such growth has raised concerns that are 
compounded by the fact that few DI beneficiaries ever leave the 
disability rolls by returning to work.

We found that return-to-work strategies and practices may hold 
potential for improving federal disability programs by helping people 
with disabilities return to productive activity in the workplace and, 
at the same time, reducing benefit payments. Our analysis of practices 
advocated and implemented by the private sector in the United States 
and by social insurance programs in Germany and Sweden revealed three 
common strategies in the design of their return-to-work programs: 
intervene as soon as possible after an actual or potentially disabling 
event to promote and facilitate return-to-work, identify and provide 
necessary return-to-work assistance and manage cases to achieve return-
to-work goals, and structure cash and medical benefits to encourage 
people with disabilities to return to work.

In line with placing greater emphasis on return-to-work, we recommended 
that the Commissioner of SSA develop a comprehensive return-to-work 
strategy that integrates, as appropriate, earlier intervention, earlier 
identification and provision of necessary return-to-work assistance for 
applicants and beneficiaries, and cash and medical benefits that make 
work more financially advantageous. SSA has stepped up its return-to-
work efforts, in part, in response to mandates from the Ticket to Work 
and Work Incentives Improvement Act of 1999, which contains provisions 
to safeguard medical coverage for workers with disabilities, enhance 
vocational rehabilitation services for beneficiaries, and demonstrate 
the effectiveness of allowing working beneficiaries to keep more of 
their earnings. For example, SSA has (1) recruited more than 400 public 
or private entities to provide vocational rehabilitation, employment, 
and other support services to beneficiaries under the Ticket to Work 
Program; (2) raised and indexed to a measure of wage growth the limit 
on the amount a DI beneficiary can earn from work and still receive 
benefits to encourage people with disabilities to work; (3) funded 12 
state partnership agreements that are intended to help the states 
develop services to increase beneficiary employment; (4) provided 
funding to more than 100 community-based organizations to help provide 
work incentives planning and assistance to beneficiaries; and (5) 
completed a pilot study on the deployment of work incentive specialists 
to SSA field offices and is determining how to best implement the 
position nationally. Further, SSA has progressed in researching issues 
related to return-to-work through its Disability Research Institute. 
Research that is underway includes (1) designing a demonstration to 
provide earlier return-to-work services to DI applicants who are likely 
to be found eligible; (2) exploring the paths DI applicants and 
beneficiaries took to the benefit program to determine whether SSA 
might be able to redirect some applicants to work rather than a 
prolonged stay on the benefit rolls; (3) examining how the onset of 
disability early in life affects later employment outcomes; and (4) 
analyzing and facilitating the transition to employment of youths with 
disabilities.

While these efforts represent positive steps in trying to return people 
with disabilities to work, SSA still needs to move forward in 
developing a comprehensive return-to-work strategy. Such a strategy is 
likely to require improvements to staff skill levels and areas of 
expertise, as well as changes to the disability determination process. 
It will also require fundamental changes to the underlying philosophy 
and direction of the DI and SSI programs, as well as legislative 
changes in some cases. Policymakers will need to carefully weigh the 
implications of such changes. Nevertheless, we remain concerned that 
the absence of such a strategy may hinder SSA's efforts to make 
significant strides in the return-to-work area. An improved return-to-
work strategy could benefit both the beneficiaries who want to work and 
the American taxpayer.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

SSA Disability: SGA Levels Appear to Affect the Work Behavior of 
Relatively Few Beneficiaries, but More Data Needed. GAO-02-224. 
Washington, D.C.: January 16, 2002.

SSA Disability: Other Programs May Provide Lessons for Improving 
Return-to-Work Efforts. GAO-01-153. Washington, D.C.: January 12, 2001.

Social Security Disability: Other Programs May Provide Lessons for 
Improving Return-to-Work Efforts. GAO/T-HEHS-00-151. Washington, D.C.: 
July 13, 2000.

Social Security Disability: Multiple Factors Affect Return to Work. 
GAO/T-HEHS-99-82. Washington, D.C.: March 11, 1999.

Social Security Disability Insurance: Multiple Factors Affect 
Beneficiaries' Ability to Return to Work. GAO/HEHS-98-39. Washington, 
D.C.: January 12, 1998.

Social Security: Disability Programs Lag in Promoting Return to Work. 
GAO/HEHS-97-46. Washington, D.C.: March 17, 1997.

People With Disabilities: Federal Programs Could Work Together More 
Efficiently to Promote Employment. GAO/HEHS-96-126. Washington, D.C.: 
September 3, 1996.

SSA Disability: Return-to-Work Strategies From Other Systems May 
Improve Federal Programs. GAO/HEHS-96-133. Washington, D.C.: July 11, 
1996.

SSA Disability: Program Redesign Necessary to Encourage Return to Work. 
GAO/HEHS-96-62. Washington, D.C.: April 24, 1996.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Revise Benefit Payments under the Federal Employees' Compensation Act:

Primary agency: Department of Labor.

Accounts: Multiple.

Spending types; Direct/Discretionary.

Budget subfunction: 609/Other income security.



Federal workers who are disabled as a result of a work-related injury 
are entitled to tax-free workers' compensation benefits under the 
Federal Employees' Compensation Act (FECA). Several GAO reviews have 
identified ways in which benefit payment policies can be revised to 
better address eligibility and/or need or to bring FECA benefits more 
in line with other federal and state workers' compensation laws.

Basing FECA Compensation on Spendable Earnings:

For almost all totally disabled individuals, FECA benefits are 66 and 
two thirds percent of gross pay for beneficiaries without dependents 
and 75 percent of gross pay for beneficiaries with at least one 
dependent. We reported that nearly 30 percent of the more than 23,000 
beneficiaries included in our analyses received FECA compensation 
benefits that replaced more than 100 percent of their estimated take-
home pay. Another 40 percent of these beneficiaries received FECA 
benefits that were from 90 to 99 percent of their take-home pay. 
Benefit replacement rates tended to be higher for beneficiaries who (1) 
received higher amounts of pay before they were injured, (2) were 
injured before 1980, (3) received the FECA dependent benefit, and (4) 
lived in states that had an income tax.

Workers' compensation program analysts are reluctant to take a position 
on what the "correct" level of workers' compensation benefits should 
be, leaving that matter to the judgment of legislators. According to a 
1985 Workers Compensation Research Institute report, legislators in 
many states must walk a fine line between benefits that are high enough 
to provide adequate income, but not so high as to discourage an 
employee's return-to-work when he or she is no longer disabled. The 
1972 Report of the National Commission on State Workmen's Compensation 
Laws recommended that workers' weekly benefits should replace at least 
80 percent of their spendable weekly earnings, subject to a state's 
maximum weekly benefit. Six states use a percentage of spendable weekly 
earnings (ranging from 75 to 80 percent) rather than a percentage of 
gross wages as the basis for computing compensation benefits. Spendable 
earnings (take-home pay) are computed by taking an employee's gross pay 
at the time of injury and subtracting Social Security taxes and federal 
and state income taxes. Taxes are based on published tax withholding 
tables, given an employee's actual exemptions and a standard deduction.

If the Congress judges that current FECA benefits are so high as to 
discourage employees from returning to work, it could consider changing 
the current FECA benefit structure from one that bases compensation on 
gross pay to one that bases compensation on spendable earnings. In the 
past, CBO estimated the savings that would occur, assuming that the new 
FECA benefit formula would equal 80 percent of spendable earnings and 
that changes in benefits would be made prospectively. Additional 
savings could be achieved if changes were made to affect individuals 
who were already receiving FECA benefits. Fewer savings would be 
achieved if a higher percentage of spendable earnings were used as the 
basis for computing FECA benefits.

Revising Benefits for Retirement-Eligible Beneficiaries:

Retirement-eligible federal workers who continue to be disabled as a 
result of work-related injuries could receive tax-free workers' 
compensation benefits under FECA for the remainder of their lives that 
would generally be greater than amounts these workers would receive as 
retirement benefits. FECA benefits are 75 percent of salary for a 
disabled employee with a dependent; Civil Service Retirement System 
benefits for a 55-year old employee with 30 years of service are 56 
percent of salary. We reported that 60 percent of the approximately 
44,000 long-term FECA beneficiaries were at least age 55, the age at 
which some federal employees are eligible for optional retirement with 
unreduced retirement benefits. Proponents for changing FECA benefits 
for older beneficiaries argue that an inequity is created between 
federal workers who retire normally and those who, in effect, "retire" 
on FECA benefits. Opponents of such a change argue that reducing 
benefits would break the implicit promise that injured workers have 
exchanged their right to tort claims for a given level of future 
benefits.

We identified two prior proposals for reducing FECA benefits to those 
who become eligible for retirement. One would convert compensation 
benefits received by retirement-eligible disabled workers to retirement 
benefits. However, this approach raises complex issues related to the 
tax-free nature of workers' compensation benefits and to the 
individual's entitlement to retirement benefits. The second proposal 
would convert FECA benefits to a newly established FECA annuity, thus 
avoiding the complexity of shifting from one benefit program to 
another.

To reduce benefits for retirement-eligible FECA beneficiaries, the 
Congress could consider converting from the current FECA benefit 
structure to a FECA annuity. In the past, CBO estimated that savings 
would occur, assuming that such an annuity would equal two-thirds of 
the previously provided FECA compensation benefit, and that the annuity 
would begin following the disabled individual's eligibility for 
retirement benefits. Assuming that changes in benefits would be made 
prospectively, additional savings could be achieved if changes were 
made to affect individuals who were already receiving FECA benefits.

FECA Cases Involving Third Parties:

FECA authorizes federal agencies to continue paying employees their 
regular salaries for up to 45 days when they are absent from work due 
to work-related traumatic injuries. In cases in which third parties are 
responsible for employees' on-the-job injuries (e.g., dog bites or 
automobile-related injuries), the Department of Labor may require that 
employees pursue collection actions against these parties. However, 
based on current interpretations of FECA by the Employees' Compensation 
Appeals Board and a federal appeals court, the federal government has 
no legal basis to obtain refunds from third parties for the first 45 
days of absence from work (called the continuation-of-pay (COP) 
period). Recoveries from third parties continue to be allowed for 
payments of compensation benefits following the COP period and for 
medical benefits.

Based on the current interpretation of FECA, employees can receive 
regular salary payments from their employing agencies and 
reimbursements from third parties--in effect, a double recovery of 
income for their first 45 days of absence from work due to injuries for 
which third parties were responsible. We recommended that the Congress 
amend FECA to expressly provide for refunds of amounts paid as COP when 
employees receive third-party recoveries. In the past, CBO estimated 
that savings would occur if the Congress redefined COP so that it could 
be included in amounts employees are required to reimburse the 
government when they recover damages from third parties.

Comparability of FECA and Other Compensation Laws:

We identified three major ways in which FECA differs from other federal 
and state workers' compensation laws, each of which results in 
relatively greater benefits under FECA. First, FECA authorizes maximum 
weekly benefit amounts that are greater than those authorized by other 
federal and state workers' compensation laws. As of January 1, 2003, 
maximum authorized weekly FECA benefits were equal to $1,596, 75 
percent of the base salary of a GS-15, step 10. FECA also authorizes 
additional benefits for one or more dependents equal to 8.33 percent of 
salary. Only six states authorize additional benefits for dependents 
(about $5-$10) benefit amounts per week per dependent. However, one 
state authorizes an additional flat rate of $25 per week for 
dependents, regardless of the number of dependents. In all cases, the 
total benefits are not to exceed maximum authorized benefit amounts. 
Finally, FECA provides eligible workers who suffer traumatic injuries 
with their regular salary for a period not to exceed 45 days. 
Compensation benefits for wage loss begin on the 48th day, after a 3-
day waiting period. All other federal and state workers' compensation 
laws provide for a 3-to 7-day waiting period following the injury 
before paying compensation benefits. In either case, if employees 
continue to be out of work for extended periods ranging from 5 to 42 
days, depending on the jurisdiction, retroactive benefits to cover the 
waiting period would be paid.

Reducing FECA's authorized maximum weekly benefit to make it comparable 
to other compensation laws would have little effect on compensation 
costs because very few federal workers receive maximum benefits. 
However, in the past, CBO estimated that savings would occur by 
eliminating augmented compensation benefits for dependents and 
establishing a 5-day waiting period immediately following the injury, 
and before the continuation of pay period.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Federal Employees' Compensation Act: Percentages of Take-Home Pay 
Replaced by Compensation Benefits. GAO/GGD-98-174. Washington, D.C.: 
August 17, 1998.

Federal Employees' Compensation Act: Issues Associated with Changing 
Benefits for Older Beneficiaries. GAO/GGD-96-138BR. Washington, D.C.: 
August 14, 1996.

Workers' Compensation: Selected Comparisons of Federal and State Laws. 
GAO/GGD-96-76. Washington, D.C.: April 3, 1996.

Federal Employees' Compensation Act: Redefining Continuation of Pay 
Could Result in Additional Refunds to the Government. GAO/GGD-95-135. 
Washington, D.C.: June 8, 1995.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Increase Congressional Oversight of PBGC's Budget:

Primary agency: Department of Labor.

Account: Pension Benefit Guaranty Corporation fund (16-4204).

Spending types; Direct/Discretionary.

Budget subfunction: 601/General retirement and disability insurance.



The Pension Benefit Guaranty Corporation (PBGC) insures the benefits of 
about 44 million participants against default of their employer-
sponsored defined benefit pension plans. Established in 1974 as a self-
financing government corporation, PBGC's primary responsibility is to 
assume administration of underfunded plans that either terminate or 
become insolvent. In 2002, about 345,000 retirees received more than 
$1.5 billion in benefit payments from PBGC. To carry out its 
operations, PBGC relies heavily on the services of contractors whose 
headquarters and field employees account for almost half of its 
workforce.

PBGC is self-financing in that it receives no general revenues. Its 
operating budget of $227 million is financed with funds from two 
sources: (1) insurance premiums paid by plan sponsors and (2) trust 
assets. However, the portion of its budget allocated to administrative 
expenses has been subject to a statutory limitation since 1985. The 
Congress revised this limitation on two occasions to provide PBGC more 
flexibility to address workload increases that followed several large 
pension plan failures. These revisions exempted from any limitation all 
expenses incurred in connection with the termination and management of 
pension plans and provided PBGC with discretion to determine which 
functions and activities qualified as such. Over time, PBGC has 
expanded the range of activities and functions classified as 
nonlimitation expenses and uses these resources to fund nearly all of 
its operations. This has resulted in a steep increase in PBGC's 
nonlimitation budget from $29 million in fiscal year 1989 to $215.5 
million in fiscal year 2002. During this period, PBGC's limitation 
budget decreased from $40 million to $11.7 million.

In 2000, we reported that PBGC's failure to strategically manage its 
longer term contracting needs, as well as weaknesses in its contractor 
selection and oversight processes, could result in the corporation 
paying too much for procured services. We also noted that PBGC's budget 
structure provides it with substantial flexibility to use nonlimitation 
funds that are not directly subject to congressional review and 
approval. This budgetary treatment shields most corporation spending 
for administration and operations from congressional scrutiny, creating 
a potentially favorable environment for management weaknesses. Also, we 
have reported that PBGC does not have a reliable basis for estimating 
its administrative expenses subject to the legislative limitation. As a 
result, PBGC's estimates for its activities covered by the limitation 
are not meaningful and thus are ineffective in controlling 
administrative costs. In addition, PBGC does not have a meaningful 
basis for reporting adherence to the limitation, since it does not 
accumulate and allocate actual expenses for activities subject to the 
limitation.

As a means of strengthening its oversight over PBGC's budget and 
operations, the Congress could act to restrict the range of activities 
to be supported by nonlimitation funds. This, however, would likely 
require a similar increase in PBGC's limitation budget in which the 
Congress has direct appropriation oversight. Thus, more of PBGC's 
spending for operational activities and functions would fall within the 
normal congressional appropriations process. Although this approach 
would not necessarily reduce PBGC's administrative spending initially, 
strengthened oversight could result in management improvements, more 
efficient use of funds, and slower spending growth in the future. In 
the past, CBO was unable able to estimate savings from this option 
without a more specific proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Pension Benefit Guaranty Corporation: Statutory Limitation on 
Administrative Expenses Does Not Provide Meaningful Control. GAO-03-
301. Washington, D.C.: February 28, 2003.

Pension Benefit Guaranty Corporation: Contracting Management Needs 
Improvement. GAO/HEHS-00-130. Washington, D.C.: September 18, 2000.

GAO Contact:

Barbara D. Bovbjerg, (202) 512-7215:

Share the Savings from Bond Refundings:

Primary agency: Department of Housing and Urban Development.

Account: Housing Certificate Fund (86-0319).

Spending types; Discretionary/Direct.

Budget subfunction: 604/Housing assistance.



During the 1970s and early 1980s, the Department of Housing and Urban 
Development (HUD) administered programs to develop housing for low-
income households using various types of financing arrangements and 
long-term Section 8 rental housing assistance contracts. While some 
properties were financed by loans and grants from HUD, others were 
financed by bonds issued by state and local housing finance agencies. 
During the late 1970s and early 1980s, the cost to finance housing 
development rose to unprecedented levels. In response, HUD authorized 
higher Section 8 rental assistance payments to cover the higher bond 
financing costs, first in 1980 and then in 1981. Since then, as 
interest rates declined, many state and local housing finance agencies 
have refunded the bonds they issued and issued new bonds at lower 
interest rates. This action has generated substantial savings for the 
state agencies. These savings represent the difference between the 
amounts needed to repay the original bonds and the lower amounts needed 
to repay the new bonds. Agencies typically use these savings to provide 
affordable housing in their states.

In 1999, we reported that HUD had not issued clear guidance on when 
state agencies are required to share the savings associated with bond 
refundings with the federal government. The need for clearer guidance 
specifically relates to state agency compliance with the bond refunding 
provisions in an October 1992 amendment to Section 1012 of the McKinney 
Act. The amendment was unclear as to whether the states were required 
to share the savings from bond refundings with the federal government 
for all properties covered by Section 8 rental assistance contracts 
that were entered into from 1979 through 1984. In the absence of clear 
guidance from HUD, we found that some state agencies have shared the 
savings from bond refunding for such properties with the federal 
government while other agencies have retained the savings.

Legislative changes could be made to clarify the Congress's intent that 
state agencies should be required to share bond refunding savings with 
the federal government for all properties covered by Section 8 rental 
assistance contracts entered into from 1979 through 1984.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Multifamily Housing: HUD Missed Opportunities to Reduce Costs on Its 
Uninsured Section 8 Portfolio. GAO/RCED-99-217. Washington, D.C.: July 
30, 1999.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections:

Primary agency: Department of Health and Human Services.

Account: Payments to States for Child Support Enforcement and Family 
Support Programs (75-1501).

Spending type: Direct.

Budget subfunction: 609/Other income security.



