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Before the Senate Committee on Homeland Security and Governmental 

For Release on Delivery Expected at 10:00 am EST Wednesday, February 
16, 2005:


Reexamining the Base of the Federal Government:

Statement of David M. Walker: 
Comptroller General of the United States:


Chairman Collins, Senator Lieberman and Members of the Committee:

Thank you for the opportunity to present and discuss the report we are 
issuing today entitled 21ST Century Challenges: Reexamining the Base of 
the Federal Government. We appreciate the interest and support of this 
committee and others of GAO's efforts to produce this report for the 
Congress. This report stems from the recognition that the Congress 
faces a daunting challenge: the need to bring government and its 
programs in line with 21ST century realities. This challenge has many 
related pieces: addressing our nation's large and growing long-term 
fiscal gap; deciding on the appropriate role and size of the federal 
government--and how to finance that government--and bringing the 
panoply of federal activities into line with today's world. We believe 
that GAO has an obligation to assist and support the Congress in this 
effort. The reexamination questions discussed in today's report are 
offered in that spirit: they are drawn primarily from the work GAO has 
done for the Congress over the years. We have attempted to structure 
questions that we hope you will find useful as the Congress determines 
which issues it plans to examine and act on. Many of the questions in 
this report do not represent immediate crises, however many pose 
important longer term threats to our country's fiscal and economic, and 
national security as well as the quality of life for our children and 

As I have said before, our nation is on an unsustainable fiscal path. 
Long-term budget simulations by GAO, the Congressional Budget Office 
(CBO), and others show that, over the long term we face a large and 
growing structural deficit due primarily to known demographic trends 
and rising health care costs. Continuing on this unsustainable fiscal 
path will gradually erode, if not suddenly damage, our economy, our 
standard of living, and ultimately our national security. All 
reasonable simulations indicate that the problem is too big to be 
solved by economic growth alone or by making modest changes to existing 
spending and tax policies. Rather, a fundamental reexamination of major 
spending and tax policies and priorities will be important to recapture 
our fiscal flexibility and ensure that our programs and priorities 
respond to emerging social, economic, and security changes and 

Ultimately, this reexamination will entail a national discussion about 
what Americans want from their government and how much they are willing 
to pay for those things. It will also involve how the government should 
conduct its business for the 21ST century. Many, if not most, current 
federal programs and policies were designed decades ago to respond to 
trends and challenges that existed at the time of their creation. Our 
recent entry into a new century has helped to remind us of how much has 
changed in the past several decades--whether it be rapid shifts in the 
aging of our population, the globalization of economic transactions, 
the significant advances in technology, and changing security threats. 
If government is to effectively address these trends, it cannot accept 
its existing programs, policies and activities as "givens." Outmoded 
commitments and operations can constitute an encumbrance on the present 
and future that can erode the capacity of the nation to better align 
its government with the needs and demands of a changing world and 

Rethinking the base of existing federal spending and tax programs is an 
important step in this process. A periodic reexamination offers the 
prospect of addressing emerging needs by weeding out programs and 
policies that are outdated and ineffective. Those programs that remain 
relevant can be updated and modernized by improving their targeting and 
efficiency through such actions as redesigning allocation and cost 
sharing provisions, consolidating facilities and programs and 
streamlining and reengineering operations and processes. The tax 
policies and programs financing the federal budget can also be reviewed 
with an eye toward the overall level of revenues that are necessary to 
fund government operations and commitments, the mix of taxes that 
should be used, and the extent to which the tax code is used to promote 
certain societal objectives.

In my testimony today I will try to provide a context for, and a guide 
to, this report. First, I will talk about why and how we developed this 
report. Next, I will touch on the long-term fiscal challenge, which 
provides the primary impetus for this overall reexamination effort. The 
bulk of my statement deals with five of the fundamental trends that are 
shaping the world and the federal role in our economy and our society: 
demographics, global interdependence, economic change, evolving 
security threats and governance challenges. In this discussion I'll 
talk about how the issues discussed in this report can be used to 
assist you in your policy making and oversight activities.

Reexamining the Base of the Federal Government:

Let me start by telling you a little more about the genesis of this 
report. GAO has long had a statutory responsibility for monitoring the 
nation's finances. Recently, in our role as the auditor of the U.S. 
government's consolidated financial statements, we included an emphasis 
paragraph in the audit report for fiscal year 2004 expressing our 
concerns about the unsustainability of the nation's long-term fiscal 
outlook. This conclusion was based on the results of fiscal year 2004 
and GAO's long-term budget model, which we have used since 1992.

Moreover, as you know, in our role as the audit, evaluation, and 
investigative arm of the Congress, we have provided our perspectives on 
a wide range of key performance and accountability challenges facing 
the federal government, both in numerous reports and testimonies over 
the years and compendiums such as our high-risk reports. We have also 
looked forward by developing a strategic plan, consistent with the 
Government Performance and Results Act (GPRA) and in consultation with 
the Congress, identifying the emerging forces and trends that are 
impairing the United States, its citizens and its position in the 

Given these trends and challenges facing the nation, we believe that 
GAO now has an obligation to provide policymakers with the benefit of 
our institutional knowledge to identify selected areas throughout 
government that could be considered for reexamination and review. 
Drawing on our past and pending work--about 90 percent of which is 
either requested by the Congress or required by law--we have provided 
examples of the kinds of hard choices stemming from these challenges in 
the form of questions for elected officials and other policy makers to 
consider. These 21ST century questions cover discretionary spending, 
mandatory spending including entitlements, as well as tax policies and 

The specific 21ST century questions were based, in part, on GAO's 
strategic plan for serving the Congress,[Footnote 1] which identified 
major trends that will shape the federal role in the future. (See table 

Table 1: Strategic Plan Themes:

* Long-Range Fiscal Challenges; 
* Changing Security Threats; 
* Increasing Global Interdependence; 
* The Changing Economy;  
* Demographic Shifts; 
* Science and Technology Advances; 
* Quality of Life Trends; 
* Changing Governance Structures.

Source: GAO.

[End of table]

These trends, along with GAO's institutional knowledge and issued work, 
helped us identify the major challenges and specific questions. The 
specific questions were informed by a set of generic evaluation 
criteria which are useful for reviewing any government program or 
activity; these are displayed in table 2.

Table 2: Illustrative Generic Reexamination Criteria:

Relevance of purpose and the federal role: Does it relate to an issue 
of nationwide interest? If so, is a federal role warranted based on the 
likely failure of private markets or state and local governments to 
address the underlying problem or concern? Does it encourage or 
discourage these other sectors from investing their own resources to 
address the problem? 

