government-wide performance plan · the deficit for the previous year, fiscal 1992, had hit a...

GOVERNMENT-WIDE

PERFORMANCE PLAN

BUDGET OF THE UNITED STATES GOVERNMENT

Fiscal Year 1999

i

TABLE OF CONTENTS

Page

Introduction to the Government-wide Performance Plan .................................... 1

The following sections are excerpted from the Budget of the United States

Government, FY 1999.

III. Creating a Bright Economic Future ................................................................ 19

IV. Improving Performance Through Better Management .............................. 31

VI. Investing in the Common Good: Program Performance in Federal

Functions—Chapters 11–28 ................................................................................ 141

Regulation: Costs and Benefits—Chapter 32 ................................................. 257

Tax Expenditures (from Chapter 5, Analytical Perspectives) ............................... TE–1

(Revised February 27, 1998)

1

INTRODUCTION

In 1993, I actively supported, and was eager to sign, the Government Performance and ResultsAct. With this budget, I am delighted to send to Congress what the law envisioned—the first com-prehensive, Government-wide Performance Plan.

In developing this budget, the Administration for the first time could rely on performancemeasures and annual performance goals that are now included in agency Annual PerformancePlans. We have made a good start on the process that the Administration and Congress outlinedin enacting the 1993 law.

As we continue to implement this law, my Administration will focus more and more attentionon how programs work, whether they are meeting their goals, and what we should do to makethem better. We look forward to working with the Congress on our shared goal of improving Gov-ernment performance.

WILLIAM J. CLINTON‘‘The Budget Message of the President’’February 2, 1998

This year’s budget contains the Nation’sfirst comprehensive Government-wide Perform-ance Plan, which has been excerpted here.The plan highlights three aspects of perform-ance:

• Fiscal performance (see Section III, ‘‘Cre-ating a Bright Economic Future’’);

• Management performance (see Section IV,‘‘Improving Performance Through BetterManagement’’); and

• Program performance (see Section VI, ‘‘In-vesting in the Common Good: ProgramPerformance in Federal Functions’’).

Together, these sections contain the meas-ures and descriptions of program activitycontemplated by the Government Performanceand Results Act (GPRA).

The performance of Government programsis inextricably linked to the fiscal and eco-nomic environment and the managementframework in which they operate. The Presi-dent’s commitment to not only balance thebudget but to invest in the future whileimproving public management—to do morewith less—has prompted the Administrationto maintain or expand programs that dem-onstrate good performance.

Often, performance is examined only acrosssingle organizational units, such as depart-ments or agencies. In Section VI, the budgetcategorizes activities according to budget‘‘functions.’’ The functional presentation groupstogether similar programs and begins to showthe inter-relationship between their goals.In preparing this year’s President’s Budget,the Administration, for the first time, reliedheavily on key performance measures drawnfrom agency Annual Performance Plans. Thesefiscal year 1999 agency plans will be sentto Congress following the transmittal of thisbudget. By March 2000, agencies will reportto the President and Congress on how wellthey met the performance goals in theseplans. These goals are based on the long-term goals and objectives set out in theagency Strategic Plans that were submittedto OMB and Congress in September 1997.

The budget includes a framework and planfor the analysis of tax expenditures (Chapter5, Analytical Perspectives) which aims toimprove the assessment of how specific taxexpenditures may affect the achievement ofagency goals and objectives in the strategicand annual plans. The framework and analy-ses are a part of the Government-wide Per-formance Plan. Also included is an analysisof the costs and benefits of regulation (Section

2 GOVERNMENT-WIDE PERFORMANCE PLAN

VI, Chapter 32) which complements the Gov-ernment-wide Performance Plan. Much aswith tax and spending policies, the Adminis-tration carefully designs and implements regu-lations to provide the most public benefitfor the least cost.

The Administration has made a good starton the process that GPRA envisioned. Never-theless, more work remains. Agencies will

modify Annual Performance Plans to reflectchanging circumstances and resource levels,the plans will provide a backdrop for furtherdiscussion about allocating resources, andthe President’s future budgets will containnew and better information. The Administra-tion looks forward to working with Congressand other stakeholders to use these toolsto build better performance.

19

III. CREATING A BRIGHTECONOMIC FUTURE

21

1 Over 20 years ago, economist Arthur Okun developed the con-cept of a ‘‘misery index,’’ calculated by adding together the unem-ployment rate and the rate of inflation, as measured by theConsumer Price Index.

III. CREATING A BRIGHT ECONOMICFUTURE

There is no doubt that the economic strategy we put in place in 1993 created the conditions forthe extraordinary private sector growth we have all witnessed . . . Four straight years of deficitcuts have produced the economic expansion as well as real benefits for ordinary Americans: lowercar payments, lower mortgage rates, lower credit card rates. This balanced budget will close achapter in American history: years—decades in fact—when our people doubted whether Govern-ment could work for them and questioned whether our Nation could set and meet goals.

President ClintonAugust 1997

For five years, the President has pursueda fiscal and economic policy that has shownremarkable results. Due largely to his 1993economic plan, the budget deficit, which hadhit a record $290 billion in 1992, is notonly lower than even the Administrationhad expected, it’s also at its lowest levelin a quarter-century. The publicly held debtnot only has stopped rising as a shareof the economy, but actually has begunto decline. Now, this budget will finish thedeficit-cutting job and mark a true milestonein American economic history—the first bal-anced budget in 30 years.

The President’s commitment to lower deficitsbore fruit right from the start. Long-terminterest rates fell in 1993 and have remainedrelatively low, helping to spur record levelsof business investment. Unemployment andinflation have both continued to fall, bringingthe so-called ‘‘misery index’’ 1 to its lowestlevel in 30 years. The current economicexpansion, already the third longest in U.S.history, shows no signs of ending, puttingit on track to become the longest in theNation’s history.

Continuing its practice of using conservativeeconomic assumptions, the Administrationprojects that growth will continue at a steady

pace without inflation. Unemployment andinterest rates will remain relatively low.Due both to a strong economic outlook andto the 1997 Balanced Budget Act (BBA),the President now proposes a balanced budgetfor 1999, three years earlier than expected.The economic and fiscal outlook for thelonger term, until 2050, also has improvedsince last year.

Nevertheless, the coming retirement of thebaby boom generation points up the needfor long-term structural changes that willsupport the financial health of Social Securityand Medicare and ensure that future genera-tions share in the retirement and healthsecurity that senior citizens enjoy today.

Budgetary Performance

By the time President Clinton took office,the deficit for the previous year, fiscal 1992,had hit a record $290 billion. For the 12years up to then, annual deficits totaled$2.3 trillion. Never before had the Nationwitnessed such an explosion of public debt.Moreover, without changes in policy, publicand private forecasters projected that thedeficit would keep rising, potentially pushingtotal public debt, future interest costs, anddeficits into an upward spiral without limit(see Chart III–1).

The Administration set out, first and fore-most, to cut this massive deficit and toput the budget and economy on a sound,

22 THE BUDGET FOR FISCAL YEAR 1999

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

-700

-600

-500

-400

-300

-200

-100

0

100

SURPLUS (+) / DEFICITS (-) IN BILLIONS OF DOLLARS

Chart III-1. FINISHING THE JOB:BALANCING THE BUDGET AFTER DECADES OF DEFICITS

ACTUALS

TOTAL DEFICITS $3.1 TRILLION

TOTAL SAVINGS $4.0 TRILLION

$74BDEFICIT

$633BDEFICIT

$290BDEFICIT

PRE-OBRA BASELINE

RESERVEPENDING SOCIAL

SECURITY REFORM

sustainable footing. To that end, the Presidentproposed, and Congress enacted, the OmnibusBudget Reconciliation Act (OBRA) in 1993as a solid first step toward fiscal responsibility.It has proved to be much more. In thelast four years, cumulative deficits and accu-mulating debt have fallen more than twiceas much as the Administration had conserv-atively projected.

Still, OMB and the Congressional BudgetOffice (CBO) agreed that the deficit wouldbegin rising again without further action.Consequently, the President worked with Con-gress to finish the job, enacting the BBAin mid-1997 with the goal of reaching balancein 2002. The Administration now proposesa balanced budget in 1999. In addition,the Administration projects that, together,OBRA and the BBA will reduce the totaldeficits from 1993 to 2003 by $4.0 trillion—more than the deficits that the Governmentaccumulated from 1981 to 1992.

The Administration has Exceeded Its1993 Deficit Reduction Pledge: Upon

OBRA’s enactment, the Administration pro-jected that it would reduce the accumulateddeficits from 1994 to 1998 by $505 billion.Clearly, it will exceed that goal. (In fact, inthe five years from 1993 to 1997, total deficitsare $811 billion lower, as shown in Chart III-2). Each year, the deficit has been lower thanthe Administration had forecast before theyear began. For 1997, the actual deficit of $22billion was over $150 billion lower than whatboth OMB and CBO had forecast after OBRAwas enacted. All told, the Administration nowexpects that, combined with a healthy econ-omy, OBRA will reduce the accumulated defi-cits from 1994 to 1998 by more than twicethe projected $505 billion.

The Administration has Ended the DebtBuildup of the 1980s: The Government fi-nances its deficit by borrowing from the public,thereby accumulating its publicly held debt.As a share of Gross Domestic Product (GDP),

23III. CREATING A BRIGHT ECONOMIC FUTURE

1992 1993 1994 1995 1996 1997

-350

-300

-250

-200

-150

-100

-50

0

CLINTONACHIEVEMENT

PRE-OBRA BASELINE

-$290

-$255

-$310 -$305 -$302 -$298

-$203

-$164

-$107

Chart III-2. REDUCING THE DEFICIT: THE CLINTON RECORD

DOLLARS IN BILLIONS

-$22

-$347

TOTAL DEFICITREDUCTION:$811 BILLION

2 This measure excludes debt held in Federal trust funds. At theend of 1997, the trust funds held over $1.5 trillion of debt that theFederal Government owes to itself. Thus, such debt is both a Gov-ernment asset and a liability.

3 The G–7 comprises the world’s seven largest industrial powers:the United States, the United Kingdom, Germany, France, Japan,Italy, and Canada.

Federal debt held by the public 2 reached apost-World War II peak of 109 percent in 1946.Because the economy grew faster than thedebt for the next few decades, the debt gradu-ally fell to about 25 percent of GDP in the1970s. But the exploding deficits of the 1980ssent it back up as a share of GDP. In dollarterms, publicly held Federal debt quadrupled,rising from $710 billion at the end of 1980to $3.0 trillion by the end of 1992. As a per-centage of GDP, it doubled, from about 25 per-cent to about 50 percent—wiping out all theprogress achieved since 1956.

Had this Administration done nothing, thedebt would have approached $7 trillion, or70 percent of GDP, by 2002. Instead, workingwith Congress, the Administration reversedthe debt build-up as a share of GDP, andit now projects that debt will fall below

40 percent of GDP in 2002 (see ChartIII–3).

U.S. Budgetary Performance Is Amongthe World’s Best: Counting all levels of gov-ernment, the total U.S. budget deficit is small-er as a share of GDP than in all other G–7countries 3 except Canada (see Chart III–4).The reason is not high taxes; the share of GDPdevoted to taxes is lower in the United Statesthan in any other leading country. Rather, thereason is relatively low public spending—eventhough this Nation has a much larger defenseestablishment than the other G–7 countries.

The Administration has Reduced theFederal Claim on the Economy: By 1992,Federal spending had reached 22.5 percent ofGDP, topping its average of 21.2 percent from1969 to 1997. But, in every budget year underthis Administration, spending has equaled asmaller share of GDP than in any year of the


1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

20

30

40

50

60

70

80

PERCENT OF GDP

Chart III-3. DEBT HELD BY THE PUBLIC

PRE-OBRA BASELINE

CLINTON ACHIEVEMENT

-0.4

0.0

2.32.8

3.0 3.0 3.1

CANADA U.S. U.K. JAPAN GERMANY ITALY FRANCE

-1.0

0.0

1.0

2.0

3.0

4.0

PERCENT OF GDP

Chart III-4. 1997 GENERAL GOVERNMENT DEFICITS

Source: OECD, Economic Outlook, December 1997.


4 According to the December Blue Chip survey.5 The structural deficit is the deficit that remains after account-

ing for cyclical changes in the economy as well as purely temporaryfactors, such as the annual costs and receipts from resolving thethrift crisis.

previous two Administrations. The Administra-tion now projects that, by 1999, spending willfall to 20.0 percent of GDP, its lowest levelsince the early 1970s.

Federal Receipts are Higher than Pro-jected, Mainly Due to Economic Growth:In the past five years, spending has beenlower, and receipts higher, than the Adminis-tration had projected, leading to lower deficitsthan projected. With regard to the most recent,and quite extraordinary, fall in the deficit from$107 billion in 1996 to just $22 billion in 1997,the answer lies in a continuing surge in re-ceipts and in spending that came in below ex-pectations. That surge is rooted in an espe-cially strong economy. Tax rates have re-mained constant since 1993.

Some economists predicted that the 1993targeted tax rate increases on the top 1.2percent of Americans would slow the economyand actually lead to lower tax collections,particularly among the well-to-do. In fact,tax revenues have soared since 1993—andthe largest increases have come at the top.Total Federal receipts have risen nearly eightpercent a year since 1992. Federal incometax revenues rose by nearly 25 percent from1992 to 1995 (the last year for which wehave data), but by nearly 50 percent forthose with incomes above $200,000.

The President’s balanced budget for 1999results from a drop in spending of 2.5percent of GDP since 1992 and an increasein revenues of 2.3 percent of GDP overthe same period, driven by economic growth.Thus, 52 percent of the total deficit reductionhas come from spending cuts, 48 percentfrom higher receipts.

Economic Performance

By reducing the Federal Government’s de-mand for capital in the financial markets,a falling deficit has freed capital for privateinvestment. At the same time, the promiseof future budgetary stability has promotedbusiness confidence. The fiscal improvementhas enabled the Federal Reserve to maintainlow, stable interest rates that, in turn, havehelped prolong and strengthen the economicexpansion. The surge in business investmentof the last five years shows that thesepolicies are working, and as the budget

reaches balance, prospects for continued eco-nomic progress are excellent.

The Current Expansion Is the ThirdLongest: In January 1998, the economy re-corded its 82nd straight month of growth,marking the third longest expansion in U.S.history (and the second longest in our peace-time history). If the economy continues to growthrough the end of 1998, the current expansionwill become the longest in peacetime history,surpassing that of the 1980s. If it continuesto grow until February 2000, as most privateforecasters expect,4 the expansion will becomethe longest of all time, surpassing the 106-month expansion of the 1960s.

The Administration’s Fiscal Policy HasPromoted a Sound Expansion: Unsustain-able Federal deficits, in part, stimulated bothof the longer post-war expansions—the first inthe 1960s, the second in the 1980s (see ChartIII–5). The economy expanded because theGovernment expanded, dragging the privatesector along; when the Government removedits stimulus, the economy faltered.

In these earlier expansions, the fiscal stimu-lus came at different times. In the 1960s,the deficit was quite restrained early inthe decade, but grew sharply after 1965.In the early 1980s, the ‘‘structural deficit’’ 5

soared to almost five percent of GDP. Thatlarge deficit helped pull the economy outof the deep recession of 1981–1982, butthe Government’s subsequent failure to curbit held up real interest rates, led to thefinancial problems that marked the end ofthe decade, and helped bring on the recessionof 1990–1991.

In contrast, during the current expansion,the deficit has been shrinking and privateinvestment has propelled the economy forward.

This Expansion is Led by a Strong Pri-vate Sector: Under this Administration, theeconomy has grown at a healthy, inflation-adjusted 3.0 percent a year. But, at least asimportant, private demand for goods and serv-ices has grown even faster than the economyas a whole—3.6 percent a year compared to


1960-1969 1974-1980 1981-1990 1990-1997

-4

-3

-2

-1

0

1

2

3

4

Chart III-5. CHANGE IN STRUCTURAL DEFICITAS A PERCENT OF POTENTIAL GDP

(During four longest postwar expansions preceding cyclical peak fiscal year to seventh following fiscal year)

Increase in CBO standardized-employment deficit as a share of potential GDP. Structural deficit is adjusted for deposit insurance, allied contributions to Desert Storm and specturm auctions. Potential GDP is an estimate of a high, standardized level of output over time.

2.5

0.61.2

-2.1

3.0 percent from 1981 to 1989 and 1.3 percentfrom 1989 to 1993. The Federal Government’sdirect claim on GDP (mainly, defense andother discretionary spending, excluding trans-fer payments) has shrunk by 2.6 percent ayear. Of the more than 14 million jobs createdunder this Administration, 93 percent havebeen in the private sector. In the 1980s, bycontrast, the Federal Government’s directclaim on GDP grew faster than the privatesector’s claim.

Why is the contrast important? Becausewhen Federal demands spur economic growth,the economy is more vulnerable to suddenchanges in Federal policy—as in the late1980s when the Government shifted froma defense build-up to a build-down. Thoughappropriate as the Cold War ended, thisshift prompted a painful economic adjustmentin many regions. But, when an expansionis led by the investment decisions of thousandsof firms and millions of people across thecountry, the economy is less vulnerable to

the sudden swings that can arise from asingle policy decision.

A Surge in Business Investment Fueledthe Expansion: Since 1992, real business in-vestment in equipment has expanded at an11.8 percent average yearly rate—more thantriple the 3.5 percent annual rate from 1980through 1992.

Investment growth is important for tworeasons:

• Investment adds to the economy’s produc-tive capacity, and a larger economy gen-erates more income, leading to higheraverage living standards. In the final anal-ysis, a stronger economy is a prerequisiteto meeting the retirement costs of thebaby-boom generation without unduly bur-dening future workers.

• New equipment embodies advanced tech-nology, making workers who use theequipment more productive. Higher pro-ductivity permits larger wage increaseswithout threatening higher inflation.


1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997

0

2

4

6

8

10

12

14

16

18

20

PERCENT

CORE CPI, 12-MO. PERCENT CHANGE

UNEMPLOYMENT RATE

Chart III-6. MISERY INDEX(Unemployment rate plus inflation rate)

The ‘‘Misery Index’’ Has Dropped to itsLowest Level in 30 Years: Falling unemploy-ment can ‘‘overheat’’ the economy, leading tohigher inflation. In the current expansion,however, both unemployment and inflationhave continued to fall, even after the expan-sion entered its seventh year. In Novemberof last year, unemployment fell to 4.6 percent,its lowest level since 1973. Meanwhile, thecore inflation rate (measured by the ConsumerPrice Index, or CPI, excluding volatile food andenergy items), was running at a 2.2 percentannual rate, its lowest since 1966. At the endof 1997, the ‘‘misery index’’—the sum of infla-tion and unemployment—was at its lowestlevel in 30 years (see Chart III–6).

The Near-Term Economic Outlook,1998–2008

The Administration expects the economyto continue to expand at a healthy ratewithout inflation. But, growth should moderatefrom its recent pace. In 1996–1997, realGDP grew at a 3.5 percent average rate,much faster than the economy has been

able to sustain in recent decades withouthigher inflation. Even allowing for somewhatmore moderate growth, general macroeconomicconditions would remain very favorable, withboth unemployment and inflation remainingnear their lowest levels in decades.

Though the economy remains strong, onepotentially troublesome development is thefinancial dislocation in Asia. To maintaingrowth in the United States and to supportstability in Asia, the Administration expectsto propose a supplemental appropriation toreplenish International Monetary Fund (IMF)resources and, as it did last year, to againpropose to provide a contingent credit lineto the IMF.

This budget relies on conservative economicassumptions that are close to the consensusamong private forecasters, as well as tothose of CBO. The Administration is confidentthat, as the budget reaches balance, theeconomy could perform even better. Underthis Administration, the economy has consist-ently performed better in virtually all respects


Investing in Economic Statistics

Our democracy and economy demand that public and private leaders have unbiased, relevant,accurate, and timely information on which to base their decisions. But rapid changes in theeconomy and society, and funding levels that do not enable statistical agencies to keep pace withthem, increasingly threaten the relevance and accuracy of America’s key statistics.

Economic data, in particular, are not only key indicators for fiscal and monetary policy; theyalso underlie Federal, State, and local income projections, investment planning, and businessdecisions. In recent years, active public debate has focused on the measuring of GDP, CPI, andmany other indicators that are widely used, explicitly and implicitly, in public and privatedecision-making. Small but essential investments to address these measurement issues willallow our statistical system to track the economy more accurately and, in the process, help bothGovernment and the private sector better allocate their limited resources.

The budget proposes such carefully targeted investments, ranging from improvements in data(including statistics on service industries, construction, and State and local government), to thedevelopment of more accurate summary statistics from those data (such as GDP and theNational and Personal Income estimates), to greater public access to Government data (includ-ing electronic distribution). These initiatives are documented in greater detail in Chapter 11 ofAnalytical Perspectives, ‘‘Strengthening Federal Statistics.’’

than the Administration or CBO had projected.But, for budget planning, the Administrationcontinues to believe it is prudent to useconservative economic assumptions, the high-lights of which include:

Real GDP: Real GDP growth averages2.0 percent on a fourth-quarter-over-fourth-quarter basis through 2000. For 2001 to2007, growth averages 2.4 percent a year,the Administration’s estimate of potentialsustained real growth. Starting in 2008, pro-jected economic growth slows due to theshifting composition of the population. AsAmericans age, a smaller portion of themwill likely be in the workforce. The Adminis-tration expects the resulting slowdown inthe growth of hours worked to lower realGDP growth.

Unemployment: The civilian unemploymentrate rises gradually, from 4.9 percent in1998 to 5.4 percent in 2001, which is theAdministration’s conservative estimate of thethreshold level of unemployment consistentwith stable inflation in the long run.

Inflation: The CPI rises 2.2 percent in1998–1999, then 2.3 percent a year in thefollowing years. These projections include tech-nical improvements in measuring the CPI.The price index for GDP rises 2.0 percentin 1998, 2.1 percent in 1999, and 2.2 percentin the following years. The gap betweenthe two measures of inflation, which has

been larger in the past, narrows due torecent and expected methodological improve-ments in both indexes. Without these improve-ments, measured inflation would rise slightlymore.

Interest rates: Interest rates, already lowerthan a year ago, remain below levels ofrecent years as the budget approaches balance.The yield on 10-year Treasury notes reaches5.7 percent by 2001; on a discount basis,the 91-day Treasury bill rate drops to 4.7percent.

The Administration does not try to projectthe business cycle beyond the next yearor so. The expansion will surely end atsome point, though no signs of a downturnhave emerged. But even allowing for futurerecessions, projected economic growth averages2.4 percent from 2001–2007, and projectedunemployment averages about 5.4 percent.In some years, growth will be faster andunemployment lower, while in others, growthand employment will fall short of theseprojections. But, because the Administrationexpects the growth and unemployment as-sumptions to hold on average over this period,they provide a sound, prudent basis forprojecting the budget. Similarly, the Adminis-tration expects inflation and interest ratesto average near the projections shown inTable III–1, although year-to-year fluctuationssurely will occur.


Table III–1. ECONOMIC ASSUMPTIONS 1

Actual1996

Projections

1997 1998 1999 2000 2001 2002 2003

Gross Domestic Product (GDP):Levels, dollar amounts in billions:

Current dollars ....................................... 7,636 8,080 8,430 8,772 9,142 9,547 9,993 10,454Real, chained (1992) dollars ................... 6,928 7,187 7,357 7,503 7,652 7,820 8,008 8,199Chained price index (1992 = 100), an-

nual average ........................................ 110.2 112.5 114.6 116.9 119.5 122.1 124.8 127.5Percent change, fourth quarter over

fourth quarter:Current dollars ....................................... 5.6 5.5 4.0 4.1 4.3 4.6 4.6 4.6Real, chained (1992) dollars ................... 3.2 3.6 2.0 2.0 2.0 2.3 2.4 2.4Chained price index (1992 = 100) ........... 2.3 1.9 2.0 2.1 2.2 2.2 2.2 2.2

Percent change, year over year:Current dollars ....................................... 5.1 5.8 4.3 4.1 4.2 4.4 4.7 4.6Real, chained (1992) dollars ................... 2.8 3.7 2.4 2.0 2.0 2.2 2.4 2.4Chained price index (1992 = 100) ........... 2.3 2.0 1.9 2.0 2.2 2.2 2.2 2.2

Incomes, billions of current dollars:Corporate profits before tax ................... 677 729 754 768 790 805 830 851Wages and salaries ................................. 3,633 3,868 4,057 4,237 4,424 4,623 4,840 5,068Other taxable income 2 ........................... 1,693 1,786 1,859 1,915 1,975 2,046 2,128 2,213

Consumer Price Index (all urban): 3

Level (1982–84 = 100), annual average 157.0 160.7 164.1 167.7 171.5 175.5 179.5 183.6Percent change, fourth quarter over

fourth quarter ...................................... 3.2 2.0 2.2 2.2 2.3 2.3 2.3 2.3Percent change, year over year ............. 2.9 2.4 2.1 2.2 2.3 2.3 2.3 2.3

Unemployment rate, civilian, percent:Fourth quarter level ............................... 5.3 4.8 5.0 5.2 5.4 5.4 5.4 5.4Annual average ....................................... 5.4 5.0 4.9 5.1 5.3 5.4 5.4 5.4

Federal pay raises, January, percent:Military 4 .................................................. 2.6 3.0 2.8 3.1 3.0 3.0 3.0 3.0Civilian 5 .................................................. 2.4 3.0 2.8 3.1 3.0 3.0 3.0 3.0

Interest rates, percent:91-day Treasury bills 6 ........................... 5.0 5.0 5.0 4.9 4.8 4.7 4.7 4.710-year Treasury notes .......................... 6.4 6.4 5.9 5.8 5.8 5.7 5.7 5.7

1 Based on information available as of early December 1997.2 Rent, interest, dividend and proprietor’s components of personal income.3 Seasonally adjusted CPI for all urban consumers. Two versions of the CPI are now published. The index shown here is

that currently used, as required by law, in calculating automatic adjustments to individual income tax brackets. Projectionsreflect scheduled changes in methodology.

4 Beginning with the 1999 increase, percentages apply to basic pay only; adjustments for housing and subsistence allow-ances will be determined by the Secretary of Defense.

5 Overall average increase, including locality pay adjustments.6 Average rate (bank discount basis) on new issues within period.

The Near-Term Budget Outlook,1998–2003

The Administration projects that the budgetwill reach balance in 1999—ending an eraof continuous deficits that lasted 30 years(see Chart III–7). By definition, projectionsare imprecise; the further into the future,the more imprecise. But, the Administrationis committed to close the structural budgetdeficit and keep the budget in balance—as long as the economy maintains normallevels of unemployment.

The Outlook has Improved Since theBalanced Budget Act: Last summer, OMBand CBO both projected that the BBA wouldnot produce a balanced budget until 2002.Since then, the budget outlook has improved.Economic growth has continued to exceed ex-pectations, and inflation has remained low.The resulting changes in the Administration’seconomic and technical projections have re-duced the projected deficits and moved the ex-pected year of balance ahead to 1999 (seeChart III–8).


1997 1998 1999 2000 2001 2002

-20

0

20

40

60

80

100

SURPLUS (+)/DEFICIT (-) IN BILLIONS OF DOLLARS

Chart III-7. BUDGET SURPLUS(+)/DEFICIT(-)

-$22B

$10BSURPLUS

$9B

$28B

$90B

-$10B

1998 1999 2000 2001 2002

-100

-75

-50

-25

0

25

50

75

100

SURPLUS (+)/DEFICIT (-) IN BILLIONS OF DOLLARS

Chart III-8. CHANGES IN THE ESTIMATES OF THE BUDGET DEFICIT

BUDGET AGREEMENT

NEW BUDGET

MID-SESSION REVIEW

-$90B

-$60B

-$10B

-$53B

-$11B

$2B

$59B

$90B

$28B

31

IV. IMPROVING PERFORMANCETHROUGH BETTER

MANAGEMENT

33

1 As of September 30, 1997.

2 For more information on the issues discussed in Section IV, seethe footnotes that list websites on the Internet.

IV. IMPROVING PERFORMANCE THROUGHBETTER MANAGEMENT

We had to reject the idea of those who say we should do nothing with Government and rejectthose who say we should try to do everything. Instead, we gave the American people a Govern-ment that is very much smaller, more focused, but more committed to giving people the tools andconditions they need to make the most of their lives.

President ClintonOctober 1997

The President has challenged the FederalGovernment to do more with less—and withgood reason.

Departments and agencies, which once couldcount on more funds from year to year,no longer can; indeed, with the Administrationcommitted to balancing the budget, someagencies will get less.

Public demands for more and better serviceshave not shrunk, however. Americans continueto want good schools, a clean environment,high-quality health care, and secure retire-ment benefits. Thus, the Government mustsatisfy these demands by managing betterand improving the performance of programs.

The Administration has answered the call.Vice President Gore, working with the depart-ments, agencies, and inter-agency workinggroups, and drawing on the expertise ofthe private sector, has led an unprecedentedeffort to cut the size of the Federal Govern-ment and make it more efficient and effective.Through these reinvention efforts, the Admin-istration has saved $137 billion over thelast five years.

The Administration has cut the civilianFederal work force by over 316,000 1 employ-ees, creating the smallest work force in35 years and, as a share of total civilianemployment, the smallest work force since1931. Almost all of the 14 Cabinet Depart-ments have cut their work forces; only theJustice Department’s work force is growing

due to the Administration’s expanded waron crime and drugs, while the CommerceDepartment’s work force is growing due tothe decennial census (see Charts IV–1 andIV–2).

But the work is not done, and the Adminis-tration has an ambitious agenda to continuereinventing Government so that it is moreeffective, more efficient, and more responsiveto the American people. This section highlightsthe key parts of this ‘‘Management Agenda’’ 2:

• The National Performance Review’s (NPR)efforts to reinvent entire agencies;

• The Administration’s top management ob-jectives;

• The Administration’s management supportinitiatives; and

• The activities of inter-agency workinggroups.

The NPR: Reinventing Agencies to ServeAmericans

The NPR has introduced important changesacross the Government that have improvedservices and cut costs—from streamlined drugapprovals at the Food and Drug Administra-tion to better customer service at the SocialSecurity Administration; from procurementreforms that have saved $12.3 billion tothe pending sale of the Naval Academy’s800-acre dairy farm in Annapolis, Md. Now,the NPR is moving from reinventing processes


1965 1970 1975 1980 1985 1990 1995

1.7

1.8

1.9

2

2.1

2.2

2.3

2.4

EMPLOYEES IN MILLIONS

Note: Data is end-of-year count.

Chart IV-1. ACTUAL CIVILIAN EMPLOYMENTIN THE EXECUTIVE BRANCH, 1965 - 1997

(Excluding Postal Service)

0

within agencies to reinventing agencies intheir entirety in order to create customer-oriented, results-driven organizations thatfocus on performance.

Over the next three years, the NPR willwork with the agencies that interact mostwith individuals and businesses to improveperformance and enable the American peopleto more quickly enjoy better service andregain their confidence in Government. Follow-ing the examples of America’s best-run compa-nies, the NPR will help these agencies aligntheir management systems to better servetheir customers. These agencies already havethe key building blocks in place: strategicplans, annual performance plans, and budg-etary resources. The next step is to betterintegrate their information technology, humanresource systems, and service processes sothat they better focus on customers.

In addition, the Vice President has chal-lenged the leaders of 32 agencies, with over1.4 million full-time equivalent (FTE) posi-tions, to commit to achieving significant,

concrete, measurable goals over the nextthree years. These ‘‘High Impact Agencies’’include the Immigration and NaturalizationService, National Park Service, and SocialSecurity Administration (see Table IV–1).

‘‘You should focus your efforts in threeareas—partnerships, the use of informationtechnology, and customer service,’’ the VicePresident instructed the heads of these agen-cies last summer. ‘‘Yours are the agenciesthat shape the public’s opinion of Governmentand can redeem the promise of self-govern-ment. Public cynicism about Government isa cancer on democracy. Reinvention isn’tjust about fixing processes, it’s about redefin-ing priorities and focusing on the thingsthat matter.’’

Working with the NPR, these agencieshave developed over 200 specific, measurablecommitments that they will complete by theyear 2000. They involve improving services

35IV. IMPROVING PERFORMANCE THROUGH BETTER MANAGEMENT

30

20

10

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-10

-20

-30

-40

-50

-60

PERCENT

Notes: The Executive Branch total excludes Postal Service. The 1993 base, which is the starting point for calculating the 272,900FTE reduction required by the Federal Workforce Restructuring Act, is 2.2 million.

Chart IV-2. PROJECTED CIVILIAN FTE CHANGESON A PERCENT BASIS, 1993 - 1999

CABINET DEPARTMENTS AND SELECTED INDEPENDENT AGENCIES

FTE REDUCTIONS (in thousands)

1993 1999 DifferencePercent

DifferenceCabinet Depts.

1,880 1,593 -287 -15.2

All Other Agencies

275 231 -44 -16.1

Exec.Branch Total

2,155 1,824 -331 -15.4

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3 The NPR’s home page, at www.npr.gov, links to the performancecommitments of each agency.

in areas that Americans care about.3 Majorperformance goals include:

• Improving student aid delivery: The Edu-cation Department will determine, withinfour days, the eligibility of students andfamilies who apply for student aid elec-tronically, cutting the processing time inhalf.

• Speeding aid to disaster victims: Throughpartnerships with Federal, State, local,and voluntary agencies, the Federal Emer-gency Management Agency will act on allrequests to meet victims’ needs for water,food, and shelter within 12 hours of a dis-aster event, with the intent to coordinateservices within 72 hours of a Presidentialdeclaration of disaster.

• Finding the right agency on the first try:The General Services Administration willrestructure Federal listings in the bluepages of local telephone books, ensuring

that Americans can find the Governmentservice they need the first time they look.

• Reducing time for clearance at U.S. air-ports: Working with the Agriculture De-partment and the Customs Service, theJustice Department’s Immigration andNaturalization Service will clear inter-national passengers at airports in 30 min-utes or less while improving enforcementand regulatory processing.

• Reducing injury and illnesses in the work-place: The Labor Department’s Occupa-tional Safety and Health Administrationwill cut injury and illness rates by a fifthin at least 50,000 of the most hazardousworkplaces.

• Increasing access to Federal recreation op-portunities: The National Park Service willcreate, with other Federal natural re-source agencies, an integrated Nation-wideoutdoor recreation information system thatgives all Americans electronic access to in-formation about recreation on Federal

http://www.npr.gov


Table IV–1. High Impact Agencies

Agriculture:Animal and Plant Health Inspection

ServiceFood Safety and Inspection ServiceFood and Consumer ServiceForest Service

Commerce:Bureau of the CensusU.S. and Foreign Commercial Service/Inter-

national Trade AdministrationPatent and Trademark OfficeNational Weather Service

Defense:Acquisition Reform

Education:Student Financial Assistance

Environmental Protection AgencyFederal Emergency Management AgencyGeneral Services AdministrationHealth and Human Services:

Food and Drug AdministrationAdministration for Children and FamiliesHealth Care Financing Administration

Interior:National Park ServiceBureau of Land Management

Justice:Immigration and Naturalization Service

Labor:Occupational Safety and Health Adminis-

trationNational Aeronautics and Space Admin-

istrationOffice of Personnel ManagementSmall Business AdministrationSocial Security AdministrationState:

Bureau of Consular AffairsTransportation:

Federal Aviation AdministrationTreasury:

Customs ServiceInternal Revenue ServiceOffice of Domestic Finance/Financial Man-

agement ServiceU.S. Postal ServiceVeterans Affairs:

Veterans Health AdministrationVeterans Benefits Administration

4 See OMB’s Strategic Plan, at www.whitehouse.gov/WH/EOP/OMB/Spe-ciallEmphasis/stratplan.html.

lands, recreation use permits, and reserva-tions.

• Speeding Social Security information: TheSocial Security Administration will pro-vide overnight electronic Social Securitynumber verification for employers. Today,verification can take up to two weeks.

Priority Management Objectives

The Administration plans to ‘‘provide man-agement leadership to ensure the faithful

execution of the enacted budget, programs,regulations, and policies,’’ and to ‘‘work withinand across agencies to identify solutions tomission critical problems.’’ 4 For 1999, theAdministration will focus on 22 key manage-ment objectives (see Table IV–2).

http://www.whitehouse.gov/WH/EOP/OMB/Special_Emphasis/stratplan.html


Table IV–2. PRIORITY MANAGEMENT OBJECTIVES

Inter-agency Objectives

Year 2000 .......................................... Manage the year 2000 computer problem in a timely and cost-effectivemanner to ensure that no critical Federal programs fail as a resultof this problem.

GPRA ................................................. Implement the Government Performance and Results Act in a timelyand compliant manner to improve agency program performance.

Financial Management .................... Present performance and cost information in a timely, informative andaccurate way, consistent with Federal accounting standards. Assurethe integrity of Federal financial information by completing auditsand gaining unqualified opinions for all Chief Financial Officer Actagencies and on the Federal Government as a whole.

Information Technology ................... Improve the use of information technology and decrease the number oftroubled investments in technology.

Selected Inter-Agency Systems ....... Improve the use of information technology and eliminate unnecessaryduplication by developing a Simplified Tax and Wage Reporting Sys-tem (STAWRS) and the International Trade Data System (ITDS).

STAWRS will allow small businesses to file tax information electroni-cally with the IRS instead of providing duplicate information to Fed-eral, State, and local governments. ITDS will connect existing agen-cy systems so that importers, exporters, and others involved ininternational trade will benefit from ‘‘one-stop shopping’’ for infor-mation collection and retrieval.

Acquisition Reform ........................... Provide greater customer satisfaction through acquisition reform interms of price, timeliness, quality, and productivity; increase use ofperformance-based service contracting.

Loan Portfolio Management ............ Improve loan portfolio management by encouraging the use of elec-tronic loan origination, loan underwriting, and reporting on the sta-tus of major loan portfolios that will provide faster and more eco-nomical loan processing.

Debt Collection ................................. Improve debt collection for major receivable accounts by effectivelyusing the tools provided by the Debt Collection Improvement Act of1996 (referral to private collection agencies, referral to Treasury foroffset, and asset sales).

International Credit Programs ........ Improve agency loan management servicing, portfolio tracking andcredit budgeting policies and procedures. More accurate financialrecords, which use consistent accounting standards, will result inimproved repayment practices and increased collections. (The Agen-cy for International Development, Overseas Private Investment Cor-poration, Export Import Bank, Defense Security Assistance Agency,Defense Export Loan Guarantee Program, and Agriculture haveabout $130 billion in outstanding loans and guarantees to foreignobligors.)

Statistical Programs ......................... Strengthen the quality, utility, accessibility and cost-effectiveness ofFederal statistical programs.

Regulation ......................................... Maximize the social benefits of regulation while minimizing the costsand burdens of regulation.


Table IV–2. PRIORITY MANAGEMENT OBJECTIVES—Continued

Agency-Specific Objectives

Defense .............................................. Develop a plan with specific milestones to obtain an unqualified auditopinion on Defense’s financial statement.

Defense .............................................. Increase outsourcing and privatization of military department infra-structure functions closely related to commercial enterprises, and ofDefense Logistics Agency, Defense Finance and Accounting Service,and Defense Health Program functions.

Education .......................................... Modernize the management of student aid benefit delivery by reform-ing contracting, system development, and program oversight prac-tices.

Energy ............................................... Use prudent contracting and business management approaches thatemphasize results, accountability, and competition; improve timeli-ness; minimize costs; and ensure customer satisfaction.

Housing and Urban Development ... Implement HUD’s 2020 Management Reform Plan to: (a) restore pub-lic trust by achieving and demonstrating competence in implement-ing HUD’s programs, and (b) restructure the way HUD operates toempower people and communities. Implementation of HUD’s man-agement reform plan began in June 1997 and will extend to 2002.HUD will periodically measure changes in its performance to assessthe impact of reform.

Interior: Bureau of Indian Affairs ... Seek to settle disputed tribal trust fund balances, make comprehen-sive reforms to the operation of tribal and individual Indian trustasset and trust funds management, and implement a recently intro-duced legislative proposal to consolidate ownership of highlyfractionated Indian lands.

Transportation: Federal AviationAdministration (FAA) ................... FAA Reform:

Implement a personnel system that, without increasing costs, em-powers managers to effectively hire, reward, promote, discipline, andremove employees, while at the same time protecting employee rights.

Implement a financial system that accurately relates services tocosts that can be reflected in user charges.

Reduce developmental risk and total life-cycle cost of FAA major in-formation technology investment/air traffic control modernizationsystems.

Treasury: Financial ManagementService (FMS) ................................ Implement a number of changes at FMS to increase electronic pay-

ments, collections, and debt collection; and improve the accuracyand timeliness of Government-wide accounting and reporting.

Treasury: Internal Revenue Service(IRS) ............................................... Position the IRS to move forward with the Modernization Blueprint

and undertake an incremental modernization, including year 2000conversion, resulting in centralized data bases that would stimulatesignificant improvements in customer service, compliance and finan-cial reporting.

Veterans Affairs ................................ Work to consolidate infrastructure (hospitals, regional offices, datacenters) where service improvements and efficiencies can beachieved.

Social Security Administration ....... Reduce the processing time for disability claims and appeals in theDisability Insurance and Supplemental Security Income programs atlower administrative cost with neutral impact on program costs.


Table IV–3. Financial Statement Performance Goals

Financial Statements 1996Actual

Estimate

1997 1998 1999 2000

Audits Completed ................................................ 22 23 24 24 24Agencies with Unqualified Opinion ................... 6 12 16 21 23Agencies with Unqualified and Timely Opinion 4 9 16 21 23

5 For information on performance measures for priority manage-ment objectives, see OMB’s home page, at www.whitehouse.gov/WH/EOP/OMB/SpeciallEmphasis.

6 For more information on the year 2000 issue and other informa-tion technology issues, see the Chief Information Officers Councilweb site (www.cio.fed.gov).

Agency managers have the primary respon-sibility to achieve these performance goals;they must actively and effectively carry outboth inter-agency and agency-specific initia-tives. OMB will help agencies develop specificmeasures 5 and implement detailed actionplans to ensure that they make progresstoward meeting these commitments.

The Government-wide management initia-tives described below will help achieve severalof these inter-agency objectives.

Year 2000 Computer Problem: The Ad-ministration is committed to ensuring thatagency computer systems correctly process theyear 2000. The report, ‘‘Getting Federal Com-puters Ready for 2000,’’ which the Administra-tion sent to Congress with last year’s budget,outlines the Administration’s strategy.6 Agen-cies report quarterly on their progress, as doesthe Administration as a whole. The Adminis-tration’s most recent report states that the es-timated cost of addressing the problem standsat $3.9 billion; agencies have identified 8,589mission-critical systems, 26 percent of whichare compliant; and all agencies are renovatingtheir systems. That report also establishes aGovernment-wide goal of completing the imple-mentation of all mission-critical systems byMarch 1999. The budget proposes adequatefunding to address the problem. For example,the Defense Department will spend $275 mil-lion and the Treasury Department will spend$312 million.

Government Performance and ResultsAct (GPRA): All agencies have sent Congress

their strategic plans under the Results Act,and will be sending their annual performanceplans as well after the budget is transmitted.Nearly 100 departments and agencies haveprepared strategic plans and are preparing an-nual performance plans. By March 2000, theseagencies will submit clear, concise annual per-formance reports on their progress toward thegoals they set in their annual plans.

Agency Audited Financial Statements:For 1996, 22 of the 24 largest agencies haveproduced audited financial statements, as re-quired by the Government Management andReform Act (GMRA). On these statements, sixagencies already have received unqualifiedopinions: the Energy Department, GeneralServices Administration, National Aeronauticsand Space Administration, Nuclear RegulatoryCommission, Small Business Administration,and Social Security Administration. The ChiefFinancial Officers (CFOs) have projected whentheir agencies will issue unqualified and time-ly audited financial statements (see TableIV–3).

As part of a GMRA-authorized pilot pro-gram, 12 agencies are issuing AccountabilityReports for 1997, enabling them to provide,in one place, reader-friendly information abouttheir programs and operations, including theiraudited financial statements. In 1998, OMBand the CFO Council will conduct a finalassessment of the pilot program and, basedon the results, will work with Congresson legislation to turn the pilot into a perma-nent, Government-wide program. Twenty-oneof the 24 agencies have committed to produc-ing an Accountability Report for 1999.

http://www.whitehouse.gov/WH/EOP/OMB/Special_Emphasis

http://www.cio.fed.gov


7 For more information on financial management performancecommitments, see the CFO Status Report and Five-Year Plan atthe OMB web site (www.whitehouse.gov/WH/EOP/OMB/Finance/).

Government-Wide Audited FinancialStatements: GMRA also requires the firstGovernment-wide audited financial statementsfor 1997. The Government’s ability to obtainan unqualified opinion on its Government-widestatements is hampered, however, by the lackof adequate financial management systems tocapture the data that would satisfy Federalaccounting standards requirements. OMBplans to work with the agencies to resolvethese problems in time for the Governmentto receive such an opinion on its 1999 state-ments.7

Information Technology Investments: In-vestments in information technology can helpGovernment to work better and cost less. Forthe best return on investment, agencies arefollowing the successful practices of privatefirms—reengineering, creating disciplined cap-ital programming processes, and developing in-formation technology architectures—to ensurethat the investments provide workable solu-tions to problems at a reasonable cost. (Forperformance information with regard to infor-mation technology investments for 1999 andbeyond, see Table IV–4.)

