FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, Mr. Dorgan, Members of this Committee, I appreciate this opportunity to discuss Treasury's FY2001 budget request and to seek to continue to work in the cooperative spirit that we and Members of the Committee have achieved. I would like to take this opportunity to thank this Committee for its impressive and productive work over the years.

As you know, Treasury plays a crucial role in the core functions of government, including tax administration, revenue collection, law enforcement, financial management, tax policy, banking policy and international and domestic economic policy.

We propose a budget that will enable Treasury to continue to provide the American public with the customer service and program reliability it expects and deserves.

Our budget request totals $14.245 billion for all operations. After taking into account two offsets - a $210 million fee on Customs' automated commercial system for the Automated Commercial Environment (ACE) and $42.5 million from the use of the estimated potential balance from the Treasury Forfeiture Fund - our appropriation level would be $13.992 billion.

We have provided the Committee with a detailed breakdown of Treasury's FY2001 budget request. Let me today highlight five important areas of focus.

• First, supporting continued IRS modernization.
• Second, strengthening our ability to fight drugs, violence and crime.
• Third, modernizing our trade systems.
• Fourth, enhancing our financial management.
• And fifth, supporting management operations.

In its new mission statement, the IRS has pledged to focus on two core priorities: "Provide America's taxpayers top quality service by helping them understand and meet their tax responsibilities, and apply the tax law with integrity and fairness to all."

As the modernization and reorganization at the IRS has proceeded, some have framed debates on IRS priorities around a trade-off between enforcement and customer service. This argument is no different from believing that businesses face a trade-off between quality and cost.

We have heard similar false choices posed through the years. To have effective tax administration, there must be both compliance and high-quality customer service. A trade off is neither necessary nor desirable.

Under the leadership of Commissioner Rossotti, the IRS has already made impressive progress towards meeting both these goals. But there is more to accomplish.

In particular, we need resources to focus on three areas:

Until recently, IRS was organized along geographic lines. At the direction of Commissioner Rossotti, the IRS is reorganizing along customer lines. This enables the IRS to provide better service to groups of taxpayers with similar needs. This reorganization also enables the agency to become more effective and focused. For example, it will improve the agency's ability to clamp down on abuse of the tax code, including combating the growth of abusive corporate tax shelters.

The reorganization also involves building a modern management structure to enable the IRS to serve its customers better. This will involve significant re-training of staff because many are being asked to take on redefined roles. FY2001 provides the second year of major funding for the IRS reorganization. We strongly believe this restructuring effort is putting the agency on the right track. It is imperative that we support the employees and leadership at the IRS so they can complete this monumental task of reorganizing the IRS for the first time in almost 50 years.

The IRS is embarking on a plan to replace its antiquated computer system to bring it into the new century. The IRS core data systems are fundamentally deficient. The Master File system, on which all taxpayer accounts reside, is based on outdated 1960s technology. Modernizing the agency's technology will enable it to deliver on its pledge to provide better customer service for all and is absolutely necessary for the agency to make the improvements that the public needs.

In our FY 2001 budget, we are asking for another deposit into the Information Technology Investment account (ITIA) to keep this program on track. The Committee has shown its support for this program in past years by making the needed deposits, and we ask that you continue to support this critical program.

The IRS is on the road toward modernizing its organizational structure and computer systems. For several reasons, we feel the time is now right to reverse the decline in staff that has occurred at the agency over the last 5 years. First, no one anticipated the resources required to implement the very important provisions of the Restructuring and Reform Act. Second, recent articles have highlighted the decline in enforcement activity over the last few years -- a trend Commissioner Rossotti and I are particularly concerned about.

We feel the time is right to permit a modest expansion in IRS resources to ensure the integrity of the tax system, which depends heavily on maintaining voluntary compliance, and to provide the service the American taxpayers deserve. Our request provides 2,800 new positions, an increase of 2.9 percent over the next two fiscal years.

Our second focus today is on improving our capacity to fight drugs, violence and other crimes.

As this Committee knows, Treasury oversees six law enforcement bureaus: Customs, the Secret Service, the Bureau of Alcohol, Tobacco and Firearms, the IRS, FinCEN, and the Federal Law Enforcement Training Center. Each of these has critical and extensive responsibilities.

Our FY2001 budget request enables Treasury agencies to continue to play a full role in the crucial anti-crime initiatives in which this Administration is engaged.

Mr. Chairman, last year you and others expressed concerns about the disparity of treatment between Treasury law enforcement and our Justice counterparts. This year's budget provides Treasury law enforcement with an 18 percent increase over the FY2000 budget. It recognizes the special law enforcement role that Treasury plays in the Administration's anti-crime strategy.

The proposals would result in the largest increase in Treasury law enforcement funding in more than a decade. Let me focus briefly on four key areas of this request.

