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Inside front cover figure:
A diagram summarizing the key elements of GAO's strategic plan, which
are: GAO's mission, the themes that help frame GAO's work, strategic goals 
and objectives, and GAO's core values. 

Serving the Congress: GAO's Strategic Plan Framework for Fiscal Years 2002 
through 2007. 

Mission: GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the American
people. 

Themes: GAO works with an awareness of forces that are likely to shape
American society, the United States' place in the world, and the role of
the federal government. These forces are assessed through seven themes
discussed in GAO's strategic plan: security and preparedness, globalization,
changing economy, demographics, science and technology, quality of life,
and governance. 

Goals and objectives: Each of GAO's four strategic goals is supported by a 
specific set of strategic objectives. 

GAO's first strategic goal is to provide timely, quality service to the
Congress and the federal government to address current and emerging
challenges to the well being and financial security of the American people.
To achieve this goal, GAO will provide information and recommendations on
the following eight strategic objectives: health care needs and financing,
education and protection of children, work opportunities and worker
protection, retirement income security, effective system of justice,
viable communities, natural resources use and environmental protection,
and physical infrastructure. 

GAO's second strategic goal is to provide timely, quality service to the 
Congress and the federal government to respond to changing security threats
and the challenges of global interdependence. To achieve this goal, GAO will
provide information and recommendations on the following four strategic
objectives: diffuse security threats, military capabilities and readiness,
advancement of U.S. interests, and global market forces. 

GAO's third strategic goal is to help transform the federal government's role 
and how it does business to meet 21st century challenges. To achieve this
goal, GAO will provide information and recommendations on the following four
strategic objectives: roles in achieving federal objectives; human capital
and other capacity for serving the public; progress toward results oriented,
accountable, and relevant government; and fiscal position and financing of
the government. 

GAO's fourth strategic goal is to maximize the value of GAO by being a model 
federal agency and a world class professional services organization. To
achieve this goal, GAO will fulfill the following five strategic objectives:
client and customer service, leadership and management focus, institutional
knowledge and experience, process improvement, and employer of choice. 

Core values: The foundation for GAO's efforts to meet these strategic goals
and objectives is the agency's three core values of accountability,
integrity, and reliability.
[End of Figure]

June 2002.

I am proud to present GAO's strategic plan for serving the Congress 
from fiscal 2002 through 2007, an update to the strategic plan we 
issued 2 years ago.

Our first strategic plan, which was published in spring 2000, was an 
important milestone, providing a solid foundation for how we will 
support the Congress and serve the American people in the coming years. 
With the plan as our blueprint, we realigned GAO's structure and 
resources to better address long-term goals and objectives for helping 
the Congress in its legislative, oversight, and investigative roles. We 
also committed to updating the plan every 2 years, coinciding with each 
new Congress, to make sure our efforts remain a vital and accurate 
reflection of the major issues facing the Congress and the nation.

In fact, the world has changed considerably since our last plan. Two 
years ago, we were in a period of peace and prosperity, with large 
budget surpluses projected into the future. Today, the country is at 
war against terrorism, both within and outside our borders. The 
economic outlook, already uncertain before September 11, continues to 
be difficult to predict. And for the first time in several years, the 
federal government is facing the return of budget deficits.

At the same time, a number of other changes are occurring that also 
have significant ramifications for national policy, and consequently, 
for the Congress and GAO. The United States faces not only a major 
preparedness effort to address security threats, but it also has to 
come to grips with the long-term fiscal challenge of caring for a 
growing elderly population. It must also adapt its policies to a 
society and an economy that are increasingly global in nature, 
connected by new technologies, and supported by knowledge-based 
industries. Security and preparedness, the changing economy, 
globalization, changing demographics, advances in science and 
technology, concern for quality of life, and changing governance 
structures; these are the major forces shaping the United States and 
its place in the world, and are the themes for our strategic plan. They 
help frame the broad areas where we aspire to make important 
contributions.

While the overall framework of our strategic plan is still valid, we 
are placing greater emphasis in a number of areas to reflect the 
altered agenda of policymakers:

* Recognizing that the Congress and the federal government will focus 
considerable effort and resources on homeland security, we are 
proposing to increase our emphasis on overseeing the efficiency and 
effectiveness of efforts across the public and private sectors to 
protect against and respond to various forms of terrorism.

* In light of changing public expectations and needs as well as fiscal 
pressures, we have redefined one of our strategic goals to focus on 
helping to transform the federal government's role to meet the 
challenges of the 21st century; what it does and how it does business.

* Because of the far-reaching demographic and fiscal trends that will 
affect the United States, we expect to add greater long-range focus to 
our work to support the Congress in addressing program priorities and 
budget decisions not only for the near future but for the long term as 
well.

In sharing a draft of this strategic plan with Members of Congress, 
their staffs, and others in the accountability community, we sought to 
make sure that it reflects the needs of the Congress. We also sought 
feedback from our own staff, whose continued commitment and involvement 
are essential to meeting our goals.

Since the attacks on America began, the focus of citizens on government 
has grown dramatically. GAO has a vital role to play in our system of 
government, by providing the oversight, insight, and foresight to 
support the Congress in fulfilling its constitutional responsibilities 
and by helping the government to work better on behalf of all 
Americans. This updated strategic plan will help to ensure that we 
succeed in that role.

If you would like to know more about specific areas of GAO's work, you 
will find detailed strategic supplements on our Web site at 
www.gao.gov/sp.html that describe the performance goals, key efforts, 
and potential outcomes for each of our strategic objectives. Links on 
that Web page will also take you to our agency's performance and 
accountability reports. If you have questions, please contact me, at 
202-512-5500 or walkerd@gao.gov, or Gene L. Dodaro, Chief Operating 
Officer, at 202-512-5600 or dodarog@gao.gov.

Sincerely yours,
David M. Walker
Comptroller General of the United States.

Signed by: David M. Walker.

Table of Contents:

GAO's Mission, Responsibilities, Strategies, and Means, including:
Mission Statement, Statutory Responsibilities, and Strategies and Means.

Themes for the Plan: Forces Shaping the United States and Its Place in the World,
including: Security and Preparedness, Globalization, The changing Economy,
Demographics, Science and Technology, Quality of Life, and Governance.

Goal 1: Provide Timely, Quality Service to the Congress and the Federal 
Government to Address Current and Emerging Challenges to the Well-Being 
and Financial Security of the American People, including:
The Health Needs of an Aging and Diverse Population,
The Education and Protection of the Nation's Children,
The Promotion of Work Opportunities and the Protection of Workers,
A Secure Retirement for Older Americans,
An Effective System of Justice,
The Promotion of Viable Communities,
Responsible Stewardship of Natural Resources and the Environment,
A Secure and Effective National Physical Infrastructure, and
External Factors that May Affect Achievement of Goal 1.

Goal 2: Provide Timely, Quality Service to the Congress and the Federal 
Government to Respond to Changing Security Threats and the Challenges 
of Global Interdependence, including:
Respond to Diffuse Threats to National and Global Security,
Ensure Military Capabilities and Readiness,
Advance and Protect U.S. International Interests,
Respond to the Impact of Global Market Forces on U.S. Economic and 
Security Interests, and External Factors that May Affect Achievement of Goal 2.

Goal 3: Help Transform the Federal Government's Role and How It Does Business 
to Meet 21st Century Challenges, including:
Analyze the Implications of the Increased Role of Public and Private 
Parties in Achieving Federal Objectives,
Assess the Government's Human Capital and Other Capacity for Serving 
the Public,
Support Congressional Oversight of the Federal Government's Progress 
toward Being More Results-Oriented, Accountable, and Relevant to 
Society's Needs,
Analyze the Government's Fiscal Position and Approaches for Financing 
the Government, and
External Factors that May Affect Achievement of Goal 3.

Goal 4: Maximize the Value of GAO by Being a Model Federal Agency and a World-
Class Professional Services Organization, including:
Sharpen GAO's Focus on Clients' and Customers' Requirements,
Enhance Leadership and Promote Management Excellence,
Leverage GAO's Institutional Knowledge and Experience,
Continuously Improve GAO's Business and Management Processes,
Become the Professional Services Employer of Choice, and
External Factors that May Affect Achievement of Goal 4.

Performance Measures and Evaluations, including
Key Performance Measures, and Evaluations.

Consultations and Relationships with Other Agencies.

List of Acronyms:
AIDS: acquired immunodeficiency syndrome.
CCDF: Child Care and Development Fund.
CFO: Chief Financial Officer.
DOD: Department of Defense.
FAR: Federal Acquisition Regulation.
FEMA: Federal Emergency Management Agency.
FY: fiscal year.
GAO: General Accounting Office.
GDP: gross domestic product.
GNMA: Government National Mortgage Association (Ginnie Mae).
GPRA: Government Performance and Results Act.
HHS: Department of Health and Human Services.
HIV: human immunodeficiency virus.
HUD: Department of Housing and Urban Development.
IMF: International Monetary Fund.
INS: Immigration and Naturalization Service.
IRA: individual retirement account.
IRS: Internal Revenue Service.
IT: information technology.
NATO: North Atlantic Treaty Organization.
OASDI: Old-Age and Survivors Insurance and Disability Insurance.
OMB: Office of Management and Budget.
SBA: Small Business Administration.
SES: Senior Executive Service.
TANF: Temporary Assistance for Needy Families.
USAID: U.S. Agency for International Development.
VA: Department of Veterans Affairs.
[End of Table of Contents]

GAO's Mission, Responsibilities, Strategies, and Means:
GAO exists to support the Congress in meeting its constitutional 
responsibilities and to help improve the performance and ensure the 
accountability of the federal government for the benefit of the 
American people.

Mission Statement:

GAO examines the use of public funds; evaluates federal programs and 
activities; and provides analyses, options, recommendations, and other 
assistance to help the Congress make effective oversight, policy, and 
funding decisions. In this context, GAO works to continuously improve 
the economy, efficiency, and effectiveness of the federal government 
through the conduct of financial audits, program reviews and 
evaluations, analyses, legal opinions, investigations, and other 
services. GAO's activities are designed to ensure the executive 
branch's accountability to the Congress under the Constitution and the 
federal government's accountability to the American people.

Statutory Responsibilities:

Through the Budget and Accounting Act of 1921, the Congress established 
GAO in the legislative branch with the broad role of investigating "all 
matters relating to the receipt, disbursement, and application of 
public funds" and to "make recommendations looking to greater economy 
or efficiency in public expenditures." Since World War II, the Congress 
has clarified and expanded that original charter:

* The Government Corporation Control Act of 1945 provides GAO with the 
authority to audit the financial transactions of government 
corporations.

* The Budget and Accounting Procedures Act of 1950 assigns GAO the 
responsibility for establishing accounting standards for the federal 
government and carrying out audits of internal controls and financial 
management.

* The Legislative Reorganization Act of 1970 and the Congressional Budget 
and Impoundment Control Act of 1974 authorize GAO to conduct program 
evaluations and analyses of a broad range of federal activities.

* The Chief Financial Officers (CFO) Act of 1990 and the Government 
Management Reform Act of 1994 authorize GAO to audit agencies' 
financial statements and annually audit the consolidated financial 
statements of the United States.

* Numerous other laws complement GAO's basic audit and evaluation 
authorities, including the Inspector General Act of 1978, providing for 
GAO-established standards for the audit of federal programs and 
activities, and the Competition in Contracting Act of 1984, providing 
for GAO's review of protested federal contracting actions.

Today, GAO examines the full breadth and scope of federal activities 
and programs, publishes thousands of reports and other documents 
annually, and provides a number of related services. The agency also 
looks at national and international trends and challenges to anticipate 
their implications for public policy. By making recommendations to 
improve the practices and operations of government agencies, GAO 
contributes not only to the increased effectiveness of and 
accountability for federal spending, but also to the enhancement of the 
taxpayers' trust and confidence in their federal government. When 
considering GAO's strategic goals and objectives or weighing the 
potential outcomes of GAO's work, it is important to remember that GAO 
achieves its results mainly through the actions taken by the Congress 
and federal agencies in response to the information and recommendations 
GAO provides.

Strategies and Means:

For GAO, achieving strategic goals and objectives rests, for the most 
part, on providing professional, objective, fact-based, nonpartisan, 
nonideological, fair, and balanced information. Most of the information 
is gathered and reported in response to congressional requests for 
specific work. As authorized by GAO's enabling legislation, the agency 
also independently undertakes research and development work. GAO 
develops and presents the information it gathers in a number of ways to 
support the Congress, including the following:

* evaluations of federal programs, policies, operations, and performance;

* oversight of government operations through financial and other 
management audits to determine whether public funds are spent 
efficiently, effectively, and in accordance with applicable laws;

* investigations to assess whether illegal or improper activities are 
occurring;

* analyses of the financing for government activities;

* constructive engagements in which GAO works proactively with agencies, 
when appropriate, to help guide their efforts toward achieving positive 
results;

* legal opinions to determine whether agencies are in compliance with 
applicable laws and regulations;

* policy analyses to assess needed actions and the implications of 
proposed actions; and

* additional assistance to the Congress in support of its oversight, 
appropriations, legislative, and other responsibilities.

GAO combines those general strategies with strategies specific to 
individual strategic objectives. These specific strategies take the 
form of performance goals, each of which has a set of key efforts that 
connect with GAO's day-to-day work. The detailed performance goals and 
key efforts for each strategic objective are online in the "Strategic 
Supplements" section at www.gao.gov/sp.html.

In addition, GAO builds strategic working relationships with other 
national and international government accountability and professional 
organizations to broaden and leverage its institutional knowledge and 
experience, and in turn, to improve its service to the Congress and the 
American public. These relationships focus on 1. using advisory panels 
and other bodies to inform GAO's strategic and annual work planning and 
2. initiating and supporting collaborative national and international 
audit, technical assistance, and other knowledge-sharing efforts.

Unlike large executive branch departments that manage federal lands or 
maintain extensive facilities and systems across the country and, in 
some instances, around the world, GAO is a relatively small agency that 
depends almost totally on one type of resource to achieve its strategic 
goals and objectives: its people. GAO's staff, numbering about 3,200, 
are arrayed in 14 research, audit, and evaluation teams backed by staff 
offices and mission support units (see fig. 1). Approximately three 
quarters of GAO's staff are based in the Washington, D.C., 
headquarters. The rest are deployed in field offices across the country 
(see fig. 2).