Table IV–4. Program Performance Benefits From Major InformationTechnology Investments

(Budget authority, in millions of dollars)

Program/Project 1997Actual

1998Estimate

1999Proposed Program Performance Benefits 1

Agriculture: Common ComputingEnvironment.2

21 41 45 Allows ‘‘one-stop service’’ for farmers at local AgricultureDepartment offices.

Commerce: Advanced Weather In-teractive Processing System.

100 117 69 Improves the accuracy of forecasts. Lowers the costs ofgenerating forecasts through reduced staffing require-ments. A component ‘‘The Advance Hydrological Pre-diction System’’ will provide 60-day flood warnings with90-percent accuracy.

Commerce: Census 2000. 26 80 199 Reduces errors, the number of temporary employees need-ed, and publication costs.

Defense: Defense Message System. 154 197 207 Provides timely, reliable, accountable, and secure messag-ing and electronic mail directory services to tactical, or-ganizational and individual users. Defense estimateslifecycle cost savings of over $600 million.

Education: Direct Student Lending. 141 187 220 Supports loan origination and servicing of a portfolio thatwill grow to more than $55 billion in 1999.

Education: National Student LoanData System.

27 21 27 Improves the Government’s collection of defaulted loansand integrity of participating institutions.

Education: PELL Grant Systems. 7 7 7 Distributes grant funds to institutions and supports soundfinancial management.

Education: Guaranteed StudentLoan Data System.

23 24 30 Improves the Government’s collection of defaulted loans.

Education: Student Aid ApplicationSystem.

49 51 63 Assists institutions and students by providing a standard-ized way to determine financial aid eligibility.

Energy (DOE): TelecommunicationsIntegrator Services (TELIS) con-tract.3

2 100 123 Lowers operating and maintenance costs and improvessharing of information by promoting interoperability oftelecommunications systems.

Health and Human Services: Medi-care Information Technology Sys-tem.4

75 40 45 Simplifies and streamlines claims processing, eligibility,and managed care information systems while improvingservice to Medicare customers.

http://www.whitehouse.gov/WH/EOP/OMB/Finance/


Table IV–4. Program Performance Benefits From Major InformationTechnology Investments—Continued



1998Estimate


Health and Human Services: Fed-eral Parent Locator Service, in-cluding the National Directory ofNew Hires and the Federal CaseRegistry.

25 28 29 Assists States in locating out-of-State, non-custodial par-ents who owe child support by matching quarterlywage, new hire, and unemployment insurance data withnational registry of child support cases. This system willincrease interstate collections by $3 billion over tenyears.

Housing and Urban Development:Information Technology Invest-ments.

48 90 90 Provides better internal controls and oversight of federalgrants, verification of the eligibility of recipients, timelyand accurate payment of funds, and oversight and serv-icing of FHA mortgages.

Interior: Automated Land Manage-ment Records System.

42 33 35 Improves the quality of, and access to, land, resources,and title information for public land managers andadjacent land owners.

Interior: American Indian TrustSystem.

3 4 10 Ensures that trust income is allocated based upon accu-rate land ownership information.

Justice: Integrated Automated Fin-gerprinting Identification System.

84 84 48 Allows the FBI to process routine identification requestsin 24 hours and urgent requests in two hours.

Justice: National Criminal Informa-tion Center 2000.

8 ............. ............. Provides law enforcement agencies across the countryreal-time access to sophisticated databases on criminalsand criminal activity.

Justice: Information Sharing. .......... ............. 50 Promotes sharing of investigative data bureauwide.Labor: ERISA Filing Acceptance

System.6 3 (5) Increases the speed, accuracy, and integrity of information

that three agencies use to safeguard private pensions.State: Diplomatic and Consular Sys-

tems Modernization.6146 260 283 Improves delivery and management of information re-

quired by diplomatic and consular officers overseas tosupport the Nation’s foreign policy goals and ensureU.S. border security.

Transportation: Federal AviationAdministration Air Traffic ControlSystem Modernization.

1,233 1,306 1,410 Maintains and improves capability to promote the safe,orderly, and expeditious flow of air traffic. Reduces theaccident rate by 80 percent of baseline levels by 2007.

Treasury: Information TechnologyInvestments.

.......... 325 323 Provides advanced funding for redesign of tax administra-tion systems and operations, improving the timelinessand quality of taxpayer data, and thereby significantlyenhancing customer service and collection activities. In-creases automated calls answered from 16 million to 30million.

Treasury: Treasury CommunicationsSystem.7

129 187 200 Provides secure data transmission and information serv-ices worldwide for Treasury bureaus.

Treasury: Automated CommercialEnvironment.

12 11 56 Supports business process redesign, systems architecture,development, and implementation for systems to replaceCustoms’ Automated Commercial System.

Veterans Affairs: VA Medical En-rollment System.

1 80 73 Allows automation of veterans’ eligibility status andtracking of veteran demographics.

Environmental Protection Agency:Toxic Release Inventory System.

8 7 8 Helps to improve the environment by maintaining datarelated to certain toxic chemical uses. The data areavailable to EPA staff, State and local governments,educational institutions, industry, environmental andpublic interest groups, and the general public. This al-lows for search requests to be fulfilled within 48 hours95 percent of the time.

National Aeronautics and Space Ad-ministration: Earth ObservingSystem Data Information System.

235 210 257 Supports spacecraft control, science data processing, andEarth science data management, archiving, and dis-tribution. Will archive 560 terabytes and deliver 3.4million data products by end of 1999.


Table IV–4. Program Performance Benefits From Major InformationTechnology Investments—Continued



1998Estimate


Social Security: Automation Invest-ment Fund.

235 190 ............. Provides more than 2,400 workyears in productivity gainsfor SSA and State Disability Determination Services.

General Services Administration:FTS2001 Program.8

10 13 11 Beginning in 1999, will offer the Federal Government low-cost, state-of-the-art, integrated voice, data, and long-distance telecommunications. Replaces the FTS2000contracts for similar services that expire in 1998.

Nuclear Regulatory Commission:Agency Document Access andManagement System.

2 7 4 Implements workprocess improvement review and in-creases staff efficiency through improved informationaccess and elimination of redundant data entry. Re-duces maintenance costs by replacing aging legacy hard-ware and minimizing custom software.

Office of Personnel Management:Retirement System Moderniza-tion.

.......... 2 5 Completes development of agency-wide information tech-nology architecture and development of retirement sys-tem modernization program requirements.

Interagency: Simplified Tax andWage Reporting System.

1 ............. 2 Reduces employers’ tax and wage reporting burden.

Interagency: International TradeData System.

6 6 5 Reduces burden on exports and imports, speeds up ship-ments, and improves the quality of trade statistics.

Interagency: Data Center Consolida-tion.

.......... 100 100 Saves money by requiring all Federal agencies to consoli-date or collocate their data processing centers to fewerlarger, more efficient, and cost effective locations, eitherwithin the Government or with a private sector pro-vider.

Interagency: Land Mobile RadioNarrowbanding.9

.......... ............. 130 Allows a 50-percent increase in number of radios that canoperate in current spectrum, promoting interoperabilityamong users.

1 Required under the Clinger-Cohen Information Technology Management Reform Act.2 Previously called the Field Service Center Initiative3 Budget authority for non-DOE agencies using the TELIS contract vehicle is $1.5 million, $77 million, and $99 million in 1997, 1998,

and 1999, respectively.4 Succeeds the Medicare Transaction System.5 1997 and 1998 figures represent capital investment to set up the system. 1999 numbers are operational costs. For consistency, 1999 is

zero for capital costs and $4.5 million in operational costs.6 Includes user fees and budget authority7 Funded through Treasury’s working capital fund, not annual appropriations.8 Cost numbers are not budget authority, but agency contributions to the Information Technology Fund for expenses associated with the

FTS2001 Program. These numbers do not include the cost of transitioning to the new contracts.9 Total of Departments of Justice, the Treasury, Agriculture, and Transportation investments.

Procurement: Changes in law and regu-latory policy continue to help agencies getmore value from what they buy, improvingGovernment’s performance along the way.With fewer Government-specific requirementsto meet and with more flexibility, contractingofficials can increasingly buy commercial itemsand, in the process, pay less while they gainaccess to the most current technology. Agen-cies can communicate more with industry andmore directly link Government’s needs to themarket’s capabilities. The Administration willbuild on these improvements so that Federalacquisition practices can match those of themost successful companies. For instance, bythe end of 1999: 15 agencies will have a sys-

tem in place to evaluate contractor perform-ance on all non-exempt contracts over$100,000; agencies will make 60 percent of alltransactions under $2,500 with the Govern-ment charge card; and OMB will work withagencies to increase, by 30 percent, the num-ber of model performance-based service state-ments of work available for agency use.

Performance Based Service Contracting(PBSC): PBSC requires that, in procuring aservice, the Government outline its needs inmeasurable, mission-related terms—not pre-scribe precisely how contractors do the work,and not describe its needs too vaguely. WithPBSC, agencies pay for results, not effort orprocess, enabling contractors to determine the


8 For further details, see www.gits.fed.gov.

best, most cost-effective ways to do the job.Preliminary results of a Government-widePBSC pilot project show that it cut prices 15to 20 percent while increasing Government’ssatisfaction with contractor performance. TheAdministration believes that PBSC offers greatpotential to reap savings and other benefitsin the roughly $100 billion that the Govern-ment spends a year on service contracts. Agen-cies plan to convert about 1,000 contracts, val-ued at $20 billion, to PBSC over several years.In 1999, agencies project that they will convertat least 700 contracts, worth $9 billion, toPBSC.

Loan Portfolio Management: Because theFederal Government is the Nation’s singlelargest source of credit, agency credit programsand performance measures should addresseach major phase of credit management—cred-it extension, account servicing, and special col-lection. For each phase of this new initiative,agencies will more widely use modern elec-tronic business processes to improve customerservice, cut costs, and improve collection. Forcredit extension, agencies will ensure that in-dividuals and entities applying for credit areeligible in terms of income and are not delin-quent on a Federal claim. For account servic-ing, agencies will work together to ensure thataccurate monthly information is available onthe status of loans. A consortium of single fam-ily loan programs run by the Departments ofHousing and Urban Development, Agriculture,and Veterans Affairs will provide a forum forits program delivery partners to speed theiruse of electronic reporting on the status of ac-counts.

Debt Collection Management: The 1996Debt Collection Improvement Act (DCIA) cre-ated more tools for the Treasury Departmentand individual agencies to reduce losses andincrease collections. In the special collectionphase, when a loan becomes seriously delin-quent—over 180 days overdue—Treasury willhelp the agency by intercepting other Federalpayments to the delinquent borrower and ap-plying them to the delinquent account. Treas-ury can also cross-service debts that are over180 days overdue by referring them to privatecollection agencies. A principle of sound creditmanagement for most Federal loan programsis that once a loan is delinquent for over oneyear, the agency should sell the debt or write

it off as uncollectible, as appropriate. The Fed-eral Credit Policy Working Group will reviewwrite-off practices and redesign loan sales pol-icy in order to cut the growth of delinquenciesand boost Federal collections of delinquentdebt. By January 1999, the Federal Credit Pol-icy Working Group, in cooperation with theCFO Council, will work to reduce delin-quencies by 10 percent and increase collectionsby $95 million from the 1997 level.

Management Support Initiatives

The activities described above do not encom-pass all of the Administration’s managementefforts. Indeed, the Administration continuesto work on a host of other initiatives—from providing more Federal services electroni-cally to improving the management of creditprograms—that will help reach the goal ofcreating a Government that ‘‘works betterand costs less.’’

Access America: This plan, which the VicePresident is spearheading, is designed to makeGovernment services available electronically toall Americans who seek them. More specifi-cally, the plan calls for, among other things,conducting electronically those transactionsthat individuals, States, localities, businesses,law enforcement agencies, and others mostoften request; ensuring high standards of pri-vacy and security for these transactions; andproviding the necessary infrastructure andskills in Government to support the vision. AGovernment-wide task force is leading imple-mentation efforts.8

Electronic Commerce Security: Electroniccommerce is the use of computers and net-works to buy and pay for goods and services,accept regulatory filings, and provide publicservices—making Government more conven-ient and cost-effective. For agencies and thepublic to enjoy those benefits, however, theymust be sure that their information is goingto whom it should—and to no one else. Animportant tool for providing that security isthe digital signature, but the private institu-tions and the rules for managing those signa-tures are just emerging. Through efforts of theGovernment Information Technology ServicesBoard and others, the Federal Government isaligning Federal electronic commerce security

http://www.gits.fed.gov


practices with this emerging private infra-structure.

Data Center Consolidation: The Govern-ment can save money by consolidating largecomputer centers, thereby eliminating duplica-tion in facilities, staff, computer hardware andsoftware, and related services. Large-scaledata processing service contracts, such asGSA’s Virtual Data Center contract, makeoutsourcing for the related services sensibleand cost-effective. OMB has directed agenciesto significantly reduce the number of agencydata centers to save substantial sums of moneyfor the Government.

Budgeting for Results: In preparing thebudget, the Administration had, for the firsttime, agency strategic plans, annual perform-ance plans, and performance measures to helpdecide how to allocate resources. In general,however, the budget structure and chargingpractices do not make it easy to match costswith a specific program. First, the budget doesnot charge all of a program’s resources to thatprogram; instead, the budget subsidizes pro-grams by paying for certain activities cen-trally. Second, not all budget accounts are aswell-aligned as they might be with the pro-grams they finance. As a result, in some cases,the quality of budgeting, management, and re-source acquisition all suffer.

Good budgeting is predicated on the abilityto compare costs and benefits, at least roughly,across all programs every year. In somecases, current practices distort such compari-sons. Good management requires that man-agers focus on, and are held accountablefor, getting the best results for the resourcesthey have. Managers should be free to allocateresources as they see fit, and to obtaincompetitive, performance-oriented procure-ment.

To better integrate budgeting with perform-ance planning and reporting, as GPRA envi-sions, OMB will work with agencies to reviewtheir budget account structures and, in con-sultation with the Budget Officers AdvisoryCouncil and the CFO Council, develop legisla-tion to enable agencies to charge programs’accounts uniformly and comprehensively forthe resources they use. As these proposalstake shape, OMB will consult with the Con-gressional Budget Office, the General Account-

ing Office, and congressional committees onnext steps.

Competition: Competition spurs efficiency.Federal agencies that provide administrativeand other support services need the stimulusof competition to sharpen their skills, improvetheir performance, and cut their costs. As aresult, for buying commercial goods and serv-ices, the Administration is encouraging agen-cies to consolidate common administrativeservices, and to compete those and other serv-ices with one another and with the privatesector on a level playing field to provide thebest deal for the taxpayer, in accordance withthe March 1996 revised OMB Circular A–76Supplemental Handbook. More competitionwill spur new technologies, new capital, andnew management techniques to help improveperformance, while creating greater opportuni-ties for Federal and private employees andtheir customers. The Secretary of Defense, forinstance, has announced that the departmentwill evaluate over 41,000 FTE positions fortheir possible conversion to the private sectoror other agencies in 1999, and evaluate over150,000 FTE through 2001.

Error Reduction: The Administration islaunching an effort to reduce errors in Federalprograms that lead to waste, fraud, or abuse.Federal agencies will work together to identifycommon sources of error and enable the Gov-ernment to develop more integrated solutions,thus saving money for the taxpayers. For 1999,the Administration will focus on increasing ac-curacy and efficiency in three areas: programeligibility verification; financial and programmanagement; and debt collection.

• Eligibility verification: Many agencies runbenefit and credit programs in which eligi-bility depends, at least in part, on anapplicant’s income or other financial re-sources, and other criteria, such as maritalstatus and number of dependents. Theseprograms include small business loans,student loans and grants, veterans pen-sions, rental housing assistance, incomemaintenance, nutrition support, andothers. Generally, applicants must submitfinancial and other data on forms thatagencies use to determine eligibility. Whenapplicants provide false or erroneous infor-mation about their income or personal sta-


tus, they may receive benefits for whichthey are ineligible, and may deprive eligi-ble applicants from the assistance they de-serve. A better verification process forcredit and benefit programs can reduce er-rors significantly and allocate resourcesmore fairly.

• Financial and program management:Agencies often can address the sources oferrors within programs by changing theirfinancial or management practices. For ex-ample, transaction analysis software canhelp agencies identify improper billingtrends or high-risk operations. In addition,agencies could recoup the interest lost dueto overpayments to vendors by chargingthe vendors for those funds, and the Ad-ministration is drafting legislation to en-able the Treasury Department to assessthose charges. Also, more audits and otherintegrity initiatives will help agenciesidentify errors earlier. The biggest payoffscome when agencies prevent errors upfront or quickly identify them before lossesmount.

• Debt collection: Although most efforts toimprove accuracy focus on prevention,some bad debt is inevitable. In trying tocollect, agencies face the major obstacle offinding both the debtor and his or her em-ployer. For example, the Education De-partment devotes about 70 percent of itscollection efforts to locating debtors. Agen-cies could collect debt more effectively bybetter using data, subject to appropriateprivacy protections, that’s already in Gov-ernment databases such as the NationalDirectory for New Hires, which should befully on line in early 1998 and which pro-vides some of the Federal Government’smost timely information for debt collectionpurposes.

Inter-Agency Working Groups: UsingNetwork Management for BetterPerformance

The Administration relies on inter-agencygroups to develop certain policies, and toidentify and implement ways to better manageFederal resources. The groups meet regularlyto initiate action, undertake projects, exchange

information, set priorities, and recommendpolicy direction.

In 1993, President Clinton established thePresident’s Management Council (PMC), com-prising the Chief Operating Officers of thelargest Federal departments and agencies,to improve management of the ExecutiveBranch. The PMC has undertaken a numberof initiatives, including:

• Rightsizing: Leading efforts to reduce thenumber of Federal civilian employeeswithout unnecessarily disrupting the workforce.

• Procurement reforms: Identifying perform-ance measures to help agencies assess im-provements in the procurement process,and supporting implementation of Elec-tronic Commerce and Performance-BasedService Contracting initiatives.

• Field office restructuring: Identifying ap-propriate criteria for restructuring activi-ties within agencies; and recommendingvarious approaches to restructuring.

• Overseas missions: Implementing a cost-sharing process for foreign missions.

• Labor-Management partnerships: Support-ing partnerships through continuous com-munication with union leaders; and foster-ing culture change at all organizationallevels.

• Customer service: Facilitating the develop-ment of customer service standards inagencies and the delivery of CustomerService Reports.

The President’s Council on Integrity andEfficiency (PCIE), comprising 27 Presiden-tially-appointed Inspectors General (IGs) andother key integrity officials, focuses on twomain objectives:

• mounting collaborative efforts to addressintegrity, economy, and effectiveness is-sues that transcend individual agencies;and

• increasing the professionalism and effec-tiveness of IG personnel across the Gov-ernment.

The PCIE, for example, has recommendedcontrols for Federal electronic benefits pro-


9 For more on PCIE activities, see IGnet (www.ignet.gov).

grams and reviewed the next generationof Federal Government credit card programs.In addition to setting basic standards forIG investigations, audits, and inspections,the PCIE has confronted new challenges,from implementing the 1993 Government Per-formance and Results Act to developing theFederal Financial Statement Audit Manual.9

A reinvigorated Joint Financial ManagementImprovement Program (JFMIP) will use addedresources to help agencies in financial systems

improvement efforts. In 1999, JFMIP willrevise the Federal Supply Schedule for Federalfinancial systems, and continue to developsystems standards and other guidance docu-ments.

Table IV–5 lists the priorities of severalother inter-agency working groups: the Na-tional Partnership Council, the CFO Council,the Chief Information Officer (CIO) Council,the Electronic Processes Initiative Committee,the Federal Credit Policy Working Group,and the Federal Procurement Council.

Table IV–5. PRIORITIES OF INTER-AGENCY WORKING GROUPS

National Partnership Council

President Clinton established the National Partnership Council in October 1993 to enlist the Federal laborrelations program as an ally in reinvention, and to refocus Federal labor relations from adversarial litiga-tion to cooperative problem solving. Among the NPC’s key objectives for 1998 are the following:

• Bring high-level attention to partnership issues to ensure that partnerships are established andworking effectively throughout the Federal Government.

• Continue to focus on partnerships experiencing problems and help them overcome barriers.• Encourage partnerships to address major NPR objectives, such as increasing efficiency, improving

service, and reducing cost.

Chief Financial Officers Council

Authorized by the CFOs Act, the CFO Council is a Government-wide body that addresses critical cross-cut-ting financial issues by working collaboratively. The Council consists of the CFOs and Deputy CFOs of the24 largest Federal agencies and senior officials of OMB and Treasury. The CFO Council’s priorities are:

• Improve financial management systems.• Effectively implement the Government Performance and Results Act.• Issue accounting standards and financial statements.• Develop human resources and CFO organizations.• Improve the management of receivables.• Ensure management accountability and control.• Modernize payments and business methods.• Improve the administration of Federal assistance programs.

Chief Information Officers Council

The CIO Council’s role includes: developing recommendations for information technology managementpolicy, procedures, and standards; identifying opportunities to share information resources; and assessingand addressing the Federal Government’s needs for an information technology work force. The Council con-sists of CIOs and Deputy CIOs from 28 large Federal agencies, two CIOs from small Federal agencies, andrepresentatives from OMB and two information technology boards. The CIO Council’s priorities are:

• Define an interoperable Federal information technology architecture.• Ensure information security practices that protect Government services.• Lead the Federal year 2000 conversion effort.• Establish sound capital planning and investment practices.• Improve the information technology skills of the Federal work force.• Build relationships through outreach programs with Federal organizations, Congress, industry, and

the public.

http://www.ignet.gov


Table IV–5. PRIORITIES OF INTER-AGENCY WORKING GROUPS—Continued

Electronic Processes Initiative Committee (EPIC)

The President’s Management Council established EPIC to integrate end-to-end business processes electroni-cally, with an emphasis on procurement and finance. EPIC consists of senior officials from DOD, theGeneral Services Administration, Treasury, and OMB. The EPIC priorities are:

• Use a multi-purpose smart card to support reengineering of business and administrative processes.• Integrate electronic buying and paying processes.• Efficiently and effectively process intra-governmental transfers that contribute to unqualfied finan-

cial statements.

Federal Credit Policy Working Group

This inter-agency forum provides advice and assistance to OMB, Treasury, and Justice in formulating andimplementing Government-wide credit management policy. Membership consists of representatives fromthe major credit and debt collection agencies and OMB. The Federal Credit Policy Working Group’s prior-ities are:

• Effective implementation of the Debt Collection Improvement Act.• Use of the Internet for credit management, especially for lending, underwriting, and portfolio status

reporting.• Sale of loan assets that are over a year delinquent.• Review agency write-off practices and Government-wide policy.• Improve prescreening of loan applications to validate eligibility and application data.

Federal Procurement Council

The Federal Procurement Council, which consists of the Senior Procurement Executives from major Federalagencies, meets regularly with OMB to discuss ways to improve the procurement process. The Federal Pro-curement Council’s priorities are:

• Promote agency use of commercial buying practices by increasing the use of performance-based serv-ice contracting, past performance in administering current contracts and selecting new contractors,electronic commerce as an enabler, and other innovative buying strategies.

• Promote the Federal procurement work force’s use of good business judgment within an adaptablesystem of flexible rules and procedures that allow professionals, working in a continuous learningenvironment, to use discretion.

• Collaborate with budget, financial, and information technology management offices to improveagency planning and management of capital asset procurement.

• Promote national socioeconomic procurement policies consistent with fostering the efficiency andeffectiveness of the procurement system.

• Promote the use of a globally competitive industrial base, integrating facilities and operations serv-ing the Government market with those serving the commercial market by reducing Government-unique requirements that restrict full integration.

• Increase customer satisfaction by routinely providing quality products and services, on time, andwithin budget.

141

VI. INVESTING IN THE COMMONGOOD: PROGRAM PERFORMANCE

IN FEDERAL FUNCTIONS

143

11. OVERVIEWThe commitment of the President and Con-

gress to balance the budget—and keep itin balance—means that, if all Federal pro-grams want to continue receiving funds, theywill have to distinguish themselves by dem-onstrating good, measurable performance. Pol-icy makers will have to allocate resourcesto programs that can prove they are well-run and can successfully produce results.

The Administration’s focus on results isnot new. As the Administration said inlast year’s budget:

Led by Vice President Gore’s National Perform-ance Review, the Administration has made realprogress in creating a Government that, in thewords of the NPR, ‘‘works better and costs less.’’We have eliminated layers of bureaucracy, cut pa-perwork burdens, scrapped thousands of pages ofregulations and, most important, improved serviceto Government’s customers—the American people.

The President’s commitment to better per-formance was a key reason that he activelysupported, and eagerly signed, the 1993 Gov-ernment Performance and Results Act (GPRA).In this budget, the Administration highlightsthree aspects of performance:

• Fiscal performance (see Section III, ‘‘Cre-ating a Bright Economic Future’’);

• Management performance (see Section IV,‘‘Improving Performance Through BetterManagement’’); and

• Program performance, which is containedin this section.

Together, these sections constitute whatGPRA contemplated—the Nation’s first com-prehensive, Government-wide PerformancePlan.

The performance of Government programsis inextricably linked to the fiscal and eco-

nomic environment and the managementframework in which they operate. The Presi-dent’s commitment to not only balance thebudget but to invest in the future whileimproving public management—to do morewith less—has prompted the Administrationto maintain or expand programs that dem-onstrate good performance.

Often, experts look at performance onlyacross single organizational units, such asdepartments or agencies. In this section,the budget categorizes activities accordingto budget ‘‘functions’’ in order to group similarprograms together and begin to present therelationship between their goals. This year,for the first time, the Administration reliedheavily on key performance measures andannual performance goals that were drawnfrom agency Annual Performance Plans. Theywere first articulated in the context of thelong-term goals and objectives in the StrategicPlans that agencies submitted to OMB andto Congress in September 1997.

In preparing this budget, the Administrationstudied the measures and goals of the AnnualPerformance Plans and took a hard lookat what the public is getting for what itis financing. Thus, the Administration hasmade a good start on the process thatGPRA envisioned. Nevertheless, more workremains. Agencies will modify Annual Per-formance Plans to reflect changing circum-stances and resource levels, the plans willprovide a backdrop for further discussionabout allocating resources, and the President’sfuture budgets will contain new and betterinformation.

The Administration looks forward to workingwith Congress and other stakeholders touse these tools to create better performance.


Table 11–1. FEDERAL RESOURCES BY FUNCTION(In billions of dollars)

Function 1997Actual

Estimate

1998 1999 2000 2001 2002 2003

NATIONAL DEFENSE:Spending:

Discretionary Budget Authority .................................. 266.2 268.6 271.6 277.0 284.8 288.1 298.0Mandatory Outlays:

Existing law .............................................................. –1.2 –1.0 –1.0 –1.0 –1.0 –1.0 –1.0Credit Activity:

Direct loan disbursements ........................................... .............. * .............. 0.2 0.3 0.3 0.3Guaranteed loans ......................................................... .............. * 0.2 0.2 1.2 1.2 1.2

Tax Expenditures:Existing law .................................................................. 2.1 2.1 2.1 2.1 2.2 2.2 2.2

INTERNATIONAL AFFAIRS:Spending:



Direct loan disbursements ........................................... 1.8 2.1 2.0 2.8 1.8 1.5 1.5Guaranteed loans ......................................................... 13.0 12.8 12.2 12.7 13.4 13.9 13.9

Tax Expenditures:Existing law .................................................................. 7.1 7.7 8.3 9.0 9.6 10.3 11.0Proposed legislation ..................................................... .............. .............. –0.6 –1.4 –1.5 –1.5 –1.6

GENERAL SCIENCE, SPACE, ANDTECHNOLOGY:Spending:


Existing law .............................................................. * * * * * * *Tax Expenditures:

Existing law .................................................................. 1.1 2.6 1.4 1.1 0.9 0.8 0.8Proposed legislation ..................................................... .............. 0.4 0.8 0.6 0.3 0.1 *

ENERGY:Spending:



Direct loan disbursements ........................................... 1.0 2.0 1.6 1.4 1.3 1.3 1.5Tax Expenditures:

Existing law .................................................................. 2.0 2.0 2.0 2.1 2.0 2.0 1.9Proposed legislation ..................................................... .............. –* 0.4 0.6 0.6 0.8 1.2

NATURAL RESOURCES AND ENVIRONMENT:Spending:


Existing law .............................................................. 0.1 1.1 0.7 0.8 0.7 0.5 0.7Proposed legislation .................................................. .............. .............. 0.2 0.2 0.3 0.3 0.3

Credit Activity:Direct loan disbursements ........................................... * * * * * * 0.1

Tax Expenditures:Existing law .................................................................. 1.7 1.7 1.7 1.7 1.7 1.7 1.7Proposed legislation ..................................................... .............. .............. –0.1 –0.1 –0.1 –0.1 –0.1

AGRICULTURE:Spending:


Existing law .............................................................. 5.0 6.4 7.0 6.8 5.4 5.4 5.6Proposed legislation .................................................. .............. .............. –0.2 –0.3 –0.2 –0.2 –0.2

Credit Activity:Direct loan disbursements ........................................... 6.4 7.4 8.7 8.5 7.7 7.2 6.9

14511. OVERVIEW

Table 11–1. FEDERAL RESOURCES BY FUNCTION—Continued(In billions of dollars)

Function 1997Actual

Estimate

1998 1999 2000 2001 2002 2003

Guaranteed loans ......................................................... 4.0 7.3 6.9 6.9 6.9 6.9 6.9Tax Expenditures:

Existing law .................................................................. 0.7 0.7 0.7 0.8 0.8 0.8 0.8

COMMERCE AND HOUSING CREDIT:Spending:


Existing law .............................................................. –17.6 0.2 0.7 7.1 8.2 8.4 7.7Proposed legislation .................................................. .............. –* –0.3 –0.4 –0.4 –0.4 –0.4

Credit Activity:Direct loan disbursements ........................................... 8.7 2.7 1.5 1.4 1.3 1.3 1.3Guaranteed loans ......................................................... 180.1 190.5 200.7 203.8 205.9 206.4 210.4

Tax Expenditures:Existing law .................................................................. 186.9 183.6 182.7 188.7 196.1 203.5 210.3Proposed legislation ..................................................... .............. –0.3 –0.4 –0.4 –0.3 –0.3 –0.4

TRANSPORTATION:Spending:


Existing law .............................................................. 2.3 2.4 2.2 2.2 1.9 1.2 1.8Proposed legislation .................................................. .............. * 0.1 0.1 0.1 * –*

Credit Activity:Direct loan disbursements ........................................... 0.2 0.2 0.2 * * * *Guaranteed loans ......................................................... 0.3 0.5 0.5 0.5 0.5 0.5 0.5

Tax Expenditures:Existing law .................................................................. 1.4 1.4 1.4 1.5 1.5 1.6 1.6Proposed legislation ..................................................... .............. .............. * * * * *

COMMUNITY AND REGIONAL DEVELOPMENT:Spending:


Existing law .............................................................. 0.3 –0.1 –0.4 –0.4 –0.1 –0.2 –0.5Proposed legislation .................................................. .............. .............. * 0.1 0.1 0.2 0.2


Tax Expenditures:Existing law .................................................................. 1.4 1.7 1.9 2.0 2.0 1.9 1.7Proposed legislation ..................................................... .............. .............. * * 0.1 0.2 0.2

EDUCATION, TRAINING, EMPLOYMENT, ANDSOCIAL SERVICES:Spending:


Existing law .............................................................. 13.7 13.1 12.1 11.2 10.9 10.1 12.1Proposed legislation .................................................. .............. –0.2 1.8 2.9 3.5 4.0 4.4


Tax Expenditures:Existing law .................................................................. 27.4 33.8 57.3 59.5 61.1 62.9 64.6Proposed legislation ..................................................... .............. * 1.0 2.9 3.2 2.8 2.7

HEALTH:Spending:


Existing law .............................................................. 100.9 106.3 115.0 122.4 131.6 141.3 152.4Proposed legislation .................................................. .............. .............. * 0.1 0.2 –0.1 –0.1



Function 1997Actual

Estimate

1998 1999 2000 2001 2002 2003

Credit Activity:Direct loan disbursements ........................................... * .............. .............. .............. .............. .............. ..............Guaranteed loans ......................................................... 0.1 0.2 0.1 * * .............. ..............


MEDICARE:Spending:


Existing law .............................................................. 187.4 195.4 204.7 214.2 230.1 232.5 253.4Proposed legislation .................................................. .............. .............. –0.1 –* –0.2 –0.3 –0.3

Credit Activity:

INCOME SECURITY:Spending:


Existing law .............................................................. 191.4 198.4 210.0 219.7 227.6 233.7 243.1Proposed legislation .................................................. .............. 0.1 1.5 1.8 2.3 2.6 2.7

Credit Activity:Direct loan disbursements ........................................... 0.1 0.1 * * .............. .............. ..............Guaranteed loans ......................................................... * * 0.1 0.1 0.1 0.1 *

Tax Expenditures:Existing law .................................................................. 101.4 104.0 103.7 105.6 106.5 107.6 109.1Proposed legislation ..................................................... .............. * 0.1 0.2 0.3 0.3 0.3

SOCIAL SECURITY:Spending:


Existing law .............................................................. 362.3 378.1 392.8 409.2 427.0 446.9 467.4Proposed legislation .................................................. .............. .............. * 0.1 0.1 0.2 0.2


VETERANS BENEFITS AND SERVICES:Spending:


Existing law .............................................................. 20.7 24.0 24.4 25.4 26.7 30.8 31.9Proposed legislation .................................................. .............. .............. –0.2 –0.4 –0.9 –4.3 –3.9



ADMINISTRATION OF JUSTICE:Spending:


Existing law .............................................................. 0.1 1.4 0.6 0.3 0.1 0.2 0.2Proposed legislation .................................................. .............. * 0.1 0.1 * * *

Credit Activity:

GENERAL GOVERNMENT:Spending:


Existing law .............................................................. 0.7 0.4 1.0 1.2 0.9 0.9 1.0Proposed legislation .................................................. .............. .............. 3.5 4.0 4.7 5.1 5.5

Credit Activity:Direct loan disbursements ........................................... 0.2 .............. .............. .............. .............. .............. ..............

14711. OVERVIEW


Function 1997Actual

Estimate

1998 1999 2000 2001 2002 2003

Tax Expenditures:Existing law .................................................................. 47.2 49.2 51.0 52.9 54.8 56.7 58.5Proposed legislation ..................................................... .............. .............. * 0.1 0.1 0.2 0.2

NET INTEREST:Spending:

Mandatory Outlays:Existing law .............................................................. 244.0 242.7 241.8 236.5 233.5 227.1 220.6Proposed legislation .................................................. .............. .............. * * * * *


ALLOWANCES:Spending:

Discretionary Budget Authority .................................. .............. .............. 3.2 .............. .............. .............. ..............Mandatory Outlays:

Credit Activity:

UNDISTRIBUTED OFFSETTING RECEIPTS:Spending:

Mandatory Outlays:Existing law .............................................................. –50.0 –46.4 –42.5 –45.8 –47.2 –55.5 –48.3

Credit Activity:

FEDERAL GOVERNMENT TOTAL:Spending:


Existing law .............................................................. 1,053.0 1,115.2 1,160.5 1,202.8 1,249.5 1,275.7 1,341.6Proposed legislation .................................................. .............. –* 6.5 8.4 9.8 7.1 8.4


* $50 million or less.

149

12. NATIONAL DEFENSE

Table 12–1. FEDERAL RESOURCES IN SUPPORT OF NATIONALDEFENSE

(In millions of dollars)

Function 050 1997Actual

Estimate

1998 1999 2000 2001 2002 2003

Spending:Discretionary Budget Authority .... 266,180 268,598 271,616 276,957 284,786 288,090 298,048Mandatory Outlays:

Existing law ................................ –1,169 –997 –1,035 –1,033 –1,020 –1,009 –978Credit Activity:

Direct loan disbursements ............. .............. 7 .............. 175 345 319 334Guaranteed loans ........................... .............. 20 176 216 1,236 1,164 1,205

Tax Expenditures:Existing law .................................... 2,080 2,095 2,120 2,140 2,160 2,180 2,200

The Federal Government will allocate over$271 billion in 1999 to defend the UnitedStates, its citizens, its allies, and to protectand advance American interests around theworld. National defense programs and activi-ties ensure that the United States maintainsstrong, ready, and modern military forcesto promote U.S. objectives in peacetime, deterconflict, and if necessary, successfully defendour Nation and its interests in wartime.

Over the past half-century, our defenseprogram has deterred both conventional andnuclear attack on U.S. soil, and broughta successful end to the Cold War. Today,the United States is the sole remainingsuperpower in the world, with military capa-bilities unsurpassed by any nation. As theworld’s best trained and best equipped fightingforce, the U.S. military continues to providethe strength and leadership that serve asthe foundation upon which to promote peace,freedom, and prosperity around the globe.

Department of Defense (DOD)

The DOD budget provides for the pay,training, operation, basing, and support ofU.S. military forces, and for the developmentand acquisition of modern equipment to:

• Shape the international environment bysustaining U.S. defense forces at levelssufficient to undertake our strategy of en-gagement, and conducting programs to re-duce weapons of mass destruction, preventtheir proliferation, and combat terrorism;

• Respond to the full spectrum of crises bydeploying forces overseas and maintainingcapabilities to mobilize forces stationed onU.S. soil;

• Prepare for an uncertain future by givingU.S. forces the military hardware that em-ploys the best available technologies; and

• Ensure that the U.S. military remains theworld’s most prepared and capable forceby sustaining force readiness levels andreengineering business practices to im-prove operations.

To achieve these objectives, DOD sustainsthe following capabilities.

Conventional Forces: Conventional forcesinclude ground forces such as infantry andtank units; air forces such as tactical aircraft;naval forces such as aircraft carriers, destroy-ers, and attack submarines; and Marine Corpsexpeditionary forces. The Nation needs conven-tional forces to deter aggression and, when


that fails, to defeat it. Funds to support theseforces cover pay and benefits for military per-sonnel; the purchase, operation, and mainte-nance of conventional systems such as tanks,aircraft, and ships; the purchase of ammuni-tion and spare parts; and training.

Mobility Forces: Mobility forces provide theairlift and sealift that transport military per-sonnel and materiel throughout the world.They play a critical role in U.S. defense strat-egy and are a vital part of America’s responseto contingencies that range from humanitarianrelief efforts to major theater wars. Airlift air-craft provide a flexible, rapid way to deployforces and supplies quickly to distant regions,while sealift ships allow the deployment oflarge numbers of heavy forces together withtheir fuel and supplies. The mobility programalso includes prepositioning equipment andsupplies at sea or on land near the locationof a potential crisis, allowing U.S. forces thatmust respond rapidly to crises overseas toquickly draw upon these prepositioned items.

Strategic Nuclear Forces: Strategic nu-clear forces are also important to our militarycapability. They include land-based interconti-nental ballistic missiles, submarine launchedballistic missiles, and long-range strategicbombers. Within treaty-imposed limits, the pri-mary mission of strategic forces is to deternuclear attack against the United States andits allies, and to convince potential adversariesthat they will never gain a nuclear advantageagainst our Nation.

Supporting Activities: Supporting activi-ties include research and development, com-munications, intelligence, training and medicalservices, central supply and maintenance, andother logistics activities. In particular, the De-fense Health Program provides health carethrough DOD facilities as well as through theCHAMPUS medical insurance program andTRICARE—its companion program.

DOD Performance

DOD has identified broad objectives andkey performance indicators and quantitativemeasures that will determine whether itis achieving its major goals.

Shaping the International Environment:DOD’s first goal is to shape the international

environment by participating in internationalsecurity organizations, such as NATO, and im-proving our ability to work cooperatively withour friends and allies. Such efforts are de-signed to promote regional stability and secu-rity, and reduce the threat of war. Their fail-ure could lead to a major conflict affecting U.S.interests.

Evaluating DOD’s performance in this areaincludes an assessment of:

• The ability of U.S. forces to enhance andsustain security relationships with friendsand allies, enhance coalition warfighting,promote regional stability and supportU.S. regional security objectives, deter ag-gression, and prevent or reduce the threatof conflict. For example, in 1999, the Unit-ed States and Russia will conduct oneJoint Theater Ballistic Missile Defensecommand post exercise.

• DOD’s success in implementing threat re-duction programs and arms control agree-ments, including inspection, verification,and monitoring programs.

• DOD’s achievement of the force structureobjectives of the Quadrennial Defense Re-view (QDR).

Responding to the Full Spectrum of Cri-ses: DOD must be able to respond to the fullspectrum of crises, from small-scale contin-gencies to two nearly simultaneous major thea-ter wars.

In 1999, DOD and the relevant serviceswill meet the following performance goals:

• The Air Force will maintain 20 Air ForceFighter wing equivalents, four air defensesquadrons, 89 strategic bombers, and 550intercontinental ballistic missiles.

• The Navy will maintain 11 aircraft wingsand 314 battle force ships, including 12aircraft carriers and 18 ballistic-missilesubmarines.

• The Army will maintain four active corpsheadquarters, 18 active and NationalGuard divisions, two active armored cav-alry regiments, and 15 National Guard en-hanced readiness brigades.

• The Marine Corps will maintain three ac-tive and one reserve divisions, three active


and one reserve wings, and three activeand one reserve force service supportgroups.

Overseas presence, mobility, and the sus-taining of a capable force structure are allkey to DOD’s ability to respond effectivelyto crises. DOD’s effectiveness will be deter-mined, in part, by the ability of U.S. forces‘‘forward deployed’’ (that is, on site aroundthe world) and those deploying from U.S.bases to rapidly converge at the scene ofa potential conflict to deter hostilities andprotect U.S. citizens and interests in timesof crisis.

• In the Pacific, DOD will deploy one Armydivision, one Marine expeditionary force,two Air Force fighter wing equivalents,one Navy carrier battle group, and oneamphibious ready group with an embarkedMarine expeditionary unit.

• In Europe, DOD will maintain one Armyarmor division and one Army mechanizedinfantry division, two Air Force fighterwing equivalents, one carrier battle group,and one amphibious ready group with anembarked Marine expeditionary unit.

• In Southwest Asia, DOD will deploy atleast one Air Force fighter wing equiva-lent, one carrier battle group, and one am-phibious ready group with an embarkedMarine expeditionary unit, in addition tomateriel prepositioned in the region.

The amount of sealift and airlift capacitymust be sufficient to meet deploymenttimelines for deterring and defeating large-scale, cross-border aggression in two distanttheaters in overlapping time frames, andto sustain U.S. forces engaged in two majortheater wars.

• In 1999, DOD will attain an organic stra-tegic airlift capability of 26.5 million tonmiles a day and will attain a surge sealiftcapacity of 7.8 million square feet.

Preparing Now for an Uncertain Future:U.S. forces must maintain a qualitative superi-ority over potential adversaries by pursuinga focused procurement and research and devel-opment program. Achieving this goal dependson ensuring that:

• DOD will acquire modern and capableweapon systems and will deliver them toU.S. forces in 25 percent less time, whileensuring that costs do not grow more thanone percent a year by the year 2000 andmeeting required performance specifica-tions.

Remaining the World’s Most Ready andCapable Force: Attaining this goal dependson four elements: ensuring the readiness ofmilitary units; retaining and recruiting high-quality personnel; strengthening and enhanc-ing quality of life programs for military mem-bers and their families; and providing equalopportunity throughout the armed services.

DOD has identified specific milestones tomeasure progress in each area, such asthe amount of training that individual unitsaccomplish, the availability and operabilityof equipment, and the achievement of recruit-ing and retention goals.

• Several factors determine overall unitreadiness, such as training, quality andavailability of equipment, and number ofpersonnel and, in 1999, DOD will ensurethat all of its units meet their specifiedreadiness goals.

• On average, the Army will attain 800 tankmiles a year; the Air Force will achieve20 flying hours per crew a month; the Ma-rine Corps will fully execute its missiontraining syllabus; and the Navy will exe-cute 50.5 deployed and 28 non-deployedship steaming days per quarter.

In 1999, DOD also will:

• Recruit 191,300 new members of thearmed services, obtain 60 percent of re-cruits from the top half of those testedfor service, and achieve a 50 percent en-listed retention rate after the first term.

• Achieve all of its projected targets for itscivilian work force reductions.

Exploiting the Revolution in Military Af-fairs: DOD will follow the strategy of JointVision 2010, developed by the Chairman of theJoint Chiefs of Staff, to transform U.S. forcesfor the future, and it will exploit emerging in-formation technologies to reshape the way itfights and prepares for war.


Reengineering DOD’s Infrastructure:DOD must develop new, innovative approachesto manage and reduce infrastructure costs.Following the end of the Cold War, the UnitedStates began a major reduction of its militaryforces. DOD’s cuts in infrastructure costs, how-ever, have not kept pace. To make furthercuts, DOD plans to adopt innovative manage-ment techniques and technological practices.In addition, DOD will submit legislation toCongress proposing two more rounds of baseclosures and realignments in 2001 and 2005.

DOD has identified specific goals aroundwhich to focus the reform of business affairs.

By 1999, DOD will:

• Produce a Facility Strategic Plan to guidethe acquisition, operation, maintenance,repair, renovation, and replacement of itsphysical plant.

By 2000, DOD will:

• Ensure that U.S. forces can achieve visi-bility of 90 percent of DOD materiel as-sets, while resupplying military peace-keepers and warfighters and reducing the1997 average order-to-receipt time by half.

• Dispose of $2.2 billion in excess NationalDefense Stockpile inventories and $3 bil-lion in unneeded Government personalproperty, while reducing supply inventoryby $12 billion.

• Simplify purchasing and payment by usingpurchase card transactions for 90 percentof all DOD micropurchases, while re-engineering the requisitioning, funding,and ordering processes.

