FROM THE OFFICE OF PUBLIC AFFAIRS

April 26, 2005
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Testimony of Secretary John W. Snow
before the
Senate Appropriations Subcommittee on Transportation, Treasury, the Judiciary,
Housing and Urban Development, and Related Agencies

Chairman Bond, Senator Murray, and Members of the Subcommittee, I appreciate the opportunity to appear before you today to discuss the President's fiscal year 2006 budget for the Department of the Treasury.

The Department's budget reflects the President's top priorities for fiscal year 2006: fighting the financial war on terror while ensuring America's economic strength, and demonstrating the fiscal responsibility necessary to reduce the deficit.  The fiscal year 2006 request of $11.6 billion also supports Treasury's longer term core strategic missions: promoting national prosperity through economic growth and job creation; maintaining public trust and confidence in our economic and financial systems; and ensuring the Treasury organization has the workforce, technology, and business practices to meet the nation's needs effectively and efficiently.  This budget request focuses on the President's belief that the budget be fair while holding the government accountable. It adheres to the principle that "taxpayer dollars must be spent wisely, or not at all." 

Mr. Chairman, we provided the Committee with a detailed breakdown and justification for President's fiscal year 2006 budget request for Treasury. I would like to take the opportunity today to point out some highlights of our request and then I'd be happy to take any questions you may have.

STRENGTHEN NATIONAL SECURITY

Treasury's budget reinforces the President's commitment to combating terrorist financing and safeguarding the U.S. financial system. Since September 11th, we have leveraged the relationships, resources, and expertise that we have acquired over the past several years in combating money laundering to address terrorist financing and protecting our financial systems. Our efforts in both attacking terrorist financing and protecting the financial system are complementary and are effecting the changes required to protect the integrity of our financial systems by identifying, disrupting and dismantling sources, flows, and uses of tainted capital within those systems.  To support these efforts, the President requests $351.3 million for fiscal year 2006.

The Office of Terrorism and Financial Intelligence (TFI) leads Treasury's efforts to sever the lines of financial support to international terrorists and serves as a critical component of the Administration's overall effort to keep America safe from terrorist plots.  The establishment of TFI unifies leadership for the functions of the Office of Intelligence Analysis (OIA), the Office of Terrorist Financing and Financial Crimes (TFFC), the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC), and the Treasury Executive Office for Asset Forfeiture (TEOAF).  The objectives of unifying this leadership are better coordination of Treasury's array of economic tools against terrorist and national security threats. To safeguard financial systems both at home and abroad, TFI draws upon a range of capabilities that cut across various categories, including financial sanctions, financial regulation and supervision, international initiatives, private sector outreach, and law enforcement support.  TFI consolidates the policy, enforcement, regulatory, international, and analytical functions of the Treasury and adds to them critical intelligence components.  OIA provides focused and operable intelligence in support of the Department's mission and policies. TFI's enforcement responsibilities are executed by the TFFC, OFAC, and FinCEN.  Finally, TFI provides policy guidance for the IRS-Criminal Investigation Division (IRS-CI) in their anti-money laundering, terrorist financing, and financial crimes cases. 

Since September 2001, the <<United States>> and its allies have designated 399 terrorist related entities and frozen over $147 million in terrorist assets. TFI has designated and frozen the assets of prominent terrorist financiers and organizations, including Adel Batterjee, a Saudi financier of al Qaida, and the Islamic African Relief Agency, a corrupt global charity that supported Usama bin Laden and HAMAS. Thanks to collaborative efforts by TFI and other agencies, the U.S. has facilitated the finding and freezing of nearly $6 billion in Iraqi assets outside of Iraq, the return of over $2.7 billion of those funds, and the recovery of more than $1 billion in cash inside Iraq.  

Treasury's fiscal year 2006 request includes increases for resources to enhance Treasury's analytical capability so that senior officials have access to actionable financial intelligence.  The request also supports TFI creating a 21^st century information technology infrastructure to assist in the global fight against terror.