The Child Support Enforcement program is a Federal/state/local 
partnership designed to obtain child support for both families eligible 
for Temporary Assistance for Needy Families (TANF) and non-TANF 
families. The services provided to clients include locating 
noncustodial parents, establishing paternity and support orders, and 
collecting and distributing child support payments. From fiscal years 
1984 through 1998, non-TANF caseloads and costs rose about 500 percent 
and 1200 percent, respectively. For fiscal years 1999 through 2002, 
non-TANF cases represented about 80 percent of the total caseload.

The federal government pays 66 percent of the Child Support Enforcement 
program costs. While states have the authority to fully recover the 
costs of their services, states have exercised their discretion and 
most have charged only minimal application and service fees. Since 
1992, we have reported on opportunities to defray some of the costs of 
child support programs. Based on this work, we believe that mandatory 
application fees should be dropped and that states should be mandated 
to charge a minimum percentage service fee on successful collections 
for non-TANF families. Congressional action is necessary to put such a 
requirement in place. Application fees are administratively burdensome, 
and a service fee would ensure that families are charged only when the 
service has been successfully performed. The costs recovered from such 
a service fee would be determined by the percentage rate set by the 
Congress. For example, in the past, CBO estimated that if the Congress 
set the service fee at 5 percent for each successful non-TANF child 
support collection, the federal government could recover $2 billion in 
5 years.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Child Support Enforcement: Clear Guidance Would Help Ensure Proper 
Access to Information and Use of Wage Withholding by Private Firms. 
GAO-02-349, March 26, 2002.

Child Support Enforcement: Effects of Declining Welfare Caseloads Are 
Beginning to Emerge. GAO/HEHS-99-105. Washington, D.C.: June 30, 1999.

Welfare Reform: Child Support an Uncertain Income Supplement for 
Families Leaving Welfare. GAO/HEHS-98-168. Washington, D.C.: August 3, 
1998.

Child Support Enforcement: Early Results on Comparability of Privatized 
and Public Offices. GAO/HEHS-97-4. Washington, D.C.: December 16, 1996.

Child Support Enforcement: Reorienting Management Toward Achieving 
Better Program Results. GAO/HEHS/GGD-97-14. Washington, D.C.: October 
25, 1996.

Child Support Enforcement: States' Experience with Private Agencies' 
Collection of Support Payments. GAO/HEHS-97-11. Washington, D.C.: 
October 23, 1996.

Child Support Enforcement: States and Localities Move to Privatized 
Services. GAO/HEHS-96-43FS. Washington, D.C.: November 20, 1995.

Child Support Enforcement: Opportunity to Reduce Federal and State 
Costs. GAO/T-HEHS-95-181. Washington, D.C.: June 13, 1995.

GAO Contact:

Cornelia M. Ashby, (202) 512-8403:

Improve Reporting of DOD Reserve Employee Payroll Data to State 
Unemployment Insurance Programs:

Primary agency: Department of Labor.

Account: Unemployment Trust Fund 20-8042.

Spending type: Direct.

Budget subfunctions: Multiple.



The Congress established the national unemployment insurance (UI) 
system in the 1930s to provide partial income assistance to many 
temporarily unemployed workers with substantial work histories. Today, 
UI is the major federal program providing assistance to the unemployed. 
Many workers covered by the UI system were also among the 800,000 
personnel who participated in National Reserve forces (Army National 
Guard, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National 
Guard, and the Air Force Reserve) in fiscal year 2002.

Most UI claimants are required to report the income they receive while 
in the Reserves so that state UI programs can reduce their benefits 
accordingly. Our 1996 analysis of benefit and Reserve data from seven 
states shows that some Reserve personnel are receiving improper benefit 
payments from state UI programs. In the seven states in our analysis, 
we estimate that UI claimants who were active participants in the 
Reserve failed to report over $7 million in Reserve income in fiscal 
year 1994. This led to UI benefit overpayments of approximately $3.6 
million, of which federal trust fund losses were about $1.2 million. We 
expect that the federal and state trust fund losses from all UI 
programs are much greater because the seven states we reviewed 
accounted for only 27 percent of all reservists.

State officials cited various reasons why claimants may not be 
reporting their Reserve income while receiving UI benefits. According 
to state officials, the claimants may not understand their reporting 
responsibilities, are often not specifically informed of these 
responsibilities, and may have incentives not to report all Reserve 
income--incentives that are amplified by the states' limited ability to 
detect nonreporting.

The Department of Defense and the Department of Transportation's Coast 
Guard have acted to ensure that reservists are reminded of their 
responsibility to report income from reserve activity to state UI 
agencies. All reservists now receive an annual notice with their leave 
and earnings statements reminding them of their duty to disclose their 
affiliation and any Reserve related earnings when filing an UI claim. 
In addition, the Department of Labor has issued a directive to all 
state employment security agencies to ensure that they inform 
prospective and continuing UI benefit claimants of their responsibility 
to report Reserve-related income.

These actions should improve general reservist compliance with state UI 
program income reporting requirements. However, to detect unreported 
Reserve income, the most frequently suggested alternative by federal 
and state officials would be to require the Department of Defense (DOD) 
to report Reserve payroll and personnel data to states on a quarterly 
basis, as private-sector employers are required to do, to permit 
verification of claimant income regularly. DOD has stated that it will 
develop an action plan to provide such data to the state UI programs. 
However, completion of this plan was delayed because of other competing 
agency priorities and a recognition that the task was more complex than 
originally envisioned.

It is important to note that the nonreporting of claimant income 
appears to be a broader problem involving all UI claimants who were 
former federal civilian and military employees, rather than just those 
participating in the Reserves. Officials from many of the state 
programs we analyzed reported general difficulties in monitoring 
reported income from claimants who were former federal employees.

DOD reports that, given its effort to ensure any action taken be cost-
effective and commensurate with potential savings, it does not intend 
to take further action to respond to this recommendation. According to 
DOD, 13 states effectively exempt Reserve wages from any unemployment 
insurance payment offset, and there could be significant costs 
associated with providing automated data on the earnings of part-time 
reservists. We do not agree that implementation costs would necessarily 
outweigh savings. We found millions of dollars in unemployment 
insurance overpayments for just 7 states and 27 percent of the 
reservists, which would likely lead to even greater levels of 
overpayments for the remaining states that offset reservist wages. The 
potential for overpayments may be even greater given current national 
security conditions that involve a greater role for reservists.

In the past, CBO estimated that budgetary savings would result from the 
reduction in overpayments if DOD was required to report Reserve payroll 
and personnel data to states on a quarterly basis.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Unemployment Insurance: Millions in Benefits Overpaid to Military 
Reservists. GAO/HEHS-96-101. Washington, D.C.: August 5, 1996.

GAO Contact:

Sigurd R. Nilsen, (202) 512-7215:

Improve Social Security Benefit Payment Controls:

Primary agency: Social Security Administration.

Account: Federal Old Age and Survivor's Insurance Trust Fund (20-8006).

Spending type: Direct.

Budget subfunction: 651/Social security.



The Social Security Administration (SSA) is required by law to reduce 
social security benefits to persons who also receive a pension from 
noncovered employment (typically persons who work for the federal 
government or state and local governmental agencies). The Government 
Pension Offset provision requires SSA to reduce benefits to persons 
whose social security entitlement is based on another person's social 
security coverage (usually their spouse's). The Windfall Elimination 
Provision requires SSA to use a modified formula to calculate a 
person's earned social security benefit whenever a person also earned a 
pension through a substantial career in noncovered employment. The 
modified formula reduces the social security benefit significantly.

We found that SSA payment controls for these offsets were incomplete. 
For state and local retirees, SSA had no third-party pension data to 
verify whether persons were receiving a noncovered pension. At the time 
of our report (1998), an analysis of available data indicated that this 
lapse in payment controls for state and local government retirees cost 
the trust funds from $129 million to $323 million from 1978 to about 
1995.

In 1998 we recommended that SSA work with the Internal Revenue Service 
(IRS) to revise the reporting of pension income on IRS tax form 1099R. 
IRS has subsequently advised SSA that it needs a technical amendment to 
the Tax Code to obtain the information SSA needs. This year, we 
testified that complete and accurate reporting of government pension 
income is still needed. Given the IRS response to our previous 
recommendation, we have provided the following matter for congressional 
consideration. "To facilitate complete and accurate reporting of 
government pension income, the Congress should consider giving IRS the 
authority to collect this information, which could perhaps be 
accomplished through a simple modification to a single form." We 
believe that millions of dollars in reduced overpayments could be 
achieved each year with better payment controls. However, it should be 
noted that these savings would be offset somewhat by administrative 
costs associated with conducting additional computer matching at SSA. 
In the past, CBO estimated that improved payment controls could result 
in budgetary savings.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Social Security: Issues Relating to Noncoverage of Public 
Employees.GAO-03-710T. Washington, D.C.: May 1, 2003.

Social Security: Better Payment Controls for Benefit Reduction 
Provisions Could Save Millions.GAO/HEHS-98-76. Washington, D.C.: April 
30, 1998.

GAO Contact:

Barbara D. Bovbjerg, (202) 512-7215:

Simplify Supplemental Security Income Recipient Living Arrangements:

Primary agency: Social Security Administration.

Account: Supplemental Security Income Program (28-0406).

Spending types; Direct/Discretionary.

Budget subfunction: 609/Other income security.



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

We have reported that SSA has not addressed long-standing SSI living 
arrangement verification problems, despite numerous internal and 
external studies and many years of quality reviews denoting this as an 
area prone to error and abuse. Some of the studies we reviewed 
recommended ways to simplify the process by eliminating many complex 
calculations and thereby making it less susceptible to manipulation by 
recipients. Other studies we reviewed suggested ways to make this 
aspect of the program less costly to taxpayers. In light of the 
potential cost savings associated with addressing this issue, we 
recommended in September 2002 that SSA identify and move forward in 
implementing cost-effective options for simplifying complex living 
arrangement policies, with particular attention to those policies most 
vulnerable to fraud, waste, and abuse. We also suggested that an 
effective approach may include pilot testing various simplification 
options to better assess their effects. SSA told us that it will use 
sophisticated computer simulations to assess the potential impacts of 
various proposals on recipients, but has not completed these efforts 
yet.

Although in the past CBO agreed that some changes that would simplify 
living arrangement policies have the potential to create savings, it 
could not develop a savings estimate without a specific legislative 
proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Supplemental Security Income: Progress Made in Detecting and Recovering 
Overpayments, but Management Attention Should Continue. GAO-02-849. 
Washington, D.C.: September 16, 2002.

Supplemental Security Income: Status of Efforts to Improve Overpayment 
Detection and Recovery. GAO-02-962T. Washington, D.C.: July 25, 2002.

Supplemental Security Income: Action Needed on Long-Standing Problems 
Affecting Program Integrity. GAO/HEHS-98-158. Washington, D.C.: 
September 14, 1998.

GAO Contact:

Barbara D. Bovbjerg, (202) 512-7215:

Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems:

Primary agency: Department of Health and Human Services.

Account: Payments to States for Child Support Enforcement and Family 
Support Programs (75-1501).

Spending type: Direct.

Budget subfunction: 609/Other income security.



The Department of Health and Human Services' (HHS) Office of Child 
Support Enforcement (OCSE) oversees states' efforts to develop 
automated systems for the Child Support Enforcement Program. 
Established for both welfare and nonwelfare clients with children, this 
program is directed at locating parents not supporting their children, 
establishing paternity, obtaining court orders for the amounts of money 
to be provided, and collecting these amounts from noncustodial parents. 
Achievement of Child Support Enforcement Program goals depends in part 
on the effective planning, design, and operation of automated systems. 
The federal government is providing enhanced funding to develop these 
automated child support enforcement systems by paying up to 90 percent 
of states' development costs. From fiscal year 1981 through fiscal year 
2000, the states spent about $5.3 billion to develop these systems, 
including about $3.8 billion from the federal government.

The 90 percent funding participation rate was initially discontinued at 
the end of fiscal year 1995, the congressionally mandated date for the 
systems to be certified and operational. However, the Congress 
subsequently extended the deadline for these systems to the end of 
fiscal year 1997. The federal government will continue to reimburse 
states' costs to operate these systems at the 66 percent rate 
established for administrative expenses. The Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996 (P.L. 104-193) provided 
additional funding for the states to meet new systems requirements 
under this law. An 80 percent federal funding participation rate, with 
a total national funding cap of $400 million, was authorized through 
fiscal year 2001. The 66 percent federal funding participation rate was 
continued for systems operation and administrative expenses.

The Congress could choose to reduce the federal funding participation 
rate for modification and operation of these systems from 66 percent to 
the 50 percent rate now common for such costs in other programs, such 
as Food Stamps and other welfare programs. In the past, CBO estimated 
that a reduced participation rate would produce budgetary savings.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Human Services: Federal Approval and Funding Processes for States' 
Information Systems. GAO-02-347T. Washington, D.C.: July 9, 2002.

Child Support Enforcement: Leadership Essential to Implementing 
Effective Automated Systems. GAO/T-AIMD-97-162. Washington, D.C.: 
September 10, 1997.

Child Support Enforcement: Strong Leadership Required to Maximize 
Benefits of Automated Systems. GAO/AIMD-97-72. Washington, D.C.: June 
30, 1997.

GAO Contact:

Joel C. Willemssen, (202) 512-6408:

Obtain and Share Information on Medical Providers and Middlemen to 
Reduce Improper Payments to Supplemental Security Income Recipients:

Primary agency: Social Security Administration.

Account: Supplemental Security Income Program (28-0406).

Spending types; Direct/Discretionary.

Budget subfunction: 609/Other income security.



The Supplemental Security Income (SSI) program guarantees a minimum 
level of income for needy, aged, blind, or disabled individuals. In 
fiscal year 2000, the SSI program paid 6.6 million recipients about $31 
billion in benefits.

Over the years, some SSI recipients may have improperly gained access 
to program benefits by feigning or exaggerating disabilities with the 
help of middlemen (particularly interpreters) and medical providers. 
Although it is not possible to know the exact number of beneficiaries 
who became eligible for benefits through these practices, analysis 
suggests that the SSI program is vulnerable to this type of fraud and 
abuse. First, in an April 1998 sample, GAO found that more than 60 
percent of the SSI beneficiaries suffer from mental and physical 
impairments that are difficult to objectively verify. Second, medical 
providers who were investigated for defrauding Medicaid, Medicare, or 
private insurance companies provided at least some of the medical 
evidence for 6 percent of the 208,000 disabled SSI recipient cases we 
reviewed in six states. Third, over 96 percent of the 158 SSA officials 
and staff that we interviewed said that they believed that the practice 
of middlemen helping people improperly qualify for SSI benefits has 
continued. SSA has tried to address this problem by developing ways to 
better identify and assess the initial or continuing eligibility of 
applicants and recipients who may be feigning disabilities. The agency 
has not, however, taken steps to systematically obtain and distribute 
information on various medical providers and middlemen that would 
better help identify such applicants and recipients. These steps are 
important because past experiences have shown that a single middleman 
or medical provider can help hundreds of ineligible beneficiaries get 
on the rolls. Every individual who obtains benefits by feigning or 
exaggerating disabilities will cost the federal government an estimated 
$122,000 in SSI and Medicaid benefits over the 10-year period 1999 
through 2009.

In order to reduce the number of improper claims under the SSI program, 
the Congress could consider requiring SSA to systematically obtain 
information on various middlemen and service providers and routinely 
share it throughout SSA. Such information could be collected from other 
government agencies and private entities that also face similar fraud 
and abuse issues as well as from SSA staff. SSA could use this 
information, for example, to determine which claims should receive 
increased scrutiny to prevent applicants from receiving improper 
benefits and to target investigations of current beneficiaries to 
determine if they should be removed from the program. Although in the 
past, CBO agreed that efforts to reduce fraud in the SSI program 
through greater information sharing about medical providers and 
middlemen have the potential to create savings, it could not develop a 
savings estimate without a specific legislative proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

High-Risk Series: An Update. GAO-03-119. Washington, D.C.: January 
2003.

High-Risk Series: An Update. GAO-01-263. Washington, D.C.: January 
2001.

Supplemental Security Income: Additional Action Needed to Reduce 
Program Vulnerability to Fraud and Abuse. GAO/HEHS-99-151. Washington, 
D.C.: September 15, 1999.

Supplemental Security Income: Disability Program Vulnerable to 
Applicant Fraud When Middlemen Are Used. GAO/HEHS-95-116. Washington, 
D.C.: August 31, 1995.

GAO Contact:

Barbara D. Bovbjerg, (202) 512-7215:

Sustain/Expand Range of SSI Program Integrity Activities:

Primary agency: Social Security Administration.

Account: Supplemental Security Income Program (28-0406).

Spending types; Direct/Discretionary.

Budget subfunction: 609/Other income security.



The Social Security Administration (SSA) administers the Supplemental 
Security Income (SSI) program, which is the nation's largest cash 
assistance program for the poor. Since its inception, the SSI program 
has been difficult and costly to administer because even small changes 
in income, available resources, or living arrangements can affect 
recipients' monthly benefit amounts or continued eligibility. To a 
significant extent, SSA relies heavily on recipients to accurately 
report important eligibility information. The agency also verifies 
certain income and resource information through computer matching with 
the records of other federal and state agencies. To determine whether a 
recipient remains eligible for SSI benefits, SSA also periodically 
conducts financial redetermination reviews, which involve personal 
contact with recipients to document their income, resources, living 
arrangements, and other eligibility factors. Recipients are reviewed at 
least every 6 years, but reviews may be more frequent if SSA determines 
that changes in eligibility are likely.

We recently reported that SSA has made a variety of changes to improve 
its ability to detect SSI payment errors and recover overpayments. We 
also noted that SSA officials had estimated that conducting 
substantially more redeterminations would yield hundreds of millions of 
dollars in additional overpayment detections and preventions annually. 
In 2001, SSA estimated that it would be cost beneficial to do another 
2.5 million redeterminations. The additional reviews would produce $1.1 
billion in overpayment benefits (additional overpayment recoveries and 
future overpayments prevented). Subsequently, we recommended that SSA 
sustain and expand its program integrity activities. SSA plans to 
process 200,000 more financial redeterminations in 2003 than it did in 
2002.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. However, CBO indicated it could probably 
make an estimate for this example.

Related GAO Products:

Supplemental Security Income: Progress Made in Detecting and Recovering 
Overpayments, but Management Attention Should Continue. GAO-02-849. 
Washington, D.C.: September 16, 2002.

Supplemental Security Income: Action Needed on Long-Standing Problems 
Affecting Program Integrity. GAO/HEHS-98-158. Washington, D.C.: 
September 14, 1998.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Revise Government Pension Offset (GPO) Exemption:

Primary agency: Social Security Administration.

Account: Federal Old-Age and Survivors Insurance Trust Fund (20-8006).

Spending types; Direct/Discretionary.

Budget subfunction: 651/Social security.



