FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, Mr. Kucinich, and members of the subcommittee, thank you for the opportunity to appear today to discuss the Government Waste, Fraud, and Error Reduction Act of 1998. Treasury is committed to improving debt management for the government and welcomes this opportunity to provide our views. I also would like to thank the subcommittee for its continued interest and commitment toward improving Federal debt collection practices. I should note that the process of implementing debt collection is a challenging one. The Department is working diligently to collect what is due, but we must realize the complexities involved and that we can only act to maximize what we collect.

Attached to this statement, is a section by section commentary on the February 17, 1998 discussion draft of this legislation. At this hearing, the Department of the Treasury intends to limit its comments to portions of this legislation that substantially impact Treasury missions and operations. This hearing provides an excellent opportunity to explore those areas where legislative initiatives could help in meeting the goal of improving the collection of delinquent nontax debt owed to the Federal government.

Treasury believes that certain provisions of this proposed legislation will assist the government in complying with existing statutes to recover non-tax delinquent debt. However, there are also provisions that may prove controversial, have perverse effects or be operationally difficult for the government to administer. The implementation of the Debt Collection Improvement Act is designated as a Presidential Management Priority as part of the President's FY 1999 budget submission to Congress.

This designation strengthens the implementation of the Debt Collection Improvement Act by coordinating governmentwide compliance, and reporting of that compliance with the Office of Management and Budget. Accordingly, the Treasury Department views implementation of the DCIA as a top priority and is working with OMB and the other Federal agencies to ensure successful implementation.

I am pleased to share with you highlights of our analysis of the proposed Government Waste, Fraud, and Error Reduction Act of 1998. This legislation proposes to amend the Prompt Payment Act. The Prompt Payment Act requires executive departments and agencies to pay commercial obligations within specified discrete time periods and to pay penalties when those time constraints are not met. The proposed legislation would transfer the responsibility of reporting and administering the Act from the Office of Management and Budget to the Department of the Treasury. Additionally, the amendment is designed to reflect current and future payment environments in which most payments and invoices will be transmitted electronically. This change is designed to encourage agencies to implement innovative payment technology that promotes electronic payments, required under the Debt Collection Improvement Act, and to combine sound business practices with good cash management. Because of the close relationship between the provisions in the Debt Collection Improvement Act, which Treasury is already responsible for implementing, and the Prompt Payment Act, administrative efficiencies will be achieved if this legislative proposal is enacted.

Next, in the area of improving Federal Debt Collection Practices, we support the provisions of the draft proposal that would expand the types of Federal payments available to collect past due child support through Treasury's administrative offset program. Executive Order 13019 provides for the collection of delinquent child support obligations from persons who may be entitled or eligible to receive certain Federal payments by offsetting those payments through Treasury's administrative offset program. The addition of certain Federal benefit payments to those Federal payments already available for offset is consistent with the goal of promoting the health, education, and well being of children.

In general, we support provisions of the draft proposal that further our goal of relying on the experience and expertise of private sector professionals to provide debt collection services to Federal agencies. However, we are concerned about provisions that would preempt state law in this area, and we believe that such preemption should not be enacted before fully evaluating the impact on state law and commercial practices. I refer the committee to our specific comments on these provisions in the attached addendum.

Having discussed several highlights in the draft legislation which we believe assist our efforts to recover delinquent debts and improve Federal payment systems, there are several components which Treasury would find problematic if enacted. For instance, the proposed legislation rewrites the existing DCIA provision on barring delinquent debtors from obtaining loans to also bar delinquent debtors from obtaining Federal permits or licenses, Federal contracts, and Federal employment. The DCIA already empowers the government with tools to collect the delinquent debts of Federal employees. Continued Federal employment would enable the government to continue recovering delinquent debts from Federal employees. Enactment of this section would ultimately weaken the government's ability to collect these funds and would be difficult to administer. In addition, the absolute prohibition against awarding any Federal permit or license to a delinquent debtor is overly broad and may create serious enforcement burdens. There are many instances where the administration of such a blanket prohibition would not be in the best interest of the government though in specific, targeted circumstances could be a useful tool for some agencies.

Similarly, the subcommittee proposes to eliminate the DCIA provision requiring the Department of the Treasury to issue regulations implementing the administrative wage garnishment provisions of the law. Enactment of this provision, I believe, would delay implementation of the administrative wage garnishment provision of the Debt Collection Improvement Act. Wage garnishment is an action of enormous impact on delinquent debtors. I believe that if Treasury is absolved from constructing governmentwide regulations for administrative wage garnishment, respective Federal agencies will likely see a need to develop their own regulations in order effectively to protect the government's liability. With the resultant proliferation of separate regulations, the result could be a prolonged period of time before wage garnishment can be applied effectively across the government and may not result in uniform application. Further, the Department of the Treasury issued a Notice of Proposed Rule Making on this subject on November 21, 1997 and plans to issue a final rule in April. Thus, we believe this provision is not necessary.

We are also concerned with expanding Federal authorities which impact existing commercial practices. For example, the provision of this legislation that would create a lien on any real property owned by a debtor and thus create clouds on titles throughout the country could significantly and adversely affect the transfer of all real property. This provision may have far reaching implications for the lending community, title companies, and other sectors involved in real estate transactions and we recommend consultation with these affected groups. The creation of a seven year lien may interfere with an agency's ability to write-off debt and report such debts to the IRS as discharged.

Finally, with regard to debt and loan sales, Treasury is in the process of establishing an Office of Privatization to provide guidance to Federal agencies on the appropriate manner to conduct asset dispositions. Treasury believes that a properly administered program of nontax debt sales can be a very effective debt management tool. The provisions of the legislation that would alter the Secretary's existing authority to review the terms of all debt sales and that would require sale of new loans and delinquent nontax debt at certain set time intervals could impede the effective implementation of Treasury's privatization policy. We also note that a mandatory requirement that loans be sold after the lapse of a statutorily prescribed period may serve to encourage delinquencies, as debtors may believe that their opportunity to compromise a debt through negotiations with a note purchaser may increase.

This concludes my remarks. We appreciate the subcommittees' continued interest in the success of Treasury's debt collection efforts and look forward to working together to continuously improve Federal debt collection and payment practices. We also look forward to working with your staffs on this bill, and other draft proposals intended to improve the collection of Federal debts in an environment of public support and improve Federal payment systems. I would be pleased to address any questions you have regarding Treasury's position on the draft legislation.