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entitled 'GAO Strategic Plan 2004-2009' which was released on March 01, 
2004.

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GAO: Serving the Congress and the Nation:

GAO's Strategic Plan for Serving the Congress 2004-2009:

[See PDF for image] - graphic text:

Serving the Congress and the Nation: GAO's Strategic Plan Framework:

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:

* Demographics;

* National Security;

* Long-Term Fiscal Imbalance;

* Global Interdependence;

* Changing Economy;

* Science and Technology;

* Quality of Life;

* Governance;

Goals and Objectives:

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 related to . . .

* 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;

* Physical infrastructure;

Respond to Changing Security Threats and the Challenges of Global 
Interdependence involving . . .

* Emerging threats;

* Military capabilities and readiness;

* Advancement of U.S. interests;

* Global market forces;

Help Transform the Federal Government Government's Role and How It  
Does Business to Meet 21st Century Challenges by assessing . . .

* Roles in achieving federal objectives;

* Government transformation;

* Key management challenges and program risks;

* Fiscal position and financing of the government:

Maximize the Value of GAO by Being a Model Federal Agency and a World-
Class Professional Services Organization in the areas of . . .

* Client and customer satisfaction;

* Strategic leadership;

* Institutional knowledge and experience;

* Process improvement;

* Employer of choice:

Core Values:

* Accountability;

* Integrity;

* Reliability;

[End of GAO's Strategic Plan for Serving the Congress 2004-2009]

Table of Contents:

Letter from the Comptroller General:

GAO's Mission, Responsibilities, Strategies, and Means:

Mission Statement:

Statutory Responsibilities:

Strategies and Means:

Themes for the Plan:

Forces Shaping the United States and Its Place in the World:

Large and Growing Long-term Fiscal Imbalance:

Evolving National and Homeland Security Policies:

Global Interdependence: Trends and Challenges:

The Changing Economy:

An Aging and More Diverse Population:

Advances in Science and Technology:

Measuring the Quality of Life:

Diverse Governance Structures and Tools:

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:

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:

Goal 3: Help Transform the Federal Government's Role and How It Does 
Business to Meet 21st Century Challenges:

Goal 4: Maximize the Value of GAO by Being a Model Federal Agency and a 
World-class Professional Services Organization:

Performance Measures and Evaluations:

Consultations and Relationships with Others:

Subject Area Supplements to the Strategic Plan:

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 Safe, Secure, and Effective National Physical Infrastructure:

Respond to Emerging Threats to 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:

Reexamine the Federal Government's Role in Achieving Evolving National 
Objectives:

Support the Transformation to a Results-Oriented, High-Performing 
Government:

Support Congressional Oversight of Key Management Challenges and 
Program Risks to Improving Federal Operations and Ensuring 
Accountability:

Analyze the Government's Fiscal Position and Strengthen Approaches for 
Addressing the Current and Projected Fiscal Gap:

Continuously Improve Client and Customer Satisfaction and Stakeholder 
Relationships:

Lead Strategically to Achieve Enhanced Results:

Leverage GAO's Institutional Knowledge and Experience:

Continuously Enhance GAO's Business and Management Processes:

Become a Professional Services Employer of Choice:

Cover and inside cover source: GAO.

[End of Table of Contents]

List of Acronyms:

CACFP: Children and Adult Care Food Program:

CBO: Congressional Budget Office:

CCDF: Child Care and Development Fund:

CMS: Centers for Medicare & Medicaid Services:

CMSO: Chief Mission Support Office:

C4ISR: command, control, communications, computers, intelligence, 
surveillance, reconnaissance:

EA: enterprise architectures:

DHS: Department of Homeland Security:

DOD: Department of Defense:

DOE: Department of Energy:

FBI: Federal Bureau of Investigation:

FDA: Food and Drug Administration:

FEMA: Federal Emergency Management Agency:

GDP: gross domestic product:

GPRA: Government Performance and Results Act of 1993:

GSE: government-sponsored enterprises:

HHS: Department of Health and Human Services:

HPO: high-performing organization:

HUD: Department of Housing and Urban Development:

IDEA: Individuals with Disabilities Education Act:

IMF: International Monetary Fund:

INS: Immigration and Naturalization Service:

IRS: Internal Revenue Service:

IT: information technology:

NASA: National Aeronautics and Space Administration:

NATO: North Atlantic Treaty Organization:

NNSA: National Nuclear Security Administration:

OASDI: Old-Age and Survivors Insurance and Disability Insurance:

OECD: Organization of Economic Cooperation and Development:

OMB: Office of Management and Budget:

PART: Program Assessment Rating Tool:

PBGC: Pension Benefit Guaranty Corporation:

PDP: Professional Development Program:

PPBS: Planning, Programming, and Budgeting System:

R&D: research and development:

RHS: Rural Housing Service:

SARS: severe acute respiratory syndrome:

SBA: Small Business Administration:

SCHIP: State Children's Health Insurance Program:

SES: Senior Executive Service:

SSA: Social Security Administration:

SSN: Social Security number:

TANF: Temporary Assistance for Needy Families:

UNAIDS: Joint United Nations Programme on HIV/AIDS:

USDA: United States Department of Agriculture:

VA: Department of Veterans Affairs:

WIC: Special Supplemental Nutrition Program for Women, Infants, and 
Children:

WMD: weapons of mass destruction:

WTO: World Trade Organization:

[End of List of Acronyms]

Letter from the Comptroller General:

March 2004:

I am pleased to present GAO's strategic plan for serving the Congress 
for fiscal years 2004 through 2009. In keeping with our commitment to 
update our plan every 2 years, with each new Congress, this plan 
describes our proposed goals and strategies for supporting the Congress 
and the nation in facing the challenges of a rapidly changing world 
while addressing the nation's large and growing long-term fiscal 
imbalance.

Indeed, even since our last plan, much has changed. The war against 
terrorism led the nation to a war in Iraq and an ensuing reconstruction 
effort that is still unfolding. Efforts to ensure homeland security 
also resulted in the creation of the Department of Homeland Security--
the largest government reorganization in over 50 years, involving 
170,000 employees and a $40 billion budget. Legislation was enacted to 
modernize the Medicare program to include a prescription drug benefit, 
at a potential cost of more than $500 billion over the next 10 years 
alone. Given these important national priorities and relatively weak 
economic performance, historic budget deficits have returned and are 
projected to continue for the next decade. But, perhaps more 
disturbing, the long-range fiscal outlook appears to be unsustainable, 
given existing federal commitments and the challenges of caring for a 
growing elderly population. Policymakers are therefore increasingly 
being called on to distinguish wants from needs and to judge what the 
nation can afford, both now and in the longer term.

Policymakers also face a world in which national boundaries are 
becoming less relevant when addressing a range of economic, security, 
social, and environmental issues. The shift to a knowledge-based 
economy and additional productivity gains are having significant 
impacts on the job market. Scientific research and technological 
developments are improving and even extending life but are also raising 
profound ethical questions for society. Accompanying these changes are 
new expectations about the quality of life for Americans and how we 
should measure the nation's position and progress. Governance 
structures are evolving in order to contend with these new forces and 
an accelerating pace of change. These broad themes--security, the 
changing economy, global interconnectedness, an aging and more diverse 
population, scientific and technological change, concern for quality of 
life, and evolving governance structures--provide the context for our 
plan.

The broad goals and objectives of our plan have not altered 
dramatically since our last plan, but recent events account for some 
modifications in emphasis:

* Because of the large and growing long-term fiscal imbalance facing 
the nation, we have identified this as a separate theme for our plan. 
Therefore, we will continue to increase our emphasis on work related to 
the transformation of the federal government, as it addresses fiscal 
challenges, new priorities and world conditions, as well as a 
substantial turnover in its workforce. GAO's High-Risk Series, which 
began more than a decade ago with an emphasis on fraud, waste, and 
abuse, has most recently expanded to include challenges in broad-based 
transformation, and we will continue to use the high-risk designation 
to highlight additional areas facing major transformation challenges.

* Given the continued national focus on homeland security, the creation 
of the Department of Homeland Security, and the ongoing war on 
terrorism, we expect to pay continuing attention to monitoring the 
progress of the department and other critical parts of the federal 
government in becoming effective structures for meeting national needs.

* Because the pressures to meet the health care and retirement needs of 
a growing elderly population continue to mount, we expect that health 
care cost and quality, along with public and private pension issues, 
will come under increasing scrutiny and require additional effort and 
attention.

* As the reconstruction of Iraq and Afghanistan continues and other 
global events unfold, we expect to provide additional support to the 
Congress in overseeing the pace and cost of related federal efforts. 
Additionally, as the Department of Defense embarks on a major 
transformation effort following the enactment of sweeping new 
authorities, we expect to report on the department's progress and 
effectiveness.

To help support our efforts on behalf of the Congress and the American 
people, we have set ourselves the goal of becoming a model agency and 
world-class professional services organization--a goal that remains as 
vital to us as ever. We will continue to work toward making best use of 
the key elements that enable GAO to accomplish its goals--our people, 
processes, technology, environment, and partnerships. We will continue 
to "lead by example" in transforming how the government should do 
business in the 21st century.

To make sure that our plan is an accurate reflection of congressional 
and national needs, we invited comments on a draft of this plan from 
Members of the Congress and their staffs; our sister congressional 
agencies--the Congressional Budget Office and the Congressional 
Research Service; the inspectors general; state and local government 
audit organizations; and other key accountability organizations. We 
have incorporated many of these comments in this final version of the 
plan.

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,

Signed by:

David M. Walker:

Comptroller General of the United States:

[End of Letter from the Comptroller General]

GAO's Mission, Responsibilities, Strategies, and Means:

Mission Statement:

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.

GAO examines the use of public funds; evaluates federal programs and 
activities; and provides analyses, options, 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 a variety of oversight-, insight-, and 
foresight-related activities. GAO's work includes financial audits, 
program reviews and evaluations, policy analyses, legal opinions and 
analyses, and investigations. 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 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 the 
authority to audit the financial transactions of government 
corporations.

* The Budget and Accounting Procedures Act of 1950 assigns GAO 
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 authorizes GAO to conduct 
program evaluations and analyses of a broad range of federal 
activities.

* The Chief Financial Officers 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 Congressional Budget and Impoundment Control 
Act of 1974, providing for GAO review of reported or unreported 
impoundments; 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 engages in a range of oversight, insight, and foresight 
activities, spanning the full breadth and scope of federal activities 
and programs. GAO publishes thousands of reports and other documents 
annually and provides a number of other 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 
that 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 to the Congress and 
other stakeholders. 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 
certain 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. We also use an integrated strategy 
to focus attention on important issues across the government and within 
specific program areas and operations. For example, our High-Risk 
Series focuses on both major challenges in addressing broad-based 
transformation or areas where legislative solutions may be called for, 
and on federal programs and operations that are vulnerable to fraud, 
waste, abuse, and mismanagement. GAO has made hundreds of 
recommendations to improve these high-risk operations. Moreover, GAO's 
focus on high-risk problems contributed to the Congress enacting a 
series of governmentwide reforms to address critical human capital 
challenges, strengthen financial management, improve information 
technology practices, and establish a more results-oriented government. 
The administration has also looked to GAO's high-risk program in 
shaping governmentwide initiatives, such as the President's Management 
Agenda. GAO's high-risk status reports are provided at the start of 
each new Congress.

In addition, GAO has built strategic working relationships with other 
national and international government accountability and professional 
organizations including the inspectors general, state and local audit 
organizations, and other national audit offices. These relationships 
are meant to broaden and leverage its institutional knowledge and 
experience and, in turn, to improve its service to the Congress and the 
American public.

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 3,300, 
are arranged in 13 research, audit, and evaluation teams and staff 
offices and mission support units. (See fig. 1.)

Figure 1: GAO's Organizational Structure:

[See PDF for image] - graphic text:

An organization chart showing GAO's basic structure. The agency's top 
level of organization was the Executive Committee, which includes the 
Comptroller General, the Chief Operating Officer, the Chief Mission 
Support and Chief Financial Officer, and the General Counsel. Twenty-
three units reported directly to the Comptroller General and the Chief 
Operating Officer. The units included the following staff offices: 
Public Affairs, Strategic Planning and External Liaison, Congressional 
Relations, Opportunity and Inclusiveness, Inspector General, Quality 
and Continuous Improvement, the Office of Special Investigations, and 
GAO's Field Offices.

The units also included the following teams that conduct audits, 
evaluations, and research; these teams perform work primarily 
supporting one of three strategic goals (discussed below):

Goal 1:

* Education, Workforce, and Income Security (EWIS);

* Financial Markets and Community Investment (FMCI);

* Health Care (HC);

* Homeland Security and Justice (HSJ);

* Natural Resources and Environment (NRE);

* Physical Infrastructure (PI);

Goal 2:

* Acquisition and Sourcing Management (ASM);

* Defense Capabilities and Management (DCM);

* International Affairs and Trade (IAT);

Goal 3:

* Applied Research and Methods (ARM);

* Financial Management and Assurance (FMA);

* Information Technology (IT);

* Strategic Issues (SI);

The Office of General Counsel reports to the Comptroller General and 
Chief Operating Officer through the General Counsel, and performs work 
in support of strategic goals 1, 2, and 3.

Units supporting strategic goal 4 report to the Comptroller General and 
Chief Operating Officer through the Chief Mission Support and Chief 
Financial Officer, and include Controller/Administrative Services 
Office (CASO); Human Capital Office (HCO); Information Systems and 
Technology Services (ISTS); Knowledge Services (KS); and Professional 
Development Program (PDP).

Note: Several teams perform work in support of multiple strategic 
goals. These teams are Acquisition and Sourcing Management (ASM); 
Applied Research and Methods (ARM); Defense Capabilities and Management 
(DCM); Education, Workforce, and Income Security (EWIS); Financial 
Management and Assurance (FMA); Financial Markets and Community 
Investment (FMCI); Health Care (HC); Homeland Security and Justice 
(HSJ); Information Technology (IT); International Affairs and Trade 
(IAT); Natural Resources and Environment (NRE); Physical Infrastructure 
(PI); and Strategic Issues (SI). Units supporting strategic goal 4 are 
the Controller/Administrative Services Office (CASO); the Human Capital 
Office (HCO); Information Systems and Technology Services (ISTS); 
Knowledge Services (KS); and the Professional Development Program 
(PDP).

[End of figure]

Approximately three quarters of GAO's staff are based in its main 
office in Washington, D.C. The rest are deployed in 11 field offices 
across the country. (See fig. 2.) Staff in these offices provide a 
"frontline" presence and broad-based coverage throughout the United 
States, gathering information and firsthand insight and perspective on 
government programs and operations in different regions and cities. 
Through its field office structure, GAO has been able to attract and 
retain top talent from across the country.

Figure 2: GAO's Offices:

[See PDF for image] - graphic text:

A map of the United States 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.

Source: GAO.

[End of image]

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). 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, IT, and other resources are well managed and secure 
are covered under the fourth strategic goal of this plan.

[End of GAO's Mission, Responsibilities, Strategies, and Means]

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 eight 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.

This update to the plan includes a new theme, related to the nation's 
growing long-term fiscal imbalance. Given the magnitude of the problem 
and its potential consequences, it will form a critical backdrop to 
GAO's work over the next several years. The other major themes for this 
update to GAO's plan remain similar to those in the prior plan, but 
with some additional emphases. National security continues to remain a 
prominent concern for the United States, for example, but with new 
dimensions of homeland security and global economic security now linked 
to military power and international relationships. After a period of 
containment, health care costs have again been on the rise, 
foreshadowing significant economic and fiscal consequences when 
considered with the overall aging of the population. The higher 
retirement and health care costs associated with an aging population 
will further constrain the federal government's ability to address 
important national resource needs. Finally, while concerns about 
quality of life issues remain, the discussion of this theme now takes 
into account the growing efforts of nations and communities to adopt 
key social, economic, and environmental indicators to measure their 
progress and position systematically.

The eight themes address:

* the nation's large and growing long-term fiscal imbalance;

* evolving national and homeland security policies;

* the increasing global interdependence of enterprises, economies, 
civil society, and national governments;

* 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;

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

* diverse 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 continues to respond to the 
needs of the Congress, the federal government, and the American people.

Large and Growing Long-term Fiscal Imbalance:

The U.S. government's long-term financial condition and fiscal outlook 
present enormous challenges to the nation's ability to respond to 
forces that shape American society, the United States' place in the 
world, and the role of the federal government. The near-term deficits 
are daunting--a $375 billion deficit in fiscal year 2003 and a $477 
billion deficit forecast in fiscal year 2004, according to the 
Congressional Budget Office. If the near-term deficits represented a 
short-term phenomenon, there would be less cause for concern. 
Unfortunately, these short-term deficits are but a prelude to a 
projected worsening long-term budget outlook.

The United States faces a long-term structural deficit. The 
Congressional Budget Office has projected that on the basis of current 
rules for benefits, federal spending, excluding interest payments, will 
rise considerably as a share of national income. According to GAO's 
long-term budget simulations, demographic trends and rising health care 
spending will drive escalating federal deficits and debt. Assuming, as 
in figure 3, that discretionary spending grows with inflation over the 
next decade and that current tax cuts expire when scheduled, spending 
for Social Security, Medicare, and Medicaid would consume over three-
quarters of federal revenue in 2040. If all expiring tax provisions are 
extended and discretionary spending keeps pace with the economy, by 
2040, federal revenues may not even be adequate to pay Social Security 
and interest on the federal debt. (See fig. 4.)

Figure 3: Composition of Spending as a Share of Gross Domestic Product 
(GDP) under Baseline Extended:

[See PDF for image] - graphic text:

Bar chart with 16 items and a line indicating revenue.

2003;
Net interest (Percentage of GDP): 1.4%;
Social Security (Percentage of GDP): 4.4%;
Medicare & Medicaid (Percentage of GDP): 3.8%;
All other spending (Percentage of GDP): 10.3%;
Revenue (Percentage of GDP): 16.5%.

2015;
Net interest (Percentage of GDP): 1.8%;
Social Security (Percentage of GDP): 4.8%;
Medicare & Medicaid (Percentage of GDP): 5.2%;
All other spending (Percentage of GDP): 8.4%;
Revenue (Percentage of GDP): 20.1%.

2030;
Net interest (Percentage of GDP): 2.3%;
Social Security (Percentage of GDP): 6.7%;
Medicare & Medicaid (Percentage of GDP): 7.3%;
All other spending (Percentage of GDP): 8.4%;
Revenue (Percentage of GDP): 20.1%.

2040;
Net interest (Percentage of GDP): 4.6%;
Social Security (Percentage of GDP): 7.2%;
Medicare & Medicaid (Percentage of GDP): 8.9%;
All other spending (Percentage of GDP): 8.4%;
Revenue (Percentage of GDP): 20.1%.

Source: GAO's January 2004 analysis.

Note: In addition to the expiration of tax cuts, revenue as a share of 
GDP increases through 2014 due primarily to (1) real bracket creep, (2) 
more taxpayers becoming subject to the AMT, and (3) increased revenue 
from tax-deferred revenue accounts. After 2014, revenue as a share of 
GDP is held constant.

[End of figure]

Figure 4: Composition of Spending as a Share of GDP Assuming 
Discretionary Spending Grows with GDP after 2004 and All Expiring Tax 
Provisions Are Extended:

[See PDF for image] - graphic text:

Bar chart with 16 items.

2003;
Net interest (Percentage of GDP): 1.4%;
Social Security (Percentage of GDP): 4.4%;
Medicare & Medicaid (Percentage of GDP): 3.8%;
All other spending (Percentage of GDP): 10.3%;
Revenue (Percentage of GDP): 16.5%.

2015;
Net interest (Percentage of GDP): 3.1%;
Social Security (Percentage of GDP): 4.9%;
Medicare & Medicaid (Percentage of GDP): 5.2%;
All other spending (Percentage of GDP): 9.8%;
Revenue (Percentage of GDP): 17.7%.

2030;

Net interest (Percentage of GDP): 7.8%;
Social Security (Percentage of GDP): 7.1%;
Medicare & Medicaid (Percentage of GDP): 7.3%;
All other spending (Percentage of GDP): 9.8%;
Revenue (Percentage of GDP): 17.7%.

2040;
Net interest (Percentage of GDP): 15.7%;
Social Security (Percentage of GDP): 8.5%;
Medicare & Medicaid (Percentage of GDP): 8.9%;
All other spending (Percentage of GDP): 9.8%;
Revenue (Percentage of GDP): 17.7%.

Source: GAO's January 2004 analysis:

Notes: Although all expiring tax cuts are extended, revenue as a share 
of GDP increases through 2014 due primarily to (1) real bracket creep, 
(2) more taxpayers subject to the alternative minimum tax, and (3) 
increased revenue from tax-deferred retirement accounts. After 2014, 
revenue as a share of GDP is held constant.

[End of figure]

To balance the budget would require massive spending cuts, massive tax 
increases, or some combination of the two. Neither slowing the growth 
of discretionary spending nor allowing tax cuts to sunset--nor both 
together--will eliminate the long-term imbalance. While additional 
economic growth will help ease any burden, the potential fiscal gap is 
too great to grow our way out of the problem.

Further, neither 10-year budget projections nor financial statements 
recognize the longer-term implications of present day policies and 
historical commitments. As figure 5 shows, the federal government takes 
on a wide range of fiscal exposures--from explicit liabilities to those 
implied by current policies. Although the long-term budget simulations 
shown in figures 3 and 4 assume currently promised Social Security and 
Medicare benefits, the federal government's financial statements do not 
record as liabilities the difference between future promised and funded 
benefits of Social Security, nor do they adequately account for future 
health care benefit costs for veterans. Regardless of whether these 
items are ultimately considered liabilities from an accounting 
perspective, they represent significant commitments that will have to 
be addressed by future generations.

Figure 5: Selected Fiscal Exposures: Sources and Examples, End of 
Fiscal Year 2003:

Type: Explicit liabilities;
Example (dollars in billions): Publicly held debt ($3,913);

Type: Explicit liabilities;
Example (dollars in billions): Military and civilian pension and post-
retirement health ($2,857);

Type: Explicit liabilities;
Example (dollars in billions): Veterans benefits payable ($955);

Type: Explicit liabilities;
Example (dollars in billions): Environmental and disposal liabilities 
($250);

Type: Explicit liabilities;
Example (dollars in billions): Loan guarantees ($35);

Type: Explicit financial commitments;
Example (dollars in billions): Undelivered orders ($596);

Type: Explicit financial commitments;
Example (dollars in billions): Long-term leases ($47);

Type: Explicit financial contingencies;
Example (dollars in billions): Unadjudicated claims ($9);

Type: Explicit financial contingencies;
Example (dollars in billions): Pension Benefit Guaranty Corporation 
($86);

Type: Explicit financial contingencies;
Example (dollars in billions): Other national insurance programs ($7);

Type: Explicit financial contingencies;
Example (dollars in billions): Government corporations e.g., Ginnie 
Mae;

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Debt held by government accounts 
($2,859)[A];

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Future Social Security benefit payments 
($3,550)[B];

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Future Medicare Part A benefit payments 
($5,931)[B];

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Future Medicare Part B benefit payments 
($9,619)[B];

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Life cycle cost including deferred and 
future maintenance and operating costs (amount unknown);

Type: Implicit exposures implied by current policies or the public's 
expectations about the role of government;
Example (dollars in billions): Government Sponsored Enterprises e.g., 
Fannie Mae and Freddie Mac;

Source: GAO analysis.

[A] This amount includes $774 billion in securities held by military 
and civilian pension funds that would offset the explicit liabilities 
reported by those funds.

[B] Figures for Social Security and Medicare are as of January 1, 2003, 
and are estimated over a 75-year period. These amounts represent NPV 
and are net of debt held by the Trust Funds ($1,387 billion of Social 
Security and $235 billion for Medicare Part A and $34 billion for 
Medicare Part B). The estimate for Social Security over an infinite 
horizon would be $10.5 trillion according to the Social Security 
Trustees' 2003 annual report. There is no infinite horizon estimate for 
Medicare included in the Medicare Trustees' 2003 annual report. 
Medicare Part D was enacted after the end of fiscal year 2003.

[End of figure]

To facilitate consideration of the long-term impacts of budget and 
policy decisions, current budget process and measurements need to be 
reviewed and reconsidered. A way should be found to permit the long-
term cost of selected major spending and tax proposals to be quantified 
and presented before legislation is enacted. This is especially 
important in connection with proposals for which the related costs 
significantly escalate after the current 10-year projection period. 
Financial accounting and reporting practices should also be reviewed.

Finally, policymakers will need to recognize and anticipate the effects 
of the long-term fiscal imbalance on governance at all levels of 
government--federal, state, and local--and on the nation's ability to 
thrive in the world that we face in the 21st century. As discussed at 
length in the rest of this section, national and homeland security 
needs, the requirements to support a knowledge-based and global 
economy, the opportunities and challenges resulting from scientific and 
technological advances, public expectations for improved quality of 
life, and the governance structures and tools needed to provide for all 
of these will increasingly become the focus of public policy. To 
effectively address these needs, policymakers will have to begin today 
to reconsider the constraints that current fiscal policies place on 
their ability to act.

Evolving National and Homeland Security Policies:

National security in the 21st century is a complex interaction of 
military power, international relationships and foreign policy, 
homeland security, and international economics. Understanding the 
dimensions of these issues, and their mutual impacts and relationships, 
is key for decision makers in deciding on roles and responsibilities of 
key federal entities, levels of investment, and expected outcomes.

Militarily, the United States is unchallenged and probably will be for 
the foreseeable future. Some call it the "world's sole superpower"; 
some call it a "hyperpower." Whatever the terminology, since the demise 
of the Soviet Union and the end of the Cold War, the United States has 
emerged as the dominant military, political, and economic power in the 
world. In fact, according to some analysts, no nation in the history of 
the world has attained such military preeminence. The United States 
spends several times more on its military than any conceivable 
adversary, and together with its allies accounts for more than two-
thirds of total worldwide defense spending. U.S. conventional forces 
include the 12 largest aircraft carriers in the world, the only stealth 
aircraft in the world, a long-range bomber and air cargo force able to 
reach worldwide with the help of a huge aerial refueling fleet, and 
prepositioned military equipment around the world equaling the size of 
the total military inventory of many countries. U.S. nuclear weapons, 
while reduced over time through agreement with Russia, still provide a 
formidable triad of incredible destructive power.

And, in recent years, the United States has demonstrated its ability to 
project and use its military forces with great effectiveness. U.S. 
forces quickly defeated the Taliban regime in Afghanistan--a trained 
and experienced guerrilla force--and the Saddam Hussein regime in Iraq-
-which had the world's sixth largest army. Defense spending increased 
significantly after the terrorist attacks of September 11, 2001, not 
only to conduct those military operations and improve homeland 
security, but also to upgrade military forces even more. (See fig. 6.)

Figure 6: Growth in Defense Budget Authority, Fiscal Years 2000-2004, 
as of October 2003:

[See PDF for image] - graphic text:

Bar chart with 5 items.

Dollars in billions:

FY 2000: $295.0;

FY 2001: $329.9;

FY 2002: $360.2;

FY 2003: $454.6;

FY 2004: $465.7.

Source: Congressional Research Service.

[End of figure]

U.S. technological advantage on the battlefield, already considerable, 
is being further enhanced through breakthroughs in such areas as 
precision-guided munitions, unmanned aerial vehicles, and battlefield 
awareness and communications. Future developments in nanotechnology, 
sensors, and space-based and nonkinetic weapons will further increase 
this advantage. The United States spends more on defense research and 
development than all but a small number of countries spend on their 
entire defense budgets.

New military missions are also changing, evolving from countering state 
adversaries to countering less structured terrorist groups, and 
employing greater use of special operations forces, peacekeepers, and 
engineers for reconstructions following conflicts. Prolonged, if lower-
intensity engagements influence world views of the U.S. military, 
ranging from "protector" to "occupier." And unlike conflicts prior to 
the 21st century, the war on terrorism is unlikely to have a discrete 
end point.

International relationships and foreign policy is another dimension of 
national security. Since the end of World War II, this U.S. military 
might has generally been employed through a series of alliances and 
partnerships from Europe to Southeast Asia, originally aimed at 
containing the Soviet Union and its communist allies. For example, the 
United Nations arose out of the ashes of the war as a way to resolve 
international disputes diplomatically before they escalated into armed 
conflict. While these institutions have been evolving since the end of 
the Cold War, recent events indicate that this overall system of 
multilateral organizations and alliances may be starting to break down. 
For example:

* The United Nations itself has come under question by those who 
believe it is good at debating and passing resolutions but lacks 
credibility in enforcing them. An action-oriented United States finds 
itself in conflict with the United Nations' status-quo-oriented 
Security Council. As a result, the United States has become more 
assertive in the United Nations and other institutions, as it believes 
events such as the September 11 terrorist attacks create the need for 
more active use of military options to prevent the further spread of 
terrorism and possible use of weapons of mass destruction.

* The North Atlantic Treaty Organization (NATO), having "won" the Cold 
War, now must reinvent itself to be relevant in the 21st century. 
Expansion eastward is bringing new members--the "New Europe"--that are 
very different from the alliance's original members. Serious 
disagreement with France and Germany over Iraq policy exposed some 
gaping holes in alliance cohesion.

* U.S. solidarity with South Korea against North Korea has been a given 
since the 1950 invasion across the 38TH parallel. This relationship 
seems to be fraying somewhat, with talk of repositioning U.S. forces in 
response to South Korean public outcries.

* Support for both the State of Israel and the Palestinians in the 
Middle East has dominated U.S. relations in that part of the world 
since Israel's founding and the 1967 war. A solution to the Arab-
Israeli peace process has been elusive, but its resolution is critical 
to improving U.S. relations with Muslim countries throughout the 
region.

* In the Persian Gulf, Saudi Arabia has long been the key U.S. 
relationship, especially since the fall of the Shah of Iran in 1979. 
The 1991 Gulf War was fought largely from Saudi territory. In Operation 
Iraqi Freedom, however, the Central Command headquarters was very 
visibly in Qatar, not Riyadh. Kuwait, Qatar, Oman, and Bahrain--and in 
time, maybe even Iraq--are becoming more important partners and will 
likely affect the U.S. relationship with Saudi Arabia. Nonetheless, 
Saudi Arabia remains an important partner in the United States' global 
efforts to combat terrorism.

In addition to these changing relationships, U.S. foreign policy seems 
to be turning away from multilateral arrangements and toward more 
unilateral and bilateral interactions. In challenging such previously 
negotiated international agreements as the missile defense treaty, an 
international war crimes court, the ban on landmines, and the Kyoto 
agreements on greenhouse gases, the United States has charted a 
different course with yet unknown consequences for its international 
relations and relationships. U.S. handling of Afghan combatants at 
Guantanamo Bay or reconstruction efforts in Iraq may be driving 
additional wedges between the United States and its traditional allies. 
The policy of preemption--striking at terrorists or regimes before they 
attack the United States--may prove to be effective, but it has been 
controversial around the world and even within the United States.

In this new era, homeland security is a major dimension of national 
security. Despite America's unrivaled military advantage, Americans are 
feeling more vulnerable. The hijackings and successful attacks on the 
World Trade Center and Pentagon shook citizens' confidence about their 
safety at home and in their workplaces. The anthrax attacks and 
persistent threats from terrorist spokesmen continued to raise anxiety 
levels. With the war in Iraq and religious and social unrest in many 
countries, experts worry about more terrorism against U.S. interests.

Since the September 11 attacks, legislation such as the USA Patriot Act 
and the Homeland Security Act, which created the Department of Homeland 
Security, responded to terrorism and other threats to personal, 
financial, and national security. The new Northern Command has provided 
additional resources and authority for homeland defense. The 
administration published a series of national strategies, such as the 
National Strategy for Homeland Security, setting initiatives in 
homeland security areas. Periodic adjustments to the department's 
color-coded homeland security threat levels correspond to threats. 
However, some commentators believe the nation is still not as prepared 
to prevent and respond to a terrorist attack within the United States 
as it should be, and have recommended that the pace of preparation to 
prevent, respond to, and contain an attack accelerate.

While diplomatic and military efforts have focused on fighting the war 
against terrorism abroad, risks have been exposed in many aspects of 
normal life at home. Terrorist weapons need not kill or injure large 
numbers to have the terrorists' desired impact; the psychological 
impact alone can disrupt the economy and undermine people's confidence 
in the government. Bioterrorism poses risks of unprecedented magnitude, 
potentially affecting air and water supplies and food production chains 
using instruments of normal life, such as the mail or air conditioning 
systems. Many elements of everyday life that are critical to the 
American economy, such as airports and power stations, have become 
potential targets.

The administration has asked for significant homeland security funding 
in normal budget and supplemental funding requests. For example, the 
President's fiscal year 2004 budget request for homeland security is 
$41.3 billion, including funding for the Department of Defense. This 
more than doubles 2002 funding and will cover priorities in mission 
areas such as intelligence and warning, border security, and protection 
of critical infrastructure. However, these federal funding changes and 
new organizational structures alone will not significantly improve the 
security of the homeland. Homeland security can only be accomplished 
through recognizing the interdependencies of federal, state, local, and 
private sector partners and the careful planning and integration of the 
roles and responsibilities of federal and nonfederal partners. For 
example, emergency response to a terrorist attack involving chemical or 
biological weapons will require effective coordination between federal, 
state, and local law enforcement agencies; other first responders; as 
well as public health agencies, affected hospitals, and laboratories. 
The challenge for the federal government is to design, select, and 
manage the various tools to prompt effective integration and leverage 
scarce resources. Critical information must be shared, analyzed, 
integrated, and disseminated to help prevent or minimize terrorist 
activities. These efforts require the involvement of the Central 
Intelligence Agency, the Federal Bureau of Investigation, the National 
Security Council, the National Security Agency, the Department of 
Defense, the Department of Homeland Security, and a myriad of other 
agencies.

The Congress faces the difficult task of integrating and balancing 
fighting terrorism and meeting the requirements for homeland security 
with efforts to maintain economic vitality and innovation; create jobs; 
and improve education, housing, health care, and the quality of life in 
general while protecting core American values. Rapidly rising costs for 
homeland security also are a concern. In the long term, homeland 
security measures should be undertaken with a deliberate and informed 
analysis of the choices and balances that must be struck, for example, 
balancing the cost and benefit of security measures, including the 
collateral or unintended consequences on missions not related to 
homeland security and American values.

Traditional threat, risk, and criticality assessments remain valuable 
tools in the fight against terrorism. However, the use of such 
assessments should be viewed in a broader national preparedness context 
in which decision makers consider how homeland security can be viewed 
as integral to everyday life--in which measures are consistently 
expected, applied, and integrated into the underlying business process 
or programs from the very beginning, not separate and apart from other 
strategic and operational decisions. Weaving homeland security into the 
everyday life of the American people will be complex and time 
consuming. However, it will be critical to fashioning a sustainable 
homeland security strategy that balances the need for increased 
protection against other national priorities.

A final dimension is international economics. National security in this 
new era is more intertwined than ever with economic security in a world 
that increasingly recognizes the opportunities a robust economy can 
bring. Many see reducing poverty and enlarging the middle class, 
especially in countries troubled by terrorism, as a key to attacking 
the root causes of unrest. According to this argument, young people 
around the world, regardless of their cultural or religious upbringing, 
must have some prospects for economic prosperity to give them a reason 
to strive to better themselves and their countries. The nascent 
reconstruction of the Iraqi economy could be a crucial test of whether 
a functioning free-market economy can emerge from a country damaged by 
years of dictatorship and war in a troubled part of the world. And 
because access to natural resources is vital to worldwide economic 
health, priority will be given to restoring Iraqi oil production to 
help power the local economy and to restore order to energy markets.

Broader economic question are also arising as strains with some 
traditional allies could affect trading patterns. Changes in NATO 
membership could lead to changes in economic ties between Europe and 
the United States, as Eastern European countries attract more 
attention. The Pacific Rim countries are increasingly a focus of U.S. 
security and economic policy. The biggest issue of all, in the view of 
many analysts, is the U.S. relationship with China: Will it be a 
relationship of trade and economic ties or a tense one focused on 
military rivalry? Domestically, the recent sluggishness in the economy 
has been exacerbated by factors at least partially related to 
terrorism: high energy prices, disruptions in the travel and tourism 
industry--especially commercial airlines, and low consumer confidence. 
Large budget deficits not just in the United States but also in 
governments around the world make economic prosperity even more 
important and more elusive. Moreover, the U.S. lead in military 
equipment and technology depends on a robust industrial base that can 
provide the know-how to stay ahead of potential competitors. The 
challenge for the United States is to avoid the pitfalls of the 
"military-industrial complex" that was a concern as far back as 
President Eisenhower--how to promote a strong private sector capability 
that will not "capture" security policy.

Military power, international relationships and foreign policy, 
homeland security, and international economics must all be considered 
in defining the parameters of national security. While the Cold War 
stressed a containment and deterrence strategy--defined by the balance 
of power--the new war on terrorism, some suggest, is defined by the 
"power of balance"--balancing implementation of powerful national 
security strategies against their societal and economic impact. In the 
midst of World War II, President Roosevelt noted that the supreme 
objective for the future, and for the United Nations, was one word: 
security. He emphasized that security meant not only physical security, 
but also economic security, social security, and moral security. 
Contemporary national security still meets that definition.

Global Interdependence: Trends and Challenges:

Recent decades have witnessed a rapid increase in international trade 
and in the movement of investment, people, and information across 
borders. As a result of these trends, nations' economies, cultures, and 
governments have become increasingly interdependent--that is, 
globalized. These movements have brought many changes and many benefits 
to people around the world, but this high level of interdependence also 
creates challenges. Some of these challenges have long been known, such 
as the need to extend the benefits of globalization to the poorest 
parts of the world. Other challenges are more recent, such as the 
outbreak of severe acute respiratory syndrome (SARS) and containing its 
spread. In both examples, increased interdependence means that 
governments have to be involved in events outside their borders to 
resolve these new global problems.

One measure of growing worldwide interdependence is the total share of 
world goods and services that is traded. As shown in figure 7, from 
1970 through 2002, world exports increased from about 12 percent to 
about 24 percent of world GDP. Hence, all over the world, people are 
depending more and more on other nations to consume the goods they 
produce and to produce the goods they in turn consume.

Figure 7: World Exports of Goods and Services as a Percentage of World 
GDP, 1970-2002:

[See PDF for image] - graphic text:

Line graph with a single line.

[End of figure]

In the United States, where the economy was relatively self-contained 
in the decades following World War II, 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 5 percent 
to about 9 percent from 1970 through 2002. (See fig. 8.) The rise in 
U.S. imports was even greater, increasing from about 5 percent to about 
13 percent of GDP. These increases came during a period when overall 
U.S. output, adjusted for inflation, more than doubled.

Figure 8: U.S. Exports and Imports as a Percentage of U.S. GDP, 1970-
2002:

[See PDF for image] - graphic text:

Line chart with two lines: imports and exports.

Exports:

1970; Percentage of GDP: 5.447725305%;
1975; Percentage of GDP: 8.108182485%;
1980; Percentage of GDP: 9.723637144%;
1985; Percentage of GDP: 6.861381438%;
1990; Percentage of GDP: 9.223066584%;
1995; Percentage of GDP: 10.72528883%;
2000; Percentage of GDP: 10.89157828%;
2002; Percentage of GDP: 9.324988991%;

Imports:

1970; Percentage of GDP: 5.230932%;
1975; Percentage of GDP: 7.349620841%;
1980; Percentage of GDP: 10.41783517%;
1985; Percentage of GDP: 9.75433183%;
1990; Percentage of GDP: 10.61645299%;
1995; Percentage of GDP: 12.00991825%;
2000; Percentage of GDP: 14.71243613%;
2002; Percentage of GDP: 13.32680783%;

Source: Department of Commerce, Bureau of Economic Analysis.

[End of figure]

A companion to growing international trade is an overall increase in 
international financial flows and net financial inflows as an important 
source of U.S. capital. 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 tenfold 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--generally increased 
from under 1 percent to about 7 percent of U.S. GDP from 1970 through 
2002, as shown in figure 9. Net financial outflows, which reflect 
similar U.S. investments abroad, have fluctuated over this period, and 
fell noticeably over the past 2 years. The difference between financial 
inflows and outflows, the net financial inflows into the United States, 
is a measure of U.S. reliance on foreign capital to finance domestic 
investment and federal debt.

Figure 9: U.S. Financial Flows as a Percentage of U.S. GDP, 1970-2002:

[See PDF for image] - graphic text:

Line chart with two lines: imports and exports.

1970; 
Net U.S Financial Outflows (Percentage of GDP): 0.814658074%;
Net Foreign Financial Inflows (Percentage of GDP): 0.611618736%.

1975; 
Net U.S Financial Outflows (Percentage of GDP): 2.428021037%;
Net Foreign Financial Inflows (Percentage of GDP): 1.050024462%.

1980; 
Net U.S Financial Outflows (Percentage of GDP): 3.069645157%;
Net Foreign Financial Inflows (Percentage of GDP): 2.239662327%.

1985; 
Net U.S Financial Outflows (Percentage of GDP): 1.062235936%;
Net Foreign Financial Inflows (Percentage of GDP): 3.468193686%.

1990; 
Net U.S Financial Outflows (Percentage of GDP): 1.399813896%;
Net Foreign Financial Inflows (Percentage of GDP): 2.439533361%.

1995; 
Net U.S Financial Outflows (Percentage of GDP): 4.761516114%;
Net Foreign Financial Inflows (Percentage of GDP): 5.9261131%.

2000; 
Net U.S Financial Outflows (Percentage of GDP): 5.799706858%;
Net Foreign Financial Inflows (Percentage of GDP): 10.44458807%.

2002; 
Net U.S Financial Outflows (Percentage of GDP): 1.713398173%;
Net Foreign Financial Inflows (Percentage of GDP): 6.767848596%.