The Financial Crimes Enforcement Network has a major role in supporting TFI's enforcement responsibilities.  The President's request includes $73.6 million for FinCEN to support its mission to safeguard the financial system from abuses of financial crime, including terrorist financing, money laundering and other illicit activity.  This increase will provide FinCEN with the funding needed to enhance its outreach efforts to financial institutions newly covered by Bank Secrecy Act regulations and strengthen examination and enforcement activities; strengthen analytical support services; and expand FinCEN's support to other international financial intelligence units to facilitate information exchange. 

The IRS-CI also plays a key role in investigating financial crimes. The request supports the unique skills and expertise of IRS-CI agents in investigating tax fraud and financial crimes not only to support tax compliance, but also benefit the war on terror and our efforts to root out financial crimes. These agents apply their training, skills, and expertise to support the national effort to combat terrorism and participate in the Joint Terrorism Task Force and other similar interagency efforts focused on disrupting and dismantling terrorist financing.

In addition, the Office of Critical Infrastructure Protection and Compliance Policy leads our efforts to safeguard the financial infrastructure. This Office works closely with other federal agencies and the private sector to safeguard our infrastructure. That is essential, given that the majority of the critical financial infrastructure of the United States is owned and operated by the private sector.

Finally, an essential aspect of ensuring our national security is to secure fragile states and foster sustainable development in the world's poorest nations.  The Office of International Affairs uses bilateral diplomacy and its role as steward of the international financial institutions, including the World Bank and International Monetary Fund--to create the economic growth that will reduce conflict and the conditions that favor terrorism in the developing world.

ENSURE FINANCIAL SECURITY

Treasury's strategic goal to manage the U.S. Government's finances effectively is the largest part of the President's fiscal year 2006 request for the Department. The budget request of $11 billion -- the majority of which is for the Internal Revenue Service -- underscores our commitment to provide quality service to taxpayers and enforce America's tax laws in a balanced manner.   The request includes a 7.8 percent increase in enforcement funding over fiscal year 2005. The increase will provide additional resources to examine more tax returns, collect past due taxes and investigate cases of tax evasion. 

It is important that these enforcement investments be fully funded, therefore the Administration proposes to employ a budget enforcement mechanism used commonly in the 1990's for spending items that contribute to increased revenues or reductions in improper payments.  Under the proposal, an adjustment for IRS enforcement would be made by the Budget Committees to the section 302(a) allocation to the Appropriations Committees found in the concurrent resolution on the budget.  In addition, the Administration will also seek to establish statutory spending limits, as defined by section 251 of the Balanced Budget and Emergency Deficit Control Act of 1985, and to adjust them for this purpose. To ensure full funding of the program and inflationary cost increases, either of these adjustments would only be permissible if the Congress funded the base level for IRS enforcement at $6.4 billion and restricted the use of the funds. The maximum allowable adjustment to the 302(a) allocation and/or the statutory spending limit would be $446 million for fiscal year 2006, bringing the total enforcement level in the IRS to $6.9 billion.   This entire amount is included in the overall discretionary spending total sought by the Administration and is fully accounted for in the budget.

The proposed fiscal year 2006 budget makes a strong commitment to a sound system of tax administration.  The IRS collects $2 trillion annually; however, billions continue to go uncollected every year.  The increase in enforcement funding will be used to bolster audit coverage of corporations and high-income individuals who try to evade taxes as well as to expand collection and criminal investigation efforts. These investments will pay for themselves several times over.

The President's request also provides $199 million to continue efforts to modernize the tax system through investments in IRS' Business Systems Modernization (BSM). The modernization program is providing real business benefits to taxpayers and IRS employees by delivering several modernized systems.  For example, the Service implemented the Integrated Financial System that replaces its administrative accounting system. BSM funding allowed IRS to fully deploy online e-Services functionality for tax practitioners and other third parties, such as banks and brokerage firms allowing improved and faster interactions for transactions such as the application for e-filing, requests for Preparer Tax Information Number and Secure Electronic Return Originator applications, among many other products. The IRS also deployed Modernized e-File, which provides e-filing for the first time to large corporations and tax-exempt organizations. Replacing the outdated legacy system, the Customer Account Data Engine, which began processing the simplest 1040 EZ returns in July of last year, is a modern database that will eventually house tax information for more than 200 million tax returns per year.