Our request supports the Administration's counter-narcotics strategy by providing Treasury with resources critical to reducing the trafficking, smuggling, and use of illicit drugs across our borders.

The budget request supports Custom's responsibility to facilitate legitimate trade, while interdicting contraband through the use of enhanced technology and equipment. Customs remains committed to improving the efficiency and effectiveness of its drug interdiction.

Specifically, the budget request supports:

• Aircraft with upgraded interdiction and surveillance equipment.
• Non-intrusive inspection equipment for expanding interdiction efforts along the southwest border;
• And additional personnel and investigative equipment to support Customs Counter-drug Initiative. This will include new positions to implement the Foreign Narcotics Kingpin Designation Act and improve information-gathering capabilities on terrorist funding and narcotics trafficking. Our FY2001 request builds upon last year's supplemental request.

Our budget request also supports Treasury's central role in the implementation of the Administration's National Money Laundering Strategy. Deputy Secretary Eizenstat and Deputy Attorney General Holder unveiled the 2000 Strategy this week. The Strategy is aimed at combating dirty money and, in doing so, giving us additional weapons to fight the underlying crimes.

Money laundering has a number of intolerable effects on the U.S. economy and on American society. It enables the criminal to invest the proceeds in the perpetuation of the underlying crime, many of which are violent and spread drug addiction in our communities. It taints the U.S. financial system and damages the reputation of those involved. And it undermines U.S. government programs to support democracy and economic development around the world.

Our request will enable us to support initiatives in zones designated as high-risk financial crime areas (HIFCA). The budget also supports Customs, IRS, and the Financial Crimes Enforcement Network (FinCEN) by providing them with resources to strengthen the fight against money laundering. It will also enable these agencies to respond to additional information gathered from the expanded reporting requirements for non-bank financial institutions.

Few agencies are required to work under such pressure or meet such rapidly expanding demands as the Secret Service. The dramatic rise in global terrorism and a significant increase in the number of protectees have intensified the Secret Service's critical responsibility of protecting our nation's leaders.

We must address the increased workload of the Secret Service and the resultant decline in working conditions in order to retain members of this highly trained workforce and ensure their safety and the safety of their protectees. We are requesting 250 new positions in addition to the new positions in the FY 2000 appropriation.

The increased hiring by the Secret Service and ATF will result in a significant increase in the workload at the Federal Law Enforcement Training Center (FLETC). This budget provides funding to address this increase and continues implementation of FLETC's five-year Master Plan.

Mr. Chairman, we have all been deeply affected by a number of recent incidents that have focused attention on the level of armed crime in this country. There is a great deal of debate about the correct level of policy response. But, it is fair to say that there is now widespread agreement about the need to enforce existing laws to the fullest extent possible.

Our request will help us to build on existing efforts that fall within our firearms enforcement strategy, including the Integrated Violence Reduction Strategy (IVRS), the Youth Crime Gun Interdiction Initiative (YCGII), nationwide crime gun tracing, and the National Integrated Ballistics Information Network (NIBIN).

These and other efforts, strongly supported by President Clinton, Vice-President Gore and this Committee, have contributed to the sharp reduction in firearms violence in the last few years. With strong inter-agency support from the Department of Justice, our initiatives have also resulted in a clear rise in the number of firearm prosecutions, an increase of more than 12 percent between 1992 and 1999. But we can address more violations of firearms law. And we must reduce firearms violence further.

Our request strengthens our ability to achieve this national priority in four ways:

• First, providing funding for 300 new agents, 200 new inspectors and 151 new support staff at the Bureau of Alcohol, Tobacco and Firearms so that the agency can continue its crucial work of collaborating with state and local law enforcement agencies to reduce illegal acquisition, possession, misuse, and trafficking of firearms.
• Second, increasing the number of cities under the Youth Crime Gun Interdiction Initiative enforcement program by 12, bringing the total to 50.
• Third, strengthening the crime gun tracing system for law enforcement agencies nationwide, including equipment and training support for 250 state and local law enforcement agencies.
• And fourth, bolstering the Treasury and Justice Department's unified effort to provide automated ballistics imaging technology to Federal, State, and local law enforcement agencies.

In addition, Treasury has asked for funding to meet several other critical challenges. These include enforcement of laws against forced child labor, support for Secret Service and Customs efforts on counter-terrorism, and airspace security in support of special national events. The budget provides funding for these important responsibilities.

Our third focus is on modernizing our trade systems. Like the IRS, Customs has experienced a significant increase in demand on its trade system, and the system is not able keep pace. Since the Customs Modernization Act was passed in 1993, the number of merchandise lines on customs formal entries has more than doubled. The Customs Service is required to cope with this sharp rise in trade with substantially the same outdated technology it had when the Act was passed. Given the critical role of Customs in handling enormous volumes of goods and in combating drug and other types of trafficking, it is important that be equipped with the best tools to fulfill these goals.