• Create a world-class learning organizationby offering 40 or more hours a year ofcontinuing education and training toDOD’s acquisition-related work force.

• Complete the disposal of half of the sur-plus real property, while privatizing30,000 housing units.

• Cut paper acquisition transactions by halffrom 1997 levels through electronic com-merce and electronic data interchange.

• Eliminate layers of management bystreamlining processes, while cutting

DOD’s acquisition-related work force by 15percent.

Department of Energy (DOE)Performance

DOE contributes to our national securitymainly by reducing the global danger fromnuclear weapons and other weapons of massdestruction. DOE is committed to maintainingconfidence in the nuclear weapons stockpilewithout testing, as required under the Com-prehensive Test Ban Treaty; to strengthenthe nuclear nonproliferation regime; to workwith states of the former Soviet Union toimprove control of nuclear materials; to de-velop improved technologies to detect, identify,and respond to the proliferation of weaponsof mass destruction and illicit materials traf-ficking; and to aggressively clean up theenvironmental legacy of nuclear weapons pro-grams.

The budget proposes $12.1 billion to meetDOE’s national security objectives, of which$6.1 billion is for ongoing national securitymissions to support DOD and other agencies.

DOE will achieve the following performancegoals:

• Maintain and refurbish specific warheadsin 1999, and certify that standards forsafety, reliability, and performance of thenuclear weapons stockpile are met.

• Develop advanced simulation, modeling,and experimentation technologies to re-place underground testing by 2004, includ-ing installing a computer system capableof three trillion operations per second in1999.

• Dismantle about 500 nuclear weapons.

• Jointly, with Russia, test and demonstratetechnologies to dispose of surplus weaponsplutonium and begin to develop a pilotscale plutonium conversion system in Rus-sia, design a full-scale pit disassembly andconversion facility, and procure mixed-oxide irradiation services in the UnitedStates.

• Complete 85 percent of the developmentof the next generation nuclear reactorplant for the Navy’s new attack sub-marine.


The remaining $6 billion of DOE’s nationalsecurity funding addresses the environmentallegacy of nuclear weapons activities.

DOE will meet the following performancegoals:

• Reduce the number of geographical sitesrequiring high-risk environmental cleanupfrom 87 to 42 by the end of 1999.

• Close one high-level waste storage tankat the Savannah River site; and

• Stabilize and safely store or dispose of ra-dioactive and hazardous wastes, including37 tons of spent fuel, 134,000 cubic metersof low-level waste, about 150 canisters ofhigh-level waste, 0.3 tons of plutonium atthe Hanford site, and initial shipments oftransuranic wastes at the Waste IsolationPilot Plant, which will be opened for dis-posal in May 1998.

Other Defense-Related Activities

Other activities that support national de-fense and that are implementing performancemeasurement include programs involving the:

• Coast Guard, which supports the defensemission through overseas deployments for

engagements with friends and allies, portsecurity teams, boarding and inspectionteams for enforcing U.N. sanctions, train-ing, aids to navigation, internationalicebraking, equipment maintenance, andsupport of the Coast Guard Reserve;

• Federal Bureau of Investigation, whichconducts counterintelligence and surveil-lance activities;

• Maritime Administration, which helpsmaintain a fleet of active, military useful,privately owned U.S. vessels that wouldbe available in times of national emer-gency;

• Arlington National Cemetery, which is de-veloping an expansion plan for using con-tiguous land sites that will be vacated bythe Army, Navy, and Marine Corps; and

• Selective Service System, which is mod-ernizing its registration process to promotemilitary recruiting among registrants.This spirit of volunteerism will beachieved in partnership with the Ameri-ca’s Promise group, private corporations,and the armed services.


Accurately Recognizing and Reporting Veterans BenefitsThe Nation has long viewed veterans programs as a key way to attract the high-quality people

needed for our volunteer armed forces. Americans recognize veterans benefits as an appropriatepart of the compensation provided for service in the military. Veterans programs are inextrica-bly linked with national defense; without defense, veterans programs would not exist.

Because the Veterans Affairs Department funds and administers these benefits, however, theFederal Government has accounted for them differently than other defense-related budget costs.They appear in the budget’s Veterans Benefits and Services function, not the National Defensefunction. 1 Also, the budget does not report the full size of these obligations. Rather than recog-nize the benefits and future Federal obligations that military members earn through their serv-ice, the budget reports only the amounts paid in a single year to veterans. Thus, neither theDefense Department (DOD) nor Congress gets a full picture of defense personnel costs whenmaking decisions about the size and scope of our military, making it far harder to considerwhich package of benefits might best attract and retain quality military personnel. Finally, the1993 Government Performance and Results Act encourages policy makers to align missions andrelated Government programs in the budget.

The Administration, which plans to work with Congress this year to address this problem, be-lieves that any of the following four options would improve the current budgetary treatment ofveterans programs, enabling the Government to more accurately measure the true cost of ournational defense: (1) move the veterans-related discretionary accounts into the Defense function;(2) fund veterans entitlements on an accrual basis in DOD’s budget and fund discretionary vet-erans programs in the Defense function; (3) fund veterans entitlements on an accrual basis inDOD’s budget and display veterans spending in related functions (e.g., Education); or (4) fundveterans entitlements on an accrual basis in DOD’s budget and continue to reflect veteransspending in its current function.

Table 12–2 below shows the estimated annual charges to DOD’s military personnel accountfrom pre-funding veterans benefits.

Table 12–2. ACCRUING VA BENEFITS FOR CURRENT MILITARYPERSONNEL

(Notional Costs of Accruing and Actuarially Funding VA Benefits in DOD Budget)

ProgramPercentage

of DODBasic Pay 2

1999 DODNotional Cost (in

millions ofdollars)

VA Compensation ................................................................................ 11.6% 3,960Active Duty Education ........................................................................ 1.6% 546VA Loans .............................................................................................. 0.2% 68Vocational Rehabilitation and Counseling ........................................ 0.9% 307VA Pensions ......................................................................................... 2.5% 853VA Burial ............................................................................................. 0.1% 34

Total VA Benefits .......................................................................... 16.9% 5,768

1 For a more detailed discussion of veterans programs, see Chapter 26, ‘‘Veterans Benefits and Services.’’2 Basic pay for military personnel does not include benefits, special and incentive pay or bonuses, or hous-

ing and subsistence allowances.

155

* Revised February 27, 1998.

13. INTERNATIONAL AFFAIRS *

Table 13–1. FEDERAL RESOURCES IN SUPPORT OFINTERNATIONAL AFFAIRS



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ –3,754 –4,464 –4,130 –3,764 –3,637 –3,396 –3,201Credit Activity:

Direct loan disbursements ............. 1,755 2,148 2,050 2,770 1,831 1,548 1,524Guaranteed loans ........................... 13,022 12,826 12,188 12,747 13,357 13,867 13,884

Tax Expenditures:Existing law .................................... 7,090 7,685 8,305 8,950 9,625 10,335 11,045Proposed legislation ....................... .............. .............. –580 –1,356 –1,456 –1,545 –1,634

The Administration proposes $20.2 billionfor International Affairs programs in 1999,including arrears on contributions to themultilateral development banks (MDBs). Byfully funding these programs, the UnitedStates can continue to provide critical inter-national leadership to accomplish key strategicgoals, such as enhancing national security,fostering world-wide economic growth, support-ing the establishment and consolidation ofdemocracy, and improving the global environ-ment and addressing other key global issues.The State Department outlined these goalsmore fully in its September 1997 report,‘‘United States Strategic Plan for InternationalAffairs.’’

The performance goals that follow are fromagency strategic or performance plans. Inaddition to these goals, agencies have estab-lished other performance goals for themselvesto ensure that they fulfill their legislativemandates in ways that also contribute toU.S. national interests.

National Security

U.S. security depends on active diplomacy,steps to resolve destabilizing regional conflicts,

and vigorous efforts to reduce the continuingthreat of weapons of mass destruction. Strongdiplomatic engagement depends on a clearforeign policy vision, built on a vigorous,carefully coordinated process of formulatingpolicy.

A strong, active United Nations enhancesU.S. diplomatic efforts, and the budget pro-poses to fund assessed contributions to thisand other international organizations, as wellas annual assessed and voluntary peacekeep-ing contributions. The budget also proposesthe necessary funds to support the MiddleEast peace process through the EconomicSupport Fund (ESF) and the Foreign MilitaryFinancing (FMF) programs. ESF also providesdirect assistance to address the root causesof other regional conflicts, such as the lackof fair and effective systems of justice, andFMF also provides funds to help the incomingNATO members—Poland, Hungary, the CzechRepublic, and other East European nations.

Economic and reconstruction assistance andpolice training are critical to our effort tosupport the Dayton Accords on Bosnia, andfunding under the FREEDOM Support Acthelps foster the transition to market democ-racies in the former Soviet Union. Finally,


the budget fully supports further progresson our efforts to control weapons of massdestruction by funding the Arms Controland Disarmament Agency (ACDA) and otherprograms that seek to negotiate cuts in,or the elimination of, such weapons.

Relevant agencies will meet the followingperformance goals in 1999:

• The State Department, in seeking to ad-vance the Middle East peace process, willachieve significant progress towards fulfill-ing the goals of the Oslo Accord.

• The State Department will avert or defuseregional conflicts where critical nationalinterests are at stake through bilateralU.S. assistance and U.N. peacekeeping ac-tivities.

• The State and Defense Departments willensure that the armed forces of NATO’s‘‘candidate countries’’ can operate in afully integrated manner with other NATOforces upon their planned entry intoNATO.

• The State and Defense Departments andthe Agency for International Development(USAID) will achieve significant progresstoward implementing the Dayton Accordsin Bosnia.

• The State Department and USAID willhelp Russia and the other former Sovietrepublics strive to achieve a per capitaGross Domestic Product (GDP) growthrate, a share of GDP generated by the pri-vate sector, and an average of Freedom-House indicators of democratic and politi-cal liberties higher than the comparable1997 levels.

• The State Department and ACDA willachieve full compliance with, and verifica-tion of, treaties regarding weapons of massdestruction and, if necessary, combat sus-pected development programs.

• The State Department will fully certifymission critical systems for year 2000 com-pliance and complete a world-wide up-grade of the information technology infra-structure that supports U.S. embassiesand consulates.

Economic Prosperity

International affairs activities increase U.S.economic prosperity in four ways.

First, the U.S. Trade Representative(USTR), supported by the State Departmentand other agencies, works to reduce barriersto trade in U.S. goods, services, and invest-ments by negotiating new trade liberalizingagreements and strictly enforcing existingagreements.

Second, the Export-Import Bank (Eximbank)and the Trade and Development Agency (TDA)provide grant and credit financing to correctmarket distortions that can put U.S. exportsat a competitive disadvantage, and the budgetprovides a major increase in Eximbank fund-ing to cover increased demand from U.S.exporters. The Overseas Private InvestmentCorporation (OPIC) provides investment insur-ance and financing for development projectswith U.S. trade benefits.

Third, development assistance from theMDBs and USAID, along with debt reduction,help increase economic growth in developingand transitioning countries, creating new mar-kets for U.S. goods and services and reducingthe economic causes of instability in theseregions.

Fourth, the International Monetary Fund(IMF) is instrumental in maintaining theunderlying economic prerequisites for prosper-ity world wide by mitigating the effectsof country and regional financial crises, suchas those recently experienced in Asia, whilehelping individual developing countries tocreate and maintain stable market-orientedeconomies.


• USTR will negotiate cuts in specific, iden-tified barriers to U.S. and global trade,many of which will require fast-track ne-gotiating authority, and will effectively en-force international trade agreements.

• The Export-Import Bank will develop newmechanisms to expand the availability offinancing for U.S. exports by pioneeringjoint ventures with the private sector, aswell as innovative financing programs that

15713. INTERNATIONAL AFFAIRS

will increase the Bank’s support for smalland medium-sized exporters.

• OPIC will increase, from 1997 levels, theamount of U.S. investment in developingcountries assisted through OPIC-spon-sored projects.

• TDA will increase, from 1997 levels, theratio of TDA-supported exports to TDA ex-penditures and the percentage of TDAprojects that ultimately yield U.S. exports.

• USAID, through bilateral assistance, andthe Treasury Department, through its con-tributions to the MDBs, will provide as-sistance that helps to increase the real an-nual per capita GDP growth rate from1997 levels in developing countries.

• Treasury will work to provide the IMFwith sufficient resources to address mone-tary crises in Asia and other parts of theworld and reduce the amount of supple-mental U.S. bilateral resources needed toaddress these crises.

• The Administration will work with Con-gress to enact the African Growth and Op-portunity Act and implement the Presi-dent’s Partnership for Economic Growthand Opportunity in Africa Initiative.

American Citizens and U.S. Borders

The State Department, through the U.S.passport office and the network of embassiesand consulates overseas, helps and protectsAmericans who travel and reside abroad—most directly through various consular serv-ices, including citizenship documentation andhelp in emergencies. The Department alsohelps to control how immigrants and foreignvisitors enter and remain in the U.S. byeffectively and fairly administering U.S. immi-gration laws overseas and screening appli-cants, in order to deter illegal immigrationand prevent terrorists, narcotics traffickers,and other criminals from entering the UnitedStates.

The State Department will meet the follow-ing performance goals in 1999:

• Improve U.S. passport security by issuingU.S. passports with a digitized passportphoto.

• Maintain uninterrupted screening capa-bilities to ensure that only qualified appli-cants receive visas for travel to the UnitedStates.

• Complete the world-wide modernization ofconsular systems and meet year 2000 re-quirements, thus ensuring border security.

Law Enforcement

The expansion and rising sophisticationof transnational crime represents a growingthreat to the property and well-being ofU.S. citizens. In particular, the threat ofterrorism and the continued supply of illegaldrugs to the United States represent directthreats to our national security. The budgetfunds the State Department’s diplomatic ef-forts to convince other countries to workcooperatively to address international criminalthreats; it also funds assistance and trainingthat helps other countries combat corruption,terrorism, and illegal narcotics, and providesthe developing countries with economic alter-natives to narcotics cultivation and export.

The State Department, working with theDepartments of Justice, Treasury, and De-fense, will meet the following performancegoals in 1999:

• Increase, from 1997 levels, the number offoreign governments that enact and en-force legislation to combat corruption,money laundering, and other transna-tional criminal activities.

• Reduce, from 1997 levels, the hectares ofcoca and opium poppies being cultivatedin producing countries.

Democracy

Advancing U.S. interests in the post-ColdWar world often requires efforts to supportdemocratic transitions, address human rightsviolations, and promote U.S. democratic val-ues. The budget supports these efforts intwo ways. First, it funds the State Depart-ment’s diplomatic efforts that discourage othernations’ interference with the basic democraticand human rights of their citizens, andit funds direct foreign assistance throughUSAID and other agencies that helps countriesdevelop the institutions and legal structuresfor the transition to democracy. Second, it


promotes democracy by funding exchangesof people and ideas with other countries.The exchange, training, and foreign broadcast-ing programs of the U.S. Information Agency(USIA) seek to spread U.S. democratic valuesthroughout the world and ensure that Ameri-cans understand and value the peoples andcultures of other nations.

Relevant agencies will meet the followingperformance goals for 1999:

• The State Department, USAID, and USIAwill provide assistance that lead to the im-provement of Freedom House ratings ofcountries in which the United States isassisting the transition to democracy.

• As a result of State Department diplomacyand direct assistance, the instances ofhuman rights abuses as reported by theState Department in the annual U.S. Re-port on Human Rights will be reducedfrom 1997 levels.

• USIA will increase, from 1997 levels, thesupport for democracy, democratic institu-tions, and human rights in selected coun-tries that participate in USIA programs,as measured through polling.

Humanitarian Response

U.S. values demand that we help alleviatehuman suffering from foreign crises, whetherman-made or natural, even in cases withno direct threat to U.S. security interests.The budget provides the necessary fundsto address and, where possible, try to prevent,humanitarian crises through USAID’s ForeignDisaster Assistance and Transition Initiativesprograms, through the State Department’sMigration and Refugee Assistance program,and through food aid provided under ‘‘PublicLaw 480’’ authorities. Much of this fundingis implemented through U.S. private voluntaryorganizations that provide humanitarian, aswell as development, assistance overseas. Thebudget also funds a significant contributionto the UNICEF program of the United Na-tions, and a significant increase for U.S.bilateral demining efforts to address the grow-ing humanitarian crisis caused by landminesin areas of former conflict.

Relevant agencies will meet the followingperformance goals for 1999:

• USAID, in conjunction with other publicand private donors, will provide humani-tarian assistance that will maintain thenutritional status of children aged five orunder living in regions affected by human-itarian emergencies.

• The State Department will reduce refugeepopulations, from 1997 levels, throughU.S.-sponsored integration, repatriation,and resettlement activities.

• The State Department will increase, from1997 levels, the number of mines detectedand neutralized.

Global Issues

The global problems of environmental deg-radation, population growth, and the spreadof communicable diseases directly affect futureU.S. security and prosperity. As a result,the Nation has targeted significant diplomaticand assistance efforts to address these issues.For example, the State Department’s negotia-tion of the Kyoto global climate changetreaty and USAID’s five-year, $1 billion globalclimate change assistance effort will reducethe threat of this global problem. Full fundingof current commitments and arrears to theGlobal Environment Facility remains criticalto this effort.

Similarly, U.S. leadership, USAID assistanceefforts, and funding of the U.N. PopulationFund are critical to maintain the rate ofincrease in global prosperity, reduce the pres-sures of illegal immigration on the U.S.economy, and help alleviate the causes ofregional conflict. U.S. support, mainly throughUSAID, for bilateral and multilateral activitiesto reduce the global threat of AIDS, malaria,tuberculosis, and other communicable diseasesnot only saves the lives of millions of childrenworld-wide but also reduces the direct threatto the United States that these diseasespose if they spread unchecked.

Finally, the volunteer programs of the PeaceCorps serve U.S. national interests by promot-ing mutual understanding between Americansand the people of developing or transitionalnations and providing technical assistanceon a range of issues to interested countriesthat request it.

15913. INTERNATIONAL AFFAIRS


• The State Department and USAID, work-ing with the Environmental ProtectionAgency and with other bilateral and multi-lateral donors, through diplomacy and for-eign assistance will slow the rate of in-crease, from 1997 levels, of climate changegas emissions among key developing na-tion emitters.

• USAID will provide assistance in conjunc-tion with other donors that will cut, from1997 levels, the total fertility rates in de-veloping countries.

• USAID, working with the Department ofHealth and Human Services and with

other bilateral and multilateral donors,will provide assistance that will reduce,from 1997 levels, the infant mortality rateand the rate of new cases of AIDS, ma-laria, tuberculosis and other critical com-municable diseases in developing coun-tries.

• The Peace Corps will provide opportunitiesfor 50 percent more Americans than in1997 to enter service as new volunteers.

• The Peace Corps will increase Americans’understanding of other peoples by tripling,from 1997 levels, the number of Americanteachers participating in the World WiseSchools partnership with Peace Corps vol-unteers, bringing the total number ofteachers to 10,000.

161

1 Measured by the amount of funds allocated, not the number ofprojects.

14. GENERAL SCIENCE, SPACE, ANDTECHNOLOGY

Table 14–1. FEDERAL RESOURCES IN SUPPORT OF GENERALSCIENCE, SPACE, AND TECHNOLOGY



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 25 40 37 37 34 31 31Tax Expenditures:

Existing law .................................... 1,075 2,555 1,440 1,055 905 820 795Proposed legislation ....................... .............. 365 802 608 261 124 49

Science and technology are the principalagents of change and progress, with overhalf of the Nation’s economic productivityin the last 50 years attributable to techno-logical innovation and the science that sup-ported it. Appropriately enough, the privatesector makes many investments in technologydevelopment. The Federal Government, how-ever, also has a role to play—particularlywhen risks are too great or the returnto companies is too small.

Within this function, the Federal Govern-ment supports areas of science at the cuttingedge, through the National Aeronautics andSpace Administration (NASA), the NationalScience Foundation (NSF), and the Depart-ment of Energy (DOE) science programs.The activities of these agencies contributeto greater understanding of the world welive in, ranging from the edges of the universeto the smallest imaginable particles, andto new knowledge that may or may nothave immediate applications to improvingour lives. Because the results of basic researchare unknowable in advance, the challengeof developing performance goals for this areais formidable.

Each of these agencies has a traditionof funding high-quality research and contribut-

ing to the Nation’s cadre of skilled scientistsand engineers. To continue this tradition,and as a general goal for activities underthis function, at least 80 percent of theresearch projects 1 will be reviewed by appro-priate peers and selected through a merit-based competitive process.

An important Federal role in this areais to construct and operate major scientificfacilities and capital assets for multiple users.These include telescopes, satellites, oceano-graphic ships, and particle accelerators. Manyof today’s fast-paced advances in medicineand other fields rely on these facilities.

As general goals:

• Agencies will keep the development andupgrade of these facilities on schedule andwithin budget, not to exceed 110 percentof estimates.

• In operating the facilities, agencies willkeep the operating time lost due to un-scheduled downtime to less than 10 per-cent of the total scheduled possible operat-ing time, on average.


The budget proposes $18.5 billion to conductthese activities. The Government also seeksto stimulate private investment in these activi-ties through over $2 billion a year in taxcredits and other preferences for researchand development (R&D).

National Aeronautics and SpaceAdministration

The budget proposes $12.3 billion for NASAactivities in this function. While NASA’sfunding represents just 12 percent of totalFederal funds for R&D, NASA serves asthe lead Federal agency for R&D in civilspace activities, working to expand frontiersin air and space to serve America andimprove the quality of life on Earth. NASApursues this vision through balanced invest-ment in space science, Earth science, spacetransportation technology, and human explo-ration and development of space.

The 1999 goals for these enterprises follow.

Space Science programs, for which thebudget proposes $2.1 billion, are designedto enhance our understanding of how theuniverse was created, the formation of planets,and the possible existence of life beyondEarth. NASA has enjoyed major successesof late, including the landing on Mars withMars Pathfinder.

• NASA space science will successfullylaunch its four planned spacecraft mis-sions—Mars 98 lander, Stardust, and twoExplorer missions—within 10 percent ofits schedule and budget.

• NASA space science will increase its con-tribution to the general knowledge baseand to education, as reflected by its con-tributions to a college space science text-book, to a level at least equal to the 1996level of 27 percent.

• The NASA Advisory Council will rate allnear-term space science objectives as beingmet or on schedule. Examples of objectivesinclude: investigate the composition, evo-lution and resources of Mars, the Moon,and small solar system bodies such as as-teroids and comets; identify planetsaround other stars; and observe the evo-lution of galaxies and the intergalactic me-dium.

Earth Science programs, for which thebudget proposes $1.4 billion, focus on increas-ing our understanding of the total Earthsystem and the effects of natural and human-induced changes on the global environmentthrough long-term, space-based observationof Earth’s land, oceans, and atmosphericprocesses. NASA will launch the first ina new series of Earth Science spacecraftin 1998.

• NASA Earth Science will successfullylaunch its four planned spacecraft mis-sions—Quikscat, the Advanced LandImager, a Geostationary Operational Envi-ronmental Satellite, and the Shuttle RadarTopography mission—within 10 percent ofits schedule and budget.

• NASA will obtain new data on precipita-tion, land surface, and climate, and willdeliver the data to users within five days.

• NASA’s Advisory Council will rate allnear-term earth science objectives as beingmet or on schedule. Examples of objectivesinclude: observe and document land coverand land use change and impacts on sus-tained resource productivity; and under-stand the causes and impacts of long-termclimate variations on global and regionalscales.

Space Transportation Technology programs,for which the budget proposes $400 million,work with the private sector to developand test experimental launch vehicles thatcut the cost of access to space.

• The X-33 program will begin flight testsin 1999 and demonstrate, by year-end, keytechnologies to cut the cost of space trans-portation. These technologies will be di-rectly scaleable to the mass fraction (lessthan 10 percent empty vehicle weight) re-quired for future reusable launch vehiclesand meet the following operational re-quirements: flights faster than Mach 13;48-hour and seven-day ground turn-arounds; and 50-person maintenancecrews.

• The X-34 program will perform 25 flighttests in one year, starting no later thanMarch 1999, to demonstrate the oper-ational parameters of future reusablelaunch vehicles. These parameters include:

16314. GENERAL SCIENCE, SPACE, AND TECHNOLOGY

recurring costs under $500,000; 24-hourground turnarounds; safe abort landings;landings in cross winds up to 20 knots;and flights through rain and fog.

Human Exploration and Development ofSpace (HEDS) programs, for which the budgetproposes $5.8 billion, focus on human spaceexploration. In 1997, HEDS programs sup-ported the successful launch of eight SpaceShuttle flights, a continuous U.S. presenceon the Russian Mir space station, and contin-ued construction of the International SpaceStation. In 1998, assembly of the InternationalSpace Station will begin in Earth orbit.

For 1999, the performance goals includethe following:

• NASA will successfully complete Phase 2(the first ten assembly flights) of the Inter-national Space Station within perform-ance, schedule, and budget targets.

• NASA will ensure that space shuttle safe-ty, reliability and cost will improve, byachieving seven or fewer flight anomaliesper mission, successful on-time launches85 percent of the time, and a 13-monthflight manifest preparation time.

• NASA will expand human presence andscientific resources in space by increasingthe amount of crew time in orbit to 185weeks.

• NASA-supported scientific research in lifeand microgravity sciences will broaden, asindicated by a rise in the number of re-sulting journal publications to 1,600.

National Science Foundation

NSF-supported activities have led to break-throughs and advances in many areas, includ-ing superconducting materials, Doppler radar,the Internet and World Wide Web, medicalimaging systems, computer-assisted-design, ge-netics, polymers, plate tectonics, and globalclimate change. While NSF represents justthree percent of Federal R&D spending, itsupports nearly half of the non-medical basicresearch conducted at academic institutions.NSF also provides 30 percent of Federalsupport for mathematics and science edu-cation. NSF programs involve over 25,000senior scientists; 50,000 other professionals,

graduate students, and undergraduate stu-dents; and 120,000 K-12 teachers.

The budget proposes $3.7 billion in 1999for NSF, which it would invest in fourkey program functions:

Research Project Support: Over half of NSF’sresources support research projects performedby individuals and small groups, instrumenta-tion, and centers.

• An independent assessment will judgeNSF’s portfolio of research programs tohave the highest scientific quality and anappropriate balance of projects character-ized as high-risk, multidisciplinary, or in-novative.

• NSF will ensure that all of its new an-nouncements of research opportunities andproposal solicitations will contain an ex-plicit statement encouraging proposers tointegrate their research activities with im-proving education or public understandingof science.

• NSF will increase the percentage of com-petitive awards going to new investigatorsto at least 30 percent, a 2.6-percent riseover a baseline of 27.4 percent.

Facilities: Facilities such as observatories,particle accelerators, research stations, andoceanographic research vessels provide theplatforms for research in fields such asastronomy, physics, and oceanography. About20 percent of NSF’s budget supports large,multi-user facilities required for cutting-edgeresearch. NSF facilities will meet the function-wide goals to remain within cost and schedule,and to operate efficiently.

Education and Training: Education andtraining activities, accounting for 20 percentof NSF’s budget, revolve around efforts toimprove teaching and learning in science,mathematics, engineering, and technology atall education levels. Education and trainingprojects develop curriculum, enhance teachertraining, and provide educational opportunitiesfor students from pre-K through undergradu-ate degrees. NSF also contributes to theeducation of future scientists and engineersby supporting graduate students and postdoc-toral programs.


• Over 80 percent of schools participatingin a systemic initiative program will: 1)implement a standards-based curriculumin science and mathematics; 2) furtherprofessional development of the instruc-tional workforce; and 3) improve studentachievement on a selected battery of tests,after three years of NSF support.

• NSF will fund intensive professional devel-opment experiences for at least 75,000 pre-college teachers.

Administration and Management: NSF doesnot operate programs or laboratories; rather,the agency supports research and educationactivities, conducted primarily at colleges anduniversities, selected through a competitive,merit-based process.

Performance goals for 1999 include:

• processing 70 percent of grant proposalswithin six months of receipt, and

• publishing 95 percent of program an-nouncements at least three months beforeproposals are due.

Department of Energy

DOE provides major scientific user facilitiesand sponsors basic scientific research in spe-cific fields, such as high energy and nuclearphysics and materials, chemical, biological,and environmental sciences. It supports over60 percent of federally-funded research inthe physical sciences.

The budget proposes $2.5 billion for DOEscience programs, which include high energyand nuclear physics, basic energy sciences,biological and environmental research, andcomputational technology research. These pro-grams support scientific facilities for highenergy and nuclear physics, and also supportthe research performed by the users of thefacilities. They also provide and operate syn-chrotron light sources, neutron sources, super-computers, high-speed networks, and otherinstruments that researchers use in fieldsranging from biomedicine to agriculture, geo-science, materials, and physics. These state-of-the-art scientific facilities provide the cut-ting edge experimental and theoretical tech-niques that provide insights into dozens ofapplications, and they are available, on a

competitive basis, to researchers funded byNSF, other Federal agencies, and public andprivate entities. DOE’s facilities will meetthe function-wide goals to remain withincost and schedule, and to operate efficiently.

The 1999 goals for these programs follow.

Basic Energy Sciences (BES) supports basicresearch in the natural sciences for newand improved energy techniques and tech-nologies, and to understand and mitigatethe environmental impacts of energy tech-nologies.

• BES will start construction of the Spal-lation Neutron Source to provide beamsof neutrons used to probe and understandthe physical, chemical, and biological prop-erties of materials at an atomic level—leading to better fibers, plastics, catalysts,and magnets and improvements in phar-maceuticals, computing equipment, andelectric motors.

• An independent assessment will judgeBES research programs to have high sci-entific quality.

Computational Technology Research (CTR)performs long-term computational, technology,and advanced energy projects research throughan integrated program in applied mathemati-cal sciences, high performance computing andcommunications, information infrastructure,advanced energy projects research, and labora-tory technology research.

• CTR will complete prototype developmentof the ‘‘virtual lab’’ approach and imple-ment at least three program trial applica-tions.

• Users will judge that computer facilitiesand networks have met 75 percent of theirrequirements.

Biological and Environmental Research(BER) provides fundamental science to developthe knowledge to identify, understand, andanticipate the long-term health and environ-mental consequences of energy production,development, and use.

• BER will complete sequencing of 40 mil-lion subunits of human DNA to submitto publicly accessible databases.

16514. GENERAL SCIENCE, SPACE, AND TECHNOLOGY

• BER will complete 70 percent of the ge-netic sequencing of over 10 additional mi-crobes with significant potential for wastecleanup and energy production.

High Energy and Nuclear Physics (HENP)strives to deepen understanding of the natureof matter and energy at the most fundamentallevel, as well as understanding of the structureand interactions of atomic nuclei.

• An independent assessment will judgeHENP research programs to have high sci-entific quality.

• HENP will begin operating the B-factoryat the Stanford Linear Accelerator Center,the Main Injector for the Tevatron atFermilab, and the Relativistic Heavy IonCollider at Brookhaven National Labora-tory, and will deliver on the 1999 U.S./DOE commitments to the internationalLarge Hadron Collider project. These fa-cilities will provide cutting-edge scientificcapabilities to further study the fun-damental constituents of matter. For ex-ample, the B-factory will illuminate the

basic question of why matter exists in theuniverse.

Tax Incentives

Along with direct spending on R&D, theFederal Government has sought to stimulateprivate investment in these activities withtax preferences. The law provides a 20-percent tax credit for private research andexperimentation expenditures above a certainbase amount. The credit, which was extendedin 1997, is due to expire on June 30,1998. The President proposes to extend itfor one year—that is, through June 1999.Under current law, the credit will cost $2.1billion in 1998 and $860 million in 1999.

A permanent tax provision also lets compa-nies deduct, up front, the costs of certainkinds of research and experimentation, ratherthan capitalize these costs; this tax expendi-ture will cost $580 million in 1999. Finally,equipment used for research benefits fromrelatively rapid cost recovery; the cost ofthis tax preference is calculated in the taxexpenditure estimate for accelerated deprecia-tion of machinery and equipment.

167

15. ENERGY

Table 15–1. FEDERAL RESOURCES IN SUPPORT OF ENERGY(In millions of dollars)


Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ –3,431 –2,830 –4,569 –3,280 –3,337 –3,347 –3,268Credit Activity:

Direct loan disbursements ............. 1,029 1,992 1,562 1,401 1,337 1,255 1,451Tax Expenditures:

Existing law .................................... 1,960 1,965 1,990 2,070 2,045 2,040 1,880Proposed legislation ....................... .............. –10 411 563 556 776 1,183

Federal energy programs contribute notjust to energy security, but to economicprosperity and environmental protection.Funded mainly through the Energy Depart-ment (DOE), they range from protectingagainst disruptions in petroleum supplies,to conducting research on renewable energysources, to developing advanced semiconduc-tors. The Administration proposes to spend$3.5 billion for these programs. In addition,the Federal Government allocates about $2billion a year in tax breaks mainly to encour-age development of traditional and alternativeenergy sources.

The Federal Government has a longstandingand evolving role in energy. Most Federalenergy programs and agencies have no Stateor private counterparts and clearly involvethe national interest. The federally-ownedStrategic Petroleum Reserve, for instance,protects against supply disruptions and theresulting consumer price shocks, while Federalregulators protect public health and safetyand the environment and ensure fair, efficientenergy rates. DOE’s applied research anddevelopment (R&D) programs in fossil, nu-clear, and solar/renewable energy and energyconservation speed the development of tech-nologies, usually through cost-shared partner-ships with industry, that provide social bene-

fits that industry would not undertake alone.The programs not only open new opportunitiesfor American industry, but reach beyondwhat the marketplace demands today, puttingthe Nation in a better position to meetthe demands of tomorrow.

Corporate Management

Because DOE spends over 90 percent ofits budget through management and operating(M&O) contracts, it is working hard to improveits management practices and achieve morefor less cost. DOE is undertaking important,Department-wide management improvementinitiatives in two areas—contract reform andinformation technology management:

• In 1999, to improve contracting practices,DOE will increase competition and convertall M&O contracts as they are extendedor completed and half of its service con-tracts to performance-based contracts; and

• In 1999, to improve its management of in-formation technology systems, DOE willeliminate year 2000 computer problems forall mission critical systems and integrateinformation technology investment andmanagement decisions under its Chief In-formation Officer.


DOE corporate management also ensuresthat its work is done with a concern forthe environment, safety, and health (ES&H)of its workers and the public. DOE is shiftingfrom a reactive approach to ES&H mattersto one that stresses prevention and integratessound ES&H management practices intoDOE’s day-to-day work.

• In 1999, DOE will implement integratedsafety management systems at 10 priorityfacilities and in all major M&O contracts.

• In 1999, DOE will conduct self-assess-ments at all DOE sites to identify ES&Hdeficiencies and vulnerabilities, and de-velop and pursue corrective action plans.

Energy Resources

DOE maintains the Strategic PetroleumReserve (SPR) and operates various R&Dinvestments to protect against petroleum sup-ply disruptions and reduce the environmentalimpacts of energy production and use. Createdin 1975, the SPR now has 563 millionbarrels of crude oil in underground saltcaverns at four Gulf Coast sites. The SPRhelps protect the economy and provide flexibil-ity for the Nation’s foreign policy in caseof a severe energy supply disruption. Asthe United States entered the Persian GulfWar in 1991, for instance, President Bushannounced an energy emergency, promptinga SPR draw-down that—along with the Alliednations’ early, overwhelming military suc-cess—caused oil prices to drop by $10 perbarrel (or, by about a third of their price).

• In 1999, DOE will maintain its capabilityto reach its SPR drawdown rate of aboutfour million barrels a day within 15 daysand to maintain this rate for at least 90days.

DOE’s energy R&D investments cover abroad array of resources and technologiesto make the production and use of all formsof energy—including solar and renewables,fossil, and nuclear—more efficient and lessenvironmentally damaging. As the President’sCommittee of Advisors on Science and Tech-nology has noted, Federal R&D support canhelp develop these technologies that benefitsociety by cutting emission rates of greenhousegases, acid rain precursors, and air pollutants.

These investments not only lay the foundationfor a more sustainable energy future butalso open major international markets formanufacturers of advanced U.S. technology.

Energy conservation programs, for whichthe budget proposes $809 million, are designedto improve the fuel economy of various trans-portation modes, increase the productivityof our most energy-intensive industries, andimprove the energy efficiency of buildingsand appliances. They also include grantsto States to fund energy-efficiency programs,low-income home weatherization, and the ad-ministration of minimum energy-efficiencystandards for many major home appliances.Each of these activities benefits our economyand reduces emissions of carbon dioxide andother greenhouse gases. Many of the programsrely on partnerships with the private sectorto leverage Federal spending with industrycost-sharing and to increase the likelihoodthat the technologies will be used commer-cially. Energy-efficiency technologies that havealready come to market include heat-reflectingwindows, high-efficiency lights, geothermalheat pumps, high-efficiency electric motorsand compressors, and software for designingenergy-efficient buildings. Meanwhile, fiveother technologies available for at least fiveyears have generated over $11 billion intotal consumer and business energy savingsto date.

In 1999, DOE’s Energy Conservation pro-gram will:

• Expand the Clean Cities program to createcontinuous corridors of alternative trans-portation fuel availability in and between10 major urban centers;

• Bring together over 600 utility partnersin a Climate Challenge forum in whichthe utilities exchange lessons-learned onvoluntary efforts to reduce greenhouse gasemissions; and

• Weatherize 77,000 low-income homes.

Solar and renewable energy programs, forwhich the budget proposes $372 million, focuson technologies that will help the Nationuse its abundant renewable resources suchas wind, solar, and biomass to produce low-cost, clean energy that contributes no netcarbon dioxide to the atmosphere. The United

16915. ENERGY

States is the world’s technology leader inwind energy, with a growing export marketand production costs that have fallen belowfive cents per kilowatt-hour. In addition,photovoltaics are becoming more useful inremote power applications, and constructionis beginning on the first large-scale facilitiesto produce ethanol from cellulosic agriculturalwaste. DOE also is coordinating the Presi-dent’s Million Solar Roofs initiative, andStates, cities, and Federal agencies to datehave pledged 470,000 solar roof installations(a mixture of solar heat/hot water andphotovoltaics) over the next 10 years.

In 1999, DOE’s Solar and Renewable Energyprogram will:

• Support the President’s Million SolarRoofs initiative through partnerships andtechnical assistance so that at least 7,000solar roofs will be installed in 1999;

• Complete five commercial-scale dem-onstrations of the use of biofuels in power-plants by co-firing coal with at least fivepercent biomass fuel; and

• Install 20 manufacturing prototype andfour advanced prototype 25-kW dish/en-gine solar thermal systems at utility/fieldsites through the Utility-Scale Joint Ven-ture Program.

Both the energy-efficiency and renewableenergy (EERE) programs have establishedgoals to ensure that their research programsare cost-effective and high quality.

Performance measures include:

• Continued use of cost-sharing as a majorprogram criterion in cooperative agree-ments and industry partnerships. In 1999,DOE/EERE will maintain an industrycost-share level of over 40 percent, whenaveraged across all work with industry.

• Every EERE program will develop prog-ress milestones and estimates of energy-related program benefits annually. Atleast 25 percent of the milestones and esti-mated benefits will undergo external peerreview each year, with a goal of havingall milestones and estimated benefits peer-reviewed at least once every four years.

• Cumulative consumer economic savingsfrom past and current EERE programswill exceed $11 billion in 1999.

DOE’s energy efficiency and renewable en-ergy programs form a major part of theAdministration’s Climate Change TechnologyInitiative, which aims to find ways to reduceemissions of carbon dioxide and other green-house gases in ways that benefit our economyrather than constrain it. (For more details,see Chapter 6, ‘‘Promoting Research.’’) Formost of this century, America’s comparativeadvantage in international competition hasbeen technology, and DOE’s research anddevelopment programs are designed to main-tain that advantage into the next century.

Fossil fuel energy R&D programs, for whichthe budget proposes $383.4 million, helpindustry develop advanced technologies toproduce and use coal, oil, and gas resourcesmore efficiently and cleanly. Federally-fundeddevelopment of clean, highly-efficient gas-fired and coal-fired generating systems aimto reduce greenhouse gas emission rates,while reducing electricity costs compared tocurrently available technologies. The programsalso help boost the domestic production ofoil and natural gas by funding R&D projectswith industry to cut exploration, development,and production costs.

In 1999, DOE will:

• Demonstrate four advanced drilling andcompletion technology systems that couldultimately add six trillion cubic feet (TCF)of domestic gas reserves, including oneTCF through 1999;

• Demonstrate four advanced production en-hancement technologies that could ulti-mately add 190 million barrels of domesticoil reserves, including 30 million barrelsduring 1999; and

• Complete full-scale component testing oftwo advanced, utility-scale turbines withover 60 percent efficiency when used incombined cycles and with ultra-low nitro-gen oxides emissions.

Nuclear fission power is a widely usedtechnology, with the potential for furthergrowth, particularly in Asia. Fission tech-nology provides over 20 percent of the electric


power consumed in the United States andabout 17 percent worldwide without generat-ing greenhouse gases. If fossil plants wereused to produce the amount of electricitygenerated by these nuclear plants, more than300 million additional metric tons of carbonwould be emitted each year. Since WorldWar II, the United States has been theinternational leader in all nuclear energymatters. World leadership in nuclear tech-nologies and the underlying science is vitalto the United States from the perspectivesof national security, international influence,and global stability. R&D will help determinewhether nuclear fission can fulfill its potentialas a contributor to the goal of reducinggreenhouse gas emissions. In 1999, DOEwill:

• Work with its laboratories, universitiesand industry to develop a competitiveR&D program to address problems thatmay prevent continued operation of cur-rent nuclear plants and fund the initiativeat $10 million a year, to be matched byindustry.

• Establish a peer-reviewed Nuclear EnergyResearch Initiative, initially funded at $25million a year, for investigator-initiatedideas to address the difficult issues ofwaste, safety, proliferation, and cost.

• Complete a demonstration of electrometal-lurgical methods to permanently immo-bilize spent nuclear fuel from the shut-down Experimental Breeder Reactor-IIand evaluate whether the technology is acost-effective means of processing DOEspent nuclear fuels.

Environmental Quality

DOE manages the Nation’s most complexenvironmental cleanup program, the resultof over four decades of research and productionof nuclear energy technology and materialsat both Federal and private sector locations.(For information on DOE’s Defense Environ-mental Management program, see Chapter12, ‘‘National Defense.’’) The Department mustalso develop a long-term solution to theproblem that the Nation’s commercial spentnuclear fuel poses.

In the area of Environmental Management,the budget proposes $934 million to reduceenvironmental risk and manage the wasteat: (1) sites run by DOE’s predecessor agenciesthat involved researching and producing ura-nium and thorium; (2) sites contaminatedwith uranium production from the 1950sto the 1970s; and (3) DOE’s uranium process-ing plants that the United States EnrichmentCorporation runs. In recent years, the clean-up and safe disposal of radioactive and hazard-ous wastes and materials has progressedsubstantially.

In 1999, DOE will:

• Have over 60 percent of the contaminatedsites associated with 11 large facilitiescleaned up, allowing these sites and facili-ties to return to productive use;

• Make ready for disposal about 70 percentof the high-level waste at its West Valley,New York site; and

• Complete surface remediation of the eightremaining Uranium Mill Tailings Reme-dial Action (UMTRA) sites to complete thispart of the UMTRA project.

DOE’s Civilian Radioactive Waste Manage-ment Program oversees the management anddisposal of spent nuclear fuel from commercialnuclear reactors and high-level radioactivewaste from Federal cleanup sites. With thecompletion of the viability assessment forYucca Mountain in 1998, DOE expects toemphasize data syntheses and analysis andengineering and design in 1999.

In particular, in 1999, DOE will:

• Complete a draft Environmental ImpactStatement for the Yucca Mountain site forpublic review and comment, develop amore complete design for a mined geologicdisposal system at Yucca Mountain, andcomplete independent expert reviews ofoverall repository system performancemodels—further crucial steps in the longprocess that eventually will produce aDOE site recommendation to the Presidentand a DOE license application to the Nu-clear Regulatory Commission.

17115. ENERGY

Energy Production and Power Marketing

The Federal Government is reshaping pro-grams that produce, distribute, and financeoil, gas, and electric power. The Naval Petro-leum Reserve, commonly known as Elk Hills,is a federally-owned oil and gas field locatedin California. Set aside early this centuryto provide an oil reserve for Navy ships,Elk Hills is no longer needed for that purpose,and Congress voted in 1996 to require itssale. In October 1997, DOE opened private-sector bids for Elk Hills and identified Occi-dental Petroleum’s offer of $3.7 billion asthe high offer. Following notification of Con-gress, the sale should be completed by Feb-ruary 1998, marking the largest privatizationin U.S. history. It will allow DOE to maximizethe productivity of Federal oil fields, oneof its 1998 performance objectives.

The five Federal Power Marketing Adminis-trations, or PMAs, (Alaska, Bonneville, South-eastern, Southwestern, and Western) marketelectricity generated at 129 multi-purposeFederal dams over 33,000 miles of federally-owned transmission lines, in 35 States. ThePMAs sell about six percent of the Nation’selectricity, primarily to preferred customerssuch as counties, cities, and publicly-ownedutilities and power authorities. The PMAsface growing challenges as the electricityindustry moves toward open, competitive mar-kets. Concerns focus on fundamental changesthat may be required to integrate the PMAsinto a deregulated industry. As authorizedby Congress, the sale of the Alaska PowerAdministration to current customers and theState of Alaska will be completed in 1998.