Have there been significant changes in the country or the world that 
relate to the reason for initiating it?

If the answer to the last question is "yes," should the activity be 
changed or terminated, and if so, how? If the answer is unclear as to 
whether changes make it no longer necessary, then ask, when, if ever, 
will there no longer be a need for a federal role? In addition, ask, 
would we enact it the same way if we were starting over today? Has it 
been subject to comprehensive review, reassessment, and re-
prioritization by a qualified and independent entity? If so, when? Have 
there been significant changes since then? If so, is another review 
called for?

Is the current mission fully consistent with the initial or updated 
statutory mission (e.g., no significant mission creep or morphing)? Is 
the program, policy, function, or activity a direct result of specific 

Measuring success: How does it measure success? Are the measures 
reasonable and consistent with the applicable statutory purpose? Are 
the measures outcome-based, and are all applicable costs and benefits 
being considered? If not, what is being done to do so?

If there are outcome-based measures, how successful is it based on 
these measures?

Targeting benefits: Is it well targeted to those with the greatest 
needs and the least capacity to meet those needs?

Affordability and cost effectiveness: Is it affordable and financially 
sustainable over the longer term, given known cost trends, risks, and 
future fiscal imbalances?

Is it using the most cost-effective or net beneficial approaches when 
compared to other tools and program designs?

What would be the likely consequences of eliminating the program, 
policy, function, or activity? What would be the likely implications if 
its total funding was cut by 25 percent?

Best practices: If it fares well after considering all of these 
questions, is the responsible entity employing prevailing best 
practices to discharge its responsibilities and achieve its mission 
(e.g., strategic planning, organizational alignment, human capital 
strategy, financial management, technology management, acquisitions/
sourcing strategy, change management, knowledge management, client/
customer service, risk management)?

Source: GAO.

[End of table]

In the report, we describe the forces at work, the challenges they 
present, and the 21ST century questions they prompt, in each of 12 
broad areas based in large measure on functional areas in the federal 
budget, but also including governmentwide issues and the revenue side 
of the budget as listed in table 3.

Table 3: Twelve Reexamination Areas:

Mission Areas: 
Education & Employment; 
Financial Regulation & Housing; 
Health Care; 
Homeland Security; 
International Affairs; 
Natural Resources, Energy & Environment; 
Retirement & Disability; 
Science & Technology; 

Crosscutting Areas: 
Tax System.

Source: GAO.

[End of table]

Our report contains over 200 individual illustrative questions in these 
12 areas. In the remainder of my statement I will discuss some of the 
questions in the context of the major strategic challenges facing the 

Long-term Fiscal Challenge Provides Reexamination Impetus:

Chairman Collins, the nation is facing a range of important new forces 
that are already working to reshape American society, our place in the 
world and the role of the federal government. Our capacity to address 
these and other emerging needs and challenges will be predicated on 
when and how we deal with our fiscal challenges--the long-term fiscal 
pressures we face are daunting and unprecedented in the nation's 
history. The size and trend of our projected longer term deficits means 
that the nation cannot ignore the resulting fiscal pressures--it is not 
a matter of whether the nation deals with the fiscal gap, but when and 
how. Unless we take effective and timely action, our near-term and 
longer-term deficits present the prospect of chronic and seemingly 
perpetual budget shortfalls and constraints becoming a fact of life for 
years to come. Not only would continuing deficits eat away at the 
capacity of everything the government does, but they will erode our 
ability to address the wide range of emerging needs and demands 
competing for a share of a shrinking budget pie.

GAO's long-term simulations illustrate the magnitude of the fiscal 
challenges we will face in the future. Figures 1 and 2 present these 
simulations under two different sets of assumptions. In the first, 
simulation is based on the CBO January baseline--constructed according 
to the statutory requirements for that baseline.[Footnote 2] Consistent 
with these requirements, this simulation assumes no changes in current 
law, that discretionary spending is assumed to grow with inflation for 
the first 10 years, and that tax cuts which are currently scheduled to 
expire will expire. After 2015, discretionary spending is assumed to 
grow with the economy, and revenue is held constant as a share of GDP 
at the 2015 level. In the second figure, only two assumptions are 
changed: (1) discretionary spending is assumed to grow with the economy 
rather than merely with inflation for the entire period (not just after 
2015), and (2) all tax cuts which are currently scheduled to expire are 
made permanent. For both simulations Social Security and Medicare 
spending is based on the 2004 trustees' intermediate projections, and 
we assume that benefits continue to be paid in full after the trust 
funds are exhausted. Medicaid spending is based on CBO's December 2003 
long-term projections under mid-range assumptions.

Figure 1: Composition of Spending as a Share of Gross Domestic Product 
(GDP) Under Baseline Extended:

[See PDF for image] 

Notes: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2015 due to (1) real bracket creep, (2) more 
taxpayers becoming subject to the alternative mininum tax (AMT), and 
(3) increased revenue from tax-deferred retirement accounts. After 
2015, revenue as a share of GDP is held constant.

[End of figure] 

Figure 2: Composition of Spending as a Share of Gross Domestic Product 
Assuming Discretionary Spending Grows with GDP after 2005 and All 
Expiring Tax Provisions Are Extended:

[See PDF for image] 

Notes: Although expiring tax provisions are extended, revenue as a 
share of GDP increases through 2015 due to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred retirement accounts. After 2015, revenue as a share 
of GDP is held constant.

[End of figure] 

As both these simulations illustrate, absent policy changes on the 
spending and/or revenue side of the budget, the growth in spending on 
federal retirement and health entitlements will encumber an escalating 
share of the government's resources. Indeed, when we assume that recent 
tax reductions are made permanent and discretionary spending keeps pace 
with the economy, our long-term simulations suggest that by 2040 
federal revenues may be adequate to pay little more than interest on 
the federal debt. Neither slowing the growth in discretionary spending 
nor allowing the tax provisions to expire--nor both together--would 
eliminate the imbalance. Although revenues will likely be part of the 
debate about our fiscal future, making no changes to Social Security, 
Medicare, Medicaid, and other drivers of the long-term fiscal gap would 
require at least a doubling of taxes in the future--and that seems both 
inappropriate and implausible. Accordingly, substantive reform of 
Social Security, Medicare and other major mandatory programs remains 
critical to recapturing our future fiscal flexibility.