Source: Department of Commerce, Bureau of Economic Analysis.

[End of figure]

A second important aspect of globalization is the movement of people 
around the globe. These movements occur for a variety of reasons, such 
as permanent migration, temporary relocation for business or 
educational reasons, or travel and tourism. The movement of people 
represents both a cause and a consequence of globalization in that 
people who migrate tend to create stronger links between nations, while 
some people visit other nations because of established business 
relationships or to learn about different cultures. During the 20th 
century, permanent migration to the United States fluctuated, beginning 
with a high of 8.8 million immigrants admitted from 1901 through 1910; 
dropping significantly, in response to the Depression and the Second 
World War, to a low of half a million admissions from 1931 through 
1940; and gradually rising again, reaching record admissions of over 9 
million immigrants from 1991 through 2000.

Relocation for educational reasons has also reached high levels in the 
last few decades. As shown in figure 10, from 1986 through 2002, the 
number of foreign students enrolled in U.S. colleges and universities 
increased by 70 percent to nearly 600,000. During the same period, the 
number of U.S. college and university students studying abroad more 
than tripled from 48,000 to 154,000 students each year.

Figure 10: Foreign Students in the United States, 1986-2002:

[See PDF for image] - graphic text:

Line chart with one line:

1986; Number of foreign students in US: 343,777;
1989; Number of foreign students in US: 366,354;
1992; Number of foreign students in US: 419,585;
1995; Number of foreign students in US: 452,653;
1998; Number of foreign students in US: 481,280;
2001; Number of foreign students in US: 547,867;
2002; Number of foreign students in US: 582,996.

Source: Institute for International Education.

[End of figure]

Finally, admissions of international tourists to the United States 
increased nearly fourfold from 1985 through 2001. Overall, the number 
of tourist visas issued during this period increased from 9.5 million 
to 33 million, with the largest increase, a 45 percent increase, 
occurring from 1995 through 2001.

The third area that helps illustrate the rapid pace of globalization is 
the movement of information across borders, a development that is 
directly related to the advances in IT. While there is no single 
indicator of the rapid growth in information crossing borders, 
telephone and Internet communications both provide some insight. The 
number of main telephone lines in use throughout the world doubled from 
1991 through 2001, from 550 million to 1.1 billion, while cellular 
phone subscribers increased from 16 million to 955 million. During the 
same period, the number of Internet users increased from 4.4 million to 
502 million, with concentrations of Internet users reaching over 20 
percent of the populations of a number of advanced industrial 
countries.

This increase in international communication is met with ambivalence in 
many countries. The 2003 Pew Foundation Global Attitudes Project 
reports that "large majorities in most countries" dislike the United 
States' growing influence in their countries, but equally large 
majorities support the technologies that promote increased 
international interaction. The Global Attitudes Project reports that 
"majorities in almost all nations" feel positively about the Internet, 
and "overwhelming majorities" in nearly all countries surveyed feel 
positively about cellular telephones.

While many countries have benefited greatly from the increased movement 
across borders, this movement also creates some daunting challenges. 
One of those is ensuring that globalization creates benefits that are 
not overly concentrated in countries around the world. As shown in 
figure 11, some less-developed countries experienced strong income 
growth as world trade flows increased while others experienced only 
slow growth. Overall, differences in per capita income across countries 
have largely continued over the past 25 years, although China and India 
stand out as 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 group than in the low-income group, compared with incomes 
about 14 times higher in 1975.

Figure 11: Trends in Per Capita Income Across Country Groupings, 1975, 
1987, and 1999:

[See PDF for image] - graphic text:

Bar chart with 12 items:

Constant 1999 Dollars:

1975;
China/India: $900;
Low income countries: $1,200;
Middle income countries: $4,800;
High income countries: $16,900.

1987;
China/India: $1,500;
Low income countries: $1,600;
Middle income countries: $5,800;
High income countries: $21,300.

1999;
China/India: $3,000;
Low income countries: $1,800;
Middle income countries: $6,300;
High income countries: $23,900.

Source: GAO Analysis of data from the World Bank, "World Development 
Indicators, 2001."

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.

[End of figure]

A second challenge is ensuring that the measures taken to assure the 
security of trade and investment and the movement of people do not 
choke off the benefits of those movements. For example, some of the 
security measures designed to protect against risks related to 
container trade could affect the efficiency of the trade flows. In 
addition, measures taken to control the threat of terrorists entering 
other countries could reduce the number of migrants or visitors who 
might provide benefits to the originating and the host nations.

A related challenge is the need to ensure that health problems--and 
particularly contagious diseases--do not spread uncontrolled around the 
world. The recent outbreak of SARS rapidly had an impact on movement to 
and from some of the most highly globalized parts of the world, such as 
Hong Kong, Singapore, and China. While AIDS has had devastating impacts 
on certain nations such as those in Africa, the speed and critical role 
of communications and cooperation among nations has been particularly 
important in trying to limit the spread of this highly communicable 
disease.

All of these challenges make it clear that some of the most difficult 
issues that policymakers will continue to address cannot be resolved 
within the borders of any nation. Because of the interdependence, 
nations will have to rely in part on the institutions that have been in 
place to address international concerns and are constantly evolving as 
they attempt to meet the current challenges. Part of this evolution is 
related to the increasing efforts of nations to ensure that these 
institutions achieve their particular goals. This is not surprising as 
interdependence grows, since the decisions made in these forums have 
important consequences for the nations involved.

The last decade has witnessed a sharp debate about the ability of the 
international trade and financial institutions to address problems such 
as worldwide income disparities and the continuing debt problems of the 
poorest countries. For example, while the World Trade Organization has 
emphasized the importance of efforts to bring more advantages of trade 
to the less-developed world, disagreements between developed and 
developing countries and among diverse interest groups on how to 
accomplish this have made reaching new agreements very difficult. 
Concerns have also been raised regarding the ability of the 
International Monetary Fund, World Bank, and other multilateral 
development banks to successfully promote economic development in the 
world's poorest countries. The United States and other participants in 
these institutions have advocated a greater allocation of resources to 
those countries that successfully adopt best practices such as 
participatory decision making and privatization. In addition, the 
United States has been a leader in promoting the greater use of grant 
financing to help avoid future debt problems for the poorest countries.

The Changing Economy:

Many of the issues facing the Congress and the nation stem from complex 
and evolving domestic and global economies. The last few years of the 
1990s saw a dramatic surge of productivity and economic growth that was 
reduced but not eliminated by the economic slowdown associated with the 
decline in financial markets, capital spending, corporate scandals, and 
issues related to international terrorism in the early 21st century. 
The growth was 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 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, Medicaid, and other national priorities.

After two decades of diminished expectations and reduced economic 
performance, the GDP grew dramatically in the late 1990s, only to slow 
due to the bursting of the technology bubble, corporate scandals, and 
challenges in addressing international terrorism, all of which added to 
uncertainty about the economy. As shown in figure 12, labor 
productivity growth accelerated from 1.6 percent per year in the early 
1990s to 2.9 percent per year from 1996 through 2003. This growth can 
be attributed, in part, to the move away from the nation's traditional, 
manufacturing-based economy toward 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 12: Labor Productivity Growth, 1961-2013:

[See PDF for image] - graphic text:

Bar chart with 10 items.

1961-65; Average Annual Growth Rate: 3.4;

1966-70; Average Annual Growth Rate: 2.1;

1971-75; Average Annual Growth Rate: 2.3;

1976-80; Average Annual Growth Rate: 1.1;

1981-85; Average Annual Growth Rate: 1.8;

1986-90; Average Annual Growth Rate: 1.5;

1991-95; Average Annual Growth Rate: 1.6;

1996-03; Average Annual Growth Rate: 2.9;

2004-08; Average Annual Growth Rate: 2.8;

2009-13; Average Annual Growth Rate: 2.2.

Source: GAO analysis of data from the Bureau of Labor Statistics 
through 2003; Global Insight's January 2004 forecast thereafter.

[End of figure]

Due to the changing composition of the economy, states appear to be 
facing a long-term erosion of their sources of revenue that is causing 
challenges in the provision of government services. That revenue base 
is estimated to have declined from 51.4 percent of personal income in 
1979 to 41.5 percent in 2001. Four factors are cited as contributing to 
the decline: technological changes, legislated exemptions, cross-
border shopping, and changing purchasing patterns. Technological 
advances such as digitized books and music have changed some taxable, 
tangible goods into nontangible products that are not taxed in some 
states. Although still small, cross-border shopping via mail order and 
electronic commerce has been growing rapidly, much of which escapes 
taxation. Finally, the rise in services' share of personal consumption 
from about 47 percent in 1979 to 59 percent in 2002 has reduced the 
sales tax base because most services, particularly professional 
services, are exempt from the sales tax on which states rely heavily. 
At the same time, there is evidence that the types of purchases subject 
to sales tax declined from the early 1970s to the 1990s but have 
remained relatively stable as a percentage of consumption since then.

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 
and research and development 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 should be adapted 
for new needs. New importance should 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 importance of research and 
development, particularly in the private sector but augmented by basic 
work in the public sector, requires strategic management and attention 
to incentives.

The shift to new technologies and knowledge-based services has had a 
significant impact on the delivery of health care in the country and on 
the percentage of the nation's resources devoted to this industry. For 
instance, laser surgery has made it possible for people to see clearly 
without the need for glasses or contacts; brain disorders that cannot 
be treated by conventional surgery are now treated by using precisely 
targeted beams of radiation. Recent medical discoveries, such as 
mapping the human genome, provide new knowledge that may lead to 
unheard of medical advances. However, advances in medical technology, 
along with demographic trends and other factors, have contributed to 
health care consuming a continually increasing proportion of the 
nation's GDP, as shown in figure 13.

Figure 13: National Health Expenditures as a Percentage of GDP:

[See PDF for image] - graphic text:

Bar chart with 4 items.

1980; Percentage of GDP: 8.8%;

1990; Percentage of GDP: 12.0%;

2000; Percentage of GDP: 13.3%;

2010; Percentage of GDP: 16.8%;

Sources: Centers for Medicare and Medicaid Services, Office of the 
Actuary, National Health Statistics Group, and Department of Commerce.

Note: The figure for 2010 is projected.

[End of figure]

The shift to a knowledge-based economy also has implications for 
immigration policy. The emergence of technology-oriented industries has 
tended to create both high-paying jobs in computing and IT 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, working either in the 
United States or in their home countries. In light of heightened 
concern for homeland security, the relatively easy flow of workers into 
the country may be reassessed. Moreover, the demand for both high-and 
low-skilled workers may contribute to a long-term trend of inequality 
in income in which those in the richest segments of society see their 
incomes increase more than do those in the poorest segments.

Consumer and investor protection policies are also affected by the 
growth in knowledge-based industries. With human capital 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, the value of which is difficult to calculate. Questions of 
market power in a knowledge-based economy also make determining 
consumer and investor protection policies more difficult.

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, or 
include supplemental accounts for broader measures of production. 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 to improve the economic performance of both the 
private and public sectors through measures such as liberalizing trade 
and drawing 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 moved to deregulate 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.

According to a study conducted by the Organization of Economic 
Cooperation and Development (OECD), the U.S. economy benefits from an 
industry structure, with comparable entry but more active exit, and 
from less restrictive labor and product market regulation compared to 
many other members of OECD. Nevertheless, as the electricity market 
woes in California and the problems besetting the airline industry 
illustrate, markets work within a boundary of oversight institutions 
and regulations that are provided by government.

Although the economy was still growing in the early years of the 21st 
century, the sustainability of this growth was becoming more of a 
concern because of a serious decline in the personal saving that is 
used to fuel capital investment and research and development. Saving 
and investment drive the productivity growth that allows personal 
incomes to rise without accelerating inflation. Since the early 1990s, 
personal saving declined from about 5 percent of GDP to about 1.5 
percent in 2003. (See fig. 14.) 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 the levels of the 1990s.

Figure 14: Declines in U.S. Personal Saving, 1990-2003:

[See PDF for image] - graphic text:

Line chart with a single line overlaid on a bar chart with 14 items.

1990; 
Net national saving (Percentage of GDP): 4.6%; 
Personal saving (Percentage of GDP): 5.1%;

1991; 
Net national saving (Percentage of GDP): 4.1%; 
Personal saving (Percentage of GDP): 5.3%;

1992; 
Net national saving (Percentage of GDP): 3.3%; 
Personal saving (Percentage of GDP): 5.7%;

1993; 
Net national saving (Percentage of GDP): 2.8%; 
Personal saving (Percentage of GDP): 4.6%;

1994; 
Net national saving (Percentage of GDP): 3.1%; 
Personal saving (Percentage of GDP): 3.6%;

1995; 
Net national saving (Percentage of GDP): 4.0%; 
Personal saving (Percentage of GDP): 3.6%;

1996; 
Net national saving (Percentage of GDP): 4.6%; 
Personal saving (Percentage of GDP): 3.0%;

1997; 
Net national saving (Percentage of GDP): 5.6%; 
Personal saving (Percentage of GDP): 2.7%;

1998; 
Net national saving (Percentage of GDP): 6.5%; 
Personal saving (Percentage of GDP): 3.1%;

1999; 
Net national saving (Percentage of GDP): 6.2%; 
Personal saving (Percentage of GDP): 2.1%;

2000; 
Net national saving (Percentage of GDP): 6.2%; 
Personal saving (Percentage of GDP): 1.7%;

2001; 
Net national saving (Percentage of GDP): 4.2%; 
Personal saving (Percentage of GDP): 1.4%;

2002; 
Net national saving (Percentage of GDP): 3.0%; 
Personal saving (Percentage of GDP): 1.6%;

2003; 
Net national saving (Percentage of GDP): 1.3%; 
Personal saving (Percentage of GDP): 1.6%;

Source: GAO analysis of NIPA data from the Bureau of Economic Analysis, 
Department of Commerce.

[End of figure]

OECD has determined that several of the sources of economic growth are 
related to key factors in the changing economy. Among key factors that 
OECD determined will affect growth are research and development 
expenditures, reduced variability in inflation, increased human capital 
formation (as measured by education), inflation, trade openness, and 
physical capital investment. The ability of a society to change these 
factors also varies; for instance, it may be more difficult or 
expensive to change business research and development by 1 percent than 
it is to change the variability in inflation. The impact of research 
and development and that of human capital highlight the importance of 
the knowledge base of the changing economy.

Increases in spending on national defense and homeland security add to 
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, Medicare, and Medicaid. As previously 
noted, 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 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.

An Aging and More Diverse Population:

Profound changes in the characteristics of the U.S. population will 
continue in the coming decades as the population becomes increasingly 
older and more diverse. According to the 2000 census, the median age of 
the U.S. 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 19 
percent in 2030, and to 23 percent in 2075. (See fig. 15.)

Figure 15: Growth in Elderly Population:

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Line chart with one line.

2000; Percentage of Total Population Aged 65 and Over: 12.324%;
2025; Percentage of Total Population Aged 65 and Over: 17.827%;
2050; Percentage of Total Population Aged 65 and Over: 21.006%;
2075; Percentage of Total Population Aged 65 and Over: 22.911%.

Source: Social Security Administration, Office of the Chief Actuary.

Note: Projections based on intermediate assumptions of The 2003 Annual 
Report of the Board of Trustees of the Federal Old-Age and Survivors 
Insurance and the Federal Disability Insurance Trust Funds.

[End of figure]

As noted earlier, the baby boomers' aging and retiring will have severe 
effects on the Social Security and Medicare program trust funds, with 
both programs projected to begin running cash deficits in the next 
decade that will continue to grow for decades into the future. By 2040, 
their combined cash deficits are estimated to be $670 billion. (See 
fig. 16.)

Figure 16: Cash Deficits Social Security and Medicare's Hospital 
Insurance Trust Funds Will Face as Baby Boomers Begin to Retire:

[See PDF for image] - graphic text:

Bar chart with 82 items.

2003 Dollars in billions:

2000; Medicare HI cash flow: $26; Social Security cash flow: $95;

2001; Medicare HI cash flow: $18; Social Security cash flow: $ 94;

2002; Medicare HI cash flow: $12; Social Security cash flow: $87;

2003; Medicare HI cash flow: $8; Social Security cash flow: $77;

2004; Medicare HI cash flow: $7; Social Security cash flow: $81;

2005; Medicare HI cash flow: $10; Social Security cash flow: $90;

2006; Medicare HI cash flow: $10; Social Security cash flow: $95;

2007; Medicare HI cash flow: $10; Social Security cash flow: $99;

2008; Medicare HI cash flow: $10; Social Security cash flow: $98;

2009; Medicare HI cash flow: $8; Social Security cash flow: $95;

2010; Medicare HI cash flow: $6; Social Security cash flow: $90;

2011; Medicare HI cash flow: $4; Social Security cash flow: $84;

2012; Medicare HI cash flow: $2; Social Security cash flow: $77;

2013; Medicare HI cash flow: $-2; Social Security cash flow: $65;

2014; Medicare HI cash flow: $-6; Social Security cash flow: $53;

2015; Medicare HI cash flow: $-10; Social Security cash flow: $38;

2016; Medicare HI cash flow: $-16; Social Security cash flow: $21;

2017; Medicare HI cash flow: $-21; Social Security cash flow: $3;

2018; Medicare HI cash flow: $-28; Social Security cash flow: $-16;

2019; Medicare HI cash flow: $-35; Social Security cash flow: $-36;

2020; Medicare HI cash flow: $-42; Social Security cash flow: $-57;

2021; Medicare HI cash flow: $-50; Social Security cash flow: $-80;

2022; Medicare HI cash flow: $-59; Social Security cash flow: $-102;

2023; Medicare HI cash flow: $-69; Social Security cash flow: $-123;

2024; Medicare HI cash flow: $-79; Social Security cash flow: $-144;

2025; Medicare HI cash flow: $-89; Social Security cash flow: $-164;

2026; Medicare HI cash flow: $-100; Social Security cash flow: $-185;

2027; Medicare HI cash flow: $-112; Social Security cash flow: $-204;

2028; Medicare HI cash flow: $-125; Social Security cash flow: $-223;

2029; Medicare HI cash flow: $-138; Social Security cash flow: $ -242;

2030; Medicare HI cash flow: $-152; Social Security cash flow: $ -258;

2031; Medicare HI cash flow: $-167; Social Security cash flow: $-274;

2032; Medicare HI cash flow: $-181; Social Security cash flow: $-288;

2033; Medicare HI cash flow: $-198; Social Security cash flow: $-300;

2034; Medicare HI cash flow: $-213; Social Security cash flow: $-312;

2035; Medicare HI cash flow: $-229; Social Security cash flow: $-323;

2036; Medicare HI cash flow: $-244; Social Security cash flow: $-332;

2037; Medicare HI cash flow: $-260; Social Security cash flow: $-340;

2038; Medicare HI cash flow: $-276; Social Security cash flow: $-348;

2039; Medicare HI cash flow: $-292; Social Security cash flow: $-355;

2040; Medicare HI cash flow: $-308; Social Security cash flow: $ -362;

Source: GAO analysis of data from the Social Security Administration.

Note: Projections based on the intermediate assumptions of the 2003 
Trustees' report.

[End of figure]

Furthermore, public spending on the elderly through the Medicare and 
Medicaid programs will consume a drastically increasing share of GDP, 
rising from about 3.4 percent in 2000 to approximately 9 percent in 
2040 and to about 14 percent in 2075. (See fig. 17.)

Figure 17: Medicare and Medicaid as a Share of GDP:

[See PDF for image] - graphic text:

Line chart with two lines:

Percentage of GDP:

2000; Medicare: 2.279%; Medicaid: 1.206%;
2010; Medicare: 2.69%; Medicaid: 1.765%;
2020; Medicare: 3.529%; Medicaid: 2.34%;
2030; Medicare: 4.747%; Medicaid: 2.86%;
2040; Medicare: 5.735%; Medicaid: 3.47%;
2050; Medicare: 6.455%; Medicaid: 4.03%;
2060; Medicare: 7.367%; Medicaid: 4.46%;
2070; Medicare: 8.49%; Medicaid: 5.07%;

Sources: Centers for Medicare & Medicaid Services' Office of the 
Actuary and Congressional Budget Office.

Notes: Projections based on the intermediate assumptions of the 2003 
Trustees' Reports, the Congressional Budget Office's (CBO) August 2003 
short-term Medicaid estimates, and CBO's March 2003 Medicaid long-term 
projections under midrange assumptions.

[End of figure]

At the same time that the baby boomers are exerting such major 
pressures on federal expenditures, the growth of the labor force is 
expected to slow considerably, becoming negligible by 2050. (See fig. 
18.)

Figure 18: Labor Force Growth, 1970-2080:

[See PDF for image] - graphic text:

Line chart with one line.

Percent change (5-Year Moving Average):

1975; Percent change (5-Year Moving Average): 2.52%;
1980; Percent change (5-Year Moving Average): 2.66%;
1990; Percent change (5-Year Moving Average): 1.74%;
2000; Percent change (5-Year Moving Average): 1.26%;
2010; Percent change (5-Year Moving Average): 0.74%;
2020; Percent change (5-Year Moving Average): 0.32%;
2030; Percent change (5-Year Moving Average): 0.28%;
2040; Percent change (5-Year Moving Average): 0.36%;
2050; Percent change (5-Year Moving Average): 0.22%;
2060; Percent change (5-Year Moving Average): 0.2%;
2070; Percent change (5-Year Moving Average): 0.2%;
2075; Percent change (5-Year Moving Average): 0.2%;

Source: GAO analysis based on the intermediate assumptions of the "2003 
Annual Report of the Board of Trustees of the Federal Old-Age and 
Survivors Insurance and the Federal Disability Insurance Trust Funds.":

Note: Percent change is calculated as a centered 5-year moving average.

[End of figure]

Note: Percent change is calculated as a centered 5-year moving average.

This decline in the number of working-age people compared with the rise 
in the number of elderly has obvious implications for the Social 
Security and Medicare trust funds. Today, about 3.3 people pay into 
Social Security for every person receiving benefits. (See fig. 19.) By 
2030, this ratio is projected to decline to 2.2 and by 2080 fall to 
1.8.

Figure 19: Social Security Workers per Beneficiary, 1960-2080:

[See PDF for image] - graphic text:

Line chart with one line.

Year: 1960; Covered workers per OASDI beneficiary: 5.1;
Year: 1970; Covered workers per OASDI beneficiary: 3.7;
Year: 1980; Covered workers per OASDI beneficiary: 3.2;
Year: 1990; Covered workers per OASDI beneficiary: 3.4;
Year: 2000; Covered workers per OASDI beneficiary: 3.4;
Year: 2010; Covered workers per OASDI beneficiary: 3.1;
Year: 2020; Covered workers per OASDI beneficiary: 2.5;
Year: 2030; Covered workers per OASDI beneficiary: 2.1;
Year: 2040; Covered workers per OASDI beneficiary: 2.1;
Year: 2050; Covered workers per OASDI beneficiary: 2;
Year: 2060; Covered workers per OASDI beneficiary: 2;
Year: 2070; Covered workers per OASDI beneficiary: 1.9;
Year: 2080: Covered workers per OASDI beneficiary: No data.

Source: Projections based on the intermediate assumptions of the 2003 
Trustees' Reports.

[End of figure]

Medicare faces a similar scenario. When this year's high school seniors 
turn 65 in 2051, the ratio of workers to Medicare beneficiaries will 
have dropped from 4: 1 to approximately 2: 1.

Unless there are improvements in the underlying sources of 
productivity--such as education, technology, and research and 
development--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 in both the public and private sectors and 
whether people ought to be encouraged to stay in the workforce longer 
and 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 the Social Security, Medicare, and 
Medicaid programs. Services provided by state and local governments for 
housing, transportation, and programs for the elderly also are likely 
to change in response to the needs of this population. Privately 
provided services, including communications and financial services, 
also are likely to change in response to the needs of the elderly 
population. These changes are likely to have their largest impact on 
areas in which the elderly population is increasing the most. From 1990 
through 2000, the elderly populations in 8 states increased by more 
than 25 percent, while 22 states had increases of just under 10 
percent.

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 its 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 and peacekeeping missions and their 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. From 
1990 through 2000, the number of foreign-born people in the United 
States grew by 57 percent to total more than 31 million--the largest 
number of foreign-born residents in U.S. history. While these foreign-
born residents make up about 11 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 is foreign born--
over three-quarters of whom came from Mexico and Asia. Also, in 18 
other states, at least one-half of foreign-born residents came to the 
United States since 1990. 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 and lack health insurance 
than residents who were born in the United States, placing special 
demands on education, health, and other social service systems. These 
changes also have implications for how the federal government targets 
subsidies and grants to mitigate regional disparities.

This more diverse population means that minorities, as well as women, 
will continue to represent a continuously increasing share of the 
workforce. In 2000, women constituted 47 percent of the American 
workforce, up from about 45 percent in 1990, and this proportion is 
expected to increase further in the future. (See fig. 20.) African 
Americans, Hispanic Americans, Asian Americans, and other minorities 
are projected to account for about 30 percent of the total labor force 
by 2010, but will account for about 60 percent of all new workers from 
2000 through 2010. These trends, along with slow labor force growth, 
have implications for federal policies and programs in education, 
training, child care, and immigration, among other things.

Figure 20: Women and Minorities in the Labor Force, 1980-2010:

[See PDF for image] - graphic text:

Bar chart with 8 items.

1980; Women: 41.7%; Minorities: 12.3%;

1990; Women: 45.7%; Minorities: 13.9%;

2000; Women: 46.3%; Minorities: 16.2%;

2010; Women: 47.5%; Minorities: 18.1%;

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

[End of figure]

Advances in Science and Technology:

Science and technology influence every aspect of American life. While 
IT 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 great 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.

Advances in science and technology have been fueled by increases in 
research and development (R&D) funding by the public and private 
sectors. As shown in figure 21, R&D funding has increased dramatically 
over the past 30 years, although the relative federal share of total 
funding has declined over this period.

Figure 21: Growth in R&D Spending (in Constant 2002 Dollars):

[See PDF for image] - graphic text:

Line chart with three lines.

Dollars in Millions:

1970;
Federal: $57,049;
Industry: $39,782;
Other: $3,194. 

1980;
Federal: $58,259;
Industry: $59,993;
Other: $4,481. 

1990;
Federal: $78,870;
Industry: $106,417;
Other: $9,176. 

2002 (preliminary);
Federal: $81,004;
Industry: $193,420;
Other: $17,240.

Source: National Science Foundation, Division of Science Resources 
Statistics.

[End of figure]

The positive outcomes from technological developments are well 
illustrated by IT, which contributed to the substantial gains in 
productivity that fueled the U.S. economy in the 1990s. Electronic 
commerce in the United States far outpaces the rest of the world and is 
expected to grow exponentially over the next few years. IT 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.

Although such advances have opened the workforce to people who were 
previously barred by physical handicaps or geographic distance, 
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. Other advances in IT 
raise additional challenges for the nation. 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. Moreover, as organizations become more interconnected, 
the ability to share data among systems can lead to inappropriate 
access to medical records, credit histories, and other personal and 
confidential data. As shown in figure 22, the number of reported hacker 
attempts, viruses, and other computer bugs exploded in recent years.

Figure 22: Number of Incidents Reported:

[See PDF for image] - graphic text:

Bar chart with 15 bars.

Number of Incidents Reported:

1988; Number of reported hacker attacks, viruses, and other computer 
bugs: 6:

1989; Number of reported hacker attacks, viruses, and other computer 
bugs: 132:

1990; Number of reported hacker attacks, viruses, and other computer 
bugs: 252:

1991; Number of reported hacker attacks, viruses, and other computer 
bugs: 406:

1992; Number of reported hacker attacks, viruses, and other computer 
bugs: 773:

1993; Number of reported hacker attacks, viruses, and other computer 
bugs: 1,334:

1994; Number of reported hacker attacks, viruses, and other computer 
bugs: 2,340:

1995; Number of reported hacker attacks, viruses, and other computer 
bugs: 2,414:

1996; Number of reported hacker attacks, viruses, and other computer 
bugs: 2,573:

1997; Number of reported hacker attacks, viruses, and other computer 
bugs: 2,134:

1998; Number of reported hacker attacks, viruses, and other computer 
bugs: 3,734:

1999; Number of reported hacker attacks, viruses, and other computer 
bugs: 9,859:

2000; Number of reported hacker attacks, viruses, and other computer 
bugs: 21,756:

2001; Number of reported hacker attacks, viruses, and other computer 
bugs: 52,658:

2002; Number of reported hacker attacks, viruses, and other computer 
bugs: 82,904:

Source: Carnegie Mellon University, CERT.

[End of figure]

Furthermore, 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 
war-fighting capability), law enforcement, financial, government, and 
emergency services all depend on computer operations. Because financial 
markets and other critical infrastructure also rely on IT, the United 
States and world markets can be attacked even without an actual 
physical assault.

Despite these vulnerabilities, the nation's ability to detect and 
counter bioterrorism greatly depends on information generated by 
biomedical research on dangerous, disease-causing microbes and on 
growing understanding of the immune system's response to these 
pathogens. This research is critical to the accelerated development of 
diagnostic tests, vaccines, antivirals, and antimicrobials. Efforts to 
accelerate biomedical science related to homeland security, in turn, 
allow for a more rapid response to naturally occurring disease 
outbreaks.

Furthermore, 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. Advances in 
the biological sciences, such as the mapping of the human genome, are 
furthering the nation's understanding of disease mechanisms and 
creating significant opportunities for new approaches to medical care. 
Advances in cell biology have accelerated diagnostics and treatments. 
Rapid developments in the field, including promising research on 
potential uses for stem cells, have opened the possibility of 
treatments for a host of disorders that have proved difficult to 
counter. In addition, genetically modified crops have the potential to 
dramatically improve the health and nutrition of many of the world's 
poorest people.

When used in conjunction with medical advances, nanotechnology, which 
involves manipulating matter at the level of individual atoms, could 
provide further breakthroughs. For example, advances made by a 
multiagency nanotechnology research group and others may lead to far-
reaching innovations such as drugs able to target specific parts of the 
body at a given time. However, the effects of nano-sized materials on 
human tissues are unknown and the technology's unforeseen economic 
consequences could lead to widespread employment disruptions.

Other biomedical 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 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. Additionally, 
advances in biotechnology 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.

Measuring the Quality of Life:

A variety of economic, environmental, and social indicators suggest 
that in some respects, the quality of life for Americans has improved 
over the past several decades. Large segments of the population 
continue to enjoy greater economic prosperity than ever before. In 
2002, over 94 percent of the labor force was employed and the median 
annual household income was over $42,000. More than 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 at 
birth now up to 77 years, a trend likely to continue with advances in 
medicine. Further, mortality rates have continued to decline in recent 
years, both in general and for some of the nation's leading causes of 
death, such as heart disease and stroke. In the last decade, the well-
being of many Americans has been enhanced through the dramatic increase 
in the availability of new drug therapies, such as those for treatment 
of high cholesterol. In fact, since the mid-1990s, an average of 100 
new drugs have been approved annually. Recent medical advances, such as 
mapping the human genome and researching the use of vaccines for 
certain types of cancer, may lead to continued improvements in the 
quality of life for the nation's population.

However, improvements have not been without cost, and rates of 
improvement can be slowed and certain resource trade-offs sharpened by 
a prolonged economic downturn. The nation's spending on health care, 
for instance, doubled from 1990 through 2000, and this growth is 
expected to continue through 2010. 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 systems--two of the largest health care systems 
in the world.

Despite the effort and expense of achieving and maintaining these 
improvements in quality of life, the improvements have not been evenly 
distributed across the population. In 2002, more than 43 million 
Americans did not have health insurance, and since then additional 
numbers have lost Medicaid benefits as states, faced with significant 
budget deficits, discontinued coverage for certain individuals. 
Unemployment rates for African Americans and Hispanic Americans were 
nearly twice the rate for white Americans. These groups also include 
proportionally fewer college graduates, their average income levels are 
considerably lower, they are less likely to have health insurance, and 
their poverty rates are more than double those of white Americans. 
Evidence also points to regional disparities. For example, a lack of 
adequate infrastructure, housing, and safe water contribute to a myriad 
of health and economic problems to many living along the U.S.-Mexico 
border. 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 in the Northeast, northern California, and 
Hawaii.

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, Medicare, and Medicaid as well as on national 
preparedness to confront security threats, thus creating difficult 
budgetary choices for the federal government. To assist in making these 
difficult trade-offs, decision makers would benefit from tools that 
indicate where the nation stands in improving the quality of life for 
all citizens. These indicators would help decision makers identify 
areas that warrant relatively greater or lesser attention and resources 
and help ensure that all citizens are beneficiaries of gains made in 
the nation's quality of life.

A number of efforts are under way around the world to develop 
comprehensive national indicators systems that help leaders, 
professionals, educators, and the public reflect on key quality of life 
issues. For example, Germany, France, Australia, Canada, and a number 
of other countries have developed detailed sets of national indicators. 
In fact, an international group of measurement practitioners and 
researchers maintain that while indicator systems should be 
comprehensive, they should also be designed to provide easily 
digestible, user-friendly, and timely information.

The United States also has established a wide variety of comprehensive 
and specialized national, regional, and local indicator systems. The 
most developed of these systems focus on the economy, the environment, 
and key social areas, such as health care. There is a growing 
consensus, however, that the establishment of a comprehensive portfolio 
of key national performance indicators is needed to support informed 
public debate and decisions within and between different levels of 
government and society.

To that end, the Comptroller General--in cooperation with the National 
Academies--held a forum in February 2003 with national leaders and 
experts to explore whether and how to establish a portfolio of national 
indicators for the United States. The participants generally agreed 
that developing a key national indicator system is important and 
complex. Such an effort will require applying "lessons learned" from 
past efforts and building upon many of the efforts currently under way. 
In this regard, GAO will continue to work with the Congress and a 
number of public and private sector institutions to facilitate 
continuing dialogue and work on how to improve the amount of 
information that can be brought to bear on determining Americans' 
overall quality of life.

Diverse Governance Structures and Tools:

As the pace of change accelerates in every aspect of American life, 
government is faced with new and more complex challenges. The 
demographic pressures, emerging scientific and technological changes, 
and emergent diverse security threats are among the forces that will 
test the relevance and effectiveness of current governmental programs 
and tools. As the federal role has grown in addressing a wide range of 
needs and wants, the public has come to expect effective performance 
from the public sector.

To deliver on these expectations, the nation's system will be pressed 
to adapt policy-making processes and management systems to address the 
implications of the previously noted themes for public policy outputs 
and outcomes. First, the capacity of the system to address these 
emerging issues will be based on a policy process that has sufficient 
foresight to address the longer-term forces shaping the nation's 
policies and choices. As discussed earlier, GAO's long-term budget 
model shows that absent reforms on the spending or revenue sides of the 
budget, higher retirement and health care costs associated with baby 
boomers' retirement will crowd out flexibility within the budget to 
address important national needs and eventually lead to unsustainable 
levels of deficits and public debt. (See figs. 3 and 4.) Waiting to 
address these forces could require precipitous policy actions that 
would have disruptive consequences on the lives of retirees and workers 
alike. Rather, addressing these pressures earlier through timely 
actions to reform Social Security and health care programs and policies 
that boost long-term savings and growth can provide time for social 
adjustments to policy change while helping future generations stave off 
economic decline and reclaim a larger measure of fiscal flexibility.

Second, these long-term fiscal pressures and other emerging forces will 
test the capacity of the policy process to reexamine and update 
priorities and portfolios of federal programs and policies. A process 
that only considers incremental changes to existing policies will 
constrain the nation's capacity to both respond to the fiscal 
challenges and to make government more relevant for the 21st century. 
The base of existing fiscal commitments and programs will need to be 
addressed periodically so that emerging needs can be addressed while 
outdated and unsustainable programs can be either reformed or 
eliminated.

Third, the reexamination of existing commitments calls for the 
development of systematic indicators on the performance and costs of 
federal programs. A performance-based process can help the nation 
reprioritize by identifying those programs for which performance falls 
below expectations and costs perennially exceed projections, giving the 
nation the opportunity to improve program delivery or reallocate scarce 
funds to higher priority programs with better performance prospects. 
The foundation for performance-based policy making has already been 
established through 1990s reforms in performance, financial, and 
information management. Agencies are now developing performance goals 
and plans and more systematic and reliable information is available on 
costs and performance. However, much remains to be done in developing 
performance information that is useful to policymakers in evaluating 
the efficacy of existing programs. For instance, using the Program 
Assessment Rating Tool (PART), the Office of Management and Budget 
(OMB) concluded that performance measures and data were insufficient 
for making a judgment about the effectiveness of about 40 percent of 
approximately 400 programs rated in the fiscal year 2004 and 2005 
budgets, cumulatively. (See fig. 23.)

Figure 23: Cumulative PART Results from the President's Fiscal Year 
2004 and 2005 Budgets:

[See PDF for image] - graphic text:

Pie chart with 5 items.

Results Not Demonstrated: 37%;
Moderately Effective: 26%;
Adequate: 21%;
Effective: 11%;
Ineffective: 5%.

Source: GAO analysis of data from the Office on Management and Budget.

[End of figure]

Fourth, promoting a more strategic focus on the broad goals achieved by 
portfolios of government programs is essential to bringing about a 
results-oriented debate reexamining government roles and 
responsibilities. Numerous federal programs and tools are involved in 
addressing the important policy goals in mission areas that are the 
focus of most policy debates. For example, as figure 24 illustrates, 
for the education and labor budget function, a wide range of 
discretionary, mandatory, credit, and tax expenditure programs are 
involved in addressing federal policy goals. The policy process itself 
must have the capacity to transcend the narrow focus on specific 
programs and agencies to address how portfolios of programs and tools 
contribute to policy goals. 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.

Figure 24: Relative Reliance on Policy Tools for the Education and 
Labor Budget Function, Fiscal Year 2000:

[See PDF for image] - graphic text:

Pie chart with 5 items.

Discretionary Budget Authority: 33%;
Tax Expenditures: 27%;
Guaranteed Loans: 20%;
Direct Loans: 12%;
Mandatory: 8%.

[End of figure]

The nation's capacity to address broad mission areas can be enhanced by 
the development of key national indicators focused on the broadest 
levels of policy aspirations in its system, for example, improving 
national health outcomes, reducing crime, or improving national 
educational progress. The development of such indicators can prompt a 
healthy national dialogue among key stakeholders to establish consensus 
on goals and to reach agreement on a set of indicators to measure 
current performance and track progress.

Fifth, redefining performance goals and indicators must be a national, 
not a strictly federal, initiative, because important national 
performance goals involve a broad range of federal, state, and local 
governmental, nonprofit, and for-profit organizations and even 
international organizations. Figure 25 indicates the growing 
involvement of third parties in federal programs. 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 call for a 
concerted effort by all three levels of government as well as key 
private sector leaders responsible for critical infrastructure and 
resources.

Figure 25: Federal Civilian Employment and Outlays, Fiscal Years 1950-
2003:

[See PDF for image] - graphic text:

Line chart with 2 lines.

1950; Federal civilian employment (thousands of civilian employees): 
1,439;
Total federal outlays (billions of FY2000 Dollars): $312.5. 

1955; Federal civilian employment (thousands of civilian employees): 
1,860;
Total federal outlays (billions of FY2000 Dollars): $431.3. 

1960; Federal civilian employment (thousands of civilian employees): 
1,808;
Total federal outlays (billions of FY2000 Dollars): $493. 

1965; Federal civilian employment (thousands of civilian employees): 
1,901;
Total federal outlays (billions of FY2000 Dollars): $575.6. 

1970; Federal civilian employment (thousands of civilian employees): 
2,203;
Total federal outlays (billions of FY2000 Dollars): $761.6. 

1975; Federal civilian employment (thousands of civilian employees): 
2,149;
Total federal outlays (billions of FY2000 Dollars): $909.3. 

1980; Federal civilian employment (thousands of civilian employees): 
2,161;
Total federal outlays (billions of FY2000 Dollars): $1,092.50. 

1985; Federal civilian employment (thousands of civilian employees): 
2,252;
Total federal outlays (billions of FY2000 Dollars): $1,304.70. 

1990; Federal civilian employment (thousands of civilian employees): 
2,250;
Total federal outlays (billions of FY2000 Dollars): $1,483.60. 

1995; Federal civilian employment (thousands of civilian employees): 
2,012;
Total federal outlays (billions of FY2000 Dollars): $1,568.80. 

2000; Federal civilian employment (thousands of civilian employees): 
1,778;
Total federal outlays (billions of FY2000 Dollars): $1,660.60. 

2002; Federal civilian employment (thousands of civilian employees): 
1,818;
Total federal outlays (billions of FY2000 Dollars): $1,797.90. 

Source: Office of Management and Budget.

Note: Executive branch civilian employees, excluding those in the U.S. 
Postal Service.

[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 defining and pursuing 
common national goals. More broadly, as the nation manages through 
partnerships across boundaries, the fiscal and management challenges 
faced by each level of government have become increasingly intertwined. 
Going forward, the performance and fiscal capacity of the public sector 
as a whole will become more relevant in determining how successful the 
nation will be in addressing important national policy goals. 
Successful partnerships will entail refocusing accountability and 
metrics to capture a more integrated perspective on the efforts and 
accomplishments achieved by all actors working in partnerships across 
conventional government or private sector boundaries.

Finally, the management systems and processes in federal agencies will 
have to undergo fundamental changes to respond effectively to the 
daunting challenges facing the nation. Nothing less than a 
transformation in the people, processes, and technology used to address 
public goals will be necessary to address the demanding policy goals 
facing the nation in a time of rapid change. Ultimately, the federal 
government needs to create a culture that moves from:

* outputs to results,

* stovepipes to matrixes,

* hierarchical to flatter and more horizontal organizations,

* an inward to an external focus on citizens and customers,

* reactive to proactive approaches,

* avoiding risk to managing risk, and:

* protecting "turf" to forming partnerships.