• In 1999, each PMA will operate its trans-mission system to ensure that service iscontinuous and reliable (that is, that thesystem achieves a ‘‘pass’’ rating eachmonth under North American ReliabilityCouncil performance standards).

The Tennessee Valley Authority (TVA) isa Federal Government corporation and theNation’s single largest electric power genera-tor. It generates four percent of the electricpower in the country and transmits thatpower over its 15,000 mile transmission net-work to 159 municipal utilities and ruralelectric cooperatives that serve some eightmillion customers in seven States.

• The budget reflects specific cost-cuttingmeasures that TVA is taking to implementits 10-Year Business Plan and improve itsability to supply power at competitiveprices. For example, TVA will cut costsby reducing its outstanding debt by $2 bil-lion by the end of 1999. It will cut its$28 billion debt in half by 2007.

• TVA is working closely with regionalstakeholders to develop and recommend toDOE reform proposals to include in theAdministration’s legislation to restructurethe Nation’s electric power industry. Theproposals will redefine TVA’s role, whilepreserving the value of the Government’sinvestment in TVA.

(For information on TVA’s non-power activi-ties, see Chapter 20, ‘‘Community and Re-gional Development.’’)

In 1999, the Agriculture Department’s RuralUtilities Service (RUS) will make $1.7 billionin direct loans to nonprofit associations, ruralelectric cooperatives, public bodies, and otherutilities in rural areas for generating, trans-mitting, and distributing electricity. Its maingoal is to provide modern, affordable electricservice to rural communities.

In 1999, the RUS will:

• Ensure that RUS borrowers continue toprovide service in 523 of the 540 poorestcounties in rural America and 655 of 700counties suffering the most from popu-lation out-migration;

• Upgrade 116 rural electric systems, bene-fitting over 1.6 million customers and gen-erating about 21,000 jobs; and

• Continue to cut the high cost of electricservice to rural customers that resultsfrom low customer density in rural areasby charging interest at or below Treasuryrates for debt of comparable maturity.

Energy Regulation

The Federal Government’s regulation ofenergy industries is designed to protect publichealth and safety and promote fair andefficient interstate energy markets. For exam-ple, DOE seeks to improve the Nation’suse of energy resources through its applianceenergy efficiency program. Federal regulations


specify minimum levels of energy efficiencyfor all major home appliances, such as waterheaters, air conditioners, and refrigerators.

The Federal Energy Regulatory Commission(FERC), an independent agency within DOE,regulates the transmission and wholesaleprices of electric power, including non-Federalhydro-electric power, and the transportationof oil and natural gas by pipeline in interstatecommerce. Over the long run, FERC seeksto increase economic efficiency by promotingcompetition in the natural gas industry andin wholesale electric power markets. FERC’srecent reforms give consumers competitivechoices in services and suppliers that werenot available just a few years ago. Its actionswill cut consumer energy bills by $3 billionto $5 billion a year.

In 1999, to evaluate the success of itsinitiative to restructure interstate naturalgas and electricity markets, FERC will meas-ure:

• Increases in the number of new productsand range of suppliers customers maychoose from in both the natural gas andelectric industries;

• The extent to which natural gas and elec-tricity prices more clearly and quickly re-flect changing supply and demand condi-tions;

• The extent to which natural gas priceswithin each trading region will tend toconverge, except where there are demon-strable transportation constraints or costs;and

• The reduction in wholesale electricity pricedifferences among regions.

The Nuclear Regulatory Commission (NRC),an independent agency, regulates the Nation’scivilian nuclear reactors, the medical andindustrial use of nuclear materials, and thetransport and disposal of nuclear waste toensure public health and safety and to protectthe environment. Safety performance reflectsthe collective efforts of the NRC and theregulated nuclear community.

The NRC has the following 1999 goalsfor safety performance:

• No civilian nuclear reactor accidents, andno deaths due to radiation or radioactivityreleases from civilian nuclear reactors;

• No radiation-related deaths due to civilianuse of source, byproduct, and special nu-clear materials, no increase in significantradiation exposures due to the loss of suchmaterials, and no increase in misadminis-tration events causing significant radi-ation exposure;

• No significant accidental releases of radio-active material from storage and transpor-tation of nuclear waste, and no offsite re-lease of radioactivity beyond regulatorylimits from low-level waste disposal sites;

• The establishment of the regulatoryframework for high-level waste disposalconsistent with current national policy;

• No loss or theft of special nuclear mate-rials; and

• No offsite releases from operating facilitiesof radioactive material that may adverselyimpact the environment, and no releaseof sites until satisfactorily remediated inaccordance with NRC criteria.

Tax Incentives

Federal tax incentives are mainly designedto encourage the domestic production or useof fossil and other fuels, and to promotethe vitality of our energy industries anddiversification of our domestic energy supplies.The largest incentive lets certain fuel produc-ers cut their taxable income as their fuelresources are depleted. An income tax credithelps promote the development of certainnon-conventional fuels. It applies to oil pro-duced from shale and tar sands, gas producedfrom a number of unconventional sources(including coal seams), some fuels processedfrom wood, and steam produced from solidagricultural byproducts. Another tax provisionprovides a credit to producers who makealcohol fuels—mainly ethanol—from biomassmaterials. The law also allows a partialexemption from Federal gasoline taxes forgasolines blended with ethanol. The ClimateChange Technology Initiative proposes $3.6billion in new tax incentives over five yearsto help reduce greenhouse gases (see TableS–6 in ‘‘Summary Tables.’’)

173

1 The Natural Resources and Environment function does not re-flect total Federal support for the environment and natural re-sources. It does not include, for instance, the environmental clean-up programs at the Departments of Energy and Defense.

16. NATURAL RESOURCES ANDENVIRONMENT

Table 16–1. FEDERAL RESOURCES IN SUPPORT OF NATURALRESOURCES AND ENVIRONMENT



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 51 1,059 712 846 739 544 682Proposed legislation .................... .............. .............. 203 223 304 337 327

Credit Activity:Direct loan disbursements ............. 31 42 40 44 46 48 51

Tax Expenditures:Existing law .................................... 1,700 1,710 1,740 1,740 1,735 1,725 1,710Proposed legislation ....................... .............. .............. –86 –78 –78 –83 –91

The Federal Government spends over $20billion a year to protect the environment,manage federal land, conserve resources, pro-vide recreational opportunities, and constructand operate water projects. 1 The FederalGovernment manages about 700 millionacres—a third of the U.S. continental landarea.

Federal lands include the 376 units ofthe National Park System, with such uniqueresources as Grand Canyon National Park,Yellowstone National Park, and GettysburgNational Military Park; the 156 NationalForests; the 510 refuges in the NationalWildlife Refuge System; and land managedby the Bureau of Land Management (BLM)in 11 Western States (see Chart 16–1).

Within this function, Federal efforts focuson providing cleaner air and water, conservingnatural resources, and cleaning up environ-mental contamination. The major goals in-clude:

• Protecting human health and safeguardingthe natural environment—air, water, andland—upon which life depends.

• Restoring and maintaining the health offederally managed lands, waters, and re-newable resources.

• Providing recreational opportunities forthe public to enjoy natural and culturalresources.

National Parks

The Federal Government invests over $1.6billion a year to maintain a system ofnational parks that covers over 83 millionacres in 49 States, the District of Columbia,and various territories. Although funding forthe National Park Service (NPS) has steadilyincreased (almost five percent a year since1986), the popularity of national parks hasgenerated even faster growth in the numberof visitors, new parks, and additional NPSresponsibilities.

With demands growing faster than availableresources, NPS is taking new, creative, andmore efficient approaches to managing parks


264

192

9683

25

56

0

100

200

300

MILLIONS OF ACRES

Chart 16-1. FEDERAL LAND MANAGEMENT BY AGENCY

BUREAU OFLAND

MANAGEMENT(DOI)

FORESTSERVICE(USDA)

FISH &WILDLIFESERVICE

(DOI)

NATIONALPARK

SERVICE(DOI)

DEPARTMENTOF

DEFENSE

TRIBALTRUST

and has developed performance measuresagainst which to weigh its progress.

• Using higher funding from the proposedEnvironmental Resources Fund for Amer-ica, the NPS will begin systematically ad-dressing the backlog of priority construc-tion and maintenance projects at nationalparks and, in 1999, will develop a five-year list of the highest priorities to ad-dress and allocate funds to address about20 percent of them.

• NPS is focusing construction and mainte-nance funds on the highest prioritiesbased on objective criteria and, in 1999,will implement controls, reengineer themeasurement process, and establish cap-ital plans with approved cost, schedule,and project goals for each major construc-tion project.

• NPS will use the receipts from recreationand user fees to finance park improve-ments and, in 1999, will increase the re-

ceipts by 14 percent, compared to 1997levels.

• NPS will implement park management re-forms that will increase returns to theGovernment from park concessions toeight percent in 1999, compared to a base-line of six percent in 1997.

• NPS is establishing broader cooperativearrangements through partnerships withpublic and private groups and, in 1999,will use those partnerships to protect anadditional 220 miles of trails, 240 milesof rivers, and 7,000 acres of parks andopen spaces.

Conservation and Land Management

The 75 percent of Federal land that com-prises the National Forests, National Grass-lands, National Wildlife Refuges, and theBLM-administered public lands also providessignificant public recreation. BLM providesfor nearly 55 million recreational visits ayear, while over 30 million visitors watchwildlife each year at National Wildlife Refuges.

17516. NATURAL RESOURCES AND ENVIRONMENT

With its 125,000 miles of trails, the ForestService is the largest single supplier of publicoutdoor recreation, providing 348 million rec-reational visitor days last year.

Federal lands provide other benefits. BLMand the Forest Service, with combined annualbudgets of about $4.4 billion, manage formultiple purposes. Federal laws require thatthe Forest Service manage the National For-ests for outdoor recreation, range, timber,watershed, wildlife and fish, and wilderness,and that the BLM manage the public landsthat it administers for multiple uses.

The agencies concentrate on the long-termgoal of providing sustainable levels of multipleuses while ensuring and enhancing ecologicalintegrity. Their performance measures includethe following:

• The Forest Service will target its higherfunding to needed watershed restorationwork by increasing acres of watershed res-toration work by 43 percent (to 40,000acres) over 1998 levels of 28,000 acres; in-creasing the acres of range restoration by24 percent (to 42,000 acres) over 1998 lev-els of 34,000 acres; increasing the numberof miles of road obliterated to 3,500 miles,as compared to a 1998 baseline of 1,200miles in 1998; and increasing the numberof acres treated for fire hazard reductionto 1.6 million, compared to a 1998 plannedlevel of 1.3 million.

• For priority watersheds, BLM will en-hance the ecological integrity of 25 percentmore miles of riparian areas and 35 per-cent more acres of wetlands in 1999, com-pared to 1996, and increase the numberof acres treated for fire hazard reductionby prescribed fire and mechanical meansby 12 percent.

The Interior Department’s Fish and WildlifeService (FWS), with a budget of $1.3 billion,manages 93 million acres of refuges and,with the Commerce Department’s NationalMarine Fisheries Service (NMFS), protectsspecies on Federal and non-Federal lands.

• Proposed 1999 funding increases will en-able the refuge system to protect, enhance,and restore 661,000 more acres, over the1997 baseline of 96 million acres.

• FWS’ 1999 funding increase will doublethe number of acres covered by HabitatConservation Plans (HCPs); improve thedevelopment and implementation of HCPsthrough increased public participation,monitoring, and adaptive management; ex-tend Candidate Conservation Agreementprotections to another 80 species; keep 20candidate species off the endangered spe-cies list; and help ensure that 60 percentof listed species are stabilized or improvedin status.

• NMFS will implement programs in 1999to continue fully assessing 79 percent offish stocks, cutting commercial by-catch by15 percent, and increasing the number oflisted species that improve in status to 15,over a baseline of 12.

Half the continental United States is crop,pasture, and range land owned and managedby two percent of Americans—farmers andranchers. The Agriculture Department’s(USDA) Natural Resources Conservation Serv-ice provides technical assistance to ensuresound management of this land:

Under USDA’s Wetlands Reserve Program(WRP), the Federal Government buys long-term or permanent easements from land-owners for cropland, which is taken outof production and restored to wetlands. Land-owners receive fair market value for theland and cost-share assistance to cover therestoration expenses. The budget proposesto enroll another 164,000 acres, bringingtotal cumulative enrollment to over 655,000by the end of 1999. The Administration’sgoal for WRP remains one of reaching totalenrollment of 975,000 acres by the end ofcalendar 2000.

• To enhance water quality along streamsand lakes, and provide important new ri-parian wildlife and fish habitat, USDAwill retire at least 50,000 miles of con-servation buffers in 1999, the same highlevel as in 1998.

• In 1999, USDA will restore two millionacres of native grassland vegetation (thesame as the 1998 level), and complete con-servation management systems for grazinglands, which help control erosion and


benefit habitat, on 6.4 million acres, com-pared to six million acres in 1998.

In 1999, the Environmental Quality Incen-tives Program, which provides funds to farm-ers and ranchers to adopt sound conservationpractices and comply with environmental re-quirements, will better target areas of environ-mental need requiring that funding be allo-cated in conservation priority areas.

Federal and non-Federal agencies are carry-ing out long-term restoration plans for severalnationally significant ecosystems, such asthose in South Florida and the CaliforniaBay-Delta. The South Florida ecosystem isa national treasure that includes the Ever-glades and Florida Bay. Its long-term viabilityis critical for the tourism and fishing indus-tries, and for the water supply, economy,and quality of life for South Florida’s sixmillion people. Low water quality in theSan Francisco Bay-San Joaquin Delta eco-system has degraded wildlife habitat, endan-gered several species, and reduced theestuary’s reliability as a water source.

• The U.S. Army Corps of Engineers willcomplete its comprehensive review of thecentral and southern Florida project byJuly 1, 1999, thus providing a master planfor restoring the Everglades while accom-modating other demands for water and re-lated resources in South Florida. By Sep-tember 30, 2002, 10 percent of all knownfederally endangered and threatened spe-cies in South Florida will be able to be‘‘down listed.’’

The Bay-Delta program is undergoing Na-tional Environmental Policy Act review ofthree major alternatives for the Bay-Delta,and it will develop specific, measurable goalsafter the analysis is complete and an alter-native is selected.

The Land and Water Conservation Fund(LWCF) is an important tool for speciesand habitat conservation. It uses the royaltiesof offshore oil and gas leases to help Federal,State, and local governments acquire landfor conservation and outdoor recreation.

• In 1999, LWCF funds will provide for theacquisition of parcels to enhance NationalParks, provide habitat for species, protectour natural and cultural resource heritage,

and improve land ownership patterns forgreater efficiency.

The management of lands, the availabilityand quality of water, and improvements inthe protection of resources is based on soundnatural resources science. The U.S. GeologicalSurvey (USGS) provides research and informa-tion to land managers and the public tobetter understand ecosystems and specieshabitat, land and water resources, and naturalhazards.

• In 1999, USGS, in partnership with otherFederal natural hazards information pro-viders, will develop an integrated disasterinformation network to improve mitigationand preparedness for natural disasters.

• In 1999, USGS will provide water quantityand quality information on 1,000 U.S. wa-tersheds that the Clean Water Action Planidentified as impaired (half of the Nation’swatersheds). These data, together withcompleted water quality assessments, willhelp develop water quality managementmodels that resource managers need toforecast results from changing land use.

The Commerce Department’s National Oce-anic and Atmospheric Administration (NOAA)manages ocean and coastal resources in the20-mile Exclusive Economic Zone. Its NationalOcean Service and National Marine FisheriesService manages 201 fish stocks and 163marine mammal populations. NOAA’s NationalWeather Service (NWS), using data collectedby the National Environmental Satellite andData Information Service, provides weatherforecasts and flood warnings. Its Office ofOceanic and Atmospheric Research providesscience for policy decisions in areas suchas climate change, air quality and ozonedepletion.

• In 1999, NWS’ ongoing modernization willincrease the lead time of flash floodwarnings to 32 minutes and the accuracyof flash flood warnings to 82 percent; in-crease the lead time of severe thunder-storm warnings to 19 minutes and the ac-curacy of severe thunderstorm warnings to84 percent, and achieve a six-month leadtime for El Nino Southern Oscillation fore-casts.


1992 1993 1994 1995 1996 1997 1998 19990

20

40

60

80

100

120

NUMBER OF NONATTAINMENT AREAS FOR ONE-HOUR OZONE NAAQS

Chart 16-2. AIR QUALITY TRENDS

ACTUAL ESTIMATES

99 9893

78

69

59

38

30

Pollution Control and Abatement

The Federal Government helps achieve theNation’s pollution control goals by: (1) takingdirect action; (2) funding actions by State,local, and Tribal governments; and (3) imple-menting the Nation’s environmental regulatorysystem. The Environmental Protection Agen-cy’s (EPA) $7.8 billion in discretionary fundsand the Coast Guard’s $100 million OilSpill Liability Trust Fund (which funds oilspill cleanups in U.S. waters) finance theseactivities. EPA’s discretionary funds includethree major components—the operating pro-gram, Superfund, and water infrastructurefinancing.

EPA’s $3.6 billion operating program pro-vides the Federal funding to implement mostFederal pollution control laws, including theClean Air, Clean Water, Solid Waste Disposal,Safe Drinking Water, and the Toxic Sub-stances Control Acts. EPA protects humanhealth and the environment by developingnational pollution control standards, largelyenforced by the States under EPA-delegated

authority. For example, under the CleanAir Act, EPA has developed health-basedNational Ambient Air Quality Standards(NAAQS) for six air pollutants: ozone, particu-late matter, carbon monoxide, sulfur dioxide,lead, and nitrogen dioxide. Among these,ground-level ozone and particulate matterare the most complex, difficult to control,and pervasive. EPA recently revised the stand-ard for ozone and promulgated a new standardfor particulate matter to further protecthuman health.

• In 1999, EPA will certify that eight of theestimated 38 remaining nonattainmentareas have achieved the current NAAQSfor ozone (See Chart 16–2).

• In 1999, EPA will certify that 13 of the58 estimated remaining nonattainmentareas have achieved the NAAQS for car-bon monoxide, sulfur dioxide, or lead.

Under the Resource Conservation and Re-covery Act (RCRA), EPA and authorized Statesprevent dangerous releases to the environment


of hazardous, industrial nonhazardous, andmunicipal solid wastes by requiring properfacility management. EPA and authorizedStates also implement the RCRA correctiveaction program to clean up environmentalcontamination at sites where hazardous wastesare being stored, treated, or disposed.

• In 1999, 153 more hazardous waste man-agement facilities will have approved con-trols in place to prevent dangerous re-leases to air, soil, and groundwater, fora total of 2,080 facilities (62 percent ofthe total outstanding).

Superfund’s $2.1 billion program pays toclean up hazardous spills and abandonedhazardous waste sites, and to compel respon-sible parties to clean up. The Coast Guardimplements a smaller but similar programto clean up oil spills. Superfund also supportsthe Federal ‘‘Brownfields’’ program, designedto assess, clean up, and re-use formerlycontaminated sites.

• In 1999, EPA will complete 136 cleanups,in order to reach 900 completed cleanups(60 percent of those outstanding) by theend of 2001.

• In 1999, EPA will fund Brownfields siteassessments in 100 more communities, inorder to reach 300 communities by the endof 2000.

• In 1999, the Coast Guard will reduce theamount of oil that marine sources spillinto the water by 20 percent below the1993 level of 7.76 gallons per million gal-lons shipped.

Federal water infrastructure funds providecapitalization grants to State revolving funds,which make low-interest loans to help munici-palities pay for wastewater and drinkingwater treatment systems required by Federallaw. The Administration plans to capitalizethese funds to the point where the CleanWater State Revolving Funds and the Drink-ing Water State Revolving Funds providea total of $2.5 billion in average annualassistance. The more than $68 billion inFederal assistance since passage of the 1972Clean Water Act has dramatically increasedthe portion of Americans enjoying betterquality water.

• In 1999, another three million people willreceive the benefits of secondary treatmentof wastewater, for a total of 183 million.

• In 1999, 85 percent of the populationserved by community water systems willreceive drinking water meeting all health-based standards, up from 81 percent in1994.

USDA gives financial assistance to ruralcommunities to provide safe drinking waterand adequate wastewater treatment facilitiesto rural communities. The budget proposes$1.3 billion in combined grant, loan, andloan guarantees for this assistance.

• The Water 2000 initiative is bringing in-door plumbing and safe drinking water tounder-served rural communities, andUSDA plans to fund 250 Water 2000 facili-ties in 1999.

Water Resources

The Federal Government builds and man-ages water projects for navigation, flood con-trol, irrigation, and hydropower generation.The Army Corps of Engineers operates Nation-wide, while Interior’s Bureau of Reclamationoperates in the 17 Western States. Thebudget proposes $4.1 billion for the agenciesin 1999—$3.2 billion for the Corps, $0.9billion for the Bureau. The Administrationwill work with Congress to address theproblem of project delays and growing futureliabilities that result from Congress’ additionof many new projects in 1998.

While navigation and flood damage reduc-tion remain the Corps’ major focus, itsprojects, programs, and regulatory responsibil-ities increasingly address environmental objec-tives, including wetlands protection.

• In 1999, the Corps expects to maintainits commercial navigation and flood dam-age facilities so that they will be fullyoperational at least 95 percent of the time.

• In 1999, the Corps’ regulatory program ex-pects to achieve ‘‘no net loss’’ of wetlandsby creating, enhancing, and restoring wet-lands functions and values that are com-parable to those lost when the Corps al-lows wetlands to be developed.


Congress created the Bureau of Reclamationto support economic development in the Westby financing and constructing reliable watersupplies for irrigation and power generation.The West is now developed, and the Bureauis remaking itself into a customer-oriented‘‘water resources management’’ agency by pro-viding expertise on improved water manage-ment practices. The budget also proposesfunding for several local projects that reclaimand reuse wastewater in urban areas inorder to demonstrate the benefits of thisalternative to constructing more dams andreservoirs.

• In 1999, the Bureau plans to completeevaluations of current practices on at leastone project in each of its 26 area offices,with the goal of finding ways to more ef-fectively manage competing demands forwater.

Tax Incentives

State and local governments (and privatecompanies) benefit from a tax break, costingabout $600 million in 1999, that allowsState and local governments to constructprivate waste disposal facilities with tax-exempt bonds. The tax code also offers incen-tives for natural resource industries, especiallytimber and mining. The timber industry candeduct certain costs for growing timber, paylower capital gains rates on profits, takea credit for investments, and quickly write-off reforestation costs—in total, costing about$600 million in 1999. The mining industrybenefits from percentage depletion provisions(which allow deductions that exceed the eco-nomic value of resource depletion) and candeduct certain exploration and developmentcosts—together, costing about $400 millionin 1999.

181

17. AGRICULTURE

Table 17–1. FEDERAL RESOURCES IN SUPPORT OF AGRICULTURE(In millions of dollars)


Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 4,960 6,391 6,973 6,765 5,440 5,425 5,649Proposed legislation .................... .............. .............. –155 –299 –170 –161 –163

Credit Activity:Direct loan disbursements ............. 6,402 7,450 8,651 8,505 7,738 7,177 6,856Guaranteed loans ........................... 3,961 7,255 6,895 6,894 6,894 6,894 6,894

Tax Expenditures:Existing law .................................... 660 680 730 750 760 750 765

Since early in the Nation’s history, theFederal Government has helped increase U.S.agricultural productivity. Agriculture Depart-ment (USDA) programs focus to a largeextent on ensuring that markets functionfairly and that farmers do not face unreason-able risk. Federal programs disseminate eco-nomic and agronomic information, ensure theintegrity of crops, inspect the safety of meatand poultry, and help farmers face risksfrom weather and variable export conditions.The results are found in the public welfarethat Americans enjoy from an abundant,safe, and inexpensive food supply, free ofsevere commodity market dislocations.

Conditions on the Farm

Agriculture and its related activities accountfor 16 percent of the Gross Domestic Product.With strong demand and record market pricesfor several crops in 1996, gross crop cashreceipts exceeded $109 billion in 1996, anew record, and up nearly $10 billion from1995. Net cash income also set a recordin 1996 at $60 billion. Forecasts for 1997put net cash income down $5 billion fromthe record level, but still within the lastfive year’s average. Farmers will earn slightlyless from 1997 crop sales due to lowerfeed grain prices. Livestock receipts in 1997

will increase from the $93 billion of 1996;higher beef cattle prices, the result of reduc-tions in the beef herd, will be the mostimportant influence. After three years ofsteady declines in cattle and calf receipts,this year will mark the turnaround point.

Farm assets, debt, and equity continueto rise. Farm sector business assets rosesix percent in value in 1996, to $1 trillion.Farm asset values will grow another fivepercent in 1997, while farm real estate valueswill rise for the tenth straight year. Farmbusiness debt will rise $5 billion in 1997,the highest level since 1986, but growingdebt shows few signs of precipitating a repeatof the widespread financial stress in thefarm sector of the 1980s.

Exports are key to future farm income.The Nation now exports 30 percent of itsfarm production, and agriculture producesthe greatest balance of payments surplus,for its share of national income, of anyeconomic sector. Agricultural exports reacheda record $60 billion in 1996. Lower worldmarket prices and bulk export volume willreduce exports by an estimated $3 billionin 1997 but, in 1998, exports will growby a projected $2 billion, to $59 billion.Pacific Asia, including Japan, is the most


important region for U.S. farm exports, ac-counting for 42 percent of total U.S. exportsales in 1996. Consequently, the financialturmoil in certain Asian countries could affectU.S. exports.

The 1996 Farm Bill

Known officially as the Federal AgricultureImprovement and Reform Act (FAIR) of 1996,the Farm Bill was a milestone in U.S.agricultural policy. The bill, effective through2002, fundamentally redesigns Federal incomesupport and supply management programsfor producers of wheat, corn, grain sorghum,barley, oats, rice, and cotton. It expandsthe market-oriented policies of the previoustwo major farm bills, which have graduallyreduced the Federal influence in the agricul-tural sector.

Under previous laws dating to the 1930s,farmers who reduced plantings when priceswere low could get income support payments,but farmers had to plant specific crops inorder to receive support payments. Evenwhen market signals might have suggestedplanting a different crop, farmers had limitedflexibility to do so. By contrast, the 1996Farm Bill eliminated most such restrictionsand, instead, provides fixed, but decliningpayments to eligible farmers through 2002,regardless of market prices or productionvolume. Thus, the law ‘‘decouples’’ Federalincome support from planting decisions andmarket prices. Not surprisingly, the law hasbrought significant changes in cropped acreagein response to market signals. In 1997,wheat acreage fell by seven percent, or almostfive million acres, from the previous year,while soybean acreage rose by 10 percent,or almost seven million acres.

Federal Programs

USDA seeks to enhance the quality oflife for the American people by supportingproduction agriculture; ensuring a safe, afford-able, nutritious, and accessible food supply;caring for agricultural, forest, and rangelands; supporting sound development of ruralcommunities; providing economic opportunitiesfor farm and rural residents; expanding globalmarkets for agricultural and forest productsand services; and working to reduce hungerin America and throughout the world. (Some

of these missions fall within other budgetfunctions and, thus, are described in otherchapters.)

Farming is a risky business. Farmers notonly face the normal vagaries of supplyand demand, but also uncontrollable riskfrom Mother Nature. Federal programs aredesigned to accomplish two key economicgoals: (1) enhance the economic safety netfor farmers and ranchers; and (2) open,expand, and maintain global market opportu-nities for agricultural producers.

The Government mitigates risk througha variety of programs:

Farm Commodity Programs: Since Fed-eral payments are now fixed, farm incomecould fluctuate more from year to year dueto supply and demand changes. Farmers willneed to rely more on marketing alternatives.To better use Federal assistance to protectagainst risk and stabilize farm income, produc-ers should set aside funds from, or otherwisedevelop strategies to utilize, the income-sup-port payments, allocating savings from yearsof high income for use when income falls. (SeeChart 17–1 for the estimated increased Fed-eral income-support payments due to the 1996Farm Bill.) The Federal Government, however,continues to provide other safety-net protec-tions, such as the marketing assistance loansthat guarantee a minimum price for majorcommodities.

Insurance: USDA helps farmers managetheir risks by providing subsidized crop insur-ance, delivered through the private sector.Farmers pay no premiums for coverage againstcatastrophic production losses, and the Gov-ernment subsidizes their premiums for addi-tional coverage. Over the past three years, anaverage 80 percent of eligible acres have beeninsured, with an average gain of $0.10 forevery $1 in insurance premiums—down fromthe historical average of $0.40 loss for every$1 in premium. Crop insurance costs the Fed-eral Government about $1.4 billion a year, in-cluding USDA payments to private companiesfor costs tied to administering Federal crop in-surance. Since the Farm Bill ended major ele-ments of USDA’s traditional price and incomesupport programs, producers now bear mostof the price risk. In 1997, USDA expandedseveral insurance products that mitigate ‘‘reve-

18317. AGRICULTURE

1.4

5.2

0.3

6.2

1.9

5.6

1.7

5.5

1.1

4.9

0.7

4

0.6

3.9

1996 1997 1998 1999 2000 2001 20020

1

2

3

4

5

6

7

8

MILLIONS

PROJECTED DEFICIENCY PAYMENTS UNDER PREVIOUS LEGISLATION 1/

PRODUCTION FLEXIBILITY CONTRACT PAYMENTS

1/ Source: USDA, Based on supply and demand estimates as of November 10, 1997

Chart 17-1. PRODUCTION FLEXIBILITY CONTRACT PAYMENTS EXCEED PROJECTED DEFICIENCY PAYMENTS

nue risk’’—price and production risk combined.These ‘‘revenue insurance pilots’’ showed thatfarmers generally want these types of prod-ucts, and USDA will continue to expand theirapplication and availability.

Trade: The trade surplus for U.S. agri-culture has grown faster in recent decadesthan for any other civilian sector of the econ-omy, and USDA’s international programshelped to shape that growth. The Foreign Agri-culture Service’s efforts to negotiate, imple-ment, and enforce trade agreements haveplayed a large role in creating a strong marketfor exports.

In 1999, USDA will:

• take action to overcome 660, or 17 percent,more trade barriers than in 1998;

• help 5,000, or 25 percent, more U.S. com-panies in U.S. agricultural export sales;and

• help in 1,545, or 13 percent, more projectsto build U.S. export markets in developingcountries.

USDA spends about $750 million a yearon export activities, including subsidies toU.S. firms facing unfairly-subsidized overseascompetitors, and loan guarantees to foreignbuyers of U.S. farm products. USDA alsohelps firms overcome technical requirements,trade laws, and customs that often discouragethe smaller, less experienced ones from takingadvantage of export opportunities. USDA willhelp less experienced firms develop theirexport capacity by increasing the numberof outreach events.

In 1999, USDA will:

• increase the number of its trade shows by13 percent, to 400; and

• increase the number of firms that theMarket Assistance Program (MAP) sup-ports in establishing marketing and dis-tribution channels by eight percent, to1,700 firms.

In addition, USDA shares some of therisk when firms or trade organizations experi-ment in the export market. USDA helpseducate firms about the requirements and


1990 1991 1992 1993 1994 1995 1996 1997

0

10

20

30

40

50

60

70

80

DOLLARS IN BILLIONS

BULK COMMODITIESINTERMEDIATE PRODUCTS

CONSUMER FOODS

Chart 17-2. U.S. AGRICULTURAL EXPORT PROFILE AND TRADE SURPLUS

IMPORTS

EXPORTS

Notes: High-value products now make up over 50 percent of total exports. Trade surplus was at $21.5 billion in 1997.

process of developing an overseas market.By participating in the MAP or USDA-orga-nized trade shows, firms can more easilyexport different products to new locationson their own.

The programs have helped U.S. firms, espe-cially smaller-sized ones, export more aggres-sively, and high-value products now makeup a growing share of export value (seeChart 17–2). Small and medium-sized firmrecipients (those with annual sales of under$1 million) now represent 84 percent ofthe MAP-branded promotion spending, upfrom 70 percent in 1996, and USDA expectsto raise that figure to 100 percent by 1999.

Agricultural Research: The Federal Gov-ernment spends over $1.5 billion a year to sup-port agricultural research and enhance U.S.and global agricultural productivity. The aver-age annual return to publicly-funded agricul-tural research exceeds 35 percent, accordingto recent academic estimates.

The Agricultural Research Service (ARS)is USDA’s in-house research agency, address-ing a broad range of food, farm, and environ-mental issues. It puts a high priority ontransferring its research findings to the pri-vate sector.

• In 1999, ARS expects to submit 60 newpatent applications, participate in 85 newCooperative Research and DevelopmentAgreements, license 25 new products, anddevelop 70 new plant varieties to releaseto industry for further development andmarketing.

The Cooperative State Research, Education,and Extension Service provides grants foragricultural, food, and environmental research;higher education; and extension activities.The National Research Initiative competitiveresearch grant program, launched in 1990on the recommendation of the National Re-search Council, works to improve the qualityand increase the quantity of USDA’s andthe private sector’s farm, food, and environ-mental research.

18517. AGRICULTURE

Economic Research and Statistics: TheFederal Government spends about $160 mil-lion to improve U.S. agricultural competitive-ness by reporting and analyzing economic in-formation. The Economic Research Service pro-vides economic and other social science infor-mation and analysis for decision-making on ag-riculture, food, natural resources, and ruralAmerica. The National Agricultural StatisticsService (NASS) develops estimates of produc-tion, supply, price, and other aspects of thefarm economy.

• In 1999, NASS will include over 95 per-cent of national agricultural production inits annual commodities program, up from92 percent in 1997.

Inspection and Market Regulation: TheGovernment spends a half-billion dollars ayear to secure U.S. cropland from pests anddiseases and make U.S. crops more market-able. In addition, USDA’s Food Safety and In-spection Service ensures that U.S. meat andpoultry do not threaten consumers’ health. TheAnimal and Plant Health Inspection Service(APHIS) inspects agricultural products thatenter the country; controls and eradicates dis-eases and infestations; helps control damageto livestock and crops from animals; and mon-itors plant and animal health and welfare. TheAgricultural Marketing Service (AMS) and theGrain Inspection, Packers, and Stockyards Ad-ministration help market U.S. farm productsin domestic and global markets, ensure fairtrading practices, and promote a competitive,efficient marketplace.

In 1999, APHIS will:

• make about 48 million inspections of air-line passengers, aircraft, commercial ves-sels, trucks, and rail cars to prevent theentry of illegal plants and animals thatcould endanger U.S. agriculture, a slightincrease over estimated 1998 levels.

• clear most international air passengersthrough its inspection process in 30 min-utes or less, an estimated 20-percent im-provement over 1997 rates.

• clear most passengers crossing U.S. landborders in non-peak traffic periods in 20minutes or less on the northern border,

and 30 minutes or less on the southernborder.

In 1999, the AMS Pesticide Data Programwill:

• initiate a microbiological surveillance pro-gram on domestic and imported fruits andvegetables as part of the President’s FoodSafety Initiative.

• perform about 55,000 analyses on 14 dif-ferent commodities, collecting 9,200 sam-ples to measure pesticide residues, an in-crease from the estimated 1998 activitiesof 51,000 analyses, 13 commodities, and8,900 samples.

Conservation: The 1996 Farm Bill is themost conservation-oriented farm bill in history,enabling USDA to provide incentives to farm-ers to protect the natural resource base of U.S.agriculture. Farmers can now use crop rota-tions, which earlier price support programshad severely limited. Also, the bill created sev-eral new programs. The Environmental Qual-ity Incentives Program (EQIP), with $200 mil-lion in annual spending (and another $100 mil-lion proposed for 1999) provides cost-share andincentive payments to encourage farmers toadopt new and improved farming practices ortechnology, and it reduces the environmentalimpact of livestock operations. Farmers mayuse different nutrient management or pest pro-tection approaches, with USDA offering finan-cial assistance to offset some of the risk. TheConservation Farm Option program helpslandowners adopt innovative approaches to im-proving environmental quality; groups of farm-ers may submit proposals to create comprehen-sive conservation farm plans, with a host ofdifferent land use and funding alternatives.

USDA’s conservation programs give tech-nical and financial help to farmers andcommunities. They include the Conservationand Wetlands Reserve Programs, which re-move land from farm uses; and the Conserva-tion Operations program, which provides tech-nical assistance.

In 1999, USDA will:

• increase the number of acres enrolled eachyear for riparian buffers and filter stripsto 3.76 million, from an estimated 3.36million acres in 1998; and


• increase the acreage of restored wetlandsto 1.34 million acres, from an estimated1.2 million acres in 1998.

For more information on conservation, andUSDA’s investments in public land manage-ment, see Chapter 16, ‘‘Natural Resourcesand Environment.’’ USDA programs also helpto maintain vital rural communities, as de-scribed in Chapter 20, ‘‘Community and Re-gional Development.’’

Agricultural Credit: USDA provides about$600 million a year in direct loans and over$2.5 billion in guaranteed loans for farm oper-ating and ownership. Direct loans, which carryinterest rates at or below those on Treasurysecurities, generally go to beginning or sociallydisadvantaged farmers who cannot secure pri-vate credit.

In 1999, USDA will:

• increase the proportion of loans made tobeginning and socially-disadvantagedfarmers to 14.4 percent, from an estimated12.6 percent in 1998 and nine percent in1996; and

• reduce the delinquency rate on farm loansto 17 percent, from an estimated 18 per-cent in 1998 and 20 percent in 1996.

The Farm Credit System and ‘‘FarmerMac’’—both Government-Sponsored Enter-prises—enhance the supply of farm creditthrough ties to national and global credit

markets. The Farm Credit System (whichlends directly to farmers) has recovered strong-ly from its financial problems of the 1980s,in part through Federal help. Farmer Macincreases the liquidity of commercial banksand the Farm Credit System by purchasingagricultural loans. In 1996, Congress gavethe institution authority to pool loans aswell as more years to attain required capitalstandards, which it has largely achieved al-ready.

Personnel, Infrastructure, and the Regu-latory Burden: USDA administers its manyfarm programs through 2,500 county officeswith over 17,000 staff. The Farm Bill signifi-cantly cut USDA’s workload, prompting the de-partment to re-examine its staff-intensive fieldoffice-based infrastructure. In 1998, USDAwill: (1) conduct a study to find ways to oper-ate more efficiently; (2) continue an Adminis-tration initiative to scrap duplicative and un-necessary regulations and paperwork; and (3)review and upgrade its computer systems tostreamline its collection of information fromfarmers and better disseminate informationacross USDA agencies.

In 1999, USDA will:

• merge the headquarters and State officeadministrative support staffs for its fieldoffice agencies (Farm Services Agency,Natural Resources Conservation Service,Rural Development) to provide more effi-cient and coordinated support services.

187

18. COMMERCE AND HOUSING CREDIT

Table 18–1. FEDERAL RESOURCES IN SUPPORT OF COMMERCEAND HOUSING CREDIT



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ –17,624 201 689 7,074 8,167 8,372 7,734Proposed legislation .................... .............. –6 –336 –357 –363 –371 –388


Tax Expenditures:Existing law .................................... 186,870 183,555 182,730 188,705 196,095 203,500 210,320Proposed legislation ....................... .............. –260 –403 –358 –340 –348 –386

The Federal Government provides financingand encourages private support for commerceand housing in many ways. It provides directloans and loan guarantees to ease accessto mortgage and commercial credit; sponsorsprivate enterprises that support the secondarymarket for home mortgages; regulates privatecredit intermediaries, especially depository in-stitutions; and offers tax incentives. In total,the Government provides about $750 milliona year in support for housing credit that,in turn, supports over $100 billion in housingloans and loan guarantees. (Another $20billion in subsidies for low-income housingprograms is classified in the Income Securityfunction.)

The Federal Government also dedicatesover $2 billion a year to promote businessand maintain the safety and soundness ofour financial markets and institutions. TheCommerce Department helps expand U.S.sales and create jobs by promoting techno-logical development and policies that enhanceU.S. industrial competitiveness and expandexports. Government regulators protect deposi-tors against losses when insured commercialbanks, thrifts, and credit unions fail.

As general goals:

• Federal housing credit programs will con-tinue their efforts to expand homeowner-ship Nation-wide and will continue to pro-vide homeownership opportunities to un-derserved people in low-homeownershipareas.

• Financial regulators will work to promotethe fairness and integrity of U.S. financialmarkets and ensure the safety and sound-ness of federally-insured deposits.

Mortgage Credit

The Government provides loans and loanguarantees to expand access to homeowner-ship, and helps low-income families affordsuitable apartments. It helps meet the needsof would-be homeowners who lack the savings,income, or credit history to qualify for aconventional mortgage. It also helps providecredit to finance the purchase, construction,and rehabilitation of rental housing for low-income persons. Housing credit programs ofthe Departments of Housing and Urban Devel-opment (HUD), Agriculture (USDA), and Vet-erans Affairs (VA) supported over $100 billionin loan and loan guarantee commitments


Table 18–2. SELECTED FEDERAL COMMERCE AND HOUSING CREDITPROGRAMS: CREDIT PROGRAMS PORTFOLIO CHARACTERISTICS

(Dollar amounts in millions)

Dollar volume ofdirect loans/guarantees

written in 1997

Numbers of hous-ing units/small

business financedby loans/

guaranteeswritten in 1997

Dollar volume oftotal outstandingloans/guaranteesas of the end of

1997

Mortgage Credit:

HUD/FHA Mutual Mortgage Insur-ance Fund ......................................... 61,175 740,320 306,530

HUD/FHA General Insurance andSpecial Risk Insurance Fund .......... 13,318 271,655 87,079

USDA/RHS Sec. 502 single-familyloans .................................................. 2,706 55,500 22,526

USDA/RHS multifamily loans ............ 165 2,083 11,901VA guaranteed loans ........................... 24,287 238,833 146,576

Subtotal, Mortgage Credit ........... 101,651 1,308,391 574,612

SBA Guaranteed Loans .............................. 10,782 47,146 31,181

Total Assistance ......................... 112,433 1,355,537 605,793

in 1997, helping over 1.3 million households(see Table 18–2). All of these programshave contributed to the success of the Presi-dent’s National Homeownership Initiativewhich, along with a strong economy, hashelped boost the national homeownership rateto 66 percent—its highest ever.

• In 1999, through its Mortgage Credit pro-grams, the Federal Government will ap-proach the goal set by the President’s Na-tional Homeownership Initiative, which isa 67.5 percent homeownership rate in theyear 2000.

HUD’s Mutual Mortgage Insurance (MMI)Fund, run by the Federal Housing Administra-tion (FHA), helps increase access to single-family mortgage credit in both urban andrural areas. In 1997, the MMI Fund guaran-teed over $61 billion in mortgages for over740,000 households. Over three-fourths ofsuch mortgages went to first-time homebuyers.Fees and premiums paid to the MMI Fundfully offset program costs.

• The FHA/MMI fund will continue to re-main solvent and self-sustaining.

• FHA will work with the Government Na-tional Mortgage Association (Ginnie Mae)to increase the share of first-time home-buyers in each HUD Field Office by onepercent a year over 1995 levels, and in-crease lending in distressed communitiesby 10 percent.

USDA’s Rural Housing Service (RHS) offersdirect and guaranteed loans and grants tohelp very low- to moderate-income rural resi-dents buy and maintain adequate, affordablehousing. One RHS goal is to reduce thenumber of rural residents living in sub-standard housing. The number of substandardhousing units in rural areas has fallen fromjust over three million units in 1970 tojust over one million in 1990, parallelingthe increase in Federal housing assistanceover the same period.

RHS’ direct loan program provides sub-sidized loans to very-low and low-incomerural residents. Its single family guaranteedloan program guarantees up to 90 percentof a private loan for buying new or existinghousing. Together, the two programs provided$2.7 billion in loans and loan guarantees


in 1997, providing 55,500 decent, safe afford-able homes for rural Americans.

In 1999, RHS will continue to reducethe number of rural residents living in sub-standard housing by:

• providing $4 billion in loan and loan guar-antees for 65,000 new or improved homes,a 9,500, or 14.6 percent, increase over1997.

VA recognizes the service that veteransand active duty personnel provide to theNation by helping them buy and retainhomes. The Government partially guaranteesthe loans from private lenders, providing$26 billion in loan guarantees in 1997.

• To meet the goal of ensuring that the pro-gram meets veterans’ needs, VA will im-prove credit and program management. In1999, VA will begin implementing elec-tronic data interchange in loan originationand servicing.

• To meet the goal of improving opportuni-ties for veterans to achieve homeowner-ship, VA will collaborate with interestedagencies to provide more and better oppor-tunities to finance veteran home pur-chases. In 1999, VA will collaborate withthe Departments of Housing and UrbanDevelopment and of Defense.

Congress created Ginnie Mae in 1968 tosupport the secondary market for FHA, VA,and USDA mortgages. Ginnie Mae guaranteesthe timely payment of principal and intereston securities backed by pools of mortgagesissued by private institutions. The programraises liquidity in the secondary market andattracts new sources of capital for loans.To date, Ginnie Mae has originated over$1.3 trillion in securities, of which over$530 billion remain outstanding. It has helpedover 20 million low- and moderate-incomefamilies buy homes.

• In 1999, Ginnie Mae will continue to pool95 percent of FHA and VA loans for saleto investors, increasing the efficiency ofthe mortgage markets and lowering fi-nancing costs for home buyers.