Figure 1: GAO's Organizational Structure.
An organization chart showing GAO's basic structure.

The agency's top level of organization is the executive committee, which
includes the comptroller general, the chief operating officer, the chief
mission support officer, and the general counsel.

Twenty-two units are shown as reporting directly to the comptroller
general and the chief operating officer. The units include the following
staff offices: Public Affairs, External Liaison, Congressional Relations,
Opportunity and Inclusiveness, Inspector General, Field Operations,
Quality and Risk Management, and Product and Process Improvement.  

The units also include the following teams that conduct audits, evaluations,
and research: Acquisition and Sourcing Management; Applied Research and
Methods; Defense Capabilities and Management; Education, Workforce, and
Income Security; Financial Management and Assurance; Financial Markets and
Community Investment; Health Care; Information Technology; International
Affairs and Trade; National Preparedness; Natural Resources and Environment;
Physical Infrastructure; Strategic Issues; and Tax Administration and
Justice.

In addition, the following units report to the comptroller general and chief
operating officer through the chief mission support officer: Human Capital;
Controller; Information Technology; and Knowledge Services. The Special
Investigations unit reports to the comptroller general and chief operating
officer through the general counsel.
[End of Figure]

Figure 2: GAO's Offices.
A map of the United States of America showing GAO's headquarters in Washington D.C.,
and its field offices in Atlanta, Boston, Chicago, Dallas, Dayton, Denver, Huntsville,
Los Angeles, Norfolk, San Francisco, and Seattle.
[End of Figure]

To achieve its strategic goals and objectives, GAO must maintain a 
workforce of highly trained professionals with degrees in many academic 
disciplines, including accounting, law, engineering, public and 
business administration, economics, and the social and physical 
sciences. To maximize their productivity, GAO must make steady 
investments in information technology. It must also ensure the safety 
and security of its people, information, and assets. The strategies GAO 
will use to ensure that it has the human capital it needs to carry out 
its responsibilities and that its human capital, business processes, 
information technology, and other resources are well managed and secure 
are covered under the fourth strategic goal of this plan.

Themes for the Plan:
Forces Shaping the United States and Its Place in the World.

In charting GAO's work over the next several years, the agency's 
strategic plan takes into account the forces that are likely to shape 
American society, the United States' place in the world, and the role 
of the federal government. This section discusses these forces through 
the seven themes that form the context for what GAO hopes to 
accomplish; its goals and objectives; and that suggest the major trends 
ahead and their implications for congressional decision making.

Because the plan GAO published in 2000 presaged the diffuse nature of 
the threats to national security in the post-cold war period, the 
themes have not changed substantially. GAO has, however, updated them 
to factor in the changes in national and world conditions that have 
occurred in the last 2 years. Significant changes, of course, flow from 
the terrorist attacks on September 11: a war against terrorism and a 
national preparedness effort that may last for years to come.

But changes flow from other sources as well. GAO has, for instance, 
added a discussion of trends in the U.S. and world economies, such as 
the evolution of knowledge-based industries, that appear likely to 
affect public policy. It has also taken into account the results of the 
2000 census in the discussion of demographics, as well as evolving 
dimensions of quality of life. The discussion of globalization was 
expanded to acknowledge the growing concerns of civil society groups 
about its adverse consequences, and the discussion of technology was 
broadened to include biotechnology and medical sciences in addition to 
information technology. Finally, the discussion of government 
performance and accountability was reoriented to focus on governance 
issues, emphasizing particularly the importance of examining the 
different tools and actors involved in carrying out federal government 
policies.

The seven themes address:

* the national and global response to terrorism and other threats to 
personal and national security;

* the increasing interdependence of enterprises, economies, civil 
society, and national governments, referred to as globalization;

* the global shift to market-oriented, knowledge-based economies;

* an aging and more diverse population;

* advances in science and technology and the opportunities and challenges 
created by these changes;

* the quality of life for the nation, communities, families, and 
individuals; and

* the more diverse nature of governance structures and tools.

Any significant changes in these areas over the next 6 years, the 
period covered by this plan, will affect GAO's ability to meet its 
goals and objectives. GAO will therefore continue to track developments 
in these areas to make sure that its plan remains responsive to the 
needs of the Congress, the federal government, and the American people.

Security and Preparedness:

The terrorist attacks of September 11 launched a series of profound 
changes. The resulting national imperative and resolve to prepare for 
and combat terrorism and other threats to personal, financial, and 
national security are now overarching forces likely to reshape American 
and international priorities, and consequently the roles of all levels 
of government. Every program team within GAO has reevaluated its 
priorities and assessed the effects of these changes, and they are 
reflected in each part of this strategic plan.

While many things have changed, others have remained stable, but 
nonetheless still critical. Consequently, it is important to evaluate 
the collective ramifications. The United States continues to maintain 
an asymmetric relationship in many areas with many other countries and 
regions of the world. Expenditures for military technology (see fig. 
3), education, health care, food production, research and development, 
biomedical studies, manufacturing, infrastructure, information 
technology, energy, and for many other areas significantly favor the 
United States.

Figure 3: Military Technology Investment, 1997.

Bar chart with 3 items showing dollars in thousands per member of the
Armed Forces.
Item 1, Developing Country Average, 15.4. 
Item 2, Developed Country Average, 85. 
Item 3, U.S. Total, 180.

Note: Military expenditures per member of the armed forces serves as a 
rough measure of the level of military technology in a country.

Source: State Department.
[End of Figure]

Similarly, life expectancy, per capita income, access to computers and 
the Internet, and the like continue to grow in comparison to the rest 
of the world on the whole. In many instances, a lack of shared values, 
disagreements over foreign policy goals and objectives, and 
misperceptions of U.S. intent are contributing further to perceived 
differences.

This continued asymmetry, when combined with the other broad forces 
identified as themes in this strategic plan, are believed to have 
contributed to the nature and growth of viable global terrorist threats 
against U.S. interests, at home and abroad. Some commentators have 
noted that the widening gaps in income, technology, military strength, 
and consumption have provided the philosophical underpinnings for the 
growth of terrorist groups. Some small countries, hostile groups, or 
even individuals pose threats to vulnerable civilian or military 
targets in unconventional ways to avoid direct confrontations with 
superior U.S. resources and to "right" perceived inequities. While such 
threats have long existed, the ability of such adversaries to 
consummate the threat has changed. Increasingly, movement across 
geographical boundaries has become more fluid; chemical and biological 
weapons of mass destruction have become more accessible; and new 
technology, particularly Internet access, has made coordination and 
evasion more available and less costly. While before isolated and 
widely dispersed adversaries were not widely perceived as able to 
complete an attack successfully within U.S. borders, September 
11 shockingly ended this false sense of invulnerability.

At the same time, more conventional threats persist, and American 
troops are likely to be deployed not only in Afghanistan but in 
troubled regions like the Balkans and the Middle East. The United 
States will continue to face the challenge of maintaining a well-
trained, equipped, and ready defense force that can respond to more 
than one regional conflict at a time and that can perform well not just 
in combat but also in peacekeeping. And even as the environment 
changes, the United States must manage the modernization of its weapons 
systems and the safety and reliability of its nuclear weapons 
stockpile.

Prior to September 11, many commentators, including GAO, highlighted 
the existence of numerous vulnerabilities susceptible to a variety of 
asymmetric attacks. But September 11 and the subsequent anthrax mail 
attacks underscored the extremely diverse ways in which instruments of 
normal daily life could be used by terrorists to exploit these 
vulnerabilities. September 11 also emphasized that symbols of U.S. 
asymmetric advantages, such as the World Trade Center and the Pentagon, 
are likely targets, as are more traditionally perceived targets such as 
military bases, nuclear power plants, and other critical elements of 
the transportation and utility infrastructure. Finally, September 11, 
the anthrax attacks, and the subsequent responses have emphasized the 
extensive and varied safety, economic, political, and social 
consequences of both a terrorist attack and the efforts undertaken in 
response to such attacks.

Most of these conditions existed prior to September 11. What has 
changed significantly since is the level of public recognition of the 
seriousness of these threats and their varied consequences, the 
national resolve to fight back, the dedication of resources, and the 
priority given to the war against global terrorism. These changes 
constitute powerful new forces that have altered the context within 
which governmental roles, initiatives, programs, and priorities will be 
evaluated.

These forces present both risks and opportunities. 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. Terrorist weapons need not simply kill or injure large numbers 
to have the terrorists' desired impact. Bioterrorism poses risks of 
unprecedented magnitudes, potentially striking at air and water 
supplies and food production chains, while using instruments of normal 
life such as the mail or air conditioning systems. Hazardous materials 
storage sites, airports, train stations, water chlorination plants, 
power stations, bridges, natural gas pipelines, national monuments, and 
government office buildings, have now become potential targets and 
crime scenes in addition to critical elements of the American economy 
and lifestyle. The availability and safety of such resources can no 
longer be taken for granted, and efforts must now be taken to safeguard 
them without significantly diminishing the function they play in 
everyday life, and in ways that are both affordable and sustainable. At 
the same time, opportunities exist to harness the new resolve and 
dedication of resources to adapt existing mechanisms and structures to 
the new job of fighting terrorism, while simultaneously augmenting 
their ability to perform their normal function, and meet other 
challenges such as epidemics, natural disasters, or infrastructure 
rationalization or recapitalization.

This new context requires a changed analytical focus. Traditional 
threat, risk, and criticality assessments will remain as valuable tools 
in the fight against terrorism, but the use of such assessments must 
continue to be viewed as fundamental policy decisions that must be made 
in a broader national preparedness context. These assessments are 
starting, not end, points. National preparedness, both domestically and 
internationally, is a broad context within which decision makers will 
balance the cost/benefit of security measures; decide upon respective 
roles of government, the private sector, community groups and 
individuals; make sound investment decisions; and factor in the direct 
and secondary financial and societal impacts of both the responses to 
actual terrorist attacks and the preventative measures employed to 
prevent future attacks.

To be successful in a long-term fight against terrorism, the nation 
must embark upon strategies that are affordable, sustainable, and 
integrate the capabilities of all levels of government, the private 
sector, community groups, and individuals. The nation as a whole must 
foster and maintain capabilities that are adequate to address the 
broad, varied, and unpredictable nature of asymmetric threats. It is 
not affordable, sustainable, or feasible to attempt to have everyone 
prepare for every possible contingency. Regional approaches, public- 
private partnerships, mutual assistance agreements, and other 
capability-sharing methods will be increasingly employed. Composited or 
interlocking protective strategies that call for different sectors to 
take different but complementary protective measures may provide the 
most affordable and sustainable approaches. And the focus on what 
capabilities are necessary, where they are best resident, and what 
information and resources must be shared to integrate these 
capabilities will significantly affect the policy, legislative, 
program, and budget decisions as the Congress debates how best to wage 
the fight against terrorism.

Thus, GAO has established a strategic framework to guide its efforts to 
support the Congress and make constructive suggestions to a wide range 
of public and private interests. It entails:

1. examining the roles of government in fostering and maintaining 
integrated capabilities among all levels of government, the private 
sector, community groups, and individuals;

2. identifying threats and risks and critical nodes to prioritize for 
protection;

3. analyzing both the direct costs and secondary financial impacts of both 
response and preventative measures;

4. identifying options for investment of human, time, and fiscal resources 
to achieve the greatest positive impact; and

5. examining the critical role of the public health system and emergency 
responders for both consequences management and prevention and 
education.

Globalization:

With rapid advances in technology, and with easier movement of goods 
and people across borders, nations' economies, cultures, and 
governments have become increasingly interdependent; that is, 
globalized. By many measures, this interdependence has grown in recent 
decades.

One measure of growing worldwide interdependence is the total share of 
world goods and services that is traded. As shown in figure 4, from 
1970 through 2001, world exports increased from about 12 percent to 
about 24 percent of world gross domestic product (GDP). Hence, all over 
the world, people are depending more and more on those in other nations 
to consume the goods they produce and to produce the goods they in turn 
consume.

Figure 4: World Exports of Goods and Services as a Percentage of World 
GDP, 1970 through 2001.

Line graph with 1 line and 32 points showing percentage of GDP.
Point 1, 1970 is 11.5%.
Point 2, 1971 is 11.8%.
Point 3, 1972 is 12.3%.
Point 4, 1973 is 13.8%.
Point 5, 1974 is 17.6%.
Point 6, 1975 is 16.9%.
Point 7, 1976 is 17.4%.
Point 8, 1977 is 17.7%.
Point 9, 1978 is 17.3%.
Point 10, 1979 is 18.9%.
Point 11, 1980 is 20.3%.
Point 12, 1981 is 20.1%.
Point 13, 1982 is 19.3%.
Point 14, 1983 is 18.4%.
Point 15, 1984 is 18.7%.
Point 16, 1985 is 18.3%.
Point 17, 1986 is 17.1%.
Point 18, 1987 is 17.6%.
Point 19, 1988 is 17.9%.
Point 20, 1989 is 18.3%.
Point 21, 1990 is 18.8%.
Point 22, 1991 is 18.4%.
Point 23, 1992 is 19.8%.
Point 24, 1993 is 19.3%.
Point 25, 1994 is 20.2%.
Point 26, 1995 is 21.5%.
Point 27, 1996 is 22.1%.
Point 28, 1997 is 23.1%.
Point 29, 1998 is 23%.
Point 30, 1999 is 22.8%.
Point 31, 2000 is 24.7%.
Point 32, 2001 is 24.3%.

Source: Calculated from International Monetary Fund data.
[End of Figure]

In the United States, where the economy was relatively self-contained 
throughout much of the twentieth century, the importance of 
international trade, investment, and financial flows has grown 
noticeably in recent decades. U.S. exports as a share of U.S. GDP grew 
from about 6 percent to over 11 percent between 1970 and 2000 (see fig. 
5). The rise in U.S. imports was even greater, increasing from about 6 
to about 15 percent of GDP. These increases came during a period when 
overall U.S. output, adjusted for inflation, more than doubled.

Figure 5: U.S. Exports and Imports as a Percentage of U.S. GDP, 1970
through 2000.