The government can help ease our nation's future fiscal burdens through 
actions on the spending and/or revenue side that reduce debt held by 
the public, increase saving for the future, and enhance the pool of 
economic resources available for private investment and long-term 
growth. Economic growth is essential, but we will not be able to simply 
grow our way out of the problem. The numbers speak loudly: Our 
projected fiscal gap is simply too great. Closing the current long-term 
fiscal gap would require sustained economic growth far beyond that 
experienced in U.S. economic history since World War II. Tough choices 
are inevitable, and the sooner we act the better.

Fundamental Forces Will Test Existing Policy Frameworks:

Fiscal necessity can become the mother of invention and of much needed 
reforms in government programs and activities. The nation's continued 
economic progress, social well being and national security in the 21ST 
century will in large part depend on how we adapt and respond to these 
rapid changes and growing fiscal challenges.

We hope the reexamination questions presented in our report today can 
facilitate a fundamental overview and reexamination of the base of 
government programs, policies and activities. As I noted earlier, in 
organizing these questions we started with major trends that are 
shaping the world and the federal role in our economy and our society. 
I'd like to spend some time today discussing five of the trends we have 
identified in our strategic plan for serving the Congress and how they 
prompt the need to consider the base of government across several of 
the 12 areas addressed in the report. I'll start with demographics, 
including the aging of our population, and then discuss increasing 
global interdependence, economic change, evolving security threats and 
changing governance systems.

An Aging Population:

As the baby boomers age, people will live longer and spend more time in 
retirement. As shown in figure 3, the U.S. elderly dependency ratio is 
expected to continue to increase.[Footnote 3] The proportion of the 
elderly population relative to the working-age population in the U.S. 
rose from 13 percent in 1950 to 19 percent in 2000. By 2050, there is 
projected to be almost one elderly dependent for every three people of 
working age[Footnote 4]--a ratio of 32 percent. Additionally, the 
average life expectancy of males at birth has increased from 66.6 in 
1960 to 74.3 in 2000, with females at birth experiencing a rise from 
73.1 to 79.7 over the same period. As general life expectancy has 
increased in the United States, there has also been an increase in the 
number of years spent in retirement.

Figure 3: U.S. Elderly Dependency Ratio Expected to Continue to 

[See PDF for image]

[End of figure]

A falling fertility rate is the other principal factor underlying the 
growth in the elderly share of the population. In the 1960s, the 
fertility rate was an average of three children per woman. Today it is 
a little over two, and by 2030 it is expected to fall to 1.95. The 
combination of these factors means that annual labor force growth will 
begin to slow after 2010 and by 2025 is expected to be less than a 
fifth of what it is today. (See fig. 4.) Thus, relatively fewer workers 
will be available to produce the goods and services that all will 
consume. Lower labor force growth will lead to slower growth in the 
economy and to slower growth of federal revenues.

Figure 4: Labor Force Growth Is Expected to Slow Significantly:

[See PDF for image] 

Note: Percentage change is calculated as a centered 5-year moving 
average of projections based on the intermediate assumptions of the 
2004 Trustees' Reports.

[End of figure] 

As noted earlier, these trends have major implications for federal 
budget policy and will prompt a reexamination of national retirement 
programs, health care and workforce policies. Although considerable 
uncertainty surrounds long-term budget projections, we know two things 
for certain: the population is aging and the baby boom generation is 
approaching retirement age. The aging population and rising health care 
spending will have significant implications not only for the budget, 
but also for the economy as a whole. Figure 5 shows the total future 
draw on the economy represented by Social Security, Medicare, and 
Medicaid. Under the 2004 Trustees' intermediate estimates and CBO's 
long-term Medicaid estimates, spending for these entitlement programs 
combined will grow to 15.6 percent of GDP in 2030 from today's 8.5 
percent. It is clear that, taken together, Social Security, Medicare, 
and Medicaid represent an unsustainable burden on future generations.

Figure 5: Social Security, Medicare, and Medicaid Spending as a Percent 
of GDP:

[See PDF for image]

Note: Social Security and Medicare projections based on the 
intermediate assumptions of the 2004 Trustees' Reports. Medicaid 
projections based on CBO's January 2005 short-term Medicaid estimates 
and CBO's December 2003 long-term Medicaid projections under mid-range 

[End of figure]

These trends portend major changes in our current national social 
insurance system. A core element of the system was a certain and secure 
retirement income component--with Social Security as a foundation. 
Social Security is intended to be supplemented by a private pension 
system and individual savings arrangements--which, in combination, 
sought to conquer the long-standing economic fear of poverty in old 
age. Effectively responding to the long-term and structural challenges 
discussed above will entail fundamental and comprehensive reassessment 
of each of the key components of our retirement and disability system.

Social Security could be brought into balance over the next 75 years in 
various ways. If reforms were to be instituted today, an immediate 
increase in payroll taxes of 15 percent or an immediate reduction in 
currently promised benefits of 13 percent, or some combination of the 
two would be required to bring the program into balance. Waiting to 
reform the system will require even greater changes as time passes. 
Encouraging older workers to extend their labor force participation can 
also improve the solvency and sustainability of the program while 
enhancing overall economic growth.

Weaknesses in the nation's private pension system have also become 
evident. Traditional defined benefit plans where employers rather than 
employees bear the risk of investment have been shrinking for decades, 
and recent terminations of plans have threatened the solvency of the 
Pension Benefit Guaranty Corporation (PBGC). Policymakers will need to 
consider how to best encourage wider pension coverage and enhance 
pension security. They will also need to consider how the private 
pension system and any related reforms will interact with prospective 
changes in Social Security.

Meanwhile, federal disability programs, such as those at the Social 
Security Administration (SSA) and the Department of Veterans Affairs 
(VA), are challenged by significant growth over the past decade that is 
expected to surge even more as increasing numbers of baby boomers reach 
their disability-prone years. Federal disability programs remain mired 
in concepts from the past and are poorly positioned to provide 
meaningful and timely support for workers with disabilities. Advances 
in medicine and science have redefined what constitutes an impairment 
to work, and the nature of work itself has shifted toward service and 
knowledge-based employment--these developments need to be reflected in 
agencies' eligibility and review processes.

Although Social Security is currently the largest program in the 
federal budget, it will soon be eclipsed by Medicare and Medicaid, 
which are fast growing programs in the federal budget both now and over 
the longer term. Many policymakers, industry experts, and medical 
practitioners contend that the U.S. health care system--in both the 
public and private sectors--is in crisis. Long-term health spending 
growth in Medicare and Medcaid is driven by both the aging of the 
population and the rapid growth of health care costs. In the private 
sector, employers and other private purchasers of health care services 
find that the soaring cost of health insurance premiums poses a threat 
to their competitive position in an increasingly global market.