This transformation will require fundamental changes in culture within 
the federal government. Top leadership involvement and clear lines of 
accountability for making improvements will be necessary 
governmentwide. Organizational frameworks will have to be redefined to 
accommodate the adaptability needed to address emerging public policy 
challenges and leverage the partners and stakeholders who will prove to 
be essential to implementing needed reforms. Building on the evolving 
agenda of reforms in financial, performance, and information management 
will be necessary to establish the accountability mechanisms to track 
results. However, strategic human capital management will be the 
centerpiece of any serious change management initiative. 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. A 
consistent strategic approach to marshaling, managing, and maintaining 
the human capital needed to maximize government performance is 
essential. Effective changes can only be made and sustained through the 
cooperation of leaders, union representatives, and employees throughout 
an organization.

[End of Themes for the Plan]

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 and rapid technological change and Americans' desire to 
improve quality of life have major policy and budgetary implications 
for the federal government. In particular, growing commitments to the 
elderly will crowd 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. 
The stakes involved with the federal policies and programs covered 
under Goal 1 are high, as the benefits have become critical to the 
well-being of families, businesses, state and local governments, and 
other key sectors of the nation's economy and society. Moreover, as the 
nation moves to address the challenges of homeland security, it is 
becoming apparent that a wide range of domestic policies and programs 
are relevant to protecting the nation against terrorist threats. At the 
same time, the reemergence of deficits should prompt greater scrutiny 
of the performance and costs of many of these programs, and GAO expects 
to be a major contributor to these debates through its audit and 
evaluation work.

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 Safe, Secure, and Effective National Physical Infrastructure.

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

Issue: Total health care spending in the United States from all 
sources--public and private--continues to increase at a breathtaking 
pace. From 1990 through 2000, spending nearly doubled from $696 billion 
to $1.3 trillion and by 2010 is estimated to more than double again to 
$2.7 trillion. (See fig. 1.1.) This unrelenting growth is producing a 
health care sector that continues to claim an increasing share of the 
nation's GDP--about 12 percent in 1990 versus an estimated 17 percent 
in 2010.

Figure 1.1: Total National Health Care Spending, 1990-2010:

[See PDF for image] - graphic text:

Bar chart with 3 items.

Dollars in billions:

1990: $659.99;

2000: $1309.982;

2010: $2702.235.

Source: Department of Health and Human Services, Centers for Medicare & 
Medicaid Services, Office of the Actuary, National Health Statistics 
Group.

Note: The figure for 2010 is projected. All dollars are nominal.

[End of figure]

Not surprisingly, health care spending has been one of the most rapidly 
rising elements of federal spending, growing three times faster than 
the rest of the federal budget over the last 20-plus years. (See fig. 
1.2.) Expenditures on health-related programs are one of the largest 
components of federal spending, totaling an estimated $468 billion in 
fiscal year 2002, or about 23 percent of all federal spending that 
year. Health care also accounts for significant federal tax 
expenditures, with $108.5 billion in forgone revenues projected for 
2003 because of employer contributions to medical care and medical 
insurance. The cost pressures of serving a growing population--
particularly those 65 and older--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 1.2: Growth of Federal Health Expenditures, 1980-2003:

[See PDF for image] - graphic text:

Line chart with 2 lines.

1980; Health Outlays (Percentage Increase Since 1980): 0%;
All Other Federal Outlays (Percentage Increase Since 1980): 0%. 

1985; Health Outlays (Percentage Increase Since 1980): 79%;
All Other Federal Outlays (Percentage Increase Since 1980): 57.8%. 

1990; Health Outlays (Percentage Increase Since 1980): 176%;
All Other Federal Outlays (Percentage Increase Since 1980): 104.1%. 

1995; Health Outlays (Percentage Increase Since 1980): 370%;
All Other Federal Outlays (Percentage Increase Since 1980): 130%. 

2000; Health Outlays (Percentage Increase Since 1980): 494.8%;
All Other Federal Outlays (Percentage Increase Since 1980): 166%. 

2003; Health Outlays (Percentage Increase Since 1980): 690%;
All Other Federal Outlays (Percentage Increase Since 1980): 207%. 

Source: Office of Management and Budget.

Note: The 2003 number is an estimate.

[End of figure]

Of particular concern is the growth in Medicare expenditures, which are 
estimated to total about $269 billion for fiscal year 2003. Even 
without considering the financial effects of its new prescription drug 
benefit, Medicare is expected to nearly double its share of the economy 
by 2030, competing with 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 2013 and to be 
depleted by 2026. 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 1 billion claims annually to over 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.

Although the introduction of competitive principles to health care 
helped to contain medical care cost increases for several years, costs 
are increasing significantly once again as is the number of Americans 
without health insurance. These cost increases, in concert with the 
weak economy the past several years, have important implications for 
federal health care programs and outlays and for the availability of 
employer-sponsored health insurance. Many employers have reportedly 
been considering or have actually made changes in the generosity of 
their health insurance benefits. 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 $23 billion a 
year to provide health care to approximately 4.2 million veteran 
patients. Yet, much of VA's physical infrastructure is obsolete and 
burdened with excess capacity. The Department of Defense's (DOD) health 
care system spends about $24 billion annually to support both direct 
and civilian health care to about 8.7 million eligible beneficiaries. 
Pressure is mounting to integrate aspects of the two systems to 
increase their efficiency and effectiveness.

Other areas of concern are the efficiency and effectiveness of the 
government's public health programs, 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 food products. Additionally, the 
changing nature of public health threats domestically and 
internationally, such as HIV infection, SARS, 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. Governments' ability to help surmount shortages of certain 
prescription drugs and vaccines is a worldwide concern as well.

The threat of terrorists using biological weapons of mass destruction, 
such as anthrax and smallpox, has raised concerns about the nation's 
ability to adequately respond to bioterrorist attacks. 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 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 Medicaid program for which the joint federal/state 
expenditures in fiscal year 2003 are estimated at $275 billion--more 
than those of Medicare. Medicaid helps to pay for nursing home and 
other community-based forms of long-term care services. Yet meeting an 
increasing demand for such services at a time when many states are in 
severe financial difficulty and the federal government is once again 
operating at a deficit 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. However, the 
recent economic downturn has led to declining state revenues and to 
states taking, or considering taking, actions to reduce access to care 
for this vulnerable population, thereby contributing to an increase in 
the number of uninsured. 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. In particular, Medicaid's size and complexity make it 
vulnerable to fraud, waste, and abuse, making effective federal 
oversight critical.

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 Long-term Health Care; and:

* Assess State 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 $110 billion per year in programs that foster the 
development, education, and protection of children from infancy through 
elementary and secondary school and postsecondary education. Although 
federal spending is only about 7 percent of total spending on 
elementary and secondary education, requirements in recent legislation 
have increased the federal government's role 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.

The federal government invests over $11 billion in early education and 
care programs for children under age 5, primarily through six major 
Department of Health and Human Services (HHS) and Department of 
Education programs. 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 HHS and 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 after welfare reform. 
(See fig. 1.3.) Policymakers at the federal and state levels are 
concerned about the cost, quality, and availability of child care. 
Major early childhood programs--Head Start, the Child Care and 
Development Fund (CCDF), and the Individuals with Disabilities 
Education Act (IDEA)--are being reauthorized. Two additional programs, 
the Child and Adult Care Food Program and the Special Supplemental 
Nutrition Program for Women, Infants, and Children, provide nutritious 
meals or support good nutrition for children in day care facilities and 
for certain groups of low-income, nutritionally at-risk women, infants, 
and children. Both programs face challenges in delivering high-quality 
nutrition services and meeting program requirements.

Figure 1.3: Growth of Federal Investment in Child Care, Fiscal Years 
1997-2002:

[See PDF for image] - graphic text:

Line chart with 2 lines.

Dollars in Millions:

1997; CCDF: $2,547; TANF: $13;
1998; CCDF: $3,522; TANF: $259;
1999; CCDF: $4,630; TANF: $604;
2000; CCDF: $5,286; TANF: $1,411;
2001; CCDF: $5,912; TANF: $1,719;
2002; CCDF: $6,323; TANF: $1,571.

Source: Department of Health and Human Services, Administration for 
Children and Families.

Note: CCDF amounts include dollars states transferred from 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.

[End of figure]

Federal elementary and secondary school programs have traditionally 
provided opportunities for children from disadvantaged families. 
However, recent legislation, the No Child Left Behind Act, has 
increased the federal role through requirements that apply to all 
public schools and students. The United States places a high priority 
on educating children at the elementary and secondary levels and has 
increased the federal investment from over $20 billion in fiscal year 
2000 to about $35 billion in fiscal year 2003. This increased 
investment in recent years has been accompanied by an increased 
emphasis on accountability for schools to raise all students to 
proficient levels in math, reading, and science and has placed 
additional requirements on states for student testing and teacher 
qualifications. It also mandated actions for schools at which students' 
performance does not sufficiently improve. 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 American students. (See figs. 1.4 and 1.5.)

Figure 1.4: Achievement Gaps in Reading, Grade 12:

[See PDF for image] - graphic text:

Bar chart with 8 items

Score differences between White and Black students' average scores:

1992: 24;
1994: 28;
1998: 26;
2002: 25.

Score differences between White and Hispanic students' average scores:
1992: 18;
1994: 23;
1998: 21;
2002: 20.

Source: National Center for Education Statistics, National Assessment 
of Educational Progress, The Nation's Report Card: Reading 2002.

Note: Scores for 1992 through 1998 reflect testing situations in which 
accommodations were not permitted. Scores for 2002 reflect a testing 
situation in which accommodations were permitted.

[End of figure]

Figure 1.5: Achievement Gaps in Math, Grade 12:

[See PDF for image] - graphic text:

Bar chart with 8 items.

Score differences between White and Black students' average scores:
1990: 33;
1992: 30;
1996: 31;
2000: 34.

Score differences between White and Hispanic students' average scores:
1990: 25;
1992: 22;
1996: 24;
2000: 26.

Source: National Center for Education Statistics, "National Assessment 
of Educational Progress, "The Nation's Report Card: Math 2002.":

[End of figure]

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. 
Helping states to meet these requirements requires a larger role for 
the Department of Education in providing support and oversight. For 
special education students, the reauthorization of IDEA has focused on 
several major issues--the federal funding contribution, paperwork 
burden, teacher shortages, identification of children for special 
education services, and alignment of the No Child Left Behind Act 
requirements with the needs of children with disabilities. In addition, 
the National School Lunch and School Breakfast Programs are school-
based efforts to provide students with nutritionally balanced meals, 
often at low or no cost. Recent data on the increase in the percentage 
of children who are overweight and the attendant health problems has 
highlighted the importance of providing students with nutritious foods 
and creating a healthy eating environment in schools.

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, an estimated 900,000 children are found to 
be the victims of abuse and neglect by their parents, relatives, or 
other caregivers. Tragically, approximately 1,300 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 almost $8 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. In 1997, the 
Congress enacted the Adoption and Safe Families Act with two primary 
goals: (1) to ensure that consideration of children's safety is 
paramount in child welfare decisions, so that children are not returned 
to unsafe homes, and (2) to ensure that necessary legal procedures 
occur expeditiously, so that children who cannot return home may be 
placed for adoption or another permanent arrangement quickly. HHS has 
also established a new review system--known as Child and Family 
Services Reviews--to monitor state compliance with federal child 
welfare laws. Moreover, nearly 20 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. The program 
helps locate noncustodial parents, establish paternity, establish child 
support obligations, and collect child support. Provisions in the 1996 
welfare reform legislation strengthened and improved child support 
enforcement. For example, to improve efforts to track delinquent 
parents across state lines, the law established the National Directory 
of New Hires--a national system that includes personal and employment 
information on all newly hired employees--and the Federal Case 
Registry--a system that contains data from child support cases.

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 
provides approximately $63 billion annually to enhance the quality of 
and access to postsecondary, vocational, and adult education. In 
particular, federal grant and loan programs provide financial aid to 
make college more affordable and accessible for millions of Americans. 
At over $11 billion, the Pell Grant helps to ensure access to higher 
education for low-income undergraduate students. In addition, the 
government's investment in supporting college students with direct 
loans and loan guarantees results in over $44 billion of new loans 
annually. Of growing significance, the federal government also provides 
over $12 billion in higher education subsidies for students or their 
families through several tax benefits, such as the Hope and Lifetime 
Learning tax credits and the deferral of tax on the earnings of 
contributions to qualified state tuition programs.

A major concern about the federal government's investment in 
postsecondary education is the government's 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. 
1.6.) Due in part to concerns about Education's ability to efficiently 
manage the student loan and grant programs and their vulnerability to 
fraud, waste, abuse, and mismanagement, GAO has added the student loan 
programs to the high-risk list. Reducing fraud and error in and 
improving the management of these programs is also part of the 
President's Management Agenda.

Figure 1.6: A Growing Balance of Defaulted Loans Is Subject to 
Collection, 1993-2003:

[See PDF for image] - graphic text:

Line chart with one line.

Dollars in Billions:

1993: $17.06;
1994: $17.489;
1995: $17.976;
1996: $17;
1997: $19;
1998: $21;
1999: $22.6;
2000: $21;
2001: $21.5;
2002: $21.4;
2003: $22.6.

Source: Department of Education, Budget Service.

Note: Balances include defaulted loans under both the Federal Family 
Education Loan and Federal Direct Loan Programs.

[End of figure]

Furthermore, legislation key to higher education issues is scheduled 
for reauthorization. The Higher Education Act, the Adult Education and 
Family Literacy Act, and the Carl D. Perkins Vocational and Technical 
Education Act are all due to be reauthorized in the near future. The 
Congress will be debating several key issues, including the rising 
costs of college, how to help students and families finance these 
costs, institutional accountability for educational costs and quality, 
how best to provide for a skilled workforce, and Education's management 
of the federal investment in postsecondary education.

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, Care, and Nutrition Programs in Serving Their Target 
Populations;

* Assess Options for Federal Programs to Effectively Address the 
Educational and Nutritional Needs of Elementary and Secondary Students;

* 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 a productive 
workforce. Developing that workforce includes effectively preparing 
youth and new workers to compete in the labor force, efficiently 
helping employers locate qualified job candidates, providing a work 
environment that safely promotes productivity, finding ways to help 
workers when they become unemployed, and providing assistance to 
workers with disabilities. To this end, the federal government 
currently invests more than $150 billion annually to help new entrants 
to the workforce, support those who have been laid off from their jobs 
and assist them in becoming reemployed, assist and rehabilitate workers 
with injuries or disabilities, help employers hire enough highly 
skilled workers, 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, but changes in the economy have created significant 
challenges to supporting low-skilled, low-income families as people 
leave welfare and enter the workforce.

A struggling economy and a large projected decline in the growth rate 
of the workforce present critical challenges for maintaining the 
nation's productivity. While economic recovery is under way, a slower 
rate of labor force growth will present challenges to the continued 
growth of the nation's economy. As the demand for skilled labor 
increases with the expansion of the economy, researchers warn that, 
unlike in the past when economic growth was fueled in part by increases 
in the size and skill of America's workforce, over the next two decades 
the potential for shortages of skilled workers could present mounting 
challenges for productivity and economic growth. At the same time the 
baby boom generation begins to retire, there will be fewer native-born 
workers entering the labor force to take their place. Tapping into all 
possible labor sources will be important, and policymakers may need to 
look for more ways to support employing workers with disabilities, to 
encourage seasoned workers to remain in the workforce longer, to help 
welfare recipients leave welfare for work, and to assist low-wage 
workers in retaining and advancing in their jobs. Additionally, the 
nation may need to consider how well current immigration policies work 
in addressing demands for workers.

Technology, changes in the organization of work, and increasing global 
interdependence--in which not only production but also some portions of 
the service sector are being outsourced overseas--are redefining the 
labor market for workers and employers. Federal employment, worker 
protection, and disability programs must deal with these new 
challenges, in addition to encouraging a commitment to lifelong 
learning. Because of technological changes and global competition, 
employers will need workers with greater skills. In the past, employers 
were able to take advantage of new technologies, in part, because new 
workers were more educated than the retiring workers. However, over the 
next 20 years, the growth in the labor force is expected to slow 
dramatically, as are the proportions of the labor force with education 
beyond high school and with college degrees. For example, as shown in 
figure 1.7, some experts project that the labor force will grow only 
16.4 percent from 2000 through 2020--barely a third of the nearly 50 
percent rate of expansion from 1980 through 2000. These changes raise 
numerous issues regarding the adequacy of efforts to ensure that 
employers will have the workers they need. Various changes in the 
workforce and workplace also raise issues about the adequacy of efforts 
to ensure that workers have safe, healthy, and productive workplaces. 
Regulations and activities designed to ensure workplace safety and 
health must be revised to accurately reflect the technological changes 
of the recent past. At the same time, changes in technology and the 
labor force have created new opportunities for some people with 
disabilities to remain at or return to work, yet the labor force 
participation rate of people with disabilities has remained quite low. 
Moreover, federal disability programs remain mired in concepts from the 
past and are poorly positioned to provide meaningful and timely support 
for Americans with disabilities. The Congress and the administration 
face challenges as they redefine the role of public policies to help 
employers and workers enhance productivity and increase earnings while 
also protecting workers' rights.

Figure 1.7: Changes in the Actual and Projected Growth Rates for the 
Labor Force, 1980-2020:

[See PDF for image] - graphic text:

Bar chart with 4 items.

Total Workforce;
Actual Change in the Rate of Growth--1980 to 2000:48.5%;
Projected Change in the Rate of Growth--2000 to 2020: 16.4%.

College Degree or More;
Actual Change in the Rate of Growth--1980 to 2000:106.9%;
Projected Change in the Rate of Growth--2000 to 2020: 29.6%.

Source: The Aspen Institute.

[End of figure]

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 Leave 
Welfare for Work and to Assist Other Low-Income Individuals;

* Analyze the Impact of Programs Designed to Maintain a Skilled 
Workforce and Ensure That Employers Have the Workers They Need;

* Assess the Success of Various Enforcement Strategies to Protect 
Workers While Minimizing Employers' Burden in the Changing Work 
Environment; and:

* Identify Ways to Improve Federal Support for People with 
Disabilities.

Strategic Objective: A Secure Retirement for Older Americans:

Issue: For the last 60 years, the retirement security of older 
Americans has been a central concern of American society. The Congress 
enacted Social Security and the post-World War era saw the development 
and expansion of a private-employer-provided pension system. Later, new 
tax-preferred vehicles were created to encourage individuals to 
increase their personal retirement savings.

The nation has also changed dramatically in other ways. For example, 
women, especially married women, have entered the labor force in 
growing numbers, with their 2000 labor force participation rate almost 
doubling to over 60 percent since 1960. As the growth in the number of 
single parent households illustrates, there has been a substantial 
increase in the diversity of structure of American households. Finally, 
as the baby boomers approach retirement and as life expectancy 
continues to increase, the American population has aged. The percentage 
of the population age 65 and older is projected to reach 20 percent by 
2025, up from less than 12 percent in 2000.

All of these developments have important consequences for the 
retirement security of American workers and their families. For 
example, the aging of the population poses important challenges for the 
future of Social Security, the program that continues to serve as the 
foundation of the nation's retirement income system. Because of these 
changes in workforce participation and longevity, people--particularly 
women--on average, will be spending an increasing number of years in 
retirement and thus will receive benefits longer. In addition, it means 
that the ratio of workers to retirees is expected to decline, with 
fundamental implications for Social Security, the federal budget, and 
the national economy. Although Social Security payroll tax revenues 
exceed benefit expenditures today, projections suggest that beginning 
in 2018, spending will exceed revenues by growing proportions and that 
in 2042 the Social Security trust funds will be depleted. (See fig. 
1.8.) 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.

Although there is an emerging consensus about the need to address the 
long-term fiscal problems of the Social Security program, there remains 
considerable debate on both the timing and the nature of such reform. 
The Congress has discussed many of these issues and is continuing these 
policy deliberations. Such reform would have major consequences for the 
federal budget, for the long-term economic growth of the country, and 
particularly for retirement income adequacy, given that Social Security 
is the sole source of income for one-fifth of the elderly.

Figure 1.8: Social Security Trust Fund Faces Insolvency in 2042:

[See PDF for image] - graphic text:

Combined bar and line chart with one line and 41 bars.

Dollars in billions:

2000;
Trust fund balance: $1,119.0;
Cash surplus: N/A;
Cash Deficit: N/A. 

2001;
Trust fund balance: $1,258.9;
Cash surplus: N/A;
Cash Deficit: N/A. 

2002;
Trust fund balance: $1,411.0;
Cash surplus: N/A;
Cash Deficit: N/A. 

2003;
Trust fund balance: $1,542.6;
Cash surplus: $77.1;
Cash Deficit: N/A. 

2004;
Trust fund balance: $1,682.9;
Cash surplus: $81.3;
Cash Deficit: N/A. 

2005;
Trust fund balance: $1,832.7;
Cash surplus: $89.9;
Cash Deficit: N/A. 

2006;
Trust fund balance: $1,989.5;
Cash surplus: $95.3;
Cash Deficit: N/A. 

2007;
Trust fund balance: $2,153.9;
Cash surplus: $98.6;
Cash Deficit: N/A. 

2008;
Trust fund balance: $2,322.9;
Cash surplus: $97.8;
Cash Deficit: N/A. 

2009;
Trust fund balance: $2,493.5;
Cash surplus: $94.6;
Cash Deficit: N/A. 

2010;
Trust fund balance: $2,664.4;
Cash surplus: $89.9;
Cash Deficit: N/A. 

2011;
Trust fund balance: $2,834.7;
Cash surplus: $84.8;
Cash Deficit: N/A. 

2012;
Trust fund balance: $3,001.1;
Cash surplus: $76.3;
Cash Deficit: N/A. 

2013;
Trust fund balance: $3,160.7;
Cash surplus: $65.2;
Cash Deficit: N/A. 

2014;
Trust fund balance: $3,311.6;
Cash surplus: $52.4;
Cash Deficit: N/A. 

2015;
Trust fund balance: $3,452.0;
Cash surplus: $38.1;
Cash Deficit: N/A. 

2016;
Trust fund balance: $3,579.0;
Cash surplus: $21.5;
Cash Deficit: N/A. 

2017;
Trust fund balance: $3,690.6;
Cash surplus: $3.3;
Cash Deficit: N/A. 

2018;
Trust fund balance: $3,785.6;
Cash surplus: N/A;
Cash Deficit: -$16.2. 

2019;
Trust fund balance: $3,863.0;
Cash surplus: N/A;
Cash Deficit: -$36.0. 

2020;
Trust fund balance: $3,920.6;
Cash surplus: N/A;
Cash Deficit: -$57.5. 

2021;
Trust fund balance: $3,956.5;
Cash surplus: N/A;
Cash Deficit: -$80.3. 

2022;
Trust fund balance: $3,970.6;
Cash surplus: N/A;
Cash Deficit: -$102.5. 

2023;
Trust fund balance: $3,963.9;
Cash surplus: N/A;
Cash Deficit: -$123.2. 

2024;
Trust fund balance: $3,935.5;
Cash surplus: N/A;
Cash Deficit: -$144.0. 

2025;
Trust fund balance: $3,885.2;
Cash surplus: N/A;
Cash Deficit: -$164.5. 

2026;
Trust fund balance: $3,812.9;
Cash surplus: N/A;
Cash Deficit: -$184.4. 

2027;
Trust fund balance: $3,718.1;
Cash surplus: N/A;
Cash Deficit: -$204.2. 

2028;
Trust fund balance: $3,600.6;
Cash surplus: N/A;
Cash Deficit: -$223.5. 

2029;
Trust fund balance: $3,461.1;
Cash surplus: N/A;
Cash Deficit: -$241.5. 

2030;
Trust fund balance: $3,300.2;
Cash surplus: N/A;
Cash Deficit: -$258.2. 

2031;
Trust fund balance: $3,118.6;
Cash surplus: N/A;
Cash Deficit: -$273.5. 

2032;
Trust fund balance: $2,917.1;
Cash surplus: N/A;
Cash Deficit: -$287.6. 

2033;
Trust fund balance: $2,696.4;
Cash surplus: N/A;
Cash Deficit: -$300.4. 

2034;
Trust fund balance: $2,457.1;
Cash surplus: N/A;
Cash Deficit: -$312.1. 

2035;
Trust fund balance: $2,199.9;
Cash surplus: N/A;
Cash Deficit: -$322.5. 

2036;
Trust fund balance: $1,925.2;
Cash surplus: N/A;
Cash Deficit: -$332.0. 

2037;
Trust fund balance: $1,633.7;
Cash surplus: N/A;
Cash Deficit: -$340.3. 

2038;
Trust fund balance: $1,325.7;
Cash surplus: N/A;
Cash Deficit: -$347.8. 

2039;
Trust fund balance: $1,001.4;
Cash surplus: N/A;
Cash Deficit: -$354.8. 

2040;
Trust fund balance: $660.5;
Cash surplus: N/A;
Cash Deficit: -$361.4. 

2041;
Trust fund balance: $302.6;
Cash surplus: N/A;
Cash Deficit: -$368.0. 

Source: GAO analysis of Social Security Administration data.

Note: Data taken from the Office of the Actuary's 2003 intermediate 
assumptions from the 2003 Annual Report of the Board of Trustees of the 
Federal Old-Age and Survivors Insurance and Disability Insurance Trust 
Funds.

[End of figure]

Besides reforming Social Security in ways to ensure its financial 
viability and enhance its contribution to retirement income, it will 
also be necessary to foster the growth of other sources of retirement 
income. For example, pensions are another key element in the nation's 
approach to ensuring adequate retirement income, constituting 18 
percent of retirement income in the United States. (See fig. 1.9.) 
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 1.9: Sources of Income in the United States for Those Age 65 and 
Over, 2001:

[See PDF for image] - graphic text:

Pie chart with 5 items.

Social Security: 38%;
Earnings: 23%;
Asset Income: 18%;
Pensions: 18%;
Other: 3%.

Source: Social Security Administration, Annual Statistical Supplement, 
2002.

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

[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 from traditional defined benefit plans 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.

A still significant number of workers continue to be covered by defined 
benefit plans offered by individual employers. Benefits provided by 
these plans are partially insured by the Pension Benefit Guaranty 
Corporation (PBGC). After fluctuating over the last decade, the single 
employer insurance program now has a large and growing accumulated 
deficit. The program has moved from a $9.7 billion accumulated surplus 
in 2000 to a $3.6 billion accumulated deficit in fiscal year 2002.

The termination of large underfunded pension plans of bankrupt firms in 
troubled industries like steel or airlines was the major cause of the 
deficit. Declines in the stock market and interest rates and certain 
weaknesses in the current funding rules contributed to the severity of 
the plans' underfunded condition. Furthermore, the degree of 
underfunding in the private pension system has increased dramatically 
and additional severe losses may be on the horizon. Continued problems 
in volatile or declining industrial sectors could lead to additional 
corporate bankruptcies and consequent plan terminations, increasing 
PBGC's financial liabilities. PBGC currently estimates that it faces 
$35 billion in unfunded vested benefits exposure, which ultimately 
might become program losses.

However, these factors mask broader trends that pose serious program 
risks. For example, the program's insured participant base continues to 
shift away from active workers, falling from 78 percent of all 
participants in 1980 to 53 percent in 2000. In addition, the program's 
risk pool has become concentrated in industries affected by global 
competition and the movement from an industrial to a knowledge-based 
economy. In 2001, almost half of all program-insured participants were 
in plans sponsored by firms in manufacturing industries, a sector that 
has had virtually no employment growth in the last half century. The 
result is a potentially escalating agency vulnerability as PBGC 
struggles to insure what is at best a moribund and increasingly risky 
segment of the pension universe. In response to the cumulative effect 
of these trends on the financial vulnerability of this agency and the 
potentially severe adverse consequences for workers' benefits and the 
federal government, GAO placed PBGC's single-employer insurance program 
on its high-risk list in July 2003.

Long-term weaknesses in the solvency of the Social Security program and 
the sustained lack of pension coverage for half of the labor force 
necessitate that workers depend 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.

Finally, earnings from employment are already a key component of 
retirement income, accounting for 24 percent of aggregate retiree 
income in 2002. Employment-related earnings, particularly when 
generated by extending the labor force of seasoned workers, could 
potentially play a more prominent role in future retirement security. 
Current workers are healthier than past generations and are more 
willing to work in retirement. Increased labor force participation can 
reduce the fiscal pressures on Social Security, contribute to economic 
growth by mitigating potential occupational bottlenecks, and bolster 
labor force growth. However, most employers have not yet met this 
challenge by establishing alternative work and schedule arrangements, 
nor has the government developed the complementary policies to 
encourage employers and workers to move in this direction.

The health needs of an aging population and society's ability and 
willingness to fund those needs are other key issues in national 
retirement policy. The availability of health insurance is a major 
consideration in seasoned workers' employment and retirement decisions 
as well as in employers' decisions to hire such workers. In particular, 
the long-term erosion of employer-provided health benefits for retired 
workers age 55 to 64 who are ineligible for Medicare is a disturbing 
trend. In addition, some of these workers, especially low-wage workers, 
may have to look to Medicaid, the health insurance program for the 
poor, for assistance. Yet a serious related concern is the projected 
rapid rise in Medicaid expenditures. The Congressional Budget Office 
(CBO) estimates that total national expenditures for Medicaid will 
increase from $158 billion in fiscal year 2003 to $360 billion in 2013, 
a 128 percent increase. GAO is taking a comprehensive view of the 
issues facing older Americans and their financial security, including 
not only their retirement income but also health insurance access and 
affordability and the interaction of all of these concerns with the 
general retirement decision.

The demographic, economic, and social developments affecting the nation 
also have important consequences for how the Social Security 
Administration conducts its business. In particular, the Social 
Security number (SSN), once an internal marker for the agency to record 
contributions and pay benefits, is now virtually a universal 
identifier, used by public agencies at all levels of government and 
private business entities of all sizes and from many different economic 
sectors. The SSN's wide use, besides raising many serious privacy 
issues, has also put citizens throughout the nation at risk of identity 
theft, fraud, and other types of illegal activity. How to use the SSN 
in a way that ensures effective agency operations, prevents its illegal 
use, and protects the privacy of U.S. citizenry is one of the greatest 
21st century challenges facing the Social Security Administration.

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

* Assess the Policy Challenges Facing the Future of the Social Security 
System and the Need for Reform;

* Bolster Retirement Security by Identifying Opportunities to Foster 
Greater Pension Coverage, Raise Personal Saving, and Increase the 
Employment Earnings of Seasoned Workers;

* Identify Opportunities to Improve the Ability of Government Agencies 
to Administer and Protect Workers' Retirement Benefits; and:

* Assess the Role of the Social Security Number in Improving Government 
Operations, Minimizing Fraud and Abuse, and Protecting Citizens from 
Identity Theft and Other Illegal Activity.

Strategic Objective: An Effective System of Justice.

Issue: Spending on the administration of justice continues to grow. In 
constant 2001 dollars, federal spending will be about $38 billion in 
fiscal year 2004, up from about $15 billion in 1991. (See fig. 1.10.) 
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 1.10: Federal Outlays for the Administration of Justice, 1991-
2004:

[See PDF for image] - graphic text:

Line chart with one line.

Fiscal Year 2002 Dollars in Billions:

1991: $15.215.
1992: $17.422.
1993: $17.641.
1994: $17.629.
1995: $18.361.
1996: $19.496.
1997: $22.
1998: $24.582.
1999: $27.584.
2000: $29.048.
2001: $30.039.
2002: $34.316.
2003: $35.572.
2004: $38.144.

Source: Office of Management and Budget, "Budget of the United States 
Government, Fiscal Year 2004.":

Note: The 2003 and 2004 numbers are estimates. These data reflect OMB 
budget data for the "administration of justice" budget function.

[End of figure]

During the past several years, overall crime levels have been reduced. 
For example, preliminary data for 2002 from the Federal Bureau of 
Investigation's (FBI) Uniform Crime Reporting Program indicate a 0.2 
percent decrease in the nation's Crime Index from the 2001 figure. 
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, while protecting civil 
liberties; to reduce illegal drug use; to protect the nation's borders; 
and to control prison costs. The USA Patriot Act, passed in October 
2001, significantly expanded federal law enforcement and investigative 
authority and, with billions of dollars in additional funding, greatly 
increased the federal counterterrorism role. In addition, the newly 
created Department of Homeland Security (DHS) 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 is in the process of redefining 
its mission and priorities in light of the increased focus on 
antiterrorism.

Passage of the Homeland Security Act of 2002 moved several major 
federal law enforcement agencies around--the Secret Service, the 
Immigration and Naturalization Service (INS), the U.S. Customs Service, 
the Coast Guard, the Federal Protective Service, and the Federal Law 
Enforcement Training Center all moved to the new DHS. In addition, the 
Bureau of Alcohol, Tobacco, and Firearms moved from the Department of 
the Treasury to Justice, leaving Treasury virtually no law enforcement 
functions. While the movement of these agencies into their new units 
presents management challenges, it also raises concerns about the 
impact the transfers will have on agencies' ability to perform their 
missions. These concerns, as well as the sheer size of the undertaking, 
the fact that DHS's proposed components already faced a wide array of 
existing challenges, and the prospect of serious consequences for the 
nation should DHS fail to address its management challenges and program 
risks adequately, led GAO to add the implementation and transformation 
of the new department to the list of high-risk areas in 2003.

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 2002 dollars, the federal 
judiciary's fiscal year 2004 spending, estimated at about $5.5 billion, 
will be more than double its fiscal year 1991 spending of about $2.5 
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. Also, the number of prisoners being 
released from federal prisons is growing rapidly, making successful 
reintegration an increasingly important issue.

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 Terrorism and Other Major Crimes,

* Assess the Effectiveness of Federal Programs to Control Illegal Drug 
Use,

* Assess Federal Efforts to Enforce Immigration and Customs Laws, 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 communities is key to the 
nation's overall growth and prosperity. Yet the viability of many of 
America's communities is threatened by a variety of ills, including 
high levels of long-term unemployment, inadequate retail activity, a 
deteriorating housing stock, and other economic and social problems. 
For decades, federal, state, and local governments and the private and 
nonprofit sectors have sought ways to revitalize distressed 
communities. The federal government alone operates well over 100 
programs that offer communities grants, loans, loan guarantees, and 
special tax incentives designed to assist distressed areas--for 
example, Community Development Block Grants that communities can use 
for a variety of infrastructure and capacity-building needs and 
Empowerment Zones that are intended to encourage investment in targeted 
areas.

Despite these efforts, no simple answer has been found to the question 
of how best to revitalize America's distressed communities, in part 
because of the difficulty of measuring the factors that actually cause 
communities to improve. Also, the issue of how best to deliver aid is 
complicated by the need to strike a balance between the goals of the 
federal government and those of state and local governments and 
nonprofit organizations, which administer a large share of federal 
dollars for community and economic development.

Small businesses, which employ more than half the nation's workforce, 
are key to economic growth in many communities. 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 and minority-
owned businesses. Because SBA has undertaken numerous initiatives to 
address management issues that affect the agency's performance, the 
Congress needs up-to-date assessments of its performance.

To promote 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 VA and 
guarantees of mortgage securities by the Government National Mortgage 
Association. It also provides a federal charter and other direct and 
indirect benefits to three government-sponsored enterprises (GSE)--
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--that support 
the mortgage market. Recently, the effectiveness of the regulatory 
structure for GSEs has been called into question. The federal 
government also promotes home ownership through tax incentives and 
requirements placed on mortgage market participants. It must balance 
the benefits of increasing home ownership, especially among the 
underserved, against the financial risk taken on directly (through 
mortgage guarantees) or indirectly (through GSEs).

Since the late 1970s, the federal government has provided over $100 
billion to help prepare for disasters 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.

The Department of Housing and Urban Development (HUD) administers 
rental 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, in part because HUD 
faces numerous management challenges in human capital, contract 
management, and IT. Also, HUD and the Department of Agriculture's Rural 
Housing Service, which oversees rural rental 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.

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

* Federal Community and Economic Development Assistance and Its Impact 
on Communities;

* The Effectiveness of Federal Initiatives to Assist Small and 
Minority-Owned Businesses;

* How the Federal Government Can Balance the Promotion of Home 
Ownership with Financial Risk;

* Federal Efforts to Enhance National Preparedness and Capacity to 
Respond to and Recover from Natural and Man-made Disasters; and:

* How Well Federal Programs That Support Affordable Rental Housing Meet 
Objectives, Manage Financial Risk, and Improve Recipients' Well-being.

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

Issue: The nation's natural resources and the systems associated with 
their use are under widespread and increasing stress, generating 
intense debate and posing daunting challenges to policymakers at all 
levels of government. In large part, this is the consequence of the 
country's growing population and economy and attendant increased 
demands on a finite resource base. Accommodating these demands runs 
headlong into long-standing legislation aimed at protecting the 
country's resources in a healthy state for the good of current and 
future generations. Likewise, how policymakers resolve this balance has 
global consequences because the United States is the world's single 
largest consumer of energy and other resources and is increasingly seen 
as out of step with international efforts to limit resource use and 
associated pollution.

The body of work set forth in this strategic objective is designed to 
address these and other issues in several natural resource areas, as 
well as related terrorist threat matters. On the latter point, it is 
noted that the 14 critical infrastructure sectors listed in President's 
Decision Document, "National Strategy for Homeland Security," include 6 
in the natural resource areas addressed in this strategic objective--
food (except meat and poultry), energy, water, chemical industry and 
hazardous materials, agriculture, and meat and poultry.

In recent decades, the United States has experienced multiple energy 
crises--the 2003 electricity blackout affecting much of the country was 
a notable example--and remains perpetually on the cusp of critical 
supply/demand imbalances. Without applying prudence and foresight in 
crafting the nation's strategic energy plan, electricity, natural gas, 
heating oil, and gasoline markets can be thrown into turmoil at any 
time. The challenge is further complicated by the global nature of many 
energy markets and growing doubts about the long-term sustainability of 
policies that demand increased production from the existing energy mix. 
Furthermore, strategies must now incorporate greater attention to the 
means of protecting a massive energy infrastructure that encompasses 
5,000 power plants, 204,000 miles of high voltage transmission lines, 
and nearly 3 million miles of oil and gas pipelines. Finally, energy 
strategies must consider the environmental consequences of energy 
choices, as illustrated by issues surrounding the potential reemergence 
of the nuclear power industry. While increased nuclear power capacity 
would obviously buttress electricity supplies and help reduce harmful 
emissions, continuing questions remain about where and how to store the 
by-product radioactive waste in an environmentally sound manner, as 
well as how to secure the plants and waste sites against possible 
future attacks.

More than ever, the country's lands and waters are under increasing 
stress. This is evidenced by rapidly dwindling open spaces, declining 
biodiversity, depleted aquifers, and collapsing fisheries--the 
unintended consequences of economic growth and the need to sustain the 
lifestyle of a growing population. Reconciling and balancing the 
demands of often competing objectives--economic growth for today versus 
natural resource protection for the future--is a major challenge facing 
the American public and its elected leaders. The heated debate on 
possible future oil development in the Arctic National Wildlife Refuge 
in Alaska presents this issue in microcosm. In this case, the issue 
pertains to the use of federal lands, which constitute about 30 percent 
of the country's total land surface, but similar controversies exist 
over privately held lands affected by federal law and regulations. The 
use of the nation's waters presents equally sobering challenges, as 
pollutants and overfishing rapidly deplete coral reefs and offshore 
fisheries, while competition over rights to fresh water supplies grows 
among various interests, such as agriculture, communities, utilities, 
wildlife, and recreational users. Even under normal conditions, water 
managers in 36 states expect water shortages to occur within the next 
10 years. If such shortages actually occur, they could have severe 
economic, environmental, and social impacts.

The increasing globalization of natural resource issues also affects 
environmental protection matters, as seen in the federal government's 
discussions with other governments about global warming and what should 
be done about it. Such discussions add a new layer of complexity to the 
already difficult question of how to sustain economic growth when the 
engines of that growth--factories, cars and trucks, fertilizers, and 
electricity-generating plants--often adversely affect air and water 
quality and can change climates in potentially catastrophic ways. 
Another factor in attaining federal air and water quality goals is that 
land use practices, often resulting in "urban sprawl," are controlled 
mainly by local governments and private owners. Moreover, the federal 
government relies upon state and local governments for inspection and 
enforcement actions.

Also, significant challenges remain in cleaning up the country's 
hazardous and radioactive waste sites. Today, an estimated 60 million 
Americans live within 4 miles of a hazardous site, and radioactive 
waste from weapons production still needs to be cleaned up at 
Department of Energy (DOE) sites in 13 states. These sites' continued 
existence poses not only potential health and safety problems, but also 
fiscal and economic problems as well. Delayed cleanup results in higher 
price tags for eventual cleanup and in stunted economic development in 
the affected communities. Potential terrorist attacks underline the 
need for steps to ensure the security of hazardous and radioactive 
materials during storage, transportation, and disposal.

Finally, with the recent passage of the 2002 Farm Bill, the Congress 
continues to debate the direction of U.S. farm policy in areas such as 
the role of agriculture in land conservation, wildlife habitat 
protection, and energy production efforts. Food safety and security lie 
at the forefront of concerns about the country's agricultural 
resources, an urgent matter given the potential for, and the 
consequences of, agricultural bioterrorism. Besides this troubling 
matter, a whole range of other food safety issues, while less ominous, 
nevertheless pose serious questions. These include questions about the 
adequacy of the government's devolution of food inspection authority 
and its efforts to implement a "farm-to-table" food safety approach. At 
the same time, a number of countries have raised concerns about the 
safety of U.S. genetically modified crops and foods--a matter of 
growing importance given the significant role that food exports play in 
the U.S. economy.