Line graph with 2 lines and 31 points per line.
Line 1, Exports.
Point 1, 1970 is 5.48.
Point 2, 1971 is 5.25.
Point 3, 1972 is 5.34.
Point 4, 1973 is 6.63.
Point 5, 1974 is 8.28.
Point 6, 1975 is 8.34.
Point 7, 1976 is 8.16.
Point 8, 1977 is 7.82.
Point 9, 1978 is 8.11.
Point 10, 1979 is 8.91.
Point 11, 1980 is 9.98.
Point 12, 1981 is 9.67.
Point 13, 1982 is 8.67.
Point 14, 1983 is 7.84.
Point 15, 1984 is 7.71.
Point 16, 1985 is 7.19.
Point 17, 1986 is 7.19.
Point 18, 1987 is 7.71.
Point 19, 1988 is 8.75.
Point 20, 1989 is 9.27.
Point 21, 1990 is 9.6.
Point 22, 1991 is 10.05.
Point 23, 1992 is 10.08.
Point 24, 1993 is 9.91.
Point 25, 1994 is 10.28.
Point 26, 1995 is 11.06.
Point 27, 1996 is 11.19.
Point 28, 1997 is 11.62.
Point 29, 1998 is 10.99.
Point 30, 1999 is 10.68.
Point 31, 2000 is 11.17.
Line 2, Imports.
Point 1, 1970 is 5.37.
Point 2, 1971 is 5.52.
Point 3, 1972 is 5.98.
Point 4, 1973 is 6.58.
Point 5, 1974 is 8.49.
Point 6, 1975 is 7.5.
Point 7, 1976 is 8.28.
Point 8, 1977 is 8.98.
Point 9, 1978 is 9.25.
Point 10, 1979 is 9.85.
Point 11, 1980 is 10.51.
Point 12, 1981 is 10.15.
Point 13, 1982 is 9.3.
Point 14, 1983 is 9.3.
Point 15, 1984 is 10.3.
Point 16, 1985 is 9.9.
Point 17, 1986 is 10.16.
Point 18, 1987 is 10.71.
Point 19, 1988 is 10.83.
Point 20, 1989 is 10.74.
Point 21, 1990 is 10.83.
Point 22, 1991 is 10.4.
Point 23, 1992 is 10.52.
Point 24, 1993 is 10.82.
Point 25, 1994 is 11.51.
Point 26, 1995 is 12.2.
Point 27, 1996 is 12.33.
Point 28, 1997 is 12.69.
Point 29, 1998 is 12.72.
Point 30, 1999 is 13.38.
Point 31, 2000 is 14.86.

Source: Department of Commerce, Bureau of Economic Analysis.
[End of Figure]

A companion to growing international trade is a strong increase in 
international financial flows. The internationalization and 
liberalization of financial markets worldwide, along with growing 
wealth in many countries, have fueled huge increases in cross-border 
investments. Gross capital flows relative to GDP have grown almost 10-
fold for industrial countries since 1970. For the United States, net 
financial inflows; comprising foreign holdings of U.S. stocks and bonds 
as well as foreign direct investment in the United States; rose from 
about 1 percent to about 11 percent of U.S. GDP between 1970 and 2000, 
as shown in figure 6. Net financial outflows; reflecting similar 
investments abroad from the United States; have fluctuated over this 
period, with an overall upward trend.

Figure 6: U.S. Financial Flows as a Percentage of U.S. GDP, 1970 
through 2000.

Line graph with 2 lines and 31 points per line showing percentage of GDP.
Line 1, Net U.S. Financial Outflows.
Point 1, 1970 is 0.81.
Point 2, 1971 is 1.04.
Point 3, 1972 is 1.11.
Point 4, 1973 is 1.65.
Point 5, 1974 is 2.31.
Point 6, 1975 is 2.43.
Point 7, 1976 is 2.81.
Point 8, 1977 is 1.71.
Point 9, 1978 is 2.66.
Point 10, 1979 is 2.53.
Point 11, 1980 is 3.07.
Point 12, 1981 is 3.61.
Point 13, 1982 is 3.92.
Point 14, 1983 is 1.88.
Point 15, 1984 is 1.03.
Point 16, 1985 is 1.06.
Point 17, 1986 is 2.51.
Point 18, 1987 is 1.67.
Point 19, 1988 is 2.09.
Point 20, 1989 is 3.2.
Point 21, 1990 is 1.4.
Point 22, 1991 is 1.08.
Point 23, 1992 is 1.18.
Point 24, 1993 is 3.02.
Point 25, 1994 is 2.5.
Point 26, 1995 is 4.76.
Point 27, 1996 is 5.3.
Point 28, 1997 is 5.86.
Point 29, 1998 is 4.1.
Point 30, 1999 is 4.72.
Point 31, 2000 is 5.88.
Line 2, Net Foreign Financial Inflows.
Point 1, 1970 is 0.61.
Point 2, 1971 is 2.04.
Point 3, 1972 is 1.73.
Point 4, 1973 is 1.33.
Point 5, 1974 is 2.35.
Point 6, 1975 is 1.05.
Point 7, 1976 is 2.08.
Point 8, 1977 is 2.62.
Point 9, 1978 is 2.92.
Point 10, 1979 is 1.59.
Point 11, 1980 is 2.24.
Point 12, 1981 is 2.75.
Point 13, 1982 is 2.96.
Point 14, 1983 is 2.51.
Point 15, 1984 is 2.99.
Point 16, 1985 is 3.47.
Point 17, 1986 is 5.17.
Point 18, 1987 is 5.24.
Point 19, 1988 is 4.83.
Point 20, 1989 is 4.1.
Point 21, 1990 is 2.44.
Point 22, 1991 is 1.85.
Point 23, 1992 is 2.7.
Point 24, 1993 is 4.25.
Point 25, 1994 is 4.34.
Point 26, 1995 is 6.29.
Point 27, 1996 is 7.5.
Point 28, 1997 is 9.13.
Point 29, 1998 is 5.74.
Point 30, 1999 is 8.78.
Point 31, 2000 is 10.37.

Source: Department of Commerce, Bureau of Economic Analysis.
[End of Figure]

An important part of the trend toward globalization is the growth of 
multinational enterprises. These firms; based in the United States with 
foreign affiliates or based in another nation with U.S. affiliates;
find advantages either in serving foreign markets more directly or in 
supplying their home markets more cheaply . In 1999, more than a third 
of sales of goods and services by U.S. firms in foreign markets, and by 
foreign firms in U.S. markets, were through multinationals. Thus, while 
their heightened role is to some extent reflected in increased 
international trade, it is also evident in measures of increasing flows 
of foreign direct investment among industrialized countries, which have 
grown more than 15-fold since the mid-1970s.

These linkages mean that governments must increasingly be aware of 
international dimensions when weighing policy options and taking 
action. For example, a financial crisis that began in east Asia in 1997 
subsequently spread across major Asian and Latin American economies. 
This created repeated pressure on the United States to take action, not 
simply to assist other nations but also to protect an international 
financial system that is vital to the United States' own well-being. 
Recently, the spread to other nations of the economic slowdown in the 
United States, a slowdown exacerbated by terrorist attacks and threats, 
has highlighted the role of global trade and investment as a 
transmission channel for economic trends.

Globalization affects individuals, business and other organizations in 
a myriad of ways. Expanded markets for U.S. producers and the broader 
array of goods available to U.S. consumers are among the opportunities 
that economic globalization can provide. And increasing international 
economic linkages have been associated with a rise in economic growth, 
both in the United States and worldwide.

However, while many countries have benefited from greater economic 
linkages, huge income disparities remain across countries and regions. 
As can be seen in figure 7, differences in per capita income across 
countries have largely continued over the past 25 years, although China 
and India stand out as poor countries that have shown significant 
gains. Even when differences in cost of living across countries are 
taken into account, average incomes in 1999 were about 13 times higher 
for countries in the high-income grouping than in the low-income 
grouping, compared with about 14 times higher in 1975. Many analysts 
believe that these gaps pose increasing challenges for U.S. economic 
and security policies, as greater flows of people and information 
across borders increase awareness of differences and foster 
resentments.

Figure 7: Trends in Per Capita Income across Country Groupings, 1975, 
1987, and 1999.

Bar chart with 3 groups with 4 items per group showing constant
1999 dollars.
Group 1, 1975. 
Item 1, China/India, 900. 
Item 2, Low-income countries, 1,200.
Item 3, Middle-income countries, 4,800. 
Item 4, High-income countries, 16,900. 
Group 2, 1987. 
Item 1, China/India, 1,500.
Item 2, Low-income countries, 1,600.
Item 3, Middle-income countries, 5,800. 
Item 4, High-income countries, 21,300.
Group 3, 1999.
Item 1, China/India, 3,000. 
Item 2, Low-income countries, 1,800.
Item 3, Middle-income countries, 6,300. 
Item 4, High-income countries, 23,900.

Note: These country groupings contain 28 low-income, 45 middle-income, 
and 30 high-income countries as grouped by the World Bank based on 1975 
per capita income. China and India are shown as a distinct grouping due 
to their size and strong income growth over the period. Countries' per 
capita incomes are converted into dollars using purchasing power parity 
exchange rates, which take into account differences in costs of living 
across countries.

Source: GAO analysis of data from the World Bank, World Development 
Indicators 2001.
[End of Figure]

Concerns that globalization itself is adversely affecting individuals 
within the United States and in other countries have become an 
increasing focus of discussions about international trade and 
development policies. Civil society groups around the world have 
demonstrated, sometimes violently, at major gatherings of international 
organizations over the last 2 years. The groups' concerns vary. Some, 
for instance, are concerned about how increased globalization affects 
workers in traditional manufacturing industries within the United 
States. Others focus on questions about the extent to which developing 
countries are affected by increasing trade and international investment 
flows. Still others believe that globalization poses a threat to the 
common good, such as when corporations based in countries with tough 
environmental safeguards opt to carry out environmentally destructive 
activities in countries where safeguards are less stringent. These 
concerns have been joined recently by a heightened awareness, even 
among strong proponents of increased international economic flows, of 
the security dimensions of extensive international flows of financial 
assets, goods, and individuals.

These concerns confront U.S. policymakers in domestic and bilateral 
discussions and, increasingly, in multilateral settings such as the 
World Trade Organization, the International Monetary Fund, the World 
Bank, and the United Nations. To address these concerns, policymakers 
need extensive information and analysis across a range of complex 
questions.

The Changing Economy:

Many of the issues facing the Congress and the nation stem from the 
complex and changing nature of domestic and global economies. The last 
few years of the 1990s saw a dramatic surge of productivity and 
economic growth, fueled in part by the nation's shift to a knowledge-
based economy, the adoption of new technology, and a greater emphasis 
on public policies that rely on market forces and competition. In the 
coming years, the United States faces the challenge of recovering from 
the current recession and returning to strong economic growth while 
meeting increased demands for spending to counter terrorism and improve 
security. Over the longer term, declining personal saving, coupled with 
the overall aging of the population, presents significant challenges to 
meeting the commitments to Social Security, Medicare, and other 
national priorities.

After two decades of diminished expectations and reduced economic 
performance, the GDP grew dramatically. As shown by figure 8, labor 
productivity growth accelerated from 1.5 percent per year in the early 
1990s to 2.8 percent per year between 1996 and 2000. This growth can be 
attributed, in part, to the move away from the nation's traditional, 
manufacturing-based economy to one characterized by the production of 
information and services. In fact, for most of the past two decades, 
high-technology manufacturing and knowledge-based services have grown 
at roughly double the rate of other manufacturing industries. In light 
of forecasts for a shift downward in labor productivity growth for the 
remainder of this decade, the challenge for the future will be to 
sustain GDP growth.

Figure 8: U.S. Productivity Growth, 1961 through 2010.

Bar chart with 10 items showing annual percentage change.
Item 1, 1961-65, 3.7.
Item 2, 1966-70, 2. 
Item 3, 1971-75, 2.3. 
Item 4, 1976-80, 1.2. 
Item 5, 1981-85, 1.7. 
Item 6, 1986-90, 1.3.
Item 7, 1991-95, 1.5.
Item 8, 1996-2000, 2.6.
Item 9, 2001-05, 2.4.
Item 10, 2006-10, 2.3.

Note: Changes to labor productivity growth for the periods 2001-05 and 
2006-10 are estimates.

Source: Department of Commerce, Bureau of Labor Statistics, and DRI-
WEFA (an economic information company).
[End of Figure]

The growing use of technology and knowledge-based services raises a 
number of policy issues. 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. The methods of preparing children for their futures as 
citizens and workers will have to be adapted for new needs. New 
importance will also have to be given to continuing education and 
training for adults, whose longer life expectancies will allow them to 
stay in the workforce longer; a prospect that also holds significance 
for retirement policies.

The shift to a knowledge economy also has implications for immigration 
policy. The emergence of technology-oriented industries has tended to 
create both high-paying jobs in computing and information technology 
and low-skilled jobs ultimately delivering the services these 
industries provide. To fill these jobs, the United States has come to 
rely increasingly on workers from other countries. At the same time, in 
light of heightened concern for homeland security, the relatively easy 
flow of workers into the country may be reassessed. Moreover, the need 
for both high- and low-skilled workers may also contribute to a long-
term trend of inequality in income in which those in the richest 
segments of society see their incomes increase far more than those in 
the poorest segments do.

Consumer and investor protection policies are also affected by the 
growth in knowledge-based industries. With human capital capacity and 
technological capabilities as the principal assets of these companies, 
valuation of corporate assets has become particularly difficult. 
Moreover, many of these companies; in the financial services sector, 
for example; are in the business of selling a range of new and complex 
services whose value is also difficult to calculate. While accurately 
and rigorously evaluating intangible assets and complex goods and 
services has always been difficult, these new features raise additional 
disclosure and reporting challenges for boards of directors and 
investors, as well as for auditors and government regulators.

Finally, the shift in the U.S. economy to knowledge-based industries 
calls into question whether GDP, the traditional indicator of economic 
performance, should take into account investment in human capital and 
in other intangible assets, such as research and development. As a 
result, the public policy issues of the future are likely to demand new 
metrics that can measure the long-term strategic impact of government 
choices.

