FROM THE OFFICE OF PUBLIC AFFAIRS

Mr. Chairman, members of the Committee, I appreciate the opportunity to testify on the Treasury Department's fiscal year 1999 budget request. With me today is Nancy Killefer, our Assistant Secretary for Management and Chief Financial Officer.

Treasury is requesting $12.3 billion in fiscal year 1999, an increase of 7.2 percent over FY 1998. This increase is necessary to maintain current operations by supporting mandatory cost increases and meeting anticipated workload requirements in FY 1999; to invest in critical capital improvements for future efficiencies and program improvements and for addressing future workload growth; and to accomplish important program enhancements.

Our request is critical to supporting Treasury's important and wide-ranging mission. The Treasury plays a key role in the core functions of government, including tax administration, revenue collection, law enforcement, financial management, tax policy, banking policy, international economic policy and domestic economic policy. As just a few examples, we fight narcotics trafficking and money laundering through Customs and other agencies, and manage the federal government's debt structure at the Bureau of Public Debt. We manufacture and protect the nation's currency, process the federal paychecks for millions of Americans, and help develop policies related to the budget, the nation's tax structure, international economic matters, and inner city economic development.

With such a broad portfolio, we take very seriously the notion that we must continually seek new ways to improve services and lower costs. Towards meeting these purposes, our budget request supports Treasury's Strategic Plan and provides a performance plan for each of Treasury's primary missions and we, and I as Secretary, have worked to make GPRA not a required exercise, but rather a live, integral part of our thinking to improve how we fulfill our many missions. More broadly, we believe that we must not do anything that threatens the fiscal discipline so many have worked so hard to restore in this country, and which has been critical to the strong economic conditions of the past five years.

We've already provided the Committee detailed presentation material on the extent of our fiscal year 1999 request. Let me now highlight four areas -- Departmental offices, the IRS, law enforcement, and the year 2000 problem.

First, let me discuss Departmental Offices. Departmental Offices contain the policy groups that are meeting greatly increased challenges in the current environment: tax policy, which is developing the regulations to implement the tax cuts, loophole closers and simplifications of last year's budget; international economic policy, which is providing leadership for the United States and the world in response to the short and long-term issues of financial instability in the global economy; economic policy, which is deeply involved in international economic issues, entitlement reform, and the economic initiatives in the President's budget; and law enforcement, which has expanded policy and oversight objectives. Departmental Offices also contain the central management functions for all of Treasury, and in furtherance of our very serious focus on management, human resources, and technology, these functions are being enhanced.

In addition, our budget request includes funding for a five year restoration and repair program of the historic Treasury Department building. Part of this funding -- which totals $130 million over five years -- is needed for our ongoing restoration of areas damaged by the fire in 1994, and part is needed for general restoration. The Treasury building is one of the gems of our government, as well as being a workplace. It is important to maintain this historically significant and beautiful building for future generations.

Second, let me turn to the Internal Revenue Service.

Shortly after I first became Secretary, I became aware of serious problems at the IRS. In many cases, those problems came to my attention as a result of the work and diligence of this Committee. Over the last two and a half years we have been engaged in a highly intensified process of change and reform at the IRS that has led to dramatic change with respect to technology -- though that is just the beginning of getting to where we need to go -- increased electronic filing, improved telephone service and a greatly strengthened Taxpayer Advocate. Perhaps most importantly, and symbolizing our commitment to thoroughgoing change, we brought on board a new type of Commissioner, Charles Rossotti, who had extensive experience as a CEO in the private sector, with expertise in computer systems. And, let me just add, we are looking very hard to find a new CIO to replace Art Gross, who has done such a outstanding job in that position.

However, while important steps have been taken, the great bulk of the challenges lie ahead. Just as these problems took a long time to develop, it is going to take a great deal of time and effort by all of us to build the kind of IRS that the taxpayers deserve. We are committed to working with you to accomplish that goal. Our budget request includes a series of items to advance this effort.

First, our request includes additional resources to improve customer service, including increasing and improving the quality of telephone access, rewriting of notices and forms, expanding the Taxpayer Advocate staff, and implementing Citizen Advocacy Panels.