The Federal National Mortgage Association(Fannie Mae), the Federal Home Loan Mort-gage Corporation (Freddie Mac), and the

Federal Home Loan Bank System (FHLBS)are congressionally chartered, shareholder-owned corporations known as GovernmentSponsored Enterprises (GSEs). GSEs werechartered to provide stability in the secondarymarket for residential mortgages, and promoteaccess to mortgage credit throughout theNation, including under-served areas. FannieMae and Freddie Mac issue and guaranteemortgage-backed securities (MBS), and theyhold debt-financed portfolios of mortgages,MBS, and other mortgage-related securities.The FHLBS provides liquidity to mortgagelenders by making collateralized loans, calledadvances, which totaled $182 billion at theend of 1997. Because they are classifiedas private, the Federal Government doesnot include GSEs in the budget totals.

Each year, HUD sets housing goals forFannie Mae and Freddie Mac with regardto lower-income families and under-servedcommunities. For a discussion of these goals,see Chapter 8, ‘‘Underwriting Federal Creditand Insurance,’’ in Analytical Perspectives.

Rental Housing and Homeless Assistance

The Federal Government provides housingassistance through a number of HUD pro-grams in the Income Security function. HUD’srental programs provided subsidies for over4.8 million low-income households in 1997—1.4 million for units in conventional publichousing projects; 1.8 million in rental subsidiesattached to privately-owned multifamily hous-ing projects; and 1.6 million in rental vouchersnot tied to specific projects. In addition,USDA’s RHS rental assistance grants tolow-income rural households provided $524million to support 39,860 new and existingrental units in 1997.

For 1999, agencies will meet the followingperformance goals:

• Continue RHS’ commitment of 40,000 newand existing units in 1999.

• Increase the percentage of families withchildren in public housing deriving mostof their income from work from 37 percentin 1997 to 43 percent by 2000.

• Reduce the isolation of low-income groupswithin a community or geographic area byincreasing the percentage of Section 8


families with children living in low-pov-erty Census tracts from 60 percent in 1997to 65 percent in 2000.

The Federal Government also makes grantsto help the homeless, supporting emergencyshelters and transitional and permanent hous-ing. Four agencies—HUD, VA, the Departmentof Health and Human Services (HHS), andthe Federal Emergency Management Agency—provide 98 percent of the Federal help targetedto the homeless. For 1997, HUD provided$823 million in homeless assistance grants,representing 58 percent of the $1.42 billiontargeted Government-wide funding total.

• In 1999, HHS will expand its outreach ofservices from 80,000 persons contacted in1997 to 92,000 in 1999.

Housing Tax Incentives

The Government provides significant sup-port for housing through tax preferences.The two largest tax benefits are the mortgageinterest deduction for owner-occupied homes(which will cost the Government $299 billionfrom 1999 to 2003) and the deductibilityof State and local property tax on owner-occupied homes (costing $100 billion overthe same five years).

Other tax provisions also encourage invest-ment in housing: (1) capital gains of upto $500,000 on home sales are exempt fromtaxes (costing $51 billion from 1999 to 2003);(2) States and localities can issue tax-exemptmortgage revenue bonds, whose proceeds sub-sidize purchases by first-time, low- and mod-erate-income home buyers; and (3) installmentsales provisions let some real estate sellersdefer taxes. Finally, the low-income housingtax credit provides incentives for constructingor renovating rental housing that helps low-income tenants for at least 15 years. Thistax expenditure costs about $2.4 billion ayear. The President proposes to raise thevolume cap on the low-income housing taxcredit, thus providing more credits and morehousing for low-income families.

Commerce, Technology, and InternationalTrade

The Commerce Department promotes thedevelopment of technology and advocatessound technology policies. Commerce’s Patent

and Trademark Office (PTO) protects U.S.intellectual property rights around the worldthrough bilateral and multilateral negotiation,and through its domestic patent and trade-mark system.

• In 1999, PTO will issue over 120,000 pat-ents, and reduce the average pendencytime for each invention from 22.7 monthsto an average of 20.9 months.

• In 1999, PTO will reduce the averagependency for each trademark from the cur-rent 16.5 months to an average of 15.5months.

• To promote intellectual property protectionoverseas, PTO will provide technical as-sistance to 52 developing countries.

Commerce’s National Institute of Standardsand Technology (NIST) works with industryto develop and apply technology, measure-ments, and standards. NIST administers theManufacturing Extension Partnership (MEP),which provides technological information andexpertise to its clients among the Nation’s382,000 smaller manufacturers.

• In 1999, NIST will increase sales of itscollected standard reference materials to38,142, and its labs will perform 8,900calibrations and tests, yielding $7 millionin revenue.

• In 1999, MEP will improve its coverageof small business by supporting 33,473completed provider activities, and increaseclient sales by $389 million.

The International Trade Administration(ITA) strives to promote an improved tradeposture for U.S. industry and develop theexport potential of U.S. firms in a mannerconsistent with U.S. foreign and economicpolicy.

• In 1999, ITA estimates that it will review15 more applications for free trade zonesthan in 1998, supporting a gross increaseof 25,000 jobs.

• ITA’s U.S. Foreign Commercial Servicewill increase the number of companiesthat receive export assistance from 11,500in 1997 to about 14,000 by the end of1999.


Commerce’s Census Bureau collects, tab-ulates, and distributes a wide variety ofstatistical information about Americans andthe economy, including the constitutionally-mandated decennial census. In 2000, theCensus Bureau will conduct a decennial censusthat will reduce the net undercount by almost1.6 percent, compared to the 1990 Census.In addition, Commerce’s Bureau of EconomicAnalysis (BEA) prepares and interprets U.S.economic accounts, including the Gross Domes-tic Product (GDP), wealth accounts, and theU.S. balance of payments.

• In preparation for the 2000 Census, theCensus Bureau will canvass 94 millioncity-style addresses in 1999.

• In 1999, BEA will ensure the timely dis-semination of economic data by publishing12 monthly Surveys of Current Businessand 32 national GDP and personal incomenews releases.

Small Business Administration (SBA)

SBA, which Congress created in 1953 toaid, counsel, assist, and promote small busi-ness, expands access to capital by guarantee-ing private loans. The loans carry longerterms and lower interest rates than smallbusinesses would otherwise receive. SBA guar-anteed over $10.8 billion in small businessloans in 1997.

• In 1999, SBA will work to increase thenumber of small businesses receivingcounseling and training to 1.2 million, a10-percent increase over the estimated1998 level.

• SBA will guarantee 56,400 new Sec. 7(a)and Sec. 504 business loans in 1999, aseven-percent increase over the expected1998 volume of 52,500.

Financial Regulation

The Government protects depositors againstlosses when insured commercial banks, thrifts,and credit unions fail. Deposit insurancealso wards off widespread disruption in finan-cial markets by making it less likely thatone institution’s failure will cause a financialpanic and a cascade of other failures. From1985 to 1995, Federal deposit insurance pro-tected depositors in over 1,400 failed banks

and 1,100 savings associations, with totaldeposits of over $700 billion.

The Federal Deposit Insurance Corporation(FDIC) insures the deposits of banks andsavings associations (thrifts) through two sepa-rate insurance funds, the Bank InsuranceFund and the Savings Association InsuranceFund. The National Credit Union Administra-tion (NCUA) insures deposits at credit unions.These varied kinds of deposits are insuredfor up to $100,000 per account. The FDICinsures deposits at over 9,200 commercialbanks and over 1,800 savings institutions,with a total value of $2.7 trillion. TheNCUA insures deposits in 11,300 credit unionswith a total value of $290 billion.

Because the Government bears the riskof losses, it regulates banks, thrifts, andcredit unions to ensure that they operatein a safe and sound manner. Five agenciesregulate federally-insured depository institu-tions: The Office of the Comptroller of theCurrency regulates national banks; the Officeof Thrift Supervision regulates thrifts; theFederal Reserve regulates State-charteredbanks that are Federal Reserve members;the FDIC regulates other State-charteredbanks; and the NCUA regulates credit unions.

• In calendar 1998, the FDIC will perform3,081 safety and soundness inspections.

Other financial regulatory institutions in-clude the Securities and Exchange Commission(SEC) and the Commodity Futures TradingCommission (CFTC). The SEC oversees U.S.capital markets and regulates the securitiesindustry, protecting investors and maintainingthe fairness and integrity of domestic securi-ties markets by preventing fraud and abuseand ensuring the adequate disclosure of infor-mation. The CFTC regulates U.S. futuresand options markets, protecting market usersand the public from fraud and abuse andfostering open, competitive, and financiallysound commodity futures and options markets.

• The SEC will work to examine every in-vestment company complex and every in-vestment advisor at least once every fiveyears.

• The CFTC will work to ensure 100-percentcompliance from market professionals, fi-nancial intermediaries, and Self-Regu-


latory Organizations with CFTC standardsfor registration, sound financial practices,and effective enforcement programs.

• The CFTC will review every designationapplication and rule change request, withthe exception of stock index futures (whichrequire SEC approval) within 10 to 45days and respond to trading exchanges(e.g., Chicago Board of Trade) with an ap-proval or deficiency letter.

Federal Trade Commission (FTC)

The FTC enforces various consumer protec-tion and antitrust laws that prohibit fraud,deception, anticompetitive mergers, and otherunfair and anticompetitive business practicesin the marketplace.

• In 1999, the FTC will save consumers$200 million by stopping fraud and otherunfair practices, and another $200 millionby stopping anticompetitive behavior.

Federal Communications Commission(FCC)

The FCC works to encourage competitionin communications and to promote and supportevery American’s access to telecommunicationsservices. The FCC executes its mission throughfour main activities: Authorization of Service,Policy and Rulemaking, Enforcement, andPublic Information Services.

• In 1999, the FCC will work to achieve 90percent of customer speed of disposal proc-essing goals to improve its authorization

of services activities. The Commission willre-engineer and integrate licensingdatabases and implement electronic filingto further increase efficiency in the licens-ing process.

• In 1999, the FCC will improve the connec-tion of classrooms and libraries and ruralhealthcare facilities to the Internet whilemaintaining affordable service to ruralAmericans. The FCC will also strive tomake telecommunications services moreaccessible to persons with disabilities.

Commerce Tax Incentives

The tax law provides incentives to encouragebusiness investment. It taxes capital gainsat a lower rate than other income, whichwill cost the Government $139 billion from1999 to 2003. In addition, the law doesnot tax gains on inherited capital assetsthat accrue during the lifetime of the originalowner, which will cost $51 billion from 1999to 2003. The law also provides more generousdepreciation allowances for machinery, equip-ment, and buildings. Other tax provisionsbenefit small firms generally, including thegraduated corporate income tax rates, pref-erential capital gains treatment for smallcorporation stock, and write-offs of certaininvestments. Credit unions, small insurancecompanies, and insurance companies ownedby certain tax-exempt organizations also enjoytax preferences. Tax benefits for other kindsof businesses are described in other chaptersin Section VI.

193


19. TRANSPORTATION *

Table 19–1. FEDERAL RESOURCES IN SUPPORT OFTRANSPORTATION



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 2,342 2,438 2,236 2,248 1,901 1,244 1,771Proposed legislation .................... .............. 25 90 91 59 16 –14

Credit Activity:Direct loan disbursements ............. 164 181 167 47 30 27 27Guaranteed loans ........................... 319 477 477 477 477 477 477

Tax Expenditures:Existing law .................................... 1,360 1,405 1,440 1,485 1,535 1,585 1,640Proposed legislation ....................... .............. .............. 4 11 16 23 30

America’s transportation network consistsof public and private systems financed byFederal, State, and local governments, andthe private sector. The Federal Government,which spends about $40 billion a year ontransportation, has five major goals in shapingthis system, the foremost of which is transpor-tation safety. Federal programs also advancemobility, economic growth and trade, thehuman and natural environment, and ournational defense. Today, our greatest challengeis to advance these five goals as we buildthe transportation system for the 21st Cen-tury.

Safe Operations

The Federal Government works both directlyand with State and local governments andprivate groups to minimize the safety risksinherent in transportation. The Federal Gov-ernment regulates motor vehicle design andoperation, inspects commercial vehicles, edu-cates the public, monitors railroad safety,directs air and waterway traffic, conductssafety-related research, and rescues marinersin danger.

A range of Federal activities work to reducehighway deaths and injuries, which numberabout 42,000 and over three million a year,respectively. Federal programs reach out toState and local partners to identify thecauses of crashes and develop new strategiesto reduce deaths, injuries, and the resultingmedical costs. Such partnerships yield results;through Federal, State, local, and privateefforts, safety belt use reached an all-timehigh of 68 percent in 1996. In additionto coordinating national traffic safety efforts,the National Highway Traffic Safety Adminis-tration (NHTSA) regulates the design of motorvehicles, investigates reported safety defects,and distributes traffic safety grants to States.The budget proposes $406 million for NHTSA,a 22-percent increase over 1998, and fullyfunds the Presidential Initiative for IncreasingSeat Belt Use Nation-wide from 68 percentto 85 percent in 2000 and 90 percent in2005.

Perhaps the Federal Government’s mostvisible safety function is operating the airtraffic control and air navigational systems.The Federal Aviation Administration (FAA)handles about 173,000 flights a day, moving1.5 million passengers each day. Through


its regulatory and certification authorities,the FAA also promotes aviation safety. In1999, the FAA will perform over 340,000safety-related inspections. To meet safetyneeds in 1999, the Administration plans tospend $7.8 billion on FAA operations andcapital, eight percent more than in 1998.

The National Motor Carriers Program, forwhich the budget proposes $100 million in1999, provides grants to States to enforceFederal and compatible State standards forcommercial motor vehicle safety inspections,traffic enforcement, and compliance reviews.Uniform standards help coordinate law en-forcement activities, and simplify the safetyrequirements of interstate trucking.

The Federal Government also plays a keysafety role on our waterways. The CoastGuard is recognized as the world leaderin maritime search and rescue, saving over5,000 lives in 1997 alone. It operates radiodistress systems, guides vessels through busyports, regulates vessel design and operation,provides boating safety grants to States, andsupports a 35,000-member voluntary auxiliarythat educates boaters. The budget proposes$3.2 billion for Coast Guard operations andcapital.

The Federal railroad safety program, forwhich the budget proposes $62 million in1999, works in partnership with the railindustry. The Safety Assurance and Compli-ance Program brings together rail labor, man-agement, and the Federal Government todetermine root causes of problems. From1993 to 1996, railroad-related fatalities, on-the-job casualties, and the train incidentrate fell by 19, 42, and 17 percent, respec-tively.

Similarly, in 1999, the Federal pipelinesafety program will have in progress severalrisk management projects, whose goal isto provide safety and environmental protectionbetter than under existing Federal regulations.

For each of these areas, the Federal Govern-ment seeks to promote public health andsafety by working to eliminate transportation-related deaths and injuries. To measureprogress towards these goals, the Departmentof Transportation (DOT) will seek to:

• reduce the total number of transportation-related fatalities in calendar 1999 to below44,407, the 1995 level, despite increasedpassenger miles traveled; and

• reduce the total number of transportation-related injuries in calendar 1999 to below3,494,965, the 1995 level, despite in-creased passenger miles traveled.

Infrastructure and Efficiency

America has about four million miles ofroads, 580,000 bridges, 180,000 miles of rail-road track, 5,500 public-use airports, over6,000 transit systems, 350 commercial ports,and 25,000 miles of commercially-navigablewaterways. This extensive, intermodal networkis essential to the Nation’s commerce, andenhancing its efficiency advances economicgrowth and international competitiveness.

The Federal Government has helped developlarge parts of the system, with fundingmainly through user fees and transportationtaxes. The total Federal investment representsabout half of all public investment in transpor-tation—that is, $27 billion of the $54 billionof total Federal, State, and local spendingon transportation infrastructure in 1994. In1999, infrastructure investment would riseto a level 42 percent higher than the annualaverage of $21.1 billion from 1990 to 1993,with the rising investment of recent yearstargeted to advance the safety, quality, effi-ciency, and intermodal character of transpor-tation infrastructure.

Highways and Bridges: About 955,550miles of roads and all bridges are eligible forFederal support, including the National High-way System (NHS) and Federal lands roads.In 1999, the Federal Government plans tospend over $23 billion to maintain and expandthese roads, with funding from motor fuelstaxes, mainly the gasoline tax. The Federalgas tax is 18.4 cents a gallon, of which 15.45cents goes to the Highway Trust Fund’s high-way account to finance formula grants toStates for highway-related repair and improve-ment.

State and local governments provide 58percent of total highway and bridge infrastruc-ture spending, most of which they generatethrough their own fuel and vehicle taxes.

19519. TRANSPORTATION

The average State gasoline tax was 19.6cents per gallon in 1996. State and localgovernments accelerate their infrastructureprojects through debt financing, such as bondsand revolving loan funds. Under the StateInfrastructure Banks program, the FederalGovernment provides funds to help Statesunderwrite debt issuance for highway andtransit projects. Under the new TransportationInfrastructure Credit Enhancement Program,the Federal Government would provide grants,which could be supplemented by non-Federalcontributions, to create Revenue StabilizationFunds to help secure private debt financingfor nationally significant projects.

In 1999, the Federal Government will workwith State and local governments to:

• increase the percentage of NHS miles thatmeet pavement performance standards foracceptable ride quality (based on the Inter-national Roughness Index) to 91.5 percent,from the 1996 baseline of 91.1 percent, toreach the overall goal of ensuring that 93percent of NHS pavement has acceptableride quality by 2008; and

• reduce the percentage of NHS bridges thatare classified as deficient to 24.3 percent,from the 1996 base level of 25.8 percent,to reach the overall goal of ensuring thatless than 20 percent of NHS bridges aredeficient by 2008.

Transit: As with highways, the FederalGovernment works with State and local gov-ernments to improve mass transit. Of the Fed-eral motor fuels tax, 2.85 cents a gallon goesto the Highway Trust Fund’s Mass Transit Ac-count, which funds transit grants to Statesand urban and rural areas. Federal capitalgrants comprise about half of total spendingeach year to maintain and expand the Nation’s6,000 bus, rail, trolley, van, and ferry systems.Together, States and localities invest over $3billion a year on transit infrastructure andequipment.

In 1999, the Federal Government plansto spend $4.6 billion on transit capital. Inparticular, the Federal Government financescapital-intensive urban bus and rail transitsystems and rural bus and van networks.About 80 million Americans depend on publictransportation due to age, disability, or in-

come. Furthermore, transit use by commuterseases roadway congestion and reduces pollut-ing emissions. Capital investment cuts mainte-nance and operating costs and gives moremobility to Americans.

In 1999, to improve the quality and avail-ability of transit services, DOT will seekto:

• reduce the average age of the motor busfleet from a calendar 1995 base level of8.1 years to 7.6 years by calendar year2002 while increasing bus service, and

• maintain the average age of the rapid railfleet at 19.3 years through calendar year2002.

Passenger Rail: The Federal Governmentwill invest $621 million in 1999 to supportthe Nation’s passenger rail system (in additionto the $2.2 billion that the 1997 Taxpayer Re-lief Act provides for capital improvements andequipment maintenance). The extension of theNortheast Corridor high-speed rail servicefrom New York to Boston highlights the Fed-eral-private partnership to improve passengerrail service. The Federal Government fundsthe electrification of the rail line, while theprivate sector helps to finance the high-speedtrainsets that will begin operating in late1999.

To improve Amtrak’s Northeast Corridor,in 1999 the Federal Government will striveto complete electrification of the New York-Boston segment and introduce new high-speed trainsets, reducing travel time betweenNew York and Boston from the four-hours-and-45-minutes of today to three hours inthe year 2000.

Aviation and Airports: The Federal Gov-ernment seeks to ensure that the aviation sys-tem is accessible, integrated, efficient, andflexible. To reach those goals, and to beginto address a White House Commission onAviation Safety and Security recommendationto modernize the air traffic control system by2005, the budget proposes to increase invest-ments in aviation facilities and equipment byabout 10 percent a year for five years. In addi-tion, about 3,300 airports throughout the coun-try are eligible for the Airport ImprovementProgram (AIP), which funds projects that en-hance capacity, safety, security, and noise miti-


gation. These funds augment other airportfunding sources, such as bond proceeds, Stateand local grants, and passenger facilitycharges. With 98 percent of the population liv-ing within 20 miles of one of these airports,most citizens have excellent access to airtransportation.

• In 1999, DOT will seek to reduce the num-ber of volume- and equipment-relateddelays to 30.7 per 100,000 flight oper-ations, from a 1994 base level of 36.9delays per 100,000 flight operations.

Other Transportation: For the Nation’scommercial shipping infrastructure, Federalloan guarantees make it easier to build andrenovate vessels. Port development is leftlargely to State and local authorities, whichhave invested over $14 billion in infrastructureimprovements over the past 50 years.

• To help make the shipyard industry morecompetitive, the Federal Government willstrive to attain two percent growth in U.S.commercial shipbuilding (measured bytonnage) in 1999, compared to 1998.

Research and Technology

The Federal Government helps advancetransportation technology. Federal researchfocuses on building stronger roads and bridges,designing safer cars, reducing human errorin operations, and improving the efficiencyof the existing infrastructure. In 1999, theFederal Government will spend over $1 billionon transportation research and technology.

DOT’s Intelligent Transportation Systems(ITS) program is developing and deployingtechnologies to help States and localitiesimprove safety, increase capacity, and enhancetraffic flow on their streets and highways.In an era of constrained Federal resources,ITS provides a cost-effective way to improvethe management of our infrastructure, boost-ing efficiency and capacity. The private sector,which works closely with the ITS program,will initially deploy many of the technologiesthat it develops jointly with Federal funding.

FAA’s research, engineering, and develop-ment programs help improve safety, security,capacity, and efficiency in the National Air-space System. For example, the developmentof an advanced traffic management system

and the demonstration of revolutionary routingand navigation procedures will enhance notonly safety, but air system capacity andefficiency. In 1999, the budget proposes theFlight 2000 free-flight demonstration program,which promises operational improvements todeliver passengers and cargo more quicklyand safely. Free-flight improves aviation sys-tem efficiency by giving pilots the toolsto plot their own flight paths. Other FAAresearch will focus on the causes of humanerror, aircraft safety, fire protection, aviationweather, engine noise, aircraft emissions, andsecurity and explosives detection systems.

The National Aeronautics and Space Admin-istration’s (NASA) Aeronautical Research andTechnology Program funds partnerships withindustry that may revolutionize the nextgeneration of planes, making them safer,faster, more efficient, and more compatiblewith the environment.

The Federal Government seeks to balancenew physical capacity with the efficiencyand safety of the existing infrastructure.With this goal in mind:

• DOT will seek to expand the integrationof ITS technology in six metropolitan areasby 20 percent in 1999, compared to a 1997survey baseline, and

• DOT, NASA, the Defense Department, andprivate industry will work together on re-search to reduce the fatal aviation acci-dent rate by a factor of five in 10 years;the 1995 baseline is 0.35 per 100,000 de-partures. Research will focus on prevent-ing equipment malfunctions, reducinghuman error, and ensuring the separationbetween aircraft and potential hazards.

Transportation Regulation

Federal rules greatly influence transpor-tation. In the past two decades, deregulationof the domestic railroad, airline, and interstateand intrastate trucking industries has boostedeconomic growth.

The Federal Government also issues regula-tions to spur safer and cleaner transportation.The safety regulations—of cars, trucks, ships,trains, and airplanes—have substantially cutthe number of transportation-related deaths

19719. TRANSPORTATION

and injuries—for example, saving over 100,000lives since 1966.

The Federal Government has taken regu-latory steps to meet transportation-relatedenvironmental and safety goals in a cost-effective manner. For example, during thetransition to double hulled tank vessels be-tween now and 2015, the costs of meetingoil pollution requirements will decline dueto ‘‘lightering zone’’ regulations that tempo-rarily permit older, single-hull vessels tooffload oil under stringent, environmentallysafe conditions within certain areas in theGulf of Mexico.

Tax Expenditures

For the most part, employees do not payincome taxes on what their employers payfor parking and transit passes. These taxexpenditures will cost the Government anestimated $7.1 billion from 1999 to 2003.To finance infrastructure, State and localgovernments issue tax-exempt bonds; the Fed-eral costs in lost revenues are includedin the calculations for Function 450, ‘‘Commu-nity and Regional Development,’’ and Function800, ‘‘General Government.’’

199

20. COMMUNITY AND REGIONALDEVELOPMENT

Table 20–1. FEDERAL RESOURCES IN SUPPORT OF COMMUNITYAND REGIONAL DEVELOPMENT



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 312 –119 –418 –411 –52 –222 –455Proposed legislation .................... .............. .............. 3 61 139 162 168

Credit Activity:Direct loan disbursements ............. 2,192 2,153 1,984 2,278 2,392 2,273 2,299Guaranteed loans ........................... 896 1,828 1,976 2,005 2,229 2,322 2,320


Federal support for community and regionaldevelopment helps build the Nation’s economy,and helps economically distressed urban andrural communities earn a larger share ofAmerica’s prosperity. The Federal Governmentspends over $10 billion a year, and offersabout $1.7 billion in tax incentives, to helpStates and localities create jobs and economicopportunity, and build infrastructure to sup-port commercial and industrial development.

The needs of States and localities arevaried and hard to measure. Still, Federalprograms have helped create stable, healthycommunities that offer greater economic oppor-tunity. Communities hard hit by naturaldisasters receive Federal assistance to rebuildinfrastructure, businesses, and homes. Statesand localities also use these Federal fundsto leverage private resources for their commu-nity revitalization strategies.

As general goals:

• the Government will help create viablecommunities and economic empowermentthrough job creation, provide affordable

housing, and promote economic oppor-tunity; and

• the Government will help protect lives andprevent the loss of property from disasterhazards; and minimize suffering and has-ten recovery when disasters occur.

Department of Housing and UrbanDevelopment (HUD)

HUD provides communities with flexiblefunds to promote commercial and industrialdevelopment; enhance infrastructure; cleanup abandoned industrial sites, or Brownfields;and develop strategies for providing affordablehousing close to jobs.

Community Development Block Grant(CDBG): CDBG, for which the budget pro-poses $4.7 billion, provides flexible funds foractivities that meet one of three national objec-tives: (1) benefit low- and moderate-incomepersons, (2) help prevent or eliminate slumsor blight, or (3) meet other urgent communityneeds that pose immediate threats to publichealth. CDBG funds go to improving housing,public works and services, economic develop-


ment, and acquiring or clearing land. Seventypercent of CDBG funds go to over 950 centralcities and urban counties, the remaining 30percent to States to award to smaller localities.CDBG’s Section 108 Loan Guarantee Program,along with Economic Development InitiativeGrants, gives Federal guarantees to private in-vestors who buy debt obligations issued bylocal governments, thus giving communities ef-ficient financing for housing rehabilitation,economic development, and large-scale phys-ical development projects. The Indian CDBGprogram focuses mainly on public infrastruc-ture, community facilities, and economic devel-opment. In 1997, 131 Tribes received a totalof $67 million in CDBG grants through com-petition.

HOME: The budget proposes $1.5 billion inflexible grants to States and communities toaddress their most severe housing needs. Eligi-ble activities of this program (which is classi-fied in the Income Security function) includenew construction, rehabilitation, acquisition ofstandard housing, assistance to home buyers,and tenant-based rental assistance. From itsinception in 1992 through June 1997, the pro-gram’s recipients have committed or usedHOME funds to build or rehabilitate 262,000housing units and to help 37,000 families paytheir rent.

The 1999 goals for the CDBG and HOMEprograms include:

• Increasing the number of CDBG granteeswho incorporate milestones with time-tables in Consolidated Plans that can helpdemonstrate progress in improving locallydefined conditions in their neighborhoodsand communities.

• Developing a standardized HUD assess-ment of Consolidated Plans.

• Ensuring that communities keep HOMErental housing affordable to low-incomefamilies during the affordability periodthat the program requires.

Also by the end of 1999, HUD will establishbaseline measures against which to judgethe contributions these programs make tocommunity development and affordable hous-ing.

Empowerment Zones (EZs) andEmpowerment Communities (ECs): The EZprogram provides tax incentives and grants tocarry out 10-year, community-wide strategicplans to revitalize designated areas. In Decem-ber 1994, six urban areas and three ruralareas were designated as EZs. Two supple-mental urban Zones were designated to receivea combination of Economic Development Initia-tive grants, grants, and new tax-exempt bondfinancing. In addition, 65 urban and 30 ruralcommunities were designated as ECs. TheseEZs and ECs have begun to leverage resourcesto attract private investment, generate jobgrowth, stimulate business openings and ex-pansions, construct new housing, expandhomeownership opportunities, and stabilizeneighborhoods.

• In 1999, practically all EZs and ECs willshow satisfactory progress toward locallydefined benchmarks consistent with na-tional policy goals (e.g., increasing employ-ment, improving safety, improving edu-cation levels).

Department of Agriculture

The Agriculture Department (USDA) givesfinancial assistance to rural communities andbusinesses to boost employment and furtherdiversify the rural economy, and the budgetproposes $1.5 billion in such assistance. TheRural Community Advancement Program’sgrants, loans, and loan guarantees help buildrural community facilities, such as healthclinics and day care centers, and createor expand rural businesses. USDA also pro-vides loans through the Intermediary Relend-ing Program (IRP), which provides fundsto an intermediary such as a State or localgovernment that, in turn, provides fundsfor economic and community developmentprojects in rural areas.

• In 1999, USDA will provide 49,000 newjobs, compared to 37,000 in 1997, throughthe IRP and community facilities pro-grams.

Department of the Interior

The Interior Department’s Bureau of IndianAffairs (BIA) helps Tribes manage and gen-erate significant revenues from mineral, agri-cultural and forestry resources; a recent inde-

20120. COMMUNITY AND REGIONAL DEVELOPMENT

pendent study estimates that timber harvests,reforestation, pest management, and fire con-trol activities provided 49,000 jobs on ornear reservations. BIA also promotes Tribaland individual self-sufficiency by developingTribal resources and obtaining capital invest-ments. Finally, BIA maintains housing forneedy Tribal members; over 7,000 other build-ings, including 185 schools and 3,000 housingunits for BIA and Tribal staff; over 100high-hazard dams, and (with the Transpor-tation Department and State and local govern-ments) about 50,000 miles of roads and745 bridges.

• BIA will measure the success of its eco-nomic development program by guarantee-ing about $35 million in loans to establish,expand, and refinance businesses andboosting their success rate to 91 percent.

• BIA will measure the success of its facili-ties programs by providing a 60-percentincrease in high-priority school repairs andnew school construction; its roads programby implementing a maintenance manage-ment system and inspections of at leasthalf of all bridges and 80 percent of roads;and its dam safety program by repairingor planning repairs on seven dams andinspecting at least 25 dams.

• BIA will measure the success of its trustprograms by implementing or maintainingabout 150 Tribal resource managementplans, projects, co-management programs,and fishing access sites; supporting 15 irri-gation projects; developing 46 million acresfor farming and grazing; completing thefirst phase of a comprehensive environ-mental audit; funding 20 water rights ne-gotiation teams; and reducing probate andland title backlogs by at least 20 percent.

Tennessee Valley Authority (TVA)

TVA operates an important set of integratednavigation, flood control, water supply, andrecreation programs that, with TVA’s electricpower program, contributes to the prosperityof the seven-State region it serves. Thebudget provides $77 million for the agency’snon-power programs, ensuring that they retainfunding as the Administration and Congressconsider alternatives for the agency in boththe power and non-power areas.

• TVA will maximize the number of daysthe Tennessee River is open to commercialnavigation from Knoxville, Tennessee toPaducah, Kentucky, with a 1999 perform-ance target of full availability 93 percentof the time.

• TVA will minimize flood damage by oper-ating the river system with flood controlas a priority, maintaining a 1999 targetof 79 percent of flood storage availability.

Commerce Department’s EconomicDevelopment Administration (EDA)

EDA creates jobs and stimulates commercialand industrial growth in economically dis-tressed areas—rural and urban areas withhigh unemployment, high poverty rates, orsudden and severe distress. EDA’s publicworks grants help build or expand publicfacilities to stimulate and foster industrialand commercial growth, such as industrialparks, business incubators, access roads, waterand sewer lines, and port and terminaldevelopments. EDA, working with State andlocal governments and the private sector,has completed over 40,000 projects, creatingor retaining over three million private sectorjobs. EDA has invested over $16 billionin grants and generated over $36 billionin private investment. From 1992 to 1997,EDA awarded 1,006 public works grants,totaling $975 million, to economically dis-tressed communities to build these typesof infrastructure projects.

EDA works with State and local govern-ments, businesses, economic development dis-tricts, and non-profit organizations to identifyand fund high-priority projects in the neediestcommunities. The grants also provide technicalassistance to communities and firms on prob-lems that stifle economic growth. In addition,EDA’s economic adjustment assistance grantshelp communities solve severe adjustmentproblems, such as those resulting from naturaldisasters and industry relocations or majordownsizings. To date, EDA has providedalmost $500 million in disaster recovery grantsto help speed the recovery of disaster-impactedcommunities Nation-wide.

• In 1999, EDA projects that it will createor retain 22,500 jobs directly and 7,500jobs indirectly, for a total of 30,000 jobs.


Disaster Relief and Insurance

The Federal Government provides financialhelp to cover a large share of the Nation’slosses from natural hazards. In recent years,spending from the two major Federal disasterassistance programs—the Federal EmergencyManagement Agency’s (FEMA) Disaster ReliefFund and the Small Business Administration’s(SBA) Disaster Loan program—has risen sig-nificantly, largely because demographic andeconomic growth has been great in hurricane-and earthquake-prone areas. The Federal Gov-ernment shares the costs with States forinfrastructure rebuilding; makes disaster loansto individuals and businesses; and providesgrants for emergency needs and housingassistance, unemployment assistance, and cri-sis counseling. In addition, the National FloodInsurance Program enables property ownersto purchase flood insurance that the commer-cial market does not offer. To mitigate futurelosses, and in exchange for flood insurance,communities must adopt and enforce floodplainmanagement measures that protect lives andnew construction from flooding.

In 1997, FEMA began Project Impact, anational effort to shift the focus of emergencymanagement from post-disaster response topre-disaster activities that reduce potentialfuture damage. FEMA is expanding the pro-gram in 1998, and will strive for at leastone ‘‘disaster resistant community’’ in eachState by the end of 1999. In 1999, SBAproposes to support FEMA’s mitigation projectby making available disaster loans for smallbusinesses in the targeted communities tofinance mitigation improvements for perma-nent or fixed business properties.

FEMA’s 1999 goals include:

• Decreasing, by 10 percent, the averagetime from disaster declaration to HazardMitigation Grant Program grant obliga-tion, using the average grant delivery timethrough 1997 as a baseline;

• Completing 12 hurricane evacuation stud-ies and achieving 60 percent of the man-dated review of community flood mapneeds; and

• Answering 95 percent of claimant ques-tions on the first call and cutting, in half,

disaster claimant transcription time andcosts billable to the disaster relief fund.

SBA’s 1999 goals include:

• Increasing the number of disaster loansprocessed within 21 days from 85 percentto 90 percent of applications.

• Increasing the percentage of disasters inwhich effective field presence is estab-lished within three days of a declarationfrom 85 percent to 90 percent.

Appalachian Regional Commission (ARC)

Established in 1965, ARC targets its re-sources to highly distressed areas, focusingon critical development issues on a regionalscale, and making strategic investments thatencourage other Federal, State, local andprivate participation and dollars. When com-pared with ‘‘twin counties’’ outside the 13-State region, ARC counties have grown 17times faster in private sector employment,seven times faster in population, and 34times faster in per capita income. From1950 to 1960, before the ARC was in place,employment fell 1.5 percent in Appalachiabut grew 15 percent Nation-wide. Duringthe most recent reporting period, 1988 to1996, Appalachian employment grew at thenational rate of 10.6 percent.

In 1999:

• As a result of ARC training, 7,500 peoplewill retain or get jobs; and

• ARC will place 100 physicians in the re-gion’s health professional shortage areas,to serve another 50,000 patients a year.

The Administration proposes to apply theproven ARC model to the Mississippi DeltaRegion, an adjoining section with tremendousand wide-ranging needs, in order to: (1)target the Nation’s truly poor; (2) provideeconomic development opportunities in a re-gional, multi-State context; (3) provide flexibleassistance to address local economic develop-ment decision-making; (4) create a partnershipthat links communities, States, and the Fed-eral Government in a coordinated responseto economic distress; and (5) leverage otherresources to foster self-sustaining economies.The budget proposes a Delta Region Develop-ment Program, under the auspices of the

20320. COMMUNITY AND REGIONAL DEVELOPMENT

ARC that would establish the Delta RegionalCommission to assist in the Region’s economicdevelopment.

Tax Expenditures

The Federal Government provides severaltax incentives to encourage community andregional development activities: (1) tax-exemptbonds for airports, docks, high-speed railfacilities, and sports and convention facilities(costing $5.6 billion from 1999 to 2003);(2) tax incentives for qualifying businessesin economically distressed areas that qualifyas Empowerment Zones—including an em-ployer wage credit, higher up-front deductionsfor investments in equipment, tax-exempt

financing, and accelerated depreciation—aswell as capital gains preferences for certaininvestments in the District of Columbia andincentives for first-time buyers of a principalresidence in D.C. (costing $3 billion overthe five years); (3) a 10-percent investmenttax credit for rehabilitating buildings thatwere built before 1936 for non-residentialpurposes (costing $335 million over the fiveyears); (4) tax exemptions for qualifying mu-tual and cooperative telephone and electriccompanies (costing $335 million over thefive years); and (5) up-front deductions ofenvironmental remediation costs at qualifiedsites (costing $305 million over the fiveyears).

205


21. EDUCATION, TRAINING, EMPLOYMENT,AND SOCIAL SERVICES *

Table 21–1. FEDERAL RESOURCES IN SUPPORT OF EDUCATION,TRAINING, EMPLOYMENT, AND SOCIAL SERVICES



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 13,690 13,126 12,090 11,157 10,867 10,067 12,085Proposed legislation .................... .............. –158 1,789 2,877 3,490 3,968 4,442


Tax Expenditures:Existing law .................................... 27,430 33,755 57,295 59,510 61,140 62,905 64,625Proposed legislation ....................... .............. 15 1,010 2,859 3,205 2,839 2,738

The Federal Government helps States andlocalities educate young people, helps thelow-skilled and jobless train for and findjobs, helps youth and adults of all agesovercome financial barriers to postsecondaryeducation and training, helps employers andemployees maintain safe and stable work-places, and helps provide social services forthe needy.

The Government spends over $62 billiona year on grants to States and localities;on grants, loans, and scholarships to individ-uals; on direct Federal program administra-tion; and on subsidies leveraging nearly $40billion in loans to individuals. It also allocatesabout $58 billion a year in tax incentivesfor individuals.

Education

Education is the principal means of upwardmobility for Americans who want better livesfor themselves and their families. While educa-tion is mainly the province of State andlocal governments, and of families and individ-

uals, the Federal government plays an essen-tial role.

The Federal role is focused in the followingareas.

Pre-School: Head Start gives low-incomechildren a comprehensive approach to child de-velopment, stressing language and cognitivedevelopment, health, nutrition, and social com-petency.

• In 1999, Head Start will serve an addi-tional 30,000 to 36,000 children, for a totalof 860,000 to 866,000 children, continuingprogress toward the Administration’s goalof one million children served in 2002.

• Within the overall total of children served,in 1999 an additional 10,000 childrenunder age three will participate in theEarly Head Start component, for a totalof nearly 50,000—the first step toward theAdministration’s goal of doubling EarlyHead Start participation from its 1998level of nearly 40,000 to 80,000 by 2002.

National evaluation studies of both theregular Head Start program and the Early


Head Start component are under way, forwhich preliminary results are expected inthe spring and summer of 1998.

Elementary and Secondary Education:Federal spending for elementary and second-ary education targets important nationalneeds, such as equal opportunity and higheracademic standards to improve studentachievement. For example, most low-perform-ing children in low-income schools get extraeducational assistance through the Title I-Edu-cation for the Disadvantaged program. Otherprograms provide related support for childrenwith disabilities and limited English proficientchildren; support teacher and administratortraining; help finance and encourage State,school, and system reforms; and support re-search and technical assistance.

The Administration’s long-term goal is tohelp all children, and especially low-incomeand minority children, make steady gainsover time. Federal programs make a signifi-cant contribution to improved learning results.

• Citing Title I, as well as Head Start andchild nutrition programs, a 1994 RANDstudy found that ‘‘the most plausible’’ wayto explain big education gains of low-in-come and minority children in the past30 years is ‘‘some combination of increasedpublic investment in education and socialprograms and changed social policiesaimed at equalizing educational opportuni-ties.’’

• Minority students have made substantialgains in science, math, and reading sincethe 1970s, narrowing the gap between mi-nority and Caucasian student achievementby about a third.

The Federal focus began to change in1994 from supporting individual programsto emphasizing school-wide and school systemreforms, through the President’s Goals 2000Educate America Act and his Improving Amer-ica’s Schools Act. These laws support Stateand local standards-based reform efforts andspeed the use of technology in educationto help raise learning gains. Overall, thesenew approaches freed States and schoolsfrom Federal restrictions, providing greaterflexibility while requiring more accountabilityfor results. Early results show that the

new approaches are having a significant im-pact:

• A 1997 review of State plans showed that44 had content standards in at least read-ing and math, and 26 States had perform-ance standards.

• All States have established school supportteams that provide high-quality guidanceto Title I schools.

• All States now have plans to ensure that(1) classrooms are equipped with moderncomputers and connected to the Internet,(2) software is an integral part of the cur-riculum, and (3) teachers are ready to useand teach with technology.

• Business-school partnerships are develop-ing new software and new ways to usetechnology to raise student achievement.

• By the end of the 1998–1999 school year,nearly all States will have challengingcontent and performance standards inplace for two or more core subjects, andby 2001 nearly all States will have assess-ments aligned to the standards. BeforeGoals 2000, almost no States had chal-lenging academic standards in place.

• In 1999, Title I grants to school districtswill provide educational services to over10 million students in high poverty com-munities, over half a million more childrenthan in 1998.

• Each year, the National Assessment ofEducation Progress (NAEP) will helpmeasure progress toward achieving thegoal that rising percentages of all studentswill meet or exceed basic, proficient, andadvanced performance levels in nationaland State assessments of reading, math,and other core subjects, and the goal thatstudents in high-poverty schools will showimprovement gains comparable to thosefor all students.

Title VI Education Block Grant: This pro-gram provides general resources for education.It does not have clear, measurable goals andis not designed in law to produce specific re-sults in terms of student achievement gains.Evaluations of the program show that schooldistricts generally use the funds for routineactivities that do not improve teaching and

20721. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES

learning. As a result, the budget eliminatesfunding for this program in order to supportother programs, such as Title I, for whichthere are strong indicators of results in termsof student achievement gains.

Class Size Initiative: The Administrationproposes to help States and school districts re-duce class sizes in grades 1-3 to a nationalaverage of 18 students by providing financialassistance to help recruit, hire, and train100,000 new teachers by 2005.

Additional performance measures will bebased upon enacted legislation.

• In 1999, all States will receive a shareof $1.1 billion in funding to begin this ef-fort and approximately 35,000 new teach-ers will be hired.

Education Opportunity Zones: The Ad-ministration proposes to assist about 50 urbanand rural local education agencies with highconcentrations of low-income children thathave a track record in achieving high edu-cational outcomes or have implemented stand-ards-based systemic reform strategies to: (1)prepare all students to achieve high standards;(2) hold schools, teachers, and principals ac-countable for student achievement; (3) requirestudents to meet academic standards at keytransition points; and (4) provide students andparents with expanded public school choice.


• In 1999, the first 10-15 urban and 15-20rural school districts with high concentra-tions of low-income children will receivegrants to help continue and expand reformefforts.

School Construction: The Administrationproposes to provide tax credits representingthe full interest cost on bonds issued by Statesand localities for school construction, renova-tion, and modernization under the existingQualified Zone Academy Bond (QZAB) andproposed School Modernization Bond (SMB)programs. Over five years, Treasury will allo-cate nearly $22 billion in new bonding author-ity tied to the tax credits among States andlocalities.


• In 1999, all States and 100 of the poorestschool districts will receive a share of $9.7billion in SMB bonding authority. In addi-tion, all States will receive a share of theexisting QZAB bonding authority, $400million, with an additional $1 billion forthe program under the budget proposal.

Individuals with Disabilities: Under theIndividuals with Disabilities Education Act,the Education Department works with Statesto ensure that children with disabilities benefitfrom the Act’s requirement for a ‘‘free appro-priate public education’’ and are part of allaccountability systems. The Education Depart-ment and the States actively work to monitorand improve the performance of those stu-dents. In 1998, all States will have perform-ance goals and strategies in place for childrenwith disabilities aged three to 21, and willbegin to report their progress toward meetingthose goals.

• In 1999, all States will participate in regu-lar assessments of children with disabil-ities and in reporting the results.

Limited English-Proficient Children:With regard to the growing population of chil-dren with limited English proficiency, the Ad-ministration proposes that rising percentagesof teachers and other staff have the skillsneeded to enable these students to meet chal-lenging standards.

• In 1999, the Administration will helpStates hire and train 4,000 new teachersfor children with limited English pro-ficiency.

Reading: A student’s most basic skill tomaster is reading. Although reading problemsare particularly severe for disadvantaged stu-dents, students with reading difficulties rep-resent a cross-section of American children. In1994, only 30 percent of 4th graders scoredat the proficient level in reading on NAEP,while 40 percent scored below the basic level.In 1998, the President launched the AmericaReads Challenge to provide extra help to meetthe goal that every child will read well andindependently by the end of the third grade.

• In 1999, America Reads will continue tohelp increase the percentages of fourth-graders that meet basic, proficient, andadvanced levels in reading on the 4th


grade NAEP (administered in 1998 andevery two years thereafter).