Other changes in the U.S. and world economies have occurred because of 
government policies that liberalize trade and draw on greater market 
competition. The U.S. government and, increasingly, foreign countries 
have moved away from heavily regulated or state-owned enterprises to 
more competitive markets. In the United States, the federal government 
has deregulated industries such as trucking, electricity, and 
telecommunications. In Europe and elsewhere, governments have 
privatized formerly publicly owned industries, and many formerly 
planned economies have reorganized to be more market oriented. 
Consequently, formerly regulated industries have been forced to become 
more efficient as new competitors enter previously protected markets. 
Nevertheless, as the blackouts in California and the problems besetting 
the airline industry illustrate, effective government oversight remains 
important.

Although the economy was still growing at the end of the last decade, 
the sustainability of this growth was already becoming more of a 
concern because of a serious decline in the personal saving required to 
fuel investment. Saving and investment drive the productivity growth 
that allows personal incomes to rise without accelerating inflation. 
Since 1990, personal saving declined from 6 percent of GDP to about 1 
percent in 2001 (see fig. 9). In recent years, low personal saving was 
offset by government budget surpluses and sustained by foreign 
investment in the United States. To the extent that these offsetting 
trends change, personal saving must rise if growth in investment and 
productivity is to continue at recent levels.

Figure 9: Declines in U.S. Personal Saving, 1990 through 2001.

Combination line and bar chart with 12 groups, 1 line and 1 bar per group
showing percentage of GDP.
Group 1, 1990.
Bar 1, Personal saving 5.8.
Line 1, Net national saving 4.6.
Group 2, 1991. 
Bar 1, Personal saving 6.2.
Line 1, Net national saving 4.5.
Group 3, 1992.
Bar 1, Personal saving 6.5.
Line 1, Net national saving 3.5.
Group 4, 1993.
Bar 1, Personal saving 5.3. 
Line 1, Net national saving 3.4.
Group 5, 1994.
Bar 1, Personal saving 4.5.
Line 1, Net national saving 4.
Group 6, 1995.
Bar 1, Personal saving 4.1.
Line 1, Net national saving 4.7.
Group 7, 1996.
Bar 1, Personal saving 3.5. 
Line 1, Net national saving 5.
Group 8, 1997.
Bar 1, Personal saving 3.
Line 1, Net national saving 5.9.
Group 9, 1998.
Bar 1, Personal saving 3.4.
Line 1, Net national saving 6.6.
Group 10, 1999.
Bar 1, Personal saving 1.7.
Line 1, Net national saving 6.
Group 11, 2000.
Bar 1, Personal saving 0.7.
Line 1, Net national saving 5.5.
Group 12, 2001.
Bar 1, Personal saving 1.2.
Line 1, Net national saving 3.8.

Source: Department of Commence, Bureau of Economic Analysis.
[End of Figure]

By mid-2001, the U.S. economy was experiencing a recession that was 
exacerbated by declining consumer confidence in the wake of terrorist 
attacks. Moreover, the likely increased spending on national defense 
and homeland security will add to an already intense competition for 
resources among many national priorities. In the longer term, the level 
of aggregate saving may place even greater constraints on federal 
spending for national priorities, particularly Social Security and 
Medicare. GAO's long-term budget model shows that simply paying for the 
higher retirement and health care costs associated with the baby-boom 
generation will limit budgetary flexibility (see fig. 10), while 
leaving few resources for investment in new technology. This budget 
outlook reinforces the importance of long-term growth; fueled by 
efficiency, saving, and investment; that will allow the nation to 
support its commitments to future generations.

Figure 10: Composition of Spending as a Share of GDP Assuming 
Discretionary Spending Grows with GDP and the Tax Cuts Do Not Sunset.

Combination line and stacked bar chart with 4 groups showing percentage of
GDP, 1 line and 4 bars per group.
Group 1, 2000, Total value of 18.4 for the stacked bars.
Bar 1, All Other Spending value of 8.7. 
Bar 2, Medicare and Medicaid value of 3.2.
Bar 3, Social Security value of 4.2.
Bar 4, Net Interest value of 2.3.
Line 1, Revenue 20.8.
Group 2, 2015, Total value of 19.8 for the stacked bars.
Bar 1, All Other Spending value of 9.5.
Bar 2, Medicare and Medicaid value of 4.6.
Bar 3, Social Security value of 4.7.
Bar 4, Net Interest value of 1.
Line 1, Revenue 18.9.
Group 3, 2030, Total value of 25.7 for the stacked bars.
Bar 1, All Other Spending value of 9.5.
Bar 2, Medicare and Medicaid value of 6.9.
Bar 3, Social Security value of 6.6.
Bar 4, Net Interest value of 2.7. 
Line 1, Revenue 18.9.
Group 4, 2050, Total value of 37.4 for the stacked bars.
Bar 1, All Other Spending value of 9.5.
Bar 2, Medicare and Medicaid value of 9.4.
Bar 3, Social Security value of 7.3.
Bar 4, Net Interest value of 11.2.
Line 1, Revenue 18.9.

Note: In this simulation, discretionary spending grows with the economy 
after 2002, and the expiring tax provisions under the Economic Growth 
and Tax Relief Reconciliation Act of 2001 are extended through the end 
of the simulation period.

Source: GAO analysis, March 2002.
[End of Figure]

Demographics:

Profound changes in the characteristics of the U.S. population will 
occur in the coming decades because the population is growing older and 
becoming more diverse. According to the 2000 census, the median age of 
the population is now the highest it has ever been, and the most 
rapidly increasing age group is the 45- to 54-year-olds; the baby 
boomers. As the baby boomers age, the share of the population aged 65 
or older is projected to grow from 12 percent in 2000 to about 20 
percent in 2030. At the same time, the growth of the labor force is 
expected to slow considerably, becoming negligible by 2050 (see fig. 
11).

Figure 11: Labor Force Growth, 1975 through 2075.

Line graph with 1 line and 101 points showing percentage change
(5-year moving average).
Point 1, 1975 is 2.52.
Point 2, 1976 is 2.64.
Point 3, 1977 is 2.6.
Point 4, 1978 is 2.72.
Point 5, 1979 is 2.68.
Point 6, 1980 is 2.66.
Point 7, 1981 is 2.48.
Point 8, 1982 is 2.18.
Point 9, 1983 is 1.76.
Point 10, 1984 is 1.58.
Point 11, 1985 is 1.54.
Point 12, 1986 is 1.64.
Point 13, 1987 is 1.7.
Point 14, 1988 is 1.76.
Point 15, 1989 is 1.76.
Point 16, 1990 is 1.74.
Point 17, 1991 is 1.4.
Point 18, 1992 is 1.34.
Point 19, 1993 is 1.2.
Point 20, 1994 is 1.12.
Point 21, 1995 is 1.
Point 22, 1996 is 1.16.
Point 23, 1997 is 1.24.
Point 24, 1998 is 1.28.
Point 25, 1999 is 1.24.
Point 26, 2000 is 1.26.
Point 27, 2001 is 1.16.
Point 28, 2002 is 0.96.
Point 29, 2003 is 0.94.
Point 30, 2004 is 0.9.
Point 31, 2005 is 0.86.
Point 32, 2006 is 0.9.
Point 33, 2007 is 0.94.
Point 34, 2008 is 0.94.
Point 35, 2009 is 0.9.
Point 36, 2010 is 0.86.
Point 37, 2011 is 0.8.
Point 38, 2012 is 0.7.
Point 39, 2013 is 0.62.
Point 40, 2014 is 0.54.
Point 41, 2015 is 0.48.
Point 42, 2016 is 0.42.
Point 43, 2017 is 0.4.
Point 44, 2018 is 0.36.
Point 45, 2019 is 0.34.
Point 46, 2020 is 0.32.
Point 47, 2021 is 0.32.
Point 48, 2022 is 0.3.
Point 49, 2023 is 0.3.
Point 50, 2024 is 0.3.
Point 51, 2025 is 0.3.
Point 52, 2026 is 0.3.
Point 53, 2027 is 0.3.
Point 54, 2028 is 0.3.
Point 55, 2029 is 0.3.
Point 56, 2030 is 0.32.
Point 57, 2031 is 0.34.
Point 58, 2032 is 0.36.
Point 59, 2033 is 0.38.
Point 60, 2034 is 0.4.
Point 61, 2035 is 0.4.
Point 62, 2036 is 0.4.
Point 63, 2037 is 0.4.
Point 64, 2038 is 0.4.
Point 65, 2039 is 0.4.
Point 66, 2040 is 0.4.
Point 67, 2041 is 0.38.
Point 68, 2042 is 0.36.
Point 69, 2043 is 0.34.
Point 70, 2044 is 0.32.
Point 71, 2045 is 0.3.
Point 72, 2046 is 0.3.
Point 73, 2047 is 0.3.
Point 74, 2048 is 0.3.
Point 75, 2049 is 0.3.
Point 76, 2050 is 0.3.
Point 77, 2051 is 0.28.
Point 78, 2052 is 0.26.
Point 79, 2053 is 0.24.
Point 80, 2054 is 0.22.
Point 81, 2055 is 0.2.
Point 82, 2056 is 0.2.
Point 83, 2057 is 0.2.
Point 84, 2058 is 0.2.
Point 85, 2059 is 0.2.
Point 86, 2060 is 0.2.
Point 87, 2061 is 0.2.
Point 88, 2062 is 0.2.
Point 89, 2063 is 0.2.
Point 90, 2064 is 0.2.
Point 91, 2065 is 0.2.
Point 92, 2066 is 0.2.
Point 93, 2067 is 0.2.
Point 94, 2068 is 0.2.
Point 95, 2069 is 0.2.
Point 96, 2070 is 0.2.
Point 97, 2071 is 0.2.
Point 98, 2072 is 0.2.
Point 99, 2073 is 0.2.
Point 100, 2074 is 0.2.
Point 101, 2075 is 0.2.

Note: Projections based on the intermediate assumptions of the 
Trustees' report.

Source: The 2002 Annual Report of the Board of Trustees of the Federal 
Old-Age and Survivors Insurance and Disability Insurance Trust Funds.
[End of Figure]

This decline in the number of working-age people compared with the rise 
in the number of elderly has obvious implications for the financial 
status of the Social Security and Medicare Trust Funds. Today, about 
3.3 people pay into Social Security for every person receiving benefits 
(see fig. 12). By 2030, this ratio is projected to decline to about 2 
to 1.

Figure 12: Social Security Workers per Beneficiary, 1955 through 2075.

Line graph with 1 line and 25 points showing covered workers per
OASDI beneficiary.
Point 1, 1955 is 8.6.
Point 2, 1960 is 5.1.
Point 3, 1965 is 4.
Point 4, 1970 is 3.7.
Point 5, 1975 is 3.2.
Point 6, 1980 is 3.2.
Point 7, 1985 is 3.3.
Point 8, 1990 is 3.4.
Point 9, 1995 is 3.3.
Point 10, 2000 is 3.4.
Point 11, 2005 is 3.3.
Point 12, 2010 is 3.1.
Point 13, 2015 is 2.8.
Point 14, 2020 is 2.5.
Point 15, 2025 is 2.3.
Point 16, 2030 is 2.1.
Point 17, 2035 is 2.1.
Point 18, 2040 is 2.
Point 19, 2045 is 2.
Point 20, 2050 is 2.
Point 21, 2055 is 2.
Point 22, 2060 is 1.9.
Point 23, 2065 is 1.9.
Point 24, 2070 is 1.9.
Point 25, 2075 is 1.8.

Note: Projections based on intermediate assumptions of the Trustees' 
report.

Source: The 2002 Annual Report of the Board of Trustees of the Federal 
Old-Age and Survivors Insurance and Disability Insurance (OASDI) Trust 
Funds.
[End of Figure]

Unless productivity increases, low labor force growth will lead to 
slower growth in the economy; and to slower growth in federal revenues 
at a time when the expenditure demands on federal programs for the 
elderly are increasing. This slowing labor force growth is likely to 
raise questions about current retirement policies and whether people 
ought to be encouraged to stay in the workforce longer and to be given 
opportunities to continue their education and training. As with demand 
for scarce technical skills and low-cost labor, the slowing growth in 
the labor force increases pressures to import workers, thereby raising 
questions about immigration policies.

The implications of a growing elderly population are likely to extend 
far beyond the financial status of Social Security, Medicare, Medicaid, 
and retirement programs. The number of people served by housing, 
transportation, and other government programs for the elderly will 
grow. Both publicly and privately provided services, including 
communications and financial services, are likely to change in response 
to the needs of this population.

This demographic shift will affect other industrialized nations as 
well. For example, in some European countries, social program costs are 
projected to consume a greater share of total GDP than in the United 
States. As the health and retirement costs of these nations burgeon, 
their budgets may become more constrained, which in turn could affect 
U.S. interests. For example, while U.S. assets today represent a 
significant share of foreign portfolios, European lending to the United 
States is likely to be scaled back as the continent has to finance the 
consumption needs of their elderly populations. The United States' 
international interests could also be affected if Europe and other 
major donors are forced to curtail their contributions to international 
lending institutions, peacekeeping missions, and aid to developing 
countries.

While the U.S. population is growing older, it is also growing more 
diverse, in large part because of record numbers of immigrants. Between 
1990 and 2000, the number of foreign-born people in the United States 
grew by 43 percent to total more than 28 million; the largest number of 
foreign-born residents in U.S. history. While these foreign-born 
residents make up about 10 percent of the U.S. population overall, in 
some parts of the United States, the numbers are especially high. For 
example, 26 percent of California's population comes from Mexico and 
Asia. Although over one-fourth of these immigrants are college 
educated, foreign-born residents are more likely to be less educated 
and more likely to live in poverty than residents who were born in the 
United States, placing special demands on education and social service 
systems.

This more diverse population means that minorities, as well as women, 
will continue to represent a continuously increasing share of the 
workforce. Currently, women constitute 47 percent of the American 
workforce, up from about 42 percent in 1978, a proportion expected to 
increase further (see fig. 13). African Americans, Hispanics, Asians, 
and other minorities are projected to account for about 18 percent of 
the total labor force by 2008, but will account for almost 60 percent 
of all new workers between 1998 and 2008. These trends of slow labor 
force growth and increased diversity have implications for federal 
policies and programs in education, training, child care, and 
immigration, among others.