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

* The Nation's Ability to Ensure Reliable and Environmentally Sound 
Energy for Current and Future Generations;

* Federal Strategies for Managing Land and Water Resources in a 
Sustainable Fashion for Multiple Uses;

* Environmental Protection Strategies and Programs;

* Efforts to Reduce the Threats Posed by Hazardous and Nuclear Wastes; 
and:

* Federal Programs' Ability to Ensure a Plentiful and Safe Food Supply, 
Provide Economic Security for Farmers, and Minimize Agricultural 
Environmental Damage.

Strategic Objective: A Safe, Secure, and Effective National Physical 
Infrastructure.

Issue: The nation's economic vitality and the quality of life of its 
citizens depend significantly on the soundness, security, and 
availability of its physical infrastructure. Transportation and 
telecommunications systems, for instance, provide the superstructure 
for the nation's economic engine, facilitating the movement of people, 
goods, and information. The nation faces major challenges in improving 
both efficiency and safety in the movement of people and goods. The 
nation relies heavily on its postal system for efficient mail delivery 
service. And thousands of federal facilities house and support staff 
and the other assets needed to provide services to the American people.

In both the short and long term, the nation faces important 
infrastructure challenges as federal, state, and local governments 
confront new demands brought on by changes in national security, 
demographics, technology, and lifestyles. The challenges are complex, 
cutting across many interrelated issues, and require coordinated 
intergovernmental responses.

For example, the nation's commercial passenger airlines, which were 
experiencing financial difficulties even before the terrorist attacks 
of September 11, 2001, now face unprecedented financial losses stemming 
from reduced air travel, raising debate over the appropriate federal 
response. Also, long-term trends indicate that increasing numbers of 
motorists are encountering increasingly congested highways, while 
bottlenecks have escalated for freight transportation at intermodal 
connection points.

Suburban growth has raised demands for new roads, water and sewer 
systems, and access to telecommunications. At the same time, existing 
communities are demanding that the environment and their citizens' 
quality of life not be harmed by this growth.

The cost of maintaining and modernizing its infrastructure is only one 
concern of a U.S. Postal Service that faces growing financial, 
operational, and human capital challenges. In addition, the deregulated 
transportation and telecommunications industries require continuous 
oversight to help ensure that firms have a level playing field on which 
to compete and that consumers receive the intended benefits of 
deregulation.

The responses of the federal government and other levels of government 
to these infrastructure challenges will have important consequences for 
the nation's future because of their effects on the quality of life and 
their significant costs. Since 1990, nondefense spending on 
infrastructure has nearly doubled and, as figure 1.11 shows, has become 
a significantly larger portion of total spending--largely the result of 
the previous two surface transportation reauthorizations.

Figure 1.11: Nondefense Federal Spending on Infrastructure as a 
Percentage of Total Expenditures, 1981-2002 (in Constant 2002 Dollars):

[See PDF for image] - graphic text:

Line chart with a single line.

1981; Percentage of Total Expenditures: 3.0%.
1982; Percentage of Total Expenditures: 2.6%.
1983; Percentage of Total Expenditures: 2.3%.
1984; Percentage of Total Expenditures: 2.6%.
1985; Percentage of Total Expenditures: 2.7%.
1986; Percentage of Total Expenditures: 2.7%.
1987; Percentage of Total Expenditures: 2.6%.
1988; Percentage of Total Expenditures: 2.8%.
1989; Percentage of Total Expenditures: 2.6%.
1990; Percentage of Total Expenditures: 2.5%.
1991; Percentage of Total Expenditures: 2.5%.
1992; Percentage of Total Expenditures: 3.0%.
1993; Percentage of Total Expenditures: 2.9%.
1994; Percentage of Total Expenditures: 3.0%.
1995; Percentage of Total Expenditures: 3.2%.
1996; Percentage of Total Expenditures: 3.2%.
1997; Percentage of Total Expenditures: 3.1%.
1998; Percentage of Total Expenditures: 3.1%.
1999; Percentage of Total Expenditures: 3.2%.
2000; Percentage of Total Expenditures: 3.5%.
2001; Percentage of Total Expenditures: 3.3%.
2002; Percentage of Total Expenditures: 3.8%.

Source: Office of Management and Budget, "Budgets of the United States 
Government" for fiscal years 1981 through 2004.

[End of figure]

During the latter years of this period, the federal government enjoyed 
budget surpluses. With the return to large federal deficits forecast in 
the upcoming years, decision makers will be faced with difficult 
choices on how to allocate funding among infrastructure needs and other 
demands in an increasingly tight budget environment. Given limited 
resources, decision makers must choose investments that promise to be 
most cost-effective and targeted to address national infrastructure 
needs. These choices must be supported by credible data on needs and 
costs, performance information and measures highlighting outcomes from 
existing programs, and a budget process prompting a more explicit focus 
on investment spending across agencies.

It is therefore essential for government at all levels to have the 
information needed to make well-informed decisions about how to 
allocate funds among competing priorities, evaluate the challenges to 
determine which solutions are most cost-effective, and implement these 
solutions as efficiently and effectively as possible.

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

* Strategies for Identifying, Evaluating, Prioritizing, Financing, and 
Implementing Integrated Solutions to the Nation's Transportation 
Infrastructure Challenges;

* The Impact of Transportation and Telecommunications Policies and 
Practices on Competition and Consumers;

* The Federal Government's Role in Fostering and Overseeing 
Telecommunications in the Public Interest;

* Efforts to Improve Safety in Moving People and Goods across the 
Nation's Transportation System;

* Efforts to Improve Security in All Transportation Modes;

* The U.S. Postal Service's Transformation Efforts to Ensure Its 
Viability and Accomplish Its Mission; and:

* Federal Efforts to Plan for, Acquire, Manage, Maintain, Secure, and 
Dispose of the Government's Real Property Assets.

External Factors That May Affect Achievement of Goal 1:

Any significant changes in the major forces shaping the United States 
discussed earlier in this plan will affect GAO's ability to meet its 
goals and objectives. Already, the terrorist attacks of September 11, 
2001, have brought about major changes in the nation's public policy 
agenda. Domestic policy and programs have become more intertwined with 
the nation's security challenges, as the threats penetrate the nation's 
borders. Each major objective in this plan has been changed to reflect 
the implications to GAO's work of the terrorism threat in those areas.

However, much uncertainty remains. The scope of the threat itself could 
shift in unforeseen ways. As the specific nature of the threats 
continues to be defined, the consequences for domestic programs and 
priorities are still unfolding. In some respects, federal, state, and 
local governments are just beginning the process of defining the most 
vulnerable facilities, areas, and services and designing effective 
strategies to both mitigate known threats and prepare the nation to 
respond. As this process unfolds, GAO will be called upon to help 
define effective counterterrorism strategies as well as to identify 
other programs and activities that are candidates for de-emphasis or 
reductions based on long-standing problems with their performance.

The fiscal underpinnings for domestic policies and programs are also 
shifting in ways that are still unclear. Deficits have once again 
emerged and will become a major factor influencing budget debates as 
well as deliberations over program reauthorizations and reform. The 
short-term deterioration of the fiscal outlook will serve to further 
weaken the long-term fiscal outlook, which is already unsustainable 
because of the aging of the population. In fact, the baby boom 
retirement is now reflected in the 10-year budget outlook, as 
manifested by reduced Social Security surpluses and a slowing of the 
growth of the labor force. Ultimately, renewed fiscal discipline will 
be increasingly discussed as a way to restore the budget to balance and 
better promote the level of savings necessary to prepare the nation for 
the longer-term challenges of an aging society. Unlike the 1990s, when 
the budget was balanced in large part with cuts to defense, this time, 
fiscal balance will have to be achieved by addressing other parts of 
the budget, possibly including many of the areas covered in goal 1. 
Recent fiscal pressures in state governments may also prompt a 
consideration of the fiscal partnerships for major federal programs 
that depend on states for program delivery and financing.

[End 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:

The nature of the threats to national and international security and 
the means of attack have changed significantly in the post-Cold War 
era, and even more so since the terrorist attacks of September 11, 
2001. The nation must assess and defend against a wide range of means 
and methods of attack against U.S. interests both at home and abroad. 
Adversaries are more likely to strike vulnerable civilian or military 
targets at home and overseas in nontraditional ways to avoid direct 
confrontation with U.S. military forces or their allies on the 
battlefield. Nonetheless, the United States faces the challenge of 
transforming its military capabilities to maintain its technological 
edge and capabilities while executing a global war on terrorism, 
recognizing that military power alone cannot respond to today's new 
threats. Responding to today's threats requires new rules and new roles 
for all levels of government, best represented by the federal 
government's structural changes associated with creation of DHS.

As the world grows increasingly interconnected through more open 
markets and rapidly developing technology, the globalization of markets 
has created new opportunities for the nation as a whole and for 
American producers and consumers. At the same time, the United States 
is facing increasing challenges and threats to its security and economy 
from sources that range from terrorism to regional conflicts to 
instability sparked by adverse economic conditions, corruption, ethnic 
hatred, nationalism, and disease. In today's environment, advancing and 
protecting U.S. international interests has required interventions 
abroad to address terrorism at its roots or other interventions to make 
or keep the peace. While seeking to anticipate and address emerging 
threats to the nation's security and economy, the federal government 
also tries to promote foreign policy goals, sound trade policies, and 
other strategies to advance the interests of the United States and 
those of U.S. trading partners and allies in every corner of the world. 
In light of the globalization, technology, and security trends, the 
second goal of GAO's strategic plan is to help the Congress and the 
federal government respond to changing security threats and the 
challenges of global interdependence.

GAO's specific objectives are to support congressional and federal 
efforts to:

* Respond to Emerging Threats to Security,

* Ensure Military Capabilities and Readiness,

* Advance and Protect U.S. International Interests, and:

* Respond to the Impact of Global Market Forces on U.S. Economic and 
Security Interests.

Strategic Objective: Respond to Emerging Threats to Security:

Issue: The nature of the threats to national and international security 
and the means of attack have changed significantly in the post-Cold War 
era. Threats stem from differences in national or state ideologies and 
geopolitical, economic, and strategic considerations and now, 
increasingly, from religious conflicts and the aims of non-state-
sponsored groups. Adversaries are more likely to strike vulnerable 
civilian or military targets at home and overseas in nontraditional 
ways to avoid direct confrontation with U.S. military forces or their 
allies on the battlefield.

The nation must assess and defend against a wide range of means and 
methods of attack, ranging from unconventional means to conventional 
weapons to weapons of mass destruction. International access, global 
interdependencies, interconnected and less diverse systems, and rapid 
technological change make such threats more viable and decrease the 
effectiveness of physical borders in ensuring security. The continuing 
proliferation of weapons of mass destruction increases concerns that 
terrorists or a rogue regime could threaten the United States or its 
allies with nuclear, chemical, or biological attack.

These threats put at risk the nation's values, economic interests, way 
of life, and the personal security of its citizens at home and abroad. 
National strategies propose homeland security and combating terrorism 
initiatives to address these threats, yet their implementation and 
their associated costs, both direct and indirect, remain unclear. 
Decision-making approaches based on risk analysis and cost-benefit 
effectiveness and the alignment of federal funding with state, local, 
and private sector investments are still works in progress. In the 
international arena, U.S. efforts to prevent the proliferation of 
weapons of mass destruction directly support domestic homeland security 
missions, yet much remains to be done.

Preparing and responding to emerging security threats will entail a 
national effort involving defense and domestic federal agencies and 
programs; state, local, and regional governments and organizations; the 
private sector; and the international community. At the federal level, 
the effectiveness of major structural changes to provide leadership 
will be important. The primary mission of DHS is to prevent, reduce 
vulnerability to, and aid in recovery from domestic terrorist attacks. 
Homeland security will require an effective DHS implementation and the 
efforts of other federal agencies, such as the FBI and the intelligence 
community. Responsibility for oversight and coordination across the 
executive branch, for example, with the Executive Office of the 
President, is still evolving.

Moreover, homeland security is, in large part, dependent on the efforts 
of state and local governments and the private sector. Internationally, 
the cooperation of the United States and its allies is needed to 
prevent terrorists and others from using dangerous weapons to carry out 
threats to the nation's security. In addition, long-term success in 
homeland security will mean seamlessly integrating homeland security 
concepts into normal business decisions and practices across government 
and within the areas of the private sector responsible for critical 
infrastructures and key assets, so that efforts are sustainable over 
the long term and balanced with important non-homeland-security 
objectives.

Performance Goals: To support congressional and federal decision making 
on national preparation for and response to emerging threats to 
security, GAO will:

* Assess Federal Homeland Security Management, Responsibility, 
Effectiveness, and Achievement of Mission Goals;

* Identify Ways to Strengthen Strategies Related to Homeland Security 
and Their Implementation;

* Evaluate Homeland Security Resource Priorities, Costs, and Approaches 
to Stimulate Desired Investments;

* Identify Opportunities to Embed Homeland Security Concepts in Ongoing 
National Initiatives;

* Evaluate Ways to Strengthen Government Information Security and 
Protect Computer and Telecommunications Systems That Support the 
Nation's Critical Infrastructures; and:

* Assess the Effectiveness of U.S. and International Efforts to Prevent 
the Proliferation of Nuclear, Biological, Chemical, and Conventional 
Weapons and Sensitive Technologies.

Strategic Objective: Ensure Military Capabilities and Readiness.

Issue: In contrast to the downward trend in defense spending during the 
last decade, this first decade of the new century has already seen a 
significant upward trend in authorized defense spending. After dropping 
below $300 billion in prior years, total defense budget authority 
increased to about $360 billion in fiscal year 2002 and will exceed 
$400 billion in fiscal years 2003 and 2004, including substantial 
supplemental funding to support ongoing military operations. (See fig. 
2.1.) As the new decade began, some increases in funding authority were 
approved to enhance operational maintenance, quality-of-life programs, 
pay raises, and improvements to crumbling facilities. Since September 
2001, more significant increases in annual budget authority and 
supplemental appropriations have been approved to respond to the war on 
terrorism, including funding for Defense operations in Afghanistan and 
Iraq. Major increases have also been approved for weapon systems 
acquisition and modernization.

Figure 2.1: Total Defense Appropriations and Supplemental Funding for 
Fiscal Years 2000 through 2004, as of January 2004:

[See PDF for image] - graphic text:

Bar chart with 10 items.

Dollars in billions:

2000; Appropriations: $286.5;
Supplementals: $8.5.

2001: Appropriations: $310;
Supplementals: $19.9.

2002: Appropriations: $343;
Supplementals: $17.2.

2003: Appropriations: $382;
Supplementals: $72.6.

2004: Appropriations: $400.5;
Supplementals: $65.2.

Source: Congressional Research Service.

[End of figure]

Notwithstanding the ongoing war on terrorism, DOD has continued to 
focus on implementing the results of the 2001 Quadrennial Defense 
Review, which charted a new defense strategy that emphasized homeland 
security, military transformation, joint operations, and advanced war-
fighting capabilities related to IT, intelligence, and space 
operations. Follow-on studies were begun to more precisely define how 
existing DOD programs and priorities would change in light of the 
changing security environment and increased emphasis on homeland 
security.

Perhaps the most significant of the follow-on studies are those 
involving the ongoing reassessment of U.S. force structure and 
capabilities and of overseas presence and basing. The former has the 
potential for significant change in organization of forces and 
deployment planning. The latter has the potential for significant 
changes in the numbers and locations for U.S. bases overseas in keeping 
with the revised global military posture called for in the report of 
the Quadrennial Defense Review. That report called for developing a 
basing system that provides greater flexibility for U.S. forces in 
critical areas of the world, placing emphasis on additional bases and 
stations beyond western Europe and northeast Asia, and providing 
temporary access to facilities in foreign countries that enable U.S. 
forces to conduct training and exercises in the absence of permanent 
ranges and bases. The new defense strategy also highlights the 
criticality of reforming the department's business practices and human 
capital management, streamlining organizational structures, and 
eliminating excess infrastructure that unnecessarily diverts resources 
from other defense priorities. In that light, DOD also recently 
directed acquisition programs to tailor their strategies so that 
weapons can be fielded in a timelier manner at a fair and reasonable 
cost.

The debate about what capabilities DOD must maintain and develop, where 
they should exist, and to what extent additional defense spending is 
required will be significantly shaped by the debate over the military's 
role in homeland security and the augmentation of the civilian 
agencies' roles in the fight against terrorism. Nonetheless, the 
Quadrennial Defense Review ties many of these issues together. (See 
fig. 2.2.)

Figure 2.2: Key Topical Issues Framing the Defense Debate:

[See PDF for image] - graphic text:

* Jointness and interoperability;

* Capabilities-based strategy versus two major-theater wars;

* Force transformation, advanced warfighting capabilities, and 
training;

* Changes in global military presence;

* Antiterrorism and force protection;

* Chemical and biological defense;

* Human capital challenges;

* Quality of life and facilities infrastructure;

* Weapon systems modernization;

* Homeland security;

* Guard and reserve roles;

* Nuclear stockpile;

* Improved business practices.

Source: GAO analysis.

[End of figure]

There also are pressing issues concerning the defense establishment's 
program to maintain a safe and reliable nuclear weapons stockpile. This 
program is administered by the National Nuclear Security Administration 
(NNSA), a semiautonomous agency established in 2000 within DOE. NNSA 
faces numerous planning, organizational, procurement, personnel, and 
security challenges as it administers this $8 billion-a-year program, 
and questions remain about the impact of its 2002 reorganization plan 
on its capacity to address these challenges efficiently and 
effectively.

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

* Assess DOD's Ability to Maintain Adequate Readiness Levels While 
Addressing the Force Structure Changes Needed in the 21st Century;

* Assess Overall Human Capital Management Practices to Ensure a High-
Quality Total Force;

* Assess the Ability of Weapon System Acquisition Programs and 
Processes to Achieve Desired Outcomes;

* Identify Ways to Improve the Economy, Efficiency, and Effectiveness 
of DOD's Support Infrastructure and Business Systems and Processes;

* Assess the National Nuclear Security Administration's Efforts to 
Maintain a Safe and Reliable Nuclear Weapons Stockpile;

* Assess Whether DOD and the Services Have Developed Integrated 
Systems, Procedures, and Doctrines to Support Joint and Coalition 
Forces on the Battlefield Safely and Effectively; and:

* Analyze and Support DOD's Efforts to Improve Planning, Programming, 
Budgeting, Execution, and Program Performance.

Strategic Objective: Advance and Protect U.S. International Interests:

Issue: Although U.S. leaders agree on the ultimate goal of promoting 
global peace, prosperity, and stability, and have spent over $27 
billion on international affairs (See fig. 2.3), intense debate is 
occurring over how to achieve that goal.

Figure 2.3: Spending Type for the $27 Billion in Fiscal Year 2002 
International Affairs Funds:

[See PDF for image] - graphic text:

Pie chart with 5 items.

Bilateral Assistance: 42%;
Foreign Affairs Administrations and Broadcasting: 30%;
Military Assistance: 17%;
Other: 6%;
Multilateral Assistance: 5%.

Source: Department of State.

[End of figure]

Conflict interventions to make or keep the peace, stabilize failed 
states, and end terrorist regimes have dominated recent U.S. foreign 
policy actions. These interventions are sometimes controversial, both 
domestically and internationally. They also are often costly: The 
United States has spent more than $23 billion in the Balkans since the 
early 1990s. And the costs of military intervention in Afghanistan and 
Iraq are predicted to be even greater. Such interventions are likely to 
continue to play a prominent role in stabilizing regions used as 
staging areas for efforts to undermine or threaten U.S. interests.

U.S. foreign aid to developing countries is critical for advancing U.S. 
economic and security interests. For example, the United States 
supports countries trying to adopt democratic and free market 
structures after conflicts through developmental and humanitarian 
programs as well as rule-of-law assistance and measures to combat 
corruption. These countries and regions in transition have combined 
populations in excess of 2 billion, and they face complex development 
problems. Ensuring the effectiveness and efficiency of these programs 
is important because the extent to which countries can successfully 
make the transition to and maintain democratic governments and market 
economies will significantly affect U.S. security and economic 
objectives and, ultimately, the U.S. budget.

Protecting U.S. strategic interests in the face of new tests has 
presented challenges for alliances established decades ago and raised 
questions about how the United States should respond to shifting needs 
and priorities. Terrorist attacks against the United States and 
interventions in Afghanistan and Iraq have given rise to new U.S.-led 
coalitions to pursue military, political, and economic efforts to erode 
terrorists' networks and their sources of support. Traditional 
alliances continue to evolve. For example, NATO's focus is changing 
from defending the territory of Western Europe to promoting peace and 
stability outside of its member countries as it expands its membership 
eastward. The United States continues to provide bilateral security 
assistance and pursue programs that counter transnational threats, like 
drug trafficking and infectious diseases, in order to foster 
international security.

Conducting foreign affairs is becoming more complicated as the lines 
between domestic and international issues blur and the threat of 
terrorist attacks on U.S. facilities and personnel overseas changes how 
America does business. About 35 federal agencies have around 19,000 
U.S. staff assigned to overseas embassies, and most federal policies 
have international aspects. The State Department plays a key role in 
coordinating U.S. policy and programs for regions, countries, or 
multilateral organizations. To carry out its responsibilities, the 
State Department operates more than 250 embassies and consulates in 
over 160 countries. The size and composition of the department's 
overseas infrastructure and human capital are being questioned, 
particularly in light of security concerns. Similarly, U.S. 
participation in multilateral organizations, such as the United 
Nations, is sometimes debated when questions arise about these 
organizations' effectiveness and their ability to advance U.S. 
interests. Also being questioned are the practices for granting entry 
into the United States and the need to block the entry of terrorists 
and criminals while at the same time facilitating entry for legitimate 
travel key to the nation's prosperity. Moreover, attacks on the United 
States prompted a rethinking of U.S. public diplomacy and public 
affairs activities and ways to better understand, inform, and influence 
foreign publics and policymakers.

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

* Analyze the Plans, Strategies, Roles, Costs, and Results of the 
United States and Its Allies in Conflict Interventions;

* Analyze the Effectiveness and Management of U.S. Foreign Aid and 
Developmental and Humanitarian Programs and the Tools Used to Implement 
Them;

* Analyze the Plans, Costs, and Outcomes of Responding to Challenges to 
U.S. Strategic Interests;

* Evaluate the Extent to Which U.S. Interests Are Effectively Served by 
U.S. Participation in Multilateral Organizations; and:

* Assess the Strategies and Management Practices for U.S. Foreign 
Affairs Functions and Activities.

Strategic Objective: Respond to the Impact of Global Market Forces on 
U.S. Economic and Security Interests.

Issue: The increasing interdependence of the world's economies has a 
significant impact on the national security and the economic well-being 
of the American people. U.S. exports have grown much faster than the 
economy. (See fig. 2.4.) Moreover, the United States has been the 
principal architect of an open world trading system and, as the world's 
largest exporter of goods and services, has benefited immensely from 
global trade. But segments of U.S. and world populations have not 
shared equally in these benefits and may not do so in the future. 
Moreover, global market forces have made the United States more 
vulnerable to overseas economic crises. In addition, it has become more 
difficult for the United States to maintain control over critical 
technologies and the industrial base on which U.S. economic and 
military security depends. Also, the United States has faced terrorist 
threats emanating from some of the least integrated countries in the 
world as well as health threats from some of the most integrated 
regions of the world. For policymakers, several aspects of these trends 
require particular attention.

Figure 2.4: Growth in U.S. Exports Compared to Overall Output (GDP) 
since 1970:

[See PDF for image] - graphic text:

Line chart with two lines.

1970;
GDP index (1970=100) revised in 2003: 100;
Export index (1970=100): 100. 

1972;
GDP index (1970=100) revised in 2003: 110.7719579;
Export index (1970=100): 108.148161. 

1974;
GDP index (1970=100) revised in 2003: 113.6529711;
Export index (1970=100): 147.1162823. 

1976;
GDP index (1970=100) revised in 2003: 119.6801406;
Export index (1970=100): 149.5177379. 

1978;
GDP index (1970=100) revised in 2003: 131.4246061;
Export index (1970=100): 168.5462173. 

1980;
GDP index (1970=100) revised in 2003: 126.7078667;
Export index (1970=100): 201.7804952. 

1982;
GDP index (1970=100) revised in 2003: 126.1362924;
Export index (1970=100): 175.336049. 

1984;
GDP index (1970=100) revised in 2003: 141.3615998;
Export index (1970=100): 177.1414138. 

1986;
GDP index (1970=100) revised in 2003: 151.7359065;
Export index (1970=100): 179.3135632. 

1988;
GDP index (1970=100) revised in 2003: 161.3246994;
Export index (1970=100): 233.7323161. 

1990;
GDP index (1970=100) revised in 2003: 165.8771254;
Export index (1970=100): 275.5205894. 

1992;
GDP index (1970=100) revised in 2003: 168.1853715;
Export index (1970=100): 310.61475. 

1994;
GDP index (1970=100) revised in 2003: 177.7414619;
Export index (1970=100): 346.4050702. 

1996;
GDP index (1970=100) revised in 2003: 186.0378875;
Export index (1970=100): 400.0172879. 

1998;
GDP index (1970=100) revised in 2003: 201.1931453;
Export index (1970=100): 457.4677982. 

2000;
GDP index (1970=100) revised in 2003: 213.0785394;
Export index (1970=100): 522.354598. 

2002;
GDP index (1970=100) revised in 2003: 216.8798285;
Export index (1970=100): 437.0213813. 

Source: International Monetary Fund data.

Note: The decline in exports that began in 2000 can be attributed to 
the recent global economic downturn; it is not clear whether this 
downward trend will continue.

[End of figure]

Trade agreements are increasing in number and importance to the U.S. 
economy. More than 300 international trade agreements affect hundreds 
of billions of dollars in trade and millions of U.S. jobs. The mutual 
dependence of international markets and the U.S. economy is expected to 
increase even further with China's 2001 admission to the World Trade 
Organization (WTO). In addition, the United States is currently 
involved in a major regional trade negotiation (the Free Trade Area of 
the Americas), multilateral negotiations in the WTO, as well as 
numerous free trade agreements with other partners. Over 10 U.S. 
agencies have programs to promote U.S. exports. These programs include 
providing financial assistance through loans, loan guarantees, and 
grants as well as providing U.S. businesses with information on the 
export process.

The globalization of the industrial base is driving changes in the way 
the United States obtains technologies and capabilities to protect its 
national security interests. As companies increasingly engage in a wide 
variety of business arrangements across national borders, DOD is 
seeking new ways to benefit from the competitive sources and innovative 
technologies that a diverse industrial base may provide. For example, 
the department is partnering with foreign countries to develop major 
weapon systems, such as the Joint Strike Fighter aircraft program. 
Although globalization has the potential to speed innovation and reduce 
costs, it also carries potential threats to the technological 
superiority of the U.S. military and may require new approaches to 
protect national security interests.

Global financial health and the maintenance of the world financial 
system are critical to long-term U.S. objectives and cornerstones of 
U.S. foreign policy. Financial crises in Argentina, Mexico, Asia, 
Russia, and elsewhere have raised questions about what can be done to 
prevent, solve, or contain the spread of regional financial crises and 
what can be done to reduce the debt burden on poor countries. 
International financial institutions, such as the International 
Monetary Fund (IMF) and the World Bank, are at the center of efforts to 
address financial crises. The United States is the major contributor to 
the IMF and relies heavily on it and the World Bank to promote world 
economic health. The operations and transparency of these institutions 
have come under increased scrutiny.

Overseeing financial institutions and markets in the 21st century is a 
growing challenge. Trillions of dollars flow through the nation's 
financial institutions and markets, including the investments and 
retirement savings of working households. The globalization of 
financial firms and markets, coupled with continuing advances in 
technology, have created opportunities to improve the speed and 
efficiency of market operations. But these advances also provide new 
opportunities for illegal market activities and may broaden the scope 
of financial crises or cause them to spread more rapidly. The creation 
of new products and the increasing importance of new market 
participants continue to pose challenges to existing regulatory 
frameworks and oversight programs. Innovations such as the increasing 
use of Internet-based financial activities also present new regulatory 
challenges. While these innovations can benefit U.S. markets and 
investors, they also expose individuals to increased risks and 
potential fraud.

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

* Analyze How U.S. Interests Are Served through Trade Agreements and 
U.S. Programs,

* Improve Understanding of the Effects of a Global Industrial Base on 
U.S. National Security Interests,

* Assess How the United States Can Influence Improvements in the World 
Financial System,

* Assess the Ability of the Financial Services Industry and Its 
Regulators to Maintain a Stable and Efficient Financial System in the 
Face of Market Change and Innovation, and:

* Assess the Effectiveness of Regulatory Programs and Policies in 
Ensuring Access to Financial Services and Deterring Fraud and Abuse in 
Financial Markets.

External Factors That May Affect Achievement of Goal 2:

Other factors, in addition to those discussed earlier, could affect 
GAO's ability to achieve this goal. First, as the United States plans 
and executes its short-and long-term responses to recent terrorist 
attacks on the homeland, concerns about operational security are likely 
to be emphasized both at home and abroad. Consequently, it may be more 
difficult to obtain and report on information related to operations and 
readiness. Moreover, continuing instability in Afghanistan and Iraq may 
hamper our ability to evaluate U.S. activities in those countries. GAO 
reports dealing with these areas may be more subject to national 
security classification than in the past, which could limit the release 
of information. Further, historically GAO's access to the intelligence 
community for audit and information purposes has been limited. 
Continuation of this practice could hamper GAO's ability to fully 
assess progress in addressing the full range of homeland and national 
security issues.

Second, GAO has not historically had authority to access or inspect 
records, documents, or other materials held by other countries and at 
multilateral institutions that the United States works with to protect 
and advance its interests. Accordingly, GAO's ability to conduct 
thorough analyses of some issues is affected by the level of openness 
and voluntary cooperation. Continued cooperation from the executive 
branch in obtaining access to international organizations and foreign 
governments is important; in this light, GAO is developing a set of 
protocols to facilitate its access. Nonetheless, other changes in the 
international environment and unanticipated geopolitical crises could 
affect GAO's strategy and objectives. GAO will monitor international 
events, work closely with its congressional clients, and maintain 
broad-based staff expertise so that it can quickly adjust its work 
focus to meet emerging needs.

[End of Goal 2]

Goal 3: Help Transform the Federal Government's Role and How It Does 
Business to Meet 21st Century Challenges:

The federal government is in a period of profound transition and faces 
an array of challenges and opportunities to enhance performance, ensure 
accountability, and position the nation for the 21st century. Major 
trends--such as diffuse security threats, increasing 
interconnectedness of global markets and economies, and rapid 
technological advances--drive the need for federal agencies to 
transform their cultures and operations. In view of the broad trends 
and growing fiscal pressures, the federal government needs to engage in 
a fundamental reexamination of what government does, how it does 
business, and in some instances who does the government's business.

The federal government will need to work more closely with other 
governments, nongovernmental organizations, and the private sector--
both domestically and internationally--to achieve results. In 
reassessing federal missions and strategies, the federal government 
must examine the entire mix of policy tools available to address 
national objectives. Because the public expects demonstrable results 
from the federal government, government leaders need to increase 
strategic planning, address management challenges and high-risk issues, 
use integrated approaches, enhance their agencies' results orientation, 
and ensure accountability. Examining existing programs and operations 
for potential cost savings can create much needed fiscal flexibility to 
address emerging needs. Moreover, addressing today's priorities must be 
balanced against the long-term fiscal pressures of financing existing 
programs and operations.

This third strategic goal guides GAO in its efforts to help transform 
the federal government's role and how it does business to meet 21st 
century challenges. The accompanying strategic objectives focus on the 
comprehensive reassessment necessary to position the government to take 
advantage of emerging opportunities and meet strategic challenges. 
Specifically, GAO focuses on the government's role in achieving 
national goals in an increasingly networked environment and its ability 
to deliver, and account for, high performance.

To ensure that GAO helps transform the role of government and how it 
does business to meet 21st century challenges, it has established 
strategic objectives to:

* Reexamine the Federal Government's Role in Achieving Evolving 
National Objectives;

* Support the Transformation to Results-Oriented, High-Performing 
Government;

* Support Congressional Oversight of Key Management Challenges and 
Program Risks to Improving Federal Operations and Ensuring 
Accountability; and:

* Analyze the Government's Fiscal Position and Strengthen Approaches 
for Addressing the Current and Projected Fiscal Gap.

Strategic Objective: Reexamine the Federal Government's Role in 
Achieving Evolving National Objectives.

Issue: Within the context of the major trends and long-term fiscal 
imbalance, evaluating the role of the government and the programs it 
delivers is key to determining how to best position the federal 
government for the 21st century. With the government facing an array of 
complex challenges and opportunities, a strategic long-term view is 
critical in considering how best to design programs to manage 
effectively across boundaries and meet the nation's needs and 
priorities today and in the future. Policymakers will need forward-
looking information to set the stage for early warnings about emerging 
threats and make informed choices about effective government responses.

As the pace of change accelerates in every aspect of American life, 
policymakers and the public need more and better information to assess 
where the nation is and where it is going. In this regard, developing 
key national indicators for the United States can help policymakers 
assess the overall position and progress of the nation in key areas, 
frame strategic issues, and support informed public debate and 
decisions within and between levels of government and the United States 
as a whole.

Addressing the nation's strategic challenges increasingly depends on 
the joint efforts of all levels of government and the interactions and 
interdependencies between the various actors, policy tools, and 
management functions. (See fig. 3.1.) In most federal mission areas--
from low-income housing to food safety to higher education assistance-
-national goals are achieved through the use of various policy tools, 
such as direct spending, grants, loans and loan guarantees, insurance, 
tax preferences, and regulations. For example, as figure 3.2 shows, in 
fiscal year 2003, the federal government relied on a mix of entitlement 
and discretionary spending, tax preferences, and loan guarantees in 
delivering Medicare and federal health care. Any assessment of federal 
missions and strategies must look at the tools that the federal 
government uses and the participation of other organizations in 
achieving national objectives.

Figure 3.1: Policy Tools, Actors, and Management Functions That 
Influence Successful Government Performance:

[See PDF for image] - graphic text:

Tools: Direct services;
Tools: Grant-in-aid;
Tools: Contracting;
Tools: Credit and insurance;
Tools: Tax expenditures;
Tools: User fees;
Tools: Regulation.

Actors: Executive agencies;
Actors: State and locals;
Actors: Foreign government;
Actors: GSEs;
Actors: Nonprofits;
Actors: Contractors;
Actors: Faith-based For-Profits;

Management: Strategic planning;
Management: Performance management;
Management: Human capital;
Management: Budgeting;
Management: Financial management;
Management: IT management;
Management: Acquisitions and sourcing;

Source: GAO analysis.

[End of figure]

Figure 3.2: Relative Reliance on Policy Tools in Health Care, Fiscal 
Year 2003:

[See PDF for image] - graphic text:

Pie chart with 3 items.

Mandatory Outlays: 71%;
Tax Expenditures: 20%;
Discretionary Budget Authority: 9%.

Source: GAO analysis of data from the Office of Management and Budget.

Note: Loan guarantees accounted for about $104 million, or about 0.02 
percent, of the approximately $591 billion in total federal health care 
resources.

[End of figure]

Although policy tools have proliferated in recent decades, knowledge of 
how to design and manage the federal policy tool set has not kept pace. 
Policymakers need a better understanding of how individual policy tools 
operate, how to measure their performance and effectiveness, which 
actors participate in implementing various tools, and what features are 
necessary to ensure accountability and oversight.

The effectiveness of federal programs has increasingly become dependent 
on state and local management and resources as well as constructive 
interactions between federal, state, and local actors, including 
private and nonprofit entities. The intergovernmental system is being 
tested by a complex array of specific short-and long-term challenges. 
Federal, state, and local governments are facing daunting problems in 
managing programs involving numerous actors inside and outside of 
government in areas ranging from homeland security to education to 
health care. Moreover, the unique advantages of a federal system--the 
flexibility and capacity to respond to local needs--are challenged by 
long-term trends such as advances in technology and communications that 
span state and national boundaries and inspire calls for consistent 
national regulatory and tax policies.

Performance Goals: To support the Congress in reexamining the federal 
government's role in achieving evolving national objectives, GAO will:

* Examine Emerging Challenges and Opportunities to Position the Federal 
Government for the 21st Century,

* Develop New Resources and Approaches That Can Be Used to Assess the 
Nation's Position and Progress,

* Explore Ways to Evaluate the Effectiveness of the Entire Set of 
Policy Tools That the Federal Government Uses to Achieve National 
Objectives, and:

* Assess How Involvement of State and Local Governments and 
Nongovernmental Organizations Affects Federal Program Implementation 
and Achievement of National Goals.

Strategic Objective: Support the Transformation to Results-Oriented, 
High-Performing Government:

Issue: The overarching trends and long-term fiscal challenges facing 
the nation drive the need to change how the government does business in 
the 21st century. To become high-performing organizations (HPO), 
agencies must transform their cultures to respond to the transition 
that is taking place in the federal government's role. By building 
fundamental management capacity, the federal government can improve its 
performance and deliver economical, efficient, and effective programs 
and services that the American people need in a cost-effective and 
fiscally sustainable manner. Focusing on accountable, results-oriented 
management can help the federal government operate effectively within a 
broad network that includes other governmental organizations, 
nongovernmental organizations, and the private sector.

As part of its transformation efforts, the federal government needs to 
create a culture that moves from outputs to results, stovepipes to 
matrixes, hierarchical to flatter and more horizontal structures, an 
inward to an external focus, micromanagement to employee empowerment, 
reactive behavior to proactive approaches, avoiding new technologies to 
embracing and leveraging them, hoarding knowledge to sharing knowledge, 
avoiding risk to managing risk, and protecting "turf" to forming 
partnerships. (See fig. 3.3.) People are an organization's most 
important asset, and strategic human capital management should be the 
centerpiece of any effort to transform the cultures of government 
agencies. A focus on results, not just of the organization but of its 
contribution to national goals, is essential. In establishing a 
results-oriented culture that can reach its full potential, the 
organization and its leaders need to carefully select the best solution 
for the organization in terms of structure, systems, and processes. 
Information is an important asset that needs to be appropriately and 
effectively managed. Vital to successful transformation will be 
building the management capacity of federal agencies to support new 
ways of doing business--including financial, IT, and acquisition 
management. Though progress is being made on many fronts, much remains 
to be done.

Figure 3.3: Cultural Changes and Key Practices Necessary for Successful 
Transformation:

[See PDF for image] - graphic text:

9 Key Practices:
* Leadership:
* Integrated mission and goals:
* Clear principles and priorities:
* Goals and timeline:
* Implementation team:
* Line of sight:
* Communication strategy:
* Employee involvement:
* World-class organization:

Transformations:
Current State: Output-oriented; HPO: Results-oriented;
Current State: Stovepipes; HPO: Matrixes;
Current State: Hierarchical; HPO: Flatter and more horizontal;
Current State: Inwardly focused; HPO: Externally focused;
Current State: Micro-managing; HPO: Employee empowerment;
Current State: Reactive behavior; HPO: Proactive approaches;
Current State: Avoiding technology; HPO: Leveraging technology;
Current State: Hoarding knowledge; HPO: Sharing knowledge;
Current State: Avoiding risk; HPO: Managing risk;
Current State: Protecting turf; HPO: Forming partnerships;

Source: GAO analysis.

[End of figure]

Today's federal human capital strategies are not suited to meet current 
and emerging challenges or to drive needed transformation across the 
federal government. GAO has designated strategic human capital 
management as a governmentwide high-risk area, and this is also one of 
the President's governmentwide management reform initiatives. The 
federal personnel system is clearly broken in critical respects--
designed for a time and workforce of an earlier era and not able to 
meet the needs and challenges of a rapidly changing and knowledge-based 
environment. In the past 2 years, significant progress has been made, 
particularly on agency-specific human capital reforms and the provision 
of certain flexibilities. However, much remains to be done to build an 
effective human capital infrastructure. As new authorities and 
flexibilities are provided, it will be vital to have the institutional 
infrastructure in place to use new authorities effectively. This 
institutional infrastructure includes, at a minimum, a human capital 
planning process that integrates the agency's human capital policies, 
strategies, and programs with its program goals and mission and desired 
outcomes; the capabilities to develop and implement a new human capital 
system effectively; and a modern, effective, and credible performance 
management system that includes adequate safeguards, including 
reasonable transparency and appropriate accountability mechanisms, to 
ensure the fair, effective, and nondiscriminatory implementation of the 
system.

Agencies are confronted with long-standing and substantial challenges 
to becoming more results-oriented. During the past decade, the Congress 
has sought to instill a greater focus on results and accountability by 
enacting a statutory framework with the Government Performance and 
Results Act of 1993 (GPRA) as its centerpiece. GAO's work has shown 
significant growth in the number and types of results-oriented 
performance measures called for in GPRA. Managers' perceptions of being 
held accountable for results also have grown. (See fig. 3.4.) On the 
other hand, weaknesses persist in a number of areas. Progress in 
building organizational cultures to create and sustain a focus on 
results has been uneven. For example, the extent to which top 
leadership is perceived as demonstrating a strong commitment to 
achieving results is a persistent weakness. (See fig. 3.5.) Further, 
performance information is not being used to its fullest extent in key 
management activities. To help agencies effectively manage their 
resources and link resource decisions to results, agencies and the 
Congress need credible, rigorous evaluations to assess whether current 
programs and policies remain relevant, appropriate, and effective. Top 
leadership commitment is crucial to instilling a results-oriented 
culture. Although the President's Management Agenda--with its emphasis 
on results-oriented practices--is an important step, more needs to be 
done to imbed these practices into government operations.

Figure 3.4: Extent to Which Managers Believe They Have Needed Decision-
Making Authority and Are Held Accountable for Results, 1997 and 2000:

[See PDF for image] - graphic text:

Bar chart with 8 items.