The Social Security Administration (SSA) administers the Government 
Pension Offset (GPO) provision. The GPO requires SSA to reduce benefits 
to persons whose social security entitlement is based on another 
person's social security coverage (usually a spouse's). The GPO 
prevents workers from receiving a full Social Security spousal benefit 
in addition to a pension from government employment not covered by 
Social Security. However, the law provides an exemption from the GPO if 
an individual's last day of state/local employment is in a position 
that is covered by both Social Security and the state/local 
government's pension system. In these cases, the GPO will not apply and 
Social Security spousal benefits will not be reduced.

While we could not definitively confirm the extent nationwide that 
individuals are transferring positions to avoid the GPO, we found that 
in Texas and Georgia 4,819 individuals had performed work in positions 
coverd by Social Security for short periods to qualify for the GPO 
last-day exemption. SSA officials also acknowledged that use of the 
exemption might be possible in some of the approximately 2,300 state 
and local government retirement plans in other states where such plans 
contain Social Security covered and noncovered positions. The transfers 
we identified in Texas and Georgia could increase long-term benefit 
payments from the Social Security Trust funds by $450 million.[Footnote 
29] While this currently represents a relatively small percentage of 
the Social Security Trust funds, costs could increase significantly if 
the practice grows and begins to be adopted by other states and 
localities.

Considering the potential for abuse of the last-day exemption and the 
likelihood for its increased use we believe that timely action is 
needed. In our report and testimony on this topic we presented a matter 
for congressional consideration that the last-day GPO exemption be 
revised to provide for a longer minimum time period, and the House has 
passed necessary legislation that is pending in the Senate. This action 
would provide an immediate "fix" to address possible abuses of the GPO 
exemption.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. However, CBO indicated it could probably 
make an estimate for this example.

Related GAO Products:

Social Security: Congress Should Consider Revising the Government 
Pension Offset "Loophole." GAO-03-498T. Washington, D.C.: February 27, 
2003.

Social Security Administration: Revision to the Government Pension 
Offset Exemption Should Be Considered. GAO-02-950. Washington, D.C.: 
August 15, 2002.

GAO Contact:

Barbara D. Bovbjerg, (202) 512-7215:

Better Congressional Oversight of PRWORA's Fugitive Felon Provisions:

Primary agencies; Multiple.

Accounts: Multiple.

Spending types; Direct/Discretionary.

Budget subfunctions: Multiple.



In response to concerns that individuals wanted in connection with a 
felony, or violating terms of their parole or probation, could receive 
benefits from programs for the needy, the Congress added provisions to 
the Personal Responsibility and Work Opportunity Reconciliation Act 
(PRWORA) of 1996 that prohibit these individuals from receiving 
Supplemental Security Income (SSI) administered by the Social Security 
Administration (SSA), Food Stamp benefits administered by the 
Department of Agriculture (USDA), and Temporary Assistance to Needy 
Families (TANF) administered by the Department of Health and Human 
Services (HHS). These provisions also make fugitive felon[Footnote 30] 
status grounds for termination of tenancy in many federal housing 
assistance programs, administered by the Department of Housing and 
Urban Development (HUD).

Since PRWORA was enacted, the SSI, Food Stamp, and TANF programs have 
identified over 110,000 beneficiaries who are fugitive felons--largely 
through computer matches of automated arrest warrant and recipient 
files. When these programs took the initiative or were in a position to 
match automated recipient and warrant data, many fugitive felons were 
identified, which led to substantial cost savings. SSA, for example, 
conducted the most comprehensive matches, comparing data from its 
entire SSI applicant and recipient files each month to warrant data it 
obtained from various federal, state, and local law enforcement 
agencies. As a result, SSA reported that, in 2000 and 2001, it 
identified more than 36,000 fugitive felons on the SSI rolls, incurring 
projected savings of over $96 million.

Use of computer matches of benefit recipient and arrest warrant files 
to prevent fugitive felons from collecting benefits varies widely 
across programs, however. While SSA had by far the most comprehensive 
computer matching initiative, fewer than one-third of the state 
agencies administering the TANF and Food Stamp programs used periodic 
computer matching, to any extent. HUD had not conducted any matches of 
this kind, but our own match of HUD's recipient file and arrest warrant 
files in a single year turned up nearly 1,000 housing assistance 
recipients for whom there were arrest warrants in Ohio and Tennessee, 
alone. We estimated that HUD could have saved $4.2 million annually in 
program costs if the housing assistance these individuals received had 
been terminated.

Given the savings SSA and some state Food Stamp and TANF programs have 
incurred using computer matching to identify and drop fugitive felons 
from their benefit rolls, and the potential savings we demonstrated HUD 
could achieve in the same way, use of computer matching for this 
purpose by additional state Food Stamp and TANF programs, as well as 
the HUD housing assistance program, represent opportunities for greater 
cost savings in this area.

Moreover, the law, as it applies to housing assistance programs, states 
that fugitive felon status is only grounds for termination of tenancy 
and not that fugitive felons are ineligible for housing assistance. 
Therefore, according to HUD officials, while public housing agencies 
and landlords have the authority to evict fugitive felons, they are not 
required to do so. This may explain why HUD has done little to ensure 
that fugitive felons do not receive housing assistance. The Congress 
should consider amending the Housing Act of 1937 to explicitly make 
fugitive felons ineligible for housing benefits.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. However, CBO indicated it could probably 
make an estimate for this example.

Related GAO Products:

Welfare Reform: Implementation of Fugitive Felon Provisions Should be 
Strengthened. GAO-02-716. Washington, D.C.: September 25, 2002.

Social Security Administration: Fugitive Felon Program Could Benefit 
from Better Use of Technology. GAO-02-346. Washington, D.C.: September 
6, 2002.

Social Security Programs: The Scope of SSA's Authority to Deny Benefits 
to Fugitive Felons and to Release Information About OASI and DI 
Beneficiaries Who are Fugitive Felons. GAO-02-459R. Washington, D.C.: 
February 27, 2002.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Improve the Administrative Oversight of Food Assistance Programs:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunction: 605 /Food and nutrition assistance.



The U.S. Department of Agriculture (USDA) continues to face serious 
challenges in ensuring that eligible individuals receive the proper 
benefits from the food assistance programs administered by its Food and 
Nutrition Service. Each day, 1 in every 6 Americans receives nutrition 
assistance through 1 or more of the 15 programs administered by this 
agency. These programs, which accounted for slightly more than half of 
USDA's budget authority for fiscal year 2002, provide children and low-
income adults with access to food, a healthful diet, and nutrition 
education. Specifically, for fiscal year 2002, the Congress 
appropriated about $38.8 billion to operate these programs, including 
the Food Stamp Program and child nutrition programs, such as the 
school-breakfast and school-lunch programs. This high level of support 
dictates that USDA must continually address and minimize the amount of 
fraud and abuse occurring in these programs in order to ensure their 
integrity.

USDA's Food Stamp Program, the cornerstone of its nutrition assistance 
programs, provided 17.3 million individuals with more than $15.5 
billion in benefits in fiscal year 2001. As noted in the President's 
Management Agenda, USDA must continue to address the challenge of 
accurately issuing food stamp benefits to those who are eligible. 
Specifically, USDA estimated that about $1.4 billion in erroneous 
payments were made to food stamp recipients in fiscal year 2001--about 
$1 billion of the benefits issued were estimated to be overpayments and 
more than $370 million of the benefits issued were estimated to be 
underpayments--an error rate of approximately 9 percent. To deal with 
the complexity of the Food Stamp Program and the high error rate, the 
2002 Farm Bill contained a number of administrative and simplification 
reforms, such as allowing states to use greater flexibility in 
considering the income of recipients for eligibility purposes and to 
extend simplified reporting procedures for all program recipients.

In addition to ensuring that eligible individuals receive proper 
benefits, USDA faces the challenge of minimizing the illegal sale of 
benefits for cash--a practice known as trafficking. Food Stamps are 
accepted by about 149,000 authorized retail food stores, and in a March 
2000 report, estimated that stores trafficked about $660 million, or 
about 3.5 cents of every dollar of food stamp benefits issued per year 
from 1996 through 1998. In addition, store owners generally do not pay 
the financial penalties assessed for trafficking. In May 1999, we 
reported that USDA and the courts collected only $11.5 million, or 
about 13 percent, of the $78 million in total penalties assessed 
against storeowners for violating food stamp regulations from 1993 
through 1998.[Footnote 31] USDA reduced the remaining amount owed by 
storeowners by about $49 million, or about 55 percent, through waivers, 
adjustments, and write-offs. While weaknesses in debt collection 
practices contribute to low collection rates, USDA officials noted that 
these rates also reflect the difficulties involved in collecting this 
type of debt, including problems in locating storeowners who have been 
removed from the Food Stamp Program and the refusal of some storeowners 
to pay their debts.

Better use of information technology has the potential to help USDA 
minimize fraud, waste, and abuse in the Food Stamp Program. For 
example, in our May 1999 report we recommended that the Food and 
Nutrition Service make better use of data from electronic benefit 
transfers (EBT) to identify and assess penalties against storeowners 
who violate the Food Stamp Program's regulations. Also, we recommended 
in March 2000 that the Food and Nutrition Service work with the states 
to implement best practices for using EBT data to identify and take 
action against recipients engaged in trafficking of food stamp 
benefits.[Footnote 32] The Food and Nutrition Service has taken some 
actions to implement our recommendations, such as assisting states in 
the use of EBT data to identify traffickers, and has other actions 
under way.

USDA also faces fraud and abuse challenges in other nutrition programs, 
including the Child and Adult Care Food Program (CACFP), which for 
fiscal year 2002 was funded at $1.8 billion, and the National School 
Lunch and School Breakfast programs, which for that year were funded at 
$7.4 billion. In fiscal year 2001, CACFP provided subsidized meals for 
a daily average of 2.6 million participants in the care of about 
215,000 day care providers. Over the years, USDA's Office of Inspector 
General (OIG) has identified examples of the intentional misuse of 
CACFP funds, including cases in which program sponsors created 
fictitious day care providers and inflated the number of meals served. 
In response to our November 1999 recommendation[Footnote 33] and 
reports by the OIG, legislation was enacted in June 2000 to strengthen 
CACFP management controls and to reduce its vulnerability to fraud and 
abuse. As a result, the Food and Nutrition Service has intensified its 
management evaluations at the state and local levels and has trained 
its regional and state agency staff on revised management procedures.

Furthermore, in its strategic plan for fiscal years 2000 through 2005, 
USDA specifically identified the challenge it faces in ensuring that 
only eligible participants are provided benefits in the National School 
Lunch Program. In fiscal year 2001, this program provided nutritionally 
balanced, low-cost or free lunches for over 27 million children each 
school day in more than 98,000 public and nonprofit private schools and 
residential child care institutions. Data show that the number of 
children certified as eligible to receive free lunches in this program 
may be as much as 27 percent greater than the number of children 
estimated eligible for this benefit. However, these estimates are based 
on a broad review of certain Census data and are best seen as 
indicators of a problem rather than precise measures of program misuse. 
USDA has taken some initial steps to develop a cost-effective strategy 
to address this integrity issue, such as pilot-testing potential policy 
changes to improve the certification process, and other measures may be 
considered as the Congress moves to reauthorize this program.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new option.

Related GAO Products:

Food Stamp Program: Better Use of Electronic Data Could Result in 
Disqualifying More Recipients Who Traffic Benefits. GAO/RCED-00-61. 
Washington, D.C.: March 7, 2000.

Food Assistance: Efforts to Control Fraud and Abuse in the Child and 
Adult Care Food Program Should Be Strengthened. GAO/RCED-00-12. 
Washington, D.C.: November 29, 1999.

Food Stamp Program: Storeowners Seldom Pay Financial Penalties Owed for 
Program Violations. GAO/RCED-99-91. Washington, D.C.: May 11, 1999.

GAO Contacts:

Sigurd R. Nilsen, (202) 512-7003 David Bellis, (415) 904-2272:

CBO Option Where Related GAO Work Is Identified29:

600-07 Reduce the Federal Matching Rate for Administrative and Training 
Costs in the Foster Care and Adoption Assistance Programs:

Related GAO Product:

Child Welfare: HHS Could Play a Greater Role in Helping Child Welfare 
Agencies Recruit and Retain Staff. GAO-03-357. Washington, D.C.: March 
31, 2003.[Footnote 34]

GAO Contact:

Cornelia Ashby, (202) 512-8403:

700 Veterans Benefits and Services:

Examples from Selected GAO Work:

Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses:

Discontinue Veterans' Disability Compensation for Nonservice Connected 
Diseases:

Reassess Unneeded Health Care Assets within the Department of Veterans 
Affairs:

Reducing VA Inpatient Food and Laundry Service Costs:

CBO Options Where Related GAO Work Is Identified:

700-01 Narrow the Eligibility for Veterans' Disability Compensation to 
Include Only Veterans with High-Rated Disabilities:

700-02 Narrow the Eligibility for Veterans' Disability Compensation to 
Veterans Whose Disabilities Are Related to Their Military Duties:

700-03 Increase Beneficiaries' Cost Sharing for Care at Nursing 
Facilities Operated by the Department of Veterans Affairs:

Examples from Selected GAO Work:

Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses:

Primary agency: Department of Veterans Affairs.

Account: Compensation and Pensions (36-0102).

Spending type: Direct.

Budget subfunction: 701/Income security for veterans.



The Department of Veterans Affairs' (VA) disability program is required 
by law to compensate veterans for the average loss in earning capacity 
in civilian occupations that results from injuries or conditions 
incurred or aggravated during military service. Veterans with such 
service-connected disabilities are entitled to monthly cash benefits 
under this program even if they are working and regardless of the 
amount they earn. The amount of compensation received is based on 
disability ratings that VA assigns to the service-connected conditions. 
In fiscal year 2002, VA paid more than $22 billion in compensation to 
more than 2.3 million veterans, and more than 300,000 veterans' 
survivors and children, for these service-connected disabilities.

The disability ratings schedule that VA uses is still primarily based 
on physicians' and lawyers' judgments made in 1945 about the effect 
service-connected conditions had on the average individual's ability to 
perform jobs requiring manual or physical labor. Although the ratings 
in the schedule have not changed substantially since 1945, dramatic 
changes have occurred in the labor market and in society. The results 
of an economic validation of the schedule conducted in the late 1960s 
indicated that ratings for many conditions did not reflect the actual 
average loss in earnings associated with them. Therefore, it is likely 
that some of the ratings in the schedule do not reflect the economic 
loss experienced by veterans today. Hence, the schedule may not 
equitably distribute compensation funds among disabled veterans.

The Congress may wish to consider directing VA to determine whether the 
ratings for conditions in the schedule correspond to veterans' average 
loss in earnings due to these conditions and adjust disability ratings 
accordingly. Generally accepted and widely used approaches exist to 
statistically estimate the effect of specific service-connected 
conditions on veterans' average earnings. These estimates could be used 
to set disability ratings in the schedule that are appropriate in 
today's socioeconomic environment. In 1997, we reported the cost to 
collect the data to produce these estimates was projected to be between 
$5 million and $10 million, which would be a small fraction of the more 
than $22 billion VA paid in disability compensation to veterans and 
their families in fiscal year 2002. Any savings associated with this 
option would depend on how the new disability schedule alters payments 
to beneficiaries. A reexamination of the disability schedule could find 
that some conditions are overpaid while others may require increased 
payments. In the past, CBO was unable to estimate any costs or savings 
that could result because a specific proposal for revising the 
disability ratings schedule had not been presented.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Department of Veterans Affairs: Key Management Challenges in Health and 
Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003.

SSA and VA Disability Programs: Re-Examination of Disability Criteria 
Needed to Help Ensure Program Integrity. GAO-02-597. Washington, D.C.: 
August 9, 2002.

VA Disability Compensation: Disability Ratings May Not Reflect 
Veterans' Economic Losses. GAO/HEHS-97-9. Washington, D.C.: January 7, 
1997.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

Discontinue Veterans' Disability Compensation for Nonservice Connected 
Diseases:

Primary agency: Department of Veterans Affairs.

Account: Compensation and Pensions (36-0102).

Spending type: Direct.

Budget subfunction: 701/Income security for veterans.



In fiscal year 2002, the Department of Veterans Affairs (VA) paid more 
than $18.5 billion in compensation to more than 2.3 million veterans 
for service-connected disabilities. A disease or injury resulting in 
disability is considered service-connected if it was incurred or 
aggravated during military service. No causal connection is required. 
In 1989, GAO reported on the U.S. practice of compensating veterans for 
conditions that were probably neither caused nor aggravated by military 
service. These conditions included diabetes, chronic obstructive 
pulmonary disease, arteriosclerotic heart disease, and multiple 
sclerosis. In 1993, GAO reported that other countries were less likely 
to compensate veterans when diseases were unrelated to military 
service, when the relationship of the disease to military service could 
not be established, or for off-duty injuries such as those that happen 
while on vacation.

The Congress may wish to reconsider whether diseases neither caused nor 
aggravated by military service should be compensated as service-
connected disabilities. In 1996, the 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. In the past, CBO estimated that budgetary savings 
would occur if disability compensation payments to veterans with 
nonservice connected, disease-related disabilities were eliminated in 
future cases.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

SSA and VA Disability Programs: Re-Examination of Disability Criteria 
Needed to Help Ensure Program Integrity. GAO-02-597. Washington, D.C.: 
August 9, 2002.

VA Disability Compensation: Disability Ratings May Not Reflect 
Veterans' Economic Losses. GAO/HEHS-97-9. Washington, D.C.: January 7, 
1997.

Disabled Veterans Programs: U.S. Eligibility and Benefit Types Compared 
With Five Other Countries. GAO/HRD-94-6. Washington, D.C.: November 24, 
1993.

VA Benefits: Law Allows Compensation for Disabilities Unrelated to 
Military Service. GAO/HRD-89-60. Washington, D.C.: July 31, 1989.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

Reassess Unneeded Health Care Assets within the Department of Veterans 
Affairs:

Primary agency: Department of Veterans Affairs.

Account: Medical Care (36-0160).

Spending type: Discretionary.

Budget subfunction: 703/Hospital and medical care for veterans.



The Department of Veterans Affairs (VA) health care system owns 4,900 
buildings and 15,500 acres of land. Its health care delivery system 
includes over 160 major medical facilities and over 500 community based 
outpatient clinics. VA spends about a fourth of its $23 billion budget 
to operate, maintain, and improve these assets. To improve the delivery 
of health care services, VA has shifted emphasis from inpatient to 
outpatient care in many instances and shortened lengths of stay when 
hospitalization was required. This change in health care delivery has 
resulted in excess inpatient capacity at many locations. As a result, 
VA's infrastructure is not efficiently aligned to meet veterans' needs. 
Without a realignment of its infrastructure, VA will continue to spend 
millions of dollars to operate unneeded VA facilities and miss the 
opportunity to reinvest the savings it could realize from asset 
realignment into better health care for all veterans.