Figure 13: Women and Minorities in the Labor Force.

Bar chart with 4 groups, with 2 items per group showing percentage.
Group 1, 1978.
Item 1, Women, 41.7%.
Item 2, Minorities, 12.3%.
Group 2, 1988.
Item 1, Women, 45%.
Item 2, Minorities, 13.9%.
Group 3, 1998.
Item 1, Women, 46.3%.
Item 2, Minorities, 16.2%.
Group 4, 2008.
Item 1, Women, 47.5%.
Item 2, Minorities, 18.1%.

Notes: "Women" refers to all women, regardless of minority status. 
"Minorities" includes women and men.

Source: Bureau of Labor Statistics, "Labor Force Projections to 2008: 
Steady Growth and Changing Composition," Monthly Labor Review, Nov. 
1999.
[End of Figure]

Science and Technology:

Technology influences every aspect of American life and touches the 
lives of Americans in thousands of ways. While information technology 
is a major technological force of this era; linking individuals, 
organizations, and economies around the world; other kinds of 
scientific and technological advances also are creating significant 
changes. For example, the rapidly increasing understanding of the human 
genome is leading to new developments in genetic engineering. For 
society and government, these developments in science and technology 
present vast opportunities to improve the quality of life, the 
performance of the economy and the government, and the relationship of 
government to its citizens. At the same time, the increased development 
and use of new technologies challenge the government's and the 
Congress's ability to evaluate their potential and assess their effect 
on security, safety, privacy, and equity. Within this context, the 
Senate Legislative Branch Appropriations bill for fiscal year 2002 
directed GAO to conduct a pilot program in technology assessment and to 
evaluate the future potential of such a program.

The positive outcomes from technological developments are well 
illustrated by information technology, which contributed to the 
substantial gains in productivity that fueled the U.S. economy in the 
1990s, and which opened the workforce to people who were previously 
barred by physical handicaps or geographic distance. Electronic 
commerce in the United States far outpaces the rest of the world and is 
expected to grow exponentially over the next few years (see fig. 14). 
Information technology has begun to alter the way citizens interact 
with government, making it easier for them to get information and 
assistance, identify and obtain services, file applications and taxes, 
and conduct other transactions with government. Information technology 
has also begun to transform the way that government is organized and 
operates by reducing levels of bureaucracy and "middlemen" to better 
serve citizens and to communicate with the businesses that government 
regulates. Multiagency portals; Web sites providing a single point of 
access to information and services from multiple government departments 
and agencies; are based on the needs of citizens rather than on the 
structure of the government providing the resources.

Figure 14: Worldwide E-Commerce Growth, 2000 through 2004.

Area graph showing total dollar value in billions of goods traded online
with 5 groups with 2 items per group.
Group 1, 2000, Total value of 657.2.
Item 1, United States value of 488.7.
Item 2, Rest of World value of 168.5.
Group 2, 2001, Total value of 1233.6.
Item 1, United States value of 864.1.
Item 2, Rest of World value of 369.5.
Group 3, 2002, Total value of 2231.1.
Item 1, United States value of 1411.3.
Item 2, Rest of World value of 819.8.
Group 4, 2003, Total value of 3979.8.
Item 1, United States value of 2187.2.
Item 2, Rest of World value of 1792.6.
Group 5, 2004, Total value of 6789.8.
Item 1, United States value of 3189.
Item 2, Rest of World value of 3600.8.

Notes: Worldwide total equals United States plus rest of world.

Source: Forrester Research, Inc.
[End of Figure]

Developments in biotechnology are also bringing forth many benefits. 
The improved understanding of diseases and how the human body operates 
has led to new therapies and treatments and may lead to the elimination 
or significant control of some diseases. In addition, genetically 
modified crops have the potential to dramatically improve the health 
and nutrition of many of the world's poorest people.

But these opportunities are also rife with challenges. The growth of 
electronic commerce, for example, has made it more difficult to 
determine the source and character of taxable income and sales, thereby 
complicating division of the tax base across national, state, and local 
jurisdictions. As organizations become more interconnected, the ability 
to share data among systems can provide greater efficiencies, but can 
also lead to inappropriate access to medical records, credit histories, 
and other personal and confidential data. And fundamental access to 
technology will continue to prompt debate over the digital divide; the 
disparity in the ability of different socioeconomic groups to access 
and use technology.

The widespread interconnectivity of computer systems with the critical 
operations and infrastructures they support has also created new 
vulnerabilities. The nation's telecommunications, power distribution, 
public health, national defense (including the military's warfighting 
capability), law enforcement, financial, government, and emergency 
services all depend on computer operations. Because financial markets 
and other critical infrastructure are also reliant on information 
technology, the U.S. and world markets can be attacked even without an 
actual physical assault. To maintain information superiority, the 
United States must depend on an interconnected global network of 
sensors, communications technology, command and control assets, and 
highly lethal weapons possessing precision-strike capabilities. At the 
same time, the nation's security increasingly depends on intelligence 
gathering through electronic as well as more traditional means, 
supported by knowledge-management systems enabling the analysis of 
data.

Many of biotechnology's advances raise concerns as well. Although they 
hold great promise for improving health care, the affordability of new 
diagnostic and treatment methods is becoming a growing issue for 
federal and state government health care programs. Newer treatments may 
not reach poorer countries, where even treatments currently available 
in the United States are out of reach because of their costs. Many 
advances in biotechnology also raise a number of difficult ethical and 
legal questions that society has not had to address before. For 
example, the rapid progress of the Human Genome Project opens the 
possibility of identifying a genetic predisposition for diseases in 
individuals and thereby, the opportunity for preventive interventions. 
At the same time, this information may make people more vulnerable to 
discrimination by employers and insurance companies.

Quality of Life:

In many respects, the quality of life for Americans has dramatically 
improved. Large segments of the population enjoy greater economic 
prosperity than ever before. In 2000, over 94 percent of the workforce 
was employed and the median annual household income was over $42,000. 
Two-thirds of American households own their own homes, and children are 
graduating from high school and going on to college at record rates. 
The quality of the physical environment has also improved, with air and 
water pollution declining over the last couple of decades and larger 
numbers of hazardous waste sites cleaned up.

Americans are also living longer, with the average life expectancy now 
up to 77 years, a trend likely to continue with advances in genetics 
and biotechnology. In the last decade, the availability of new drug 
therapies has increased dramatically. By the end of the decade, roughly 
50 percent more drugs were coming on the market each year than in the 
early part of the 1990s.

These improvements have not been without cost, however, and can be 
jeopardized by a prolonged economic downturn. Spending on prescription 
drugs, for instance, has grown much faster than health care spending 
and GDP (see fig. 15). Beyond the costs of treating and preventing 
illness, the costs of providing long-term care facilities for the 
growing elderly population can be expected to burgeon. For the federal 
government, these trends are of enormous consequence to the future 
scope and coverage of the Medicare and Medicaid programs, as well as 
the defense and veterans' health care programs.

Figure 15: Growth in National Expenditures for Prescription Drugs, 1993 
through 2000.

Line graph with 3 lines and 8 points per line showing Percentage of
Annual Growth.
Line 1, Prescription Drug Expenditures.
Point 1, 1993 is 6.3.
Point 2, 1994 is 6.6.
Point 3, 1995 is 11.2.
Point 4, 1996 is 10.5.
Point 5, 1997 is 12.8.
Point 6, 1998 is 15.1.
Point 7, 1999 is 19.2.
Point 8, 2000 is 17.3.
Line 2, Health Care Expenditures.
Point 1, 1993 is 7.4.
Point 2, 1994 is 5.5.
Point 3, 1995 is 5.7.
Point 4, 1996 is 5.
Point 5, 1997 is 4.9.
Point 6, 1998 is 5.4.
Point 7, 1999 is 5.7.
Point 8, 2000 is 6.9.
Line 3, Gross Domestic Product.
Point 1, 1993 is 5.1.
Point 2, 1994 is 6.2.
Point 3, 1995 is 4.9.
Point 4, 1996 is 5.6.
Point 5, 1997 is 6.5.
Point 6, 1998 is 5.6.
Point 7, 1999 is 5.5.
Point 8, 2000 is 6.5.

Source: Health Care Financing Administration, Office of the Actuary, 
and Bureau of Economic Analysis.
[End of Figure]

Regardless of the costs of achieving and maintaining these improvements 
in the quality of life, they have not been evenly distributed across 
the population. In 2000, about 39 million Americans still lacked access 
to health care because they did not have health insurance. Unemployment 
rates for African Americans and Hispanics were nearly twice the rate 
for whites. These groups also include proportionally fewer college 
graduates, their average income levels are considerably lower, and 
their poverty rates are more than double those of white Americans. 
Violent crime rates remain high in certain geographic areas and for 
certain parts of the population, although they have fallen considerably 
across the nation as a whole. Affordable housing remains out of reach 
for many.

Moreover, prosperity itself has placed greater stresses on the quality 
of life. Greater economic activity, for example, is producing more air 
and highway traffic and heightening concerns about safety and 
environmental quality. Families are struggling to balance the demands 
of work and home and to find and pay for good day care. Parts of the 
country that have seen rapid development; particularly the Southeast 
and Southwest; are facing increased competition for water, land, and 
other natural resources. Population and economic growth also create 
demand for new transportation and other physical infrastructure, and 
place strains on existing capacity. In the future, the need for new 
investments will increasingly come into competition with other national 
priorities, including spending on Social Security and Medicare as well 
as for national preparedness to confront security threats; thus 
creating difficult budgetary choices for the federal government.

Governance:

As the pace of change accelerates in every aspect of American life, 
government is faced with new and more complex challenges resulting from 
the public's growing expectations, demographic pressures, 
technological opportunities, and the emerging fiscal challenges ahead. 
The attacks of September 11 reminded the nation that the effectiveness 
of government programs and agencies is critical to day-to-day security. 
These events have placed new fiscal demands on federal, state and local 
governments, underscoring the government's obligation to enhance its 
fiscal flexibility and capacity to address a rapidly evolving set of 
challenges facing the nation both today and over the longer term.

As America takes on a new set of commitments necessary to protect the 
nation from the threat of terrorism, it must also be mindful of the 
fiscal challenges facing future generations in addressing the 
retirement and health care costs of the baby boomers' retirement. To 
help safeguard the capacity of future generations to finance an aging 
society and respond to their own unforeseen challenges, government must 
begin to reexamine and update its priorities, processes and portfolio 
of federal programs and policies. Emerging needs and effective programs 
can be addressed, while outdated programs can be either eliminated or 
improved. Coping effectively with these challenges ultimately calls for 
a fundamental rethinking of the federal role and commitments.

The foundation for much of this effort has already been laid through 
the implementation of critical strategic planning, performance, and 
information management reforms during the 1990s. Because of these 
reforms, information on the performance of existing programs and 
operations is now generated systematically. Likewise, the legislative 
foundation for financial management reform is now in place and, when 
agencies are able to systematically supply it, critical cost 
information will also be available to manage and assess program 
performance. Using this information, decision makers will be better 
able to sort out and measure the effects of federal actions and 
policies on the broad outcomes and mission areas that matter most.

Going forward, addressing emerging needs and chronic performance gaps 
in existing programs will entail focusing on an evolving agenda of 
reforms in the management of people and technologies, the metrics 
developed to track results, and the frameworks articulated for 
governmentwide leadership necessary to achieve important objectives 
cutting across agencies and governmental boundaries. The people working 
for government are the most important asset in addressing the emerging 
challenges facing the nation. The aging of the federal workforce as 
well as the growing competition for bright new entrants makes it 
imperative that the federal government equip itself with new tools 
necessary to recruit, retain, and reward talented workers. Moreover, 
the competencies that are sought and rewarded should be aligned with 
broader strategic objectives and performance goals. The strategic 
deployment of technology is also becoming more essential to realize the 
kinds of major improvements in efficiency necessary to respond to the 
nation's expectations for service delivery. The Web and other major 
advances in networking provide unprecedented opportunities to use 
technology as a driver for change in the way that government agencies 
are structured to do business internally and across boundaries with 
state and local governments, private businesses, and with individual 
citizens.

Promoting a more strategic focus on the broad goals for government 
programs is essential to bring about a more results-oriented debate 
about what government should be doing. But reassessing the federal role 
and measuring performance and accountability has also grown more 
complex. In most federal mission areas; from low-income housing to food 
safety to higher education assistance; national goals are achieved 
through the use of a variety of policy tools and, increasingly, through 
the participation of many organizations that are beyond the direct 
control of the federal government. The policy tools; direct spending, 
tax preferences, loans and guarantees, grants, and regulations; have 
often been considered individually in a fragmented fashion, even though 
they are all associated with critical national outcomes. Assessing the 
coherence of all related policy tools to ascertain whether they are 
aligned and relevant for a changing society will be a critical task in 
rethinking and updating the federal government's role. While programs 
and policy tools evolved piecemeal for many mission areas, an 
integrated and multidisciplinary approach will be needed to address the 
broader performance outcomes the nation expects from government.

Such an integrated perspective must address the fundamental role played 
by third parties involved in achieving national goals; state and local 
governments, nonprofit institutions, private corporations, and even 
international institutions and governing bodies all play vital roles in 
formulating and implementing federal initiatives. Figure 16 suggests 
one indicator of the growing involvement of third parties. Since at 
least the 1960s, the number of federal employees has dropped even as 
federal outlays have risen partly because the dollars that fund federal 
programs are increasingly flowing to nonfederal entities. Promoting 
effective partnerships with third parties in the formulation and design 
of complex national initiatives will prove increasingly vital to 
achieving successful policy outcomes in the years ahead. Protecting the 
nation from the threat of terrorism, for instance, will require a 
concerted effort by all three levels of government as well as key 
private sector leaders responsible for critical infrastructure and 
resources.

Figure 16: Federal Civilian Employment and Outlays, Fiscal Years 1950 
through 2001.