Second, our request positions the IRS to move forward with implementing the Modernization Blueprint, which is absolutely a requisite to improvements in customer service, efficiency, tax compliance and financial reporting. On a broader front, the budget provides seed funding as the Service moves more fully to implement its new organizational concept.

Finally, our request includes important restoration of funding for essential business-line investments. This funding has been deferred and reallocated over the past two years to address immediate Year 2000 requirements, about which I will say a few words in a moment. However, significant needs still exist for these investments in order to replace critical items such as aging computer equipment for front-line examination personnel. This investment is essential to our goal of providing efficient compliance operations and effective service to taxpayers.

Let me turn now to our budget request for Treasury's law enforcement activities.

As this committee well knows, Treasury has extensive and critical law enforcement responsibilities executed by Customs, the Secret Service, Alcohol, Tobacco and Firearms, the IRS, FINCEN, and the Federal Law Enforcement Training Center. To strengthen these critical efforts, the President's FY 1999 budget for Treasury law enforcement bureaus totals $3.204 billion, an increase of $172 million or 5.7 percent above last year. We need this increase to meet certain mandatory cost increases, and to enhance our activities in combating narcotics trafficking, reducing illegal firearms trafficking to young people, improving Presidential protection and White House security, investigating financial crimes, and training law enforcement officers.

Mr. Chairman, we at Treasury have enormous pride in the quality and esprit of our law enforcement bureaus, and of the men and women who serve in them, often putting their lives on the line. I spend time on an on-going basis on law enforcement issues, and we at Treasury are committed to fully supporting the efforts by the law enforcement bureaus to do their jobs, as in the Secret Service decision to enhance White House security, ATF's reforms and its defense against strident attacks, and the securing of appropriate funding.

Finally, Mr. Chairman, let me say a word about an issue of pressing importance to our nation and one on which we are keenly focused at Treasury: the Year 2000 date change problem. As you know, many computer systems rely on two digit dates as a result of a short cut computer programmers widely used until recently. The year 2000 would be entered as "00" but interpreted as "1900." As a result, these computers will not be able to execute many required functions properly as of January 1, 2000. As an agency with massive computer system activities second only to the Defense Department in the Federal government, this issue is one of the highest priorities to us. I meet bi-weekly with Assistant Secretary Nancy Killefer and our highly respected Treasury CIO to track progress and focus on problems.

Our FY 1999 budget includes $253 million to address this problem at Treasury. Treasury's date change needs are also part of the Administration's FY 1998 Supplemental Budget Request. We have identified close to $200 million in additional needs in the current year that must be funded if we are to complete the fixes in time, but the supplemental proposed by the Administration includes additional flexibility of up to $250 million in order to fund these requirements. To date, we have identified new requirements of approximately $175 million that need to be addressed this fiscal year. We look forward to working together with the Committee in addressing these critical requirements.

In both the private and public sectors, cost estimates and time lines on Y2K compliance have exceeded expectations. So that we can meet this challenge in time, Treasury is focussing on only those systems most critical to its mission. The challenge is enormous, but we have made significant progress thus far and continue to be on schedule for almost all our mission critical systems.

Mr. Chairman, let me conclude on a personal note. Throughout my experience in government, which includes two years at the National Economic Council, and three years at Treasury, I have been continually impressed by the intelligence, professionalism and dedication of the people with whom I've had the opportunity to work.

A Secretary of any Department faces a lot of challenges, including a multitude of policy issues, and has to make judgements about priorities. When I was first nominated to be Treasury Secretary I had dinner with a former Treasury official who had served with two administrations and who advised me that my highest priority should be to focus on maintaining and building on the excellence of this institution. He was absolutely right. We have been intensely focused on management issues in my tenure and it is in that spirit that I ask you to approve our budget request. Let me also say that I have been continually impressed by the capability, the professionalism, and the commitment of the people at Treasury and the Bureaus, and they deserve our support on their work to fulfill their wide range of responsibilities in serving the American people. I also feel that in my time at Treasury this Committee has made a major contribution to the management of Treasury through its constructive and knowledgeable analysis and review, and through its support for funding. Thank you very much and I look forward to working with all of you in the future as we face our challenges.