The IRS also administers a refundable tax credit for the cost of health insurance for both qualified individual and family members. The request provides $20.2 million to continue implementation and operation of the Health Insurance Tax Credit Program.  The annual cost of this program is reduced by over $15 million due to IRS' active program oversight and cost-cutting initiatives. 

The Alcohol and Tobacco Tax and Trade Bureau (TTB) is responsible for the regulation of the alcohol and tobacco industries, and the collection of $14.7 billion annually in alcohol, tobacco, firearms, and ammunition excise taxes at a cost of $1 for every $368 collected. Our fiscal year 2006 request includes $91.1 million for TTB. The budget proposes to establish user fees to cover a portion of the costs of TTB's regulatory functions under its Protect the Public line-of-business.

The budget also includes a $236.2 million request for the Financial Management Service (FMS), which administers the government's payments and collections systems.  In FY 2004, FMS issued more than 940 million non-Defense payments, 705 million electronic payments and 235 million paper checks, FMS annually issues more than 940 million non-Defense payments valued at $1.5 trillion.  The Budget provides funding for FMS' electronic initiatives, such as: Pay.gov, which is a Government-wide web portal to collect non-tax revenue electronically; Paper Check Conversion, which converts checks into electronic debits thereby moving funds more quickly; and Stored Value Cards, which directly support military operations overseas.  The fiscal year 2006 request also includes legislative proposals to improve and enhance opportunities to collect delinquent debt through FMS' debt collection program.

The Bureau of the Public Debt (BPD) continues its management and improvement of federal borrowing and debt accounting processes. The budget requests $179.9 million in direct appropriations for BPD which includes $3 million in user fees. The funding will allow BPD to continue improving the efficiency of the securities services to customers by expanding TreasuryDirect, an investment system that will enable Treasury customers to manage their investment accounts online.

The functions of the United States Mint and the Bureau of Engraving and Printing (BEP) are vital to the health of our nation's economy.  These two agencies fulfill the Treasury Department's responsibility of meeting global demand for the world's most accepted coins and currency.  The United States Mint also continues to manufacture and market popular numismatic products, while BEP also continues to develop new designs of next generation currency to guard against counterfeiting.

PROMOTE ECONOMIC OPPORTUNITY

The Treasury Department works to ensure that U.S. and world economies perform at full economic potential.  To reach this potential, the economy must increase its rate of growth and create new, high quality jobs for all Americans.  The legal and regulatory framework must also support this growth by providing an environment where businesses and individuals can grow and prosper without the burdens and costs of unnecessary rules and regulations.

Our budget requests $1.6 billion to support these strategic goals. The request includes funds for policy offices that guide domestic economic development, tax programs, financial institutions and other fiscal matters.  These policies are essential as Treasury works to simplify the U.S. tax code and create a legal and regulatory framework that allows the nation's businesses to thrive.

Treasury's international programs and three Treasury bureaus, the Community Development Financial Institutions Fund, the Office of the Comptroller of Currency and the Office of Thrift Supervision play diverse roles in fostering economic growth and prosperity.  From serving as the President's principal economic advisor to maintaining the health of the national banking and thrift system, the Treasury has a significant influence on creating the conditions for a robust economy.  Through the Office of International Affairs, the Treasury also pursues diplomacy to create the conditions for global growth, which creates economic opportunity at home and overseas, by a range of actions, including the reduction of undue barriers to trade and investment and the establishment of stability in the international financial system.