Line graph with 2 lines and 52 points per line.
Line 1, Federal Civilian Employment (showing civilian employees in
thousands).
Point 1, 1950 is 1439.
Point 2, is 1974.
Point 3, is 2066.
Point 4, is 2026.
Point 5, is 1875.
Point 6, 1955 is 1860.
Point 7, is 1864.
Point 8, is 1869.
Point 9, is 1817.
Point 10, is 1805.
Point 11, 1960 is 1808.
Point 12, is 1825.
Point 13, is 1896.
Point 14, is 1911.
Point 15, is 1884.
Point 16, 1965 is 1901.
Point 17, is 2051.
Point 18, is 2251.
Point 19, is 2289.
Point 20, is 2301.
Point 21, 1970 is 2203.
Point 22, is 2144.
Point 23, is 2117.
Point 24, is 2083.
Point 25, is 2140.
Point 26, 1975 is 2149.
Point 27, is 2157.
Point 28, is 2182.
Point 29, is 2224.
Point 30, is 2161.
Point 31, 1980 is 2161.
Point 32, is 2143.
Point 33, is 2110.
Point 34, is 2157.
Point 35, is 2171.
Point 36, 1985 is 2252.
Point 37, is 2175.
Point 38, is 2232.
Point 39, is 2222.
Point 40, is 2238.
Point 41, 1990 is 2250.
Point 42, is 2243.
Point 43, is 2225.
Point 44, is 2157.
Point 45, is 2085.
Point 46, 1995 is 2012.
Point 47, is 1934.
Point 48, is 1872.
Point 49, is 1856.
Point 50, is 1820.
Point 51, 2000 is 1784.
Point 52, 2001 is 1798.
Line 2, Total Federal Outlays (showing Fiscal Year 1996 dollars in
billions).
Point 1, 1950 is 312.5.
Point 2, is 326.
Point 3, is 483.5.
Point 4, is 510.4.
Point 5, is 456.8.
Point 6, 1955 is 431.3.
Point 7, is 425.8.
Point 8, is 442.4.
Point 9, is 450.8.
Point 10, is 494.6.
Point 11, 1960 is 493.
Point 12, is 509.2.
Point 13, is 556.9.
Point 14, is 556.9.
Point 15, is 585.
Point 16, 1965 is 575.6.
Point 17, is 637.
Point 18, is 719.7.
Point 19, is 779.2.
Point 20, is 757.3.
Point 21, 1970 is 761.6.
Point 22, is 768.2.
Point 23, is 791.6.
Point 24, is 799.3.
Point 25, is 810.8.
Point 26, 1975 is 909.3.
Point 27, is 948.
Point 28, is 964.7.
Point 29, is 1014.
Point 30, is 1028.
Point 31, 1980 is 1092.5.
Point 32, is 1137.
Point 33, is 1167.8.
Point 34, is 1209.8.
Point 35, is 1214.7.
Point 36, 1985 is 1304.7.
Point 37, is 1332.5.
Point 38, is 1314.8.
Point 39, is 1351.
Point 40, is 1399.7.
Point 41, 1990 is 1483.6.
Point 42, is 1501.6.
Point 43, is 1515.2.
Point 44, is 1507.7.
Point 45, is 1531.9.
Point 46, 1995 is 1551.5.
Point 47, is 1560.6.
Point 48, is 1568.8.
Point 49, is 1598.9.
Point 50, is 1620.7.
Point 51, 2000 is 1659.7.
Point 52, 2001 is 1692.9.

Note: Figures for executive branch civilian employees exclude the U.S. 
Postal Service. Legislative and judicial branch personnel constitute 
less than 2 percent of total federal personnel.

Source: Office of Management and Budget.
[End of Figure]

This growing interdependence has important ramifications for governance 
and accountability. The public rightly expects to hold the federal 
government accountable for achieving important national outcomes. 
Certainly, involving state and local governments and other types of 
organizations in the federal mission can add new capacities and 
efficiencies and can promote responsiveness to a wider range of local 
interests. However, unique accountability challenges arise as well, 
both from the involvement of independent interests operating under 
their own sovereignty and from the reliance on ever more complex 
networks to deliver federal services. The challenge for the federal 
government will be to design, select, and manage the various tools of 
governance; regulations, grants, tax preferences, or loans; to prompt 
these independent interests to work together in pursuit of common 
national goals. Metrics defining and tracking progress against broader 
national objectives will be an important leadership tool to focus the 
attention of these different interests on common goals and challenges. 
The existing reforms developed to improve the management of federal 
agencies will have to be applied to also improve the way that federal 
agencies manage across governmental and institutional boundaries.

[End of section]

Goal 1: Provide Timely, Quality Service to the Congress and the Federal 
Government to Address Current and Emerging Challenges to the Well-Being 
and Financial Security of the American People.

In keeping with GAO's mission to support the Congress in carrying out 
its constitutional responsibilities, GAO's first strategic goal focuses 
on several aspirations of the American people that were defined by the 
Founding Fathers: to "establish justice, insure domestic tranquility, ...  
promote the general welfare, and secure the blessings of liberty to 
ourselves and our posterity...." The nation's aging and more diverse 
population, rapid technological change, and Americans' desire to 
improve the quality of life have major policy and budgetary 
implications for the federal government. In particular, growing 
commitments to the elderly will crowd out the capacity of a smaller 
generation of workers to finance the competing needs and wants brought 
to the federal doorstep.

The first goal in this updated plan, therefore, continues to be to help 
the Congress and the federal government address the challenges that 
affect the well-being and financial security of the American people. As 
the tragic events of September 11 revealed, domestic policies and 
programs have become integral to national security. Accordingly, each 
major objective in this plan has been shaped to accommodate the 
implications of the terrorism threat to GAO's work in those areas.

GAO also recast its objectives under this goal in response to changes 
in the federal policy agenda to emphasize the need to better educate 
the population and prepare people for work. GAO's new objectives; one 
on the education and protection of children and one on the promotion of 
work opportunities and worker safety; expand on an objective in GAO's 
previous strategic plan that combined education and workforce issues 
and replace an objective on the social safety net. The objective on 
promoting investment in viable communities focuses greater attention on 
the federal role in helping various communities promote their own 
economic and housing goals.

GAO's objectives for this goal are to support congressional and federal 
efforts on:

* the health needs of an aging and diverse population,

* the education and protection of the nation's children,

* the promotion of work opportunities and the protection of workers,

* a secure retirement for older Americans,

* an effective system of justice,

* the promotion of viable communities,

* responsible stewardship of natural resources and the environment, and

* a secure and effective national physical infrastructure.

Strategic Objective: The Health Needs of an Aging and Diverse Population.

Issue: Health care has been one of the most rapidly rising elements 
of federal spending, growing at an average annual rate twice that of 
the rest of the federal budget over the last 10 years (see fig. 1.1). 
Expenditures on health-related programs are now one of the largest 
components of federal spending, totaling an estimated $433 billion in 
fiscal year 2001, or about 23 percent of all federal spending that 
year. Health care also accounts for significant federal tax 
expenditures, with $92 billion in forgone revenues projected for 2002 
because of employer contributions to medical care and medical 
insurance. The cost pressures of serving a growing population are 
compounded by scientific advances in medical treatments, which can blur 
the lines between needs and wants and make it difficult to reasonably 
assess what society can afford.

Figure 1.1: Growth of Federal Health Expenditures, 1980 through 2001.

Line graph showing percentage increases since 1980 with 2 lines and
22 points per line.
Line 1, Health Outlays.
Point 1, 1980 is 0.
Point 2, 1981 is 19.
Point 3, 1982 is 33.5.
Point 4, 1983 is 46.6.
Point 5, 1984 is 58.4.
Point 6, 1985 is 79.1.
Point 7, 1986 is 91.
Point 8, 1987 is 107.
Point 9, 1988 is 121.9.
Point 10, 1989 is 139.
Point 11, 1990 is 175.8.
Point 12, 1991 is 209.9.
Point 13, 1992 is 262.4.
Point 14, 1993 is 297.4.
Point 15, 1994 is 332.1.
Point 16, 1995 is 369.6.
Point 17, 1996 is 397.9.
Point 18, 1997 is 429.8.
Point 19, 1998 is 446.5.
Point 20, 1999 is 459.5.
Point 21, 2000 is 494.8.
Point 22, 2001 is 562.4.
Line 2, All Other Federal Outlays.
Point 1, 1980 is 0.
Point 2, 1981 is 14.3.
Point 3, 1982 is 25.3.
Point 4, 1983 is 35.6.
Point 5, 1984 is 42.4.
Point 6, 1985 is 57.8.
Point 7, 1986 is 64.7.
Point 8, 1987 is 65.3.
Point 9, 1988 is 75.
Point 10, 1989 is 87.9.
Point 11, 1990 is 104.1.
Point 12, 1991 is 113.5.
Point 13, 1992 is 117.8.
Point 14, 1993 is 118.7.
Point 15, 1994 is 124.4.
Point 16, 1995 is 130.
Point 17, 1996 is 135.
Point 18, 1997 is 138.8.
Point 19, 1998 is 146.5.
Point 20, 1999 is 154.4.
Point 21, 2000 is 166.4.
Point 22, 2001 is 171.

Note: The 2001 number is an estimate.

Source: Office of Management and Budget.
[End of Figure]

Of particular concern is the growth in Medicare expenditures, which are 
estimated to total about $264 billion in 2002. Without changes, 
Medicare is expected to nearly double its share of the economy by 2030, 
crowding out other spending and economic activity of value. Indeed, one 
part of Medicare, the Medicare Hospital Insurance Trust Fund, is 
projected to begin running a deficit in 2016 and to be depleted by 
2029. Also of concern are issues of 1. modernizing Medicare's 
management structure, payment policies and methodologies, and benefits 
package, and 2. reducing Medicare's administrative burden on 
providers. Moreover, because of its size and complexity, Medicare is 
inherently difficult to manage. About 50 insurance companies process 
and pay approximately 900 million claims annually to nearly 1 million 
health care providers. Consequently, the program is a target for fraud, 
waste, and abuse, and effective oversight is critical to protecting 
program dollars and promoting efficient program operations.

A strong private insurance market that provides access to affordable 
employer-based or individually purchased health coverage can reduce the 
demand for government-funded insurance programs. However, despite a 
strong economy for much of the last decade, the number of Americans 
without health insurance remains high. Although the introduction of 
competitive principles to health care helped to contain medical care 
cost increases for many years, costs are increasing significantly once 
again. These cost increases, in concert with a recent downturn in the 
economy, have important implications for the availability of employer- 
sponsored health insurance and for federal health care programs and 
outlays. Moreover, the public is concerned about the quality of care, 
consumer protection mechanisms, and the availability of information to 
allow purchasers to make informed insurance choices.

The government also must address pressing issues in its own system of 
hospitals and clinics. The Department of Veterans Affairs (VA); one of 
the nation's largest health care systems; spends about $21 billion a 
year to provide health care to approximately 4.3 million veteran 
patients. The Department of Defense's (DOD) health care system spends 
about $25 billion annually to support health care to about 8.2 million 
eligible beneficiaries. Yet, much of VA's physical infrastructure is 
obsolete and burdened with excess capacity, and the size and other 
requirements for DOD facilities are currently at issue. Pressure is 
also mounting to integrate aspects of the two systems to increase their 
efficiency and effectiveness.

The efficiency and effectiveness of the government's public health 
programs are other areas of concern, including those administered by 
the National Institutes of Health, the Food and Drug Administration, 
the Centers for Disease Control and Prevention, and the Health 
Resources and Services Administration. These programs support and 
conduct research; provide grants to states for public health programs, 
such as maternal and child health services and AIDS prevention and 
treatment; and conduct regulatory oversight of the United States' new 
drug and medical device research. Questions have been raised about the 
government's ability to ensure the necessary protection of patients in 
research as well as to safeguard the public in the review of new 
pharmaceuticals, medical devices, and new food products. Additionally, 
the changing nature of public health threats domestically and 
internationally, such as antimicrobial resistance, HIV infection, and 
other emerging infectious diseases, poses significant challenges for 
the government. As diseases such as HIV and tuberculosis have become 
pandemics, the effectiveness of international health programs to 
prevent and adequately treat populations in developing countries is a 
growing concern. Government's ability to help surmount shortages of 
certain prescription drugs and vaccines is a worldwide concern as well.

Since September 11 and the first reports of anthrax in Florida, New 
York, and Washington, D.C., the public health infrastructure has 
experienced additional strain in responding to community demand for 
public health services. This has heightened concern about the adequacy 
of trained personnel, laboratory capacity, disease surveillance 
systems, and coordinated communication systems among state and local 
emergency responders. Greater attention has since been given to state 
and local communities' capacity to develop coordinated plans for 
dealing with a potential biological attack and to develop emergency 
response systems linking hospitals, emergency rooms, health personnel, 
and fire and police efforts to respond to any form of terrorism.

Finally, the baby-boom generation will undoubtedly place increasing 
pressure on the federal/state Medicaid program to help pay for nursing 
home and other community-based forms of long-term care services. 
Meeting an increasing demand for such services within the available 
funding will pose significant challenges for federal and state decision 
makers, with important implications for the services offered by each 
state. At the other end of the population spectrum are millions of 
uninsured children whose families have no health insurance. Medicaid 
and the State Children's Health Insurance Program help cover the health 
insurance costs of these low-income Americans and are often viewed as 
established programs that may be expanded to help reduce the number of 
the uninsured. However, the recent flux in the managed care market, 
which states increasing rely on to deliver services, may hamper states 
in their ability to attract and retain managed care plans and providers 
and to ensure beneficiary access to needed, cost-effective services. 
Moreover, accounting for and overseeing these two programs represents a 
formidable challenge for the federal government because of the 
variation in state policies, procedures, and delivery systems.

Performance Goals: To support efforts by the Congress and the federal 
government to address these issues, GAO will:

* evaluate Medicare reform, financing, and operations;

* assess trends and issues in private health insurance coverage;

* assess actions and options for improving VA's and DOD's health care 
services;

* evaluate the effectiveness of federal programs to promote and protect 
the public health;

* evaluate the effectiveness of federal programs to improve the nation's 
preparedness for the public health and medical consequences of 
bioterrorism;

* evaluate federal and state program strategies for financing and 
overseeing chronic and long-term health care; and

* assess states' experiences in providing health insurance coverage for 
low-income populations.

Strategic Objective: The Education and Protection of the Nation's Children.