As I have indicated, Customs is not alone in having to work with antiquated technology. We have learned a great deal from the experience of the IRS and are applying these lessons to Customs. These lessons include forging a clear and well-defined partnership with the private sector; adopting a systems life cycle discipline; and using an enterprise-wide blueprint and architecture to guide the integration of systems as they are developed.

Our request has two main elements:

• Additional resources to maintain the existing trade system, the Automated Commercial System, (ACS). The system is prone to outages or "brownouts," and it is important that we do what is necessary to minimize such disruptions.
• Begin work on a new system, the Automated Commercial Environment (ACE), which will eventually replace the ACS. This replacement is critical and will require a multi-million dollar investment over several years. We propose to establish a fee to fund the development of ACE, and that the fee would appropriately capture some of the benefits that will accrue to private business from modernization. These include a streamlined cargo entry process, account-based transactions, and a paperless process. It is imperative to secure funding for this critical program. The Administration looks forward to working with Congress on the fee to ensure that funding is available in FY2001, and through the life of the program.

My fourth focus is on financial management. We have made important progress this year with respect to the nation's money. We have overseen the development of the new five and ten dollar bills that will start circulating in May. And we have seen what has so far been a very successful introduction of the new dollar coin.

At Treasury we believe it is essential to achieve the highest standards of financial management. The two bureaus of the Fiscal Service - the Financial Management Service (FMS) and the Bureau of the Public Debt (BPD) - provide core services in the areas of government payments, collections, government-wide accounting and reporting, collection of delinquent debt, and Federal Government financing.

These are vital functions that enable Congress and the American public to have confidence in the ability of the U.S. government to keep a detailed and accurate account of public finances and to manage its finances professionally. This year, the Bureau of Public Debt carried out a new mission of buying back debt as a complement to its more traditional mission of issuing debt.

Owing to the excellent stewardship of the fiscal bureaus - including redirection of base resources and reinvestment of productivity savings for investment in state-of-the-art electronic commerce technologies - the budget proposals for the FMS and BPD are comparable to last year's requests.

Let me briefly in this context mention the budget request for the President's "First Accounts" initiative that aims to "Bank the Unbanked." To help fulfill the goals of this initiative, we will use Treasury's financial expertise to encourage low-income families who do not receive Federal benefits to open bank accounts.

Between 10 and 20 percent of our population lacks access to bank accounts and can pay up to $15,000 over a lifetime for routine transactions such as cashing a check or paying a bill. This is something that we have started to address through the EFT and ETA programs for those who receive Federal benefit payments. We believe it is important to work with the private sector to extend this opportunity to those who do not benefit from Federal payments.

V. Maintaining Management Operations.

Our final area of priority is maintaining support for management operations. Departmental Offices provides the programmatic oversight and technical support essential to the Secretary's leadership role in law enforcement, revenue collection, international and domestic economic and tax policy, and financial management. The budget supports these functions with:

• Increases for core infrastructure operations, including technology upgrades that support Treasury's leadership role on economic issues.
• Essential resources required in Domestic Finance to oversee implementation of the recently enacted Financial Modernization Act, the most sweeping change in the regulation and management of financial institutions since the 1930s.
• Continued funding for the multi-year program to repair and restore the historic Main Treasury Building and Annex begun in December 1998.

In addition, our request supports four major projects: the Human Resources Information System; Integrated Treasury Network, Critical Infrastructure Protection, including the banking and finance sector; and the Public Key Infrastructure pilots.

The budget also strengthens the audit and investigative efforts of the Office of Inspector General and enhances the capacity of the Treasury Inspector General for Tax Administration to conduct mandated and discretionary reviews of IRS operations.

6. Community Adjustment and Investment Program.

I would also like to report on the progress of the Community Adjustment and Investment Program or the CAIP, which is the domestic window of the North American Development Bank, but receives its own appropriation entirely independent from NAD Bank funding. The CAIP has been particularly effective in helping to create and sustain jobs in communities experiencing temporary job dislocation attributable to changing trade patterns related to NAFTA. To date, CAIP financing has helped to create and sustain over 7,000 jobs by facilitating more than $225 million in loans, loan guarantees and grants to businesses, workers, and communities. I urge you to support this year's funding request for the CAIP.

7. Conclusion.

Mr. Chairman, let me conclude on a personal note. Since becoming Treasury Secretary last year, and in the seven years that I have worked in this department, I have been deeply impressed by the intelligence, professionalism and dedication of the people with whom I have worked. I am sure this Committee shares my confidence in the uses that are being made of taxpayer funds. In that spirit, I ask that you approve our FY 2001 budget request to support the work of the Treasury Department in fulfilling its wide range of responsibilities in serving the American people. Thank you very much.