In response to GAO concerns, VA initiated its Capital Asset Realignment 
for Enhanced Services (CARES) program to realign its assets and 
resources to better serve veterans. Any realignment--which could 
include facility closings--will take into consideration future 
directions in health care delivery, demographic projections, physical 
plant capacity, community health care capacity, and workforce 
requirements. VA plans to reinvest savings generated through the 
implementation of CARES to meet veterans' health care needs. VA plans 
to announce its proposed realignment plan by the end of calendar year 
2003. Continued congressional oversight is warranted to review VA's 
plans and assess their impact on costs and services.

Although in the past CBO agreed that reducing unneeded health care 
assets at the VA had the potential to create savings, it could not 
develop a savings estimate without a specific legislative proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Department of Veterans Affairs: Key Management Challenges in Health and 
Disability Programs. GAO-03-756T. Washington, D.C.: May 8, 2003.

VA Health Care: Improved Planning Needed for Management of Excess Real 
Property. GAO-03-326. Washington, D.C.: January 29, 2003.

VA Health Care: VA Is Struggling to Address Asset Realignment 
Challenges. GAO/T-HEHS-00-88. Washington, D.C.: April 5, 2000.

VA Health Care: Improvements Needed in Capital Asset Planning and 
Budgeting. GAO/HEHS-99-145. Washington, D.C.: August 13, 1999.

VA Health Care: Challenges Facing VA in Developing an Asset Realignment 
Process. GAO/T-HEHS-99-173. Washington, D.C.: July 22, 1999.

Veterans' Affairs: Progress and Challenges in Transforming Health Care. 
GAO/T-HEHS-99-109. Washington, D.C.: April 15, 1999.

VA Health Care: Capital Asset Planning and Budgeting Need Improvement. 
GAO/T-HEHS-99-83. Washington, D.C.: March 10, 1999.

VA Health Care: Closing a Chicago Hospital Would Save Millions and 
Enhance Access to Services. GAO/HEHS-98-64. Washington, D.C.: April 16, 
1998.

VA Health Care: Opportunities to Enhance Montgomery and Tuskegee 
Service Integration. GAO/T-HEHS-97-191. Washington, D.C.: July 28, 
1997.

VA Health Care: Lessons Learned From Medical Facility Integrations. 
GAO/T-HEHS-97-184. Washington, D.C.: July 24, 1997.

Department of Veterans Affairs: Programmatic and Management Challenges 
Facing the Department. GAO/T-HEHS-97-97. Washington, D.C.: March 18, 
1997.

VA Health Care: Opportunities for Service Delivery Efficiencies Within 
Existing Resources. GAO/HEHS-96-121. Washington, D.C.: July 25, 1996.

VA Health Care: Opportunities to Increase Efficiency and Reduce 
Resource Needs. GAO/T-HEHS-96-99. Washington, D.C.: March 8, 1996.

VA Health Care: Challenges and Options for the Future. GAO/T-HEHS-95-
147. Washington, D.C.: May 9, 1995.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

Reducing VA Inpatient Food and Laundry Service Costs:

Primary agency: Department of Veterans Affairs.

Account: Medical Care (VA) (35-0160).

Spending type: Discretionary.

Budget subfunction: 703/Hospital and medical care for veterans.



The Department of Veterans Affairs (VA) provides inpatient food 
services and laundry processing for thousands of inpatients a day in 
hospitals, nursing homes, and domiciliaries. In fiscal year 1999, VA 
spent about $324 million (food service) and $52 million (laundry) for 
these activities and employed 7,000 Nutrition and Food Service (NFS) 
wage-grade workers, not including dietitians and 1,100 laundry 
processing workers. The NFS workers cook and prepare food, distribute 
food to patients, and retrieve and wash plates, trays, and utensils. 
The laundry processing workers sort, wash, dry, fold, and transport 
laundry.

As of November 2000, VA had consolidated 28 of its food production 
locations into 10, begun using less expensive Veterans Canteen Service 
(VCS) workers in 9 locations, and contracted out in 2 locations. For 
laundry services, VA had consolidated 116 of its laundries into 67 
locations and used competitive sourcing to contract with the private 
sector in other locations.

VA has the potential to further reduce its inpatient food service and 
laundry costs by systematically assessing, at all its health care 
delivery locations, options it is already using at some of its health 
care locations. For example, VA could consolidate food production 
locations within a 90-minute driving distance of each other and laundry 
locations within a 4-hour driving distance of each other. VA could also 
use less expensive VCS employees at all inpatient food locations. In 
addition, competitive sourcing could be a cost effective alternative 
for providing both food and laundry services.

VA has established a plan to complete studies of competitive sourcing 
of 55,000 positions, including about 13,000 laundry and food service 
positions, by 2008. However, VA has suspended this effort, except for 
its Veterans 
Canteen Service,[Footnote 35] because its general counsel determined 
that VA could not continue these studies using appropriations from the 
Veterans Health Administration without specific authorization from the 
Congress. VA plans to ask the Congress for authorization to carry out 
these studies.

In the past, CBO estimated that budgetary savings could occur if the 
Congress required VA to consolidate and competitively bid its food 
service and laundry operations and use VCS employees at all inpatient 
food locations.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

VA Health Care: Consolidations and Competitive Sourcing of Laundry 
Service Could Save Millions. GAO-01-61. Washington, D.C.: November 30, 
2000.

VA Health Care: Expanding Food Service Initiatives Could Save Millions. 
GAO-01-64. Washington, D.C.: November 30, 2000.

VA Health Care: Laundry Service Operations and Costs. GAO/HEHS-00-16. 
Washington, D.C.: December 21, 1999.

VA Health Care: Food Service Operations and Costs at Inpatient 
Facilities. GAO/HEHS-00-17. Washington, D.C.: November 19, 1999.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

CBO Options Where Related GAO Work Is Identified:

700-01 Narrow the Eligibility for Veterans' Disability Compensation to 
Include Only Veterans with High-Rated Disabilities:

Related GAO Product:

VA Disability Compensation: Disability Ratings May Not Reflect 
Veterans' Economic Losses. GAO/HEHS-97-9. Washington, D.C.: January 7, 
1997.[Footnote 36]

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

700-02 Narrow the Eligibility for Veterans' Disability Compensation to 
Veterans Whose Disabilities Are Related to Their Military Duties:

Related GAO Products:

VA Disability Compensation: Disability Ratings May Not Reflect 
Veterans' Economic Losses. GAO/HEHS-97-9. Washington, D.C.: January 7, 
1997.

Disabled Veterans Programs: U.S. Eligibility and Benefit Types Compared 
With Five Other Countries. GAO/HRD-94-6. Washington, D.C.: November 24, 
1993.

VA Benefits: Law Allows Compensation for Disabilities Unrelated to 
Military Service. GAO/HRD-89-60. Washington, D.C.: July 31, 1989.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

700-03 Increase Beneficiaries' Cost Sharing for Care at Nursing 
Facilities Operated by the Department of Veterans Affairs:

Related GAO Products:

VA Aid and Attendance Benefits: Effects of Revised HCFA Policy on 
Veterans' Use of Benefits. GAO/HEHS-97-72R. Washington, D.C.: March 3, 
1997.

VA Health Care: Better Data Needed to Effectively Use Limited Nursing 
Home Resources. GAO/HEHS-97-27. Washington, D.C.: December 20, 1996.

VA Health Care: Potential for Offsetting Long-Term Care Costs Through 
Estate Recovery. GAO/HRD-93-68. Washington, D.C.: July 27, 1993.

VA Health Care: Offsetting Long-Term Care Costs by Adopting State 
Copayment Practices. GAO/HRD-92-96. Washington, D.C.: August 12, 1992.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

800 General Government; 900 Net Interest; and 999 Multiple:

Examples from Selected GAO Work:

Prevent Delinquent Taxpayers from Benefiting from Federal Programs:

Target Funding Reductions in Formula Grant Programs:

Adjust Federal Grant Matching Requirements:

Replace the 1-Dollar Note with a 1-Dollar Coin:

Increase Fee Revenue from Federal Reserve Operations:

Recognize the Costs Up-front of Long-term Space Acquisitions:

Seek Alternative Ways to Address Federal Building Repair Needs:

Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared:

Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals:

Information Sharing Could Improve Accuracy of Workers Compensation 
Offset Payments:

Determine Feasibility of Locating Federal Facilities in Rural Areas:

Leverage Buying Power to Reduce Costs of Supplies and Services:

Consolidate Grants for First Responders to Improve Efficiency:

CBO Options Where Related GAO Work Is Identified:

800-03 Eliminate Federal Antidrug Advertising:

920-03 Impose a Fee on the Investment Portfolios of Government-
Sponsored Enterprises:

Examples from Selected GAO Work:

Prevent Delinquent Taxpayers from Benefiting from Federal Programs:

Primary agency: Internal Revenue Service.

Spending type: Direct.



The federal government's operations are funded primarily through tax 
revenue collected from the nation's taxpayers. In fiscal year 2002, the 
federal government, through the Internal Revenue Service (IRS), 
collected over $2 trillion in federal tax revenue to finance government 
operations. However, while most taxpayers comply with their tax 
obligation, a significant portion of taxpayers do not. Over time, this 
has led to unpaid taxes, penalties, and interest, which totaled about 
$249 billion at the end of fiscal year 2002. Of this amount, the IRS 
estimates that only $20 billion, or about 8 percent, will be collected.

A significant number of taxpayers, both individuals and businesses, who 
owe the federal government billions of dollars in delinquent taxes 
receive significant federal benefits and other federal payments. In 
addition to Social Security Administration benefit payments, federal 
civilian retirement payments, and federal civilian salaries, payments 
on federal contracts and Small Business Administration loans are also 
provided to these delinquent taxpayers. Federal law, generally, does 
not prevent businesses or individuals from receiving federal payments 
or loans when they are delinquent in paying federal taxes.

The Office of Management and Budget's (OMB) Circular A-129, revised, 
provides policies for the administration of federal credit programs. 
These policies specifically direct agencies to determine whether 
applicants are delinquent on any federal debt, including tax debt, and 
to suspend the processing of credit applications if applicants have 
outstanding tax debt until such time as the applicant pays the debt or 
enters into a payment plan. Unfortunately, these policies have not been 
effective in preventing the disbursement of federal dollars to 
individuals and businesses with delinquent taxes.

In order to fully realize this benefit, the Congress could enact 
legislation codifying the provisions of OMB Circular A-129, as revised, 
that relate to this matter. A key aspect of this legislation would be 
to ensure that IRS's efforts to modernize its business systems are 
successful in enabling it to generate timely and accurate information 
on the taxpayer's status to assist other agencies in making 
determinations about eligibility for federal benefits and payments.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Debt Collection: Barring Delinquent Taxpayers From Receiving Federal 
Contracts and Loan Assistance. GAO/T-GGD/AIMD-00-167. Washington, 
D.C.: May 9, 2000.

Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty 
Assessments Are Owed. GAO/AIMD/GGD-99-211. Washington, D.C.: August 2, 
1999.

Tax Administration: Billions in Self-Employment Taxes Are Owed. GAO/
GGD-99-18. Washington, D.C.: February 19, 1999.

GAO Contacts:

Steven J. Sebastian, (202) 512-3406 James R. White, (202) 512-9110:

Target Funding Reductions in Formula Grant Programs:

Primary agencies; Multiple.

Accounts: Multiple.

Spending types; Discretionary/Direct.

Budget subfunctions: Multiple.



Many federal grant programs with formula-based distribution 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, as we pointed out in 1996 and in 1998,[Footnote 37] it is not 
uncommon that program recipients in areas with greater wealth and 
relatively lower needs may enjoy a higher level of services than 
available in harder pressed areas. Alternatively, these wealthier areas 
can provide the same level of services but at lower tax rates than 
harder pressed areas.

At a time when federal discretionary resources are increasingly 
constrained, better targeting of formula-based grant awards offers a 
strategy to bring down federal outlays by concentrating reductions in 
wealthier localities with comparatively fewer needs and greater 
capacity to absorb the cuts. At the same time, redesigned formulas 
could hold harmless the hardest pressed areas that are most vulnerable. 
For example, Medicaid reimburses approximately 57 percent of eligible 
state spending, with the federal share ranging from a minimum of 50 to 
a maximum of 77 percent depending on the per capita income of the 
state. There are a variety of ways in which budgetary savings could be 
achieved to improve the targeting of these programs, including the 
following:

* Reduce the minimum federal reimbursement rate to below 50 percent. 
This example would focus the burden of the reduced federal share on 
those states with the highest per capita income. To the extent that per 
capita income provides a reasonable basis for comparing state tax 
bases, this example would require states with the strongest tax bases 
to shoulder the burden of a reduced federal share.

* Reduce federal reimbursement rates only for those states with 
comparatively low program needs and comparatively strong tax bases. 
Under this example, the matching formula could be revised to better 
reflect the relative number of people in need, geographic differences 
in the cost of services, and state tax bases. Under the revised 
formula, states with comparatively low need and strong tax bases would 
receive lower federal reimbursement rates while states with high needs 
and weak tax bases would continue to receive their current 
reimbursement percentage. This example would focus the burden of a 
reduced federal share in those states with the lowest need and the 
strongest ability to fund program services from state resources.

Many other formulas used to distribute federal grant funding do not 
recognize the different fiscal capacities of states to provide benefits 
from their own resources. Moreover, many of these formulas have not 
been reassessed for years or even decades. One option that would 
realize budgetary savings in nonentitlement programs such as these 
would be to revise the funding formula to reflect the strength of state 
tax bases. A new formula could be calibrated so that funding is 
maintained in states or local governments with weak tax bases in order 
to maintain needed program services but reduced in high tax base states 
to realize budgetary savings. Examples of these types of formula grant 
programs include the following.

* Federal Aid Highways: This program, the largest nonentitlement 
formula grant program, allocates funds among the states based on their 
historic share of funding. This approach reflects antiquated indicators 
of highway needs, such as postal road miles and the land area of the 
state.

* Community Development Block Grant: This program allocates funds among 
local governments based on housing age and condition, population, and 
poverty, and does not include a factor recognizing local wealth or 
fiscal capacity. For example, Greenwich, Conn., received five times 
more funding per person in poverty in 1995 than that provided to 
Camden, N.J., even though Greenwich, with per capita income six times 
greater than Camden, could more easily afford to fund its own community 
development needs. This disparity is due to the formula's recognition 
of older housing stock and population and its exclusion of fiscal 
capacity indicators.

An option that illustrates the potential savings from targeting formula 
grant programs is a 10 percent reduction in the aggregate total of all 
close-ended or capped formula grant programs exceeding $1 
billion.[Footnote 38] In the past, CBO estimated that the savings 
achieved through this option could serve as a benchmark for overall 
savings from this approach but should not be interpreted as a 
suggestion for across-the-board cuts. Rather, as the above examples 
indicate, the Congress may wish to determine specific reductions on a 
program-by-program basis, after examining the relative priority and 
performance of each grant program.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Formula Grants: Effects of Adjusted Population Counts on Federal 
Funding to States. GAO/HEHS-99-69. Washington, D.C.: February 26, 1999.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 
State Spending. GAO/HEHS-99-29R. Washington, D.C.: February 19, 1999.

Welfare Reform: Early Fiscal Effect of the TANF Block Grant. GAO/AIMD-
98-137. Washington, D.C.: August 22, 1998.

Public Housing Subsidies: Revisions to HUD's Performance Funding System 
Could Improve Adequacy of Funding. GAO/RCED-98-174. Washington, D.C.: 
June 19, 1998.

School Finance: State Efforts to Equalize Funding Between Wealthy and 
Poor School Districts. GAO/HEHS-98-92. Washington, D.C.: June 16, 1998.

School Finance: State and Federal Efforts to Target Poor Students. GAO/
HEHS-98-36. Washington, D.C.: January 28, 1998.

School Finance: State Efforts to Reduce Funding Gaps Between Poor and 
Wealthy Districts. GAO/HEHS-97-31. Washington, D.C.: February 5, 1997.

Federal Grants: Design Improvements Could Help Federal Resources Go 
Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.

Public Health: A Health Status Indicator for Targeting Federal Aid to 
States. GAO/HEHS-97-13. Washington, D.C.: November 13, 1996.

School Finance: Options for Improving Measures of Effort and Equity in 
Title I. GAO/HEHS-96-142. Washington, D.C.: August 30, 1996.

Highway Funding: Alternatives for Distributing Federal Funds. GAO/RCED-
96-6. Washington, D.C.: November 28, 1995.

Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity. 
GAO/HEHS-96-26. Washington, D.C.: November 13, 1995.

Department of Labor: Senior Community Service Employment Program 
Delivery Could Be Improved Through Legislative and Administrative 
Action. GAO/HEHS-96-4. Washington, D.C.: November 2, 1995.

GAO Contact:

Paul L. Posner, (202) 512-9573:

Adjust Federal Grant Matching Requirements:

Primary agencies; Multiple.

Accounts: Multiple.

Spending types; Discretionary/Direct.

Budget subfunctions: Multiple.



Intergovernmental grants are a significant part of both federal and 
state budgets. From the first annual cash grant under the Hatch Act of 
1887, the number of grant programs rose to approximately 660 in 2001 
with outlays of $317 billion, about 17 percent of total federal 
spending. Grants serve many purposes beyond returning resources to 
taxpayers in the form of state services. For example, grants can serve 
as a tool to supplement state spending for nationally important 
activities. However, if states use federal grant dollars to reduce 
(i.e., substitute for) their own spending for the aided program either 
initially or over time, the fiscal impact of federal grant dollars is 
reduced.

Public finance experts suggest that grants are unlikely to supplement 
completely a state's own spending, and thus some substitution is to be 
expected in any grant. Our review of economists' estimates of 
substitution suggests that every additional federal grant dollar 
results in less than a dollar of total additional spending on the aided 
activity. The estimates of substitution showed that about 60 cents of 
every federal grant dollar substitutes for state funds that states 
otherwise would have spent.

Our 1996 analysis linked substitution to the way in which most grants 
are designed. For example, many of the 87 largest grant programs did 
not include features, such as state matching and maintenance-of-effort 
requirements, that can encourage states to use federal funds as a 
supplement rather than a replacement for their own spending. While not 
every grant is intended to supplement state spending, proponents of 
grant redesign argue that if some grants incorporated more rigorous 
maintenance-of-effort requirements and lower federal matching rates, 
then fewer federal funds could still encourage states to contribute to 
approximately the same level of overall spending on nationally 
important programs. Critics of this approach argue that such redesign 
would put a higher burden on states because they would have to finance 
a greater share of federally aided programs.

The savings that could be achieved from redesigning grants to increase 
their fiscal impact would depend on the nature of the design changes 
and state responses to those changes. For example, faced with more 
rigorous financing requirements, states might reduce or eliminate their 
own financial support for the aided activity. The outcome will be 
influenced by the trade-off decisions that the Congress makes to 
balance the importance of achieving each program's goals and objectives 
against the goal of encouraging greater state spending and lowering the 
federal deficit.