Issue: Educating and protecting children are important to the 
continued vitality of this democratic society and to its long-term 
ability to compete in a global marketplace. To this end, the federal 
government invests more than $90 billion per year in programs that 
foster the development, education, and protection of children from 
childbirth through elementary and secondary school and postsecondary 
education. Although federal spending is only about 7 percent of total 
spending on education, the federal government's efforts are especially 
important in ensuring that all children have the opportunity to meet 
high academic standards from kindergarten through high school. The 
government's postsecondary efforts provide access to higher education 
for all through the use of loans, grants, and other financial tools, 
while protecting the financial interests of taxpayers.

According to the most recently available data, the federal government 
spent more than $9 billion in fiscal year 1999 on 29 programs that have 
early childhood education or care as an objective. These programs, 
including Head Start, are geared principally toward disadvantaged 
children from infancy to age 5; a developmental period during which 
early investment may lead to better performance in school years. Beyond 
inherent concerns about fragmentation and overlap among these programs, 
there is also concern about their effectiveness. Although the 
Department of Health and Human Services (HHS) and the Department of 
Education are sponsoring research on some of these programs, little is 
known about their ultimate effect, especially on school-readiness and 
early literacy skills; two areas at the center of the federal education 
focus. Federal investment in child care has been growing, in part to 
support low-income mothers who have entered the workforce due to 
welfare reform (see fig. 1.2). Policymakers at the federal and state 
levels are concerned about the cost, quality, and availability of child 
care.

Figure 1.2: Growth of Federal Investment in Child Care, Fiscal Years 
1997 through 2000.

Area graph showing dollars in millions with 4 groups and 2 items
per group.
Group 1, 1997, Total value of 2539.
Item 1, TANF value of 14.
Item 2, CCDF value of 2525.
Group 2, 1998, Total value of 3747.
Item 1, TANF value of 259.
Item 2, CCDF value of 3488.
Group 3, 1999, Total value of 5244.
Item 1, TANF value of 604.
Item 2, CCDF value of 4640.
Group 4, 2000, Total value of 6119.
Item 1, TANF value of 1060.
Item 2, CCDF value of 5059.

Note: Child Care and Development Fund (CCDF) amounts include dollars 
states transferred from their Temporary Assistance for Needy Families 
(TANF) programs to CCDF as allowed under the Personal Responsibility 
and Work Opportunity Reconciliation Act of 1996. The amounts shown for 
TANF include only those TANF funds expended for child care.

Source: Administration for Children and Families, HHS.
[End of Figure]

Federal elementary and secondary school programs are especially 
designed to ensure that children in poor families and children who are 
disadvantaged are given the opportunity to meet challenging academic 
standards, which will give them the skills to succeed. The United 
States places a high priority on educating its children at the 
elementary and secondary levels and has increased the federal 
investment from over $20 billion in fiscal year 2000 to nearly $30 
billion in fiscal year 2002. However, this increased investment is 
accompanied by an increased emphasis on accountability for schools to 
raise all students to proficient levels in math and reading. With the 
reauthorization of the Elementary and Secondary Education Act, the 
Congress has placed additional requirements on states, beyond those in 
the 1994 act. For example, the Congress required testing in three 
additional grades and mandated actions for schools that fail to improve 
the performance of their students. All students; including those from 
poor families, with limited English proficiency, and with disabilities;
are expected to meet challenging academic standards. However, an 
achievement gap exists between different groups of students, for 
example between white and African American students and between white 
and Hispanic students (see figs. 1.3 and 1.4). Dissatisfied with this 
continued achievement gap, policymakers are exploring a variety of 
school reform initiatives and strategies to improve school performance, 
improve teaching, reduce student dropout rates, and enhance educational 
options for the nation's children.

Figure 1.3: Achievement Gaps in Reading at Age 17.

Bar chart with 3 groups with 2 items per group showing score differences.
Group 1, calendar year 1994.
Item 1, Score differences between White and Black students' average scores, 30.
Item 2, Score differences between White and Hispanic students' average scores, 33.
Group 2, calendar year 1996.
Item 1, Score differences between White and Black students' average scores, 29.
Item 2, Score differences between White and Hispanic students' average scores, 30.
Group 3, calendar year 1999.
Item 1, Score differences between White and Black students' average scores, 31.
Item 2, Score differences between White and Hispanic students' average scores, 24.

Source: National Center for Education Statistics, National Assessment 
of Educational Progress, 1999 Long-Term Trend Assessment.
[End of Figure]

Figure 1.4: Achievement Gaps in Math at Age 17.

Bar chart with 3 groups with 2 items per group showing score differences.
Group 1, calendar year 1994.
Item 1, Score difference between White and Black students' average scores, 27. 
Item 2, Score differences between White and Hispanic students' average scores, 22. 
Group 2, calendar year 1996.
Item 1, Score difference between White and Black students' average scores, 27.
Item 2, Score differences between White and Hispanic students' average scores, 21.
Group 3, calendar year 1999.
Item 1, Score difference between White and Black students' average scores, 31.
Item 2, Score differences between White and Hispanic students' average scores, 22.

Source: National Center for Education Statistics, National Assessment 
of Educational Progress, 1999 Long-Term Trend Assessment.
[End of Figure]

The nation also needs to be concerned about protecting its children and 
ensuring that families have the financial means to provide for their 
children's needs. Each year, over 800,000 children are found to be the 
victims of abuse and neglect by their parents, relatives, or other 
caregivers. Tragically, over 1,000 children die each year from abuse 
and neglect. While responsibility for investigating reports of abuse 
and neglect and providing services to families falls primarily to state 
child protective service agencies, the federal government invests 
approximately $6 billion annually to provide care for children who need 
placement outside their homes, services to help keep families together 
or to reunite them, and training and research activities to improve 
child welfare services nationwide. Moreover, nearly 23 million children 
live with only one of their parents. To help obtain the financial 
support noncustodial parents owe their children and to help single-
parent families achieve or maintain economic self-sufficiency, the 
Congress established a joint federal/state child support enforcement 
program in 1975 to help locate noncustodial parents, establish 
paternity and child support obligations, and enforce child support.

Beyond providing for basic educational needs, a competitive national 
economy depends, in part, on effectively preparing workers to compete 
in the labor force. To this end, the federal government currently 
supports over $50 billion annually to enhance students' access to 
postsecondary, vocational, and adult education. In particular, the 
government's investment in supporting college students with direct 
loans and loan guarantees results in over $30 billion of new loans 
annually. This is in addition to over $8 billion yearly for Pell grants 
to college students from low-income families. The federal government 
also provides higher education subsidies for students or their families 
through such benefits as the Hope and lifetime learning tax credits and 
the deferral of tax on the earnings of contributions to qualified state 
tuition programs. These tax expenditures are just over $12 billion 
annually. A major concern with the nation's investment in postsecondary 
education is its exposure to significant losses. While student loan 
default rates have decreased in recent years, student loan defaults 
still cost the federal government billions of dollars each year. For 
example, in fiscal year 2000, default costs for the Federal Family 
Education Loan Program were about $1.4 billion, while defaults under 
the Federal Direct Loan Program exceeded $600 million. The cumulative 
principal amount outstanding from defaulted student loans stood at 
about $22 billion in fiscal year 2001 (see fig. 1.5).

Figure 1.5: A Growing Balance of Defaulted Loans Is Subject to 
Collection, 1993 through 2001.

Line graph with 1 line and 9 points showing billions of dollars.
Point 1, Fiscal year 1993 is 17.067.
Point 2, Fiscal year 1994 is 17.489.
Point 3, Fiscal year 1995 is 17.976.
Point 4, Fiscal year 1996 is 16.737.
Point 5, Fiscal year 1997 is 18.847.
Point 6, Fiscal year 1998 is 20.699.
Point 7, Fiscal year 1999 is 22.636.
Point 8, Fiscal year 2000 is 21.553.
Point 9, Fiscal year 2001 is 21.773.

Note: Balances include defaulted loans under both the Federal Family 
Education Loan and Federal Direct Loan Programs. Fiscal year 2000 and 
2001 data are from draft financial statements.

Source: Department of Education, Budget Service.
[End of Figure]

Performance Goals: To support efforts by the Congress and the 
federal government to address these issues, GAO will:

* analyze the effectiveness and efficiency of early childhood education 
and care programs in serving their target populations;

* assess options for federal programs to effectively address the 
educational needs of elementary and secondary students and their 
schools;

* determine the effectiveness and efficiency of child support enforcement 
and child welfare programs in serving their target populations; and

* identify opportunities to better manage postsecondary, vocational, and 
adult education programs and deliver more effective services.

Strategic Objective: The Promotion of Work Opportunities and the Protection of Workers.

Issue: A strong national economy depends, in part, on effectively 
preparing workers to compete in the labor force, efficiently helping 
employers locate qualified job candidates, providing a work environment 
that promotes productivity, and finding ways to help workers when they 
become unemployed. To this end, the federal government currently 
invests more than $50 billion annually to help new entrants to the 
workforce, support those who have become dislocated from their jobs and 
assist them in becoming reemployed, rehabilitate disabled and injured 
workers, help employers obtain adequate supplies of high-quality 
skilled labor, and protect employees' rights to fair and safe 
workplaces without unduly burdening employers. In addition, federal 
policies for providing income support for the low-income population 
have increasingly focused on promoting work in exchange for government 
assistance.

The last half of the 1990s saw welfare use decline and work efforts 
increase among single mothers (see fig. 1.6), a population targeted 
under the 1996 welfare reform legislation. But the dramatic declines in 
welfare rolls nationwide slowed beginning in 2000; as the economy 
slowed in 2001, many states have begun to see their caseloads increase. 
As the nation emerges from an economic recession, the strength of these 
programs will be critical in maintaining a ready workforce and 
preserving economic stability. Furthermore, two key support programs;
the Temporary Assistance for Needy Families block grant and the Food 
Stamp Program; are slated to be reauthorized in 2002. As the Congress 
faces reauthorization in a less favorable economy, it will need to 
consider the appropriate funding levels and structures, as well as 
experiences from implementation of the 1996 reforms.

Figure 1.6: Single Mothers' Work and Welfare Status, 1987 through 1999.

Line graph with 2 lines and 13 points per line.
Line 1, Percentage Who Worked at Any Time during the Year.
Point 1, 1987 is 67.3.
Point 2, 1988 is 68.9.
Point 3, 1989 is 70.1.
Point 4, 1990 is 70.
Point 5, 1991 is 68.7.
Point 6, 1992 is 67.2.
Point 7, 1993 is 68.
Point 8, 1994 is 71.4.
Point 9, 1995 is 73.
Point 10, 1996 is 75.1.
Point 11, 1997 is 77.
Point 12, 1998 is 80.
Point 13, 1999 is 82.
Line 2, Percentage Who Received Aid to Families with Dependent Children or
Temporary Assistance for Needy Families during the Year.
Point 1, 1987 is 33.2.
Point 2, 1988 is 32.9.
Point 3, 1989 is 30.2.
Point 4, 1990 is 33.
Point 5, 1991 is 34.3.
Point 6, 1992 is 34.5.
Point 7, 1993 is 35.
Point 8, 1994 is 32.2.
Point 9, 1995 is 29.
Point 10, 1996 is 26.6.
Point 11, 1997 is 23.
Point 12, 1998 is 19.
Point 13, 1999 is 15.8.

Source: U.S. Census Current Population Survey data.
[End of Figure]

Technology is redefining the labor market for workers and employers, 
and federal employment support and worker protection programs must deal 
with these new challenges, in addition to encouraging a commitment to 
lifelong learning. New technologies, increased marketplace 
competition, and very tight labor markets have prompted employers to 
downsize, change employment patterns, move abroad, or seek qualified 
foreign workers to meet their needs. More than ever, today's economy 
rewards skilled workers more than their unskilled counterparts. College 
graduates have experienced growth in real earnings from 1979 to 2000, 
while real earnings for those without a high school diploma have 
declined. In addition, medical and technological advances, as well as 
changes in the nature of work, have combined to offer working-age 
people with disabilities more opportunities to work than were available 
a generation ago. All of these new developments in technology and the 
labor market are challenging the Congress and the administration as 
they redefine the role of public policies in enhancing productivity, 
protecting workers' rights, and facilitating labor-management 
cooperation, even as unemployment edges upward.

Performance Goals: To support efforts by the Congress and the federal 
government to address these issues, GAO will:

* assess the effectiveness of federal efforts to help adults enter the 
workforce and to assist low-income workers,

* analyze the impact of programs designed to maintain a skilled workforce 
and ensure employers have the workers they need,

* assess the success of various enforcement strategies to protect workers 
while minimizing employers' burden in the changing environment of work, 
and

* identify ways to improve federal support for people with disabilities.

Strategic Objective: A Secure Retirement for Older Americans.

Issue: Social Security has long served as the foundation of the 
nation's retirement income system. About 39 million people receive 
Social Security retirement and survivor benefits and, for one-fifth of 
the elderly, Social Security is the sole source of income. Yet because 
of demographic changes under way in the nation, the ratio of workers to 
retirees is declining. This change will have fundamental implications 
for Social Security and the economy. Although Social Security payroll 
tax revenues exceed benefit expenditures today, projections suggest 
that beginning in 2017, spending will exceed revenues by growing 
proportions and that in 2041, the Social Security Trust Funds will be 
depleted (see fig. 1.7). However, depending on the strength of the 
economy, the trust fund may be depleted more quickly. Action must be 
taken in the near term to restore solvency and sustainability to the 
Social Security system, particularly as other, even more urgent 
priorities present claims on public funding and legislative agendas. A 
variety of proposals for such actions have been made, including some 
that would create individual retirement accounts for workers. The 
Congress has considered a number of these proposals, and is continuing 
these policy deliberations. Most of the proposals would have major 
consequences for retirees' benefits, the federal budget, and the long-
term economic growth of the country.

Figure 1.7: Social Security Trust Fund Faces Insolvency in 2041.