Public School Choice: Charter schools in-troduce innovation and choice into publicschools. In 1997, about 700 charter schoolswere operating around the Nation, of whichabout 420 received Federal funding. In 1999,at least 1,500 charter schools will be operating,continuing progress toward the President’sgoal of 3,000 charter schools by 2001.

Voluntary National Tests: The Adminis-tration’s proposed voluntary national 4th gradereading and 8th grade mathematics tests forstudents will help students and their parentsand teachers know, for the first time, how wellstudents perform compared to other studentsnationally and internationally. They will alsoprovide important information about how welleducation reform efforts are working.

Postsecondary Education: The economicreturns to a college education are dramatic.Full-time male workers over 25 years old withat least a bachelor’s degree earned 89 percentmore in 1993 than comparable workers withjust a high school degree. Moreover, the bene-fits of college extend beyond the college grad-uates themselves. The resulting higher socio-economic status of parents with college degreesleads to greater educational achievement bytheir children.

Since the 1960s, the Federal Governmenthas played a growing role in helping Ameri-cans go to college. Federal programs financetwo-thirds of all direct student aid (i.e.,excluding general State and local supportfor public higher education). From 1964 to1993, these programs have helped nearlytriple college enrollment, increasing by athird the share of high school graduateswho attended college, and raise college enroll-ment rates for minority high school graduatesby nearly two-thirds.

• In 1999, the Education Department willhelp an estimated 8.8 million studentsunder its student aid programs.

• In 1999, an estimated 12.6 million stu-dents will receive college tax credits.

Scholarships for Low-Income Students:Research shows that, at the levels of medianincome and below, Pell Grant recipients are

twice as likely to earn a bachelor’s degree asare non-recipients. The President has pro-posed, and Congress has enacted, increases inthe maximum Pell Grant award from $2,300in 1993 to $3,000 in 1998. In 1998, an esti-mated 3.9 million needy students will receivePell Grants to finance their college educations.

• In 1999, the Pell Grant maximum awardwill total $3,100 and 3.9 million studentswill receive Pell grants.

Easing Loan Repayment: The Presidentproposed, and Congress enacted, the 1993 Stu-dent Loan Reform Amendments that createdthe Income Contingent Repayment (ICR) op-tion for loans. With ICR, students who havesignificant debt burdens and who want to takelower-paying community service jobs can maketheir payments affordable through ICR. In ad-dition, students who have trouble repayingloans under other schedules can switch to ICR.By the end of calendar 1997, the third yearICR was available, 65,000 borrowers had al-ready signed up for this repayment option.

• In 1999, ICR will continue to be availableto as many students who want it.

Modernization of the Student Aid Deliv-ery System: The Education Department man-ages the delivery of student aid benefits toover seven million students in nearly 7,000postsecondary schools, and oversees the directand guaranteed loan systems affecting 37million individuals, 4,800 lenders, and 36guarantee agencies. The Department has mademodernization of student financial aid manage-ment one of its highest priorities. Major partsof the effort include improving customer serv-ice at lower cost through better contractingpractices and using new information tech-nology. For example, students can now applyfor student financial aid electronically and ac-cess their direct student loan information overthe Internet.

In 1999, the Department expects to continueto make progress toward the goals it hasset for 2000, including to:

• increase, to three million, the annual num-ber of students applying for Federal aidelectronically;

• enable students and families applying forFederal aid electronically to have their eli-


gibility determined in four days, cuttingin half the current processing time;

• make the Department’s website the mostcomprehensive and efficient source of in-formation on Federal student aid and pro-gram requirements, reducing hard copiesof materials that now must be printed andmailed by at least a third;

• test a multi-year promissory note for stu-dent loans to streamline application proce-dures, minimize delays in receiving funds,and provide better consumer informationfor borrowers; and

• establish, with its partners in the financialaid community, mutually agreed upon in-dustry-wide standards for data exchangesneeded in administering student aid.

Student Loan Defaults: In recent years,the Education Department has made greatprogress in reducing defaults and increasingcollections from defaulters. The national stu-dent loan cohort default rate used for institu-tional eligibility dropped for the fifth straightyear to 10.4 percent for 1995, down from 10.7percent for 1994. The 1995 rate represents thegroup of borrowers whose first loan repay-ments came due in 1995 and who defaultedbefore October 1, 1996.

Over the most recent five-year period, thedefault rate has fallen by over half, from22.4 percent in 1990. This dramatic reductionis due, in large part, to the EducationDepartment’s improved institutional oversightthat has, in turn, led to the removal of875 schools, including 672 schools from allstudent aid programs and 203 schools fromthe Federal loan programs. In addition, thedepartment has implemented rigorous recer-tification standards for institutions to partici-pate in the student aid programs. As aresult, it has rejected about a third ofinitial applications to participate in the stu-dent aid programs over the last three years—twice the rate in 1990.

• In 1999, the default rate will continue todecline toward the goal of 10 percent orless by 2002.

Direct Loan Consolidations: By relyingmore on performance-based contracting, theEducation Department is ensuring the smooth

running of the loan consolidation contract. TheDepartment is also improving the loan consoli-dation process by improving the accuracy ofits data, strengthening managerial controlsthrough better tracking and reporting, increas-ing the number and expertise of consolidationcontractor staff, and speeding up the loan cer-tification process. As a result of new proce-dures in 1998, the department will averageno more than 60 to 90 days to complete aloan consolidation application.

• In 1999, average time to complete a loanconsolidation application will continue todecline.

• In 1999, surveys of borrowers will showthat applicants for loan consolidation arehighly satisfied with the timeliness andaccuracy of the loan consolidation process.

Education Department Year 2000 Com-pliance: The Department has launched amajor effort to ensure that its systems are notadversely affected by the year 2000 datechange.

• In March 1999, all of the Education De-partment’s mission-critical and mission-important systems will be verified as year2000 compliant.

Labor

Elementary, secondary, and postsecondaryinvestments enable Americans to acquire theskills to get good jobs in an increasinglycompetitive global economy. In addition, mostworkers acquire more skills on the job orthrough billions of dollars that employersspend to enhance worker skills and productiv-ity.

Some workers however, also benefit fromspecial, targeted assistance. In addition toPell Grants, student loans, and tax credits,the Federal Government spends nearly $7billion a year through Department of Labor(DOL) programs that finance job training.In addition, workers who want to learnabout job openings can tap into the StateEmployment Service and One-Stop CareerCenter System, a labor exchange that’s univer-sally available through DOL’s popular Ameri-ca’s Job Bank (AJB) website, which listsover 750,000 job vacancies every day andreceives 40 to 45 million ‘‘hits’’ a month.


DOL has launched several longitudinal eval-uations of its job training programs overthe past two decades, including major impactevaluations of the Job Corps and DislocatedWorker Assistance programs. Past studieshave found mixed, but generally positive,results for the DOL job training programs.

While impact evaluations are the best meas-ure of program effectiveness, DOL also setsannual performance goals for its major jobtraining programs. Performance goals for 1999will continue to emphasize job placement,employment retention, and earnings levels.

The Job Training Partnership Act’s(JTPA) Dislocated Worker Assistance: Thisprogram provides training and employmentservices to about 685,000 displaced workers ayear.

• In 1999, about 76 percent of those whoreceive services will be working threemonths after leaving the program, earningan average hourly wage that represents97 percent of the wage in their previousjob.

JTPA’s Adult Training Grants: This pro-gram helps over 400,000 low-income individ-uals get training, support services, and jobplacement assistance.

• In 1999, about 60 percent of those whoreceive services will be working threemonths after leaving the program, withweekly earnings averaging $270.

Job Corps: The Corps provides skill train-ing, academic and social education, and sup-port services in a structured, residential set-ting to nearly 70,000 very disadvantaged youtha year at 118 centers.

• In 1999, about 75 percent of those wholeave the program will get jobs or pursuefurther education, while those beginningwork will start at an average hourly wageof $6.25.

Employment Service/One-Stop CareerCenters: The Employment Service provides afree labor exchange for all workers and jobseekers, and is growing more and more effec-tive by expanding its implementation of One-Stop Career Centers.

• In 1999, DOL will continue to expand theOne-Stop Career Center System to include40 percent of all local employment serviceand JTPA offices, compared to 16 percentin 1997, and increase the number of em-ployers listing jobs with the AJB websiteby 20 percent over the 1997 level.

School-to-Work: All States are implement-ing school-to-work systems, using the five-yearFederal ‘‘venture capital’’ grants to devise newcollaborations between schools and the privatesector. In 1996, the program, which began in1994, was serving one million youth and 23percent of schools.

• In 1999, 1.5 million youth will be activelyengaged in school-to-work activities, and25 percent of high schools will offer keyschool-to-work components.

Workplace Protections

DOL regulates compliance with various lawsthat give workers certain workplace protec-tions—a minimum wage for virtually all work-ers, prevailing wages and equal employmentopportunity for workers on government con-tracts, overtime pay, restrictions on childlabor, and time off for family illness orchildbirth. In these areas, the Federal Govern-ment is working to increase industry’s compli-ance with labor protections through voluntarycompliance initiatives (coupled with continuedstrong enforcement), outreach to new andsmall business, and targeted enforcement inspecific industries, with specific measurablegoals.

• In 1999, compared to 1997, labor law com-pliance will increase by five percentagepoints in such industries as domestic gar-ments in certain targeted cities, and inpoultry processing.

National Service

The Corporation for National and Commu-nity Service supports programs providing serv-ice opportunities Nation-wide for Americansof all ages and backgrounds. Through Corpora-tion-supported projects, over 1.5 million par-ticipants work to address the Nation’s unmet,critical needs. The Corporation organizes itsprograms into three streams of service, withvarious annual performance goals.


AmeriCorps: AmeriCorps will engage56,000 Americans of all ages and backgroundsin community service, and provide educationawards in return for such service.

• In 1999, AmeriCorps VISTA members willgenerate cash and in-kind resources fortheir sponsoring organizations at a rateof $2.50 for every $1 of Federal funds.

Learn and Serve America: This programprovides opportunities for one million studentsto improve their academic learning while par-ticipating in service-learning projects inschools, universities, and communities.

• In 1999, 200,000 high school and collegestudents in Learn and Serve projects willprovide literacy tutoring to children ingrades K–3.

National Senior Service Corps: TheCorps, comprising over 500,000 people age 55and older, encourages seniors to use their ex-perience, skills and talents while serving asFoster Grandparents, Senior Companions, andthe Retired and Senior Volunteers.

• In 1999, the program will serve 150,000special needs youth and frail elderly.

Social Services

Vocational Rehabilitation Services: TheVocational Rehabilitation program providesfunds to States to help about 750,000 individ-uals with disabilities prepare for independentliving or gainful employment each year. In1997, the program helped to rehabilitate217,500 individuals with disabilities. The pro-gram has not had consistent performance goalsand measures of progress.

• In 1999, under proposed legislation, allStates will develop challenging State-spe-cific goals based on a comprehensive as-

sessment of the vocational rehabilitationneeds of individuals with disabilities inthe State, describe the strategies it willuse to address those needs, and report onprogress made towards those goals.

Social Services Block Grant: The budgettargets funding to programs that can betterdemonstrate positive performance. The SocialServices Block Grant supports a broad rangeof social service programs, but without statu-tory performance goals or measures of prog-ress. As a result, the budget reduces fundingfor this program in order to help provide fund-ing for other higher priority programs withgreater demonstrated outcomes, such as HeadStart and child care.

Tax Incentives

The Federal Government helps individuals,families, and employers (on behalf of theiremployees) plan for and buy education andtraining through numerous tax benefits, whichwill cost an estimated $57.3 billion in 1999.Along with the new Hope and Lifetime Learn-ing tax credits for college costs, the taxcode provides other ways to pay for educationand training. State and local governments,for instance, can issue tax-exempt debt tofinance student loans or to build the facilitiesof non-profit educational institutions. Interestfrom certain U.S. Savings Bonds is tax-free if the bonds go solely to pay for education.Many employers provide employee benefitsthat do not count as income. Starting in1998, many taxpayers can deduct the intereston student loans. Finally, the tax code givesemployers a Work Opportunity Tax Creditand a Welfare-to-Work Tax Credit, lettingthem claim a tax credit for part of thewages they pay to certain hard-to-employpeople who work for them for a minimumperiod.

213


22. HEALTH *

Table 22–1. FEDERAL RESOURCES IN SUPPORT OF HEALTH(In millions of dollars)


Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 100,882 106,339 115,050 122,450 131,564 141,347 152,447Proposed legislation .................... .............. .............. 44 124 224 –110 –120

Credit Activity:Direct loan disbursements ............. 21 .............. .............. .............. .............. .............. ..............Guaranteed loans ........................... 140 152 74 13 6 .............. ..............


Federal health programs work to improveAmerica’s health. In 1999, the Federal Govern-ment will spend about $141 billion andallocate about $86 billion in tax incentivesto provide direct health care services, promotedisease prevention, further consumer and occu-pational safety, conduct and support research,and help train the Nation’s health carework force. Together, these Federal activitieshave generated considerable progress in ex-tending life expectancy, cutting the infantmortality rate to historic lows, preventingand eliminating infectious diseases, levelingfatality among those with HIV/AIDS, andmaintaining the quality of life of individualssuffering from chronic diseases and disabil-ities.

In 1995, estimated life expectancy matchedthe record high, 75.8 years, of 1992. Thesteady rise since the early 1900s is partlyattributable to advances in medical science,health technologies, and public health adminis-tration. Furthermore, infant mortality hasreached a record low of 7.5 infant deathsper 1,000 live births, a six-percent reductionfrom the previous year. For the first time,HIV/AIDS death rates did not increase from

the previous year. The age-adjusted deathrate from HIV infection was 15.4 deathsper 100,000 population in 1995.

President Johnson and Congress createdMedicaid in 1965 as a Federal-State partner-ship to provide health insurance for thelow-income elderly and the poor. Since then,the Nation’s leaders have expanded the pro-gram from time to time to meet emergingneeds. In 1986, for instance, they answeredpublic concerns about high infant mortalityrates and the decline in private insurancecoverage by expanding Medicaid coverage forprenatal and child health services. In 1997,the President and Congress created a newchildren’s health program that builds onthe success of previous Medicaid expansionsfor children.

The Federal Government also helps expandhealth care coverage to those with whichit has a special obligation (including veterans,uniformed military personnel, and AmericanIndians and Alaska Natives). To foster signifi-cant advances in treatments and cures, Fed-eral health grants help sponsor biomedicalresearch that would not otherwise take place.Together, Federal assistance in health im-proves the public welfare and health status.


1 Excluding Medicare and the military and veterans medical pro-grams.

The Department of Health and HumanServices (HHS) is the Federal Government’slead agency for health programs. HHS’ Strate-gic Plan states the agency mission as: ‘‘toenhance the health and well-being of Ameri-cans by providing for effective health andhuman services and by fostering strong, sus-tained advances in the sciences underlyingmedicine, public health, and social services.’’

HHS’ Strategic Plan includes six goals:

(1) Reduce the major threats to healthand productivity of all Americans;

(2) Improve the economic and social well-being of individuals, families, and com-munities in the United States;

(3) Improve access to health services andensure the integrity of the Nation’shealth entitlement and safety net pro-grams;

(4) Improve the quality of health care andhuman services;

(5) Improve public health systems; and

(6) Strengthen the Nation’s health sciencesresearch enterprise and enhance its pro-ductivity.

Health Care Services and Financing

Of the estimated $141 billion in Federalhealth care outlays in 1999,1 88 percentfinances or supports direct health care servicesto individuals.

Medicaid: This Federal-State health careprogram served about 33 million low-incomeAmericans in 1997, with the Federal Govern-ment spending $95.6 billion (57 percent of thetotal) while States spent $72 billion (43 per-cent). States that participate in Medicaid mustcover several categories of eligible people, in-cluding certain low-income elderly, people withdisabilities, low-income women and children,and several mandated services, including hos-pital care, nursing home care, and physicianservices. States also may cover optional popu-lations and services. Under current law, Fed-eral experts expect total Medicaid spending togrow an average of 7.2 percent a year from1998 to 2003.

Medicaid covers a fourth of the Nation’schildren and is the largest single purchaserof maternity care as well as of nursinghome services and other long-term care serv-ices; the program covers almost two-thirdsof nursing home residents. The elderly anddisabled made up less than a third of Medicaidbeneficiaries in 1996, but accounted for almosttwo-thirds of spending on benefits. Otheradults and children made up over two-thirdsof recipients, but accounted for less thana third of spending on benefits. Medicaidserves at least half of all adults livingwith AIDS (and up to 90 percent of childrenwith AIDS), and is the largest single payerof direct medical services to adults livingwith AIDS.

States increasingly rely on managed carearrangements to provide health care throughMedicaid, with enrollment in such arrange-ments rising from 7.8 million in 1994 to13 million in 1996.

The 1997 Balanced Budget Act (BBA) madeimportant changes to Medicaid in order toreduce spending, mainly by reducing theDisproportionate Share Hospital program, andgiving States more flexibility. Specifically,the Act gave States the option of requiringmost beneficiaries to enroll in managed careplans without seeking a Federal waiver. Itrepealed the Boren Amendment, giving Statesmore flexibility to set hospital and nursinghome reimbursement rates. It added a Stateoption of guaranteeing Medicaid eligibilityto children for 12 months, regardless ofchanges in the child’s family income, andrestored Medicaid benefits for certain groupsof immigrants who would otherwise lose themunder the 1996 welfare law.

The Health Care Financing Administration(HCFA), which administers Medicaid, willwork with the States to develop and testMedicaid performance goals in accordancewith the 1993 Government Performance andResults Act. Because Medicaid’s success isintegrally related to States’ decisions on eligi-bility, reimbursement rates, delivery systems,and services, HCFA must select performancegoals in consultation with States to ensurethat they are compatible with State goalsand objectives.

21522. HEALTH

In 1998, HCFA and the National Associationof State Medicaid Directors will conduct threeformal consultation meetings to:

• identify areas of performance measure-ment;

• identify potential performance measures;and

• reach consensus on performance measuresfor HCFA’s 2000 Annual PerformancePlan.

In 1999, HCFA will work with the Statesto establish performance measurement base-lines and performance targets.

Medicaid supports HHS’ first three strategicgoals.

Children’s Health Insurance Program:Ten million American children lack health in-surance. To increase the number of childrenwith insurance, the BBA established the StateChildren’s Health Insurance Program (CHIP),which provides $24 billion over the next fiveyears for States to expand health insurancecoverage to low-income, uninsured children.The new program strikes a balance betweenproviding States with broad flexibility in pro-gram design and protecting beneficiariesthrough basic Federal standards. States havegreat flexibility to choose to expand Medicaid,create a separate State program, or use a com-bination of the two. At the same time, thenew law ensures that States provide a mean-ingful benefit package, limit cost sharing,maintain their current Medicaid programs,and provide accountability.

Each State may receive CHIP funding afterHCFA approves its child health plan. Statechild health plans must describe the strategicobjectives, performance goals, and performancemeasures used to assess the effectivenessof the plan. In preparation for its 2000Annual Performance Plan, HCFA will workwith the States to develop a consensus fora performance measure related to cuttingthe number of uninsured children and increas-ing the enrollment of eligible children inCHIP and Medicaid.

In developing such a measure, HCFA andthe States likely will consider such factorsas:

• How much CHIP has increased the num-ber of children with creditable health cov-erage;

• The characteristics of the children andfamilies who were helped;

• The quality of coverage and types of bene-fits provided;

• The level of State contributions; and

• Recommendations to improve the program.

HCFA will work with the States to identifypossible sources of data for performance meas-urement. In 2002, the Secretary of Healthand Human Services will issue a report,based on State evaluations, with conclusionsand recommendations.

HHS also is working to develop performancemeasures for CHIP. As does Medicaid, CHIPsupports HHS’ first three strategic goals.

Youth Tobacco Use: Reducing tobacco useamong young people is a top Administrationpriority. Several HHS agencies, including theFood and Drug Administration (FDA), the Cen-ters for Disease Control and Prevention (CDC),and the Substance Abuse and Mental HealthServices Administration (SAMHSA), are work-ing to prevent young people from starting life-long addictions to tobacco.

To support the Administration’s goal ofreducing youth smoking by 50 percent overseven years, the FDA has set the following1999 performance goals:

• Conduct an average of 42,000 unan-nounced compliance checks each month ofretail establishments that sell tobaccoproducts.

• Educate retailers and other stakeholdersabout the FDA tobacco rules through amultimedia campaign including point-of-purchase, radio, outdoor advertising, andnewspapers.

• Design and implement a regulatory pro-gram for cigarettes and smokeless tobaccoproducts.

SAMHSA is working to ensure that thepercentage of minors that are ‘‘successful’’in purchasing cigarettes is under 20 percentin all States by the year 2003, consistentwith the Synar Amendment (Sec. 1926 of


the Public Health Service Act). For 1999,SAMHSA has set the following goals:

• All States will develop an annual measureof the violation rate using probability sam-ples of outlets.

• All States will receive periodic technicalassistance in implementation of guidelinesto meet the Synar Amendment goals.

• More States will reduce their violationrates of sales of tobacco to minors to 20percent or less.

CDC has set the following performancegoal for 1999:

• Increase the number of States with fiveof the following seven core tobacco preven-tion capacities to 30 in 1999:

(1) Develop/improve a State tobacco con-trol plan addressing HHS HealthyPeople 2000 tobacco objectives;

(2) Establish a State tobacco control coali-tion;

(3) Conduct media/educational activitiesand cooperate with, and maximize theuse of, Nation-wide media/educationcampaigns;

(4) Develop a State-based resource centerand provide training on effective publichealth approaches to tobacco use pre-vention and reduction;

(5) Engage in community outreach andmobilization at the local level;

(6) Use surveillance data for planning, re-porting and educational activities; and

(7) Evaluate program performance andparticipate in Nation-wide evaluationefforts.

The Indian Health Service’s (IHS) 1999performance plan includes a goal of developinga baseline database for assessing substanceabuse, including tobacco use, in AmericanIndian and Alaska Native youth.

Other Health Care Services: HHS supple-ments Medicare and Medicaid with a numberof ‘‘gap-filling’’ grant activities to supporthealth services for low-income or specific popu-lations, including Consolidated Health Centergrants, Ryan White AIDS treatment grants,

the Maternal and Child Health block grant,Family Planning grants, and the SubstanceAbuse block grant. In addition, IHS deliversdirect care to about 1.3 million American Indi-ans and Alaska Natives as a part of the Fed-eral Government’s trust obligations. The IHSsystem, located primarily on or near reserva-tions, includes 49 hospitals, 195 health cen-ters, and almost 300 other clinics.

HHS agencies have sought to ensure thatspecific populations have access to high-qualityFederal health services. Similar to healthinsurance programs, these supplementalhealth service programs support HHS’ firstthree strategic goals. HHS agencies havedeveloped performance measures to help plan,track, and evaluate program effectiveness.

In 1999, HHS agencies will work to meetthe following goals:

• IHS: Cut the incidence of amputation andblindness linked to diabetic neuropathyand retinopathy by five percent in the Na-tive American and Alaska Native diabeticpopulations, compared to the 1996 rate,which varies from 45 percent among theSioux to 18 percent among the Pima Indi-ans.

• SAMHSA: Reverse the upward trend andcut monthly marijuana use among 12 to17-year-olds by 25 percent, from the 1995baseline of 8.2 percent to 6.2 percent, bythe end of 2002.

• Health Resources and Services Administra-tion (HRSA): Increase the percent of in-fants born to pregnant women receivingprenatal care, beginning in the first tri-mester, from the 1995 rate of 81.3 percent.

• HRSA Ryan White AIDS TreatmentGrants: Cut, by eight percent, the numberof AIDS cases in children as a result ofperinatal transmission, compared to the1996 baseline of 678 cases.

• HRSA Ryan White AIDS TreatmentGrants: Increase, by five percent, the num-ber of persons receiving primary care serv-ices under HRSA HIV/AIDS (Ryan WhiteCARE Act—Title III) Early InterventionServices programs who are also receivingcombination antiretroviral therapy.

21722. HEALTH

• Agency for Health Care Policy and Re-search: Release and disseminate MedicalExpenditure Panel Survey data and asso-ciated products to the public within nineto 12 months of data collection.

• Office for Civil Rights: Increase the num-ber of managed care plans in compliancewith Title VI, Section 504 and the Ameri-cans with Disabilities Act.

Also in 1999, the Consumer Product SafetyCommission will reduce product-related headinjuries to children by 10 percent.

Prevention Services: Prevention can go farto improve Americans’ health. Measures toprotect public health can be as basic as provid-ing good sanitation and as sophisticated aspreventing bacteria from developing resistanceto antibiotics. State and local health depart-ments traditionally lead such efforts, but theFederal Government—through CDC—also pro-vides financial and technical support. For ahalf-century, CDC has worked with State andlocal governments to prevent syphilis andeliminate smallpox and other communicablediseases.

More recently, CDC has focused on prevent-ing a host of diseases, including breast cancer,prostate cancer, lead poisoning among chil-dren, and HIV/AIDS. Furthermore, CDC isworking to reduce the prevalence of chlamydiaamong high-risk women under age 25 infederally-funded family planning and SexuallyTransmitted Disease (STD) clinics from ninepercent in 1996 to below six percent. HHS’prevention programs support its first, fourth,and fifth strategic goals.

• Working with HCFA, CDC will continueto help States ensure that, by age two,at least 90 percent of all U.S. children re-ceive each recommended basic childhoodvaccine.

Biomedical Research: The National Insti-tutes of Health (NIH) is among the world’sforemost biomedical research centers and theFederal focal point for the Nation’s biomedicalresearch. NIH research is designed to gainknowledge to help prevent, detect, diagnose,and treat disease and disability. NIH conductsresearch in its own laboratories and clinicalfacilities; supports research by non-Federal sci-entists in universities, medical schools, hos-

pitals, and research institutions across the Na-tion and around the world; helps train re-search investigators; and fosters communica-tion of biomedical information.

NIH supports over 50,000 grants to univer-sities, medical schools, and other researchand research training institutions while con-ducting over 1,200 projects in its own labora-tories and clinical facilities. NIH-supportedresearch has helped to achieve many ofthe Nation’s most important public healthadvances. Examples of recent research ad-vances include the identification of a genethat predisposes men to prostate cancer;the development of potentially life-saving newtherapies for HIV-infected individuals; theidentification of certain risk factors for breastcancer which result from mutated genes;and the development of new technology fordetecting defects in human chromosomes.

In continuing to make new discoveriesin these and other research areas, NIHhas set forth its vision of biomedical andbehavioral research in the HHS strategicplan. Also, as a steward of public fundingfor research, NIH helps grantee institutionsimprove their internal business systems sothey can more easily comply with Federalgrant requirements. NIH programs supportHHS’ first, fourth, and sixth strategic goals.

NIH has set bold performance goals forthe next century of research, such as:

• completing the sequencing of the humangenome project by 2005 by initially reach-ing a production rate of 100 million basepairs in 1999, growing to a production rateof over 300 base pairs a year by 2003;and

• leading the national effort to meet thePresident’s goal of developing an AIDSvaccine by 2007.

Public Health Regulation and Safety In-spection: FDA spends $1 billion a year to pro-mote public health by helping to ensurethrough pre-market review and post-marketsurveillance that foods are safe, wholesome,and sanitary; human and veterinary drugs, bi-ological products, and medical devices are safeand effective; and cosmetics and electronicproducts that emit radiation are safe. FDAalso helps the public gain access to important


new life-saving drugs, biological products, andmedical devices. It leads Federal efforts to en-sure the timely review of products and ensurethat regulations enhance public health, notserve as an unnecessary regulatory burden. Inaddition, the FDA supports research, consumereducation, and the development of both vol-untary and regulatory measures to ensure thesafety and efficacy of drugs, medical devices,and foods. With the 1997 reauthorization ofthe Prescription Drug User Fee Act, FDA willcontinue to collect pharmaceutical industryfees to accelerate the review of drug applica-tions.

FDA programs support HHS’ first andfifth strategic goals.

To speed the review process, FDA hasset the following performance goals for 1999:

• review and process 90 percent of completenew drug applications within a year ofsubmission;

• review and process 90 percent of completenew drug applications for priority drugswithin six months of submission; and

• review and process 50 percent of new med-ical device applications (know as pre-mar-ket applications) within 180 days.

To give the public useful health information,FDA has set the following performance goal:

• Ensure that, by the year 2000, 75 percentof consumers receiving drug prescriptionswill get more useful and readable informa-tion about their product.

FDA will define the term ‘‘usefulness’’ interms of: scientific accuracy, unbiased contentand tone, specificity and comprehensiveness,and timeliness. Based on the FDA’s ownnational surveys, only 32 percent of consumersreceived useful information on new drugprescriptions in 1992.

Although the U.S. food supply is one ofthe safest in the world, the increasing numberof reported foodborne illnesses pose a growingpublic health challenge. A major objectiveof the FDA and the Administration’s FoodSafety Initiative, of which FDA is a majorpart, is to reduce illness associated withmicrobial contamination of food.

To that end, FDA has set as one ofits performance goals to:

• Assure, by December 30, 1999, that 50percent of the seafood industry is operat-ing under appropriate hazard assessmentand control systems, also know as HazardAnalysis Critical Control Point systems.

The Food Safety and Inspection Service(FSIS) inspects the Nation’s meat, poultry,and egg products, ensuring that they aresafe, wholesome, and not adulterated. With$600 million in annual funding, agency staffinspect all domestic livestock and poultryin slaughter plants; conduct at least dailyinspections of meat, poultry, and egg productprocessing plants; and inspect imported meat,poultry, and egg products. In 1996, FSISissued a major regulation that will beginshifting responsibility for ensuring meat andpoultry safety from FSIS to the industry.The regulation should allow FSIS to bettertarget its inspection resources to the higher-risk elements of the meat and poultry produc-tion, slaughter, and marketing processes.

• By 1999, 92 percent of all federally-in-spected meat and poultry products will beunder a Hazard Analysis Critical ControlPoint (HACCP) system and, by 2000, allplants will produce products underHACCP.

Workplace Safety and Health

The Federal Government spends $550 mil-lion a year to promote safe and healthyworkplaces for over 100 million workers insix million workplaces, mainly through theLabor Department’s Occupational Safety andHealth Administration (OSHA) and Mine Safe-ty and Health Administration (MSHA). Regu-lations that help businesses create and main-tain safe and healthy workplaces have signifi-cantly cut illness, injury, and death fromexposure to hazardous substances and dan-gerous employment. In 1996 (the most recentyear for which data are available), workplaceinjuries and illnesses fell to the lowest rateon record. OSHA and MSHA will work tocontinue this trend by enforcing their regula-tions and helping employers and workers.

• By focusing on the most hazardous indus-tries and workplaces and the most preva-

218–A THE BUDGET FOR FISCAL YEAR 1999

lent workplace injuries and illnesses,OSHA over the next two years will reduceworkplace injuries and illnesses by 20 per-cent in 50,000 workplaces.

• MSHA will, in 1999, reduce fatalities andlost workdays in all mines to below theaverage number recorded for the previousfive years.

Tax Expenditures

Federal tax laws help finance health insur-ance and care. Most notably, employer con-tributions for health insurance premiums areexcluded from employees’ taxable income. Inaddition, self-employed people may deducta part (45 percent in 1998, rising to 100percent in 2007 and beyond) of what they

pay for health insurance for themselves andtheir families. Individuals who itemize alsomay deduct certain health-related expenses—such as insurance premiums that employersdo not pay; expenses to diagnose, treat,or prevent disease; and expenses for certainlong-term care services and insurance poli-cies—to the extent that they exceed 7.5percent of the individuals’ adjusted grossincome. Total health-related tax expenditures,including other provisions, will reach an esti-mated $86 billion in 1999, and $491 billionfrom 1999 to 2003; the exclusion for employer-provided insurance and related benefits (in-cluding deductions by the self employed)accounts for most of these costs ($76 billionin 1999 and $438 billion from 1999 to2003).

219

23. MEDICARE

Table 23–1. FEDERAL RESOURCES IN SUPPORT OF MEDICARE(In millions of dollars)


Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 187,441 195,383 204,691 214,249 230,075 232,504 253,450Proposed legislation .................... .............. .............. –79 –33 –152 –257 –326

Created by the Social Security Amendmentsof 1965 (and expanded in 1972), Medicareis a Nation-wide health insurance programfor the elderly and certain people with disabil-ities. The program, which will spend anestimated $207 billion in 1999 on benefitsand administrative costs, consists of twocomplementary but distinct parts, each tiedto a trust fund: (1) Hospital Insurance (PartA) and (2) Supplementary Medical Insurance(Part B).

Over 30 years ago, Medicare was designedto address a serious, national problem inhealth care—the elderly often could not affordto buy health insurance, which was moreexpensive for them than for other Americansbecause they had higher health care costs.Medicare was expanded in 1972 to addressa similar problem of access to insurancefor people with disabilities. Through Medicare,the Federal Government created one insurancepool for all of the elderly and eligibiledisabled individuals while subsidizing someof the costs, thus making insurance muchmore affordable for almost all elderly Ameri-cans and for certain people with disabilities.

Medicare has very successfully expandedaccess to quality care for the elderly andpeople with disabilities. Still, even thoughthe Balanced Budget Act (BAA) of 1997improved Medicare’s financial outlook for thenear future, its trust funds face financingchallenges as the Nation moves into the

21st Century. Along with legislative proposalsdiscussed elsewhere in the budget, the HealthCare Financing Administration (HCFA), whichruns Medicare, is working to improve Medicarethrough its regulatory authority and dem-onstration programs.

The Department of Health and HumanServices (HHS), which houses HCFA, is theFederal Government’s lead agency for healthprograms. HHS’ Strategic Plan states theagency mission as: ‘‘to enhance the healthand well-being of Americans by providingfor effective health and human services andby fostering strong, sustained advances inthe sciences underlying medicine, publichealth, and social services.’’

Medicare supports HHS’ first, second, third,and fourth strategic goals, as described inChapter 22, ‘‘Health.’’

Part A

Part A covers almost all Americans age65 or older, and most persons who aredisabled for 24 months or more and whoare entitled to Social Security or RailroadRetirement benefits. People with end-stagerenal disease (ESRD) also are eligible forPart A coverage. About 99 percent of Ameri-cans aged 65 or older are enrolled in PartA, along with an estimated 93 percent ofESRD patients. Part A reimburses providersfor the inpatient hospital, skilled nursingfacility, home health care related to a hospital


stay, and hospice services provided to bene-ficiaries. Part A’s Hospital Insurance (HI)Trust Fund receives most of its income fromthe HI payroll tax—2.9 percent of payroll,split evenly between employers and employees.

Part B

Part B coverage is optional, and it isavailable to almost all resident citizens age65 or older and to people with disabilitieswho are entitled to Part A. About 96 percentof those enrolled in Part A have chosento enroll in Part B. Enrollees pay monthlypremiums that cover about 25 percent ofPart B costs, while general taxpayer dollarssubsidize the remaining costs. For most bene-ficiaries, the Government simply deducts thePart B premium from their monthly SocialSecurity checks.

Part B pays for medically necessary physi-cian services; outpatient hospital services;diagnostic clinical laboratory tests; certaindurable medical equipment (e.g., wheelchairs)and medical supplies (e.g., oxygen); homehealth care; physical and occupational therapy;speech pathology services; and outpatient men-tal health services. Part B also covers kidneydialysis and other services for ESRD patients.

Fee-for-Service vs. Managed Care

Beneficiaries can choose the coverage theyprefer. Under the ‘‘traditional,’’ fee-for-serviceoption, beneficiaries can go to virtually anyprovider in the country. Medicare pays provid-ers primarily based on prospective payment,an established fee schedule, or reasonablecosts. About 87 percent of Medicare bene-ficiaries now opt for fee-for-service coverage.

Alternatively, beneficiaries can enroll ina Medicare managed care plan, and the13 percent who do are concentrated in severalgeographic areas. Generally, enrollees receivecare from a network of providers, althoughMedicare managed care plans may offer apoint-of-service benefit, allowing beneficiariesto receive certain services from non-networkproviders. Most managed care plans receivea monthly, per-enrollee ‘‘capitated’’ paymentthat covers the cost of Part A and B services.As of June 1997, 67 percent of all Medicarebeneficiaries lived in a county served byat least one Medicare managed care plan.

Due to the BBA, Medicare managed care(renamed ‘‘Medicare+Choice’’ or Part C) willprovide new health plan options for Medicarebeneficiaries, including provider-sponsored or-ganizations (PSOs) and preferred providerorganizations (PPOs). Part C also will featureimproved beneficiary information and willbe fully operational by January 1, 1999.

Successes

Medicare has dramatically increased accessto health care for the elderly—from slightlyover 50 percent of the elderly in 1966 toalmost 100 percent today.

According to the Physician Payment ReviewCommission’s latest report, 96 percent ofMedicare beneficiaries reported no troubleobtaining care. Further, less than 1 percentof beneficiaries reported trouble getting carebecause a physician would not accept Medicarepatients. Medicare beneficiaries have accessto the most up-to-date medical technologyand procedures.

Medicare also gives beneficiaries an attrac-tive choice of managed care plans. Today,managed care is a major, and growing, partof Medicare. As of December 1, 1997, over5.2 million beneficiaries have enrolled in307 Medicare managed care plans. Duringthe 12-month period ending December 1,1997, enrollment in the capitated managedcare plans called ‘‘risk contracts’’ grew by27 percent. Managed care plans can providecoordinated care that is focused on preventionand wellness.

In addition, Medicare is working to protectthe integrity of its payment systems. Buildingon the success of Operation Restore Trust,a five-State demonstration aimed at cuttingfraud and abuse in home health agencies,nursing homes, and durable medical equip-ment suppliers, Medicare is increasing itsefforts to root out fraud and abuse. Recentlegislation provides mandatory Federal fundsand greater authority to prevent inappropriatepayments to fraudulent providers, and toseek out and prosecute providers who continueto defraud Medicare and other health careprograms.

22123. MEDICARE

1 These figures cover Federal spending on Medicare benefits, butdo not include spending financed by beneficiaries’ premium pay-ments or administrative costs.

Spending and Enrollment

Net Medicare outlays will rise by an esti-mated 30 percent from 1998 to 2003—from$194.2 billion to $252 billion.1 Part A outlayswill grow by an estimated 23 percent overthe period—from $130.3 billion to $160 bil-lion—or an average of 4.2 percent a year.Part B outlays will grow by an estimated44 percent—from $63.8 billion to $92 billion—or an average of 7.6 percent a year.

Medicare is consuming a growing shareof the budget. In 1980, Federal spendingon Medicare benefits was $31 billion, compris-ing 5.2 percent of all Federal outlays. In1995, Federal spending on Medicare benefitswas $156.6 billion, or just over 10 percentof all Federal outlays. By 2003, assumingno changes in current law, Federal spendingon Medicare benefits will total an estimated$252 billion, or almost 13 percent of allFederal outlays.

Medicare enrollment will grow slowly until2010, then explode as the baby boom genera-tion begins to reach age 65. From 1995to 2010, enrollment will grow at an estimatedaverage annual rate of 1.5 percent, from37.6 million enrollees in 1995 to 46.9 millionin 2010. But after 2010, average annualgrowth will almost double, with enrollmentreaching an estimated 61.3 million in 2020.

The Two Trust Funds

HI Trust Fund: As noted earlier in thischapter, the HI Trust Fund is financed by a2.9 percent payroll tax, split evenly betweenemployers and employees. In 1995, HI expend-itures began to exceed the annual income tothe Trust Fund and, as a result, Medicarebegan drawing down the Trust Fund’s ac-counts to help finance Part A spending. Priorto the BBA, the Government’s actuaries pre-dicted that the HI Trust Fund would becomeinsolvent in 2001. The BBA, however, ensuredthe solvency of the Trust Fund for anothernine years—until 2010.

Medicare Part A still faces a longer-termfinancing challenge. Since current benefitsare paid by current workers, Medicare costs

associated with the retirement of the babyboomers, starting in 2010, will be borneby the relatively small number of peopleborn after the baby boom. As a result,only 2.2 workers will be available to supporteach beneficiary in 2030—compared to today’sfour workers per beneficiary. The Presidentplans to work with Congress and the MedicareCommission to develop a long-term solutionto this financing challenge.

SMI Trust Fund: The SMI Trust Fund re-ceives about 75 percent of its income from gen-eral Federal revenues and about 25 percentfrom beneficiary premiums. Unlike HI, theSMI Trust Fund is really a trust fund in nameonly; the law lets the SMI Trust Fund tapdirectly into general revenues to ensure its an-nual solvency.

Demonstrations and Regulations

HCFA also conducts demonstration pro-grams to determine the efficacy of new servicedelivery or payment approaches. For example,Phase II of the Social Health MaintenanceOrganization demonstration project is testingalternative mechanisms for adjusting the man-aged care capitated payment, including thebeneficiary’s functional status. In another dem-onstration project, Centers of Excellence,HCFA has experimented with bundled pay-ments for hospital and physician costs forselected procedures performed at certain high-quality facilities.

Through its regulatory authority, HCFAcontinually improves Medicare. For example,HCFA has finalized regulations specifyingadditional standards that home health agen-cies must meet to participate in Medicare,including securing surety bonds, and it expectsto issue similar regulations for durable medicalequipment suppliers this year. By reducingthe amount of fraud and abuse in the program,the Administration is making importantchanges to strengthen Medicare.

Performance Plan

HCFA has developed a comprehensive setof performance goals to measure its progressin ensuring that Medicare beneficiaries receivethe highest quality health care. HCFA’s 22performance goals relate to quality assurance,access to care for the elderly and disabled,


administrative efficiency, and a reduction infraud and abuse—four areas critical to theadministration of Medicare.

For example, HCFA’s 1999 goals include:

• Increasing the percentage of Medicarebeneficiaries who receive a mammogramonce every two years from 49 percent in1994 to 59 percent in 1999 and 60 percentin 2000;

• Increasing the number of Medicare bene-ficiaries receiving vaccinations for influ-enza from 41 percent in 1995 to 59 per-cent;

• Reducing the payment error rate underMedicare’s fee-for-service program from 14percent in 1996 to 13 percent, with a five-year goal of 10 percent;

• Continuing to shift Medicare contractors’nine different claims processing systemsto one Part A and one Part B standardsystem (by the end of 1999, HCFA willhave one Part A system and two Part Bsystems, with the final Part B transitioncoming later); and

• Ensuring that no significant interruptionsto Medicare claims payments occur be-cause information systems under HCFA’scontrol were not year 2000 compliant. Forsystems not under HCFA’s direct control,HCFA will continue to work with its Medi-care contractor community and performoversight activities directing them toachieve and verify compliance. HCFA willagain seek legislative changes to increaseits control over contractor systems.

223


24. INCOME SECURITY *

Table 24–1. FEDERAL RESOURCES IN SUPPORT OF INCOMESECURITY



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 191,445 198,446 210,002 219,733 227,561 233,748 243,064Proposed legislation .................... .............. 100 1,516 1,843 2,269 2,554 2,706

Credit Activity:Direct loan disbursements ............. 71 62 33 11 .............. .............. ..............Guaranteed loans ........................... 11 31 72 144 145 71 40

Tax Expenditures:Existing law .................................... 101,350 103,950 103,690 105,570 106,475 107,645 109,095Proposed legislation ....................... .............. 42 130 250 267 256 273

The Federal Government provides about$245 billion a year in cash or in-kind benefitsto individuals through income security pro-grams, including about $130 billion for pro-grams of the ‘‘social safety net.’’ Since the1930s, these safety net programs, plus SocialSecurity, Medicare, and Medicaid, have grownenough in size and coverage so that evenin the worst economic times, most Americanscan count on some form of minimum supportto prevent complete destitution. The combinedeffects of these programs represent one ofthe most significant changes in national socialpolicy in this century, improving the livesof millions of lower-income families.

The remaining $115 billion for income secu-rity programs include general retirement anddisability insurance (excluding Social Security,which is described in Chapter 25), Federalemployee retirement and disability programs,and housing assistance.

Major Programs

The largest means-tested income securityprograms discussed in this chapter are FoodStamps, Supplemental Security Income (SSI),

Temporary Assistance for Needy Families(TANF), and the Earned Income Tax Credit(EITC). The various kinds of low-income hous-ing assistance are discussed in Chapter 18,‘‘Commerce and Housing Credit.’’ These pro-grams, along with unemployment compensa-tion (which is not means-tested), form thebackbone of cash and in-kind ‘‘safety net’’assistance in the Income Security function.

Food Stamps: Food Stamps help most low-income people get a more nutritious diet. Theprogram reaches more people than any othermeans-tested income security program; in anaverage month in 1997, 22.9 million people,or 9.5 million households, received benefitsand that year, the program provided total ben-efits of $20 billion. Food Stamps is the onlyNation-wide, low-income assistance programavailable to essentially all financially-needyhouseholds that does not impose non-financialcriteria, such as whether households includechildren or elderly persons. (The new welfarelaw limits the number of months that child-less, able-bodied individuals can receive bene-fits while unemployed.) The average monthly,per-person Food Stamp benefit was about $71in 1997.


• In 1999, the program will provide an aver-age projected benefit of $76 to 21.6 millionpersons a month.

Child Nutrition Programs: The NationalSchool Lunch and Breakfast Programs providefree or low-cost nutritious meals to childrenin participating schools.

• In 1999, the programs will serve an esti-mated 27 million lunches daily.

Supplemental Security Income: SSI pro-vides benefits to the needy aged, blind, anddisabled adults and children. In 1997, 6.3 mil-lion individuals received $26.2 billion in bene-fits. Eligibility rules and payment standardsare uniform across the Nation. Average month-ly benefit payments range from $234 for agedadults to $450 for blind and disabled children.Most States supplement the SSI benefit.