Treasury's international assistance programs request of $1.5 billion for fiscal year 2006 is part of the Foreign Operations, Export Financing, and Related Program Appropriations Act.  These programs include multilateral development banks (MDBs), debt reduction, and technical assistance -- all critical instruments to promote the Administration's international economic agenda.  MDBs promote global economic growth and poverty reduction, and help create stronger markets for U.S. goods and services.  Debt reduction helps poor countries move to a sustainable level of debt and remove debt overhang that inhibits growth.  Our technical assistance programs help countries institute the sound budget and financial systems needed for economic growth. 

MANAGE FOR RESULTS

The President requests $211.8 million to protect the integrity and effectively manage the resources of the Department of Treasury, and ensure that it remains a world class organization.  Included in this request is $16.7 million to fund the Department's Office of Inspector General (OIG) and augment audit and investigative capabilities. 

This portion of the budget also includes $133.3 million for the Inspector General for Tax Administration (TIGTA) and its efforts to oversee the nation's tax administration.   TIGTA continues to play a significant role in providing independent oversight, which promotes efficiency and integrity in the IRS' ability to collect $2 trillion annually.  TIGTA aggressively combats any identified attempts to disrupt and/or interfere with tax administration.  The nation's voluntary tax compliance system is supported and protected by TIGTA agents who participate in the Joint Terrorism Task Force and proactively seek to identify individuals or groups who pose a threat to effective tax administration.  Critical information is shared with the IRS and allows the leaders of the IRS to make effective business decisions, which promote efficient tax administration and support IRS employee safety.

The proposed budget request includes $7.9 million in new funding to provide for an improved technology infrastructure, essential for keeping pace with the Department's needs to enhance productivity, improve communication, interact effectively with the world-wide financial community, and meet other management needs.  Funding will be used to improve the Department's information technology infrastructure to ensure the effectiveness of the Department in managing federal finances and combating financial crimes and terrorist financing. The request also ensures that the Department will continue its major facilities projects and services for the Main Treasury and Treasury Annex buildings to ensure the safety and health of occupants and perform structural repairs and improvements. Additional funds will allow Treasury to complete the project during fiscal year 2006 and reoccupy the restored office space.

THE PRESIDENT'S MANAGEMENT AGENDA

Treasury has focused its management initiatives around the goals of the President's Management Agenda (PMA). Under guidance from the PMA, the Treasury has grasped tangible results in managing the nation's finances, taking advantage of new opportunities and opposing threats. The Department is committed to defining desired results for each area and managing to achieve them, at acceptable cost levels.

In fiscal year 2004, Treasury achieved significant milestones in implementing the President's Management Agenda, improving three of our five status scores for the PMA over the prior year.

Treasury managed for results as we implemented a new performance appraisal system for our Senior Executive Service that links managers' performance assessments to accomplishing the Department's top priorities.  We are also focusing on recruiting and retaining a world-class workforce, and have started implementing a new Human Capital Strategic Plan.  This plan is the Department's roadmap for molding a workforce of engaged, highly competent, and business-aligned employees.

The Department is making good progress on using competition to improve efficiency.  This past year, we completed five public-private competitions, and as a result, expect savings of $200 million over the next five years.  Our efficiency initiatives have received national recognition, winning the President's Quality Award for Management Innovation at the IRS for our Area Distribution Center competition. 

Treasury continues to be a leader in making financial information available in a timely manner through a three-day close of its books at the end of each month, and for the fifth consecutive year we received a clean audit opinion.  The Department continues to work at securing our information systems.  Our systems are more secure now than at any other time, with 86 percent certified and accredited as secure at the end of 2004.

CONCLUSION

Mr. Chairman, I look forward to working with you, members of the Committee, and your staff to maximize Treasury's resources in the best interest of the American people and our country as we move into fiscal year 2006. We have hard work ahead of us and I am hopeful that together we can work to make the Treasury a model for management and service to the American people, and continue to generate economic growth, increase the number of jobs for our citizens, and keep our financial systems strong and secure.

Thank you again for the opportunity to present the Treasury Department's budget today. I would be pleased to answer your questions. 

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