Line graph with 2 lines and 41 points per line showing FY 2002 Dollars
in Billions.
Line 1, Trust Fund Balance.
Point 1, 2000 is 1092.4.
Point 2, is 1227.8.
Point 3, is 1371.8.
Point 4, is 1520.9.
Point 5, is 1677.
Point 6, 2005 is 1838.5.
Point 7, is 2004.3.
Point 8, is 2175.6.
Point 9, is 2348.8.
Point 10, is 2521.2.
Point 11, 2010 is 2690.5.
Point 12, is 2857.9.
Point 13, is 3019.4.
Point 14, is 3172.6.
Point 15, is 3315.4.
Point 16, 2015 is 3445.5.
Point 17, is 3560.6.
Point 18, is 3659.2.
Point 19, is 3739.4.
Point 20, is 3799.6.
Point 21, 2020 is 3838.2.
Point 22, is 3854.3.
Point 23, is 3847.5.
Point 24, is 3817.3.
Point 25, is 3763.6.
Point 26, 2025 is 3686.3.
Point 27, is 3585.7.
Point 28, is 3461.5.
Point 29, is 3314.5.
Point 30, is 3145.7.
Point 31, 2030 is 2956.2.
Point 32, is 2746.4.
Point 33, is 2516.9.
Point 34, is 2268.7.
Point 35, is 2003.1.
Point 36, 2035 is 1721.6.
Point 37, is 1425.
Point 38, is 1113.8.
Point 39, is 788.5.
Point 40, is 449.4.
Point 41, 2040 is 96.3.
Line 2, Cash Surplus and Cash Deficit with Social Security cash deficit
starting in 2017.
Point 1, 2000 is 92.4.
Point 2, is 91.3.
Point 3, is 79.6.
Point 4, is 96.3.
Point 5, is 100.7.
Point 6, 2005 is 103.6.
Point 7, is 103.4.
Point 8, is 103.3.
Point 9, is 100.3.
Point 10, is 94.5.
Point 11, 2010 is 87.3.
Point 12, is 80.6.
Point 13, is 70.4.
Point 14, is 58.2.
Point 15, is 44.2.
Point 16, 2015 is 28.3.
Point 17, is 10.5.
Point 18, 2017 is -8.8.
Point 19, is -29.5.
Point 20, is -51.3.
Point 21, 2020 is -74.1.
Point 22, is -97.1.
Point 23, is -119.8.
Point 24, is -142.4.
Point 25, is -164.3.
Point 26, 2025 is -185.7.
Point 27, is -206.2.
Point 28, is -226.
Point 29, is -244.7.
Point 30, is -261.5.
Point 31, 2030 is -276.8.
Point 32, is -290.8.
Point 33, is -304.
Point 34, is -315.5.
Point 35, is -325.1.
Point 36, 2035 is -332.8.
Point 37, is -339.3.
Point 38, is -344.8.
Point 39, is -349.4.
Point 40, is -353.4.
Point 41, 2040 is -357.1.

Source: GAO analysis of data from the Social Security Administration's 
Office of the Actuary (2002 intermediate assumptions of the 2002 Annual 
Report of the Board of Trustees of the Federal Old-Age and Survivors 
Insurance and Disability Insurance Trust Funds).
[End of Figure]

Pensions are also an important element in the nation's approach to 
ensuring adequate retirement income, comprising 19 percent of 
retirement income in the United States (see fig. 1.8). Nonetheless, 
tens of millions of U.S. workers have no individual pension coverage, 
placing them at risk during their retirement years. Only about half of 
the nation's workers are covered by employer pensions, and 48 percent 
of retirees do not receive any pension income. Determining the best way 
to increase pension coverage represents a continuing policy concern.

Figure 1.8: Sources of Income in the United States, Age 65 and Over, 
2000.

Pie chart with 5 items.
Item 1, Social Security, 38%.
Item 2, Earnings, 23%. 
Item 3, Asset Income, 18%.
Item 4, Pensions, 18%.
Item 5, Other, 3%.

Note: "Pensions" includes private pensions and annuities; government 
employee pensions; Railroad Retirement; and individual retirement 
account (IRA), Keogh, and 401(k) payments.

Source: Social Security Administration, Annual Statistical Supplement, 
2001, p. 19.
[End of Figure]

Some workers with pensions are experiencing a new kind of coverage as a 
growing number of employers move away from traditional defined benefit 
plans to defined contribution plans. Furthermore, some employers are 
shifting to "hybrid" systems that retain the defined benefit structure 
while adopting certain features of defined contribution plans. These 
plans place greater responsibility on workers themselves to make 
prudent investment decisions about their retirement savings, but do not 
always provide workers access to the accurate and reliable information 
necessary for such decisions. Such changes will pose new challenges to 
workers, government regulators, and policymakers.

Long-term weaknesses in the solvency of the Social Security program and 
the sustained lack of pension coverage to half of the labor force 
necessitate that workers place a greater reliance on their own 
retirement savings to cover these gaps. Yet despite these potential 
shortfalls, personal savings rates continue to hover at historically 
low levels. Current economic uncertainties may exacerbate this trend, 
threatening the prospects for individuals' future retirement income as 
well as the nation's future economic growth.

Performance Goals: To support efforts by the Congress and the federal 
government to address these issues, GAO will:

* assess the implications of various Social Security reform proposals;

* identify opportunities to foster greater pension coverage, increase 
personal saving, and ensure adequate and secure retirement income; and

* identify opportunities to improve the ability of federal agencies to 
administer and protect workers' retirement benefits.

Strategic Objective: An Effective System of Justice.

Issue: Spending on law enforcement continues to grow at the 
federal, state, and local levels. In constant 2001 dollars, federal 
spending will be about $34 billion in fiscal year 2002, up from about 
$15 billion in 1991 (see fig. 1.9). Most of the increase has been to 
accommodate a shift in focus at the federal level from helping local 
governments control crime to emphasizing more distinct federal 
responsibilities, such as controlling illegal immigration and, more 
recently, preventing terrorist attacks.

Figure 1.9: Federal Outlays for the Administration of Justice, 1991 
through 2003.

Line graph with 1 line and 13 points showing Fiscal Year 2001 dollars
in billions.
Point 1, 1991 is $15,020.
Point 2, 1992 is $17,198.
Point 3, 1993 is $17,414.
Point 4, 1994 is $17,402.
Point 5, 1995 is $18,125.
Point 6, 1996 is $19,245.
Point 7, 1997 is $21,716.
Point 8, 1998 is $24,266.
Point 9, 1999 is $27,237.
Point 10, 2000 is $28,642.
Point 11, 2001 is $30,443.
Point 12, 2002 is $33,717.
Point 13, 2003 is $38,908.

Note: The 2002 and 2003 numbers are estimates.

Source: Budget of the U.S. Government, Fiscal Year 2003.
[End of Figure]

During the past several years, overall crime levels have been reduced. 
Nevertheless, the Congress and the public remain concerned and look to 
the federal government for leadership on how to control domestic and 
transnational crime, including terrorism, to prevent illegal drug use, 
to provide effective treatment for drug users, to deter illegal 
immigration, and to control prison costs. The USA Patriot Act, passed 
in October 2001, significantly expands federal law enforcement 
authority and, with billions of dollars in emergency supplemental 
funding, will greatly increase the federal counterterrorism role. In 
addition, the newly created Office of Homeland Security in the 
Executive Office of the President is expected to coordinate the 
executive branch's efforts to detect, prepare for, prevent, respond to, 
and recover from terrorist attacks within the United States. Many of 
these functions are the primary roles of law enforcement at the 
federal, state, and local levels; which heightens the importance of 
effective coordination and cooperation. Also, the Justice Department 
has begun to restructure the FBI and expects to redefine its mission 
and priorities in light of the increased focus on antiterrorism.

In the wake of the September 11 terrorist attacks in New York, 
Virginia, and Pennsylvania, the Congress authorized a Victim 
Compensation Fund through which the federal government will compensate 
any individual (or their representative) who was physically injured or 
killed as a result of the terrorist-related aircraft crashes on that 
day. In November 2001, the Attorney General appointed a Special Master 
to administer the fund. The Justice Department, in conjunction with the 
Special Master, issued interim regulations in December, explaining the 
operation of the fund. In addition, the master has issued a paper 
explaining how economic and noneconomic losses will be calculated.

The Immigration and Naturalization Service (INS), the largest federal 
law enforcement agency, has undergone dramatic growth in recent years. 
In constant 2001 dollars, its fiscal year 2002 budget of $5.4 billion 
represents an increase of over 200 percent from its fiscal year 1993 
budget and was subsequently increased further by the emergency 
supplemental funding to deal with the events of September 11. Ensuring 
that aliens entering the United States and staying here are authorized 
to do so has been a challenge for INS, one that took on a new sense of 
urgency as part of the nation's new counterterrorism strategy. The 2000 
census results indicated that there were about 8 million illegal aliens 
residing in the United States, and that during the 1990s their numbers 
had been increasing dramatically. Recently, the Congress has addressed 
such issues as whether INS is properly structured to effectively carry 
out its enforcement and service missions. On the enforcement side, INS 
grapples with how illegal entry into the United States can be deterred 
and how the removal of illegal aliens can be expedited. On the service 
side, INS must determine how processes can be reformed for 
naturalization, immigrants' entitlements to welfare benefits, and 
admitting temporary agricultural and high-tech workers.

After several years of mandatory minimum sentencing, "three strikes and 
you're out" laws, and truth-in-sentencing grants, federal and state 
prisons are overcrowded. The size of the prison population will be the 
subject of increasing public debate as these policies' cost to the 
public escalates. Moreover, in constant 2001 dollars, the federal 
judiciary's fiscal year 2002 spending, estimated at about $4.8 billion, 
was up nearly 100 percent from its fiscal year 1991 spending of about 
$2.4 billion. In addition, the judiciary has faced an imbalance in its 
workload in recent years, particularly its criminal caseload, with some 
courts facing much higher workloads than others. Thus, the judiciary 
faces a major challenge in determining how to use its resources 
efficiently and effectively to address such workload imbalances and to 
coordinate its strategy with other affected agencies, particularly 
along the southwest border.

Performance Goals: To support efforts by the Congress and the federal 
government to address these issues, GAO will:

* identify ways to improve federal agencies' ability to prevent and 
respond to major crimes, including terrorism;

* assess the effectiveness of federal programs to control illegal drug 
use;

* identify ways to administer the nation's immigration laws to better 
secure the nation's borders and promote appropriate treatment of legal 
residents; and

* assess the administrative efficiency and effectiveness of the federal 
court and prison systems.

Strategic Objective: The Promotion of Viable Communities.

Issue: The economic and social well-being of the nation's 
communities has a great bearing on the nation's overall growth and 
prosperity. Vibrant communities are integral to the quality of life of 
America's citizens. Community and economic growth is a multifaceted 
challenge involving state and local governments, nonprofits, and 
private entities covering a range of issues, including regional growth 
planning and management, local business development, home ownership, 
and disaster preparedness. As underscored by the events of September 
11, where the critical role played by local governments in preparing 
and responding to terrorism attacks was highlighted for the entire 
nation, successful implementation of the many federal programs 
addressing these objectives depends on effective local governance and 
management.

The federal government operates more than 100 programs through multiple 
federal agencies and spends billions of dollars annually on grants, 
loans, loan guarantees, and other types of assistance for community and 
economic development. The sheer number of programs raises questions 
about the federal role in economic development; whether it should be 
focused on communities with special needs or more broadly directed 
toward all communities. In addition, a large share of the federal 
commitment is administered through state and local governments and 
nonprofit organizations. This reliance on multiple layers of government 
and nonprofits presents coordination issues for the local communities 
and oversight challenges for the federal government.

Small businesses play an important role in the nation's economy, 
employing more than half of the nation's workforce. The Small Business 
Administration (SBA), with a portfolio of loans worth more than $50 
billion, is the nation's single largest financial backer of small 
businesses and provides management and technical assistance to about 1 
million small business owners annually. SBA also has oversight 
responsibility for federal contracting goals for small businesses. SBA 
has undertaken numerous initiatives to address management issues. As a 
result, the Congress needs up-to-date assessments of SBA's performance.

To promote affordable home ownership, a key element of a vibrant 
community, the federal government provides mortgage assistance through 
mortgage guarantees provided by the Federal Housing Administration and 
the VA and guarantees of mortgage securities by the Government National 
Mortgage Association (GNMA). It also provides a federal charter and 
other direct and indirect benefits to government sponsored enterprises; 
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks; that invest 
in mortgages that are not federally insured. The federal government 
must balance the benefit derived from achieving additional home 
ownership, especially among the underserved, against the financial risk 
it takes on directly or indirectly.

The Department of Housing and Urban Development (HUD) provides housing 
assistance programs to help families with lower incomes reside in safe, 
decent, and affordable housing. HUD's rental assistance programs remain 
at high risk of waste and abuse, and HUD faces numerous management 
challenges in human capital, contract management and information 
technology. Also, HUD and the U.S. Department of Agriculture's Rural 
Housing Service, which oversees rural housing programs, face challenges 
in ensuring that federally assisted properties are physically and 
financially sound and administered in a way that best serves the needs 
of low-income households. All of these challenges point to the need to 
better understand the relationship between federally supported housing 
programs and community stability.

Since the late 1970s, the federal government provided over $100 billion 
to help prepare for disaster and to assist disaster victims and their 
communities. In response to the recent terrorist attacks, billions of 
dollars have already been appropriated for recovery and relief efforts. 
Establishing an efficient and cost-effective approach to disaster 
assistance is difficult in the face of pressures to provide relief for 
disaster victims. However, approaches that provide incentives for 
preventive activities and foster private insurance coverage are two 
avenues that both the Federal Emergency Management Agency (FEMA) and 
the Congress are interested in exploring.

Performance Goals: To support efforts by the Congress and the federal 
government to address these issues, GAO will:

* assess federal economic development assistance and its impact on 
communities,

* assess how the federal government can balance the promotion of home 
ownership with financial risk,

* assess the effectiveness of federal initiatives to assist small and 
minority-owned businesses,

* determine how federal disaster assistance can enhance national 
preparedness and capacity to respond to and recover from natural and 
man-made disasters, and

* assess how well federally supported housing programs meet their 
objectives and affect the well-being of recipient households and 
communities.

Strategic Objective: Responsible Stewardship of Natural Resources and the Environment.

Issue: The nation's natural resources and the systems associated 
with their use are un