Despite the significant share of the economy consumed by health care, a 
number of key U.S. health outcomes continue to lag behind other 
industrialized nations. The United States now spends over 15 percent of 
its gross domestic product on health care--far more than other major 
industrialized nations. Yet relative to these nations, the United 
States performs below par in such measures as rates of infant 
mortality, life expectancy, and premature and preventable deaths. 
Moreover, evidence suggests that the American people are not getting 
the best value for their health care dollars. Studies show that quality 
is uneven across the nation, with a large share of patients not 
receiving clinically proven, effective treatments. At the same time, 
access to basic health care coverage remains an elusive goal for nearly 
45 million Americans without insurance, with a growing percentage of 
workers losing their employer-based coverage. Many more millions of 
Americans are underinsured or have lost some of the benefits their 
health plans previously afforded.

The policy process will be challenged to fundamentally rethink the 
design of our health care system. Defining differences between wants, 
needs, affordability, and sustainability will be fundamental to 
rethinking the design of our current health care system. Among the 
areas that should be on the table is how to balance responsibility for 
financing health care among government at all levels, employers and 
individuals. In the past several decades, the responsibility for 
financing health care at the point of delivery has shifted away from 
the individual patient, falling from nearly half--46 percent--of health 
care spending 40 years ago to 14 percent today. Tax preferences for 
insured individuals and their employers have also shifted some of the 
financial burden for private health care to all taxpayers. Tax policies 
permit the value of employees' health insurance premiums to be excluded 
from the calculation of their taxable earnings and exclude the value of 
the premium from the employers' calculation of payroll taxes for both 
themselves and employees. These tax exclusions represent a significant 
source of forgone federal revenue and work at cross-purposes to the 
goal of moderating health care spending. Health savings accounts and 
other consumer-directed plans, which shift more of health financing to 
the individual, also have been accorded various tax preferences.

Promoting consistent quality of care is another challenge facing the 
health care system. Public and private payers are experimenting with 
payment reforms designed to foster the delivery of care that is 
clinically proven to be effective. Ideally, identifying and rewarding 
efficient providers and encouraging inefficient providers to emulate 
best practices will result in better value for the dollars spent on 
care. However, implementing performance-based payment reforms, among 
other strategies, on a systemwide basis, will depend on system 
components that are not currently in place nationwide--such as 
compatible information systems to facilitate the production and 
dissemination of medical outcome data, safeguards to insure the privacy 
of electronic medical records, improved transparency through increased 
measurement and reporting efforts, and incentives to encourage adoption 
of evidence-based practices. These same system components would be 
required to develop medical practice standards, which could serve as 
the underpinning for effective medical malpractice reform while 
reducing costs and improving quality of care. Policymakers would need 
to consider the extent to which federal leadership could foster these 
system components.

As the foregoing suggests, the aging population will have profound 
implications for our policies and programs. The following kinds of 
questions illustrate the kinds of choices we face:

* Social Security--How should Social Security be reformed to provide 
for long-term program solvency and sustainability while also ensuring 
adequate benefits (for example, increase the retirement age, 
restructure benefits, increase taxes, and/or create individual 

* Labor Force--How can existing policies and programs be reformed to 
encourage older workers to work longer and to facilitate phased 
retirement approaches to employment (for example, more flexible work 
schedules or receiving partial pensions while continuing to work)?

* Private Pensions--What changes should be made to enhance the 
retirement income security of workers while protecting the fiscal 
integrity of the PBGC insurance program (for example, increasing 
transparency in connection with underfunded plans, strengthening 
pension funding rules, modifying PBGC's premium structure and insurance 
guarantees, or restricting benefit increases and the distribution of 
lump sum benefits in connection with certain underfunded plans)?

* Disability programs--How can federal disability programs, and their 
eligibility criteria, be brought into line with the current state of 
science, medicine, technology, and labor market conditions?

* Health care reform--How can we perform a systematic reexamination of 
our current health care system? For example, could public and private 
entities work jointly to establish formal reexamination processes that 
would (1) define and update as needed a minimum core of essential 
health care services, (2) ensure that all Americans have access to the 
defined minimum core services, (3) allocate responsibility for 
financing these services among such entities as government, employers, 
and individuals, and (4) provide the opportunity for individuals to 
obtain additional services at their discretion and cost?

* Health care financing--How can health care tax incentives be designed 
to encourage employers and employees to better control health care 
costs? For example, should tax preferences for health care be designed 
to cap the health insurance premium amount that can be excluded from an 
individual's taxable income?

* Health care quality--How can industry standards for acceptable care 
be established and payment reforms be designed to bring about 
reductions in unwarranted medical practice variation? For example, what 
can or should the federal government do to promote uniform standards of 
practice for selected procedures and illnesses?

Increasing Global Interdependence:

The rapid increase in the movement of economic and financial goods, 
people, and information around the world demonstrates that the nation 
is no longer self-contained, either in its problems or their solutions. 
The growing interdependence of nations--globalization--has brought 
clear economic and social benefits. But while the world has "gotten 
smaller," it has raised new challenges for policymakers that require 
the nation to be involved in or respond to events outside its borders.

One measure of growing worldwide interdependence is the total share of 
world goods and services that is traded. As shown in figure 6, from 
1970 through 2005, world exports increased from about 12 percent to 
about 28 percent of world GDP. Hence, all over the world, people are 
depending more and more on other nations to consume the goods they 
produce and to produce the goods they in turn consume.

Figure 6: World Exports of Goods and Services as a Share of World GDP, 

[See PDF for image] 

[End of figure] 

In addition, the internationalization and liberalization of financial 
markets worldwide, along with growing wealth in many countries, have 
fueled huge increases in cross-border investments. Information is also 
moving across borders, as indicated by the rapid adoption of the use of 
the Internet--from 1991 through 2001 the number of Internet users 
increased from 4.4 million to 502 million.

Increased global interdependency and rapid technological advancement in 
the financial services industry pose significant challenges to U.S. 
regulatory institutions. The present federal financial regulatory 
structure evolved largely as a result of periodic ad hoc responses to 
crises such as financial panics. Thus the current regulatory structure 
includes numerous regulators that specialize in areas such as banking, 
securities, futures, and insurance but that have difficulty seeing the 
total risk across industry lines of the entities they regulate. In the 
last few decades, however, the financial services industry, especially 
as represented by the largest firms, has evolved, becoming more global, 
more concentrated, complex, and consolidated across sectors, and 
increasingly converging in terms of product offerings. Consumers are 
faced with an increasingly complicated array of options for managing 
their personal finances and selecting investments and credit products. 
Individuals can also invest in companies worldwide and can be defrauded 
or have their identities stolen from almost anywhere.