We were unable to precisely measure the budgetary impact of inflation-
adjusted maintenance-of-effort requirements because current state 
spending levels are not reported consistently. However, it was possible 
to estimate the impact of changes in the matching rates on many close-
ended federal grants. For example, many such grants do not require any 
state or local matching funds. The federal share of these programs 
could be reduced modestly, for example from 100 percent to 90 percent, 
a reduction unlikely to discourage states from participating in the 
program. In the past, CBO estimated that the introduction of a 10 
percent matching requirement on some of the largest federal 
discretionary grant programs that at the time were 100 percent 
federally funded, and a corresponding 10 percent reduction from the 
appropriated grant levels, would result in budgetary savings. If such a 
change in match rates were combined with inflation-adjusted 
maintenance-of-effort requirements, states that choose to participate 
in the program would have to maintain the same or increased levels of 
program spending in order to receive federal funding.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Welfare Reform: Early Fiscal Effects of the TANF Block Grant. GAO/AIMD-
98-137. Washington, D.C.: August 22, 1998.

Federal Grants: Design Improvements Could Help Federal Resources Go 
Further. GAO/AIMD-97-7. Washington, D.C.: December 18, 1996.

Block Grants: Issues in Designing Accountability Provisions. GAO/AIMD-
95-226. Washington, D.C.: September 1, 1995.

GAO Contact:

Paul L. Posner, (202) 512-9573:

Replace the 1-Dollar Note with a 1-Dollar Coin:

Primary agency: Department of the Treasury.

Account: United States Mint Public Enterprise Fund (20-4159).

Spending type: Direct/Governmental Receipts.

Budget subfunction: 803/Central fiscal operations.



Replacing the 1-dollar note with a new 1-dollar coin would save the 
government hundreds of millions of dollars annually. Substituting a 
dollar coin for a dollar note could yield over $522 million of savings 
to the government per year, on average, over a 30-year period. The 
savings come about because a coin lasts longer than paper money, the 
Federal Reserve has lower processing costs with coins than paper money, 
and a coin would result in interest savings from the additional 
seigniorage earned on a coin (i.e., the difference between the face 
value of a coin and its production cost).

In the past, neither the Congress nor the executive branch has 
supported the replacement of the $1 note with a coin. All western 
economies now use a coin for monetary transactions at the same value 
that Americans use the more costly paper note. These countries have 
demonstrated that public resistance to such a change can be managed and 
overcome. The United States released a new gold-colored dollar coin in 
2000. While initial demand for the coin had been strong, for it to 
realize its savings potential, the note has to be eliminated. Most of 
the coins that were issued are being held by collectors and do not 
circulate. With proper congressional oversight, public resistance to 
elimination of the $1 note could be overcome and public support for the 
coin improved. For example, the Congress could require the Treasury or 
the Federal Reserve to conduct a public awareness campaign, explaining 
the savings that could be achieved by eliminating the $1 note. In 
addition, the Congress could require the Federal Reserve or the 
Department of the Treasury to designate a central spokesperson who 
would handle all public and press inquiries about the elimination of 
the $1 note.

Even though this option would result in significant long-term savings, 
it would not yield savings over the first 5 years. First, seigniorage, 
which would lower interest costs to the government by either replacing 
the need:

to borrow from the public or allowing the government to pay down its 
accumulated debt more quickly, is not included in the savings estimate 
because it is not considered part of the budget. Second, while the 
initial 5-year window captures much of the additional cost for the U.S. 
Mint to produce and stockpile a sufficient number of 1-dollar coins for 
circulation, it includes only a fraction of the savings to the Federal 
Reserve System from lower production and processing costs.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

New Dollar Coin: Marketing Campaign Raised Public Awareness but Not 
Widespread Use. GAO-02-896. Washington, D.C.: September 13, 2002.

A Dollar Coin Could Save Millions. GAO/T-GGD-95-203. Washington, D.C.: 
July 13, 1995.

1-Dollar Coin Reintroduction Could Save Millions if It Replaced the 1-
Dollar Note. GAO/T-GGD-95-146. Washington, D.C.: May 3, 1995.

1-Dollar Coin: Reintroduction Could Save Millions if Properly Managed. 
GAO/GGD-93-56. Washington, D.C.: March 11, 1993.

National Coinage Proposals: Limited Public Demand for New Dollar Coin 
or Elimination of Pennies. GAO/GGD-90-88. Washington, D.C.: May 23, 
1990.

GAO Contact:

Bernard L. Ungar, (202) 512-4232:

Increase Fee Revenue from Federal Reserve Operations:

Primary agency: Federal Reserve Board.

Spending type: Direct.



The Federal Reserve is responsible for conducting monetary policy, 
maintaining the stability of financial markets, providing services to 
financial institutions and government agencies, and supervising and 
regulating banks and bank-holding companies. The Federal Reserve is 
unique among governmental entities in its mission, structure, and 
finances. Unlike federal agencies funded through congressional 
appropriations, the Federal Reserve is a self-financing entity that 
deducts its expenses from its revenue and transfers the remaining 
amount to the U.S. Department of the Treasury. Although the Federal 
Reserve's primary mission is to support a stable economy, rather than 
to maximize the amount transferred to Treasury, its revenues contribute 
to total U.S. revenues and, thus, can help reduce the federal deficit.

One way to enhance the Federal Reserve's revenue would be to charge 
fees for bank examinations, thus increasing the Federal Reserve's 
return to taxpayers. The Federal Reserve Act authorizes the Federal 
Reserve to charge fees for bank examinations, but the Federal Reserve 
has not done so, either for the state-member banks it examines or the 
bank-holding company examinations it conducts. Taxpayers in effect bear 
the cost of these examinations, which total hundreds of millions of 
dollars annually. In the past, CBO estimated that budgetary savings 
could be achieved if fees were assessed similar to those charged 
national banks, with a credit allowed for fees paid to state 
regulators.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Federal Reserve System: Update on GAO's 1996 Recommendations. GAO-02-
774. Washington, D.C.: September 25, 2002.

Federal Reserve System: Current and Future Challenges Require 
Systemwide Attention. GAO/T-GGD-96-159. Washington, D.C.: July 26, 
1996.

Federal Reserve System: Current and Future Challenges Require 
Systemwide Attention. GAO/GGD-96-128. Washington, D.C.: June 17, 1996.

Federal Reserve Banks: Internal Control, Accounting, and Auditing 
Issues. GAO/AIMD-96-5. Washington, D.C.: February 9, 1996.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Recognize the Costs Up-front of Long-term Space Acquisitions:

Primary agency: General Services Administration.

Account: Federal Buildings Fund (47-4542).

Spending type: Discretionary.

Budget subfunction: 804/General property and records management.



Building ownership through construction or lease-purchase--where 
ownership of the asset is transferred to the government at the end of 
the lease period--is generally less costly than meeting agencies' long-
term requirements through ordinary operating leases. However, we have 
reported over the last decade that the General Services Administration 
(GSA) relies heavily on operating leases to meet the long-term space 
needs of the federal government. In March 1999, we reported that for 
nine major operating lease acquisitions GSA proposed between fiscal 
years 1994 and 1996, construction would have been the least cost option 
in eight cases. In these eight cases, lease-purchase was estimated to 
be more costly than construction, but less than the operating lease 
option GSA proposed. For example, the present value cost for the 
operating lease to meet the Patent and Trademark Office's long-term 
requirements in northern Virginia was estimated to be about $973 
million. Construction was estimated to be $925 million--or $48 million 
less--and lease-purchase was estimated at $935 million--or $38 million 
less than the operating lease option. In total for these eight cases, 
construction and lease-purchase had cost advantages over operating 
leases estimated at about $126 million and $107 million, respectively.

Historically, the Federal Buildings Fund (FBF) has not generated 
sufficient revenue for constructing new office buildings. Operating 
leases have become an attractive option for GSA because the total costs 
do not have to be scored up-front for budget purposes and payments are 
spread out over time. However, as shown above, they are a costly 
alternative to ownership over the long-run. A lease-purchase would seem 
to be a desirable alternative from GSA's point of view. However, the 
budget scorekeeping rules established by the Budget Enforcement Act of 
1990 (BEA) effectively prevent GSA from using this option. These 
scorekeeping rules require the total budget authority for lease-
purchases and capital leases to be recognized and recorded up-front in 
the year that the acquisition is approved. Furthermore, we reported in 
August 2001 that the scorekeeping rules might result in shorter terms 
for some leases, which could result in higher costs than for longer 
term leases. The scorekeeping rules require the total budget authority 
for lease-purchases and capital leases to be recognized and recorded 
up-front in the year they are approved. Although GSA has viewed the up-
front funding requirement as an impediment to meeting agency space 
needs in a cost-effective manner, it is generally recognized as an 
important tool for maintaining governmentwide fiscal control. That is, 
the rules prevent agencies and the Congress from committing the 
government to future payments that may exceed future resources and 
spending priorities.

Since lease-purchases are not an option for improving the cost 
effectiveness of space acquisition, an option that could result in 
long-term savings for the government would be to recognize that many 
operating leases are used for long-term needs and should be treated on 
the same basis as the ownership options. This would make such 
instruments comparable in the budget to direct federal ownership and 
would foster more cost-effective decision-making by the Office of 
Management and Budget and the Congress. Applying the principle of up-
front full recognition of the long-term costs to all options for 
satisfying long-term space needs--construction, purchases, lease-
purchases, or operating leases--is more likely to result in selecting 
the most cost-effective alternative than the current scoring rules.

It is important to note that there would be implementation challenges 
if this option is pursued. If discretionary spending caps similar to 
those contained in the expired BEA are enacted, their levels should 
take into account the additional budget authority that would be needed 
to fully fund capital up front. Also, for existing leases, the 
additional budget authority would need to be provided at once.[Footnote 
39] It also would be difficult to reach agreement on what constitutes 
long-term space needs that would warrant this up-front budgetary 
treatment. And finally, even though in the past CBO estimated that this 
option should result in long-term savings, it concluded that it would 
not yield savings over the first 5 years.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

High-Risk Series: Federal Real Property. GAO-03-122. Washington, D.C.: 
January 2003.

Budget Scoring: Budget Scoring Affects Some Lease Terms, but Full 
Extent Is Uncertain. GAO-01-929. Washington, D.C.: August 31, 2001.

Federal Buildings: Funding Repairs and Alterations Has Been a 
Challenge--Expanded Financing Tools Needed. GAO-01-452. Washington, 
D.C.: April 12, 2001.

General Services Administration: Comparison of Space Acquisition 
Alternatives--Leasing to Lease-Purchase and Leasing to Construction. 
GAO/GGD-99-49R. Washington, D.C.: March 12, 1999.

Space Acquisition Cost: Comparison of GSA Estimates for Three 
Alternatives. GAO/GGD-97-148R. Washington, D.C.: August 6, 1997.

Budget Issues: Budgeting for Federal Capital. GAO/AIMD-97-5. 
Washington, D.C.: November 12, 1996.

Budget Issues: Budget Scorekeeping for Acquisition of Federal 
Buildings. GAO/T-AIMD-94-189. Washington, D.C.: September 20, 1994.

Federal Office Space: Increased Ownership Would Result in Significant 
Savings. GAO/GGD-90-11. Washington, D.C.: December 22, 1989.

GAO Contact:

Bernard L. Ungar, (202) 512-4232:

Seek Alternative Ways to Address Federal Building Repair Needs:

Primary agency: General Services Administration.

Account: Federal Building Fund (47-4542).

Spending type: Discretionary.

Budget subfunction: 804/General property and records management.



The General Services Administration (GSA) is the federal government's 
real property manager, providing office space for most federal 
agencies. In this capacity, GSA is responsible for keeping the 
approximately 1,700 federal buildings it manages in good repair to 
ensure that the value of these assets is preserved and that tenants 
occupy safe and modern space. Many buildings in GSA's portfolio are 
more than 50 years old, monumental in design, and historically 
significant. Consequently, unlike a private sector company, GSA cannot 
always dispose of a building simply because it would be economically 
advantageous to do so. GSA identifies needed repairs through detailed 
building inspections and sorts them into three tiers based on costs. 
Repairs in the highest cost tier must be approved by the Office of 
Management and Budget (OMB) and then authorized for funding by the 
Congress. GSA receives annual authority for funding for repairs in the 
other two tiers.

In August 2002, we reported that the estimated backlog of GSA-
identified repair and alteration needs in GSA-owned buildings was $5.7 
billion. A major reason for this large and growing backlog is the lack 
of available funding. For example, from 1995 through 2001, the Congress 
approved only 63 percent of the approximately $6.8 billion GSA 
requested for repair and alteration projects.

Unless the Congress increases the funding available to GSA to address 
its backlog of repair and alteration needs, it is likely that this 
backlog will continue to grow given the age of the current federal 
inventory of buildings. Delaying or not performing needed repairs and 
alterations can have serious consequences, including health and safety 
concerns, and lead to higher operating costs associated with 
inefficient heating and cooling systems. Given the current and likely 
increasing demands on discretionary appropriations, the Congress may 
wish to grant GSA the authority to experiment with funding alternatives 
such as public-private partnerships, where such approaches would 
achieve the best economic value for the government. Furthermore, it 
seems reasonable to allow GSA to retain some of the proceeds from 
disposal of unneeded properties to cover the costs associated with 
disposal and for reinvestment in its portfolio, where a need exists. 
However, in considering whether to allow agencies to retain proceeds 
from real property transactions, it is important for the Congress to 
ensure that it maintains appropriate control and oversight over these 
funds, including the ability to redistribute these funds to accommodate 
changing needs.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

High-Risk Series: Federal Real Property. GAO-03-122. Washington, D.C.: 
January 2003.

General Services Administration: Status of Achieving Key Outcomes and 
Addressing Major Management Challenges. GAO-01-931. Washington, D.C.: 
August 3, 2001.

Public-Private Partnerships: Pilot Program Needed to Demonstrate the 
Actual Benefits of Using Partnerships. GAO-01-906. Washington, D.C.: 
July 25, 2001.

Federal Buildings: Funding Repairs and Alterations Has Been a 
Challenge--Expanded Financing Tools Needed. GAO-01-452. Washington, 
D.C.: April 12, 2001.

Federal Buildings: Billions are Needed for Repairs and Alterations. 
GAO/GGD-00-98. Washington, D.C.: March 30, 2000.

GAO Contact:

Bernard L. Ungar, (202) 512-4232:

Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared:

Primary agencies; Multiple.

Accounts: Multiple.

Spending types; Direct/Discretionary.

Budget subfunctions: Multiple.



Many federally funded benefit and loan programs rely on applicants and 
current recipients to accurately report information, such as the amount 
of income they earn, that affects their eligibility for assistance. To 
the extent that such information is underreported or not reported at 
all, the federal government overpays benefits or provides loans to 
individuals who are ineligible. Others and we have demonstrated that 
federally funded benefit and loan programs, such as housing and higher 
education assistance, have made hundreds of millions of dollars in 
improper payments. Some of these payments were made improperly because 
the federal, state, and local entities that administer the programs 
sometimes lacked adequate, timely data needed to determine applicants' 
and current recipients' eligibility for assistance. Our previous work 
has demonstrated that improper payments can be avoided or detected more 
quickly by using data from other programs, or data maintained for other 
purposes, to verify self-reported information.

Federally funded benefit and loan programs provide cash or in-kind 
assistance to individuals who meet specified eligibility criteria. 
Because these programs require similar information to make eligibility 
determinations, it is more efficient to share the necessary data with 
one another rather than requiring each program to independently verify 
similar data. These programs may verify self-reported information by 
comparing their records with independent, third-party data sources from 
other federal or state agencies as well as private organizations. For 
example, benefit and loan programs can compare large amounts of 
information on applicants and recipients by using computers to match 
automated records. Electronic transmission of data and on-line access 
to agencies' databases are additional tools program administrators can 
use to share important information on applicants and recipients in a 
timely, efficient manner. If used consistently, they can help program 
administrators check the accuracy of individuals' self-reported 
statements as well as identify information relevant to eligibility that 
the applicants and recipients themselves have not provided.

Various opportunities exist for federal, state, and local agencies to 
save taxpayer dollars by sharing information that affects individuals' 
eligibility for benefits. For example, the Department of Education's 
Office of Inspector General estimates that underreported income 
contributed to over $100 million in excess Pell Grant awards in 2000. 
Access to Internal Revenue Service taxpayer information could have 
helped Education prevent some of these overpayments. Improper payments 
could also be avoided or detected more quickly in other programs. For 
example, four states and the District of Columbia estimate that they 
prevented about $16 million in improper Temporary Assistance to Needy 
Children (TANF), Medicaid, and Food Stamp benefit payments by 
participating in the Public Assistance Reporting Information System 
(PARIS). PARIS could also help other states save program funds by 
identifying and preventing future improper payments.

The three federally funded benefit and loan programs we examined--TANF, 
Tenant-Based Section 8 and Public Housing, and student grants and 
loans--all use data sharing to varying degrees to verify information 
that applicants and current benefit recipients provide. However, the 
weaknesses in these programs' eligibility determination processes could 
be mitigated if additional data sources were available for sharing. For 
example, the Congress could grant the Department of Education access to 
IRS taxpayer data, which could reduce overpayments in student loan 
programs. In the past, CBO could not estimate savings without a more 
specific option.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Public Assistance: PARIS Project Can Help States Reduce Improper 
Benefit Payments. GAO-01-935. Washington, D.C.: September 6, 2001.

The Challenge of Data Sharing: Results of a GAO-Sponsored Symposium on 
Benefit and Loan Programs. GAO-01-67. Washington, D.C.: October 20, 
2000.

Benefit and Loan Programs: Improved Data Sharing Could Enhance Program 
Integrity. GAO/HEHS-00-119. Washington, D.C.: September 13, 2000.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals:

Primary agencies; Multiple.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.



The federal government plays a prominent role in identifying the 
nation's infrastructure investment needs and has spent an average of 
$149 billion (in constant 1998 dollars) annually since the late 1980s 
on the nation's infrastructure through 1998. A sound public 
infrastructure plays a vital role in encouraging a more productive and 
competitive national economy and meeting public demands for safety, 
health, and improved quality of life. Little, however, is known about 
the comparability and reasonableness of federal agencies' estimates for 
infrastructure needs. In fact, infrastructure "need" is difficult to 
define and to distinguish from "wish lists" of capital projects.

In a review of seven federal agencies' investment practices, GAO found 
that none of them followed leading practices for capital decision-
making. In particular, five of the agencies did not develop assessments 
of the investments needed to meet outcomes. Rather, these agencies 
developed estimates that were summations of the costs of projects 
eligible to receive federal funding or projects identified by the 
Congress and others. Also, agencies were not likely to (1) develop a 
long-term capital plan, (2) use cost-benefit analysis as the primary 
method to compare alternative investments, (3) rank and select projects 
for funding based on established criteria, and (4) budget for projects 
in useful segments.