1997: Non-SES;
Had Decision-Making Authority: 29%;
Held Accountable for Results: 54%.

1997: SES;
Had Decision-Making Authority: 51%;
Held Accountable for Results: 62%.

2000: Non-SES;
Had Decision-Making Authority: 34%;
Held Accountable for Results: 62%.

2000: SES:
Had Decision-Making Authority: 56%;
Held Accountable for Results: 66%.

Source: GAO survey data.

Note: "Needed" decision-making authority refers to the authority Senior 
Executive Service (SES) and non-SES managers responding to the survey 
believe managers at their level need to help their agencies accomplish 
their strategic goals.

[End of figure]

Figure 3.5: Extent to Which Top Leadership Is Perceived as 
Demonstrating a Strong Commitment to Achieving Results, 1997 and 2000:

[See PDF for image] - graphic text:

Bar chart with 4 items.

1997: Non-SES; 56%;

1997: SES; 76%;

2000: Non-SES; 52%;

2000: SES; 72%.

Source: GAO survey data:

Notes: Survey respondents were both SES members and non-SES members. 
"Top leadership" refers to the leadership of the agencies in which the 
respondents serve.

[End of figure]

Evaluating the role of government and the programs it delivers must be 
done within the context of the major trends and long-term fiscal 
challenges it faces. This is an opportune time for the Congress to 
carefully consider how to make needed changes in the short term to help 
agencies effectively manage their resources and link resource decisions 
to results, as well as to work toward a comprehensive and fundamental 
reassessment of what the government does, how it does business, and who 
does the government's business. Agencies and the Congress need credible 
evaluative, analytical, and financial information to assess whether 
current programs and policies remain relevant, appropriate, and 
effective.

Successfully transforming how the government does business depends on 
building high-performing organizations that network with key partners 
both across and outside the government. Improved performance has been a 
primary goal of several recent restructurings--formation of DHS, 
reorganization of the FBI, and modernization of the Internal Revenue 
Service. DOD is in the process of transforming its business operations, 
and the U.S. Postal Service faces the challenge of transforming its 
business model for the 21st century. However, past government 
experience in reorganization has yielded mixed results. Future success 
will depend on identifying and implementing best practices of high-
performing organizations operating in a complex, networked environment. 
Critical organization elements--structure, systems, and practices--
must support achieving high performance.

Information is a vital resource that needs to be properly managed. The 
growth in electronic information, as well as new security threats 
facing the nation, highlight challenges to the effective collection and 
dissemination of information that agencies need to take into account in 
developing new programs. While it is important to enhance the 
government's use of new technologies to improve the collection and 
dissemination of government information, it is also important that this 
information--especially that collected for statistical purposes--meets 
the current needs of federal programs and policymakers. In areas in 
which the U.S. economic and social structure is undergoing major 
change, statistical agencies need to respond to these changes with 
relevant data on a timely basis.

Timely, accurate, and useful financial information is essential for 
making operating decisions day to day; supporting results-oriented 
management approaches; and managing the government's operations more 
efficiently, effectively, and economically. Yet, the federal 
government's financial management has suffered from neglect, and 
financial systems have serious shortcomings.

IT is a key element of management reform efforts that can dramatically 
reshape government to improve performance and reduce costs. However, 
numerous poorly managed IT systems have produced multimillion-dollar 
cost overruns, schedule slippages, and poor results. Further, poor 
information security remains a high-risk area across the federal 
government with potentially devastating consequences. Electronic 
government offers many opportunities to better serve the public and 
reduce costs, but the federal government has not reached its full 
potential in this area.

Effective acquisition management plays a key role in creating and 
sustaining high-performing organizations. Despite reforms to transform 
the federal acquisition process, the government still does not have a 
world-class purchasing system. All too often, many of the products and 
services the government buys cost more than expected, are delivered 
late, or fail to perform as anticipated. Encouragement of strategic 
contracting approaches that seek greater efficiencies as well as 
improvements in management and accountability are needed to produce 
better outcomes. Agencies are considering other approaches for 
achieving greater efficiency and effectiveness in their operations, 
including appropriate use of contracts with the private sector. After a 
yearlong study, the Commercial Activities Panel developed a set of 
principles to be used in addressing sourcing decisions and recommended 
the public and private sectors compete for the opportunity to perform 
commercial functions. Competitions can be based on the established 
framework of the Federal Acquisition Regulation. OMB published changes 
to Circular A-76 that are generally consistent with the panel's 
recommendations. However, this competitive sourcing initiative is a 
major change in the way government agencies operate, and successful 
implementation of the circular's provisions will require that adequate 
support be available to federal agencies and employees. GAO will follow 
developments in this area closely.

Performance Goals: To support the transformation to a results-oriented, 
high-performing government, GAO will:

* Analyze and Support Efforts to Improve the Human Capital 
Infrastructure Key to the Successful Transformation of the Government;

* Assess Efforts to Improve Results-Oriented Management across the 
Government;

* Analyze and Support Efforts to Build High-Performing Organizations;

* Identify Ways to Improve the Collection, Dissemination, and Quality 
of Federal Information;

* Identify Ways to Improve Financial Management Infrastructure Capacity 
to Provide Useful Information for Managing Results and Costs Day to 
Day;

* Assess the Government's Planning, Implementation, and Use of IT to 
Improve Performance and Modernize Federal Programs and Operations; and:

* Identify Ways to Improve How Federal Agencies Acquire Goods and 
Services.

Strategic Objective: Support Congressional Oversight of Key Management 
Challenges and Program Risks to Improving Federal Operations and 
Ensuring Accountability.

Issue: Strong, visionary, and persistent leadership will be needed to 
address today's challenges and prepare the nation for the future. 
Congressional leadership will play a vital role in achieving a broad 
transformation of the government. Congressional oversight is needed to 
ensure that agencies continue to build their fundamental management 
capabilities, resolve high-risk areas, and address major management 
challenges to effectively address the nation's most pressing priorities 
and to take advantage of emerging opportunities.

The 2003 Performance and Accountability and High-Risk Series reports 
designate high-risk areas and describe over 100 major management 
challenges. GAO's 2003 high-risk list identifies 26 high-risk areas, as 
shown in figure 3.6. Continued persistence and perseverance in 
addressing these high-risk areas and agencies' major management 
challenges will ultimately yield significant benefits. Although 
effectively addressing some of these issues will require time, finding 
lasting solutions could potentially save billions of dollars, improve 
service to the American public, strengthen public trust in the national 
government, and ensure the ability of government to deliver on its 
promises. More remains to be done to ensure that the government has the 
capacity to deliver on its promises and meet current and emerging 
needs.

Figure 3.6: GAO's 2003 High-Risk List:

2003 high-risk area: Addressing Challenges in Broad-based 
Transformations;
Strategic Human Capital Management[A];
Year designated high risk: 2001. 

2003 high-risk area: Addressing Challenges in Broad-based 
Transformations;
U.S. Postal Service Transformation Efforts and Long-Term Outlook[A];
Year designated high risk: 2001. 

2003 high-risk area: Addressing Challenges in Broad-based 
Transformations;
Protecting Information Systems Supporting the Federal Government and 
the Nation's Critical Infrastructures;
Year designated high risk: 1997. 

2003 high-risk area: Addressing Challenges in Broad-based 
Transformations;
Implementing and Transforming the New Department of Homeland Security;
Year designated high risk: 2003. 

2003 high-risk area: Addressing Challenges in Broad-based 
Transformations;
Modernizing Federal Disability Programs[A];
Year designated high risk: 2003. 

2003 high-risk area: Addressing Challenges in Broad-based 
Transformations;
Federal Real Property[A];
Year designated high risk: 2003. 

2003 high-risk area: Ensuring Major Technology Investments Improve 
Services;
FAA Air Traffic Control Modernization;
Year designated high risk: 1995. 

2003 high-risk area: Ensuring Major Technology Investments Improve 
Services;
IRS Business Systems Modernization;
Year designated high risk: 1995. 

2003 high-risk area: Ensuring Major Technology Investments Improve 
Services;
DOD Systems Modernization;
Year designated high risk: 1995. 

2003 high-risk area: Providing Basic Financial Accountability;
DOD Financial Management;
Year designated high risk: 1995. 

2003 high-risk area: Providing Basic Financial Accountability;
Forest Service Financial Management;
Year designated high risk: 1999. 

2003 high-risk area: Providing Basic Financial Accountability;
FAA Financial Management;
Year designated high risk: 1999. 

2003 high-risk area: Providing Basic Financial Accountability;
IRS Financial Management;
Year designated high risk: 1995. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
Medicare Program[A];
Year designated high risk: 1990. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
Medicaid Program[A];
Year designated high risk: 2003. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
Earned Income Credit Noncompliance;
Year designated high risk: 1995. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
Collection of Unpaid Taxes;
Year designated high risk: 1990. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
DOD Inventory Management;
Year designated high risk: 1990. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
DOD Support Infrastructure Management;
Year designated high risk: 1997. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
HUD Single-Family Mortgage Insurance and Rental Assistance Programs;
Year designated high risk: 1994. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
Student Financial Aid Programs;
Year designated high risk: 1990. 

2003 high-risk area: Reducing Inordinate Program Management Risks;
Pension Benefit Guaranty Corporation Single-Employer Insurance 
Program[A];
Year designated high risk: 2003. 

2003 high-risk area: Managing Large Procurement Operations More 
Efficiently;
DOD Weapon Systems Acquisition;
Year designated high risk: 1990. 

2003 high-risk area: Managing Large Procurement Operations More 
Efficiently;
DOD Contract Management;
Year designated high risk: 1992. 

2003 high-risk area: Managing Large Procurement Operations More 
Efficiently;
Department of Energy Contract Management;
Year designated high risk: 1990. 

2003 high-risk area: Managing Large Procurement Operations More 
Efficiently;
NASA Contract Management;
Year designated high risk: 1990:

Source: GAO.

[A] Additional authorizing legislation is likely to be required as one 
element of addressing this high-risk area.

[End of figure]

As part of the drive to improve performance, agencies are increasingly 
being called on to demonstrate that their programs are conducting 
research that is relevant, of high quality, and producing results. As 
part of the President's Management Agenda, for example, OMB is focusing 
on developing objective criteria that agencies can use to select, fund, 
and manage their R&D programs. According to the fiscal year 2004 
budget, 12 of the top 13 agencies conducting R&D are using OMB's PART, 
which contains criteria for R&D investments. Science and technology 
investments are critically important in improving the quality of life 
and the performance of the economy in areas that include health care, 
defense, energy, and the environment.

However, the increased development and use of new technologies presents 
challenges to the Congress in evaluating their potential and assessing 
the effects on security, safety, privacy, and equity. For example, 
despite many successes in the exploration of space, the loss of life, 
unsuccessful missions, and unforeseen cost overruns have recently 
increased the level of concern over the benefits of space exploration, 
particularly with regard to manned activities. Congressional oversight 
is critical in ensuring that the substantial federal investment in 
science and technology is allocated effectively and that intellectual 
property rights are protected here and abroad.

The federal government has a stewardship obligation to safeguard the 
use of taxpayer funds; prevent fraud, waste, and abuse; and ensure 
financial accountability. While there has been important progress, 
agencies are still working toward the goals established in financial 
management reform legislation, such as the Chief Financial Officers Act 
of 1990 and the Government Management Reform Act of 1994. Widespread 
financial management system weaknesses, poor record keeping and 
documentation, weak internal controls, and a lack of information have 
prevented the government from having the information needed to 
effectively and efficiently manage operations or accurately report a 
large portion of its assets, liabilities, and costs. Continued 
oversight is needed to ensure that agencies take steps to continuously 
improve internal controls and underlying financial and management 
information systems to ensure that executive branch managers and 
congressional decision makers have reliable, timely, and useful 
information to ensure accountability; measure, control, and manage 
costs; manage for results; and make timely and fully informed decisions 
about allocating limited resources.

Performance Goals: To support congressional oversight of key management 
challenges and risks to federal operations and accountability, GAO 
will:

* Highlight the Federal Programs and Operations at Highest Risk and the 
Major Performance and Management Challenges Confronting Agencies,

* Assess the Management and Results of the Federal Investment in 
Science and Technology and the Effectiveness of Efforts to Protect 
Intellectual Property, and:

* Identify Ways to Strengthen Accountability for the Federal 
Government's Assets and Operations.

Strategic Objective: Analyze the Government's Fiscal Position and 
Strengthen Approaches for Addressing the Current and Projected Fiscal 
Gap.

Issue: The federal budget is the principal annual vehicle through which 
the Congress and the President balance competing views about the 
allocation of federal resources, accountability for those resources, 
and the allocation of responsibility between the public and private 
sectors and among levels of government. After 4 years of budget 
surpluses, the nation again is facing large and growing budget 
deficits. This comes as the squeeze on the federal budget from the 
impending retirement of the baby boom generation is becoming more 
apparent.

GAO's long-term budget model has consistently suggested that without 
changes to the major retirement and health care programs, the nation 
will ultimately have to choose between escalating federal deficits and 
debt, significant tax increases, and dramatic budget cuts in other 
areas. Under CBO's current 10-year budget and economic outlook, 
economic growth is projected to be half a percentage point lower on 
average after 2008 when the leading edge of the baby boom generation 
becomes eligible for early retirement, while growth in entitlement 
spending is projected to accelerate. As such, it will be increasingly 
difficult to address today's urgent needs without unduly exacerbating 
the nation's long-term fiscal challenges.

While Social Security and Medicare dominate the long-term outlook, they 
are not the only federal programs or activities that bind the future. 
Indeed, the federal government undertakes a wide range of programs, 
responsibilities, and activities that obligate it to future spending or 
create expectations for spending. Making government fit the challenges 
of the future will require not only dealing with the drivers--
entitlements for the elderly--but also looking at the range of other 
federal activities. However, the budget controls instituted to achieve 
balance in the past have expired, and no agreement has been reached on 
the appropriate structure or process for focusing on the fiscal 
challenges that now move to center stage.

To understand the context for near-term budget decisions more fully, it 
is important to look at trends in revenue sources and the distribution 
of expenditures. These trends show (among other things) growth in the 
relative share of revenues derived from employment taxes, such as those 
for Social Security (Old-Age Survivors and Disability Insurance), and a 
dramatic change over time in composition of spending, with a growing 
share devoted to health and interest on the debt, as shown in figures 
3.7 and 3.8.

Figure 3.7: Composition of Federal Receipts by Source, Fiscal Years 
1964, 1984, and 2004:

[See PDF for image] - graphic text:

Three bar charts with 4 items each.

1964; Individual Income: 43%;
1964; Corporate Insurance: 21%;
1964; Social Insurance: 20%;
1964; Excise and Other: 16%.

1984; Individual Income: 45%;
1984; Social Insurance: 36%;
1984; Excise and Other: 11%;
1984; Corporate Insurance: 9%.

2004; Individual Income: 42%;
2004; Social Insurance: 40%;
2004; Corporate Income: 9%;
2004; Excise and Other: 8%.

Source: GAO analysis of data from the Office of Management and Budget.

Note: Numbers do not add to 100 percent due to rounding.

[A] Current services estimate.

[End of figure]

Figure 3.8: Composition of Federal Spending by Budget Function, Fiscal 
Years 1964, 1984, and 2004:

[See PDF for image] - graphic text:

One bar chart with 1 item and two bar charts with 5 items each.

1964; Defense: 46%;
1964; All Other Spending: 33%;
1964: Social Security: 14%;
1964: Net Interest: 7%.

1984; All Other Spending: 30%;
1984; Defense: 26%;
1984; Social Security: 21%;
1984; Medicare and Medicaid: 9%;
1984; Net Interest: 13%.

2004[A]; All Other Spending: 33%;
2004[A]; Social Security: 21%;
2004[A]; Defense: 19%;
2004[A]; Medicare and Medicaid: 19%;
2004[A]; Net Interest: 7%.

Source: GAO analysis of data from Office of Management and Budget.

[A] Current services estimate.

[End of figure]

In rethinking federal fiscal policy and preparing for the long-term 
budgetary challenges, policymakers have the opportunity to reexamine 
what the federal government does and how it finances those activities. 
American taxpayers annually pay about $2 trillion in taxes to fund the 
federal government. The federal tax system includes numerous tax 
provisions intended to influence taxpayers' behavior throughout the 
economy, but little is known about the effects of many of these 
provisions. Given the size and complexity of the federal tax code, the 
Congress remains interested in tax reform, particularly its 
simplification.

As the nation's chief tax collector, the Internal Revenue Service (IRS) 
interacts with more Americans than any other government agency, and 
compliance with tax laws is a significant burden imposed on businesses 
and individuals. IRS is in the midst of implementing major 
legislatively mandated reforms in how the nation's tax system is 
administered, and congressional interest remains focused on IRS's 
progress.

In light of the long-term fiscal challenges, policymakers need to 
reexamine, reassess, and reprioritize the federal government's 
programs, policies, and activities. One key to making resource 
decisions is having reliable, useful, and timely information routinely 
available. Such information is also necessary to ensure accountability 
and to improve the economy, efficiency, and effectiveness of government 
actions that have a direct effect on achieving a more results-oriented 
government.

Performance Goals: To analyze the government's fiscal position and 
identify ways to strengthen approaches for financing the government, 
GAO will:

* Analyze the Long-term Fiscal Position of the Federal Government,

* Analyze the Structure and Information for Budgetary Choices and 
Explore Alternatives for Improvement,

* Contribute to Congressional Deliberations on Tax Policy,

* Support Congressional Oversight of Federal Tax Administration, and:

* Assess the Reliability of Financial Information on the Government's 
Fiscal Position and Financing Sources.

External Factors That May Affect Achievement of Goal 3:

Significant changes in the major forces shaping the United States 
discussed earlier in this plan will affect GAO's ability to meets its 
goals and objectives. Efforts to improve the government's performance 
and accountability could be affected by (1) the heightened priorities 
assigned by the administration and agency management to national 
defense and homeland security, (2) the capacity within agencies to 
develop and use performance and cost information effectively to make 
improvements, (3) the level and management of resources provided for 
needed investments in agencies' management systems, and (4) the 
worsening fiscal position of the government as it is affected by both 
the economy and policy decisions. GAO will emphasize the importance of 
improved business practices and useful performance and cost information 
to better ensure the cost-effective use of federal resources.

[End of Goal 3]

Goal 4: Maximize the Value of GAO by Being a Model Federal Agency and a 
World-class Professional Services Organization:

To successfully carry out its responsibilities to the Congress for the 
benefit of the American people, GAO in its work must be professional, 
objective, fact-based, nonpartisan, nonideological, fair, and 
balanced. GAO should also lead by example. The focus of goal 4 is to 
make GAO a model organization--one that is client and customer driven, 
has strategic leadership focused on achieving results, leverages its 
institutional knowledge and experience, continuously enhances the 
services that support its engagements, and is regarded as an employer 
of choice. Strategic human capital management is key to these 
transformation efforts.

In this respect, the focus of goal 4 for the period 2004 through 2009 
is largely unchanged from the previous plan. GAO has, however, made 
some refinements. Most significantly, GAO has refined its strategic 
objectives and supporting performance goals to make them more results-
oriented and measurable.

To accomplish its goal of being a model federal agency and a world-
class professional services organization, GAO has established strategic 
objectives to:

* Continuously Improve Client and Customer Satisfaction and Stakeholder 
Relationships,

* Lead Strategically to Achieve Enhanced Results,

* Leverage GAO's Institutional Knowledge and Experience,

* Continuously Enhance GAO's Business and Management Processes, and:

* Become a Professional Services Employer of Choice.

Strategic Objective: Continuously Improve Client and Customer 
Satisfaction and Stakeholder Relationships:

Issue: GAO interacts and works with a diverse set of external clients 
and internal customers. GAO's principal client is the Congress, but its 
work is also important to other stakeholders, including federal and 
nonfederal agencies and organizations, and international institutions. 
GAO's internal customers are its staff who deliver quality service to 
its clients. Therefore, being a model agency depends on both 
determining and meeting the requirements of GAO's clients and internal 
customers.

For congressional clients, GAO will update its understanding of their 
needs and expectations, measure their satisfaction with GAO's work, and 
act on the resulting feedback. GAO will also refine its protocols for 
working with its congressional clients to better address their needs 
and expectations. In addition, GAO plans to use enhanced technology to 
provide its congressional clients with better access to GAO information 
and products and to improve the quality and timeliness of GAO products 
and services.

For internal customers, GAO will survey staff satisfaction with 
engagement support and other business processes, identify the services 
most requiring improvement, implement best practices to effect these 
needed improvements, and measure the impact of improvement efforts. GAO 
also plans to improve communication with GAO managers and staff on 
changes to engagement services.

For external stakeholders, GAO plans several efforts to strengthen 
relationships with major stakeholder groups. GAO will refine its 
protocols for conducting agency reviews to better manage stakeholder 
expectations. GAO also plans to develop and implement clear, 
consistent, and transparent protocols to govern interactions with 
international organizations. GAO will also strengthen its relationship 
with the press and the public by increasing the accessibility of GAO's 
products.

Performance Goals: To support the objective to improve client and 
customer satisfaction and stakeholder relationships, GAO will:

* Strengthen Communication with Congressional Clients and More Broadly 
Measure Their Satisfaction with GAO's Work;

* Assess Internal Customer Satisfaction with GAO Services and Processes 
and Implement and Measure Improvement Efforts; and:

* Strengthen Relationships with GAO's Stakeholders and Increase the 
Accessibility of GAO's Products.

Strategic Objective: Lead Strategically to Achieve Enhanced Results.

Issue: GAO will strengthen its strategic leadership to better integrate 
the agency's financial, human capital, and information resources for 
achieving enhanced results. To accomplish this objective, GAO will 
build on its established base of strategic planning, sound financial 
management, performance management, IT best practices, and leadership 
initiatives. GAO will also need to refine certain functions to ensure 
their strategic alignment. GAO will work to better align succession 
planning, workforce planning, staff utilization, and appraisal and 
compensation systems with its strategic objectives.

Performance Goals: To support the objective to lead strategically to 
achieve enhanced results, GAO will:

* Integrate Planning, Budgeting, and Performance Measurement to Achieve 
Enhanced Results;

* Strengthen GAO's Strategic Human Capital Management to Achieve 
Enhanced Results;

* Ensure Exemplary Practices and Systems in GAO's Fiscal Operations; 
and:

* Strengthen IT Governance Practices and Processes to Achieve Strategic 
Results.

Strategic Objective: Leverage GAO's Institutional Knowledge and 
Experience.

Issue: GAO is a knowledge-based professional services organization. As 
a large number of GAO's more senior employees reach eligibility for 
retirement, GAO needs to identify and implement strategies for 
retaining this knowledge and expertise and increasing organizational 
knowledge sharing. GAO plans to develop an integrated approach for 
identifying, managing, and sharing the organization's information and 
intellectual assets. GAO plans to use its greatly enhanced electronic 
and Web-based technologies to support this objective. Further, GAO 
intends to identify ways to enhance knowledge sharing with other 
national and international accountability and professional 
organizations.

Performance Goals: To support the objective to leverage GAO's 
institutional knowledge and experience, GAO will:

* Maximize the Collection, Use, and Retention of Essential 
Organizational Knowledge;

* Increase GAO's Knowledge-Sharing Capability; and:

* Enhance Knowledge Sharing with Other National and International 
Accountability and Professional Organizations.

Strategic Objective: Continuously Enhance GAO's Business and Management 
Processes:

Issue: GAO, as the federal government's accountability organization, 
undertakes engagements to evaluate the economy, efficiency, and 
effectiveness of a wide range of federal policies and programs to 
assist the Congress and benefit the American taxpayer. By continuously 
assessing and enhancing the processes and services that support its own 
engagements, GAO can maximize its value to the Congress and the public.

Performance Goals: To support the objective to continuously enhance 
GAO's business and management processes, GAO will:

* Improve Engagement Support Services and:

* Use Enabling Technology to Improve GAO's Crosscutting Business 
Processes.

Strategic Objective: Become a Professional Services Employer of Choice:

Issue: To be a model organization, GAO must become an employer of 
choice--one that attracts, retains, motivates, and rewards excellent 
employees and is considered one of the best places to work. GAO intends 
to build and maintain a work environment that is fair, unbiased, and 
inclusive and that offers the opportunity for all employees to realize 
their full potential. The agency is committed to providing its 
employees with the tools, technologies, and systems that promote 
collaboration and productivity and a safe and secure workplace. The 
agency will also continue to enhance its offerings of family-friendly 
and work/life programs and provide superior training for its new hires 
to improve employee satisfaction with working at GAO.

Performance Goals: To become a professional services employer of 
choice, GAO will:

* Promote an Environment That Is Fair and Unbiased and That Values 
Opportunity and Inclusiveness;

* Provide GAO Staff with Tools, Technology, and a World-class Working 
Environment;

* Provide a Safe and Secure Workplace;

* Enhance Employee Views about GAO; and:

* Improve the Development and Experiences of Newly Hired Staff.

External Factors That May Affect Achievement of Goal 4:

The availability of resources could affect GAO's timely achievement of 
objectives under this goal. Specifically, the agency envisions relying, 
to a great extent, on in-house expertise as it develops the necessary 
strategies, policies, and process changes identified with each of the 
five strategic objectives. This approach will require GAO to apply the 
knowledge, skills, and abilities of its current staff to the diversity 
of strategic needs identified in the plan. However, in-house expertise 
alone will not be enough to fully accomplish GAO's objectives. This is 
especially true with regard to GAO's human capital, business process, 
knowledge management, and enabling technology initiatives. To bring a 
fresh perspective, subject matter expertise, and knowledge of best 
practices to these issues, GAO will need to rely on assistance from 
external consultants and contractors. In the event that its planned 
resources need to be diverted to respond to changing national 
priorities or cannot be made available because of changing budget 
priorities, GAO's ability to achieve its stated objectives could, at a 
minimum, be delayed.

GAO will work closely with its oversight and appropriations committees 
to help ensure that it remains responsive to its clients' needs and 
changing national priorities and that needed resources are available to 
address emerging contingencies.

[End of Goal 4]

Performance Measures and Evaluations:

In updating this plan, GAO relied on a variety of information sources 
about past performance to determine priorities for the future. GAO will 
continue to rely on these sources and other evaluations to judge its 
progress on its strategic goals and objectives over the period of this 
plan. GAO intends to continue refining its performance indicators as 
part of a balanced scorecard approach to performance measurement that 
focuses on the agency's clients, results achieved, and employees.

Key Performance Measures:

GAO uses both quantitative and qualitative performance measures to 
assess progress in achieving its strategic goals and objectives. 
Collectively, these measures help demonstrate the degree to which GAO:

* provides timely, quality service to the Congress and the federal 
government so that they can respond to current and emerging challenges 
and:

* helps the government meet 21st century challenges by transforming its 
role and its ways of doing business.

To assess GAO's progress toward achieving its external strategic goals 
(that is, goals 1, 2, and 3) and their objectives, the agency uses two 
types of quantitative measures. First, GAO assesses its efforts to 
provide support to the Congress and the federal government in terms of 
the number of recommendations GAO has made, the percentage of its 
products that contain recommendations, the percentage of 
recommendations implemented, the number of hearings at which GAO 
experts have testified before the Congress, and the timeliness of its 
products. Second, GAO goes beyond these measures of services it 
provided to assess the results or outcomes of the services it has 
provided. GAO does this by tabulating both the financial benefits and 
other improvements to government programs and services that result when 
action is taken in response to information and recommendations from 
GAO. GAO sets performance targets for all of these quantitative 
measures annually and compares its actual performance with the targets.

Quantitative Measures for GAO's External Strategic Goals (Goals 1, 2, 
and 3);

Financial benefits that are documented as either directly attributable 
to, or significantly influenced by, GAO's work. These include 
reductions in annual operating costs of federal programs or activities; 
reductions in the costs of multiyear projects or entitlements; and 
increased revenues from debt collection, asset sales, and changes in 
tax laws or user fees;

Other benefits that flow from GAO's work but cannot be measured in 
dollar terms. These include instances in which GAO provided information 
to the Congress that resulted in statutory or regulatory changes, 
instances in which GAO recommended actions that caused federal agencies 
to improve services to the public, and instances in which GAO's work 
led to improved core business processes throughout the government;

Testimonies delivered, or the number of hearings at which GAO experts 
testified. This serves as a measure of direct support to the Congress;

Recommendations made and those subsequently implemented to correct the 
underlying causes of problems that impede government efficiency and 
effectiveness. These are measured in terms of (1) the number of 
recommendations made, (2) the percentage of products containing 
recommendations, and (3) the percentage of recommendations implemented 
4 years after they were made;

Timeliness of GAO's products. This is measured by the extent to which 
products are delivered to clients by agreed-upon dates.

To complement GAO's annual quantitative measures, the agency sets 
multiyear qualitative performance goals for each of its strategic 
objectives that help it assess whether it has done the work it planned 
to do for its congressional clients. These performance goals reflect 
the breadth and depth of GAO's work, and each includes a set of key 
efforts to be undertaken during the first 2 years of this plan: fiscal 
years 2004 and 2005. Potential outcomes are also listed for each 
performance goal to highlight the improvements that may result if the 
Congress and the federal government use the information and 
recommendations GAO provides. Annual reports on GAO's progress toward 
its goals and objectives and updates to its plan are also posted at 
http://www.gao.gov/sp.html.

GAO will measure its success in meeting its qualitative performance 
goals by having senior managers assess the extent to which GAO does the 
work the key efforts describe for each goal. As part of their 
assessment, senior managers consider all of the information provided 
and recommendations made for each key effort and then determine whether 
the overall body of work produced adequately achieves or addresses the 
related performance goal.

For its fourth strategic goal--which calls for GAO to become a model 
federal agency and a world-class professional services organization--
the agency also relies on qualitative measures to assess its progress 
in making the internal improvements necessary to achieve that goal and 
its objectives. As with GAO's external strategic objectives, each 
objective under the internal strategic goal has a set of qualitative 
performance goals with key efforts that will be assessed after 2 years. 
Senior managers responsible for this strategic goal also judge whether 
the performance goals have been met based on the work done on the 
goals' key efforts.

GAO is continuing to refine its measures, working toward a balanced 
scorecard that evaluates performance based on three key perspectives: 
GAO's clients, GAO's results, and GAO's people. The agency plans, for 
instance, to establish a client feedback measure and indicators that 
assess its efficiency and effectiveness in supporting its staff in 
their efforts to serve GAO's clients and the American people.

Evaluations:

For the purposes of this plan, GAO used several periodic evaluations to 
help review and revise its strategic objectives. One of the essential 
steps in the planning process for goals 1, 2, and 3 was an evaluation 
of actions taken by federal agencies and the Congress in response to 
GAO's recommendations. GAO actively monitors the status of open 
recommendations and uses the results of its analysis to determine the 
need for further work in an area. If, for example, an agency has not 
undertaken a recommended action that GAO considers still valid and 
worthwhile, GAO may decide to pursue further action with agency 
officials or congressional committees or to undertake additional work.

Another major evaluation GAO used to inform the update of the strategic 
objectives under goals 1, 2, and 3 was the January 2003 edition of 
GAO's biennial Performance and Accountability Series: Major Management 
Challenges and Program Risks. This series addresses a range of 
challenges and opportunities to enhance performance and accountability 
governmentwide and at 21 agencies. A companion volume provides a status 
report on those major government operations considered high risk 
because of their greater vulnerabilities to waste, fraud, abuse, and 
mismanagement. The series is, among other things, a valuable planning 
tool for GAO, helping it identify those areas in which its continued 
efforts are needed to maintain the focus on important policy and 
management issues facing the nation.

GAO also used a number of studies and evaluations to help review and 
update the strategic objectives on improving its internal operations 
under strategic goal 4. These studies and evaluations include:

* an assessment of its administrative processes and ways to determine 
internal customers' satisfaction;

* a survey of employees' views about their work environment;

* a survey of employees' skills and work preferences;

* an ongoing review of GAO's workforce and the agency's future needs 
for skilled mission and support staff as well as for senior managers;

* an evaluation of the practices and procedures analysts use to develop 
core products and whether these practices adhere to policies that 
ensure the quality of GAO's engagements and products;

* an extensive study of GAO's training and curriculum strategies;

* a comprehensive assessment of GAO's building security and safety, 
especially in the event of a major disaster or national security 
incident; and:

* a security evaluation of GAO's IT systems.

Finally, GAO's Office of the Inspector General evaluates the 
administration of the agency, including an assessment of key 
performance measurements. The Inspector General's evaluations are 
useful for ensuring that GAO's operations are efficient and economical 
and serve as additional input for updating the objectives under 
strategic goal 4.

A number of planned evaluations should benefit GAO's future strategic 
planning efforts. In fiscal year 2003, GAO again reported--as it will 
do every 2 years--on federal agencies' major management challenges and 
high-risk areas, publishing analyses that, among other things, serve to 
identify areas for continued GAO efforts. As outlined in the discussion 
of strategic goal 4, GAO also plans to evaluate in fiscal years 2004 
and 2005 the (1) agency's readiness for an assessment of its engagement 
policies and quality control practices by a team of external peer 
reviewers and (2) effectiveness of a number of its core and support 
processes to enhance their usefulness and improve efficiency.

[End of Performance Measures]

Consultations and Relationships with Others:

Because achieving its strategic goals and objectives also requires 
strategies for coordinating with other organizations with similar or 
complementary missions, GAO:

* uses advisory panels and other bodies to inform its strategic and 
annual work planning and:

* initiates and supports collaborative national and international 
audit, technical assistance, and other knowledge-sharing efforts.

These two types of strategic working relationships allow GAO to extend 
its institutional knowledge and experience and, in turn, to improve its 
service to the Congress and the American people.

Through newly established forums and a number of ongoing advisory 
boards and panels, GAO gathers information and perspectives for its 
strategic and annual performance planning efforts. Ongoing advisory 
boards and panels also support strategic and annual work planning by 
alerting the agency to issues, trends, and lessons learned across the 
national and international audit community that should factor into 
GAO's work. These groups include the Comptroller General's Advisory 
Board, the 40 members of which represent both the public and private 
sectors and have broad expertise in areas related to GAO's strategic 
objectives. The board meets with GAO leadership annually to share its 
views on GAO's strategic direction and specific initiatives. Through 
the National Intergovernmental Audit Forum, chaired by the Comptroller 
General, and 10 regional intergovernmental audit forums, GAO consults 
regularly with federal inspectors general and state and local auditors. 
In addition, through the Domestic Working Group, the Comptroller 
General and the heads of 18 federal, state, and local audit 
organizations exchange information and seek opportunities to 
collaborate.

Internationally, GAO participates in the International Organization of 
Supreme Audit Institutions, the professional organization of the 
national audit offices of 184 countries. The Comptroller General also 
leads the Global Working Group, in which the heads of GAO's 
counterparts from 15 countries meet annually to discuss mutual 
challenges, share experiences, and identify opportunities for 
collaboration.

[End of Consultations and Relationships with Others]

Subject Area Supplements to the Strategic Plan:

The supplements to GAO's strategic plan provide greater detail on how 
the agency intends to fulfill its strategic objectives. For each 
strategic objective, a supplement provides a brief discussion of the 
significance of each related qualitative performance goal and its 
potential outcomes and also lists each performance goal's key efforts. 
The key efforts lay out the work GAO plans to do in fiscal years 2004 
and 2005 to help achieve GAO's strategic goals and objectives. GAO will 
assess whether it achieved the qualitative performance goals at the end 
of fiscal year 2005.

Strategic Objective 1.1: The Health Needs of an Aging and Diverse 
Population:

Issue: Total health care spending in the United States from all 
sources--public and private--continues to increase at a breathtaking 
pace. From 1990 through 2000, spending nearly doubled from $696 billion 
to $1.3 trillion and by 2010 is estimated to more than double again to 
$2.7 trillion. (See fig. 1.1.) This unrelenting growth is producing a 
health care sector that continues to claim an increasing share of the 
nation's GDP--about 12 percent in 1990 versus an estimated 17 percent 
in 2010.

Figure 1.1: Total National Health Care Spending, 1990-2010:

[See PDF for image] - graphic text:

Bar chart with 3 items.

Dollars in billions:

1990: $659.99;

2000: $1309.982;

2010: $2702.235.

Source: Department of Health and Human Services, Centers for Medicare & 
Medicaid Services, Office of the Actuary, National Health Statistics 
Group.

Note: The figure for 2010 is projected. All dollars are nominal.

[End of figure]

Not surprisingly, health care spending has been one of the most rapidly 
rising elements of federal spending, growing three times faster than 
the rest of the federal budget over the last 20-plus years. (See fig. 
1.2.) Expenditures on health-related programs are one of the largest 
components of federal spending, totaling an estimated $468 billion in 
fiscal year 2002, or about 23 percent of all federal spending that 
year. Health care also accounts for significant federal tax 
expenditures, with $108.5 billion in forgone revenues projected for 
2003 because of employer contributions to medical care and medical 
insurance. The cost pressures of serving a growing population--
particularly those 65 and older--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 1.2: Growth of Federal Health Expenditures, 1980-2003:

[See PDF for image] - graphic text:

Line chart with 2 lines.

1980; Health Outlays (Percentage Increase Since 1980): 0%;
All Other Federal Outlays (Percentage Increase Since 1980): 0%. 

1985; Health Outlays (Percentage Increase Since 1980): 79%;
All Other Federal Outlays (Percentage Increase Since 1980): 57.8%. 

1990; Health Outlays (Percentage Increase Since 1980): 176%;
All Other Federal Outlays (Percentage Increase Since 1980): 104.1%. 

1995; Health Outlays (Percentage Increase Since 1980): 370%;
All Other Federal Outlays (Percentage Increase Since 1980): 130%. 

2000; Health Outlays (Percentage Increase Since 1980): 494.8%;
All Other Federal Outlays (Percentage Increase Since 1980): 166%. 

2003; Health Outlays (Percentage Increase Since 1980): 690%;
All Other Federal Outlays (Percentage Increase Since 1980): 207%. 

Source: Office of Management and Budget.

Note: The 2003 number is an estimate.

[End of figure]

Of particular concern is the growth in Medicare expenditures, which are 
estimated to total about $269 billion for fiscal year 2003. Even 
without considering the financial effects of its new prescription drug 
benefit, Medicare is expected to nearly double its share of the economy 
by 2030, competing with 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 2013 and to be 
depleted by 2026. 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 1 billion claims annually to over 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.

Although the introduction of competitive principles to health care 
helped to contain medical care cost increases for several years, costs 
are increasing significantly once again as is the number of Americans 
without health insurance. These cost increases, in concert with the 
weak economy the past several years, have important implications for 
federal health care programs and outlays and for the availability of 
employer-sponsored health insurance. Many employers have reportedly 
been considering or have actually made changes in the generosity of 
their health insurance benefits. 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 $23 billion a 
year to provide health care to approximately 4.2 million veteran 
patients. Yet, much of VA's physical infrastructure is obsolete and 
burdened with excess capacity. The Department of Defense's (DOD) health 
care system spends about $24 billion annually to support both direct 
and civilian health care to about 8.7 million eligible beneficiaries. 
Pressure is mounting to integrate aspects of the two systems to 
increase their efficiency and effectiveness.

Other areas of concern are the efficiency and effectiveness of the 
government's public health programs, 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 food products. Additionally, the 
changing nature of public health threats domestically and 
internationally, such as HIV infection, SARS, 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. Governments' ability to help surmount shortages of certain 
prescription drugs and vaccines is a worldwide concern as well.

The threat of terrorists using biological weapons of mass destruction, 
such as anthrax and smallpox, has raised concerns about the nation's 
ability to adequately respond to bioterrorist attacks. 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 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 Medicaid program for which the joint federal/state 
expenditures in fiscal year 2003 are estimated at $275 billion--more 
than those of Medicare. Medicaid helps to pay for nursing home and 
other community-based forms of long-term care services. Yet meeting an 
increasing demand for such services at a time when many states are in 
severe financial difficulty and the federal government is once again 
operating at a deficit 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. However, the 
recent economic downturn has led to declining state revenues and to 
states taking, or considering taking, actions to reduce access to care 
for this vulnerable population, thereby contributing to an increase in 
the number of uninsured. 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. In particular, Medicaid's size and complexity make it 
vulnerable to fraud, waste, and abuse, making effective federal 
oversight critical.

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 Long-term Health Care; and:

* Assess State Experiences in Providing Health Insurance Coverage for 
Low-Income Populations.

Performance Goal 1.1.1: Evaluate Medicare Reform, Financing, and 
Operations:

Key Efforts:

* Analyze Medicare's financial condition and the potential consequences 
of program structural reforms:

* Evaluate the Centers for Medicare & Medicaid Services' (CMS) 
management of Medicare, including its implementation of legislative 
reforms and its service to providers and beneficiaries:

* Evaluate Medicare payment methods for health care providers:

* Assess the effects of Medicare's payment methods on access to, and 
quality of, health care services:

* Evaluate CMS's safeguards and program controls over provider payments 
and beneficiary access and quality:

Significance:

Medicare now finances health care for over 40 million Americans, 
accounting for almost one-eighth of all federal expenditures. Even 
without considering the financial effects of the new prescription drug 
benefit, Medicare is expected to nearly double its share of the 
nation's economy by 2030, crowding out other government spending and 
economic activity. Medicare's Hospital Insurance trust fund is 
projected to begin running a cash deficit in 2013 and to become 
insolvent by 2026. While structural changes, such as managed care, were 
intended to introduce market competition to Medicare, with the goal of 
containing health care use and costs, their implementation and 
acceptance have been somewhat problematic. In addition to the changes 
incorporated in the 2003 Medicare legislation, other options to 
fundamentally reform Medicare have been proposed, such as modernizing 
the benefits package, restructuring beneficiary cost sharing, and 
providing incentives for beneficiaries to make cost-effective choices 
among health plans.