• In 1999, SSI will serve an estimated 6.3million respondents, costing $28 billion inbenefits.

Temporary Assistance for Needy Fami-lies: In the 1996 welfare reform law, the Presi-dent and Congress enacted TANF as the suc-cessor to the 60-year-old Aid to Families withDependent Children (AFDC) program. TANF,on which the Federal Government will spendabout $16.5 billion in 1999, is designed to meetthe President’s goal of dramatically changingthe focus of welfare—from a system focusedon determining eligibility to one that helps re-cipients move from welfare to work. TANFgrants give States broad flexibility to deter-mine eligibility for assistance and the kind ofcash, in-kind, and work-related assistance theyprovide.

• States cannot yet project the number ofpersons who will receive TANF assistancein 1999.

Child Care: The Administration proposes acomprehensive Child Care Initiative. The larg-est components include an expansion of theChild and Dependent Care Tax Credit and anincrease to the Child Care and DevelopmentBlock Grant. The fund expansion would add$7.5 billion in new authority from 1999 to2003. A total of $4.3 billion (current fundingplus new funding) would be available in 1999.


• In 1999, the Child Care and DevelopmentBlock Grant, including new funds, will in-crease the opportunities for children re-ceiving subsidized child care by 300,000to 500,000 over 1998.

• In 1999, the proposed Child and Depend-ent Care Tax Credit expansion will benefitthree million families with incomes below$59,000, providing an average tax cut of$330.

Earned Income Tax Credit: The EITC, arefundable tax credit for low-income workingfamilies, has two broad goals: (1) to encouragefamilies to move from welfare to work by mak-ing work pay; and (2) to reward work so par-ents who work full-time do not have to raisetheir children in poverty. In 1997, the EITCprovided $27.9 billion of credits, includingspending on tax refunds and lower tax receiptsfor non-refunded portions of the credit. Forevery dollar that low-income workers earn—up to certain limits—they receive betweenseven and 40 cents as a tax credit. In 1997,the EITC provided an average credit of nearly$1,470 to nearly 19 million workers and theirfamilies.

• In 1999, an estimated 19 million house-holds will receive an average credit of$1,500.

Unemployment Compensation: Unemploy-ment compensation provides benefits, whichare taxable, to individuals who are temporarilyout of work and whose employer has pre-viously paid payroll taxes to the program. TheState payroll taxes finance the basic benefitsout of a dedicated trust fund. States set benefitlevels and eligibility criteria, which are notmeans-tested. Regular benefits are typicallyavailable for up to 26 weeks of unemployment.In 1997, about 7.6 million persons claimed un-employment benefits that averaged $185 week-ly.

• In 1999, an estimated 8.3 million personswill receive an average benefit of $199 aweek.

By design, benefits are available to experi-enced workers who lose their jobs throughno fault of their own. Thus, unemploymentcompensation does not cover all of the unem-ployed in any given month. In 1997, onaverage, the ‘‘insured unemployed’’ represented

22524. INCOME SECURITY

about 35 percent of the estimated total numberof unemployed. Those who are not coveredinclude new labor force entrants, re-entrantswith no recent job experience, and thosewho quit their jobs voluntarily without goodcause and, thus, are not eligible for benefits.

Other important income security programsinclude the Special Supplemental NutritionProgram for Women, Infants, and Children(known as WIC); child care assistance; refugeeassistance; and low-income home energy as-sistance.

Recent Changes in Income SecurityCaseloads

Due largely to a strong economy and signifi-cant changes to Federal welfare and FoodStamp programs, the caseload in each hascontinued to fall in the past year. Mostdetailed analyses have attributed these case-load reductions to the strong economy andnew efforts to move people from welfareto work. Indeed, welfare caseloads, whichfell by a record 1.9 million in the President’sfirst three-and-a-half years in office, droppedby more than two million in the year afterhe signed the new welfare reform law. Thelaw created TANF, repealed AFDC, increasedchild care payments, and created a newtime-limited work-oriented public assistanceprogram. States must now require and rewardwork, impose time limits, and demand per-sonal responsibility.

In addition, the welfare reform law alsolimited Food Stamp benefits for able-bodiedchildless adults to three months of assistancein a 36-month period. The 1997 BalancedBudget Agreement provided funds to providequalifying work slots to individuals facingthe time limits, but only enough to servea portion of affected individuals. The welfarereform law banned most legal immigrantsfrom receiving Food Stamps. The budgetwould restore these benefits for families withchildren, and for disabled and elderly legalimmigrants who entered the country beforethe law was signed.

Like TANF, Food Stamp caseloads havecontinued to fall. In September 1997, theFood Stamp program recorded its 41st straightmonth of declining enrollment, reflecting alongstanding trend: Food Stamp enrollments

rise and fall with the poverty rate. Atits peak in March 1993, Food Stamps served27.4 million participants a month, or onein every 10 Americans. By September 1997,participation had fallen to 20.9 million, orone in every 13 Americans.

Due also to the economy and low unemploy-ment, the unemployment insurance (UI) case-load has fallen significantly. Between 1993and 1997, the average weekly number ofindividuals claiming UI benefits declined from4.4 million to 2.4 million.

While caseloads have fallen in varioussafety net programs, the Administration hascontinued to target resources at infants andchildren. WIC, for example, reaches nearly7.5 million persons a year, providing nutritionassistance, nutrition education and counseling,and health and immunization referrals. WICfunding increases since 1993 have enabledparticipation to grow by nearly 30 percent.The budget proposes $4.1 billion to serve7.5 million through 1999, fulfilling the Presi-dent’s goal of full participation in WIC.

Effects of Income Security Programs

What effect do safety net programs haveon poverty, and to what extent do theytarget assistance to the poor? Chapter 25,‘‘Social Security,’’ explores the impact of SocialSecurity alone on the income and povertyof the elderly. This chapter looks at thecumulative impact across the major programs.

For purposes of this discussion, ‘‘means-tested benefits’’ include AFDC, SSI, certainveterans pensions, Food Stamps, child nutri-tion meals subsidies, rental assistance, andState-funded general assistance. Medicare andMedicaid greatly help eligible families whoneed medical services during the year, butexperts do not agree about how much addi-tional income Medicare or Medicaid coveragerepresents to the covered. Consequently, thesebenefits are not included in the analysisthat follows. ‘‘Social insurance programs’’ in-clude Social Security, railroad retirement,veterans compensation, unemployment com-pensation, Pell Grants, and workers’ com-pensation. The definition of income for thisdiscussion (cash and in-kind benefits), andthe notion of pre- and post-Government trans-fers, do not match the Census Bureau’s


definitions for developing official poverty sta-tistics. Census counts income from cash alone,including Government transfers.

Effectiveness in Reducing Poverty: Basedon special tabulations from the March 1997Current Population Survey (CPS), 57.5 millionpeople were poor in 1996 before accounting forthe effect of Government programs. After ac-counting for Government transfer programs,the number of poor fell to 30.3 million, a dropof 47 percent.

After large declines in poverty in 1994and 1995, 1997 CPS data suggests thatthe poverty rate did not fall significantlyin 1996. Some experts were surprised, givenlarge declines in the unemployment rate,increases in real weekly wages of productionand nonsupervisory employees, and a higherminimum wage that took effect in October.But, while the overall poverty rate did notfall, the strong economy lowered the pre-transfer poverty rate and has enabled morepeople to leave welfare for work. Thus, fewerindividuals have had to rely on safety netprograms to pull themselves out of poverty.

Efficiency in Reducing Poverty: The pov-erty gap is the amount by which the incomesof all poor people fall below the poverty line.‘‘Efficiency’’ in reducing poverty is defined asthe percentage of Government benefits of aparticular type (e.g., social insurance pro-grams) that help cut the poverty gap. For ex-ample, if $1 out of every $2 in Category Ahelps cut the poverty gap, the ‘‘efficiency’’ ofCategory A is 50 percent.

Before counting Government benefits, thepoverty gap was $194.5 billion in 1995.Benefits from Government programs cut itby $135 billion, or 69 percent. Of the $135billion cut, social insurance programs ac-counted for $90 billion, means-tested benefitsfor $43 billion, and Federal tax provisionsfor $2 billion.

All told, according to Census Bureau data,social insurance benefits totaled $338 billionin 1995. Thus, 26 percent of their funding(the $90 billion, above) helped cut the povertygap. Means-tested benefits totaled $78 billion,according to Census data. Thus, 56 percentof the funding (the $43 billion, above) helpedcut the poverty gap.

The evidence is clear: whether measuredby their impact on poverty gaps, or onmoving families out of poverty, income securityprograms largely succeed. Social insuranceprograms play the largest role in cuttingpoverty, but means-tested programs—targetedmore narrowly on the poor—are more efficient.

Employee Retirement Benefits

Federal Employee Retirement Benefits:The Civil Service Retirement and DisabilityProgram provides a defined benefit pension for1.8 million Federal civilian employees and800,000 U.S. Postal Service employees. In1997, the program paid $42 billion in benefitsto 1.7 million retirees and 600,000 survivors.Along with the defined benefit, employees canparticipate in a defined contribution plan—theThrift Savings Plan (TSP). Employees hiredsince 1983 are also covered by Social Security.(For a discussion of military retirement pro-grams, see Chapter 26, ‘‘Veterans Benefits andServices.’’)

Private Pensions: The Pension and WelfareBenefits Administration (PWBA) establishesand enforces safeguards to protect the roughly$3.5 trillion in pension assets. The PensionBenefit Guaranty Corporation (PBGC) protectsthe pension benefits of nearly 42 million work-ers and retirees who earn traditional (i.e., ‘‘de-fined benefit’’) pensions. Through its earlywarning program, PBGC also works with sol-vent companies to more fully fund their pen-sion promises, protecting the benefits of 1.2million people in 1996 alone. To encourage re-tirement savings, the President signed legisla-tion in 1996 that establishes a new, simplifiedpension plan for small businesses.

In 1999, the PWBA will:

• reduce, to 12 percent, the percentage ofemployee benefit plan audits that do notcomply with professional accounting andauditing standards, compared to 1996; and

• increase, by 2.5 percent, the number offiduciary investigations closed in whichplan assets are restored, compared to1996.

Tax Treatment of Retirement Savings:The Federal Government encourages retire-ment savings by providing income tax benefits.Generally, earnings devoted to workplace pen-

22724. INCOME SECURITY

sion plans and to many individual retirementaccounts (IRAs) are exempt from taxes whenearned and ordinarily are taxed only in retire-ment, when lower tax rates usually prevail.Moreover, taxpayers can defer taxes on the in-terest and other gains that add value of theseretirement accounts, including all forms ofIRAs. These tax incentives amount to $84 bil-lion a year—one of the three largest sets ofpreferences in the income-tax system.

Child Support Enforcement Financing:The Federal Government has a strong interestin ensuring that the national child supportsystem is effective. Funding of the Child Sup-port Enforcement (CSE) program, however, re-mains complicated. States get Federal pay-ments to cover administrative costs at severaldifferent matching rates. States also get Fed-eral incentive payments, levy user fees, keepa portion of TANF-related collections, and re-turn a portion to the Federal Government.

Federal retention of TANF-related paymentsis a legacy of the old AFDC program inwhich States and the Federal Governmentshared in funding AFDC and, thus, in collect-ing child support for AFDC recipients. Withwelfare reform, States have great freedomto design assistance for families with depend-ent children. States, however, must continueto share a portion of child support collectionswith the Federal Government. The need toshare collections may serve as a disincentivefor States to pass through the full amountof child support to families, and it createsan unintended incentive for States to serveneedy families through programs funded onlywith State dollars. Spending on these ‘‘State-only’’ programs continues to count underthe TANF maintenance-of-effort requirement,but child support collections on behalf ofthese families do not need to be sharedwith the Federal Government.

The Administration will hold a dialoguewith the stakeholders of the child supportprogram to look at ways to address theseproblems and, working with Congress, willprepare legislation. The budget takes a firststep towards simplifying the child supportfunding structure by 1) conforming the matchrate for paternity testing with the basicadministrative match rate; and 2) repealing

the hold harmless provision established underthe welfare reform law.

Under current law, States have resourcesequal to about 110 percent of the amountthat they spend on their State Child Supportprograms. The proposed changes would reducethe State windfall by less than two percentof program costs and save the Federal Govern-ment about $300 million over five years.

Finally, the Administration supports cost-neutral changes to the pending Child SupportIncentives legislation, as the Department ofHealth and Human Services proposed inits 1997 report to Congress, mandated bythe welfare reform law.

Allocation of Administrative CostsAmong Welfare Programs: The budget pro-poses to address projected Federal cost in-creases in Food Stamps and Medicaid thatarise from changes in the way States chargecosts to the Federal Government to administerthese programs as well as TANF.

Before welfare reform, States charged mostcommon costs of the three programs to AFDC.With TANF—which consolidated cash welfareassistance and related programs and limitedthe amount of funds that could go for adminis-trative purposes—many States have soughtto charge fewer of their expenses to TANFand more to Food Stamps and Medicaid,which still provide open-ended matching fundsfor State administrative costs.

To date, HHS has not approved Staterequests to change their cost allocation plansin order to increase administrative reimburse-ments under Food Stamp and Medicaid. Nei-ther the Administration nor Congress envi-sioned such cost increases—which would ex-ceed a projected $500 million a year—incrafting welfare reform.

In 1999, the Administration plans to letStates change their cost allocation plansto charge more of their common administrativecosts to Food Stamps and Medicaid. Butto prevent Federal costs from rising, thebudget proposes Food Stamp and Medicaidchanges that would cover the costs. Specifi-cally, it would cut the matching rates foradministrative costs in Food Stamps andMedicaid from 50 percent to 47 percent.

229

25. SOCIAL SECURITY

Table 25–1. FEDERAL RESOURCES IN SUPPORT OF SOCIALSECURITY



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 362,296 378,099 392,848 409,235 427,005 446,860 467,351Proposed legislation .................... .............. .............. 20 102 137 151 151


The Old-Age, Survivors, and Disability In-surance (OASI) program, popularly knownas Social Security, will spend about $392billion in 1999 to provide a comprehensivepackage of protection against the loss ofearnings due to retirement, disability, ordeath.

OASDI provides monthly benefits to retiredand disabled workers who gain insured statusand to their eligible spouses, children, andsurvivors (see Table 25–2). The Social SecurityAct of 1935 provided retirement benefits,and the 1939 amendments provided benefitsfor survivors and dependents. These benefitsnow comprise the Old Age and SurvivorsInsurance Program (OASI). Congress provideddisability benefits by enacting the DisabilityInsurance (DI) program in 1956 and benefitsfor the dependents of disabled workers byenacting the 1958 amendments.

Social Security was founded on two impor-tant principles: social adequacy and individualequity. Social adequacy means that benefitswill provide a certain standard of livingfor all contributors. Individual equity meansthat contributors receive benefits directly re-lated to the amount of their contributions.These principles still guide Social Securitytoday.

What Social Security Does

Social Security helps alleviate poverty, pro-vide income security, and maintain the life-styles of beneficiaries.

Alleviating Poverty: Social Security islargely responsible for reducing poverty amongthe elderly. In 1996, 16 percent of elderly, un-married beneficiaries had family incomesbelow the poverty line. Without Social Securityretirement benefits, 61 percent of them wouldhave fallen into poverty. For elderly couples,Social Security has had a similar effect. In1996, three percent of the elderly who weremarried had incomes below the poverty line.Without Social Security retirement benefits, 41percent of them would have had such incomes(see Table 25–3).

Income Security: Social Security was origi-nally designed to provide a continuing incomebase to help eligible workers maintain a house-hold when they retired. In 1935, personal sav-ings, family support, and Federal welfare pro-grams were the main sources of income forthose 65 and older who did not work. SocialSecurity supplemented private savings andemployer-provided pensions to ensure an ade-quate level of retirement income. While theseother vehicles are still important today, two-thirds of those over 65 now get the major por-tion of their income from Social Security. The


Table 25–2. MILLIONS BENEFIT FROM SOCIAL SECURITY(Number of OASDI beneficiaries)

Thousands ofbeneficiaries

1997Actual

1999Estimate

Retired workers and families:Retired workers .............................................................................................. 26,927 27,583Wives and husbands ...................................................................................... 2,953 2,911Children .......................................................................................................... 444 451

Survivors of deceased workers:Children .......................................................................................................... 1,907 1,948Widowed mothers and fathers with child beneficiaries in their care ........ 233 235Aged widows and widowers, and dependent parents .................................. 5,004 5,040Disabled widows and widowers ..................................................................... 183 193

Disabled workers and families:Disabled workers ............................................................................................ 4,397 4,776Wives and husbands ...................................................................................... 218 201Children .......................................................................................................... 1,451 1,448

Total OASDI recipients ..................................................................................... 43,717 44,786

Table 25–3. SOCIAL SECURITY PROTECTS OLDER AMERICANSFROM POVERTY

(Percentage of older Americans in poverty with Social Security and the percent that would be inpoverty in the absence of the program)

WithoutSocial

Security

WithSocial

Security

Aged Individuals ....................................................................................................... 61% 16%Aged Couples ............................................................................................................. 41% 3%

average retiree receives a Social Security bene-fit equal to 43.6 percent of pre-retirement in-come. In 1997, Social Security paid about $257billion in benefits to over 30 million retiredworkers and their families. Along with retire-ment benefits, Social Security also provides in-come security for survivors of deceased work-ers. In 1997, Social Security paid about $56billion in benefits to over seven million survi-vors.

DI also provides income security for workersand their families who lose earned incomewhen the family provider becomes disabled.Before DI, workers often had no such protec-

tion. To be sure, employees disabled onthe job may have benefits from State work-men’s compensation laws. Congress enactedDI to protect the resources, self-reliance,dignity, and self-respect of those sufferingfrom non-work-related disabilities. DI protec-tion can be extremely valuable, especiallyfor young families that could not sufficientlyprotect themselves against the risk of theworker’s disability. In 1997, Social Securitypaid about $45 billion in benefits to oversix million disabled workers and their families.

Maintaining Lifestyles: Before Social Secu-rity, about half of those over 65 depended on

23125. SOCIAL SECURITY

1999 2004 2009 2014 2019 2024 2029 2034 2039 2044 2049 2054 2059 2064 2069 2074

0

0.5

1

1.5

2

2.5

3

3.5

4

WORKER/BENEFICIARY RATIO

Chart 25-1. OASDI: COVERED WORKERS TO BENEFICIARIES

others, primarily relatives and friends, for allof their income. The same was often true forpeople with disabilities. Now, with Social Secu-rity, the vast majority of those over age 65and those with disabilities can live relativelyindependent lives. Moreover, their families nolonger carry the sole responsibility of providingtheir financial support.

Growth in Retirement Benefits

Social Security’s retirement component isfacing financial stress due to changing demo-graphics and its own financing. The retirementprogram is largely ‘‘pay as you go’’—currentretirement benefits are financed by currentpayroll contributions. Such financing workedwell in the past, when five workers paidfor every retiree. But, when the baby boomgeneration retires, eventually only two workerswill pay for every retiree (see Chart 25–1).Furthermore, while the system’s financialburden will increase greatly with the babyboomers’ retirement, the Social Security Trust-ees do not expect demographic trends toimprove markedly in later periods.

Adding to the financial stress, baby boomersare having fewer babies and living longer.In 1957, women had an average of 3.7babies, compared to 1.99 today. In 1935,life expectancy was 63 years for females,60 for males. By contrast, baby boomershave a much longer life expectancy—73 yearsfor females and 67 for males. The longerpeople live, the longer they will collect SocialSecurity. The more time that people spendretired, the more people there are to supportat any one time, and the fewer there areworking and contributing to provide thatsupport.

Growth in Disability Benefits

Social Security’s disability component hasgrown rapidly since its inception. The programprovided about $45 billion to about six milliondisabled beneficiaries and their families in1997, compared to $57 million for 150,000disabled workers in 1957. Growth has beenespecially rapid in the last 10 years, withthe number of beneficiaries rising by 75percent and benefits rising by 125 percent.


What has caused the growth? More andmore baby boomers are reaching the ageat which they are increasingly prone todisabilities; the number of women insuredhas risen; and laws, regulations, and courtdecisions have expanded eligibility for benefits.In addition, the annual share of beneficiariesleaving the rolls has fallen steadily, makingit more important to ensure that those remain-ing on the rolls are all, in fact, eligiblefor benefits. To maintain DI’s integrity, theAdministration proposes to maintain supportfor continuing disability reviews (CDRs)—a periodic review of individual cases thatensures that only those eligible continueto receive benefits.

The budget proposes a Ticket to Independ-ence pilot program to encourage DI bene-ficiaries and Supplemental Security Income(SSI) disabled recipients to re-enter theworkforce. Currently, the Social Security Ad-ministration (SSA) refers these beneficiariesto State and, in limited cases, private Voca-tional Rehabilitation agencies. Under thisproposal, beneficiaries could choose their ownpublic or private vocational rehabilitation pro-vider—and the provider could keep a shareof the DI and SSI benefits that the FederalGovernment no longer pays to these individ-uals after they leave the rolls.

A Long-range Problem, but No Crisis

The OASDI trust funds are not in balanceover the next 75 years—the period overwhich the Social Security Trustees have tradi-tionally measured Social Security’s well-being.In their 1997 report, the Trustees estimatedthat the combined OASDI trust funds wouldhave a cash imbalance in 2012 and beinsolvent in 2029. Much of the deteriorationarises from changes described above in demo-graphics over the measurement period. ThePresident wants to work with Congress ona bipartisan basis to develop a long-termsolution to the financing challenge. Actingsooner rather than later to address thelong-term inadequacies of OASDI financingwill reduce the magnitude of changes needed.

Social Security Administration (SSA)

SSA administers OASI and DI as wellas SSI, which is part of the Income Securityfunction. SSA also provides services to Medi-care on behalf of the Health Care FinancingAdministration, which is part of the Medicarefunction.

SSA’s Performance Plan for 1999 generallyreflects its commitment to maintain the qual-ity of its program administration, reflectedin terms of customer service delivery, oper-ational efficiency, and program integrity. SSA’skey performance measures and commitmentsfor 1999 include the following.

For customer service delivery:

• SSA will maintain its current performancelevel of ensuring that 95 percent of callersaccess the 800-number within five minutesof their first call.

• The average processing time for complet-ing hearings on appeals of disabilityclaims decisions will be 284 days by year-end, compared to 398 days at the end of1997.

For operational efficiency:

• SSA will process 3,143,000 claims forSocial Security retirement and survivorsbenefits, compared to 3,129,000 in 1997.

For program integrity:

• SSA will process 1,637,000 reviews of theeligibility of recipients of DI and SSI disa-bility benefits, compared to 690,000 dis-ability reviews in 1997.

Tax Expenditures

Social Security recipients pay taxes ontheir Social Security benefits only when theiroverall income, including Social Security, ex-ceeds certain income thresholds. These thresh-olds reduce total Social Security beneficiarytaxes by $26 billion in 1999 and $143 billionfrom 1999 to 2003.

233


26. VETERANS BENEFITS AND SERVICES *

Table 26–1. FEDERAL RESOURCES IN SUPPORT OF VETERANSBENEFITS AND SERVICES



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 20,705 24,010 24,409 25,391 26,742 30,820 31,904Proposed legislation .................... .............. .............. –188 –356 –915 –4,311 –3,903

Credit Activity:Direct loan disbursements ............. 1,341 1,950 174 220 198 154 112Guaranteed loans ........................... 24,287 24,844 23,440 22,895 23,399 22,786 23,287


The Federal Government provides benefitsand services to veterans (and their survivors)of conflicts as long ago as the Spanish-American War and as recent as the GulfWar, recognizing the sacrifices of wartimeand peacetime veterans during their militaryservice. The Federal Government spends over$40 billion a year on veterans benefits andservices, and provides over $3 billion intax benefits, to compensate veterans andtheir survivors for service-related disabilities,provide medical care to low-income and dis-abled veterans, and help returning veteransprepare for reentry into civilian life througheducation and training. In addition, veteransbenefits provide financial assistance to needyveterans of wartime service and their sur-vivors.

About six percent of veterans are militaryretirees, who can receive both military retire-ment from the Department of Defense (DOD)and veterans benefits from the Departmentof Veterans Affairs (VA). Active duty militarypersonnel are eligible for veterans housingbenefits, and they can contribute to theMontgomery GI Bill (MGIB) program foreducation benefits that are paid later. VA

employs about 20 percent of the non-Defenseworkforce of the Federal Government—almost250,000 people, about 217,000 of whom deliveror support medical services to veterans.

VA’s mission is ‘‘to administer the lawsproviding benefits and other services to veter-ans and their dependents and the beneficiariesof veterans. To serve America’s veteransand their families with dignity and compassionand be their principal advocate in ensuringthat they receive medical care, benefits, socialsupport, and lasting memorials promotingthe health, welfare and dignity of all veteransin recognition of their service to this Nation.’’

The veteran population is declining, withmost of the decline among draft-era veterans,meaning that a rising share of veteranscomes from the All-Volunteer Force (see Chart26–1). Thus, the types of needed benefitsand services will likely change. Further, asthe veteran population shrinks and technologyimproves, access to, and the quality of, serviceshould continue to improve.

Medical Care

VA provides health care services to 3.1million veterans through its national systemof 22 integrated health networks, consisting


1990 1994 1998 2002 2006 201016

18

20

22

24

26

28

VETERANS IN MILLIONS

Chart 26-1. ESTIMATED VETERAN POPULATION

0

27.2

25.1

23.5

21.8

26.4

20.0

1 Domiciliaries serve homeless veterans and veterans who re-quire short-term rehabilitation.

of 172 hospitals, 439 ambulatory clinics, 131nursing homes, 40 domiciliaries 1, and 206readjustment counseling centers. VA is animportant part of the Nation’s social safetynet because over half of its patients arelow-income veterans who might not otherwisereceive care. It also is a leading healthcare provider for veterans with substanceabuse problems, mental illness, HIV/AIDS,and spinal cord injuries because private insur-ance usually does not fully cover these condi-tions.

VA’s core mission is to meet the healthcare needs of veterans who have compensableservice-connected injuries or very low incomes.The law makes these ‘‘core’’ veterans thehighest priority for available Federal dollarsfor health care. However, VA may providecare to lower-priority veterans if resourcesallow and if the needs of higher-priorityveterans have been met.

In recent years, VA has reorganized itsfield facilities from 172 largely independentmedical centers into 22 Veterans IntegratedService Networks, charged with giving veter-ans the full continuum of care. Recent legisla-tion eased restrictions on VA’s ability tocontract for care and share resources withDefense Department hospitals, State facilities,and local health care providers.

To move further toward improving thehealth care of our Nation’s veterans, VAwill continue to enhance the efficiency, access,and quality of care. Through 2002, VA willpursue its ‘‘30/20/10’’ goal:

• reduce the cost per patient by 30 percent(and by 11 percent in 1999);

• increase the number of patients treatedby 20 percent (and by nine percent in1999); and

• increase resources from outside sources to10 percent (and by five percent in 1999).

23526. VETERANS BENEFITS AND SERVICES

In addition, VA has formed a nationalpartnership with the American Hospital Asso-ciation, the American Medical Association,the American Nurses Association, and othernational associations to ensure patient qualityof care.

By 2003, VA plans to:

• increase the number of patients with highvolume common disease entities who aretreated using clinical guidelines to 90 per-cent (and to 60 percent in 1999);

• increase the scores on the Chronic DiseaseIndex to 95 percent (and to 91 percentin 1999); and

• increase the scores on the PreventionIndex to 95 percent (and to 87 percentin 1999).

Smoking Cessation: The budget proposesa new smoking-cessation program for any vet-eran who began smoking in the military. Theprogram will be delivered by private providerson a per capita basis.

• In 1999, VA will establish at least onecontract in each State to implement smok-ing cessation programs in order to reducethe number of veterans that smoke by 10percent over five years.

Medical Research: VA’s research programprovides about $300 million to conduct basic,clinical, epidemiological, and behavioral stud-ies across the entire spectrum of scientific dis-ciplines, seeking to improve veterans medicalcare and health and enhancing our knowledgeof disease and disability. VA is reorganizingits research to ensure that all projects clearlyrelate to the health care of veterans. In 1999,VA will focus its research efforts on aging,chronic diseases, mental illness, substanceabuse, sensory loss, trauma related impair-ment, health systems research, special popu-lations (including Persian Gulf veterans), andmilitary occupational and environmental expo-sures.

• At least 99 percent of funded projects willbe relevant to VA’s mission in 1999,achieving the VA’s goal.

Health Care Education and Training:The Veterans Health Administration is theNation’s largest trainer of health care profes-

sionals, with about 107,000 students a yearwho get some or all of their training in VAfacilities through affiliations with over 1,000educational institutions. The program trainsmedical, dental, nursing, and associated healthprofessions students to ensure an adequatesupply of clinical care providers for veteransand the Nation as a whole. The program willcontinue to realign its academic training andupdate its curriculum, focusing more on pri-mary care to better meet the needs of the Vet-erans Health Administration and its patients,students, and academic partners.

• In 1999, VA will train 44 percent of itsresidents in primary care and, in 2003,increase that figure to 48 percent.

Veterans Benefits Administration (VBA)

VBA processes veterans claims for benefitsin 58 regional offices across the country.Its workload peaked in 1993 and 1994, whenit needed 214 days to process a claim.As the veteran population declines, the num-ber of new claims and appeals will alsolikely decline. In 1997, the number of daysto process a new claim averaged 133. VBAis developing a comprehensive strategic planto further improve processing performance.Its current strategic goals include:

• improving responsiveness to customerneeds and expectations;

• improving service delivery and benefitclaims processing;

• ensuring best value for the available tax-payers’ dollar; and

• ensuring a satisfying and rewarding workenvironment.

Income Security

Several VA programs help veterans andtheir survivors maintain their income whenthe veteran is disabled or deceased. TheFederal Government will spend over $21billion for these programs in 1999, includingthe funds Congress approves each year tosubsidize life insurance for veterans whoare too disabled to get affordable coveragefrom private insurance. Veterans can receivethese benefits along with the income securitythat goes to all Americans, such as SocialSecurity and unemployment insurance.


Compensation: Veterans with disabilitiesresulting from, or coincident with, militaryservice receive monthly compensation pay-ments, based on the degree of disability. Thepayment does not depend on the veteran’s in-come or age, or on whether the disability isthe result of combat or a natural-life affliction.It does, however, depend on the average fallin earnings capacity that the Government pre-sumes for veterans with the same degree ofdisability. Survivors of veterans who die fromservice-connected injuries receive payments inthe form of dependency and indemnity com-pensation. Benefits are indexed annually bythe same cost-of-living adjustment (COLA) asSocial Security, which is an estimated 2.2 per-cent for 1999.

The number of veterans and survivorsof deceased veterans receiving compensationbenefits will total an estimated 2.7 millionin 1999. While the veteran population willdecline, the compensation caseload will remainrelatively constant due to changes in eligibilityand better outreach efforts. COLAs and in-creased payments to aging veterans will in-crease compensation spending by about $3billion from 1999 to 2003.

• In 1999, VA will process original com-pensation claims in 106 days, dropping to53 days in 2002.

Pensions: The Government provides pen-sions to lower-income, wartime-service veter-ans, or veterans who became permanently andtotally disabled after their military service.Survivors of wartime-service veterans mayqualify for pension benefits based on financialneed. Veterans pensions, which also increaseannually with COLAs, will cost over $3 billionin 1999. The number of pension recipients willcontinue to fall from an estimated 673,000 in1999 to less than 600,000 in 2003, as the num-ber of veterans drops.

• In 1999, VA will process original pensionclaims in 80 days, dropping to 29 daysin 2002.

Insurance: VA has provided life insurancecoverage to service members and veteranssince 1917 and now directly administers or su-pervises eight distinct programs. Six of theprograms are self-supporting, with the costscovered by premium payments from the policy-

holders and earnings from investments inTreasury securities. The other two programs,designed for service-disabled veterans, requireannual congressional appropriations to meetthe costs of claims. Together, these eight pro-grams will provide $488 billion in insurancecoverage to over 4.7 million veterans and serv-ice members in 1999. The program is designedto provide insurance protection and best-in-class service to veterans who can’t purchasecommercial policies at standard rates becauseof their service-connected disabilities. To reachthis goal, the program is designed to providedisbursements (death claims, policy loans, cashsurrenders) quickly and accurately, meeting orexceeding customer expectations.

• In 1999, VA will pay insurance claims inthree and a half days, dropping to 2.8 daysin 2002.

Veterans Education, Training, andRehabilitation

Several Federal programs support job train-ing and finance education for veterans andothers. The Labor Department runs severalprograms just for veterans. In addition, severalVA programs provide education, training, andrehabilitation benefits to veterans and militarypersonnel who meet specific criteria, includingthe Montgomery GI bill (the largest of theseprograms), the post-Vietnam-era educationprogram, the Vocational Rehabilitation pro-gram, and the Work-Study program. Spendingfor all VA programs in this area will totalan estimated $1.5 billion in 1999.

The Montgomery GI Bill: The Governmentoriginally created MGIB as a test program,with more generous benefits than the post-Vietnam-era education program, to help veter-ans move to civilian life as well as to helpthe armed forces with recruitment. Servicemembers who choose to enter the programhave their pay reduced by $100 a month intheir first year of military service. The VA ad-ministers the program, paying basic benefitsonce the service member leaves the military.Basic benefits now total over $16,000 (about13 times the original reduction in the servicemember’s pay).

MGIB beneficiaries receive a monthly checkbased on whether they are enrolled in schoolon a full- or part-time basis. They can

23726. VETERANS BENEFITS AND SERVICES

get 36 months worth of payments, but theymust certify monthly that they are in school.DOD may provide additional benefits to helprecruit certain specialties and critical skills.Nearly 310,000 veterans and service memberswill use these benefits in 1999. The MGIBalso provides education benefits to reservistswhile they are in service. DOD pays thesebenefits, and the VA administers the program.In 1999, over 76,000 reservists will usethe program. Over 90 percent of MGIB bene-ficiaries use their benefits to attend a collegeor university. The Administration will proposelegislation to enact a one-time, 20-percentrate increase for all MGIB beneficiaries, de-pendents, and survivors.

• In 1999, VA will increase the participationrate of eligible veterans in the MGIB fromits current 37 percent to 45 percent, andincrease the figure to 69 percent in 2003.

Veterans Housing

Along with the mortgage assistance thatveterans can get through the Federal HousingAdministration insurance program, the VA-guaranteed loan program in 1999 will helpan estimated 222,000 veterans get mortgages,totaling almost $24 billion. The Federal Gov-ernment will spend an estimated $264 millionon this program in 1999, reflecting the Federalsubsidies implicit in loans issued during theyear. Slightly over 40 percent of veteranswho have owned homes have used the VAloan guaranty program. To increase veteranhome ownership and the program’s efficiency,VA will cut its administrative costs.

• In 1999, VA will reduce the servicing costof each loan to $193, from its 1997 levelof $334.

National Cemetery System

The VA provides burial in its NationalCemetery System for eligible veterans, activeduty military personnel, and their depend-ents—with the VA managing 115 nationalcemeteries across the country. VA will spend

over $90 million in 1999 for VA cemeteryoperations, excluding reimbursements fromother accounts. Over 73,000 veterans andtheir family members were buried in NationalCemeteries in 1997. The system is workingto ensure that all eligible veterans havereasonable access to a burial option. Theprogram will complete construction of fournew national cemeteries, expand existingcemeteries, develop more effective use ofavailable burial space, and encourage States’participation in the State Cemetery GrantsProgram.

• In 1999, VA will increase the percentageof veterans served by a burial option with-in a reasonable distance to 75 percent.

Related Programs

Many veterans get help from other Federalincome security, health, housing credit, edu-cation, training, employment, and social serv-ice programs that are available to the generalpopulation. In addition, a number of theseprograms have components specifically de-signed for veterans. Some veterans also receivepreference for Federal jobs. Starting in 1999,the children of Vietnam veterans will receivecompensation if they are afflicted with spinabifida, which the Government will presumewas caused by a veteran parent’s exposureto herbicides.

Tax Incentives

Along with direct Federal funding, certaintax benefits help veterans. The law keepsall cash benefits that the VA administers(disability compensation, pension, and GI billbenefits) free from tax. Together, these threeexclusions will cost about $3 billion in 1999.The Federal Government also helps veteransobtain housing through veterans bonds thatState and local governments issue, the intereston which is not subject to Federal tax.In 1999, this provision will cost the Govern-ment an estimated $75 million.

239

27. ADMINISTRATION OF JUSTICE

Table 27–1. FEDERAL RESOURCES IN SUPPORT OFADMINISTRATION OF JUSTICE



Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 78 1,359 640 287 149 174 160Proposed legislation .................... .............. 10 51 55 49 42 35

While States and localities bear most ofthe responsibility for fighting crime, the Fed-eral Government also plays a critical role.Along with supporting State and local activi-ties, the Federal Government investigatesand prosecutes criminal acts that requirea national response. In 1998, anti-crime ex-penditures will consume 4.6 percent of allFederal discretionary spending, compared withabout two percent in 1988.

Total Federal, State, and local resourcesdevoted to the administration of justice—including law enforcement, litigation, judicial,and correctional activities—grew from $71.8billion in 1989 to an estimated $141.7 billionin 1998—by 97 percent or, as Chart 27–1shows, by 46 percent in constant 1992 dollars.During this period, the Federal law enforce-ment component, including transfer paymentsto State and local law enforcement activities,more than doubled, from $10.1 billion in1989 to $25.3 billion in 1998. Nevertheless,Federal resources account for only 18 percentof total governmental spending for administra-tion of justice.

The number of criminal offenses that lawenforcement agencies reported fell by threepercent from 1995 to 1996—marking thefifth straight year that the crime rate hasfallen. The number reported in the firstsix months of 1997, the most recent periodfor which figures are available, was four

percent lower than in the same period in1996. The drop in crime, when comparedwith increases in anti-crime spending duringthe same period, appears to suggest a generalrelationship, although crime is affected byvarying factors. The budget builds upon thisrecord of success by continuing to providesubstantial funding for proven anti-crime pro-grams.

Federal Activities

Federal funding for the Administration ofJustice function includes: (1) Federal lawenforcement activities; (2) litigative and judi-cial activities; (3) correctional activities; and(4) financial assistance to State and localentities (see Chart 27–2). In 1998, 70 percentof these funds went to the Justice Department(DOJ), while most of the rest went to theTreasury Department and the Judicial Branch.

Law Enforcement: The budget proposes in1999 to enforce a wide range of laws, reflectingthe unique Federal role in law enforcement.Some responsibilities—such as customs en-forcement—date from the beginning of thecountry. DOJ’s FBI and Drug Enforcement Ad-ministration (DEA) enforce diverse Federallaws dealing with violent crime, terrorism,white collar crime, drug smuggling, and manyother criminal acts. The Immigration and Nat-uralization Service (INS) protects the U.S. bor-der from illegal migration while providing


1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

0

10

20

30

40

50

60

70

80

90

100

110

120

DOLLARS IN BILLIONS

Chart 27-1. ADMINISTRATION OF JUSTICE EXPENDITURES

LOCAL

STATE

FEDERAL

(In constant 1992 dollars)

Note: Data includes discretionary and mandatory expenditures.

services to legal aliens. These agencies, andthe ones discussed below, also work with Stateand local law enforcement agencies, oftenthrough joint task forces, to address drug,gang, and other violent crime problems.

Within the Treasury Department, the U.S.Customs Service, Bureau of Alcohol, Tobaccoand Firearms (ATF), United States SecretService, and other bureaus enforce laws relat-ed to drug and contraband smuggling acrossour borders; firearms trafficking; arson andexplosives crime; financial crime and fraud,including money laundering, counterfeiting,and credit card fraud; and the regulationof the alcohol, tobacco, and firearms industries.The Secret Service protects the President,Vice President, and foreign dignitaries. TheFederal Law Enforcement Training Center(FLETC) trains Federal law enforcement per-sonnel.

Federal responsibility to enforce civil rightslaws in employment and housing arises fromTitles VII and VIII of the Civil RightsAct of 1964, as well as more recent legislation,

including the Age Discrimination in Employ-ment Act and the Americans with DisabilitiesAct. The Department of Housing and UrbanDevelopment enforces laws that prohibit dis-crimination on the basis of race, color, sex,religion, disability, familial status, or nationalorigin in the sale or rental, provision ofbrokerage services, or financing of housing.The Equal Employment Opportunity Commis-sion enforces laws that prohibit employmentdiscrimination on the basis of race, color,sex, religion, disability, age, and nationalorigin. DOJ enforces the criminal civil rightslaws.

Litigation and Judicial Activities: Afterlaw enforcement agencies such as the FBI,DEA, and ATF have investigated and appre-hended perpetrators of Federal crimes, theUnited States must prosecute them—and thebudget proposes $7.5 billion for this purpose.This task falls primarily to the 93 UnitedStates Attorneys and the 4,450 Assistant Unit-ed States Attorneys. Along with prosecutingcases referred by Federal law enforcement


1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

0

5

10

15

20

25

30

DOLLARS IN BILLIONS

Chart 27-2. FEDERAL JUSTICE EXPENDITURES

CORRECTIONS

LITIGATIVE/JUDICIAL

LAW ENFORCEMENT

CRIMINAL JUSTICE ASSISTANCE

Note: Data includes discretionary and mandatory expenditures.

agencies, the U.S. Attorneys work with Stateand local police and prosecutors in their effortsto bring to justice those who have violatedFederal laws—whether international drug traf-fickers, organized crime ringleaders, or per-petrators of white collar fraud. The U.S. Mar-shals Service protects the Federal courts andtheir officers; apprehends fugitives; and main-tains custody of prisoners involved in judicialproceedings.

In addition, DOJ contains several legaldivisions specializing in specific areas of crimi-nal and civil law. These divisions—includingthe Civil, Criminal, Civil Rights, Environmentand Natural Resources, Tax, and AntitrustDivisions—work with the U.S. Attorneys toensure that violators of Federal laws arebrought to justice. The Federal Government,through the Legal Services Corporation, alsopromotes equal access to the Nation’s legalsystem by funding local organizations thatprovide legal assistance to the poor in civilcases.

The Judiciary’s growth in recent yearsarises from increased Federal enforcementefforts and Congress’ continued expansionof the Judiciary’s jurisdiction. Accounting for13 percent of total law enforcement spending,the Judiciary comprises the Supreme Courtand 12 circuit courts of appeals, 90 bankruptcycourts, and 94 district courts, 94 federalprobation offices, the Court of Appeals forthe Federal Circuit and the Court of Inter-national Trade. The Federal Judiciary isoverseen by 2,096 Federal judges and nineSupreme Court justices.

Correctional Activities: The budget pro-poses $3.5 billion for corrections activities. Dueto higher spending on law enforcement andtougher sentencing, the number of FederalPrison System inmates has risen to 114,000,more than double the number in 1988. TheFederal inmate population—less than a tenthof the total U.S. inmate population—will con-tinue to grow due to the abolition of parole,minimum mandatory sentences, and sentenc-ing guidelines. State inmate populations will


grow, in part, due to sentencing requirementstied to Federal prison grant funds. In the Fed-eral system, about 62 percent of inmates serv-ing time were convicted on drug-relatedcharges.

Criminal Justice Assistance: The budgetproposes $4.6 billion to help State and localgovernments fight crime. The Administrationis encouraging the adoption of community po-licing practices through the Community Ori-ented Policing Services (COPS) program. TheTruth-in-Sentencing/Violent Offender Incarcer-ation grant program seeks to ensure that con-victed violent offenders are incarcerated andserve at least 85 percent of their sentences.Similar changes in law from 1984 for Federalprisoners increased the time served by 60 per-cent.

To combat the significant problem of violenceagainst women, the budget proposes $271million to enhance the States’ abilities torespond, and to further expand access topreviously under-served rural, Indian, andother minority populations. To promote in-creased drug testing and treatment for individ-uals under the supervision of the criminaljustice system, the budget proposes a $94million increase over the 1998 level for drugtesting and treatment and Drug Courts. Inaddition, the budget continues to provide$553 million in law enforcement assistancegrants under the Edward Byrne MemorialState and Local Law Enforcement AssistanceProgram.

To prevent young people from becominginvolved in the juvenile justice system, thebudget continues juvenile justice programs,including those that provide supervised after-noon and evening activities for youth. Thebudget also provides additional assistanceto State and local prosecutors’ offices toaddress gang violence and other juvenilecrime, and to courts and court-related entitiesto expedite the handling of violent juvenilecases. Finally, the budget provides a $6million increase for ‘‘Weed and Seed,’’ whichhelps communities develop and implementcomprehensive strategies to ‘‘weed’’ out violentcrime, illegal drugs, and gang activity, and

to ‘‘seed’’ their communities with programsthat prevent crime.

Performance Goals

Federal agencies, as cited below, will workto achieve the following performance goalswith the proposed budget funds:

With regard to violent crime:

• The Justice Department will maintain theFederal Government’s commitment to re-ducing the incidence of violent crime belowthe 1996 level of 634 offenses per 100,000population.

• The Justice Department will provide fund-ing for communities to hire and deploy16,000 more officers in 1999.

• The Treasury Department will help solveviolent crimes and reduce firearms traf-ficking by tracing up to 275,000 firearmsused in criminal activities, compared to116,674 in 1996.

• The Justice Department will reduce spe-cific areas of organized crime and its influ-ence on unions and industries from the1997 level, while intensifying its efforts toprevent emerging organized crime enter-prises from gaining a permanent footholdin particular areas.