Given the importance of federal infrastructure investment to the 
nation, the Congress may wish to have the Office of Management and 
Budget develop standards for agencies to follow when submitting funding 
requests. At a minimum, requiring agencies to link the benefits of 
investment projects to the achievement of mission goals would give 
decisionmakers better information to base funding decisions on. 
Infrastructure investment requests based on other leading practices, 
especially those enumerated above, could also increase the Congress's 
capacity to make better investment decisions. In the past, CBO could 
not develop a savings estimate without a specific proposal.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

U.S. Infrastructure: Agencies' Approaches to Developing Investment 
Estimates Vary. GAO-01-835. Washington, D.C.: July 20, 2001.

U.S. Infrastructure: Funding Trends and Opportunities to Improve 
Investment Decisions. GAO/RCED/AIMD-00-35. Washington, D.C.: February 
7, 2000.

Executive Guide: Leading Practices in Capital Decision-Making. GAO/
AIMD-99-32. Washington, D.C.: December 1998.

GAO Contact:

Katherine Siggerud, (202) 512-6570:

Information Sharing Could Improve Accuracy of Workers' Compensation 
Offset Payments:

Primary agency: Social Security Administration.

Accounts: Multiple.

Spending type: Direct.

Budget subfunctions: Multiple.



In 2000, workers received almost $46 billion in cash and medical 
benefits through the nation's workers' compensation (WC) programs to 
cover work-related injuries. Workers' compensation consists of a 
complex array of programs that provide benefits to persons injured 
while working or who suffer occupational diseases. Each state and the 
District of Columbia requires employers operating in its jurisdictions 
to provide WC insurance for their employees and to report work-related 
injuries to the state WC agency. WC beneficiaries may also be eligible 
for federal program benefits, such as Social Security Disability 
Insurance (DI) and Supplemental Security Income (SSI). In such 
programs, the law often limits access or reduces benefits for those 
receiving workers' compensation. Generally, if a person receives both 
DI and WC benefits, and together these benefits exceed 80 percent of 
the injured worker's average current earnings, the Social Security 
Administration (SSA) generally reduces the DI benefit. This reduction 
in benefits is referred to as the WC offset. A number of other federal 
programs also rely on information on WC benefit payments as a 
determinant of federal benefit payments. For example, Medicare covers 
medical expenses for persons who have received DI benefits for 2 years, 
but WC insurers are supposed to be the primary payer and Medicare the 
secondary payer of medical expenses that arise from work-related 
injuries and are covered under the WC program. Similarly, other federal 
programs, including food stamps and Section 8 rental housing 
assistance, consider WC benefits as income or assets when determining 
program eligibility and benefit payment amounts.

Because there is no national reporting system that identifies WC 
beneficiaries, federal agencies largely rely on applicants and 
beneficiaries to report their WC benefits. This fragmented reporting 
system has resulted in federal agencies making erroneous payments. For 
example, evaluations by GAO, SSA, and SSA's Office of Inspector General 
(OIG) have found significant overpayment and underpayment errors 
related to the WC offset provision. In December 1999, the SSA Inspector 
General reported that more than 50 percent of DI beneficiaries whose 
benefits are being offset have been paid inaccurately. Another study 
projected $1.5 billion in payment errors related to the WC offset. 
About 85 percent of these errors are underpayments of entitled benefits 
that result when DI beneficiaries do not report reductions in their WC 
benefits. SSA's administration of the WC offset provision continues to 
be undermined by the lack of reliable information identifying the 
receipt of WC benefits by DI beneficiaries. Other federal programs, 
such as Medicare, food stamps, and Section 8 rental housing, also rely 
on self-reported WC information as a basis for determining benefit 
payments, and similarly are vulnerable to payment errors as a result. 
For example, Medicare relies on its applicants and beneficiaries to 
self-report WC benefits and is vulnerable to payment errors when they 
do not. Health Care Financing Administration (HCFA), now the Centers 
for Medicare & Medicaid Services (CMS), officials have estimated that 
about 8 percent of its beneficiaries have medical claims that may be 
the responsibility of another health insurer, liability insurer, or WC 
program. A GAO review of one state (not nationally representative) 
found that (1) Medicare's interests relative to the payment of future 
medical benefits were not considered in any of the WC cases resolved 
through settlements (83 percent of our sample), (2) HCFA was aware of 
WC benefits being received in only one-third of the cases where it paid 
benefits under Part A (a nonrandom sample), and (3) about 39 percent of 
joint WC and Medicare beneficiaries had received Medicare benefits for 
treatments that were potentially related to the WC injury. Finally, an 
inability to obtain WC benefit information could affect the accuracy of 
benefit payments for other federal programs such as food stamps and 
Section 8 housing and could result in the overpayment of benefits.

Given the fragmented nature of WC programs, the Congress could 
establish a reporting requirement that WC insurers provide SSA with 
information on changes to WC benefit payments. SSA could use this 
information to make adjustments to DI and SSI payments accordingly, and 
this information could be shared with other federal agencies. Doing so 
would reduce the potential for errors in the disbursing of benefits. In 
the past, CBO could not develop a savings estimate without more 
information on the key details of the requirements--such as which 
insurers would be covered and how frequently they would be required to 
report.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Workers' Compensation: Action Needed to Reduce Payment Errors in SSA 
Disability and Other Programs. GAO-01-367. Washington, D.C.: May 4, 
2001.

GAO Contact:

Barbara D. Bovbjerg, (202) 512-7215:

Determine Feasibility of Locating Federal Facilities in Rural Areas:

Primary agency: General Services Administration.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.



The Rural Development Act of 1972 (RDA) and the Competition in 
Contracting Act of 1984 (CICA), as well as executive orders, provide 
guidance on site location decisions for federal facilities. While 
considering areas in which to locate, RDA requires all executive 
departments and agencies to establish policies and procedures giving 
first priority to the location of new offices and other facilities in 
rural areas.[Footnote 40] The General Services Administration (GSA) is 
the central management agency for acquiring real estate for many 
federal agencies, while some other agencies, such as the Department of 
Defense, have their own authority to acquire space.

A 2001 survey of 115 new federal site locations acquired between 1998 
and 2000 for buildings over 25,000 square feet found that about 72 
percent were located in urban areas. Agencies said they selected urban 
areas primarily because of the need to be near agency clients and 
related government and private sector facilities to accomplish their 
missions. Eight of the 13 cabinet agencies surveyed had no formal RDA 
siting policy, and there was little evidence that agencies considered 
RDA's requirements when siting new federal facilities. Furthermore, GSA 
has not developed a cost-conscious, governmentwide location policy. 
Federal site acquisition practices differ from private sector practices 
in that private sector companies are more likely to take advantage of 
local incentives and of lower real estate and labor costs.

Obviously, many factors are considered in site location decisions, and 
chief among them should be the agency's ability to accomplish its 
mission in the best way possible and to retain an adequate number of 
skilled employees. But, where there are opportunities to reduce costs 
and/or improve service by locating to rural areas, federal agencies may 
benefit from more closely following private sector practices. 
Consequently, the Congress may wish to follow through on the intent of 
RDA by requiring federal agencies to establish siting policies 
consistent with RDA's goals and also requiring GSA to establish a 
formal governmentwide siting policy that takes into account potential 
cost savings from locating in rural areas. In the past, CBO could not 
estimate cost savings because specific options had not been proposed.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Facilities Location: Agencies Should Pay More Attention to Costs and 
Rural Development Act Has Had Limited Impact. GAO-01-805. Washington, 
D.C.: July 31, 2001.

GAO Contact:

Bernard L. Ungar, (202) 512-4232:

Leverage Buying Power to Reduce Costs of Supplies and Services:

Primary agencies; Multiple.

Accounts: Multiple.

Spending type: Discretionary.



Federal agencies procured more than $235 billion in goods and services 
during fiscal year 2001. Additionally, federal civilian agencies spent 
almost $14 billion using purchase cards in fiscal year 2001. Overall, 
contracting for goods and services accounted for about 24 percent of 
the government's discretionary resources in fiscal year 2001. Further 
growth in contract spending, at least in the short term, is likely 
given the President's request for additional funds for defense and 
homeland security, agencies' plans to update their information 
technology systems, and other factors.

The growth in contract spending, combined with decreases in the 
acquisition workforce, creates a challenging acquisition environment. 
The degree to which individual agencies contract for goods and services 
also underscores the importance of ensuring that acquisitions are 
managed properly. This money, however, is not always well spent. Our 
work, as well as the work of other oversight agencies, continues to 
find that millions of dollars of service contract dollars are at risk 
at defense and civilian agencies because acquisitions are poorly 
planned, not adequately competed, or poorly managed. Moreover, because 
agency procurement processes are decentralized and uncoordinated, it is 
not apparent that the federal government is fully leveraging its 
enormous buying power to obtain the most advantageous terms and 
conditions for its purchases. With the events of September 11, and the 
federal government's short-and long-term budget challenges, it is more 
important than ever that agencies effectively transform business 
processes to ensure that the federal government gets the most from 
every dollar spent.

In view of these challenges, we have examined alternative ways 
developed by leading companies to manage their spending on goods and 
services in order to reduce costs, stay competitive, and improve 
service levels. Leading companies are taking a strategic approach--
centralizing and reorganizing their operations to get the best value 
for the company as a whole. Taking a strategic approach involves a 
range of activities from developing a better picture of what the 
company was spending to buying goods and services on a corporate rather 
than business unit basis.

A strategic approach pulls together participants from a variety of 
places within an organization who recommend changes in personnel, 
processes, structure, and culture that can constrain rising acquisition 
costs. These changes can include adjustments to procurement and other 
processes such as instituting companywide purchasing of specific 
services; reshaping a decentralized process to follow a more center-
led, strategic approach; and increasing the involvement of the 
enterprise procurement organization, including working across units to 
help identify service needs, select providers, and manage contractor 
performance.

The procurement best practices of leading companies should be 
considered in reforming the acquisition of goods and services in the 
federal government. Taking a strategic approach clearly pays off. One 
recent survey of 147 companies in 22 industries indicated a strategic 
approach to procurement had resulted in savings of more than $13 
billion in one year. Studies have reported some companies achieving 
reported savings of 10 to 20 percent of their total procurement costs 
through the use of a strategic approach to buying goods and services. A 
recent Purchasing Magazine poll finds that companies employing 
procurement best practices are routinely delivering a 3 percent to 7 
percent savings from their procurement costs. The leading companies we 
studied reported achieving and expecting to achieve billions of dollars 
in savings by developing companywide spend analysis programs and 
strategic sourcing strategies. The very same strategic approach could 
serve as a foundation for leveraging the federal government's buying 
power to reduce costs of supplies and services.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Products:

Best Practices: Improved Knowledge of DOD Service Contracts Could 
Reveal Significant Savings. GAO-03-661. Washington, D.C.: June 10, 
2003.

Federal Procurement: Spending and Workforce Trends. GAO-03-443. 
Washington, D.C.: April 30, 2003.

Contract Management: Taking a Strategic Approach to Improving Services 
Acquisition. GAO-02-499T. Washington, D.C.: March 7, 2002.

Best Practices: Taking a Strategic Approach Could Improve DOD's 
Acquisition of Services. GAO-02-230. Washington, D.C.: January 18, 
2002.

Contract Management: Trends and Challenges in Acquiring Services. GAO-
01-753T. Washington, D.C.: May 22, 2001.

GAO Contact:

David E. Cooper, (617) 788-0555:

Consolidate Grants for First Responders to Improve Efficiency:

Primary agency: Department of Homeland Security.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.



GAO's work over the years has repeatedly shown that mission 
fragmentation and program overlap are widespread in the federal 
government and that crosscutting program efforts are not well 
coordinated. As far back as 1975, GAO reported that many of the 
fundamental problems in managing federal grants were the direct result 
of the proliferation of federal assistance programs and the 
fragmentation of responsibility among different federal departments and 
agencies. While we noted that the large number and variety of programs 
tended to ensure that a program is available to meet a defined need, we 
found that substantial problems occur when state and local governments 
attempt to identify, obtain, and use the fragmented grants-in-aid 
system to meet their needs.

In a specific and timely example of this fragmentation, in April 2003 
GAO identified at least 16 different grant programs that can be used by 
the nation's first responders to address homeland security needs. These 
grants are currently provided through two different directorates within 
the Department of Homeland Security, the Department of Justice, and the 
Department of Health and Human Services and serve state governments, 
cities and localities, counties, and others. Multiple fragmented grant 
programs can create a confusing and administratively burdensome process 
for state and local officials seeking to use federal resources for 
pressing homeland security needs.

It now falls to the Congress to redesign the nation's homeland security 
grant programs in light of the events of September 11, 2001. In so 
doing, the Congress must balance the needs of our state and local 
partners in their call for both additional resources and more 
flexibility for meeting the nation's goals of attaining the highest 
levels of preparedness. In addressing the fragmentation prompted by the 
current homeland security grant system, the Congress has several 
alternatives, including block grants, performance partnerships, and 
grant waivers. These approaches could provide state and local 
governments with increased flexibility while potentially improving 
intergovernmental efficiency and homeland security program outcomes. An 
example of how consolidation of first responder grants might be 
achieved would be to merge the existing Emergency Management 
Performance Grant, the State Homeland Security Grant Program, and the 
Urban Area Security Initiative into one new grant program. If such a 
consolidation can be assumed to yield administrative efficiencies, then 
the Congress might reduce the amount of the combined grant by, for 
example, 10 percent. Alternatively if the Congress did not want to 
reduce the overall amount of the consolidated grant, efficiencies 
achieved through consolidation could possibly result in an improved 
level of program performance given the current level of funding.

CBO 5-Year Cost Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Products:

Federal Assistance: Grant System Continues to Be Highly Fragmented. 
GAO-03-718T. Washington, D.C.: April 29, 2003.

Multiple Employment and Training Programs: Funding and Performance 
Measures for Major Programs. GAO-03-589. Washington, D.C.: April 18, 
2003.

Workforce Investment Act: States and Localities Increasingly Coordinate 
Services for TANF Clients, but Better Information Needed on Effective 
Approaches. GAO-02-696. Washington, D.C.: July 3, 2002.

Managing for Results: Continuing Challenges to Effective GPRA 
Implementation. GAO/T-GGD-00-178. Washington, D.C.: July 20, 2000.

Fundamental Changes are Needed in Federal Assistance to State and Local 
Governments. GAO/GGD-75-75. Washington, D.C.: August 19, 1975.

GAO Contact:

Paul L. Posner, (202) 512-9573:

CBO Options Where Related GAO Work Is Identified:

800-03 Eliminate Federal Antidrug Advertising:

Related GAO Products:

Anti-Drug Media Campaign: Aspects of Advertising Contract Mismanaged by 
the Government; Contractor Improperly Charged Some Costs. GAO-01-1017T. 
Washington, D.C.: August 1, 2001.[Footnote 41]

Anti-Drug Media Campaign: Aspects of Advertising Contract Mismanaged by 
the Government; Contractor Improperly Charged Some Costs. GAO-01-623. 
Washington, D.C.: June 25, 2001.

GAO Contact:

Bernard L. Ungar, (202) 512-4232:

920-03 Impose a Fee on the Investment Portfolios of Government-
Sponsored Enterprises:

Related GAO Products:

Government-Sponsored Enterprises: Federal Oversight Needed for 
Nonmortgage Investments. GAO/GGD-98-48. Washington, D.C.: March 11, 
1998.

Housing Enterprises: Potential Impacts of Severing Government 
Sponsorship. GGD-96-120. Washington, D.C.: May 13, 1996.

GAO Contact:

Thomas J. McCool, (202) 512-8678:

Receipts:

Examples from Selected GAO Work:

Tax Interest Earned on Life Insurance Policies and Deferred Annuities:

Further Limit the Deductibility of Home Equity Loan Interest:

Limit the Tax Exemption for Employer-Paid Health Insurance:

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels:

Index Excise Tax Rates for Inflation:

Increase Highway User Fees on Heavy Trucks:

Require Corporate Tax Document Matching:

Improve Administration of the Tax Deduction for Real Estate Taxes:

Increase Collection of Returns Filed by U.S. Citizens Living Abroad:

Increase the Use of Seizure Authority to Collect Delinquent Taxes:

Increase Collection of Self-employment Taxes:

Increase the Use of Electronic Funds Transfer for Installment Tax 
Payments:

Reduce Gasoline Excise Tax Evasion:

Improve Independent Contractor Tax Compliance:

Expand the Use of IRS's TIN-Matching Program:

Improve Administration of the Federal Payment Levy Program:

Enhance Nontax Debt Collection Using Available Tools:

Examples from Selected GAO Work:

Tax Interest Earned on Life Insurance Policies and Deferred Annuities:

Primary agency: Internal Revenue Service.

Spending type: Direct.



Interest earned on life insurance policies and deferred annuities, 
known as "inside buildup," is not taxed as long as it accumulates 
within the contract. Although the deferred taxation of inside buildup 
is similar to the tax treatment of income from some other investments, 
such as capital gains, it differs from the policy of taxing interest as 
it accrues on certain other investments, such as certificates of 
deposit and original issue discount bonds.

Not taxing inside buildup may have merit if it increases the amount of 
insurance coverage purchased and the amount of income available to 
retirees and beneficiaries. However, the tax preference given life 
insurance and annuities mainly benefits middle-and upper-income people. 
Coverage for low-income people is largely provided through the Social 
Security system, which provides both insurance and annuity protection. 
The Congress may wish to consider taxing the interest earned on life 
insurance policies and deferred annuities. In the past, JCT estimated 
that this option would result in budgetary savings. Investment income 
from annuities purchased as part of a qualified individual retirement 
account would be tax-deferred until benefits were paid.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Tax Policy: Tax Treatment of Life Insurance and Annuity Accrued 
Interest. GAO/GGD-90-31. Washington, D.C.: January 29, 1990.

GAO Contact:

James R. White, (202) 512-9110:

Further Limit the Deductibility of Home Equity Loan Interest:

Primary agency: Department of the Treasury.

Spending type: Direct.



The term home equity borrowing or financing is usually applied to 
mortgages other than the original loan used to acquire a home or to any 
subsequent refinancing of that loan. Interest is deductible on up to 
$100,000 of home equity indebtedness and $1 million of indebtedness 
used to acquire a home. Home equity financing is not limited to home-
related uses and can be used to finance additional consumption by 
borrowers.

Use of mortgage-related debt to finance nonhousing assets and 
consumption purchases through home equity loans could expose borrowers 
to increased risk of losing their homes should they default. Equity 
concerns may exist because middle-and upper-income taxpayers who 
itemize primarily take advantage of this tax preference, and such an 
option is not available to people who rent their housing.

One way to address the issues concerning the amounts or uses of home 
equity financing would be to limit mortgage interest deductibility up 
to $300,000 of indebtedness for the taxpayer's principal and second 
residence. In the past, JCT estimated that this option would generate 
additional revenues.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Tax Policy: Many Factors Contributed to the Growth in Home Equity 
Financing in the 1980s. GAO/GGD-93-63. Washington, D.C.: March 25, 
1993.