Any structural changes will take time to fully implement. For example, 
Medicare's new prescription drug benefit for beneficiaries is not 
effective until 2006. Therefore, it is imperative to continue to 
concentrate on improving the existing program and refining Medicare's 
payment methods in ways that reward fiscal discipline while preserving 
access to care. Effectively managing the Medicare program, including 
safeguarding its integrity, remains a continuing challenge, in part, 
because of the program's size and complexity. Since 1990, GAO has 
designated Medicare as a high-risk program, vulnerable to waste, fraud, 
abuse, and mismanagement. Because Medicare currently pays out 
approximately $269 billion annually and is responsible for financing 
health services delivered by over 1 million providers, it is an 
especially attractive target for fraud, waste, and abuse, and 
therefore, good management is critical.

Potential Outcomes:

* Better congressional understanding of Medicare's financial condition 
and program reform proposals, including implications for the budget and 
for health care:

* Improvements in CMS's program management and implementation of 
legislated Medicare program changes:

* Development of more comprehensive, accurate, and timely data for 
evaluating program performance and services to beneficiaries:

* Medicare payment methods that minimize federal costs and promote 
access to quality medical care:

* Reductions in improper payments to health care providers and in 
unnecessary program expenditures:

Performance Goal 1.1.2: Assess Trends and Issues in Private Health 
Insurance Coverage:

Key Efforts:

* Analyze potential modifications to federal tax policies and new 
insurance purchasing arrangements for their impact on the numbers of 
uninsured, costs of health care services, and implementation challenges 
for federal and state agencies:

* Evaluate trends in, and distribution of, health insurance coverage, 
including long-term care insurance and employer sponsorship of private 
health insurance for employees and retirees:

* Assess the impact of public and private efforts to achieve compliance 
with federal and state health insurance standards:

Significance:

Private health insurance provides coverage for more than 175 million 
Americans; however, in 2002 more than 43 million individuals did not 
have health insurance. The federal government has an increasing role in 
overseeing employer-sponsored health benefits and private insurance 
coverage both through its traditional roles established by the Employee 
Retirement Income Security Act of 1974 and the tax code and through 
more recent federal insurance standards, such as the Health Insurance 
Portability and Accountability Act of 1996, and tax incentives, such as 
the Trade Adjustment Assistance Reform Act of 2002.

The Congress continues to consider additional approaches to increase 
private health insurance coverage, such as new tax incentives for 
unemployed individuals or purchasing arrangements for small employers. 
Such new approaches may increase access to health insurance for some 
individuals or employers but need to be carefully assessed for their 
budget implications, effects on those already purchasing coverage, and 
need for effective regulatory oversight.

Strong interactions exist between the private health insurance market 
and public health insurance programs, including Medicare and Medicaid, 
with financing innovations in the private or public sector often being 
adopted by the other sector. The Federal Employees Health Benefits 
Program, which provides health insurance to more than 8 million federal 
employees, retirees, and dependents, has sometimes been considered a 
model for other large employers or public programs, but has also had to 
address issues of increasing costs. Recent expansion of the Medicare 
benefit to include outpatient prescription drug coverage may affect 
employers' continued coverage for their retirees. In addition, the 
federal government has recently begun offering long-term care insurance 
to employees, retirees, and their families, which may provide an 
impetus for the further development of the private long-term care 
insurance market that has played a relatively small part in financing 
long-term care services compared to public programs.

The impact of public and private efforts to contain costs or improve 
access in one sector may lead to unintended consequences for the other. 
These complex interrelations between federal policy and the private 
health insurance markets greatly affect the affordability, 
availability, and quality of insurance coverage that most Americans 
receive.

Potential Outcomes:

* Better congressional understanding of proposals to alter tax 
treatment of health care insurance costs and to establish new health 
insurance purchasing arrangements:

* More complete congressional understanding of trends in health and 
long-term care insurance, including changes in private health insurance 
coverage and the evolving health and long-term care insurance markets:

* Better congressional understanding of the impact of public and 
private efforts to achieve compliance with federal health insurance 
standards:

Performance Goal 1.1.3: Assess Actions and Options for Improving VA's 
and DOD's Health Care Services:

Key Efforts:

* Evaluate proposals to restructure or consolidate the Department of 
Veterans Affairs' (VA) health care system, including proposals on 
capital asset realignment and resource sharing:

* Assess implications of changes to VA and Department of Defense (DOD) 
health benefits and health care delivery systems:

* Assess vulnerability of VA's system to fraud, waste, and abuse:

* Examine access to and quality and cost of care provided to VA and DOD 
beneficiaries:

* Review implementation of VA resource allocation and revenue 
collection systems and budget formulation and execution practices:

Significance:

VA and DOD operate two of the largest health care systems in the world, 
together spending about $47 billion a year for health care. Both 
systems face great challenges. For instance, VA operates and maintains 
a large portfolio of aged health care assets, primarily buildings that 
are not effectively aligned with VA's new delivery model, which 
emphasizes outpatient care delivered closer to where veterans live. VA 
has opened hundreds of community-based outpatient clinics to increase 
the number of veterans who have reasonable geographic access to VA-
provided outpatient care. As a result of this new delivery model and 
the influx of new veteran enrollees because of relaxed eligibility 
standards, VA faces difficult realignment decisions involving resource 
allocation, capital investments, consolidations, closures, and 
contracting with local health care providers. These may have 
significant ramifications for stakeholders, such as medical schools and 
unions, and for the use of VA's existing resources, primarily because 
realignments involve a shifting of workload among delivery locations.

Similarly, DOD faces pressures to adapt its health care structure 
because of changing military threats, a decreased force size, and an 
evolving health care marketplace, characterized by rising costs and 
increasing beneficiary concerns about access. In response to these 
long-standing issues, DOD established its nationwide managed care 
program, TRICARE, in the mid-1990s. However, beneficiary concerns have 
continued under TRICARE, as have concerns about the efficiency of the 
program. Further, concerns have been raised about rising program costs, 
and beneficiaries continue to complain about poor access to care. These 
concerns have focused attention on the need for DOD to identify cost 
reduction measures and alternative approaches for delivering health 
care.

Potential Outcomes:

* More effective and efficient organizational structures and service 
delivery for both VA and DOD:

* Improved understanding of how potential changes affect costs, 
utilization of services, and retention:

* Reductions in unnecessary health care expenditures:

* Better understanding of factors that explain VA and DOD variations in 
access, quality, timeliness of care, and patient safety:

* Improved VA budgeting and resource allocation systems that more 
adequately reflect workload and costs and promote efficiency and 
optimization:

Performance Goal 1.1.4: Evaluate the Effectiveness of Federal Programs 
to Promote and Protect the Public Health:

Key Efforts:

* Evaluate the ability of federal public health agencies to detect and 
counter emerging threats to the nation's health:

* Evaluate impediments and barriers to the adequate supply of, and 
access to, prescription drugs and vaccines:

* Assess the regulatory structure for ensuring the safety and efficacy 
of medical devices, drugs, blood products, and alternative medical 
therapies:

* Evaluate programs targeted at improving the health status of the 
population:

* Evaluate the effectiveness of programs to reduce substance abuse and 
other high-risk behaviors:

Significance:

To promote and protect the health of the nation, public health agencies 
pursue a broad range of activities that tangibly affect the well-being 
of every American. These include conducting public health surveillance 
on new and emerging infectious diseases, nationally and 
internationally; sponsoring and conducting biomedical research; 
evaluating the effectiveness and safety of pharmaceutical and medical 
devices; and funding medical treatment for substance abuse. About 90 
percent of the National Institutes of Health's annual budget of over 
$20 billion funds biomedical research, contributing to a dramatic 
increase in the number of new medical treatments. New technologies and 
therapies will further test the ability of the Food and Drug 
Administration (FDA) to ensure the safety and efficacy of foods and 
dietary supplements as well as new medical products while not unduly 
delaying the availability of new products to consumers. An additional 
component is consumer concern about access to affordable prescription 
drugs. The changing nature of public health threats--including 
instances of shortages of prescription drugs and vaccines and emerging 
infectious diseases like severe acute respiratory syndrome (SARS)--
requires effective surveillance and prompt action by the Centers for 
Disease Control and Prevention and other public health agencies at 
international, federal, state, and local levels. The AIDS epidemic 
persists in this country and around the world and poses continuing 
prevention and treatment challenges to public health agencies. Agencies 
are also funding research to understand the basis for persistent health 
disparities for minorities, developing effective approaches to 
preventing disease, and promoting healthy behaviors.

Potential Outcomes:

* Increased federal public health agency efforts to counter emerging 
public health threats:

* Improved adequacy of the supplies of essential medications and 
vaccines and understanding of the impediments to access:

* More effective and efficient determination of the safety and efficacy 
of medical products by FDA:

* More effective programs for prevention and treatment of substance 
abuse and other high-risk behaviors:

Performance Goal 1.1.5: Evaluate the Effectiveness of Federal Programs 
to Improve the Nation's Preparedness for the Public Health and Medical 
Consequences of Bioterrorism:

Key Efforts:

* Evaluate the effectiveness of federal programs in ensuring the 
preparedness of state and local governments for the public health and 
medical consequences of a bioterrorist attack:

* Evaluate identified needs and associated cost projections for 
federally funded efforts at state and local government levels to 
improve public health surveillance, training, communication systems, 
and laboratories for bioterrorism preparedness:

* Evaluate the development and acquisition of vaccines and other 
treatments for biodefense:

Significance:

The use of anthrax as a weapon of terrorism heightened concern over the 
public health threats posed by biological terrorism and raised worries 
that the nation is not adequately prepared to respond to bioterrorist 
attacks. To improve the nation's preparedness, federal agencies engage 
in a number of activities aimed at improving detection, treatment, and 
response, and the Congress has substantially increased funding for 
these programs. These activities include public health surveillance 
systems to identify disease outbreaks, development of technologies to 
more rapidly detect and diagnose infectious agents, and improved 
communication systems to facilitate sharing information on disease 
outbreaks.

Federal funding, primarily through the National Institutes of Health, 
has recently been increased for the development of vaccines, 
antibiotics, and antivirals to treat diseases that could result from 
bioterrorism. The Department of Health and Human Services is also 
expanding the Strategic National Stockpile of essential drugs and 
equipment that could be deployed to the scene of an outbreak. The 
department has promoted smallpox vaccination of teams of public health 
and health care workers who could be deployed in the event of an 
outbreak and has contracted for a stockpile of smallpox vaccine that 
could be used to vaccinate the general public. Several federal agencies 
provide funding to state and local governments for response planning, 
offer training for emergency response, fund equipment purchases, and 
maintain response teams that can be deployed in the event of an attack. 
However, concerns remain that funding may not be directed to the areas 
of greatest need.

Potential Outcomes:

* More effective programs to assist state and local government 
preparedness efforts:

* More effective and efficient allocation of resources for addressing 
state and local government needs:

* Improved access to essential vaccines and other treatments:

Performance Goal 1.1.6: Evaluate Federal and State Program Strategies 
for Financing and Overseeing Long-term Health Care:

Key Efforts:

* Examine nursing homes' compliance with federal and state quality 
standards, including the adequacy of federal and state oversight and 
resources:

* Review federal requirements and standards and their use to ensure 
quality care in community-based, long-term care settings, such as home 
health arrangements, assisted living facilities, and adult day care:

* Analyze public and private payment sources and strategies that 
finance the continuum of long-term care, including integrated programs 
for elderly or disabled beneficiaries who are dually eligible for 
Medicare and Medicaid:

Significance:

The aging of the baby boomers, combined with medical advances that are 
contributing to longer life expectancies, will lead to a tremendous 
increase in the elderly population over the next three decades. In 
particular, there will be a substantial increase in the number of 
individuals 85 and older, many of whom will require long-term care 
services. Financing these services--within the context of evolving 
service needs and alternative settings for receiving long-term care 
services--will be a challenge for the baby boomers, their families, and 
federal and state governments.

After private expenditures (including out-of-pocket spending and long-
term care insurance), Medicaid contributes the most for long-term care, 
covering at least some of the costs for two-thirds of nursing home 
residents. Many individuals become impoverished, and thus eligible for 
Medicaid, by "spending down" their assets. Taken together, Medicaid, 
Medicare, and other public programs contributed more than three-fifths 
of the $146.2 billion spent on nursing home and home health care in 
2001. Private insurance (including long-term care insurance as well as 
services paid by traditional health insurance) accounted for about 10 
percent, with the remainder paid by the elderly, the disabled, or their 
families.

The long-term care expenditures for the elderly are disproportionately 
used to purchase nursing home care. There is growing emphasis, however, 
on delivering services in the community rather than in nursing homes 
and other institutional settings--not only to the younger disabled but 
also to elderly individuals. The highly vulnerable nature of the long-
term care population underscores the importance of oversight to ensure 
that providers comply with federal and state quality standards.

Potential Outcomes:

* Improved quality of care in nursing homes:

* Improved public and private awareness of alternatives to traditional 
long-term care settings and the federal role in ensuring quality care:

* Better congressional understanding of options for financing the 
increasing costs of long-term care:

Performance Goal 1.1.7: Assess State Experiences in Providing Health 
Insurance Coverage for Low-Income Populations:

Key Efforts:

* Assess Medicaid and State Children's Health Insurance Program (SCHIP) 
coverage for vulnerable populations, including children with special 
health care needs:

* Evaluate Medicaid and SCHIP access to and use of services under 
different service-delivery systems, payment methodologies, and cost-
sharing practices:

* Evaluate federal oversight of states' implementation of Medicaid and 
SCHIP, including the use of authority to waive certain statutory 
provisions:

Significance:

Two jointly funded federal-state programs that provide health insurance 
to low-income Americans are vulnerable to the cyclical nature of the 
economy and to the problems of exploitation endemic to large government 
programs. Enrollment in Medicaid, a means-tested entitlement program 
that provides health care coverage to over 40 million low-income 
individuals, expanded at a rate of about 3 percent per year from 1997 
through 2000. States also implemented SCHIP, which was created in 1997 
to provide health insurance to uninsured children whose families' 
incomes were too high to qualify for Medicaid.

However, during the recent economic downturn, states have been faced 
with declining revenues and, with respect to their Medicaid programs, 
increased enrollment of nearly 9 percent per year from 2000 through 
2003. As a result, states have taken or have considered taking actions 
that could affect access to care, including curtailing enrollment, 
reducing benefits, and raising beneficiary cost-sharing requirements.

Federal oversight continues to be essential to ensuring the programs' 
financial and program integrity. The challenges inherent in overseeing 
a program of Medicaid's size, growth, and diversity, combined with the 
open-ended nature of the program's federal funding, puts the program at 
high risk for waste and exploitation. Accordingly, GAO added Medicaid 
to its 2003 list of high-risk programs and has focused its work on 
strengthening the program's operations. GAO work shows, for example, 
that the federal government has been vulnerable to questionable state 
Medicaid financing practices, through which some states have generated 
excessive federal payments without paying their fair share or without 
assurances that the payments are for covered Medicaid services.

In addition, vigilance must be maintained regarding the appropriateness 
of allowing states to enhance their flexibility in identifying eligible 
populations and increasing cost sharing for beneficiaries eligible for 
Medicaid and SCHIP. GAO's work further shows that some of the federally 
approved waivers are inconsistent with statutory authority or long-
standing administration policy. Federal oversight must balance support 
of state flexibility in designing and implementing states' programs--
which can vary greatly in terms of eligibility rules, benefits offered, 
and delivery systems--with the need to ensure the appropriate use of 
federal funds to meet the statutory and regulatory requirements of both 
programs.

Potential Outcomes:

* Greater access to services for eligible beneficiaries:

* More efficient and effective delivery of services:

* Improved accountability and oversight of federal-state health 
financing programs serving low-income populations:

Strategic Goal 1.2: 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 $110 billion per year in programs that foster the 
development, education, and protection of children from infancy through 
elementary and secondary school and postsecondary education. Although 
federal spending is only about 7 percent of total spending on 
elementary and secondary education, requirements in recent legislation 
have increased the federal government's role 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.

The federal government invests over $11 billion in early education and 
care programs for children under age 5, primarily through six major 
Department of Health and Human Services (HHS) and Department of 
Education programs. 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 HHS and 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 after welfare reform. 
(See fig. 1.3.) Policymakers at the federal and state levels are 
concerned about the cost, quality, and availability of child care. 
Major early childhood programs--Head Start, the Child Care and 
Development Fund (CCDF), and the Individuals with Disabilities 
Education Act (IDEA)--are being reauthorized. Two additional programs, 
the Child and Adult Care Food Program and the Special Supplemental 
Nutrition Program for Women, Infants, and Children, provide nutritious 
meals or support good nutrition for children in day care facilities and 
for certain groups of low-income, nutritionally at-risk women, infants, 
and children. Both programs face challenges in delivering high-quality 
nutrition services and meeting program requirements.

Figure 1.3: Growth of Federal Investment in Child Care, Fiscal Years 
1997-2002:

[See PDF for image] - graphic text:

Line chart with 2 lines.

Dollars in Millions:

1997; CCDF: $2,547; TANF: $13;
1998; CCDF: $3,522; TANF: $259;
1999; CCDF: $4,630; TANF: $604;
2000; CCDF: $5,286; TANF: $1,411;
2001; CCDF: $5,912; TANF: $1,719;
2002; CCDF: $6,323; TANF: $1,571.

Source: Department of Health and Human Services, Administration for 
Children and Families.

Note: CCDF amounts include dollars states transferred from 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.

[End of figure]

Federal elementary and secondary school programs have traditionally 
provided opportunities for children from disadvantaged families. 
However, recent legislation, the No Child Left Behind Act, has 
increased the federal role through requirements that apply to all 
public schools and students. The United States places a high priority 
on educating children at the elementary and secondary levels and has 
increased the federal investment from over $20 billion in fiscal year 
2000 to about $35 billion in fiscal year 2003. This increased 
investment in recent years has been accompanied by an increased 
emphasis on accountability for schools to raise all students to 
proficient levels in math, reading, and science and has placed 
additional requirements on states for student testing and teacher 
qualifications. It also mandated actions for schools at which students' 
performance does not sufficiently improve. 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 American students. (See figs. 1.4 and 1.5.)

Figure 1.4: Achievement Gaps in Reading, Grade 12:

[See PDF for image] - graphic text:

Score differences between White and Black students' average scores:
1992: 24;
1994: 28;
1998: 26;
2002: 25.

Score differences between White and Hispanic students' average scores:
1992: 18;
1994: 23;
1998: 21;
2002: 20.

Source: National Center for Education Statistics, National Assessment 
of Educational Progress, The Nation's Report Card: Reading 2002.

Note: Scores for 1992 through 1998 reflect testing situations in which 
accommodations were not permitted. Scores for 2002 reflect a testing 
situation in which accommodations were permitted.

[End of figure]

Figure 1.5: Achievement Gaps in Math, Grade 12:

[See PDF for image] - graphic text:

Bar chart with 8 items.

Score differences between White and Black students' average scores:
1990: 33;
1992: 30;
1996: 31;
2000: 34.

Score differences between White and Hispanic students' average scores:
1990: 25;
1992: 22;
1996: 24;
2000: 26.

Source: National Center for Education Statistics, "National Assessment 
of Educational Progress, "The Nation's Report Card: Math 2002.":

[End of figure]

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. 
Helping states to meet these requirements requires a larger role for 
the Department of Education in providing support and oversight. For 
special education students, the reauthorization of IDEA has focused on 
several major issues--the federal funding contribution, paperwork 
burden, teacher shortages, identification of children for special 
education services, and alignment of the No Child Left Behind Act 
requirements with the needs of children with disabilities. In addition, 
the National School Lunch and School Breakfast Programs are school-
based efforts to provide students with nutritionally balanced meals, 
often at low or no cost. Recent data on the increase in the percentage 
of children who are overweight and the attendant health problems has 
highlighted the importance of providing students with nutritious foods 
and creating a healthy eating environment in schools.

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, an estimated 900,000 children are found to 
be the victims of abuse and neglect by their parents, relatives, or 
other caregivers. Tragically, approximately 1,300 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 almost $8 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. In 1997, the 
Congress enacted the Adoption and Safe Families Act with two primary 
goals: (1) to ensure that consideration of children's safety is 
paramount in child welfare decisions, so that children are not returned 
to unsafe homes, and (2) to ensure that necessary legal procedures 
occur expeditiously, so that children who cannot return home may be 
placed for adoption or another permanent arrangement quickly. HHS has 
also established a new review system--known as Child and Family 
Services Reviews--to monitor state compliance with federal child 
welfare laws. Moreover, nearly 20 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. The program 
helps locate noncustodial parents, establish paternity, establish child 
support obligations, and collect child support. Provisions in the 1996 
welfare reform legislation strengthened and improved child support 
enforcement. For example, to improve efforts to track delinquent 
parents across state lines, the law established the National Directory 
of New Hires--a national system that includes personal and employment 
information on all newly hired employees--and the Federal Case 
Registry--a system that contains data from child support cases.

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 
provides approximately $63 billion annually to enhance the quality of 
and access to postsecondary, vocational, and adult education. In 
particular, federal grant and loan programs provide financial aid to 
make college more affordable and accessible for millions of Americans. 
At over $11 billion, the Pell Grant helps to ensure access to higher 
education for low-income undergraduate students. In addition, the 
government's investment in supporting college students with direct 
loans and loan guarantees results in over $44 billion of new loans 
annually. Of growing significance, the federal government also provides 
over $12 billion in higher education subsidies for students or their 
families through several tax benefits, such as the Hope and Lifetime 
Learning tax credits and the deferral of tax on the earnings of 
contributions to qualified state tuition programs.

A major concern about the federal government's investment in 
postsecondary education is the government's 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. 
1.6.) Due in part to concerns about Education's ability to efficiently 
manage the student loan and grant programs and their vulnerability to 
fraud, waste, abuse, and mismanagement, GAO has added the student loan 
programs to the high-risk list. Reducing fraud and error in and 
improving the management of these programs is also part of the 
President's Management Agenda.

Figure 1.6: A Growing Balance of Defaulted Loans Is Subject to 
Collection, 1993-2003:

[See PDF for image] - graphic text:

Line chart with one line.

Dollars in Billions:

1993: $17.06;
1994: $17.489;
1995: $17.976;
1996: $17;
1997: $19;
1998: $21;
1999: $22.6;
2000: $21;
2001: $21.5;
2002: $21.4;
2003: $22.6.

Source: Department of Education, Budget Service.

Note: Balances include defaulted loans under both the Federal Family 
Education Loan and Federal Direct Loan Programs.

[End of figure]

Furthermore, legislation key to higher education issues is scheduled 
for reauthorization. The Higher Education Act, the Adult Education and 
Family Literacy Act, and the Carl D. Perkins Vocational and Technical 
Education Act are all due to be reauthorized in the near future. The 
Congress will be debating several key issues, including the rising 
costs of college, how to help students and families finance these 
costs, institutional accountability for educational costs and quality, 
how best to provide for a skilled workforce, and Education's management 
of the federal investment in postsecondary education.

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, Care, and Nutrition Programs in Serving Their Target 
Populations;

* Assess Options for Federal Programs to Effectively Address the 
Educational and Nutritional Needs of Elementary and Secondary Students;

* 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.

Performance Goal 1.2.1: Analyze the Effectiveness and Efficiency of 
Early Childhood Education, Care, and Nutrition Programs in Serving 
Their Target Populations:

Key Efforts:

* Evaluate the operation and management of major federal early 
childhood education, child care, and nutrition programs:

* Analyze the cost, coordination, and availability of child care for 
low-income families:

* Evaluate the design and performance outcomes of major federal early 
childhood education, child care, and nutrition programs:

Significance:

The federal government spends more than $11 billion on early education 
programs for children under age 5, primarily for six major programs, 
including Head Start. New federal initiatives are emphasizing the 
importance of helping all children develop school readiness skills, 
including early reading skills. However, the effect of early childhood 
programs on helping children prepare to enter school is still being 
debated.

GAO's work led to a mandated study of Head Start, which, with funding 
of over $6.5 billion in fiscal year 2002, is the largest federal early 
childhood education program. Early childhood education services are 
provided through other programs, such as Title I, the primary focus of 
which traditionally has not been early childhood. This type of program 
has not been evaluated for its effect on a child's readiness for 
school.

Child care is viewed as both a vital support to working families for 
achieving and maintaining self-sufficiency and a vehicle for helping 
prepare young children for school. With welfare reform placing greater 
emphasis on returning former welfare recipients to work, the cost and 
availability of child care has become an even more important issue than 
in the past. Because states and localities play the primary role in 
ensuring that a basic level of quality child care exists and because 
individual states approach this task differently, concerns have also 
arisen about the quality of services being bought with federal money.

The two child nutrition programs that target low-income or at-risk 
children--the Child and Adult Care Food Program (CACFP) and the Special 
Supplemental Nutrition Program for Women, Infants, and Children (WIC)-
-help ensure that children receive nutritious meals to support their 
overall development and well-being. CACFP is vulnerable to fraud and 
abuse, and state agencies that administer the program are responsible 
for implementing regulations to promote program integrity. The WIC 
program faces a number of challenges, including coordinating its 
nutrition services with health and welfare programs undergoing 
considerable change, assessing the effect of nutrition services, and 
meeting increased program requirements.

Potential Outcomes:

* More effective use of federal funds aimed at improving the education, 
care, and nutrition of low-income children:

* Greater assurance that the federal investment in early childhood 
education, child care, and nutrition programs is achieving positive 
results:

* Informed congressional and agency decisions about ways to improve the 
management of key early childhood education, child care, and nutrition 
programs:

Performance Goal 1.2.2: Assess Options for Federal Programs to 
Effectively Address the Educational and Nutritional Needs of Elementary 
and Secondary Students:

Key Efforts:

* Analyze the effectiveness and efficiency of federal reform efforts to 
improve performance and close achievement gaps for different types of 
students, including special education students:

* Analyze the contribution of federal programs to improving school 
performance through enhancing the quality and quantity of teachers, 
upgrading the school environment (including safety and nutrition), and 
assessing options for parents in the education of their children:

* Analyze the contribution of federal education programs to improving 
the self-sufficiency and success of teenagers as they make the 
transition to adulthood:

* Evaluate the adequacy of management structures, processes, and 
controls for federal elementary and secondary education and nutrition 
programs for ensuring program integrity:

Significance:

Americans have placed a high priority on educating their children and 
preparing them to become self-sufficient adults and productive workers. 
For these reasons, the federal government invested about $35 billion in 
federal funds in elementary and secondary education in fiscal year 
2002. This investment was coupled with new federal requirements aimed 
at improving student and school performance and teacher qualifications. 
Meeting these requirements will be challenging for schools, in part 
because of the growing number of disadvantaged students. These 
students, such as those from poor families, with disabilities, or with 
limited English proficiency, generally have not performed as well as 
other groups of children on tests. With the signing of the Elementary 
and Secondary Education Act in 2002, also known as the No Child Left 
Behind Act, the Congress has instituted requirements to facilitate the 
elimination of this achievement gap, and policymakers are exploring 
ways to improve teaching and enhance educational options.

The Congress is now expanding these principles to the reauthorization 
of the Individuals with Disabilities Education Act. The Congress is 
also interested in how the Department of Education supports elementary 
and secondary education programs. In addition, recent threats to the 
United States underscore the continuing concern of parents and 
policymakers with students' school environment, including school safety 
and building quality.

Finally, the increase in overweight children and concerns about their 
current and future health and well-being have focused attention on the 
federally supported school meal programs, since schools are well 
positioned to positively influence what children eat. Concerns have 
been raised about the nutritional content of the meals served as well 
as the types and effectiveness of nutrition education offered and the 
availability of non-nutritious foods in schools.

Potential Outcomes:

* More effective services provided to different types of at-risk 
students so that they are more likely to improve school performance:

* Better congressional understanding of the resources needed for a 
world-class education system:

* Better congressional understanding of transition issues for teenagers 
and the role the federal government can play in their transition to 
adulthood:

* Administrative and potential legislative actions to improve 
elementary and secondary education programs and a reduction in fraud, 
waste, and abuse in elementary and secondary education programs:

* A better understanding of the steps needed to promote a nutritionally 
healthy school environment:

Performance Goal 1.2.3: Determine the Effectiveness and Efficiency of 
Child Support Enforcement and Child Welfare Programs in Serving Their 
Target Populations:

Key Efforts:

* Determine whether federal, state, and local child support enforcement 
programs are achieving program goals efficiently:

* Determine whether federal, state, and local child welfare programs 
are effectively using their resources to meet safety, permanency, and 
well-being goals for children:

* Assess federal and state efforts to use information management 
technology and to safeguard sensitive child support enforcement 
information:

Significance:

The United States has nearly 3 million children at risk of abuse and 
neglect each year. An increasing number of these children will be 
removed from their homes and many will not be able to return safely. 
Concerns about children's safety and long stays in foster care without 
being placed in permanent homes culminated in the passage of the 
Adoption and Safe Families Act of 1997. Policymakers are now concerned 
about whether outcomes for children have improved, whether federal 
oversight ensures that state-reported data are reliable, and how 
financial resources can be used more effectively.

Moreover, about 27 percent of all children in this country live in one-
parent households, and many of these families need child support to 
help them achieve or maintain economic self-sufficiency. Provisions in 
the 1996 welfare reform legislation strengthened and improved state 
child support collection activities. Nonetheless, in fiscal year 2002, 
there were about 16 million child support cases and more than $92 
billion was owed in unpaid child support. Policymakers continue to have 
questions about the program's ability to increase collections; the 
effectiveness of new enforcement tools; how new databases are used, 
particularly in light of privacy concerns; and whether federal funds 
have been used effectively.

Potential Outcomes:

* More effective use of federal funds for providing necessary services 
and assistance to children at risk or who have been the victims of 
abuse and neglect and for increasing child support collections and 
improving other child support services:

* Enhanced support and coordination among federal, state, and local 
entities responsible for child support enforcement:

* Greater success in using available resources to ensure positive 
outcomes for abused and neglected children:

* Improved support and coordination among federal, state, and local 
entities responsible for child welfare:

* Informed congressional and agency decisions regarding (1) sharing/ 
giving access to sensitive and personal information and (2) 
establishing adequate safeguards that minimize the risk of improper 
disclosure of sensitive and personal information:

* Greater assurance that the federal investment in information systems 
is achieving positive results and providing useful information for 
congressional decision making:

Performance Goal 1.2.4: Identify Opportunities to Better Manage 
Postsecondary, Vocational, and Adult Education Programs and Deliver 
More Effective Services:

Key Efforts:

* Assess the efficiency and effectiveness of programs designed to 
promote access to and affordability of postsecondary education for 
students:

* Evaluate the federal role in ensuring quality in the management of 
postsecondary (especially student financial aid), vocational, and adult 
education programs:

* Assess the extent to which federal postsecondary, vocational, and 
adult education programs address the skills needed in the 21st 
century's knowledge-based economy:

* Assess implications of heightened homeland security for student visa 
programs, educational institutions, and students:

Significance:

The federal government uses several tools to ensure access to 
postsecondary education and lifelong learning, including Pell Grants, 
student loans, tax benefits, state and local grant programs, funding to 
improve the quality of institutions that serve high proportions of 
minority and disadvantaged students, and funding to provide services to 
help disadvantaged students to enter and complete college. While 
postsecondary education clearly results in a more enlightened citizenry 
and strengthens the nation's democracy, it also demonstrably improves 
the nation's workforce and the quality of life for the nation's 
workers. Recent U.S. Census Bureau data reveal that over a work life, 
earnings of a worker with a bachelor's degree will exceed those of a 
worker with a high school diploma by as much as $1 million. In addition 
to supporting a traditional college education, the Department of 
Education and other agencies also administer programs for vocational 
education, occupational training, and adult basic education that may 
aid at-risk youth and other vulnerable populations' transition to the 
workplace.

While the federal investment in postsecondary education is significant, 
several factors confound the nation's efforts to support postsecondary 
goals. Students and their families face escalating educational costs, 
postsecondary enrollments are projected to increase in the next decade, 
and fiscal and budgetary pressures will constrain the federal and state 
governments' ability to support higher education. In addition, while 
federal grant and loan programs have been successful in providing 
students with money for postsecondary education and increasing the 
participation of disadvantaged students, they have been less successful 
in protecting the financial interests of U.S. taxpayers. As a result, 
Education's student loan programs have remained on GAO's high-risk list 
for over a decade.

In recent years, however, Education has implemented reforms that have 
improved its management of student financial aid programs. The Higher 
Education Act, the Adult Education and Family Literacy Act, and the 
Carl D. Perkins Vocational Technical Education Act are due to be 
reauthorized in the near future. The Congress will be debating several 
key issues, including the rising costs of college, how to help students 
and their families finance these costs, institutional accountability 
for educational costs and quality, how best to provide for a skilled 
workforce, and Education's management of the federal investment in 
postsecondary education. Key adult and vocational education issues 
include the extent to which needed basic reading, mathematics, English, 
and workplace skill building are available and schools are staffed with 
teachers who are qualified to serve the programs' clientele and the 
extent to which these programs are held accountable for achieving 
desired results.

Potential Outcomes:

* Increased participation of disadvantaged students in postsecondary 
education via better use of federal resources:

* Informed congressional and agency decisions on ways to improve the 
management of student financial assistance and other postsecondary, 
vocational, and adult education programs:

* Increased efficiency and effectiveness of federal postsecondary, 
vocational, and adult education programs in addressing current and 
future skills needs:

* Informed decision making on balancing the need to monitor foreign 
students with the benefits of their enrollment in the nation's 
institutions of higher education:

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

Issue: A strong national economy depends, in part, on a productive 
workforce. Developing that workforce includes effectively preparing 
youth and new workers to compete in the labor force, efficiently 
helping employers locate qualified job candidates, providing a work 
environment that safely promotes productivity, finding ways to help 
workers when they become unemployed, and providing assistance to 
workers with disabilities. To this end, the federal government 
currently invests more than $150 billion annually to help new entrants 
to the workforce, support those who have been laid off from their jobs 
and assist them in becoming reemployed, assist and rehabilitate workers 
with injuries or disabilities, help employers hire enough highly 
skilled workers, 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, but changes in the economy, have created significant 
challenges to supporting low-skilled, low-income families as people 
leave welfare and enter the workforce.

A struggling economy and a large projected decline in the growth rate 
of the workforce present critical challenges for maintaining the 
nation's productivity. While economic recovery is under way, a slower 
rate of labor force growth will present challenges to the continued 
growth of the nation's economy. As the demand for skilled labor 
increases with the expansion of the economy, researchers warn that, 
unlike in the past when economic growth was fueled in part by increases 
in the size and skill of America's workforce, over the next two decades 
the potential for shortages of skilled workers could present mounting 
challenges for productivity and economic growth. At the same time the 
baby boom generation begins to retire, there will be fewer native-born 
workers entering the labor force to take their place. Tapping into all 
possible labor sources will be important, and policymakers may need to 
look for more ways to support employing workers with disabilities, to 
encourage seasoned workers to remain in the workforce longer, to help 
welfare recipients leave welfare for work, and to assist low-wage 
workers in retaining and advancing in their jobs. Additionally, the 
nation may need to consider how well current immigration policies work 
in addressing demands for workers.

Technology, changes in the organization of work, and increasing global 
interdependence--in which not only production but also some portions of 
the service sector are being outsourced overseas--are redefining the 
labor market for workers and employers. Federal employment, worker 
protection, and disability programs must deal with these new 
challenges, in addition to encouraging a commitment to lifelong 
learning. Because of technological changes and global competition, 
employers will need workers with greater skills. In the past, employers 
were able to take advantage of new technologies, in part, because new 
workers were more educated than the retiring workers. However, over the 
next 20 years, the growth in the labor force is expected to slow 
dramatically, as are the proportions of the labor force with education 
beyond high school and with college degrees. For example, as shown in 
figure 1.7, some experts project that the labor force will grow only 
16.4 percent from 2000 through 2020--barely a third of the nearly 50 
percent rate of expansion from 1980 through 2000. These changes raise 
numerous issues regarding the adequacy of efforts to ensure that 
employers will have the workers they need. Various changes in the 
workforce and workplace also raise issues about the adequacy of efforts 
to ensure that workers have safe, healthy, and productive workplaces. 
Regulations and activities designed to ensure workplace safety and 
health must be revised to accurately reflect the technological changes 
of the recent past. At the same time, changes in technology and the 
labor force have created new opportunities for some people with 
disabilities to remain at or return to work, yet the labor force 
participation rate of people with disabilities has remained quite low. 
Moreover, federal disability programs remain mired in concepts from the 
past and are poorly positioned to provide meaningful and timely support 
for Americans with disabilities. The Congress and the administration 
face challenges as they redefine the role of public policies to help 
employers and workers enhance productivity and increase earnings while 
also protecting workers' rights.

Figure 1.7: Changes in the Actual and Projected Growth Rates for the 
Labor Force, 1980-2020:

[See PDF for image] - graphic text:

Bar chart with 4 items.

Total Workforce;
Actual Change in the Rate of Growth--1980 to 2000:48.5%;
Projected Change in the Rate of Growth--2000 to 2020: 16.4%.

College Degree or More;
Actual Change in the Rate of Growth--1980 to 2000:106.9%;
Projected Change in the Rate of Growth--2000 to 2020: 29.6%.

Source: The Aspen Institute.

[End of figure]

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 Leave 
Welfare for Work and to Assist Other Low-Income Individuals;

* Analyze the Impact of Programs Designed to Maintain a Skilled 
Workforce and Ensure That Employers Have the Workers They Need;

* Assess the Success of Various Enforcement Strategies to Protect 
Workers While Minimizing Employers' Burden in the Changing Work 
Environment; and:

* Identify Ways to Improve Federal Support for People with 
Disabilities.

Performance Goal 1.3.1: Assess the Effectiveness of Federal Efforts to 
Help Adults Leave Welfare for Work and to Assist Other Low-Income 
Individuals:

Key Efforts:

* Analyze and highlight key issues associated with the changing social 
services environment under welfare reform, including access to 
services, effects on special populations, and interactions among 
programs:

* Assess state and federal efforts to promote employment for welfare 
recipients and other low-income adults while ensuring assistance for 
those in need:

* Assess federal and state oversight and management of welfare reform 
and federal programs to support or serve low-income workers and other 
individuals and ensure program integrity:

Significance:

The welfare reform legislation of 1996 made sweeping changes to key 
national policies affecting low-income individuals, including creating 
the Temporary Assistance for Needy Families (TANF) block grant and 
modifying aspects of the Food Stamp program. Key goals of the $16.5 
billion TANF block grant include ending welfare dependency by promoting 
work and marriage, reducing out-of-wedlock pregnancies, and promoting 
two-parent families. In addition, it devolved much responsibility for 
welfare policies to state and local decision makers and provided them 
added flexibility in designing and administering these programs. Key 
features of the TANF program, including its increased emphasis on 
employment and state flexibility, are expected to remain in place as 
the Congress considers reauthorization in 2003.

The 1996 welfare reform legislation also provided options for increased 
state flexibility for the $19 billion Food Stamp program, and that 
program's 2002 reauthorizing legislation provided states additional 
flexibility options. As states initially implemented welfare reform 
during the strong economic growth of the late 1990s, TANF and food 
stamp caseloads fell dramatically, and states increasingly focused on 
providing TANF-funded services in ways that supported the work efforts 
of adults. States now operate these programs in a dramatically 
different environment--higher unemployment; significant budget 
shortfalls; and, in many states, increasing TANF and food stamp 
caseloads. As a result, states may face significant challenges in 
sustaining and building upon recent welfare reforms, which include 
moving those remaining on the welfare rolls into jobs, helping former 
welfare recipients and other low-income workers maintain their jobs and 
advance, and helping those who have lost their jobs and once again need 
income support. Similarly, rising caseloads, budget shortfalls, and 
recent program changes present states with challenges as they 
administer the Food Stamp program, which plays a vital role in both 
supporting low-income families as they enter and stay in the workforce 
and providing needed food assistance to those who are not working for a 
variety of reasons.

Finally, this current environment heightens the already important need 
to ensure that programs achieve their goals and that only eligible 
individuals and families receive benefits. Federal, state, and local 
officials will need to take further steps to reduce waste, fraud, and 
abuse and increase program effectiveness and efficiency in the TANF and 
Food Stamp programs.

Potential Outcomes:

* Better congressional understanding of how significant changes to the 
social services environment have affected the status of families, 
special populations, and program coordination and service delivery:

* More effective federal and state strategies for supporting low-income 
families and reducing their need for welfare:

* Increased efficiency, effectiveness, and integrity of programs such 
as TANF, federal food assistance, and income support programs:

Performance Goal 1.3.2: Analyze the Impact of Programs Designed to 
Maintain a Skilled Workforce and Ensure That Employers Have the Workers 
They Need:

Key Efforts:

* Assess the effectiveness of federal efforts to support the 
development of career pathways for youth and other workers that link 
lifelong learning with workforce development activities:

* Assess the effectiveness of efforts to address anticipated labor 
force shortages and maintain the size and quality of the labor force to 
meet employers' changing needs:

* Assess the effectiveness and viability of federally supported efforts 
to assist dislocated workers through financial assistance (such as 
unemployment insurance), job search assistance, and opportunities for 
skill upgrades:

* Assess federal and state oversight and management of employment and 
training programs, including accountability systems in a decentralized 
and increasingly integrated workforce development system:

Significance:

While the federal government has long invested in a range of employment 
and training programs for both new job seekers and those who have been 
laid off from their jobs, the Workforce Investment Act of 1998 sought 
to improve these programs and create a coherent nationwide service-
delivery system. Under the act, the emphasis for federally funded 
workforce development services has shifted to providing a full range of 
programs, and services now include postemployment training and 
assistance. There has also been a shift in what workers need, with an 
emphasis on job search assistance and case management in addition to 
training. Despite these efforts, some employers still struggle to find 
the skilled workers that they need. The availability of a skilled 
workforce to meet employers' needs will be critical to the nation's 
prosperity as the economy struggles to rebound from a recession and 
shrink unemployment.