• The Treasury Department will ensure thephysical protection of the President, VicePresident, visiting foreign dignitaries, andothers protected by the Secret Service.

• The Justice Department will ensure thatno judge, witness, or other court partici-pant is the victim of an assault stemmingfrom his or her involvement in a Federalcourt proceeding.

• The U.S. Marshals Service will apprehend80 percent of violent offenders within oneyear of a warrant’s issuance, and will re-duce the fugitive backlog from 1998 by fivepercent.

• The Interior and Justice Departments willwork to increase the number of law en-forcement officers for Indian Tribes fromthe current level of 1.3 officers per 1,000citizens to 2.9 officers per 1,000 citizens.


With regard to drug abuse:

• Federal and non-Federal entities will worktogether to reduce the availability andabuse of illegal drugs.

Separately, the Office of National DrugControl Policy will present a comprehen-sive set of societal performance measuresfor anti-drug programs, recognizing thatachieving national drug control objectivesdepends critically on the actions of notonly the Federal Government, but of State,local, and foreign governments and on thebehavior of individuals.

With regard to immigration and bordercontrol:

• The Justice Department will reduce theaverage time between application and nat-uralization of qualified candidates from anestimated 24 months in 1997 to six to 10months in 1999.

• The Treasury, Justice and Agriculture De-partments will increase the percent of le-gitimate air passengers cleared throughprimary inspection in 30 minutes or lessfrom an estimated 31 percent in 1997 to39 percent in 1999; and will work to proc-ess legitimate land border travelersthrough the primary inspection process onthe Mexico border in 30 minutes or lessin 1999.

• The Justice Department will increase thenumber of removals of aliens who are ille-gally in the United States from 111,794in 1997 to about 134,900 in 1999.

• The Justice Department will identify over38,500 unauthorized workers, therebyopening up potential jobs for U.S. citizensand other legally authorized workers.

• The Treasury Department will increasetrade revenue from duties collected andenhance the accuracy of trade data by im-proving importers’ compliance with tradelaws (e.g., quotas, trademarks, and copy-rights) from 83 percent in 1997 to 85 per-cent in 1999.

With regard to civil rights and other mat-ters:

• The Equal Employment Opportunity Com-mission will reduce the average time toprocess private sector equal employmentcomplaints by doubling the number ofcomplaints eligible for the mediation-basedalternative dispute resolution program.

• The Department of Housing and UrbanDevelopment (HUD) will ensure that HUDgrantees in 20 communities undertake fairhousing audit-based enforcement, using aHUD-developed standardized methodology,to develop local indices of discrimination,to identify and pursue violations of fairhousing laws, and to promote new fairhousing enforcement initiatives at thelocal level.

• The Treasury Department will step up itsefforts to disrupt and dismantle the illegalactivities of major violators of Federal fi-nancial crimes laws (e.g., counterfeiting,forgery, money laundering, and credit cardfraud).

245

28. GENERAL GOVERNMENT

Table 28–1. FEDERAL RESOURCES IN SUPPORT OF GENERALGOVERNMENT(In millions of dollars)


Estimate

1998 1999 2000 2001 2002 2003


Existing law ................................ 692 351 1,033 1,165 907 921 965Proposed legislation .................... .............. .............. 3,502 4,033 4,681 5,083 5,480

Credit Activity:Direct loan disbursements ............. 223 .............. .............. .............. .............. .............. ..............


The General Government function encom-passes the central management activities ofthe executive and legislative branches. Itsmajor activities include Federal finances (taxcollection, public debt, currency and coinage,Government-wide accounting), personnel man-agement, and general administrative and prop-erty management.

Four agencies are responsible for theseactivities: the Treasury Department (for whichthe budget proposes $12.3 billion), the GeneralServices Administration ($142 million), theOffice of Personnel Management ($187 mil-lion), and the Office of Management andBudget in the Executive Office of the President($59 million).

Department of the Treasury

Treasury is the Federal Government’s finan-cial agent. It produces and protects theNation’s currency; helps set domestic andinternational financial, economic, and tax pol-icy; enforces economic embargoes and sanc-tions; regulates financial institutions and thealcohol, tobacco, and firearms industries; man-ages the Federal Government’s financial ac-counts; and protects citizens and commerceagainst those who counterfeit money, engage

in financial fraud, violate our borders, andthreaten our leaders. In 1999, Treasury willseek to collect an estimated $1.7 trillionin tax and tariff revenues due under thelaw; make over 70 percent of the 900 millionpayments that it issues electronically; issue$2 trillion in marketable securities and savingsbonds to finance the Government’s operationsand increase citizens’ savings; and produce10 billion Federal Reserve Notes, 15 billionpostage stamps, and 13 billion coins.

The Internal Revenue Service (IRS), forwhich the budget proposes $8.3 billion, isthe Federal Government’s main revenue collec-tor. Its mission is to collect the properrevenue at the least cost. The budget proposalfor the IRS seeks to improve customer servicein order to provide taxpayers who needto contact the IRS with various communicationoptions and ensure that the IRS treats eachtaxpayer as a customer. To help reach thisgoal, the IRS will revamp its past performancemeasures, eliminating those that underminethe fair treatment of taxpayers.

In 1999, the IRS will:

• continue its efforts to improve customerservice mainly through telephone assist-


ance, answering at least 86 percent of tax-payer calls, up from 65 percent in 1997,with an accuracy rate of 96 percent fortax law inquires;

• expand its problem resolution program bydecreasing the number of days it takes toresolve a taxpayer’s account problem indistrict offices to 35, from 36 in 1997;

• collect over $1.64 trillion in net revenue—78 percent of it electronically, a substan-tial increase from 41 percent in 1997;

• electronically process 19.5 percent of theexpected 212 million total returns, both in-dividual and business; (Of those, 5.9 mil-lion will use Telefile, which allows tax-payers to file a simple tax return over thetelephone in under 10 minutes.)

• process electronic returns with a 99 per-cent accuracy rate while processing paperreturns with a 95 percent accuracy rate;

• process refunds on paper returns in 40days and electronic returns in 21 days;and

• ensure that its computers can process theyear 2000 change by converting, testing,and certifying its computer code by Octo-ber 1999.

In 1999, Treasury’s Financial ManagementService will:

• continue working to improve the manage-ment of the Nation’s finances, saving $33million by reducing the number of paperchecks issued, and process 65 percent ofall collections electronically and increasethe Government-wide collection of delin-quent debt by $95 million compared to1995.

In 1999, Treasury’s Bureau of Public Debtwill:

• introduce a new series of inflation-indexedsavings bonds of various denominations;

• automate the securities auction processand announce auction results within onehour 90 percent of the time; and

• maintain a 10-year average holding periodfor savings bonds.

In 1999, Treasury’s Bureau of Engravingand Printing and U.S. Mint will:

• introduce a redesigned dollar coin and anew series of quarters featuring emblem-atic images of the States;

• incorporate new security features into thetwenty dollar bill;

• ship all numismatic coins within fourweeks of order date; and

• maintain a stamp spoilage rate of no morethan 11 percent.

General Services Administration (GSA)

GSA has traditionally focused on its roleas the central provider of supplies, generaladministrative services, telecommunicationservices, and office space to Federal agencies.In 1999, revenues from its various businesslines will approach an estimated $13 billion.Under the Federal Property and Administra-tive Services Act of 1949 and subsequentlaws, GSA also plays a policy leadershiprole with respect to property managementand general administrative services.

Over the past two years, GSA has givengreater attention to that leadership role.It has developed a new Federal managementmodel, focusing on performance measurement,accountability for agencies and employees,and the effective use of technology in changingwork environments. GSA has establishedinter-agency groups to advise it on the policies,best practices, and performance benchmarksappropriate for each administrative serviceand on the information systems to reportperformance. GSA’s ultimate goal is a FederalGovernment in which agencies receive theadministrative services they need accordingto the best practices known and at theleast cost, internal regulation, and burden.When fully developed, GSA’s policy role canpotentially influence over $50 billion a yearfor property management and administrativeservices and the management of assets valuedat nearly $500 billion.

GSA also provides expertly managed space,products, and services to support the adminis-trative needs of Federal agencies. It hasaggressively responded to the changing needsof its customer agencies by working to trans-

24728. GENERAL GOVERNMENT

form itself into a market-driven, customer-oriented agency. GSA will seek to exceedall Government-wide performance goals andindustry benchmarks for administrative serv-ices as they are developed or identified.In the meantime, its overall goals as aservice provider are to exceed its customeragencies’ expectations for price, service andquality.

In 1999,

• the Public Buildings Service will deliver88 percent of its construction and repairprojects on schedule and within budget,up from 80 percent in 1997;

• the percentage of GSA-sponsored childcare centers that meet national accredita-tion standards will increase to 75 percent,compared to an average national accredi-tation percentage of less than 10 percent;

• the Federal Technology Service projects amonthly line charge for local telephoneservice of $20.77, a 28-percent cut from1994 rates; and

• the Federal Supply Service will lease auto-mobiles and other motor vehicles to Fed-eral agencies at rates that average 20 per-cent below comparable commercial leaserates.

Because GSA provides services on a reim-bursable basis, the budgets of the agenciesfund most of GSA’s activities. In 1999, forexample, the budget proposes an appropriationof $142 million for GSA, principally forits Office of Government-wide Policy andthe Office of the Inspector General, butit projects obligations of nearly $14 billionthrough GSA’s revolving funds. In addition,GSA will administer contracts through whichagencies will buy over $14 billion in goodsand services outside of GSA’s revolving funds.

Office of Personnel Management (OPM)

OPM provides human resource managementleadership and services, based on merit prin-ciples, to Federal agencies and employees.It provides policy guidance, advice, and directpersonnel services and systems to the agencies.OPM also operates a Nation-wide job informa-tion and application system every hour ofevery day, publicly available through the

Internet and other electronic and traditionalsources at convenient and accessible locations.OPM develops and administers compensationsystems for both blue-collar and white-collaremployees. In addition, OPM provides fast,friendly, accurate, and cost effective retire-ment, health benefit, and life insurance serv-ices to Federal employees, annuitants, andagencies.

• OPM reduced the average time to processan annuity application from 83 days in1994 to 39 days in 1997, and has targeteda goal of 35 days by 1999.

• OPM reduced customer call wait time forannuity inquiries from 5.1 minutes in1996 to 3.3 minutes in 1997 and will striveto make further reductions in 1999.

But perhaps OPM’s most important functionis administering the Federal civil servicemerit systems, covering nearly 1.5 millionemployees, which includes recruiting, examin-ing, and promoting people on the basis oftheir knowledge and skills—regardless of race,religion, sex, political influence, or other non-merit factors. OPM runs an aggressive over-sight program, identifying opportunities forimproving Federal personnel policies and pro-grams and helping agencies meet missiongoals by effectively recruiting, developing,and utilizing employees. In 1997, OPM con-ducted Nation-wide reviews of eight majoragencies, finding few serious problems anddiscovering many ‘‘best practices’’ that wereshared with other agencies. OPM encouragesmaximum employment and advancement op-portunities in the Federal service for disabledveterans and those qualified for veteran’spreference (26 percent of today’s employees).OPM’s policies and programs seek to encour-age diversity in the Federal workforce.

• In 1999, OPM will help agencies raise thelevels of under-represented groups by twopercent over the 1997–1998 levels.

Likewise, OPM helps dislocated and surplusemployees by assisting agencies with careertransition planning and, when vacancies arise,ensuring that dislocated and surplus employ-ees receive hiring preference. In 1996, over11,000 employees found employment throughthis process. With its Director chairing theNational Partnership Council, OPM supports


and promotes labor-management partnershipsthroughout the Executive branch—partner-ships that help agencies deliver the highest-quality services to the American people. In1996, such partnership councils represented70 percent of Federal employees in bargainingunits, and 1997 survey data indicate continuedgrowth and positive perceptions of such part-nerships.

• In 1999, OPM will continue to foster moresuch partnerships and help those that arehaving problems.

Finally, OPM helps Federal program man-agers carry out their personnel managementresponsibilities through a range of programs,training, and performance management de-signed to develop the most effective Federalemployee. Other Federal agencies with person-nel management responsibilities are the MeritSystems Protection Board, the Office of SpecialCounsel, the Office of Government Ethics,and the Federal Labor Relations Authority.

Office of Management and Budget (OMB)

OMB helps the President carry out hisconstitutional and statutory duties. It helpsthe President create policy relating to receiptsand expenditures, regulations, information,and legislation; and manage the ExecutiveBranch in the faithful execution of laws,policies, and programs. OMB also providesthe President with the highest-quality analysisand advice on a broad range of topics.

OMB advocates the appropriate allocationand effective use of Government resources.OMB helps the President prepare the Federalbudget and oversee its execution in thedepartments and agencies. In helping formu-late the President’s spending plans, OMBexamines the effectiveness of agency programs,policies, and procedures; assesses competingfunding demands among agencies; and pro-vides policy options. OMB works to ensurethat proposed legislation, and agency testi-mony, reports, and policies are consistentwith Administration policies. OMB focusesparticular attention on managing the processesfor coordinating and integrating policies for

interagency programs. On behalf of the Presi-dent, OMB often presents and justifies majorpolicies and initiatives related to the budgetand Government management before Con-gress.

OMB has a central role in developing,overseeing, coordinating, and implementingFederal procurement, financial management,information, and regulatory policies. OMBhelps to strengthen administrative manage-ment, develop better performance measures,and improve coordination among ExecutiveBranch agencies.

In 1999, OMB will

• produce the President’s annual budgetdocuments in a timely, accurate manner;and

• ensure that agencies meet a number ofkey objectives, including: achieving compli-ance with year 2000 computer changes; re-ceiving clean audit opinions on annual fi-nancial statements; improving the analysisof regulatory alternatives; ensuring thatannual performance plans are fully inte-grated with budget submissions; and effec-tively using inter-agency working groupson a wide range of Government functions.

Tax Incentives

The Federal Government provides signifi-cant tax benefits for State and local govern-ments. It permits tax-exempt borrowing forpublic purposes, costing $77 billion in Federalrevenue losses over five years, from 1999to 2003 (the budget describes tax-exemptborrowing for non-public purposes in thewrite-ups on other Government functions).In addition, taxpayers can deduct State andlocal income taxes against their Federal in-come tax, costing $182 billion over five years.Corporations with business in Puerto Ricoreceive a special tax credit, costing an esti-mated $15 billion over five years. Finally,up to certain limits, taxpayers can creditState death taxes against Federal estatetaxes, costing $24 billion over five years.

257

32. REGULATION: COSTS AND BENEFITSAlong with taxing and spending, the Federal

Government makes policy through regulat-ing—that is, generally, through ExecutiveBranch actions to interpret or implementlegislation. As with taxing and spending,the Administration carefully designs and im-plements regulations to provide the mostpublic benefit for the least cost. The Officeof Management and Budget (OMB), the WhiteHouse office that sets regulatory policy, hasadopted the following objective in its StrategicPlan: ‘‘Maximize social benefits of regulationwhile minimizing the costs and burdens ofregulation.’’

The Government is still learning how toaccurately estimate regulatory costs, suchas how much the private sector spends tocomply with regulations, and benefits, suchas safer cars and food. For over 20 years,a series of Executive Orders has chargedOMB with reviewing regulations and providinginformation on their costs and benefits. ThePresident’s September 1993 Executive Order,‘‘Regulatory Planning and Review,’’ directsagencies to assess the costs and benefitsof available regulatory alternatives and toissue only regulations that maximize netbenefits (benefits minus costs), unless a lawrequires another approach.

Developing and evaluating the best possibledata on benefits and costs are central tothe Government’s ability to assess how wellthe regulatory system functions to fulfillpublic needs. To meet that goal, OMB workswith the agencies to improve the qualityof the data and analyses they use in makingregulatory decisions for both proposed andexisting regulations, and to promote the useof standardized assumptions and methodolo-gies uniformly across regulatory programs.

Difficulties in Estimation: Estimating reg-ulatory costs and benefits is hard for two rea-sons: the ‘‘baseline’’ problem and the ‘‘applesand oranges’’ problem.

To estimate how regulations affect societyand the economy, the Government must deter-mine the baseline against which to measure

costs and benefits; that is, what would havehappened if the Government had not issuedthe regulation? But, several problems arise.First, no one can craft such a hypotheticalbaseline with certainty. Second, measuresof costs and benefits often vary, dependingon who is measuring. Agencies generallysupport their regulatory programs and, thus,may understate costs or overstate the likelybenefits; at the same time, businesses andothers who bear the costs will likely dothe opposite. Third, the timing of estimatesalso may make a difference. Most estimatesare made before the regulation takes effect,but evidence exists that once regulationsare in place, the affected entities find lesscostly ways to comply.

The ‘‘apples and oranges’’ problem derivesfrom the nature and diversity of regulationitself. Over 60 Federal agencies regulateover 4,000 times a year for a wide arrayof public purposes. The Government mustmake decisions about the chemical compositionand temperature of the atmosphere, the acces-sibility of public transportation, and safetyof the Nation’s food supply. Estimating thecosts of such diverse activities is hard; estimat-ing the benefits is even harder. Fortunately,the Government is working on this issueand is making steady progress on methodologyand data collection.

Costs and Benefits of Regulation: A re-cent OMB survey, Report to Congress on theCosts and Benefits of Federal Regulations, pre-sents estimates of the aggregate costs and ben-efits of Federal regulation, as well as the costsand benefits of major individual regulations is-sued in the last year. Despite the inherentproblems, the report represents a good firststep toward developing a system to track OMBand agency performance in minimizing costswhile achieving social benefits.

The report uses information on costs andbenefits that was published in peer-reviewedjournals, or published for public commentby agencies and reviewed by OMB, to estimateaggregate costs and benefits for four cat-


Table 32–1. Estimates of the Total Annual Benefits and Costs ofRegulations for 1997(In billions of 1996 dollars)

Benefits Costs

Environmental ............................................................................................... 162 144Other Social ................................................................................................... 136 54Economic ........................................................................................................ * 71Paperwork/disclosure .................................................................................... * 10

Total ........................................................................................................ >298 279

* Indicates that significant benefits remain to be quantified including the benefits of regulating localphone monopolies and the information disclosure requirements of the banking and capital market regulatoryagencies. Note that financial safety and soundness regulation is not included in the above totals.

Source: OMB, Report to Congress On the Costs and Benefits of Federal Regulations, September 30, 1997.

egories: environmental, other social, economic,and paperwork/disclosure (see Table 32–1).

The estimates in Table 32–1 are veryrough, particularly the benefit estimates. Withthat very important caveat, the numbersindicate that regulation has produced asmuch, if not more, in benefits as in costs,and that environmental and other social regu-lation, mainly health and safety regulation,has clearly produced benefits significantlygreater than compliance costs.

The benefits of environmental regulationsreflect the value that society places on im-proved health, recreational opportunities, qual-ity of life, preservation of ecosystems, biodiver-sity, and so on. The benefits of other socialregulation include the value attributed toreduced mortality and morbidity. Generally,the costs are the expenses incurred in compli-ance, based on engineering designs and cur-rent prices, although sometimes they properlyinclude the opportunity costs of foregoingthe benefits of what would have been producedin the absence of the regulation.

Economic regulation directly restricts busi-ness’ ability to conduct its main economicactivities—to set prices and decide what toproduce. It may also limit business’ abilityto enter or leave certain lines of work.These regulations usually apply on an industrybasis, such as agriculture, trucking, or commu-nications. Often, economic regulation has pro-tected business from competition, and eco-nomic loss comes from the higher prices

and inefficiencies that result when competitionis restricted. Sometimes, however, as in thecase of natural monopolies, economic regula-tion simulates competition and, thus, producesbenefits to consumers. Because the Govern-ment has no reliable quantitative estimatesof the benefits of economic regulation, Table32–1 includes none. Most economists, however,believe that because regulatory policy hasbeen slow to adapt to rapidly changing tech-nology, the costs of economic regulation havegenerally exceeded the benefits. The FederalGovernment has been deregulating key sectorsof the economy over the past 20 years,and many other countries have followed itslead.

The fourth category, paperwork/disclosure,includes regulations requiring that informationbe disclosed about the characteristics of aneconomic transaction—e.g., financial, securi-ties, and business transactions—so that bothparties to the transaction will have thesame information. Although the Governmenthas no reliable estimates of the benefitsof such disclosure, most economists believethat benefits exceed costs.

Although Table 32–1 shows that, in totaland for important categories, Federal regula-tions have provided more benefits than costs,it says little about current regulatory policyor how to improve it. To address theseissues, the Government needs estimates ofthe costs and benefits of the incrementalchanges to recent regulations. In its report,

25932. REGULATION: COSTS AND BENEFITS

1 For a copy of this report, see the web site http://www.whitehouse.gov/WH/EOP/OMB/html/rcongress.htm.

OMB provided information on the costs andbenefits of the 41 economically significantfinal regulations that it reviewed from April1, 1996 to March 31, 1997. 1

Twenty-one of these rules require substan-tial private sector spending, provide significantnew social benefits, or both. The Environ-mental Protection Agency (EPA) issued sevenof these rules; the Agriculture Department(USDA) issued four; the Health and HumanServices (HHS) and Transportation Depart-ments each issued three; and the remainingfour were spread among the Commerce, Inte-rior (DOI), and Labor (DOL) Departments.

For seven of the 21 rules, monetized benefitsexceeded costs. For example, the Food andDrug Administration (FDA) estimated thatits tobacco rule would provide net benefitsof $9 billion to $10.2 billion a year. EPAestimated that its Accidental Release Preven-tion rule would generate $77 million a yearin net benefits. For the remaining 15 rules,agencies did not provide enough informationto estimate monetized net benefits. For fiveof the 15, the agencies quantified the expectedbenefits (e.g., tons of emissions reduced, num-ber of injuries avoided), but they did notassign dollar values to these effects and,thus, could not calculate monetized net bene-fits. For five others, the agencies identifiedqualitative benefits associated with the rule,but did not develop any quantified estimatesof the likely effects. For the remaining five,agencies had very little economic data onthe effects of the rule.

Of the remaining economically significantfinal rules, 19 were needed to implementFederal budget programs. These rules gen-erally create ‘‘transfers’’—that is, paymentsfrom one group to another, such as fromthe Federal Government to beneficiaries, thatredistribute wealth. Eight were USDA rulesto implement Federal laws on agriculturaland Food Stamp policies; seven were HHSand Social Security Administration rules toimplement Medicare, Medicaid, and SocialSecurity policy; two were Department of Hous-ing and Urban Development rules linkedto Federal mortgage protections; one wasa DOL rule tied to Federal service contracts;

and one was a joint HHS-Treasury-DOL rulesetting standards for health insurance port-ability group health plans.

In the most basic case, transfers do notdirectly impose social costs or create socialbenefits, and do not reflect the ‘‘opportunitycost’’ of resources used or benefits foregone.Thus, OMB did not include transfers inTable 32–1 estimates of costs and benefits.Nevertheless, transfers can have importanteffects on the distribution of income. Theymay cause indirect social costs because theymust be financed—for example, by incomeand payroll taxes—in ways that affect theuse of real income. Similarly, transfers maygenerate social benefits if beneficiaries realizemarginal benefits from the payments thatare greater than the losses for taxpayerswho finance them.

Further Action: The Government needsbetter data and analysis to determine whetherproposed regulations maximize social benefitswhile minimizing cost. But agencies have le-gitimate reasons for their often incomplete es-timates. In some cases, they face significanttechnical problems in assessing costs and bene-fits. In others, legal or judicial deadlines forcethe agencies to act within time frames thatdo not allow for adequate analysis. In still oth-ers, agencies may need to allocate their limitedfinancial and human resources to higher prior-ities. Finally, in cases of emergencies, the pub-lic expects its elected leaders to respond with-out the delay that careful analysis would en-tail.

OMB is committed to improving the indica-tors to assess its performance in meetingthe goal of ensuring that it is faithfullyexecuting and managing regulatory policy.It will lead an inter-agency effort to raisethe quality of analyses that agencies usein developing regulations, such as by offeringtechnical outreach programs and training ses-sions on using OMB’s ‘‘Best Practices’’ oneconomic analysis.

OMB also will:

• subject a select set of agency regulatoryanalyses to peer review in order to iden-tify—based on actual experience—themethodological approaches that need im-


provement and to stimulate the develop-ment of better estimation techniques;

• continue to develop a database on benefitsand costs of major rules, using consistentassumptions and better estimation tech-niques to refine agency estimates of incre-mental costs and benefits; and

• work on developing appropriate meth-odologies to evaluate whether to reform or

eliminate existing regulatory programs ortheir elements.

Regulation and regulatory reform can domuch good for society, depending on whetherthe Government has the needed informationand analysis for wise decision-making. Thesteps outlined above are designed to continuethe Government’s efforts to improve its abilityto make better regulatory decisions.

TE–1

4 Committee on Government Affairs, United States Senate, ‘‘Government Performance andResults Act of 1993’’ (Report 103–58, 1993).

5 Director of the Office of Management and Budget, ‘‘The Government Performance andResults Act,’’ Report to the President and the Congress, May 1997.

From Analytical Perspectives, Fiscal Year 1999

5. TAX EXPENDITURES

Tax expenditures are revenue losses due to pref-erential provisions of the Federal tax laws, such asspecial exclusions, exemptions, deductions, credits, de-ferrals, or tax rates. They are alternatives to other pol-icy instruments, such as spending or regulatory pro-grams, as means of achieving Federal policy goals. Taxexpenditures are created for a variety of reasons, in-cluding to encourage certain activities, to improve fair-ness, to ease compliance with and administration ofthe tax system, and to reduce certain tax-induced dis-tortions. The Congressional Budget Act of 1974 (PublicLaw 93–344) requires that a list of tax expendituresbe included in the budget.

The largest tax expenditures tend to be associatedwith the individual income tax. For example, tax pref-erences are provided for employer contributions formedical insurance, pension contributions and earnings,mortgage interest payments on owner-occupied homes,capital gains, and payments of State and local individ-ual income taxes. Tax expenditures under the corporateincome tax tend to be related to the rate of cost recov-ery for various investments; as is discussed below, theextent to which these provisions are classified as taxexpenditures varies according to the conceptual baselineused. Charitable contributions and credits for Statetaxes on bequests are the largest tax expendituresunder the unified transfer (i.e., estate and gift) tax.

Because of potential interactions among provisions,this chapter does not present a grand total revenueloss estimate for tax expenditures. Moreover, past taxchanges entailing broad elimination of tax expenditureswere generally accompanied by changes in tax ratesor other basic provisions, so that the net effects onFederal revenues were considerably (if not totally) off-set. Nevertheless, in aggregate, tax expenditures haverevenue impacts of hundreds of billions of dollars, andare some of the most important ways in which theFederal Government affects economic decisions and so-cial welfare.

Tax expenditures relating to the individual and cor-porate income taxes are considered first in this chapter.They are estimated for fiscal years 1997–2003 usingthree methods of accounting: revenue loss, outlay equiv-alent, and present value. The present value approachprovides estimates of the revenue losses for tax expend-itures that involve deferrals of tax payments into the

future or have similar long-term effects. Tax expendi-tures relating to the unified transfer tax are consideredin a section at the end of the chapter.

The section in this chapter on Performance Measuresand the Economic Effects of Tax Expenditures presentsinformation related to assessment of the effect of taxexpenditures on the achievement of program perform-ance goals. This section was prepared under the Gov-ernment Performance and Results Act of 1993 and isa part of the government-wide performance plan re-quired by this Act (see also Sections III, IV, and VIof the Budget volume). Tax expenditures are also dis-cussed in Section VI of the Budget, which considersthe Federal Government’s spending, regulatory, and taxpolicies across functional areas.

Performance Measures and the EconomicEffects of Tax Expenditures

Under the Government Performance and Results Actof 1993 (GPRA), Federal agencies are directed to de-velop both strategic and annual plans for their pro-grams and activities. These plans set out performanceobjectives to be achieved over a specific time period.Achieving most of these objectives will largely be theresult of direct expenditures of funds. However, taxexpenditures may also contribute to goal achievement.

The Senate Governmental Affairs Committee reporton this Act4 called on the Executive branch to under-take a series of analyses to assess the effect of specifictax expenditures on the achievement of the goals andobjectives in these strategic and annual plans. As de-scribed in OMB’s May 1997 report on this Act,5 Treas-ury in 1997 initiated pilot studies of three specific taxexpenditures in order to explore evaluation methodsand resource needs associated with evaluating the rela-tionship between tax expenditures and performancegoals. Tax expenditures were selected in each of thethree main areas—individual, business, and inter-national taxation—within the Office of Tax Analysis.The specific provisions considered were: the tax exemp-tion for worker’s compensation benefits; the tax creditfor nonconventional fuels; and the tax exclusion for cer-tain amounts of income earned by Americans living

TE–2 ANALYTICAL PERSPECTIVES

6 Joint Committee on Taxation, ‘‘Estimates of Federal Tax Expenditures for Fiscal Years1998–2992,’’ JCS–22–97, December 15, 1997; and Committee on the Budget, United StatesSenate, ‘‘Tax Expenditures: Compendium of Background Material on Individual Provisions,’’prepared by the Congressional Research Service (S. Prt. 104–69, December 1996).

7 While this section focuses upon tax expenditures under the income tax, tax preferencesalso arise under the unified transfer, payroll, and excise tax systems. Such preferencescan be useful when they relate to the base of those taxes, such as an excise tax exemptionfor certain types of meritorious consumption.

abroad. The results of these studies are summarizedin the context of the three specific provisions in thesection that follows, which provides provision descrip-tions.

For the next year, the Administration’s plan is tocomplete additional studies that will focus on the avail-ability of the data needed to assess the effects of se-lected significant tax expenditures. In addition, summa-rized data on the beneficiaries and other economic prop-erties of such provisions will be developed where fea-sible. This effort will complement information publishedby the Joint Committee on Taxation and the SenateBudget Committee on the rationale, beneficiaries, andeffects of tax expenditures.6 One finding of the pilotstudies is that much of the data needed for thoroughanalysis is not currently available. Hence, assessmentof data needs and availability from Federal statisticalagencies, program-agency studies, or private-sectorsources, and, when feasible, publication of data on se-lected tax expenditures should prove valuable to broad-er efforts to assess the effects tax expenditures andto compare their effectiveness with outlay, regulatoryand other tax polices as means of achieving objectives.

Comparisons of tax expenditure, spending, andregulatory policies. Tax expenditures by definitionwork through the tax system and, particularly, the in-come tax. Thus, they may be relatively advantageouspolicy approaches when the benefit or incentive is relat-ed to income and is intended to be widely available.7

Because there is an existing public administrative andprivate compliance structure for the tax system, theincremental administrative and compliance costs for atax expenditure may be low in many, though not all,cases. In addition, tax expenditures may help simplifythe tax system, as where they leave certain incomesources untaxed (e.g, exemptions for employer fringebenefits or exclusions for up to $500,000 of capital gainson home sales). Tax expenditures also implicitly sub-sidize certain activities, which benefits recipients; thebeneficiaries experience reduced taxes that are offsetby higher taxes (or spending reductions) elsewhere.Regulatory or tax-disincentive policies, which can alsomodify behavior, would have a different distributionalimpact. Finally, a variety of tax expenditure tools canbe used—e.g., deductions, credits, exemptions and de-ferrals; floors and ceilings; and phase-ins and phase-outs, dependent on income, expenses, or demographiccharacteristics (age, number of family members, etc.).This wide range means that tax expenditures can beflexible and can have very different distributional andcost-effectiveness properties.

Tax expenditures also have limitations. In some casesthey can add to the complexity of the tax system, whichcan raise both administrative and compliance costs; for

example, various holding periods and tax rates for cap-ital gains can complicate filing and decisionmaking.Also, the income tax system does not gather informa-tion on wealth, in contrast to certain loan programsthat are based on recipients’ assets and income. In ad-dition, the tax system may have little or no contactwith persons who have no or very low incomes, andincentives for such persons may need to take the formof refunds. These features may reduce the effectivenessof tax expenditures for addressing certain income-trans-fer objectives. Tax expenditures also generally do notenable the same degree of agency discretion as an out-lay program; for example, grant or direct Federal serv-ice delivery programs can prioritize which activities areaddressed with what amount of resources in a waythat is difficult to emulate with tax expenditures. Fi-nally, tax expenditures tend to escape the budget scru-tiny afforded to other programs. For instance, a pro-gram funded by a tax expenditure does not increasegovernment outlays as a share of national product andit may even decrease receipts as a share of output.However, the effective government compensation to aservice provider can be identical to that of a spendingprogram under which the outlay (and possibly the re-ceipts) share of GDP may increase.

Outlay programs, in contrast, have advantages wheredirect government service provision is particularly war-ranted—such as equipping and providing the armedforces or administering the system of justice. Outlayprograms may also be specifically designed to meet theneeds of low-income families who would not otherwisebe subject to income taxes or need to file a return.Outlay programs may also receive more year-to-yearoversight and fine tuning, through the legislative andexecutive budget process. In addition, there are manytypes of spending programs—including direct govern-ment provision; credit programs; and payments to Stateand local governments, the private sector, or individualsin the form of grants or contracts—which provides flexi-bility for policy design. Regarding limitations, certainoutlay programs—such as direct government serviceprovision—may rely less directly on economic incentivesand private-market provision than tax incentives, whichmay reduce the relative efficiency of spending programsfor some goals. Spending programs also require re-sources to be raised via taxes, user charges, or govern-ment borrowing. Finally, spending programs, particu-larly on the discretionary side, may respond less readilyto changing activity levels and economic conditions thantax expenditures.

Regulations have a key distributional difference fromoutlay and tax-expenditure programs in that the imme-diate distributional burden of the regulation typicallyfalls on the regulated party (i.e., the intended actor)—generally in the private sector. While the regulated par-ties can pass costs along through product or inputprices, the initial incidence is on the regulated party.Regulations can be fine-tuned more quickly than taxexpenditures, as they can generally be changed by theexecutive branch without legislation. Like tax expendi-

TE–35. TAX EXPENDITURES

tures, regulations often largely rely upon voluntarycompliance, rather than detailed inspections and polic-ing. As such, the public administrative costs tend tobe modest, relative to the private resource costs associ-ated with modifying activities. Historically, regulationshave tended to rely on proscriptive measures, as op-posed to economic incentives, which can diminish theirefficiency, though this feature can also promote fullcompliance where (as in certain safety-related cases)policymakers believe that trade-offs with economic con-siderations are unnecessary. Also, regulations generallydo not directly affect the Federal budget and outlaysand receipts as a percentage of national output. Thus,like tax expenditures, they may escape the type of scru-tiny that outlay programs receive. However, most regu-lations are subjected to a formal type of benefit-costanalysis that goes well beyond the analysis requiredfor outlay and tax-expenditure programs. To some ex-tent, the GPRA requirement for performance evaluationwill address this lack of formal analysis.

Tax expenditures, like spending and regulatory pro-grams, have a variety of objectives and effects. Theseinclude: encouraging certain types of activities (e.g.,saving for retirement or investing in certain sectors);increasing certain types of after-tax income (e.g., favor-able tax treatment of social security income); reducingprivate compliance costs and government administra-tive costs (e.g., favorable treatment of certain employer-provided fringe benefits); and promoting tax neutrality(e.g., accelerated depreciation in the presence of infla-tion). Some of these objectives are well suited to quan-titative measurement, while others are less well suited.Also, many tax expenditures, including those citedabove, may have more than one objective. For example,favorable treatment of employer-provided pensionsmight be argued to have aspects of most, or even all,of the goals mentioned above. In addition, the economiceffects of particular provisions can extend beyond theirintended objectives (e.g., a provision intended to pro-mote an activity or raise certain incomes may havepositive or negative effects on tax neutrality).

Performance measurement is generally concernedwith inputs, outputs, and outcomes. In the case of taxexpenditures, the principal input is usually the tax rev-enue loss. Outputs are quantitative or qualitative meas-ures of goods and services, or changes in income andinvestment, directly produced by these inputs. Out-comes, in turn, represent the changes in the economy,society, or environment that are the ultimate goals ofprograms.

Thus, for a provision that reduces taxes on certaininvestment activity, an increase in the amount of in-vestment would likely be a key output. The resultingproduction from that investment, and, in turn, the asso-ciated improvements in national income, welfare, or se-curity, could be the outcomes of interest. For other pro-visions, such as those designed to address a potentialinequity or unintended consequence in the tax code,an important performance measure might be how theychange effective tax rates (the discounted present-value

of taxes owed on new investments or incremental earn-ings) or excess burden (an economic measure of thedistortions caused by taxes). Distributional effects onincomes may be an important measure for certain pro-visions.

An overview of evaluation issues by budget func-tion. The discussion below considers the types of meas-ures that might be useful for some major programmaticgroups of tax expenditures. The discussion is intendedto be illustrative, and not all encompassing. However,it is premised on the assumption that the data neededto perform the analysis are available or can be devel-oped. In practice, data availability is likely to be amajor challenge, and data constraints may limit theassessment of the effectiveness of many of the provi-sions for some time. In addition, such assessments canraise significant challenges in economic modeling,which has inherent uncertainties. For these reasons,and related time, staffing, and resource constraints, theevaluation process is likely to take a number of yearsand to include qualitative assessments and estimatedranges of effects, in many cases, as opposed to pointestimates.

National defense.—Some tax expenditures are in-tended to assist governmental activities. For example,tax preferences for military benefits reflect, amongother things, the view that benefits such as housing,subsistence, and moving expenses are intrinsic aspectsof military service, and are provided, in part, for thebenefit of the employer, the U.S. Government. Tax ben-efits for combat service are intended to reduce tax bur-dens on military personnel undertaking hazardous serv-ice for the Nation. A portion of the tax expenditureassociated with foreign earnings is targeted to benefitU.S. Government civilian personnel working abroad, byoffsetting the living costs that can be higher than thosein the United States. These tax expenditures shouldbe considered together with direct agency budget costsin making programmatic decisions.

International affairs.—Tax expenditures are alsoaimed at promoting U.S. exports. These include theexclusion for income earned abroad by nongovernmentalemployees and preferences for income from exports andU.S.-controlled foreign corporations. Measuring the ef-fectiveness of these provisions raises challenging issues.In addition to determining their effectiveness in mar-kets of the benefitting firms, analysis should considerthe extent to which macroeconomic factors lead to off-setting effects, such as increased imports, which couldmoderate any net effects on employment, national out-put, and trade deficits. Similar issues arise in the caseof export promotion programs supported by outlays.

General science, space and technology; energy;natural resources and the environment; agri-culture; and commerce and housing.—A series oftax expenditures reduces the cost of investment, bothin specific activities—such as research and experimen-

TE–4 ANALYTICAL PERSPECTIVES

tation, extractive industries, and certain financial ac-tivities—and more generally, through accelerated depre-ciation for plant and equipment. These provisions canbe evaluated along a number of dimensions. For exam-ple, it could be useful to consider the strength of theincentives by measuring their effects on the cost ofcapital (the interest rate which investments must yieldto cover their costs) and effective tax rates. The impactof these provisions on the amounts of correspondingforms of investment—such as research spending, explo-ration activity, or equipment—could also be estimated.In some cases, such as research, there is evidence thatthe investment can provide significant positiveexternalities—that is, economic benefits that are notreflected in the market transactions between privateparties. It could be useful to quantify these externalitiesand compare them with the degree of tax subsidy pro-vided. Measures could also indicate the provisions’ ef-fects on production from these investments—such asnumbers or values of patents, energy production andreserves, and industrial production. Issues to be consid-ered include the extent to which the preferences in-crease production (as opposed to benefitting existingoutput) and their cost-effectiveness relative to otherpolicies. Analysis could also consider objectives that aremore difficult to measure but still are ultimate goals,such as promoting the Nation’s technological base, en-ergy security, environmental quality, or economicgrowth. Such an assessment is likely to involve taxanalysis as well as consideration of non-tax matterssuch as market structure, scientific, and other informa-tion (such as the effects of increased domestic fuel pro-duction on imports from various regions, or the effectsof various energy sources on the environment).

Housing investment also benefits from tax expendi-tures, including the mortgage interest deduction andpreferential treatment of capital gains on homes. Meas-ures of the effectiveness of these provisions could in-clude their effects on increasing the extent of homeownership and the quality of housing. In addition, themortgage interest deduction offsets the taxable natureof investment income received by homeowners, so therelationship between the deduction and such earningsis also relevant to evaluation of this provision. Simi-larly, analysis of the extent of accumulated inflationarygains is likely to be relevant to evaluation of the capitalgains preference for home sales. Deductibility of Stateand local property taxes assists with making housingmore affordable as well as easing the cost of providingcommunity services through these taxes. Provisions in-tended to promote investment in rental housing couldbe evaluated for their effects on making such housingmore available and affordable. These provisions shouldthen be compared with alternative programs that ad-dress housing supply and demand.

Transportation.—Employer-provided parking is afringe benefit that, for the most part, is excluded fromtaxation. The tax expenditure revenue loss estimatesreflect the cost of parking that is leased by employersfor employees; an estimate is not currently available

for the value of parking owned by employers and pro-vided to their employees. The exclusion for employer-provided transit passes is intended to promote use ofthis mode of transportation, which has environmentaland congestion benefits. The tax treatments of thesedifferent benefits could be compared with alternativetransportation policies.

Community and regional development.—A seriesof tax expenditures is intended to promote communityand regional development by reducing the costs of fi-nancing specialized infrastructure, such as airports,docks, and stadiums. Empowerment zone and enter-prise community provisions are designed to promoteactivity in disadvantaged areas. These provisions canbe compared with grant and other policies designedto spur economic development.

Education, training, employment, and socialservices.—Major provisions in this function are in-tended to promote post-secondary education, to offsetcosts of raising children, and to promote a variety ofcharitable activities. The education incentives can becompared with loans, grants, and other programs de-signed to promote higher education and training. Thechild credits are intended to adjust the tax system forthe costs of raising children; as such, they could becompared to other Federal tax and spending policies,including related features of the tax system, such aspersonal exemptions (which are not defined as a taxexpenditure). Evaluation of charitable activities re-quires consideration of the beneficiaries of these activi-ties, who are generally not the parties receiving thetax reduction.

Health.—Individuals also benefit from favorabletreatment of employer-provided health insurance. Meas-ures of these benefits could include increased coverageand the distribution of this coverage across differentincome groups. The effects of insurance coverage onfinal outcome measures of actual health (e.g., infantmortality, days of work lost due to illness, or life expect-ancy) or intermediate outcomes (e.g., use of preventivehealth care or health care costs) could also be inves-tigated. The distribution of employer-provided healthinsurance is not readily evident from tax return infor-mation; thus, the distribution of benefits from this ex-clusion must be imputed using tax as well as otherforms of information.

Income security, social security, and veteransbenefits and services.—Major tax expenditures in theincome security function benefit retirement savings,through employer-provided pensions, individual retire-ment accounts, and Keogh plans. These provisionsmight be evaluated in terms of their effects on boostingretirement incomes, private savings, and national sav-ings (which would include the effect on private savingsas well as public savings or deficits). In consideringthe provisions’ distributional effects, it may be usefulto consider beneficiaries’ incomes while retired and over

TE–55. TAX EXPENDITURES

their entire lifetimes. Interactions with other programs,including social security, also may merit analysis. Asin the case of employer-provided health insurance, anal-ysis of employer-provided pension programs requiresimputing the benefits of the firm-level contributionsback to individuals.

Other provisions principally have income distribution,rather than incentive, effects. For example, tax-favoredtreatment of social security benefits, certain veteransbenefits, and deductions for the blind and elderly pro-vide increased incomes to eligible parties. The distribu-tion of these benefits may be a useful performancemeasure. The earned-income tax credit, in contrast,should be evaluated both for its effects on labor forceparticipation and its distributional properties.

General purpose fiscal assistance and interest.—The tax-exemption for public purpose State and localbonds reduces the costs of borrowing for a variety ofpurposes; borrowing for non-public purposes is reflectedunder other budget functions. The deductibility of cer-tain State and local taxes reflected under this functionprimarily relates to personal income taxes; property taxdeductibility is reflected under the commerce and hous-ing function. Tax preferences for Puerto Rico and otherU.S. possessions are also included here. These provi-sions can be compared with other tax and spendingpolicies as means of benefitting fiscal and economic con-ditions in the States, localities, and possessions. Fi-nally, the tax deferral for interest on U.S. savingsbonds benefits savers who invest in these instruments;

the extent of these benefits and any effects on Federalborrowing costs could be evaluated.

The above illustrative discussion, while broad, is nev-ertheless incomplete, both for the provisions mentionedand the many that are not explicitly cited. Developinga framework that is sufficiently comprehensive, accu-rate, and flexible to reflect the objectives and effectsof the wide range of tax expenditures will be a signifi-cant challenge. OMB, Treasury, and other agencies willwork together, as appropriate, to address this challenge.Particularly over the next few years, a significant por-tion of this effort is likely to be devoted to data issues.Because the compilation of data is resource intensive,and must be balanced with other objectives (includingminimizing information collection burdens), carefulplanning will be essential. Given the challenges inher-ent in this work, the nature of the analyses is likelyto evolve and improve over the next several years.

Other Considerations

The tax expenditure analysis could be extended be-yond the income and transfer taxes to include payrolland excise taxes. The exclusion of certain forms of com-pensation from the wage base, for instance, reducespayroll taxes, as well as income taxes. Payroll tax ex-clusions are complex to analyze, however, because theyalso affect social insurance benefits. Certain targetedexcise tax provisions might also be considered tax ex-penditures. In this case challenges include determiningan appropriate baseline.

government-wide performance plan · the deficit for the previous year, fiscal 1992, had hit a...

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