GAO Contact:

James R. White, (202) 512-9110:

Limit the Tax Exemption for Employer-Paid Health Insurance:

Primary agency: Internal Revenue Service.

Spending type: Direct.



The current tax treatment of health insurance--amounting to revenue 
losses of about $67.6 billion in 2001--gives few incentives to workers 
to economize on purchasing health insurance. Employer contributions for 
employee health protection are considered deductible, ordinary business 
expenses and employer contributions are not included in an employee's 
taxable income. The same is true for a portion of the premiums paid by 
self-employed individuals. Although some employers or employees could 
drop employer-sponsored coverage without the tax exemption, some 
analysts believe that the tax-preferred status of these benefits has 
contributed to the overuse of health care services and large increases 
in our nation's health care costs. In addition, the primary tax 
benefits accrue to those in high tax brackets who also have above 
average incomes.

Placing a cap on the amount of health insurance premiums that could be 
excluded--including in a worker's income the amount over the cap--could 
improve incentives and, to a lesser extent, tax equity. Alternatively, 
including health insurance premiums in income but allowing a tax credit 
for some percentage of the premium would improve equity since tax 
savings per dollar of premium would be the same for all taxpayers. 
Incentives could be improved for purchasing low-cost insurance if the 
amounts given credits were capped.

One specific option the Congress may wish to consider would be to tax 
all employer-paid health insurance, while providing individuals a 
refundable tax credit of 20 percent of premiums that they or their 
employers would pay, with eligible premiums capped at $500 and $200 per 
month for family coverage and individuals, respectively.

In the past, JCT could not develop a revenue estimate for this option 
due to uncertainty in determining the amount of health insurance that 
would be purchased given a repeal of the employer exclusion.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Tax Policy: Effects of Changing Tax Treatment of Fringe Benefits. GAO/
GGD-92-43. Washington, D.C.: April 7, 1992.

GAO Contact:

James R. White, (202) 512-9110:

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels:

Primary agency: Internal Revenue Service.

Spending type: Direct.



The tax code partially exempts biomass-derived alcohol fuels--made from 
nonfossil material of biological origin--from excise taxes on motor 
fuels. The tax code also provides that income tax credits for alcohol 
fuel use may be claimed instead of the excise tax exemption. However, 
the credit is in almost all cases less valuable than the exemption and 
is rarely used.

Tax incentives that encourage alternatives to fossil fuels might have 
merit if energy security or environmental benefits were realized. 
However, as we reported in 1997, if alcohol fuel use was not subsidized 
it is unlikely that U.S. energy security or air quality would be 
significantly affected. Even with tax subsidies, alcohol fuels were not 
competitive in price with fossil fuels in most markets. In 1995, 
alcohol fuels accounted for less than 1 percent of total U.S. energy 
consumption. Our report concluded that the incentives have not created 
enough usage to affect the likelihood of an oil price shock. Nor could 
their use be expanded enough to counter such a shock given existing 
production technologies. Use of oxygenated fuels such as ethanol-
gasoline mixtures in motor vehicles generally produces less carbon 
monoxide pollution than does straight gasoline. However, the Clean Air 
Act Amendments of 1990 reduced the need for an ethanol subsidy by 
mandating the minimum oxygen content of gasoline in areas with poor air 
quality. The global warming effects of using ethanol are likely to be 
no better than, and could be worse than, those of gasoline.

The Congress may wish to consider repealing the partial excise tax 
exemption and the alcohol fuels tax credit. The repeal could result in 
higher federal outlays for price support loan programs, but any 
increase in outlays probably would be much smaller than the estimated 
revenue increase. The excise tax exemption is currently scheduled to 
expire on October 1, 2007; the equivalent blender's tax credit is 
scheduled to expire on January 1, 2008. In the past, JCT estimated that 
this option would result in budgetary savings.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Tax Policy: Effects of the Alcohol Fuels Tax Incentives. GAO/GGD-97-41. 
Washington, D.C.: March 6, 1997.

GAO Contact:

James R. White, (202) 512-9110:

Index Excise Tax Rates for Inflation:

Primary agency: Internal Revenue Service.

Spending type: Direct.



Federal excise taxes are sometimes set at a fixed dollar amount per 
unit of taxed good. For example, alcoholic beverages are taxed at a set 
rate per gallon or barrel, with the rate varying for different types of 
beverages and differing concentrations of alcohol. When set in this 
manner, the real dollar value of the tax falls with inflation.

The real dollar value of these taxes can be maintained over time if the 
tax is indexed for inflation or set as a percentage of the price of the 
taxed product or service. Tax policy issues would need to be 
considered, and administrative difficulties may be encountered, but 
they are not insurmountable. The Congress may wish to consider indexing 
excise tax rates for alcohol and tobacco. In the past, JCT estimated 
that this option would generate additional revenues.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Alcohol Excise Taxes: Simplifying Rates Can Enhance Economic and 
Administrative Efficiency. GAO/GGD-90-123. Washington, D.C.: September 
27, 1990.

Tax Policy: Revenue Potential of Restoring Excise Taxes to Past Levels. 
GAO/GGD-89-52. Washington, D.C.: May 9, 1989.

GAO Contact:

James R. White, (202) 512-9110:

Increase Highway User Fees on Heavy Trucks:

Primary agency: Department of Transportation.

Spending type: Direct.



To develop and maintain highways, the government collects user fees 
including fuel taxes, a heavy vehicle use tax, an excise tax on truck 
and tractor sales, and an excise tax on heavy tires. In fiscal year 
1999, about $35.1 billion was collected from general highway user 
taxes. For many years, questions have been raised concerning whether 
highway users, including owners of heavy trucks, pay taxes in 
proportion to the wear and tear that their vehicles impose on highway 
pavement.

In 1982, the Congress passed the first major increase in federal 
highway use taxes since 1956 in order to increase highway revenues and 
to respond to a Federal Highway Administration (FHWA) report that heavy 
trucks underpaid by about 50 percent their fair share relative to the 
pavement damage that they caused. FHWA also reported that lighter 
trucks were overpaying by between 30 and 70 percent (depending on 
weight), and automobiles were overpaying by 10 percent. The 1982 tax 
increase required that the ceiling for the heavy vehicle use tax be 
increased from $240 a year to $1,900 a year by 1989. In response to the 
concerns of the trucking industry about the new tax structure, the 
Congress again revised the system in the Deficit Reduction Act of 1984. 
Under the act, the ceiling for the heavy vehicle use tax was lowered 
from $1,900 to $550 a year. To ensure that this action was revenue 
neutral, the Congress raised the tax on diesel fuel from 9 cents to 15 
cents per gallon.

As GAO recommended in June 1994, FHWA conducted a cost allocation 
study. The study, released in August 1997, noted that the overall 
equity of highway user fees could be incrementally improved by 
implementing either a weight-distance tax or eliminating the existing 
$550 cap on the Heavy Vehicle Use Tax. However, the study made no 
recommendations; the administration continues to monitor highway user 
fees but plans no action unless the overall equity of highway user fees 
worsens. In the past, JCT estimated that removing the $550 cap on the 
Heavy Vehicle Use Tax would generate additional revenues.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Products:

Highway Financing: Factors Affecting Highway Trust Fund Revenues. GAO-
02-667T. Washington, D.C.: May 9, 2002.

Highway User Fees: Updated Data Needed To Determine Whether All Users 
Pay Their Fair Share. GAO/RCED-94-181. Washington, D.C.: June 7, 1994.

GAO Contact:

Katherine Siggerud, (202) 512-6570:

Require Corporate Tax Document Matching:

Primary agency: Internal Revenue Service.

Spending type: Direct.



The Internal Revenue Service's (IRS) document matching program for 
payments to individuals has proven to be a highly cost-effective way of 
bringing in billions of dollars in tax revenues to the Department of 
the Treasury while at the same time boosting voluntary compliance. 
However, unlike payments to individuals, the law does not require that 
information returns be submitted on most payments to corporations.

Generally using IRS's assumptions, we estimated the benefits and costs 
for a corporate document matching program that would cover interest, 
dividends, rents, royalties, and capital gains. Assuming that a 
corporate document matching program began in 1993, we estimated that 
for years 1995 through 1999, IRS's annual costs would have been about 
$70 million and annual increased revenues about $1 billion. This 
estimate did not factor in compliance costs and changes in taxpayer 
behavior. Given increased corporate noncompliance, and declining audit 
coverage, the Congress may wish to require a corporate document 
matching program.

In the past, JCT agreed that the option had the potential for increased 
revenue, but it could not develop estimates of revenue gain.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Tax Administration: Benefits of a Corporate Document Matching Program 
Exceed the Costs. GAO/GGD-91-118. Washington, D.C.: September 27, 1991.

GAO Contact:

James R. White, (202) 512-9110:

Improve Administration of the Tax Deduction for Real Estate Taxes:

Primary agency: Internal Revenue Service.

Spending type: Direct.



Based on the Internal Revenue Service's (IRS) last compliance 
measurement study, individuals overstated their real estate tax 
deductions by about $1.5 billion nationwide in 1988. We estimate that 
this resulted in about $400 million federal tax loss for 1992. However, 
this may understate lost revenues because our review also found that 
IRS auditors detected only about 29 percent of $127 million in 
overstated deductions in three locations we reviewed. Revenues could be 
lost not only for the federal government but also for the 31 states 
that in 1991 tied their itemized deductions to those used for federal 
tax purposes.

Two changes to the reporting of real estate cash rebates and real 
estate taxes could reduce noncompliance and increase federal tax 
collections. First, the Congress could require that states report to 
IRS, and to taxpayers on Form 1099s, cash rebates of real estate taxes. 
Second, the Congress could require that state and local governments 
conform real estate tax statements to specifications issued by IRS that 
would separate real estate taxes from nondeductible fees, which are 
often combined on these statements.

In the past, JCT estimated that the proposals would increase federal 
fiscal revenues.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Tax Administration: Overstated Real Estate Tax Deductions Need To Be 
Reduced. GAO/GGD-93-43. Washington, D.C.: January 19, 1993.

GAO Contact:

James R. White, (202) 512-9110:

Increase Collection of Returns Filed by U.S. Citizens Living Abroad:

Primary agency: Internal Revenue Service.

Spending type: Direct.



U.S. citizens residing abroad are generally subject to the same filing 
requirements as citizens residing in the United States. Some evidence 
suggests that the failure to file tax returns may be relatively 
prevalent in some segments of the U.S. population abroad, and the 
revenue impact, while unknown, could be significant.

IRS's ability to identify and collect taxes from nonfilers residing 
abroad is restricted by the limited reach of U.S. laws in foreign 
countries, particularly U.S. laws on tax withholding, information 
reporting, and enforced collection through liens, levies, and seizures. 
Another factor that could contribute to nonfiling abroad is the 
ambiguity in IRS's filing instructions for its Form 1040 and related 
guidance. For example, it may not be clear that income qualifying for 
the foreign earned income or housing expense exclusions must be 
considered in determining whether one's gross income exceeds the filing 
threshold.

In pursuing nonfilers abroad, IRS has not fully explored the usefulness 
of passport application data as a means of identifying potential 
nonfilers. While passport applications contain no income information, 
they could be used to collect applicants' social security number, age, 
occupation, and country of residence.

IRS may want to take additional steps to enforce the current 
information requirement that all passport applicants provide their 
social security numbers as a means of identifying potential nonfilers 
abroad. IRS may also want to clarify its instructions for determining 
what income must be considered in determining whether gross income 
exceeds the filing threshold. Initial projects to increase the number 
of returns filed from overseas suggest that the potential increase in 
tax revenues would justify the costs to improve compliance.

In the past, JCT agreed that the option had the potential for increased 
revenue, but it could not develop estimates of revenue gain.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Tax Administration: Nonfiling Among U.S. Citizens Abroad. GAO/GGD-98-
106. Washington, D.C.: May 11, 1998.

IRS Activities to Increase Compliance on Overseas Taxpayers. GAO/GGD-
93-93. Washington, D.C.: May 18, 1993.

GAO Contact:

James R. White, (202) 512-9110:

Increase the Use of Seizure Authority to Collect Delinquent Taxes:

Primary agency: Internal Revenue Service.

Spending type: Direct.



The Internal Revenue Service's (IRS) use of its statutory authority to 
seize taxpayer assets has been instrumental in bringing into compliance 
(i.e., full pay status) many delinquent taxpayers who had been 
unresponsive to other tax collection efforts, including demands for 
payment through letters, phone calls, personal visits, and levies on 
bank accounts and wages. Of the approximate 8,300 taxpayers whose 
assets were seized by IRS in fiscal year 1997, about 42 percent became 
fully tax compliant--resolving about $186 million in tax debts--as a 
result of the seizures. In total, the seizure of taxpayer property in 
fiscal year 1997 resulted in resolving about $235 million, or about 22 
percent of the $1.1 billion of tax debts owed by the 8,300 taxpayers.

IRS's use of seizure authority has declined since the enactment of the 
IRS Restructuring and Reform Act of 1998. Seizures declined from 10,090 
in FY 1997 to 234 in FY 2001--a decline of about 98 percent. In 2002, 
the number of seizures was essentially unchanged with IRS completing 
296 seizures. According to an IRS official the number of seizures is 
not expected to change in 2003. At this greatly reduced level of 
seizures, IRS is at risk of foregoing the collection of millions of 
dollars as indicated by the 1997 data. IRS employees told GAO in 2000 
that seizures have nearly stopped because of their uncertainty over the 
act's seizure requirements and IRS' slow development of workable 
policies and procedures for implementing the act. IRS officials 
indicated to GAO that they expected the future level of seizures to be 
substantially below the level before the Reconstruction Act experience 
given (1) IRS program changes that provide taxpayers with additional 
opportunities to resolve their tax delinquencies prior to seizure, (2) 
expanded definition of taxpayer property statutorily exempt from 
seizure, (3) increased time available to taxpayers to exercise rights 
to challenge seizures, and (4) reductions in collection staff available 
to make seizures. GAO has recently reported that the number of revenue 
officers--the IRS staff responsible for making seizures--decreased 
about 35 percent from 1997 to 2002.

To help ensure that revenue officers have clear guidance for the use of 
seizure authority, GAO has made a number of recommendations to IRS. In 
part, GAO recommended that IRS provide written guidance to describe 
when seizure action ought to be taken; that is, the conditions and 
circumstances that would justify seizure action and the 
responsibilities of senior managers to ensure that such actions are 
taken. GAO also has recommended that IRS develop a computer based 
information system to monitor compliance with the seizure guidance. IRS 
has issued the revised seizure guidance and will implement a limited 
seizures monitoring system this fall. In the past, JCT agreed that the 
option has the potential for increased revenue, but it could not 
develop estimates of revenue gain.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

IRS Seizures: Needed for Compliance but Processes for Protecting 
Taxpayer Rights Have Some Weaknesses. GAO/GGD-00-4. Washington, D.C.: 
November 29, 1999.

GAO Contact:

James R. White, (202) 512-9110:

Increase Collection of Self-employment Taxes:

Primary agency: Internal Revenue Service.

Spending type: Direct.



Self-employed taxpayers can get Social Security benefits based on 
earnings for which they did not pay taxes because the Social Security 
Act requires the Social Security Administration to grant earnings 
credits, which are used to determine benefit eligibility and amounts, 
and pay benefits without regard to whether the Social Security taxes 
have been paid. We reported in 1999 that, as of September 1997, more 
than 1.9 million self-employed taxpayers were delinquent in paying $6.9 
billion in self-employment taxes. Also, more than 144,000 taxpayers 
with delinquent self-employment taxes of $487 million were receiving 
about $105 million annually in monthly Social Security benefits.

While IRS's ability to collect self-employment taxes before taxpayers 
become delinquent is hampered because there is no withholding on self-
employment income, most self-employed taxpayers are required to make 
estimated tax payments. However, as of September 1997, about 90 percent 
of the delinquent self-employed taxpayers required to make estimated 
tax payments did not.

In the past, there have been proposals to deny social security credits 
to taxpayers that fail to pay their self-employment taxes and to 
require withholding on certain self-employment income. No actions were 
taken on these proposals. One way to collect self-employment taxes 
before taxpayers become delinquent that does not require a law change 
would be to encourage more self-employed individuals to make their 
required estimated tax payments. IRS could do this by establishing a 
program to remind previously noncompliant taxpayers (i.e., those who 
were assessed an estimated tax penalty the previous year) to make such 
payments.

In the past, JCT agreed that the option had the potential for increased 
revenue, but it could not develop estimates of revenue gain.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Tax Administration: Billions in Self-Employment Taxes Are Owed. GAO/
GGD-99-18. Washington, D.C.: February 19, 1999.

GAO Contact:

James R. White, (202) 512-9110:

Increase the Use of Electronic Funds Transfer for Installment Tax 
Payments:

Primary agency: Internal Revenue Service.

Spending type: Direct.



The Internal Revenue Code authorizes the Internal Revenue Service (IRS) 
to allow taxpayers to pay their taxes in installments, with interest, 
if this arrangement would facilitate collection of the liability. As of 
September 2000, IRS had about 2.2 million installment agreements 
outstanding, worth about $8.3 billion. At the end of fiscal year 2000, 
approximately 35 percent of these installment agreements were in 
default.

A number of states use electronic funds transfer (EFT) to make their 
installment agreement program more efficient and effective. In 1998, we 
reported on two states' use of EFT. Minnesota, requires taxpayers to 
pay by EFT, with some exceptions. As of late 1997, approximately 90 
percent of Minnesota's installment agreements were EFT agreements, and 
the default rate had dropped from about 50 percent to between 3 percent 
and 5 percent in the 2 years the EFT requirement had been in effect. In 
California, within 6 months of implementing its EFT procedures, its 
default rate for new installment agreements dropped from around 40 
percent to 5 percent.

EFT payments also produce administrative savings through lower 
processing costs involved in recording and posting remittances, lower 
postage and handling costs associated with sending monthly payment 
reminders, and lower collection enforcement costs needed to pursue 
fewer taxpayers in default. IRS's initial comparison of the cost of EFT 
payments with the cost of having taxpayers send installment payments to 
lockboxes in commercial banks showed that EFT payment costs were about 
37 percent less than the lockbox costs.

The reported benefits for IRS of using EFT for installment agreement 
payments include the potential to reduce the percentage of taxpayer 
defaults, decrease administrative costs, and achieve faster 
collections. At the end of fiscal year 2000, less than 1.5 percent of 
IRS's outstanding installment agreements were EFT agreements.

In the past, JCT agreed that the option had the potential for increased 
revenue, but it could not develop estimates of revenue gain.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Tax Administration: Increasing EFT Usage for Installment Agreements 
Could Benefit IRS. GAO/GGD-98-112. Washington, D.C.: June 10, 1998.