Unemployment insurance--the nation's support program for newly 
unemployed workers--may not be well positioned to provide the financial 
support needed to sustain many unemployed workers. Low-wage workers may 
be particularly hard hit--many may find that they are not covered by 
their state's unemployment insurance system and their opportunities for 
employment and job advancement may be limited.

Increasingly, the jobs that are available require sophisticated skills, 
often far more sophisticated skills than many of these individuals 
possess. Additionally, emerging long-term challenges are expected based 
on slower growth rates projected for the numbers of workers entering 
the workforce and attaining college degrees. Given demographic changes 
in the workforce, new strategies will be needed to address labor 
shortages, especially of skilled workers. Utilizing the available pool 
of seasoned workers as well as providing additional workforce training 
for youth and other underutilized populations may be considered to 
address these shortages. In addition, it would be useful to reexamine 
the role of immigration policies in supplying temporary and permanent 
foreign workers to meet labor market needs while also determining 
whether these policies ensure that adequate protections are in place 
for American workers. In light of these challenges, opportunities exist 
for policymakers and employers to work together to upgrade the skills 
of the workforce and contribute to the nation's economic recovery.

Potential Outcomes:

* Employment and training programs that are comprehensive, coordinated, 
and easily accessible to employers and job seekers:

* Enhanced ability of job training programs to provide training that 
matches employers' needs while enhancing the job opportunities, wage 
potential, and job retention for America's workers:

* Increased efficiency and improved financial management in the 
delivery of federal employment and training programs, including 
improved systems for assessing the Workforce Investment Act's 
performance:

* Improvements in services for workers who have lost their jobs, 
including the provision of unemployment insurance benefits:

Performance Goal 1.3.3: Assess the Success of Various Enforcement 
Strategies to Protect Workers While Minimizing Employers' Burden in the 
Changing Work Environment:

Key Efforts:

* Analyze how technological, economic, and national security issues are 
affecting the workplace, the protections afforded to workers, and 
efforts to regulate these protections:

* Highlight the results and lessons learned from efforts to enhance 
worker safety and health through nontraditional methods, such as 
voluntary compliance and employer incentives:

* Assess federal and state oversight and management of efforts to 
ensure safer workplaces and healthier workers:

Significance:

Technological advances, unprecedented economic growth, and low 
unemployment rates created a situation in the 1990s in which employers 
were willing to go to great lengths to get and keep qualified workers. 
For example, employers paid competitive wages and benefits, allowed 
alternative work schedules, or provided employment that was not only 
free from serious hazards but had numerous amenities for workers, such 
as day care centers or health clubs.

More recently, however, the economic downturn, changes in the 
demographics and skill sets of available workers, and continued threats 
to national security are changing how employers and workers view the 
workplace. Employers may be less willing to expend the resources 
necessary to get and keep workers, or even provide basic workplace 
protections, if they are faced with financial constraints and qualified 
workers are readily available either as a result of higher unemployment 
or immigration of workers to the United States.

In addition, changes in workplace arrangements and conditions--such as 
the increasing use of independent contractors who do not qualify for 
employer-provided pensions or health care benefits--are calling into 
question the adequacy of protections for today's workers and the 
burdens that employers face in trying to provide these protections. 
Workers may be less able to think productively and creatively if they 
do not feel safe in the workplace and think their employers are not 
devoting sufficient resources to protecting their health and safety. 
However, the level of protection that employers should provide in 
response to external threats to workers' safety, such as threats to 
national security, is unclear.

Now more than ever, it is important to maintain the balance between 
ensuring the safety and health of workers and minimizing burdens for 
employers. In that respect, federal and state enforcement authorities, 
which for years have largely been able to focus their efforts on the 
most dangerous or exploitative employers, now may have to rethink what 
types of workplace safety issues are paramount. It is clear that 
regulations and activities designed to ensure workplace safety and 
health must be revised to accurately reflect not only the technological 
changes of the recent past, but also the potential repercussions from 
recent national events. No consensus exists, however, on the types of 
revisions that would result in the most efficient ways of protecting 
workers and minimizing employers' burden in the 21st century.

Potential Outcomes:

* Better informed congressional and agency decisions on the types of 
changes needed in regulations and enforcement policies to address 
current work arrangements and workplace conditions:

* Enforcement and other strategies, such as voluntary compliance 
programs, that result in safer workplaces and healthier workers while 
eliminating unnecessary burdens for employers:

* Increased efficiency and financial management in the delivery of 
worker protection programs and policies:

Performance Goal 1.3.4: Identify Ways to Improve Federal Support for 
People with Disabilities:

Key Efforts:

* Evaluate the adequacy of actions that federal disability programs 
have taken to modernize their programs so that they are in line with 
the current status of law, science, medicine, technology, and labor 
market conditions:

* Evaluate the adequacy of management processes and controls of federal 
disability programs for ensuring program integrity, including those 
related to improving the accuracy, timeliness, and consistency of 
disability decisions:

* Assess the effectiveness and efficiency of federal and other efforts, 
including those in other countries, to improve access to public 
accommodations, benefits, services, and activities, including those 
that promote movement into the workforce for people with disabilities:

* Assess the effectiveness and efficiency of benefits and services 
provided by the federal worker compensation program and other worker 
compensation programs, including those in other countries, to improve 
the rehabilitation and return to work of injured workers:

Significance:

Federal disability programs have experienced significant growth over 
the past decade and are expected to grow even more steeply as more baby 
boomers reach their disability-prone years. In particular, the Social 
Security Administration (SSA) and VA oversee five major disability 
programs that provide cash assistance to individuals with physical or 
mental conditions that reduced their earning capacity, collectively 
paying more than $100 billion in cash benefits to more than 13 million 
beneficiaries in 2001.

Paradoxically, recent scientific advances as well as economic and 
social changes have redefined the relationship between impairments and 
work. Advances in medicine and technology have reduced the severity of 
some medical conditions and have allowed individuals to live with 
greater independence and function in work settings. Moreover, the 
nature of work has changed in recent decades as the national economy 
has moved away from manufacturing-based jobs to service-and knowledge-
based employment.

However, federal disability programs remain mired in concepts from the 
past and are poorly positioned to provide meaningful and timely support 
for workers with disabilities. Indeed, SSA and VA are struggling to 
provide accurate, timely, and consistent disability decisions to 
program applicants. For these reasons, GAO has added modernizing 
federal disability programs to its 2003 high-risk list. GAO's 
designation of SSA's disability programs as high risk can serve as a 
catalyst to bring together the partners needed to resolve these long-
standing problems. As previously stated, as the primary manager of 
multibillion-dollar programs and as the entity with fiduciary 
responsibility for the trust funds, SSA must take the lead in forging 
the partnerships and cooperation that will be needed in reorienting 
federal disability programs.

Potential Outcomes:

* Improvement in current and future service-delivery structures and 
practices:

* Administrative and legislative actions to improve the timeliness, 
accuracy, and consistency of disability decisions for program 
applicants:

* Reduced fraud, waste, and overpayments in disability programs:

Strategic Objective 1.4: A Secure Retirement for Older Americans:

Issue: For the last 60 years, the retirement security of older 
Americans has been a central concern of American society. The Congress 
enacted Social Security and the post-World War era saw the development 
and expansion of a private-employer-provided pension system. Later, new 
tax-preferred vehicles were created to encourage individuals to 
increase their personal retirement savings.

The nation has also changed dramatically in other ways. For example, 
women, especially married women, have entered the labor force in 
growing numbers, with their 2000 labor force participation rate almost 
doubling to over 60 percent since 1960. As the growth in the number of 
single parent households illustrates, there has been a substantial 
increase in the diversity of structure of American households. Finally, 
as the baby boomers approach retirement and as life expectancy 
continues to increase, the American population has aged. The percentage 
of the population age 65 and older is projected to reach 20 percent by 
2025, up from less than 12 percent in 2000.

All of these developments have important consequences for the 
retirement security of American workers and their families. For 
example, the aging of the population poses important challenges for the 
future of Social Security, the program that continues to serve as the 
foundation of the nation's retirement income system. Because of these 
changes in workforce participation and longevity, people--particularly 
women--on average, will be spending an increasing number of years in 
retirement and thus will receive benefits longer. In addition, it means 
that the ratio of workers to retirees is expected to decline, with 
fundamental implications for Social Security, the federal budget, and 
the national economy. Although Social Security payroll tax revenues 
exceed benefit expenditures today, projections suggest that beginning 
in 2018, spending will exceed revenues by growing proportions and that 
in 2042 the Social Security trust funds will be depleted. (See fig. 
1.8.) 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.

Although there is an emerging consensus about the need to address the 
long-term fiscal problems of the Social Security program, there remains 
considerable debate on both the timing and the nature of such reform. 
The Congress has discussed many of these issues and is continuing these 
policy deliberations. Such reform would have major consequences for the 
federal budget, for the long-term economic growth of the country, and 
particularly for retirement income adequacy, given that Social Security 
is the sole source of income for one-fifth of the elderly.

Figure 1.8: Social Security Trust Fund Faces Insolvency in 2042:

[See PDF for image] - graphic text:

Combined bar and line chart with one line and 41 bars.

Dollars in billions:

2000;
Trust fund balance: $1,119.0;
Cash surplus: N/A;
Cash Deficit: N/A. 

2001;
Trust fund balance: $1,258.9;
Cash surplus: N/A;
Cash Deficit: N/A. 

2002;
Trust fund balance: $1,411.0;
Cash surplus: N/A;
Cash Deficit: N/A. 

2003;
Trust fund balance: $1,542.6;
Cash surplus: $77.1;
Cash Deficit: N/A. 

2004;
Trust fund balance: $1,682.9;
Cash surplus: $81.3;
Cash Deficit: N/A. 

2005;
Trust fund balance: $1,832.7;
Cash surplus: $89.9;
Cash Deficit: N/A. 

2006;
Trust fund balance: $1,989.5;
Cash surplus: $95.3;
Cash Deficit: N/A. 

2007;
Trust fund balance: $2,153.9;
Cash surplus: $98.6;
Cash Deficit: N/A. 

2008;
Trust fund balance: $2,322.9;
Cash surplus: $97.8;
Cash Deficit: N/A. 

2009;
Trust fund balance: $2,493.5;
Cash surplus: $94.6;
Cash Deficit: N/A. 

2010;
Trust fund balance: $2,664.4;
Cash surplus: $89.9;
Cash Deficit: N/A. 

2011;
Trust fund balance: $2,834.7;
Cash surplus: $84.8;
Cash Deficit: N/A. 

2012;
Trust fund balance: $3,001.1;
Cash surplus: $76.3;
Cash Deficit: N/A. 

2013;
Trust fund balance: $3,160.7;
Cash surplus: $65.2;
Cash Deficit: N/A. 

2014;
Trust fund balance: $3,311.6;
Cash surplus: $52.4;
Cash Deficit: N/A. 

2015;
Trust fund balance: $3,452.0;
Cash surplus: $38.1;
Cash Deficit: N/A. 

2016;
Trust fund balance: $3,579.0;
Cash surplus: $21.5;
Cash Deficit: N/A. 

2017;
Trust fund balance: $3,690.6;
Cash surplus: $3.3;
Cash Deficit: N/A. 

2018;
Trust fund balance: $3,785.6;
Cash surplus: N/A;
Cash Deficit: -$16.2. 

2019;
Trust fund balance: $3,863.0;
Cash surplus: N/A;
Cash Deficit: -$36.0. 

2020;
Trust fund balance: $3,920.6;
Cash surplus: N/A;
Cash Deficit: -$57.5. 

2021;
Trust fund balance: $3,956.5;
Cash surplus: N/A;
Cash Deficit: -$80.3. 

2022;
Trust fund balance: $3,970.6;
Cash surplus: N/A;
Cash Deficit: -$102.5. 

2023;
Trust fund balance: $3,963.9;
Cash surplus: N/A;
Cash Deficit: -$123.2. 

2024;
Trust fund balance: $3,935.5;
Cash surplus: N/A;
Cash Deficit: -$144.0. 

2025;
Trust fund balance: $3,885.2;
Cash surplus: N/A;
Cash Deficit: -$164.5. 

2026;
Trust fund balance: $3,812.9;
Cash surplus: N/A;
Cash Deficit: -$184.4. 

2027;
Trust fund balance: $3,718.1;
Cash surplus: N/A;
Cash Deficit: -$204.2. 

2028;
Trust fund balance: $3,600.6;
Cash surplus: N/A;
Cash Deficit: -$223.5. 

2029;
Trust fund balance: $3,461.1;
Cash surplus: N/A;
Cash Deficit: -$241.5. 

2030;
Trust fund balance: $3,300.2;
Cash surplus: N/A;
Cash Deficit: -$258.2. 

2031;
Trust fund balance: $3,118.6;
Cash surplus: N/A;
Cash Deficit: -$273.5. 

2032;
Trust fund balance: $2,917.1;
Cash surplus: N/A;
Cash Deficit: -$287.6. 

2033;
Trust fund balance: $2,696.4;
Cash surplus: N/A;
Cash Deficit: -$300.4. 

2034;
Trust fund balance: $2,457.1;
Cash surplus: N/A;
Cash Deficit: -$312.1. 

2035;
Trust fund balance: $2,199.9;
Cash surplus: N/A;
Cash Deficit: -$322.5. 

2036;
Trust fund balance: $1,925.2;
Cash surplus: N/A;
Cash Deficit: -$332.0. 

2037;
Trust fund balance: $1,633.7;
Cash surplus: N/A;
Cash Deficit: -$340.3. 

2038;
Trust fund balance: $1,325.7;
Cash surplus: N/A;
Cash Deficit: -$347.8. 

2039;
Trust fund balance: $1,001.4;
Cash surplus: N/A;
Cash Deficit: -$354.8. 

2040;
Trust fund balance: $660.5;
Cash surplus: N/A;
Cash Deficit: -$361.4. 

2041;
Trust fund balance: $302.6;
Cash surplus: N/A;
Cash Deficit: -$368.0. 

Source: GAO analysis of Social Security Administration data.

Note: Data taken from the Office of the Actuary's 2003 intermediate 
assumptions from the 2003 Annual Report of the Board of Trustees of the 
Federal Old-Age and Survivors Insurance and Disability Insurance Trust 
Funds.

[End of figure]

Besides reforming Social Security in ways to ensure its financial 
viability and enhance its contribution to retirement income, it will 
also be necessary to foster the growth of other sources of retirement 
income. For example, pensions are another key element in the nation's 
approach to ensuring adequate retirement income, constituting 18 
percent of retirement income in the United States. (See fig. 1.9.) 
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 1.9: Sources of Income in the United States for Those Age 65 and 
Over, 2001:

[See PDF for image] - graphic text:

Pie chart with 5 items.

Social Security: 38%;
Earnings: 23%;
Asset Income: 18%;
Pensions: 18%;
Other: 3%.

Source: Social Security Administration, Annual Statistical Supplement, 
2002.

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

[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 from traditional defined benefit plans 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.

A still significant number of workers continue to be covered by defined 
benefit plans offered by individual employers. Benefits provided by 
these plans are partially insured by the Pension Benefit Guaranty 
Corporation (PBGC). After fluctuating over the last decade, the single 
employer insurance program now has a large and growing accumulated 
deficit. The program has moved from a $9.7 billion accumulated surplus 
in 2000 to a $3.6 billion accumulated deficit in fiscal year 2002.

The termination of large underfunded pension plans of bankrupt firms in 
troubled industries like steel or airlines was the major cause of the 
deficit. Declines in the stock market and interest rates and certain 
weaknesses in the current funding rules contributed to the severity of 
the plans' underfunded condition. Furthermore, the degree of 
underfunding in the private pension system has increased dramatically 
and additional severe losses may be on the horizon. Continued problems 
in volatile or declining industrial sectors could lead to additional 
corporate bankruptcies and consequent plan terminations, increasing 
PBGC's financial liabilities. PBGC currently estimates that it faces 
$35 billion in unfunded vested benefits exposure, which ultimately 
might become program losses.

However, these factors mask broader trends that pose serious program 
risks. For example, the program's insured participant base continues to 
shift away from active workers, falling from 78 percent of all 
participants in 1980 to 53 percent in 2000. In addition, the program's 
risk pool has become concentrated in industries affected by global 
competition and the movement from an industrial to a knowledge-based 
economy. In 2001, almost half of all program-insured participants were 
in plans sponsored by firms in manufacturing industries, a sector that 
has had virtually no employment growth in the last half century. The 
result is a potentially escalating agency vulnerability as PBGC 
struggles to insure what is at best a moribund and increasingly risky 
segment of the pension universe. In response to the cumulative effect 
of these trends on the financial vulnerability of this agency and the 
potentially severe adverse consequences for workers' benefits and the 
federal government, GAO placed PBGC's single-employer insurance program 
on its high-risk list in July 2003.

Long-term weaknesses in the solvency of the Social Security program and 
the sustained lack of pension coverage for half of the labor force 
necessitate that workers depend 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.

Finally, earnings from employment are already a key component of 
retirement income, accounting for 24 percent of aggregate retiree 
income in 2002. Employment-related earnings, particularly when 
generated by extending the labor force of seasoned workers, could 
potentially play a more prominent role in future retirement security. 
Current workers are healthier than past generations and are more 
willing to work in retirement. Increased labor force participation can 
reduce the fiscal pressures on Social Security, contribute to economic 
growth by mitigating potential occupational bottlenecks, and bolster 
labor force growth. However, most employers have not yet met this 
challenge by establishing alternative work and schedule arrangements, 
nor has the government developed the complementary policies to 
encourage employers and workers to move in this direction.

The health needs of an aging population and society's ability and 
willingness to fund those needs are other key issues in national 
retirement policy. The availability of health insurance is a major 
consideration in seasoned workers' employment and retirement decisions 
as well as in employers' decisions to hire such workers. In particular, 
the long-term erosion of employer-provided health benefits for retired 
workers age 55 to 64 who are ineligible for Medicare is a disturbing 
trend. In addition, some of these workers, especially low-wage workers, 
may have to look to Medicaid, the health insurance program for the 
poor, for assistance. Yet a serious related concern is the projected 
rapid rise in Medicaid expenditures. The Congressional Budget Office 
(CBO) estimates that total national expenditures for Medicaid will 
increase from $158 billion in fiscal year 2003 to $360 billion in 2013, 
a 128 percent increase. GAO is taking a comprehensive view of the 
issues facing older Americans and their financial security, including 
not only their retirement income but also health insurance access and 
affordability and the interaction of all of these concerns with the 
general retirement decision.

The demographic, economic, and social developments affecting the nation 
also have important consequences for how the Social Security 
Administration conducts its business. In particular, the Social 
Security number (SSN), once an internal marker for the agency to record 
contributions and pay benefits, is now virtually a universal 
identifier, used by public agencies at all levels of government and 
private business entities of all sizes and from many different economic 
sectors. The SSN's wide use, besides raising many serious privacy 
issues, has also put citizens throughout the nation at risk of identity 
theft, fraud, and other types of illegal activity. How to use the SSN 
in a way that ensures effective agency operations, prevents its illegal 
use, and protects the privacy of U.S. citizenry is one of the greatest 
21st century challenges facing the Social Security Administration.

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

* Assess the Policy Challenges Facing the Future of the Social Security 
System and the Need for Reform;

* Bolster Retirement Security by Identifying Opportunities to Foster 
Greater Pension Coverage, Raise Personal Saving, and Increase the 
Employment Earnings of Seasoned Workers;

* Identify Opportunities to Improve the Ability of Government Agencies 
to Administer and Protect Workers' Retirement Benefits; and:

* Assess the Role of the Social Security Number in Improving Government 
Operations, Minimizing Fraud and Abuse, and Protecting Citizens from 
Identity Theft and Other Illegal Activity.

Performance Goal 1.4.1: Assess the Policy Challenges Facing the Future 
of the Social Security System and the Need for Reform:

Key Efforts:

* Analyze Social Security reform proposals for their effect on the 
level and distribution of workers' benefits, especially for at-risk 
populations; on the budget and the economy; and on agency 
implementation and administration:

* Assess the national retirement system reforms other nations have 
implemented in response to adverse fiscal and demographic trends for 
their impact on retiree benefits, budgetary and economic effects, and 
applicability to the United States:

Significance:

Social Security policy continues to be an important issue facing the 
nation, requiring near-term action in a context in which safety and 
security issues necessarily dominate the nation's policy agenda. The 
Social Security system faces insolvency within the next 40 years, and 
projections suggest that benefit costs will begin to exceed program 
revenues much sooner. Policymakers thus face difficult choices today to 
avoid potentially catastrophic problems later. The main policy choices 
include increasing program revenues, investing Social Security trust 
funds in the private sector, reducing benefits, or some combination of 
the three.

Some analysts call for major structural revisions in the program 
through the creation of individual retirement accounts for workers, 
either in addition to the current program or in lieu of some portion of 
current benefits. All of these policy choices have consequences for 
retirees' benefits, the federal budget, and long-term economic growth. 
They also would influence the willingness of employers to offer private 
pension plans to their employees and the types of plans offered.

These problems are not unique to the United States--virtually all of 
the advanced industrialized countries are now grappling with similar 
issues. Many of these nations are also experimenting with innovative 
solutions to these problems, including ways to encourage workers to 
retire later, and the success or failure of these initiatives can have 
important consequences for how the Congress and the President respond 
to this policy issue in this country.

Finally, the powerful demographic and social changes affecting American 
society pose challenges to existing Social Security policies and 
proposed policy changes. For example, long-term trends in longevity and 
in family and household structure have important equity implications 
for the structure of Social Security survivor, spousal, and related 
benefits.

Potential Outcomes:

* Greater congressional and public understanding of alternative Social 
Security reforms and their implications for retiree benefits, trust 
fund solvency, program sustainability, the budget, and the national 
economy:

* Greater understanding and appreciation for the practical 
considerations related to the implementation and administration of 
Social Security reforms as well as the resulting interaction with other 
retirement systems:

Performance Goal 1.4.2: Bolster Retirement Security by Identifying 
Opportunities to Foster Greater Pension Coverage, Raise Personal 
Saving, and Increase the Employment Earnings of Seasoned Workers:

Key Efforts:

* Assess information available to participants about private pensions 
in the United States and those provided to participants by other 
national occupational pension systems to identify opportunities to 
foster the accumulation of retirement saving and to ensure adequate and 
secure post-retirement income:

* Analyze current federal pension and associated tax policies and those 
of other nations' occupational pension systems to determine their 
effect on pension plan formation; employee participation; plan 
coverage; and the adequacy, distribution, and security of benefits:

* Assess the effectiveness of current tax and other programs and 
provisions to encourage workers to expand their individual retirement 
savings and the interactions of these individual efforts with policies 
encouraging other forms of retirement and nonretirement saving:

* Assess the implications of alternative policies geared to extending 
the labor force participation of seasoned workers:

Significance:

The private pension system remains one of the policy cornerstones for 
ensuring that the nation's workers have adequate retirement income. 
Nevertheless, tens of millions of U.S. workers--close to half of the 
labor force--continue to have no individual pension coverage, placing 
them at risk during their retirement years. The private pension system 
also continues to evolve: the shift from defined benefit to defined 
contribution plans presents both risks and opportunities for American 
workers that can affect retirement income dramatically. Personal 
saving, another important source of future retirement income, is at a 
historically low level and could be affected by the enhanced 
uncertainty of the current economic environment. Reforms to the Social 
Security system could also affect these other sources of retirement 
income.

Given the potential for occupational shortages and lower economic 
growth stemming from a decline in labor force growth, identifying and 
implementing effective policies to extend the labor force participation 
of seasoned workers is a critical area for national retirement policy 
analysis. GAO's work is aimed at improving the linkage between the 
private pension and Social Security systems, helping to find effective 
vehicles to encourage personal saving, promoting the voluntary 
extension of labor force participation of seasoned workers to 
facilitate economic growth and support the Social Security system, and 
ensuring adequate retirement income for the American people.

Potential Outcomes:

* Greater congressional understanding of proposals for increasing 
employer and worker participation in the private pension system:

* More effective federal strategies and policies to increase the role 
of private pensions as a source of retirement income for workers:

* Improved understanding of alternative strategies to raise personal 
saving:

* Greater awareness of the adequacy of retirement saving among various 
subgroups:

* Greater congressional understanding of the issues facing the 
implementation of viable alternative employment arrangements that 
extend the labor force participation of older workers, mitigate 
potential labor bottlenecks, and encourage economic growth:

Performance Goal 1.4.3: Identify Opportunities to Improve the Ability 
of Government Agencies to Administer and Protect Workers' Retirement 
Benefits:

Key Efforts:

* Evaluate pension, pension insurance, and tax oversight programs to 
determine whether workers' private pension retirement benefits are 
effectively protected:

* Evaluate SSA's service-delivery systems and program operations to 
determine whether they are being implemented fairly, effectively, 
efficiently, and securely:

* Assess the adequacy and management of public service retirement 
systems, including the federal, state, and local government employee 
systems, in serving participants and in protecting and providing 
benefits:

Significance:

Social Security, military, federal employee pensions, and private 
pensions will continue to require effective, performance-based 
management and oversight by federal agencies, such as SSA, the Office 
of Personnel Management, PBGC, the Employee Benefits Security 
Administration, VA, and IRS. The challenges facing PBGC's single 
employer insurance program, in particular, pose serious financial risks 
to the federal government, warranting the program's placement on GAO's 
high-risk list.

State and local government employees also deserve effective benefit 
protection and program oversight, particularly of those plans that 
receive preferential tax treatment from the federal government. GAO's 
work is aimed at enhancing the benefit protections enjoyed by covered 
workers, improving the quality of service provided to workers and 
employers, and assessing the effectiveness of the operations of the 
relevant federal agencies.

Potential Outcomes:

* Increased agency administrative and enforcement efficiency to provide 
better protection to workers' benefits at lower taxpayer expense, 
thereby improving the security of participants' retirement income:

* Greater congressional understanding of factors affecting PBGC's 
financial condition and regulatory effectiveness:

* Improved efficiency and effectiveness of SSA's service delivery and 
operations:

* Improved operations of federal and other public retirement programs:

Performance Goal 1.4.4: Assess the Role of the Social Security Number 
in Improving Government Operations, Minimizing Fraud and Abuse, and 
Protecting Citizens from Identity Theft and Other Illegal Activity:

Key Efforts:

* Assess actions to maintain the integrity of the Social Security 
number (SSN) system and strike an appropriate balance between the 
security of SSNs and program integrity purposes:

* Assess actions to improve the use of SSNs for identity verification 
and law enforcement purposes:

Significance:

Terrorism and the resulting prevention efforts have underscored both 
the weaknesses and strengths of SSA's current SSN identification 
system. While SSA relies on the number as an essential element of its 
operations, the number has also become an integral part of daily life 
for millions of Americans. Public and private employers, hospitals, and 
individuals now use the number to conduct routine business, obtain 
drivers licenses and other government documents, and apply for loans 
and employment as well as for a host of other activities. This 
development has raised a wide array of serious policy issues, including 
the increased potential for identify theft and other types of fraud or 
illegal activity, the degree to which foreign nationals can access 
federal employment and education programs, and the privacy protection 
of individuals' personal information. GAO's work on the use of the SSN 
in American society and agency policies regarding its use seeks to fill 
a major gap in the policy debates on all these issues.

Potential Outcomes:

* Improved security of SSNs:

* Improved program integrity of public benefit programs:

* Improved public safety and homeland security:

Strategic Objective 1.5: An Effective System of Justice:

Issue: Spending on the administration of justice continues to grow. In 
constant 2001 dollars, federal spending will be about $38 billion in 
fiscal year 2004, up from about $15 billion in 1991. (See fig. 1.10.) 
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 1.10: Federal Outlays for the Administration of Justice, 1991-
2004:

[See PDF for image] - graphic text:

Line chart with one line.

Fiscal Year 2002 Dollars in Billions:

1991: $15.215.
1992: $17.422.
1993: $17.641.
1994: $17.629.
1995: $18.361.
1996: $19.496.
1997: $22.
1998: $24.582.
1999: $27.584.
2000: $29.048.
2001: $30.039.
2002: $34.316.
2003: $35.572.
2004: $38.144.

Source: Office of Management and Budget, "Budget of the United States 
Government, Fiscal Year 2004.":

Note: The 2003 and 2004 numbers are estimates. These data reflect OMB 
budget data for the "administration of justice" budget function.

[End of figure]

During the past several years, overall crime levels have been reduced. 
For example, preliminary data for 2002 from the Federal Bureau of 
Investigation's (FBI) Uniform Crime Reporting Program indicate a 0.2 
percent decrease in the nation's Crime Index from the 2001 figure. 
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, while protecting civil 
liberties; to reduce illegal drug use; to protect the nation's borders; 
and to control prison costs. The USA Patriot Act, passed in October 
2001, significantly expanded federal law enforcement and investigative 
authority and, with billions of dollars in additional funding, greatly 
increased the federal counterterrorism role. In addition, the newly 
created Department of Homeland Security (DHS) 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 is in the process of redefining 
its mission and priorities in light of the increased focus on 
antiterrorism.

Passage of the Homeland Security Act of 2002 moved several major 
federal law enforcement agencies around--the Secret Service, the 
Immigration and Naturalization Service (INS), the U.S. Customs Service, 
the Coast Guard, the Federal Protective Service, and the Federal Law 
Enforcement Training Center all moved to the new DHS. In addition, the 
Bureau of Alcohol, Tobacco, and Firearms moved from the Department of 
the Treasury to Justice, leaving Treasury virtually no law enforcement 
functions. While the movement of these agencies into their new units 
presents management challenges, it also raises concerns about the 
impact the transfers will have on agencies' ability to perform their 
missions. These concerns, as well as the sheer size of the undertaking, 
the fact that DHS's proposed components already faced a wide array of 
existing challenges, and the prospect of serious consequences for the 
nation should DHS fail to address its management challenges and program 
risks adequately, led GAO to add the implementation and transformation 
of the new department to the list of high-risk areas in 2003.

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 2002 dollars, the federal 
judiciary's fiscal year 2004 spending, estimated at about $5.5 billion, 
will be more than double its fiscal year 1991 spending of about $2.5 
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. Also, the number of prisoners being 
released from federal prisons is growing rapidly, making successful 
reintegration an increasingly important issue.

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 Terrorism and Other Major Crimes,

* Assess the Effectiveness of Federal Programs to Control Illegal Drug 
Use,

* Assess Federal Efforts to Enforce Immigration and Customs Laws, and:

* Assess the Administrative Efficiency and Effectiveness of the Federal 
Court and Prison Systems.

Performance Goal 1.5.1: Identify Ways to Improve Federal Agencies' 
Ability to Prevent and Respond to Terrorism and Other Major Crimes:

Key Efforts:

* Assess the effectiveness of major federal law enforcement programs:

* Evaluate the implementation and effectiveness of federal gun control 
laws:

* Evaluate the management and results of key federal law enforcement 
grant programs:

* Assess the equity in the operation of key segments of the criminal 
justice system:

Significance:

Crime, including crime committed by terrorists, is one of the foremost 
concerns of the American public. To address this concern, the Congress 
has, among other initiatives, made many crimes federal offenses and 
increased Justice's budget to investigate and prosecute these offenses. 
The Congress has also made billions of dollars available to states and 
localities through grants and other assistance to help them prevent and 
combat violent crime, drug trafficking, and juvenile delinquency. Other 
federal law enforcement initiatives include enforcing gun control and 
civil rights laws and maximizing the use of asset seizure and 
forfeiture authority. How well federal law enforcement agencies carry 
out their responsibilities to prevent and respond to acts of terrorism 
and other major crimes and work with their state and local counterparts 
is a continuing concern, particularly given the substantial budget 
increases in nearly every facet of law enforcement operations.

Among the more important issues is how law enforcement agencies carry 
out these laws. For example, when the Congress gave Justice additional 
antiterrorism investigative authorities under the USA Patriot Act, the 
Congress included a sunset provision to enable it to conduct oversight 
into, among other things, how equitably the department was using the 
new authorities. Similarly, how well federal law enforcement agencies 
work with their foreign counterparts is of growing importance, given 
the increasing opportunities for criminal enterprises to operate 
transnationally. In addition, because many of the new initiatives 
assume larger workforces, including the need to incorporate a variety 
of new special skills, federal law enforcement agencies may find it 
increasingly difficult to recruit, train, and retain quality officers 
and support personnel.

Potential Outcomes:

* Agencies better positioned for preventing, detecting, and 
investigating crimes, including terrorism:

* Improved agency implementation of controls over illegal acquisition 
and ownership of guns:

* Enhanced agency focus on managing law enforcement grant programs:

* More equitable application of the criminal justice system, especially 
for juveniles, minorities, and aliens:

* Agencies better positioned to support multinational responses to 
transnational crime, including terrorism:

Performance Goal 1.5.2: Assess the Effectiveness of Federal Programs to 
Control Illegal Drug Use:

Key Efforts:

* Assess the coordination, execution, and evaluation of portions of the 
National Drug Control Strategy:

* Assess the roles, responsibilities, and results of agencies involved 
in specific supply and demand reduction programs:

* Assess the management and effectiveness of U.S. assistance in drug-
producing countries:

Significance:

During the past few years, the Congress participated actively in the 
debate over the strategy the nation should use to reduce the use of 
illegal drugs, a criminal activity that, according to the Office of 
National Drug Control Policy, was estimated to cost the United States 
socially and economically about $160 billion in fiscal year 2000. Over 
50 federal agencies are involved in carrying out the National Drug 
Control Strategy at an annual cost of about $12 billion. Despite this 
investment, the demand for and supply of illegal drugs have persisted 
at very high levels and continued to adversely affect American society 
in terms of social, economic, and health costs as well as through drug-
related violent crime. For example, one key measure--reported use of 
illicit drugs in the past 30 days--showed increases in each age cohort 
from 2000 through 2001. Reported use among children aged 12 to 17 
increased from 9.7 percent to 10.8 percent. As a result, nearly every 
appropriations subcommittee and several of the legislative and 
oversight committees have been involved in various attempts to provide 
congressional guidance. One issue GAO has highlighted for the Congress 
and will continue to address is the changes in federal strategy brought 
about because the Federal Bureau of Investigation (FBI) is playing a 
narrower role in the drug war; the Drug Enforcement Administration is 
now focusing more on disrupting and dismantling top-level drug 
organizations.

Potential Outcomes:

* Improved congressional and public understanding of the resources 
being devoted to achieving national goals and improved performance 
measures for and results of national drug control efforts:

* Agencies better positioned to operate efficient and effective drug 
control programs:

* Better understanding of the obstacles and limitations of drug control 
efforts:

* More efficient and effective programs to interdict illegal drugs 
before they enter the United States:

Performance Goal 1.5.3: Assess Federal Efforts to Enforce Immigration 
and Customs Laws:

Key Efforts:

* Evaluate the Department of Homeland Security's (DHS) border 
enforcement efforts:

* Assess implementation of DHS systems for tracking people and cargo 
entering the United States:

* Assess DHS efforts to process aliens' applications for benefits more 
efficiently:

* Assess DHS efforts to enforce immigration laws inside U.S. borders:

Significance:

In 2003, INS and Customs were merged into DHS. Although their functions 
have been reorganized into DHS's Bureau of Customs and Border 
Protection and Bureau of Immigration and Customs Enforcement, the 
immigration and customs agents and inspectors are still basically 
enforcing the same laws.

Since the terrorist attacks of September 11, 2001, the Congress and the 
administration have given more priority to ensuring that people and 
cargo admitted to the country are not connected with terrorist groups; 
DHS is developing advanced technologies to check all people and cargo 
that pass through U.S. ports of entry. In addition, DHS is working with 
the State Department, foreign governments, and foreign shippers to 
learn more about people and cargo headed for the United States before 
they leave foreign shores. Finally, DHS and the Justice Department are 
applying immigration laws more strictly, especially as they relate to 
aliens already in the United States. Management of these investments, 
systems, and processes will continue to challenge DHS as it challenged 
INS and Customs before the reorganization.

Potential Outcomes:

* Agencies better positioned to detect, deter, and prevent illegal 
entry:

* Enhanced options to improve the work site enforcement program:

* Enhanced knowledge of the foreign-born population in the United 
States:

* Greater attention to the appropriate use of immigration laws in 
combating terrorism:

* Enhanced capability to provide services to aliens (such as quicker 
turnaround times and smaller backlogs):

Performance Goal 1.5.4: Assess the Administrative Efficiency and 
Effectiveness of the Federal Court and Prison Systems:

Key Efforts:

* Evaluate the federal judiciary's efforts to manage workload:

* Assess the Bureau of Prisons' progress in minimizing construction and 
operational costs:

Significance:

From fiscal years 1991 through 2004, the cost of federal litigative and 
judicial activities more than doubled, from about $2.5 billion to about 
$5.5 billion in constant 2002 dollars. In recent years, the judiciary 
has faced challenges to handling the increasing workload, particularly 
in its criminal cases, with some courts facing much higher workloads 
than others. For example, during the 12-month period ending March 31, 
2002, about 27 percent of the 63,515 criminal cases filed in the 94 
federal district courts were filed in 5 districts along the Southwest 
border, reflecting the additional law enforcement resources devoted to 
interdicting illegal immigrants and drugs there.

Changes in criminal workload affect a variety of judicial resources, 
including magistrate and district court judges, pretrial and probation 
officers, defender services, and the clerks of the court, who have 
recently run out of funds to pay jurors. It also affects other 
agencies, such as the U.S. Marshals Service, the Bureau of Prisons, and 
the DHS's Bureau of Immigration and Customs Enforcement, which are 
responsible for the pretrial detention of those who are not released 
prior to trial.

Finally, the impending release of thousands of federal inmates will put 
an enormous strain on community supervision resources, including 
halfway houses, to try to ensure successful reintegration into everyday 
life. With respect to the prison system, the federalization of crimes, 
mandatory minimum sentencing laws, and the war on drugs have resulted 
in crowded prisons despite massive construction programs in the 1990s. 
The cost to the public of these policies--once assumed to be a fair 
price to pay for reduced crime--will be under increased scrutiny as it 
becomes a more substantial portion of the budget.

Potential Outcomes:

* Improved effectiveness of resource management within the federal 
judiciary:

* Enhanced information that provides the Congress a multiagency 
perspective for appropriations and oversight decision making:

* The Bureau of Prisons being better positioned to control the growth 
in prison construction and operating costs:

Strategic Objective 1.6: The Promotion of Viable Communities:

Issue: The economic and social well-being of communities is key to the 
nation's overall growth and prosperity. Yet the viability of many of 
America's communities is threatened by a variety of ills, including 
high levels of long-term unemployment, inadequate retail activity, a 
deteriorating housing stock, and other economic and social problems. 
For decades, federal, state, and local governments and the private and 
nonprofit sectors have sought ways to revitalize distressed 
communities. The federal government alone operates well over 100 
programs that offer communities grants, loans, loan guarantees, and 
special tax incentives designed to assist distressed areas--for 
example, Community Development Block Grants that communities can use 
for a variety of infrastructure and capacity-building needs and 
Empowerment Zones that are intended to encourage investment in targeted 
areas.

Despite these efforts, no simple answer has been found to the question 
of how best to revitalize America's distressed communities, in part 
because of the difficulty of measuring the factors that actually cause 
communities to improve. Also, the issue of how best to deliver aid is 
complicated by the need to strike a balance between the goals of the 
federal government and those of state and local governments and 
nonprofit organizations, which administer a large share of federal 
dollars for community and economic development.

Small businesses, which employ more than half the nation's workforce, 
are key to economic growth in many communities. 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 and minority-
owned businesses. Because SBA has undertaken numerous initiatives to 
address management issues that affect the agency's performance, the 
Congress needs up-to-date assessments of its performance.

To promote 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 VA and 
guarantees of mortgage securities by the Government National Mortgage 
Association. It also provides a federal charter and other direct and 
indirect benefits to three government-sponsored enterprises (GSE)--
Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--that support 
the mortgage market. Recently, the effectiveness of the regulatory 
structure for GSEs has been called into question. The federal 
government also promotes home ownership through tax incentives and 
requirements placed on mortgage market participants. It must balance 
the benefits of increasing home ownership, especially among the 
underserved, against the financial risk taken on directly (through 
mortgage guarantees) or indirectly (through GSEs).

Since the late 1970s, the federal government has provided over $100 
billion to help prepare for disasters 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.

The Department of Housing and Urban Development (HUD) administers 
rental 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, in part because HUD 
faces numerous management challenges in human capital, contract 
management, and IT. Also, HUD and the Department of Agriculture's Rural 
Housing Service, which oversees rural rental 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.

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

* Federal Community and Economic Development Assistance and Its Impact 
on Communities;

* The Effectiveness of Federal Initiatives to Assist Small and 
Minority-Owned Businesses;

* How the Federal Government Can Balance the Promotion of Home 
Ownership with Financial Risk;

* Federal Efforts to Enhance National Preparedness and Capacity to 
Respond to and Recover from Natural and Man-made Disasters; and:

* How Well Federal Programs That Support Affordable Rental Housing Meet 
Objectives, Manage Financial Risk, and Improve Recipients' Well-being.