The shift to a global economy is challenging customary federal 
approaches to education and employment. The global economy, advances in 
technology, and the availability of foreign workers, enable work to be 
shifted to other countries or render some U.S. jobs obsolete. If we are 
to compete effectively, our educational system must provide the means 
for adults to continue to learn new skills and enhance their existing 
abilities and competitive posture. As an increasingly volatile job 
market creates and eliminates jobs, federal programs that train new 
workers or support workers who lose their jobs must also be capable of 
responding to sudden changes in the economy. It will also be important 
to consider whether the number of visas allowed for both employment and 
education may affect long-term competitiveness, and our ability to 
build bridges with other nations, their people, and their cultures 
while also addressing our national and homeland security needs.

Global and shifting trade patterns create a range of challenges for 
policymakers. The high level of U.S. trade deficits, rapid increases in 
imports from nations such as China, and the increase in services trade 
have led to questions about the best way to ensure that trade is fair 
and contributes to the well-being of Americans. The globalization of 
economic activity is bringing an increasing share of the U.S. economy 
under the domain of international agreements. Economic activity 
historically viewed as isolated from international trade agreements, 
such as local government procurement practices, may come under the 
scrutiny of other parties to the trade agreements, and increasingly be 
subject to their enforcement machinery.

The U.S. position in the worldwide economy has fundamentally changed, 
and increasing globalization and the shifting of business income 
overseas prompts questions about the adminstrability and sustainability 
of our current income-based tax system. Furthermore, the Internal 
Revenue Service faces significant tax enforcement challenges. The tax 
gap--the difference between what taxpayers annually report and pay and 
what they should have reported and paid in taxes--was estimated at over 
$300 billion in 2001, and IRS has been challenged in recent years to 
assess and collect taxes stemming from increasingly complex 
international business activity and transactions. The ongoing debate 
over tax system reform is partly about whether the tax revenues needed 
to fund the federal government can best be raised using the current 
structure, which is heavily dependent on income taxes, or a 
fundamentally different structure, which might include more dependence 
on consumption taxes. As policymakers grapple with such issues, they 
will have to balance multiple objectives such as economic growth, 
equity, effectiveness, simplicity, transparency, fairness, and 
administrability while raising the needed revenue.

As the foregoing suggests, globalization will have profound 
implications for our policies and programs. The following kinds of 
questions illustrate the kinds of choices we face:

* Financial regulation--Is it time to modernize our financial 
regulatory system by consolidating various federal regulatory agencies 
to promote a more coherent and integrated structure while specifying 
federal goals more clearly?

* Financial literacy--What role should the federal government take in 
improving financial literacy among consumers, and what are the most 
effective strategies for doing so?

* Workforce retraining--Do current workforce retraining programs 
provide adequate incentives to help the United States develop lifelong 
learning strategies and proactive training programs? Should current 
federally funded training programs operated across multiple federal 
agencies--9 federal agencies administer 44 such programs--be better 
integrated and restructured to increase their cost effectiveness?

* Domestic subsidies--Do current federal agricultural policies and 
programs, which largely rely on subsidies, contribute to unfair trade? 
In addition, do current policies remain relevant to the modern 
agricultural sector?

* Tax enforcement--How can we best strengthen enforcement of tax laws 
to give taxpayers confidence that their friends, neighbors, and 
business competitors are paying their fair share?

* Taxation of international transactions--Is the federal income-based 
tax system sustainable and administrable in a global economy? How 
should we tax the income of U.S. multinational corporations that is 
earned outside of the United States?

* Tax system base--To what extent should the basis of the existing 
system be changed from an income to a consumption base? Would such a 
change help respond to challenges posed by demographic, economic, and 
technological changes? How would reforms address such issues as the 
impact on state and local tax systems and the distribution of burden 
across the nation's taxpayers?

Promoting Economic Growth in a Knowledge-Based Society:

Many of the issues facing the Congress and the nation stem from complex 
and evolving domestic and global economies. Ultimately, sustaining and 
increasing economic growth over the longer term is essential to provide 
resources for a smaller cohort of workers to support an aging society. 
The nation's shift to a knowledge-based economy has underscored the 
importance of science and technology for economic growth and 
productivity and has placed greater emphasis on public policies that 
rely on market forces and competition. Over the longer term, the 
financial burdens facing the smaller cohort of future workers in an 
aging society would most certainly be lessened if the economic pie were 

The move away from the nation's traditional, manufacturing-based 
economy toward one characterized by the production of information, 
knowledge and services has contributed to a resurgence of productivity 
growth. Labor productivity growth accelerated from 1.6 percent per year 
in the early 1990s to 2.9 percent per year from 1996 through 2003.

Sustaining this relatively high rate of productivity will present 
challenges to policymakers. Because intellectual assets are the 
underpinning of a knowledge-based economy, investment in human capital 
is fundamental to continued growth. For policymakers, this shift 
requires greater attention to education and training, both for children 
and adults. New importance will need to be given to continuing 
education and training for adults, whose longer life expectancies will 
allow them to stay in the workforce longer. The shift to a knowledge-
based economy also has implications for immigration policy. The 
emergence of technology-oriented industries has created growing 
reliance on workers from other countries, working either in the United 
States or in their home countries. In light of heightened concern for 
homeland security, the flow of workers into the country is being 

Other key factors that drive sustained growth in the changing economy 
include research and development expenditures, trade openness, and 
effective public and private infrastructure. Advances in science and 
technology in the United States, along with the nation's strong 
research and development infrastructure and intellectual property 
protections, have long ensured the United States a leadership position 
in the development and commercialization of scientific advances and 
have helped nurture entrepreneurship and dissemination of information 
on new technologies. However, other nations are gaining in their 
research infrastructure and are beginning to challenge the preeminent 
position of the United States, challenging policymakers to further 
stimulate greater private research and collaborative scientific 
initiatives. Information technology advancements have contributed to 
substantial gains in U.S. productivity, but interconnectivity has also 
raised the potential for unauthorized access to personal and 
confidential data and created new vulnerabilities to the nation's 
critical operations and the infrastructures they support.

Effective public infrastructure is also an important underpinning for 
long-term growth. Increasing passenger and freight travel has led to 
growing congestion, and policymakers face the challenge of promoting 
more integrated, intermodal transportation systems. Transcending the 
boundaries of levels of government, as well as separate funding streams 
for different modes, will be essential if we are going to provide 
efficient movement of goods and people for a 21ST century economy.