Tax Administration: Administrative Improvements Possible in IRS' 
Installment Agreement Program. GAO/GGD-95-137. Washington, D.C.: May 2, 
1995.

GAO Contact:

James R. White, (202) 512-9110:

Reduce Gasoline Excise Tax Evasion:

Primary agency: Internal Revenue Service.

Spending type: Direct.



Although no current and reliable estimate of gasoline excise tax 
evasion exists, the most recent Federal Highway Administration 
estimate, from 1992, was that evasion amounted to between 3 and 7 
percent of gasoline excise tax revenue. From a tax administration 
perspective, moving the collection point for gasoline excise taxes from 
the terminal to the refinery level may reduce tax evasion because (1) 
gasoline would change hands fewer times before taxation, (2) refiners 
are presumed to be more financially sound and have better records than 
other parties in the distribution system, and (3) fewer taxpayers would 
be involved. However, industry representatives raise competitiveness 
and cost-efficiency questions associated with moving the collection 
point.

In a May 1992 report, we suggested that the Congress explore the level 
of gasoline excise tax evasion and, if it was found to be sufficiently 
high, move tax collection to the point at which gasoline leaves the 
refinery. In the past, JCT agreed that the option had the potential for 
increased revenue, but it could not develop estimates of revenue gain.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Product:

Tax Administration: Status of Efforts to Curb Motor Fuel Tax Evasion. 
GAO/GGD-92-67. Washington, D.C.: May 12, 1992.

GAO Contact:

James R. White, (202) 512-9110:

Improve Independent Contractor Tax Compliance:

Primary agency: Internal Revenue Service.

Spending type: Direct.



Common law rules for classifying workers as employees or independent 
contractors are unclear and subject to conflicting interpretations. 
While recognizing this ambiguity, the Internal Revenue Service (IRS) 
enforces tax laws and rules through its Employment Tax Examinations 
program. For fiscal year 2002, 90 percent of the examinations found 
misclassified workers and associated unpaid taxes. Establishing clear 
rules is difficult. Nevertheless, taxpayers need--and the government is 
obligated to provide--clear rules for classifying workers if businesses 
are to voluntarily comply. In addition, improved tax compliance could 
be gained by requiring businesses to (1) withhold taxes from payments 
to independent contractors and/or (2) file information returns with IRS 
on payments made to independent contractors constituted as 
corporations. Both approaches have proven to be effective in promoting 
individual tax compliance.

In the past, the Congress considered but rejected extending information 
reporting requirements for unincorporated independent contractors to 
incorporated ones. Thus, independent contractors organized as either 
sole proprietors or corporations could have been on equal footing, and 
IRS could have had a less intrusive means of ensuring their tax 
compliance.

There have been various proposals on clarifying the definition of 
independent contractors and improving related information reporting. 
Congressional hearings dealt with some of these bills.

We believe that revenues from this option could possibly increase by 
billions of dollars. In the past, JCT agreed that the option had the 
potential for increased revenue, but it could not develop estimates of 
revenue gain.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No.

Related GAO Products:

Tax Administration: Estimates of the Tax Gap for Service Providers. 
GAO/GGD-95-59. Washington, D.C.: December 28, 1994.

Tax Administration: Approaches for Improving Independent Contractor 
Compliance. GAO/GGD-92-108. Washington, D.C.: July 23, 1992.

GAO Contact:

James R. White, (202) 512-9110:

Expand the Use of IRS's TIN-Matching Program:

Primary agency: Internal Revenue Service.

Spending type: Direct.



The Internal Revenue Service's (IRS) and the Department of Treasury's 
Financial Management Service (FMS) have initiated a continuous tax levy 
program designed to identify and levy federal payments to taxpayers 
that owe federal taxes. The potential effectiveness of this program 
will be reduced because payment records submitted to FMS by federal 
agencies often have an inaccurate Taxpayer Identification Number (TIN) 
and/or name.

Since 1997, IRS has had a TIN-matching program that federal agencies 
can use to verify the accuracy of TIN and name combinations furnished 
by federal payees that are necessary for issuing information returns. 
This program was intended to reduce the number of notices of incorrect 
TIN and name combinations issued for backup withholding by allowing 
agencies the opportunity to identify TIN and name discrepancies and to 
contact payees for corrected information before issuing an information 
return. Monthly, federal agencies may submit a batch of name and TIN 
combinations to IRS for verification. IRS matches each record submitted 
and informs the agency whether the TIN and name submitted matches its 
records. However, IRS cannot explicitly tell an agency what the correct 
TIN, name, or both TIN and name should be if the records do not match. 
To do so would violate tax disclosure laws.

In an April 2000 report, we found that about 33 percent of vendor 
payment records submitted by federal agencies to FMS during one quarter 
in fiscal year 1999 had TINs and/or names that differed with the TINs 
and/or names in IRS's accounts receivable records. As a result, vendor 
payment records totaling almost $20 billion were unsuitable for 
matching against IRS's accounts receivable records and therefore would 
not be included in the joint FMS/IRS continuous tax levy program for 
the purpose of reducing federal tax delinquencies.

The Congress may wish to expand the use of IRS's TIN-matching program 
for purposes other than information reporting to enable federal 
agencies to specifically verify the accuracy of vendor TINs and names. 
This would help to reduce the number of federal payment records that 
are unsuitable for matching against IRS's accounts receivable records 
and to increase the number of federal tax delinquencies that could be 
collected through the continuous tax levy program. We estimate that 
resolving inconsistencies between the names payees use to receive 
federal payments and the names payees use on their federal tax returns 
could generate as much as $74 million annually. In the past, JCT 
estimated that savings would result from this option.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

Yes.

Related GAO Product:

Tax Administration: IRS' Levy of Federal Payments Could Generate 
Millions of Dollars. GAO/GGD-00-65, April 7, 2000.

GAO Contact:

James R. White, (202) 512-9110:

Improve Administration of the Federal Payment Levy Program:

Primary agency: Internal Revenue Service.

Spending type: Direct/Discretionary.



The Internal Revenue Service (IRS) and the Department of Treasury's 
Financial Management Service (FMS) have initiated the Federal Payment 
Levy Program, which is designed to continuously levy federal payments 
made to taxpayers that owe federal taxes. The potential effectiveness 
of this program will be reduced because IRS has blocked certain 
delinquent taxpayers from being levied.

Since July 2000, IRS has been levying federal payments of delinquent 
taxpayers. Certain taxpayers are not levied because they meet certain 
exclusion criteria, such as taxpayers who are paying their taxes 
through installment agreements or those who have contacted IRS and 
demonstrated that they currently do not have the means to pay their 
taxes. However, there are many other delinquent taxpayers who do not 
meet IRS's exclusion criteria but are not having their federal payments 
levied. In a March 2003 report, we found that about 112,000 delinquent 
taxpayers were collectively receiving about $6.8 billion in federal 
payments and owed about $1.6 billion in delinquent taxes that IRS had 
blocked from the levy program. While IRS began to unblock about 20,000 
of these accounts in January 2003, it does not plan to unblock the 
remaining portion until sometime in 2005. The sooner IRS unblocks these 
accounts, the more likely it is to collect the delinquent taxes.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Product:

Tax Administration: Federal Payment Levy Program Measures, Performance, 
and Equity Can Be Improved. GAO-03-356. Washington, D.C.: March 6, 
2003.

GAO Contact:

Michael Brostek, (202) 512-9110:

Enhance Nontax Debt Collection Using Available Tools:

Primary agency: Department of the Treasury.

Spending types; Direct/Discretionary.



Nontax federal debt delinquent more than 180 days continues to be a 
significant problem governmentwide. The Department of Treasury reported 
that such debt totaled over $60 billion for each of the last 4 fiscal 
years. As delinquent debts age, they become increasingly difficult to 
collect. In 1996, the Congress enacted the Debt Collection Improvement 
Act of 1996 (DCIA) to provide for more aggressive pursuit of delinquent 
debt. Treasury's Financial Management Service (FMS) has been 
instrumental in helping agencies identify and refer more seriously 
delinquent nontax debts to FMS for additional effort. FMS has had some 
success in these centralized efforts; however, two key aspects of the 
1996 legislation have lagged behind other initiatives.

In particular, the law authorized federal agencies to perform 
administrative wage garnishment (AWG) for certain delinquent debt. Debt 
collection experts have emphasized that AWG is a powerful instrument 
for collecting debt since the mere threat of using it is often enough 
to motivate voluntary payment. Properly used in tandem with other debt 
recovery techniques such as Treasury's centralized debt collection 
program, AWG should generate collections and provide leverage for 
agencies to obtain voluntary payments from delinquent debtors. However, 
few agencies are using AWG. Although the Department of Education had 
implemented AWG granted under separate authority, none of the nine 
large Chief Financial Officers Act agencies we reviewed in fiscal year 
2001 had fully implemented AWG as authorized by the DCIA. According to 
Treasury officials, as of March 2003, only one of the nine large 
agencies, the Department of Housing and Urban Development, had 
authorized Treasury to perform AWG as part of its centralized debt 
collection efforts. Although AWG is not mandatory, by failing to employ 
this tool--more than 7 years after the DCIA's enactment--agencies have 
missed collection opportunities.

DCIA also called for steps to prevent certain delinquent debtors from 
receiving additional federal financial assistance in the form of loans, 
loan guarantees, and loan insurance. Our March 2002 report discussed 
three major information sources that contain data on delinquent federal 
debtors: credit bureau reports, the Department of Housing and Urban 
Development's Credit Alert Interactive Voice Response System, and the 
Department of the Treasury's offset program (TOP) database. Each 
information source contained certain information on delinquent federal 
nontax debtors, but none provided all-inclusive, timely data or 
maintained data long enough to be an adequate basis for successfully 
barring future financial assistance to current or prior delinquent 
debtors. According to Treasury officials, FMS is in the initial 
implementation phase of a new Internet-based program to assist agencies 
in identifying delinquent debtors. As currently envisioned, the program 
will allow agencies to initiate searches of limited information from 
the TOP database to determine whether applicants for direct or 
guaranteed loans owe delinquent federal nontax debt.

We have recommended that agencies begin implementing AWG and that FMS 
augment its current plans for using the TOP database to bar delinquent 
debtors from obtaining access to future federal financial assistance. 
Because it is not clear at this time how much federal agency debt is 
eligible for AWG, an estimate of additional receipts from full 
implementation of this debt collection tool would only be a preliminary 
indication. The same uncertainty exists for estimated benefits related 
to full implementation of the delinquent debtor bar provision. Given 
the pace of implementation, it may be desirable for the Congress to 
establish certain milestones and performance expectations for the debt 
collection function.

JCT 5-Year Estimate Included in GAO's 2002 Budgetary Implications 
Report:

No, this is a new example. CBO could not develop an estimate for this 
example.

Related GAO Products:

Debt Collection: Agriculture Making Progress in Addressing Key 
Challenges. GAO-03-202T. Washington, D.C.: November 13, 2002.

Debt Collection Improvement Act of 1996: Major Data Sources Inadequate 
for Implementing the Debtor Bar Provision. GAO-02-462. Washington, 
D.C.: March 29, 2002.

Debt Collection Improvement Act of 1996: Status of Selected Agencies' 
Implementation of Administrative Wage Garnishment. GAO-02-313. 
Washington, D.C.: February 28, 2002.

Debt Collection Improvement Act of 1996: Department of Agriculture 
Faces Challenges Implementing Certain Key Provisions. GAO-02-277T. 
Washington, D.C.: December 5, 2001.

Debt Collection Improvement Act of 1996: Agencies Face Challenges 
Implementing Certain Key Provisions. GAO-02-61T. Washington, D.C.: 
October 10, 2001.

GAO Contact:

Gary T. Engel, (202) 512-8815:

Slowing the Long-Term Growth of Social Security and Medicare:

CBO Options Where Related GAO Work Is Identified:

Constrain the Increase in Initial Benefits:

Raise the Retirement Age:

CBO Options Where Related GAO Work Is Identified:

Constrain the Increase in Initial Benefits:

Related GAO Products:

Social Security: Analysis of Issues and Selected Reform Proposals. GAO-
03-376T. Washington, D.C.: January 15, 2003.[Footnote 42]

Social Security Reform: Analysis of Reform Models Developed by the 
President's Commission to Strengthen Social Security. GAO-03-310. 
Washington, D.C.: January 15, 2003.

GAO Contact:

Barbara Bovbjerg, (202) 512-7215:

Raise the Retirement Age:

Related GAO Product:

Social Security Reform: Implications of Raising the Retirement Age. 
GAO/HEHS-99-112. Washington, D.C.: August 27, 1999.

GAO Contact:

Barbara Bovbjerg, (202) 512-7215:

(450220):

FOOTNOTES

[1] H.R. Rep. No. 108-71, Sec. 301(e) (2003).

[2] U.S. General Accounting Office, Supporting Congressional Oversight: 
Budgetary Implications of Selected GAO Work for Fiscal Year 2003, GAO-
02-576 (Washington, D.C.: Apr. 26, 2002). 

[3] U.S. General Accounting Office, Major Management Challenges and 
Risks: A Governmentwide Perspective, GAO-03-95 (Washington, D.C.: 
January 2003). 

[4] U.S. General Accounting Office, High-Risk Series: An Update, GAO-
03-119 (Washington, D.C.: January 2003).

[5] Congressional Budget Office, Budget Options (Washington, D.C.: 
March 2003).

[6] U.S. General Accounting Office, Supporting Congressional Oversight: 
Budgetary Implications of Selected GAO Work for Fiscal Year 2003, GAO-
02-576 (Washington, D.C.: Apr. 26, 2002). 

[7] Congressional Budget Office, Budget Options (Washington, D.C.: 
March 2003).

[8] Throughout this document, "GAO's 2002 Budget Implications Report" 
refers to U.S. General Accounting Office, Supporting Congressional 
Oversight: Budgetary Implications of Selected GAO Work for Fiscal Year 
2003, GAO-02-576 (Washington, D.C.: Apr. 26, 2002). 

[9] To the extent that alternatives are selected that would cause 
civilian personnel reductions that exceed the thresholds established in 
10 U.S.C. 2687, the department would have to follow the procedures 
provided in that section.

[10] The State Department has noted that the entry of nuclear-powered 
vessels into Japanese ports remains sensitive in Japan and there would 
have to be careful consultations with the government of Japan should 
the U.S. Government wish to homeport a nuclear-powered carrier in 
Japan.

[11] DOD defines infrastructure as those activities that provide 
support services to mission programs, such as combat forces, and 
primarily operate from fixed locations. They include such program 
elements as installation support, acquisition infrastructure, central 
logistics, central training, central medical, and central personnel.

[12] The National Defense Authorization Act for Fiscal Year 2002 
authorized another Base Realignment and Closure (BRAC) round to be 
conducted in 2005.

[13] Contract payments involve payments for the delivery of goods and 
services and financing payments. Financing payments include (1) 
progress payments to cover a contractor's costs as they are incurred 
during the construction of facilities or the production of major 
weapons systems and (2) performance-based payments that are based on 
the accomplishment of particular events or milestones--typically used 
on production contracts.

[14] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[15] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

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

[17] The "credit elsewhere" standard is a test to determine whether the 
borrower can obtain credit without the SBA guarantee.

[18] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[19] Previously we included the views of U.S. Customs Service and 
Federal Aviation Administration (FAA) officials. However, since our 
last budgetary implications report in April 2002, Customs and its 
responsibilities were transferred to CBP and TSA assumed the PFNA 
program from FAA. CBP and TSA are part of the Department of Homeland 
Security, which was established in November 2002. In addition, the DOD 
Counterdrug Technology Development Program Office assumed 
responsibility for the PFNA program from the Office of the Assistant 
Secretary of Defense for Special Operations and Low Intensity Conflict.

[20] Senate Report 107-109, Department of Defense Appropriation Bill, 
2002, and Supplemental Appropriations, 2002, December 5, 2001, page 
155.

[21] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[22] FEMA will now pay to replace rather than repair buildings if the 
repair costs would be more than 50 percent of the estimated replacement 
cost.

[23] Generally, FHA, VA, and RHS pay claims to mortgage servicers to 
cover the outstanding loan balances on foreclosed mortgages and 
interest and other expenses. If foreclosed properties are resold at 
relatively low prices, then the organizations' ability to recover their 
claim payments may be limited.

[24] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[25] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[26] SCHIP is the State Children's Health Insurance Program.

[27] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[28] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[29] We calculated this figure by multiplying the number of last-day 
cases reported in Texas and Georgia (4,819) by SSA data on the average 
annual offset amount ($4,800) and the average retiree's life expectancy 
upon receipt of spousal benefits (19.4 years). This estimate may over-
underestimate costs due to the use of averages, the exclusion of 
inflation/cost-of-living/net present value adjustments, lost 
investment earnings by the Trust Funds, and other factors that may 
affect the receipt of spousal benefits. 

[30] Here, the term "fugitive felons" also refers to probation and 
parole violators.

[31] U.S. General Accounting Office, Food Stamp Program: Storeowners 
Seldom Pay Financial Penalties Owed for Program Violations, GAO/RCED-
99-91 (Washington, D.C.: May 11, 1999).

[32] U.S. General Accounting Office, Food Stamp Program: Better Use of 
Electronic Data Could Result in Disqualifying More Recipients Who 
Traffic Benefits, GAO/RCED-00-61 (Washington, D.C.: Mar. 7, 2000).

[33] U.S. General Accounting Office, Food Assistance: Efforts to 
Control Fraud and Abuse in the Child and Adult Care Food Program Should 
Be Strengthened, GAO/RCED-00-12 (Washington, D.C.: Nov. 29, 1999).

[34] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[35] VA is continuing its competitive sourcing study of the Veterans 
Canteen Service because operations are funded from nonappropriated 
funds. The Canteen Service generates revenues from its sales of food 
and other retail items in its food court, and from retail operations in 
VA hospitals to fund operations. VA expects to complete the competitive 
sourcing study on the food service part of the Canteen Service during 
the fourth quarter of fiscal year 2003.

[36] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[37] U.S. General Accounting Office, Deficit Reduction: Better 
Targeting Can Reduce Spending and Improve Programs and Services, GAO/
AIMD-96-14 (Washington, D.C.: Jan. 16, 1996), and School Finance: State 
Efforts to Equalize Funding Between Weathly and Poor School Districts, 
GAO/HEHS-98-92 (Washington, D.C.: June 16, 1998).

[38] In the transportation function, several very small, close-ended 
grants could not be easily isolated in the baseline and these are 
included in the estimate.

[39] Existing contracts could also be "grandfathered" in as occurred 
under the lease-purchase rule.

[40] Government agencies have different definitions of what constitutes 
a rural area. See GAO-01-805, p. 25 for more detail.

[41] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

[42] We list GAO reports identified as relating to options included in 
the CBO March 2003 Budget Options report. Only those CBO options for 
which we identified related GAO products are included. We included GAO 
reports if they related to the topic of the CBO option, regardless of 
whether our work supported the option or not.

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