Underlying land use planning practices can both reflect transportation 
policies as well as further exacerbate mobility challenges. 
Specifically, sprawling development places undue stress on 
transportation systems, as well as on energy, water, and the 
environment. In many parts of the country, water shortages are expected 
over the next 10 years, which will necessitate difficult tradeoffs 
between competing claimants for this increasingly scarce resource.

The sustainability of economic growth and higher productivity levels 
also depend in large part on our national saving. Saving and investment 
drive the productivity growth that allows personal incomes to rise 
without accelerating inflation. However, national saving remains at 
both historically and comparably low levels. Historically, the most 
direct way for the federal government to increase saving has been to 
reduce the deficit (or run a surplus). Although the government may try 
to increase personal saving, results of these efforts have been mixed. 
For example, even with the preferential tax treatment granted since the 
1970s to encourage retirement saving, the personal saving rate has 
generally steadily declined. (See fig. 7.)

Figure 7: Personal Saving Rate Has Steadily Declined:

[See PDF for image]

[End of figure]

In recent years, personal saving by households has reached record lows, 
while at the same time the federal budget deficit has climbed. 
Accordingly, national saving has plummeted, but the economy has 
continued to grow, in part because more and better investments were 
made. That is, each dollar saved bought more investment goods, and a 
greater share of saving was invested in highly productive information 
technology. The economy has also continued to grow because the United 
States was able to invest more than it saved by borrowing abroad, that 
is, by running a current account deficit. However, a portion of the 
income generated by foreign-owned assets in the United States must be 
paid to foreign lenders. National saving is the only way a country can 
have its capital and own it too.

The persistent U.S. current account deficits of recent years have 
translated into a rising level of indebtedness to other countries. 
However, many other nations currently financing investment in the 
United States also will face aging populations and declining national 
saving, so relying on foreign savings to finance a large share of U.S. 
domestic investment or federal borrowing is not a viable strategy for 
the long run.

The foregoing suggests that changing economic trends and related forces 
will have important implications for federal policies and activities, 
as illustrated by the following questions:

* Immigration and workforce--How can the United States balance 
immigration policies, such as worker and student visa programs, to 
address the need for workers with technical skills and the nation's 
need to maintain global preeminence in higher education, science and 
emerging homeland security requirements?

* Research and development--Are different kinds of federal incentives 
needed to encourage greater private sector collaboration and nurture 
interdisciplinary research and development? For example, to what extent 
does the current research tax credit actually stimulate private sector 
research spending that would not have occurred otherwise?

* Transportation--Do the existing tools and delivery mechanisms, such 
as existing trust funds dedicated to certain modes of transportation, 
have the ability to provide intermodal, efficient, cost-effective 
solutions to mobility and security challenges?

* Land use planning--Can alternative federal approaches to 
transportation, land management and water policies be adjusted to 
better promote sustainable management of our nation's land and water 
resources? For example, given projected water supply shortages, is 
there a need to reassess the balance between urban expansion in water-
scarce regions and the continuance of existing crop irrigation 

* Personal savings--Could the myriad savings incentives (for example, 
IRA's, health savings accounts, education savings incentives, etc.) 
that complicate the current tax system be consolidated and simplified 
while promoting increased savings?

Changing Security Threats:

The United States is militarily unchallenged and probably will be for 
the foreseeable future. Since the demise of the Soviet Union and the 
end of the Cold War, the United States has emerged as the dominant 
military, political and economic power in the world. Yet in the past 15 
years, the world has experienced dramatic changes in the overall 
security environment. The focus has shifted from conventional threats 
posed during the Cold War era to more unconventional and asymmetric 
threats which take advantage of the individual freedoms we enjoy, as 
evidenced in the events of September 11, 2001.

In response to these changing threats, the Congress has taken a number 
of steps including (1) increased funding for the Department of Defense 
(DOD) (See fig. 8.), (2) created the Department of Homeland Security 
(DHS), (3) provided increased funding for DHS and other federal 
agencies responsible for domestic homeland security, notably for border 
and transportation security, and (4) restructured intelligence 
activities. The Congress faces the difficult task of integrating and 
balancing fighting terrorism abroad and meeting the requirements for 
homeland security with other domestic priorities all the while 
protecting American liberties.

Figure 8: Growth in Budget Authority for Department of Defense Fiscal 
Years 2001-2004:

[See PDF for image] 

Note: Supplementals are for defense and other global war on terror.

[End of figure] 

While DOD has taken steps to meet short term operational needs, it 
still faces the fundamental challenge of determining how it will meet 
the longer term concerns of reorganizing its forces and identifying the 
capabilities it will need to protect the country from current, 
emerging, and future conventional and unconventional security threats. 
As DOD seeks to meet the demands of the new security environment, it 
continues to bear the costs of the past by maintaining or continuing to 
pursue many of the programs and practices from the Cold War era. 
Moreover, DOD faces serious and long-standing challenges in managing 
its ongoing business operations. Complicating its efforts are numerous 
systems problems and a range of other long-standing weaknesses in the 
key business areas of strategic planning and budgeting, human capital 
management, infrastructure, supply chain management, financial 
management, information technology, weapon systems acquisition, and 
contracting. In fact, DOD alone has 8 of the 25 items and shares in the 
6 cross-cutting ones on our recently-issued high-risk list.

Concerns about the affordability and sustainability of the rate of 
growth in defense spending will likely prompt decision makers to 
reexamine fundamental aspects of the nation's security programs, such 
as how DOD plans and budgets; organizes, manages, and positions its 
forces; acquires new capabilities; and considers alternatives to past 
approaches. To successfully carry out this reexamination, DOD must 
overcome cultural resistance to change and the inertia of various 
organizations, policies, and practices that became well rooted in the 
Cold War era.

The threat of terrorism will persist well into the 21ST century. 
Terrorists are dispersed in loosely organized, self-financed, 
international networks, some of which are cross-national. Domestic 
terrorist groups remain a security threat, though currently to a much 
lesser extent than the international terrorist movement. We must 
fundamentally reexamine our approaches to terrorism and homeland 
security--the nature of the terrorist threat, its long-term impact, and 
the impact of our strategies. While most believe we are safer than we 
were on the day of the September 11 attacks, we still are not safe. As 
the Gilmore and 9/11 Commissions pointed out, the nation will never be 
completely safe and total security is an unachievable goal.

To adapt national strategies to address current and future threats to 
homeland security, it will be imperative to define an acceptable, 
achievable, and affordable level of risk. Security risks have been 
exposed in many aspects of normal life, with perhaps many of the 
greatest dangers posed in areas that Americans have simply taken for 
granted, such as air and water supplies, food production chains, 
information systems, airports and train stations, ports, borders, and 
shopping malls. However, we cannot afford to protect everything against 
all threats--choices must be made about protection priorities given the 
risk and how to best allocate available resources. While risk-based 
allocation decision making is still evolving, we must take a more 
systematic, reasonable and responsible approach to allocating 

Another crucial challenge to addressing security risks across the 
nation is establishing effective federal, state, and local government; 
private sector; nongovernmental; and nation-state partnerships. The 
Constitution requires the federal government to "provide for the common 
defense" and to "repel invasions." Many would interpret those 
requirements to justify homeland security and related counterterrorism 
activities as an inherently governmental obligation. However, the vast 
majority of the targets that require protection are those owned by the 
private sector--critical infrastructure such as water and power sources 
and information systems. In addition, many of the emergency response 
and recovery capabilities are those with nonfederal or not-for-profit 
entities, such as public health facilities. Thus homeland security can 
only be accomplished through recognizing the interdependencies of 
federal, state, local, and private sector partners and the careful 
planning and integration of the roles and responsibilities of federal 
and nonfederal partners. For example, emergency response to a terrorist 
attack involving chemical or biological weapons will require effective 
coordination between federal, state, and local law enforcement 
agencies; other first responders; as well as public health agencies, 
affected hospitals, and laboratories. The challenge for the federal 
government is to design, select, and manage the various tools to 
encourage cost-effective integration to fully leverage scarce 
resources. For example, ensuring that critical information is shared, 
analyzed, integrated, and disseminated can help prevent or minimize 
terrorist activities.

The following questions illustrate the kinds of issues that we will 
face as the nation adapts to the changing threats to our national and 
homeland security.

* Defense resource allocation--How should the historical allocation of 
resources across services and programs be changed to reflect the 
results of a forward-looking comprehensive threat/risk assessment as 
part of DOD's capabilities-based approach to determining defense needs?

* Defense support services--What kinds of economies of scale and 
improvements in delivery of support services would result from 
combining, realigning, or otherwise changing selected support functions 
(e.g., combat support, training, logistics, procurement, 
infrastructure, or health care delivery)?

* Homeland security risk--What is an acceptable level of risk to guide 
homeland security strategies and funding?

* Critical infrastructure--Are existing incentives and initiatives 
sufficient to support private sector protection of critical 
infrastructure they own, and what changes might be necessary? What 
cybersecurity technology can be applied to protect critical 
infrastructure from attack?

* Information sharing--How can intelligence and information on threats 
be shared with other levels of government and other critical entities, 
yet be held secure?

Governance Challenges:

The government's capacity to address these trends and challenges is, 
itself, a 21ST century challenge. The capacity of the system to address 
the emerging issues identified in these themes is predicated on a 
policymaking and management process that has sufficient foresight, 
information, integration, and management capacity to fully consider and 
act on emerging trends.

In part this is a question of time horizons. Policy action, or 
inaction, has implications far beyond today. How can policymaking 
institutions develop the capacity to consider the implications of 
actions or inaction for current as well as future generations? A 
longer-term perspective may be essential to keeping ahead of the 
"crisis curve," but it can also offer other benefits. If the time 
horizon for policy debates recognized longer-term forces, it would be 
easier for leaders to make the case for change to the broader public 
since it permits changes to be phased in over many years.

Whether it be future labor force trends or long-term health care costs, 
policymakers will need far better performance and cost information as 
they take on such broad-ranging issues. To continue to be a leading 
democracy in the information age may very well mean producing unique 
public sources of objective, independent, scientifically grounded, and 
widely shared quality information so that we know where the United 
States stands now and what the trends are on both absolute and relative 
bases--including comparisons with other nations. By ensuring that the 
best facts are made more accessible and usable by the many different 
members of our society, we increase the probability of well-framed 
questions and debates along with effective solutions. The stakes are 
high, including considerations regarding allocating scarce public 
resources, strengthening the economy, creating jobs, stimulating future 
industries, enhancing security, promoting safety, protecting privacy, 
strengthening our competitive edge, and sustaining the environment.

Addressing newly emergent issues and transformational change calls for 
a policy process that can look at broader issues across the narrow 
confines of individual programs, agencies, and tools. Many emerging 
issues are cross-cutting in nature and the policy process will have to 
be comprehensive enough to address these new tradeoffs. However, 
federal programs remain highly fragmented, reflecting a policymaking 
process that is overly stovepiped by agency and program, with 
insufficient focus on how individual programs contribute to 
overarching, crosscutting goals and missions. Although these individual 
programs address common or similar performance goals, they result in an 
overly fragmented delivery network and at times work at cross purposes. 
For example, federal food safety programs are carried out by 12 
agencies with differing enforcement criteria and inspection practices. 
The Government Performance and Results Act (GPRA) provided for a 
governmentwide performance plan to address these crosscutting issues, 
but this plan has not yet been developed by the executive branch.

Many emerging problems span boundaries to involve federal, state, and 
local governments as well as private for profit and nonprofit entities. 
Whether it be homeland security or health care delivery, federal 
agencies and programs are increasingly reliant on coalitions of third-
party providers, such as states, to address challenges. Moreover, such 
coalitions increasingly span national boundaries as many problems and 
issues are framed by international treaties and multilateral 
organizations. Often, a national, rather than strictly federal, 
solution is necessary requiring partnerships and concerted effort 
across sectors. Notwithstanding this increasing interdependence, major 
tensions exist as each actor in the network makes decisions with 
insufficient dialogue with program partners.

The foregoing suggests that public management systems and networks will 
have to undergo fundamental changes to respond effectively to the 
daunting challenges facing us. This calls for nothing less than a 
transformation in the people, processes, and technology used to address 
public goals and objectives. While some agencies are making major 
strides to transform their operations, in many cases the government is 
still trying to do business in ways that are based on conditions, 
priorities, and approaches that existed decades ago and are not well 
suited to addressing 21ST century challenges.

For example, in many cases the government has not transformed how it 
motivates and compensates its employees to achieve maximum results 
within available resources and existing authorities. Even though people 
are critical to any agency's successful transformation, define its 
culture, develop its knowledge, and are its most important asset, a 
number of agencies still try to manage their people through an outmoded 
system that (1) rewards length of service rather than individual 
skills, knowledge and performance; (2) automatically provides across-
the-board annual pay increases, even to poor performers; and (3) 
compensates employees living in various localities without adequately 
considering the local labor market rates for these employees. To 
address these problems and provide the services the public expects, the 
federal civil service system must be reformed governmentwide, and this 
reform must be guided by a set of consistent principles, criteria, and 

Another example is the outmoded physical footprint of agencies, which 
reflects the failure to take advantage of opportunities provided by new 
technology and transportation to modernize operations. More than 30 
federal agencies control about $328 billion in real property assets 
worldwide, and maintain a "brick and mortar" buildings and/or office 
presence in 11 regions across the nation. But this organization and 
infrastructure reflects a business model and the technological and 
transportation environment of the 1950s. Many of these assets and 
organizational structures are no longer needed; others are not 
effectively aligned with, or responsive to, agencies' changing 
missions; and many others are in an alarming state of deterioration, 
potentially costing taxpayers tens of billions of dollars to restore 
and repair. The Congress and several agencies have recognized and begun 
to address this issue, but this financial liability still looms.

The following questions illustrate the kinds of issues that we will 
face in better aligning our governance system with the emerging 
challenges posed by broad sweeping changes:

* National performance indicators--Is the federal government 
effectively informed by a key national indicator system about the 
position and progress of the nation as a whole--both on absolute and 
relative bases compared to other nations--as a guide to helping set 
federal agency and program goals and priorities?

* Crosscutting program integration--How can agencies partner or 
integrate their activities in new ways, especially with each other? For 
example, how can the myriad federal food safety programs managed across 
several federal agencies be consolidated to better promote safety and 
the integrity of the nation's food supply?

* Improving partnerships--What mechanisms might usefully bring together 
leaders across governments to address joint problems, perhaps through 
establishing commissions or other vehicles for promoting dialogue and 

* Federal human capital reform--How should the federal government 
update its classification and compensation systems to be more flexible, 
market-based and performance-oriented while at the same time 
incorporating safeguards to help ensure consistency and equity and 
prevent abuse of employees?

* Modernizing the federal footprint--In a modern society with advanced 
telecommunications and electronic information capabilities, does the 
government still need 11 regions? What opportunities exist to more 
strategically manage the federal government's real property assets, 
such as disposing of excess federal facilities to make the federal 
portfolio more relevant to current missions and less costly?

* Transformational leadership--Should we create chief operating officer 
or chief management officer positions with term appointments within 
selected agencies to elevate, integrate, and institutionalize 
responsibility and authority for business management and related 
transformation efforts?

Where Do We Go From Here?

We recognize that the process of reexamining the base of government 
will not be a simple or easy process--there are no "quick fixes." Such 
a process reverses the focus that occurs in incremental reviews, where 
disproportionate scrutiny is given to proposals for new programs or 
activities but little or no scrutiny is given to those that are already 
in the base. Taking a hard look at existing programs and carefully 
reconsidering their goals and their financing is a challenging task. 
Reforming programs and activities leads to winners and losers. Given 
prior experience and political tendencies, there is little real "low-
hanging fruit."

The size of the fiscal challenge and the significance of the societal 
and economic changes worldwide means this kind of examination and the 
hard choices necessary to restore a sustainable fiscal path and 
modernize government may take a generation to address. Our history 
suggests that all major spending and revenue programs and policies need 
to be subject to periodic reviews; exempting major areas can undermine 
the credibility and support for the entire process.

Beginning the reexamination and review process now would enable 
decision makers to be more strategic and selective in choosing areas 
for review over a period of years. Reexamining selected parts of the 
budget base over time rather than all at once will lengthen the 
process, but it may also make the process more feasible and less 
burdensome for decision makers. And by phasing in changes to programs 
or policies that might otherwise have prohibitively high transition 
costs, the impact can be spread out over longer time periods. After 
all, our country, children, and grandchildren are counting on us to be 
both prudent today and effective stewards for tomorrow. We should not 
be satisfied with anything less.

Although reexamination is never easy, the effort is not without 
precedent. The federal government, in fact, has reexamined some of its 
programs and priorities episodically in the past. Programmatic 
reexaminations have included, for example, the 1983 Social Security 
reform, the 1986 tax reform, and the 1996 welfare reform. They have 
also included reforms such as the creation of the Department of 
Homeland Security and, most recently, the ongoing reorganization of the 
U.S. intelligence community, as this Committee knows so well. From a 
broader fiscal standpoint, the 1990s featured significant deficit-
reduction measures adopted by the Congress and supported by the 
President that made important changes to discretionary spending, 
entitlement program growth, and revenues that helped eliminate deficits 
and bring about budgetary surpluses. States and other nations also have 
engaged in comprehensive reexamination exercises.

In our system, a successful reexamination process will in all 
likelihood rely on multiple approaches over a period of years. The 
reauthorization, appropriations, oversight, and budget processes have 
all been used to review existing programs and policies. Adding other 
specific approaches and processes--such as temporary commissions or 
executive reorganizations to develop policy alternatives--has been 
proposed. We would suggest that there is no single approach or 
institutional reform that can address the myriad of questions and 
program areas that need to be revisited.

Fortunately, GPRA and other results-oriented management laws enacted 
over the last 12 years have built a base of performance information 
that can assist the Congress and the President in this effort. In the 
last few years, OMB has been working to rate the effectiveness of 
programs under the program assessment rating tool (PART). There are 
also many nongovernmental sources of program evaluation and analysis. 
And, finally, the Congress has its own analytic support--your staff and 
that of the congressional support agencies, including GAO. As always, 
GAO stands ready to assist the Congress as it develops its agenda and 
to help answer any of the questions the Congress wishes to pursue.

We hope that this new report will be used by various congressional 
committees as they consider which areas of government need particular 
attention and reconsideration, recognizing that while answers to these 
questions may draw on the work of GAO and others, only elected 
officials can and should decide whether, how, and when to move forward.

Chairman Collins, Senator Lieberman, and Members of the Committee this 
concludes my testimony. I would be happy to answer any questions you 
may have.



[1] GAO, Strategic Plan for Serving the Congress and the Nation, 2004-
2009 (Washington, D.C.: March 2004).

[2] The Congressional Budget Office, The Budget and Economic Outlook: 
Fiscal Years 2006 to 2015 (Washington, D.C.: January 2005).

[3] The elderly dependency ratio is the ratio of the population aged 65 
years or over to the population aged 15 to 64.

[4] For the Social Security system--which does not cover the entire 
U.S. population--the ratio of beneficiaries to workers is estimated to 
be 1 to 2 at that time.