Performance Goal 1.6.1: Federal Community and Economic Development 
Assistance and Its Impact on Communities:

Key Efforts:

* Identify approaches and best practices for measuring the impact of 
community and economic development programs:

* Assess the impact of program coordination on targeted communities and 
residents:

* Assess the impact of specific economic development initiatives on 
communities:

Significance:

One way the federal government demonstrates its commitment to strong 
and stable communities is through its numerous and diverse federal 
economic development assistance programs. More than 100 federal 
programs provide communities with such assistance in the form of 
grants, tax incentives, loans, and loan guarantees involving billions 
of dollars each year. These programs primarily address issues 
surrounding the living conditions of low-and moderate-income families 
and the stability of urban and rural American communities. A large 
share of the federal commitment is administered through state and local 
governments and nonprofit organizations. As a result, local support and 
the state of local economies often affect the outcomes of these 
programs, and achieving program goals may take years. Furthermore, 
communities face an increasingly complicated governance challenge in 
bringing together state, regional, and federal players and resources to 
address issues and concerns that cut across governance boundaries. 
Thus, federal decision makers face the challenge of finding ways to 
improve the design and flexibility of federal programs to help 
communities maintain their quality of life and deliver key services 
while working with multiple players to meet crosscutting program goals. 
At the same time, federal agencies must provide enough oversight to 
ensure that programs meet their goals and comply with federal 
requirements.

Potential Outcomes:

* Improved coordination among federal programs and streamlined delivery 
of development assistance:

* Improved decision making related to the creation or continuation of 
federal programs:

* Better congressional understanding of federal programs' effect on the 
growth and development of communities:

Performance Goal 1.6.2: The Effectiveness of Federal Initiatives to 
Assist Small and Minority-Owned Businesses:

Key Efforts:

* Assess the Small Business Administration's (SBA) initiatives to make 
its programs more efficient, effective, and helpful to small 
businesses, especially to those businesses least able to access credit 
markets:

* Assess SBA's management initiatives in areas such as organizational 
alignment, information technology (IT), financial management, and human 
capital and determine how these improvements may have helped SBA better 
meet its mission:

* Assess the impact of federal contracting policies and practices on 
small businesses and determine what oversight SBA provides to ensure 
that federal agencies meet small business contracting goals:

Significance:

America's small businesses play a critical role in the nation's 
economy, employing more than half the nation's workforce. Since its 
inception in 1953, SBA has had a clear mission: to serve the small 
business sector of the economy by providing financial, technical, and 
management assistance that helps Americans start, run, and develop 
their own businesses. SBA is also charged with making sure that small 
and minority-owned businesses get a fair share of the approximately 
$200 billion annual federal procurement market. SBA has undertaken a 
number of initiatives to address problems that have been identified in 
both programmatic and operational areas, including its business loan 
guarantee programs, minority business development program, and 
information systems management. As SBA pursues its mission of 
maintaining and strengthening the nation's economy by aiding, 
counseling, assisting, and protecting the interests of small businesses 
and by helping families and businesses recover from natural disasters, 
the Congress needs up-to-date assessments of SBA's performance.

Potential Outcomes:

* Improved SBA assistance to small businesses and better cost-saving 
measures:

* Improved SBA management practices that lead to more results-oriented 
performance:

* Increased knowledge of the effects of federal contracting practices 
on small businesses and enhanced oversight of federal small business 
contracting goals:

Performance Goal 1.6.3: How the Federal Government Can Balance the 
Promotion of Home Ownership with Financial Risk:

Key Efforts:

* Assess the Department of Housing and Urban Development's (HUD) 
controls to manage risks, including its oversight of the lenders, 
appraisers, and contractors that participate in its loan insurance 
programs and property management functions:

* Assess the financial risks associated with the activities of 
government-sponsored enterprises (GSE) and the actions taken by their 
regulators:

* Assess the impact that market and policy changes could have on HUD's 
insurance funds and the budget:

* Evaluate the effectiveness of efforts to enforce fair housing and 
fair lending laws:

* Evaluate the effectiveness of federal programs, tax and other 
incentives, and requirements that support financing for traditionally 
underserved segments of single-family housing markets:

Significance:

The federal government promotes homeownership through various housing 
finance programs, incentives, and requirements. HUD's Federal Housing 
Administration, VA's Loan Guaranty Services, and the Department of 
Agriculture's (USDA) Rural Housing Service (RHS) participate in the 
primary mortgage market, insuring home mortgages for homebuyers who may 
otherwise have difficulty obtaining them. These agencies are 
responsible for managing more than $600 billion in insured home 
mortgages. In addition, HUD's Government National Mortgage Association, 
by guaranteeing about $600 billion in mortgage-backed securities, 
provides liquidity to the housing finance market. The association's 
guarantees enable lenders of government-insured loans to readily sell 
their loans, thereby providing additional funds for mortgages for other 
qualified borrowers.

GSEs--Fannie Mae, Freddie Mac, and the Federal Home Loan Banks--are the 
foundation for home mortgages, providing liquidity to lenders. GSEs are 
also required to operate in a "safe and sound" manner, but are 
encouraged to focus on underserved markets. Recently, the effectiveness 
of the regulatory structure for GSEs has been called into question. The 
housing finance system supported by these federal agencies and GSEs 
represents one of the nation's largest financial markets, with 
significant commitments, obligations, and risks to taxpayers and 
investors. These entities have long-term commitments, the ultimate 
costs of which depend on the performance of their underlying mortgages 
and, in the case of GSEs, the prudence of their management and funding 
strategies. At the same time, they have a substantial influence on the 
availability of housing finance, particularly for traditionally 
underserved markets. The mortgage market has introduced new 
technologies that help lenders underwrite loans more efficiently and 
new products that help families finance their homes. And despite the 
rising homeownership rate, sustaining that level of homeownership may 
be difficult. For some homebuyers, credit has become more available, 
but only on terms that might be considered predatory. Also, as lenders 
move toward financing a higher proportion of home cost, some homeowners 
have become vulnerable to losing their homes if their incomes fall 
because of job loss or other crises. Finally, foreclosure rates for 
federally insured mortgages have been on the rise, partly due to 
competition from conventional lenders.

Potential Outcomes:

* Better management of acquired properties that helps limit the federal 
government's losses:

* Improved administration of HUD's single-family mortgage insurance 
program:

* Improved ability of HUD to ensure adequate capital reserves and 
funding for its insurance programs:

* Improved supervision of the GSEs, enabling them to meet public policy 
goals while ensuring safe and sound operations:

* Improved capital requirements that are more commensurate with the 
risks posed by the GSEs' operations:

* More effective delivery of homeownership opportunities to low-and 
moderate-income households:

* Improved protection for homeowners and homebuyers from predatory and 
unfair lending practices:

Performance Goal 1.6.4: Federal Efforts to Enhance National 
Preparedness and Capacity to Respond to and Recover from Natural and 
Man-made Disasters:

Key Efforts:

* Assess the Federal Emergency Management Agency's (FEMA) and other 
federal agency efforts to coordinate federal, state, and local disaster 
preparedness, response, and recovery efforts and ensure efficient, 
effective, and accountable services at all levels:

* Assess the structure, coordination, and cost-effectiveness of FEMA's 
disaster mitigation activities to reduce the likelihood and potential 
effects of both man-made and natural disasters:

* Assess the cost and benefits of implementing existing disaster-
related insurance programs:

* Assess the capacity of private insurance markets to supply coverage 
to protect individuals, families, and businesses from catastrophic 
losses, and assess federal efforts to support and supplement that 
protection:

Significance:

The federal government provided over $100 billion to assist victims of 
disasters and emergencies during the 1980s and 1990s. To respond to the 
recent terrorist attacks, FEMA has already been appropriated $40 
billion for recovery and relief efforts in New York City, Virginia, and 
Pennsylvania. The Federal Response Plan, coordinated by FEMA, 
represents the federal blueprint for responding to all disasters, 
providing a framework for coordinating the delivery of all federal 
assistance to state and local governments. The September 11, 2001, 
attacks have heightened national interest in and concern about the 
effectiveness of overall federal support to state and local governments 
in enhancing the planning, mitigation, response, and recovery from 
disasters--both natural and man-made. Determining how to provide 
disaster assistance as efficiently and cost effectively as possible is 
the subject of many national debates.

The Congress and FEMA have increasingly emphasized the importance of 
mitigation--prevention activities or projects put in place prior to a 
disaster to reduce losses or to prevent them from occurring--as the 
most effective means of reducing long-term losses from disasters. 
However, the process FEMA has used in the past to provide mitigation 
assistance--making a grant after a disaster based on a percentage of 
the total costs of the disaster available for discretionary use within 
a state--may not prepare the nation for disasters in other geographic 
areas. Although the National Flood Insurance Program was intended to 
shift the financial burden of flood losses from the federal government 
to policyholders, it has not fully done so, as the program's expenses 
over time have exceeded its revenues. As concerns about controlling 
future disaster spending grow, decision makers are facing new issues 
regarding the availability and affordability of insurance coverage and 
mitigation assistance for terrorist incidents as well as natural 
disasters.

Potential Outcomes:

* Improved coordination and more effective federal support of efforts 
to enhance the capacity of state and local first responders to cope 
with large-scale disasters:

* More responsive, better coordinated, and more efficient and 
accountable disaster response and recovery efforts:

* More effective and economical mitigation strategies and programs for 
the full range of federal efforts to reduce the likelihood and effect 
of future disasters:

* Increased congressional understanding of the National Flood Insurance 
Program's coverage of properties in flood-prone areas and possible 
measures to improve the program's financial condition:

* Increased understanding of the pros and cons of increased federal 
involvement in providing catastrophic insurance or other forms of 
backup protection to enhance the capacity of private insurance markets:

Performance Goal 1.6.5: How Well Federal Programs That Support 
Affordable Rental Housing Meet Objectives, Manage Financial Risk, and 
Improve Recipients' Well-being:

Key Efforts:

* Assess how current and new rental housing programs can more 
effectively meet the demand for low-income housing and evaluate the 
effectiveness of various federal policy tools for reaching program 
objectives:

* Assess federal agencies' efforts to ensure that federally assisted 
rental housing is effectively managed and remains in good physical and 
financial condition:

* Assess HUD's controls for managing risk in its multifamily housing 
insurance and property disposition programs, including its oversight of 
lenders, appraisers, and property management contractors:

* Assess how effectively federal programs that support rental housing 
are used in combination with other community investment and federal 
assistance programs to promote decent affordable housing and suitable 
living environments:

* Determine how much progress HUD has made in managing high-risk 
performance and management challenges in its rental housing assistance 
programs, including in its human capital management and acquisitions 
practices:

Significance:

The federal government administers numerous programs, at a cost of 
about $30 billion annually, to help households with lower incomes 
secure safe, decent, and affordable rental housing. Some of this 
assistance is provided to directly maintain or increase the supply of 
decent rental housing that is affordable to low-income households; for 
example, HUD financially supports public housing and insures mortgages 
on privately owned multifamily dwellings, while IRS administers low-
income housing credits. Other assistance takes the form of rental 
payments; both HUD and USDA's RHS provide rental assistance for 
individual households.

Despite this federal support, less than one-third of the 13 million 
low-income households eligible for federal housing assistance currently 
receive it, and a critical shortage exists in the supply of affordable 
rental units for households with extremely low incomes. Further, 
existing housing assistance and supportive service programs are faced 
with the growing and changing needs of special populations, including 
the elderly, the homeless, and persons with disabilities. Moreover, 
mechanisms for coordinating housing assistance with other community 
investment and federal assistance programs are lacking. Both HUD and 
RHS face challenges in efficiently serving the needs of their target 
households. HUD's rental assistance programs remain at high risk of 
waste, abuse, and mismanagement. In fiscal year 2000, for instance, the 
agency estimates that it made about $2 billion in excess rental 
assistance payments. Further, HUD's large portfolio of federally 
insured and HUD-held multifamily housing loans and its inventory of 
foreclosed multifamily properties carry financial risks and require 
proper management and oversight. Programmatic improvements depend in 
part on HUD's successfully meeting its human capital, acquisition, and 
IT management challenges.

Potential Outcomes:

* Improved design, delivery, and impact of programs that support 
affordable rental housing:

* Improved efforts by HUD and RHS to assess and address the physical 
and financial needs of federally supported rental housing:

* Improved HUD management of its multifamily mortgage insurance program 
and acquired multifamily properties and loans to limit financial 
losses:

* Enhanced efforts to address IT, acquisition management, and human 
capital issues in HUD's multifamily housing programs:

* More and better information for the Congress to use in assessing the 
costs and impacts of HUD's rental housing assistance programs and 
operations:

Strategic Objective 1.7: Responsible Stewardship of Natural Resources 
and the Environment:

Issue: The nation's natural resources and the systems associated with 
their use are under widespread and increasing stress, generating 
intense debate and posing daunting challenges to policymakers at all 
levels of government. In large part, this is the consequence of the 
country's growing population and economy and attendant increased 
demands on a finite resource base. Accommodating these demands runs 
headlong into long-standing legislation aimed at protecting the 
country's resources in a healthy state for the good of current and 
future generations. Likewise, how policymakers resolve this balance has 
global consequences because the United States is the world's single 
largest consumer of energy and other resources and is increasingly seen 
as out of step with international efforts to limit resource use and 
associated pollution.

The body of work set forth in this strategic objective is designed to 
address these and other issues in several natural resource areas, as 
well as related terrorist threat matters. On the latter point, it is 
noted that the 14 critical infrastructure sectors listed in President's 
Decision Document, "National Strategy for Homeland Security," include 6 
in the natural resource areas addressed in this strategic objective--
food (except meat and poultry), energy, water, chemical industry and 
hazardous materials, agriculture, and meat and poultry.

In recent decades, the United States has experienced multiple energy 
crises--the 2003 electricity blackout affecting much of the country was 
a notable example--and remains perpetually on the cusp of critical 
supply/demand imbalances. Without applying prudence and foresight in 
crafting the nation's strategic energy plan, electricity, natural gas, 
heating oil, and gasoline markets can be thrown into turmoil at any 
time. The challenge is further complicated by the global nature of many 
energy markets and growing doubts about the long-term sustainability of 
policies that demand increased production from the existing energy mix. 
Furthermore, strategies must now incorporate greater attention to the 
means of protecting a massive energy infrastructure that encompasses 
5,000 power plants, 204,000 miles of high voltage transmission lines, 
and nearly 3 million miles of oil and gas pipelines. Finally, energy 
strategies must consider the environmental consequences of energy 
choices, as illustrated by issues surrounding the potential reemergence 
of the nuclear power industry. While increased nuclear power capacity 
would obviously buttress electricity supplies and help reduce harmful 
emissions, continuing questions remain about where and how to store the 
by-product radioactive waste in an environmentally sound manner, as 
well as how to secure the plants and waste sites against possible 
future attacks.

More than ever, the country's lands and waters are under increasing 
stress. This is evidenced by rapidly dwindling open spaces, declining 
biodiversity, depleted aquifers, and collapsing fisheries--the 
unintended consequences of economic growth and the need to sustain the 
lifestyle of a growing population. Reconciling and balancing the 
demands of often competing objectives--economic growth for today versus 
natural resource protection for the future--is a major challenge facing 
the American public and its elected leaders. The heated debate on 
possible future oil development in the Arctic National Wildlife Refuge 
in Alaska presents this issue in microcosm. In this case, the issue 
pertains to the use of federal lands, which constitute about 30 percent 
of the country's total land surface, but similar controversies exist 
over privately held lands affected by federal law and regulations. The 
use of the nation's waters presents equally sobering challenges, as 
pollutants and overfishing rapidly deplete coral reefs and offshore 
fisheries, while competition over rights to fresh water supplies grows 
among various interests, such as agriculture, communities, utilities, 
wildlife, and recreational users. Even under normal conditions, water 
managers in 36 states expect water shortages to occur within the next 
10 years. If such shortages actually occur, they could have severe 
economic, environmental, and social impacts.

The increasing globalization of natural resource issues also affects 
environmental protection matters, as seen in the federal government's 
discussions with other governments about global warming and what should 
be done about it. Such discussions add a new layer of complexity to the 
already difficult question of how to sustain economic growth when the 
engines of that growth--factories, cars and trucks, fertilizers, and 
electricity-generating plants--often adversely affect air and water 
quality and can change climates in potentially catastrophic ways. 
Another factor in attaining federal air and water quality goals is that 
land use practices, often resulting in "urban sprawl," are controlled 
mainly by local governments and private owners. Moreover, the federal 
government relies upon state and local governments for inspection and 
enforcement actions.

Also, significant challenges remain in cleaning up the country's 
hazardous and radioactive waste sites. Today, an estimated 60 million 
Americans live within 4 miles of a hazardous site, and radioactive 
waste from weapons production still needs to be cleaned up at 
Department of Energy (DOE) sites in 13 states. These sites' continued 
existence poses not only potential health and safety problems, but also 
fiscal and economic problems as well. Delayed cleanup results in higher 
price tags for eventual cleanup and in stunted economic development in 
the affected communities. Potential terrorist attacks underline the 
need for steps to ensure the security of hazardous and radioactive 
materials during storage, transportation, and disposal.

Finally, with the recent passage of the 2002 Farm Bill, the Congress 
continues to debate the direction of U.S. farm policy in areas such as 
the role of agriculture in land conservation, wildlife habitat 
protection, and energy production efforts. Food safety and security lie 
at the forefront of concerns about the country's agricultural 
resources, an urgent matter given the potential for, and the 
consequences of, agricultural bioterrorism. Besides this troubling 
matter, a whole range of other food safety issues, while less ominous, 
nevertheless pose serious questions. These include questions about the 
adequacy of the government's devolution of food inspection authority 
and its efforts to implement a "farm-to-table" food safety approach. At 
the same time, a number of countries have raised concerns about the 
safety of U.S. genetically modified crops and foods--a matter of 
growing importance given the significant role that food exports play in 
the U.S. economy.

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

* The Nation's Ability to Ensure Reliable and Environmentally Sound 
Energy for Current and Future Generations;

* Federal Strategies for Managing Land and Water Resources in a 
Sustainable Fashion for Multiple Uses;

* Environmental Protection Strategies and Programs;

* Efforts to Reduce the Threats Posed by Hazardous and Nuclear Wastes; 
and:

* Federal Programs' Ability to Ensure a Plentiful and Safe Food Supply, 
Provide Economic Security for Farmers, and Minimize Agricultural 
Environmental Damage.

Performance Goal 1.7.1: The Nation's Ability to Ensure Reliable and 
Environmentally Sound Energy for Current and Future Generations:

Key Efforts:

* Assess trade-offs among alternative energy choices, principally (1) 
efforts to increase the supply of energy from all energy sources--
fossil (oil, gas, and coal), nuclear, and renewable (wind, solar, 
biomass, ethanol, photovoltaic, and geothermal) and (2) actions to 
reduce demand by using energy more efficiently, and consider the 
effects of emerging energy technologies (e.g., hydrogen) and research 
and development partnerships (including nuclear research and 
development) between the federal government and the private sector:

* Examine and assess energy security plans and efforts to protect the 
nation's energy infrastructure from terrorism and other sources of 
disruption, and reduce U.S. and consumer vulnerabilities to price 
spikes and supply disruptions:

* Determine the impact of federal incentives (including tax credits) on 
energy supplies, demand, and prices:

* Assess reliability, modernization, and other factors affecting the 
capacity of the energy infrastructure (e.g., nuclear power plants, 
refineries, oil and gas production platforms, and the electricity 
transmission grid) to meet likely demand:

* Determine the implications of embracing competition and free markets 
as an alternative means to structure energy markets (including the 
impacts on federal power marketing administrations, such as the 
Bonneville Power Administration), and evaluate changing regulatory 
approaches to ensure that these restructured markets function properly:

* Analyze the adequacy of the Department of Energy's (DOE) (including 
the power marketing administrations and Federal Energy Regulatory 
Commission) and the Nuclear Regulatory Commission's organization, human 
capital, and management processes for supporting efficient and 
effective operations:

Significance:

The nation's energy system is under stress. In energy markets--such as 
natural gas, electricity, home heating oil, and gasoline--demand and 
supply relationships periodically change significantly, resulting in 
volatile prices. Most recently, the largest electricity blackout in 
U.S. history, which put 50 million customers in the dark, and the 
threat of terrorism and its potential to disrupt the energy system has 
brought a heightened sense of urgency to the task of ensuring the 
security and reliability of that system. Periodic declines in energy 
supplies and price volatility burden consumers and the industry and 
adversely affect economic activity. At the same time, the country's 
energy choices affect the environment and, in some cases, threaten 
supplies for future generations. As such, there is growing acceptance 
that the United States, if it is to resolve these stresses on its 
energy system, cannot exclusively rely on increased production from the 
existing energy mix to meet ever-rising levels of consumption. To meet 
these challenges, the nation may need to consider a more unified and 
innovative energy strategy that reevaluates the current policy and 
identifies the available alternatives. Such innovation might include 
greater use of alternative energy sources (e.g., hydrogen or fusion) 
and new ways to engage consumers to make informed energy choices (e.g., 
"smart" meters for electricity consumption), among other possibilities.

Today's preferred energy sources and the methods used to acquire them 
present formidable challenges in forming a national energy policy 
because it is important to strike a delicate balance between energy, 
environmental, and economic needs. Over time, it will also be important 
to assess worldwide energy practices, explore new research 
opportunities, and consider new and alternative energy choices that 
have fewer environmental impacts and are more sustainable. The nation 
and consumers can jointly benefit from emphasis on an energy system in 
which energy consumption works in tandem with environmental 
preservation and other societal goals. Because energy remains vital to 
the health of the U.S. economy and way of life, the decade ahead 
requires critical policy and investment choices to create an energy 
system that meets the public's changing needs. In addition, new 
approaches are needed to protect the nation's energy system and ensure 
its physical and economic stability.

Potential Outcomes:

* Congressional consideration of the full range of realistic 
projections of supply options with information on the benefits and 
costs to alternative actions:

* Congressional consideration of innovative alternatives to the 
escalating production and consumption of greater amounts of energy:

* More informed congressional funding decisions resulting in effective 
research spending, more efficient energy use, and budgetary savings:

* Improved security of the nation's energy supplies against terrorism 
and other threats in areas such as the Strategic Petroleum Reserve, the 
country's energy grid, commercial nuclear power plants, and other 
energy and related infrastructure:

* Greater congressional awareness of how energy market concentration 
affects the consumer market and of the effectiveness of federal 
incentives, such as energy tax credits:

* Improved federal and private market structures, incentives, and 
standards to encourage necessary enhancements and modernization of U.S. 
energy infrastructure:

* A more informed debate on alternative energy paths, including a 
better understanding of related environmental effects:

* Improved congressional understanding of transitional issues in 
restructuring energy markets (such as electricity), market design and 
monitoring (including balanced rules and enforcement), and implications 
for the role of federal power marketing administrations:

* Improvements in DOE's and the Nuclear Regulatory Commission's 
organization, human capital, and management processes:

Performance Goal 1.7.2: Federal Strategies for Managing Land and Water 
Resources in a Sustainable Fashion for Multiple Uses:

Key Efforts:

* Evaluate federal land and water management agencies' progress in 
coordinating activities, addressing resource issues, and protecting 
critical environmental and natural resource systems from misuse, 
negligence, or intentionally harmful acts:

* Review federal land management agencies' efforts to develop and 
implement a strategy to reduce wildfires on federal lands:

* Assess federal land management agencies' operational and maintenance 
needs at national parks, forests, and other facilities:

* Analyze federal efforts to obtain a fair market value for minerals 
and other resources extracted from federal lands, while balancing 
consumption, conservation, and environmental needs:

* Assess federal efforts to manage the nation's rivers, oceans, and 
marine environments in a way that is cost-effective and balances 
resource protection with consumption and conservation needs:

* Evaluate the federal government's efforts to clarify its relationship 
with, and meet its responsibilities to, Native Americans and Alaskan 
Natives:

* Analyze federal agencies' efforts to protect threatened and 
endangered species on federal and nonfederal lands and in bodies of 
water:

* Analyze the adequacy of the land and water resource agencies' 
organization, human capital, and management processes for supporting 
the agencies' operations:

Significance:

Federal policies over land and water resources have for many years been 
the subject of sometimes bitter conflict. While most land in the United 
States is privately owned, the resources owned and managed by the 
federal government are vast--over 650 million acres of land, or 30 
percent of the nation's total land surface; over 700 million acres of 
mineral estate that underlie both federal and other surface ownerships; 
about 1.75 billion acres of the Outer Continental Shelf; and fisheries 
extending up to 200 miles offshore. In 2002, the estimated market value 
of production occurring on public lands was nearly $12.5 billion, and 
the direct and indirect economic effect of all commercial activities 
amounted to over $27 billion. Federal laws also affect activities on 
some private lands by protecting wetlands or critical habitats of 
threatened or endangered species.

The inherent conflict over federal land use policies has been, first, 
over which of the current competing needs and uses for resources on 
federal lands should be addressed and, second, over whether to use 
resources today or to preserve and sustain them for future generations. 
Achieving a balance among these forces remains a constant struggle. 
Amidst this conflict, the nation's land and water resources are showing 
increasing signs of stress--more catastrophic wildfires, shrinking 
aquifers, an accelerating rate of extinction of plants and wildlife, 
destruction of wildlife habitats, and the collapse of many fisheries. 
Moreover, the risk of terrorist attacks has heightened the need to 
protect critical natural resource systems not only from natural 
disasters or negligence, but also from acts to intentionally damage 
those resources or use them in assaults against the nation's security. 
In this context of competing demands and security considerations, 
policymakers will need objective, nonideological information to make 
rational policy choices and ensure that federal taxpayers benefit from 
the use of natural resources. How the nation addresses these challenges 
today will profoundly affect the viability of its natural resources, 
and the well-being of the public, for generations to come.

Potential Outcomes:

* More efficient and effective resource management to better protect 
the nation's land and water resources and the surrounding environment:

* Congressional action on charges for the use of federal resources to 
facilitate a move toward greater self-sufficiency by the parks, 
forests, and other entities and to ensure a fair return for the use of 
public resources:

* Governmental steps to better balance production, revenue generation, 
and conservation of natural resources:

* Clearer understanding of the government-to-government relationship 
between the federal government and Native Americans and Alaskan Natives 
and of ways to improve programs promoting Indian self-determination and 
self-sufficiency:

* An improved understanding of the political, financial, scientific, 
and social issues associated with species protection efforts to inform 
the debate on reauthorizing the Endangered Species Act:

* Improvements in natural resources agencies' organization, human 
capital, and management:

Performance Goal 1.7.3: Environmental Protection Strategies and 
Programs:

Key Efforts:

* Evaluate current and alternative strategies to improve the quality of 
the nation's air:

* Assess current and alternative approaches for improving the quality 
of the nation's surface and ground waters:

* Examine strategies for ensuring safe drinking water and wastewater 
treatment for all Americans, including protection from security threats 
and breaches:

* Assess approaches for controlling the harmful effects of pesticides 
and toxic substances, including protection from security threats and 
breaches:

* Examine the implications of global and transboundary environmental 
threats, including climate change:

* Assess the use of indicators, science-based information, and other 
data to measure environmental performance, and evaluate alternative and 
innovative environmental protection approaches:

* Analyze the organization, human capital, and management processes for 
supporting efficient and effective environmental protection:

Significance:

Americans have long placed a high value on protecting the environment 
and human health, especially for particularly susceptible groups, such 
as children and the elderly. During the last three decades, the nation 
has worked hard to limit the quantities of pollutants that degrade the 
nation's air, surface and ground waters, and land. The Environmental 
Protection Agency (EPA) has estimated that pollution control 
expenditures by all sectors from 1972 through 2000 totaled 
approximately $2 trillion. Such efforts have yielded impressive 
results; for example, aggregate emissions of the six principal air 
pollutants have declined by 25 percent since 1970, and virtually all 
discharges to the nation's waters from point sources are now 
controlled.

However, serious problems remain. Urban areas housing millions of 
Americans still fail to meet air quality standards, particularly during 
summertime high-ozone periods, and acid rain continues to degrade 
forests, lakes, and streams, with attendant effects on many wildlife 
species. An estimated 20,000 impaired water bodies, including parts of 
such national treasures as the Chesapeake Bay and the Great Lakes, 
still do not meet quality standards. Improving their status will 
require addressing heretofore little-regulated nonpoint pollution 
sources such as agricultural, suburban, and urban runoff. Furthermore, 
drinking water systems will be hard pressed to meet more stringent 
standards and address heightened security concerns. Many federal 
facilities do not fully comply with a number of environmental 
standards. Moreover, it is difficult to determine when, and how, to 
best address emerging environmental threats that could involve 
considerable or irreparable damage, but for which there is currently 
imperfect information.

Several factors add complexity to the resolution of these issues, 
including (1) decision-making systems that do not effectively integrate 
attainment of environmental goals with land use, transportation, energy 
supply choices, and economic development; (2) economic and 
technological changes that affect the mix of pollutants emitted as well 
as the ability and cost to monitor and control emissions; (3) the 
difficulty in balancing consistent application of environmental laws 
with flexibility for states to exceed or adapt federal standards to 
their own needs; (4) escalating concerns about environmental justice 
and its implications on licensing major pollution sources and the 
permitting and site selection of waste disposal facilities; (5) the 
looming demand for billions of dollars over the next decade to replace, 
rehabilitate, and expand the aging sewage treatment plants necessary 
for meeting drinking water and surface water quality standards; (6) the 
transboundary nature of many pollutants with global effects that 
require international solutions; and (7) the lack of comprehensive, 
integrated, quantifiable environmental data with which to measure the 
success or failure of alternative strategies.

In addition, there is interest in alternatives to traditional 
regulatory programs, such as those that employ pollutant trading or 
other market-based mechanisms or place greater control in the hands of 
state or local authorities.

During the next few years, the Congress will be called upon to address 
these challenges as it considers reauthorization of major pollution 
control statutes, including the Clean Air, Clean Water, and Safe 
Drinking Water acts.

Potential Outcomes:

* Congressional use of information, analyses, and recommendations in 
reauthorizing key statutes, including the Clean Air, Clean Water, and 
Safe Drinking Water acts:

* More efficient administration of existing statutes, including 
alternative regulatory approaches for controlling air and water 
pollution and cleaning up waste:

* Congressional action to improve the efficiency and effectiveness of 
environmental programs:

* Improvements in programs to control pollutants in drinking water and 
in wastewater discharges:

* Enhanced efficiency and effectiveness of environmental protection, 
organization, human capital, and management processes:

Performance Goal 1.7.4: Efforts to Reduce the Threats Posed by 
Hazardous and Nuclear Wastes:

Key Efforts:

* Assess progress in, and potentially less costly alternatives for, 
identifying, transporting, cleaning up, and disposing of nuclear, 
ordnance, and other hazardous waste resulting from federal activities:

* Evaluate current and alternative strategies for cleaning up abandoned 
Superfund and other private sector hazardous waste sites and responding 
to emergency contamination releases:

* Assess federal, state, and private sector progress and performance in 
finding and developing environmentally acceptable sites on which to 
build essential waste disposal facilities:

* Analyze the adequacy of waste cleanup agencies' organization, human 
capital, and management processes for supporting efficient and 
effective operations:

Significance:

Hazardous and nuclear wastes can cause serious environmental damage 
lasting decades or even centuries. The problems associated with the 
containment and cleanup of these wastes pose major financial and 
management challenges to the United States that will continue well into 
the 21st century. Past practices have allowed health-threatening 
substances to seep into the land and water at thousands of federally 
and privately owned sites. Such seepages threaten public health and 
quality of life nationwide. The federal government spends almost $10 
billion annually to address health and environmental threats from 
Superfund and other private hazardous waste sites, remove and dispose 
of nuclear wastes from federal nuclear weapons facilities, and clean up 
hazardous waste at active and formerly used defense facilities. Such 
activities could ultimately cost the federal government over $300 
billion and the private sector hundreds of billions more.

Sound management practices are needed to prioritize and hasten 
cleanups, control costs, and develop innovative technologies. Cleanup 
and disposal decisions must also take into account governance issues, 
such as the rights of states and local communities to control land uses 
within their borders, and also fiscal issues, such as the need to 
assess the economic trade-offs between completely cleaning up a 
contaminated property for reuse or simply restricting future access 
without complete cleanup. Moreover, terrorist activities have resulted 
in states and localities facing a new urgency to protect their citizens 
from dangers associated with the transport and storage of hazardous and 
nuclear wastes. Globally, other countries face similar concerns and 
decisions, and Russia has proposed to store nuclear wastes from other 
countries. Whether deliberating policy options, reauthorizing key 
statutes, or annually appropriating funds to the various federal 
cleanup activities, the Congress needs accurate information on the 
scope of the problem, the effectiveness of existing programs and 
activities, and the pros and cons of potential alternatives.

Potential Outcomes:

* Improved and potentially less costly handling of nuclear, ordnance, 
and other hazardous waste related to federal activities:

* More efficient and effective cleanup of abandoned Superfund and other 
private hazardous waste sites and responses to emergency 
contaminations:

* A more informed discussion of federal, state, and private options for 
environmentally acceptable waste disposal sites:

* More effective and efficient management of cleanup activities by 
responsible federal agencies, including DOD, DOE, and EPA:

Performance Goal 1.7.5: Federal Programs' Ability to Ensure a Plentiful 
and Safe Food Supply, Provide Economic Security for Farmers, and 
Minimize Agricultural Environmental Damage:

Key Efforts:

* Evaluate the effectiveness and budgetary consequences of federal 
programs designed to aid farmers in times of declining global crop 
prices or domestic production, compensate farmers for crop losses, and 
promote rural development:

* Evaluate the outcomes and costs of federal programs designed to 
minimize the adverse land use and environmental effects of agricultural 
practices and to promote renewable energy production on agricultural 
land:

* Evaluate federal programs' ability to ensure a safe and wholesome 
food supply across the full spectrum of food production from the farm 
to the table, including imported foods, and to guard against 
agroterrorism:

* Analyze the adequacy of USDA's organization, human capital, and 
management processes for supporting efficient and effective operations:

Significance:

USDA farm assistance programs and federal food safety oversight play a 
critical role in ensuring an abundant, affordable, and safe food 
supply. In fiscal year 2002, USDA spent about $24 billion on a variety 
of farm assistance programs, including farm loan, price support, 
disaster assistance, land conservation, and environmental programs. The 
2002 Farm Bill continues funding for these programs at more than $20 
billion annually through 2007. Although many argue that federal support 
of farmers is necessary to ensure a plentiful and affordable food 
supply now and in the future, others question the effect, relevance, 
and costs of these programs given that most farm assistance goes 
increasingly to a relatively few large entities. In addition, the 
recent failure of a major crop insurance company raises concerns about 
USDA's oversight of this industry and how a failed company should be 
dissolved to minimize the federal government's financial exposure. The 
new Farm Bill also places increased emphasis on conserving the land, 
reducing agriculture's impact on water quality, and promoting renewable 
energy production on agricultural land. However, questions remain as to 
how the United States can continue supporting a viable agricultural 
sector while still meeting its trade agreement commitments. For 
example, as a member of the WTO, the United States has committed to 
eliminating export subsidies and reducing tariffs and trade-distorting 
domestic support. In addition, USDA's ability to effectively deliver 
farm program assistance continues to be plagued by inefficiencies in 
its organizational structure and management processes and allegations 
of racial discrimination in serving farmers and sexual harassment in 
managing its workforce.

USDA, FDA, and other federal agencies have shared responsibilities for 
ensuring the safety and security of the U.S. food supply. Although the 
food supply is generally considered safe, food-borne illnesses continue 
to threaten the nation's health and tax its medical system. Experts 
estimate that food-borne pathogens cause 76 million cases of 
gastrointestinal illnesses, 325,000 hospitalizations, and 5,000 deaths 
annually. Furthermore, illnesses from just the five principal food-
borne pathogens cost about $7 billion in medical expenses and 
productivity losses each year. Additionally, an outbreak of some animal 
diseases, such as mad cow disease, can rapidly bring economic havoc to 
segments of our farm economy.

While the federal government distributes over $1 billion annually to 
its various agencies to reduce the health and economic consequences of 
food-borne illnesses, regulatory agencies, in varying degrees, are 
transitioning to new science-based regulatory strategies that place 
increasing responsibility on industry for identifying and controlling 
risks in the production processes. Although better than the existing 
outmoded process of preventing food-borne illnesses, these science-
based strategies address only a segment of the food production and 
distribution continuum, and their implementation is inconsistent across 
the food supply. In addition, scientific and technical advances in the 
production of food, such as the development of genetically modified 
foods, place additional responsibilities on the federal food safety 
agencies. Furthermore, recent events have heightened the awareness that 
threats to the food supply are a component of terrorism and present new 
challenges to an already burdened system. Consequently, a new "farm-to-
table" approach for food safety and security--one that starts with 
growers and extends to retailers--is needed to ensure that the full 
spectrum of food production is safeguarded.

Potential Outcomes:

* Improvements in the cost-effectiveness of the Farm Bill's safety net 
for farmers (farm loan, price support, and disaster assistance 
programs) and provisions for promoting rural development:

* More effective conservation and agricultural programs designed to 
conserve the land, enhance the environment, and promote renewable 
energy development:

* Better understanding of how to integrate farm program assistance with 
commitments made under agricultural trade agreements in order to ensure 
a growing share of global food markets for American farmers and food 
industries:

* Enhanced efforts to address agricultural terrorism and threats from 
invasive pests and diseases, such as foot and mouth disease:

* Enhanced effectiveness of federal food safety programs in addressing 
safety issues arising from a global food marketplace, changing 
regulatory approaches, and the threat of terrorism:

* Improvements in federal food safety agencies' actions to evaluate and 
regulate the safety of new technologies, such as genetically modified 
foods:

* Improved USDA organization, human capital, budgetary, and management 
processes:

Strategic Objective 1.8: A Safe, Secure, and Effective National 
Physical Infrastructure:

Issue: The nation's economic vitality and the quality of life of its 
citizens depend significantly on the soundness, security, and 
availability of its physical infrastructure. Transportation and 
telecommunications systems, for instance, provide the superstructure 
for the nation's economic engine, facilitating the movement of people, 
goods, and information. The nation faces major challenges in improving 
both efficiency and safety in the movement of people and goods. The 
nation relies heavily on its postal system for efficient mail delivery 
service. And thousands of federal facilities house and support staff 
and the other assets needed to provide services to the American people.

In both the short and long term, the nation faces important 
infrastructure challenges as federal, state, and local governments 
confront new demands brought on by changes in national security, 
demographics, technology, and lifestyles. The challenges are complex, 
cutting across many interrelated issues, and require coordinated 
intergovernmental responses.

For example, the nation's commercial passenger airlines, which were 
experiencing financial difficulties even before the terrorist attacks 
of September 11, 2001, now face unprecedented financial losses stemming 
from reduced air travel, raising debate over the appropriate federal 
response. Also, long-term trends indicate that increasing numbers of 
motorists are encountering increasingly congested highways, while 
bottlenecks have escalated for freight transportation at intermodal 
connection points.

Suburban growth has raised demands for new roads, water and sewer 
systems, and access to telecommunications. At the same time, existing 
communities are demanding that the environment and their citizens' 
quality of life not be harmed by this growth.

The cost of maintaining and modernizing its infrastructure is only one 
concern of a U.S. Postal Service that faces growing financial, 
operational, and human capital challenges. In addition, the deregulated 
transportation and telecommunications industries require continuous 
oversight to help ensure that firms have a level playing field on which 
to compete and that consumers receive the intended benefits of 
deregulation.

The responses of the federal government and other levels of government 
to these infrastructure challenges will have important consequences for 
the nation's future because of their effects on the quality of life and 
their significant costs. Since 1990, nondefense spending on 
infrastructure has nearly doubled and, as figure 1.11 shows, has become 
a significantly larger portion of total spending--largely the result of 
the previous two surface transportation reauthorizations.

Figure 1.11: Nondefense Federal Spending on Infrastructure as a 
Percentage of Total Expenditures, 1981-2002 (in Constant 2002 Dollars):

[See PDF for image] - graphic text:

Line chart with a single line.

1981; Percentage of Total Expenditures: 3.0%.
1982; Percentage of Total Expenditures: 2.6%.
1983; Percentage of Total Expenditures: 2.3%.
1984; Percentage of Total Expenditures: 2.6%.
1985; Percentage of Total Expenditures: 2.7%.
1986; Percentage of Total Expenditures: 2.7%.
1987; Percentage of Total Expenditures: 2.6%.
1988; Percentage of Total Expenditures: 2.8%.
1989; Percentage of Total Expenditures: 2.6%.
1990; Percentage of Total Expenditures: 2.5%.
1991; Percentage of Total Expenditures: 2.5%.
1992; Percentage of Total Expenditures: 3.0%.
1993; Percentage of Total Expenditures: 2.9%.
1994; Percentage of Total Expenditures: 3.0%.
1995; Percentage of Total Expenditures: 3.2%.
1996; Percentage of Total Expenditures: 3.2%.
1997; Percentage of Total Expenditures: 3.1%.
1998; Percentage of Total Expenditures: 3.1%.
1999; Percentage of Total Expenditures: 3.2%.
2000; Percentage of Total Expenditures: 3.5%.
2001; Percentage of Total Expenditures: 3.3%.
2002; Percentage of Total Expenditures: 3.8%.

Source: Office of Management and Budget, "Budgets of the United States 
Government" for fiscal years 1981 through 2004.

[End of figure]

During the latter years of this period, the federal government enjoyed 
budget surpluses. With the return to large federal deficits forecast in 
the upcoming years, decision makers will be faced with difficult 
choices on how to allocate funding among infrastructure needs and other 
demands in an increasingly tight budget environment. Given limited 
resources, decision makers must choose investments that promise to be 
most cost-effective and targeted to address national infrastructure 
needs. These choices must be supported by credible data on needs and 
costs, performance information and measures highlighting outcomes from 
existing programs, and a budget process prompting a more explicit focus 
on investment spending across agencies.

It is therefore essential for government at all levels to have the 
information needed to make well-informed decisions about how to 
allocate funds among competing priorities, evaluate the challenges to 
determine which solutions are most cost-effective, and implement these 
solutions as efficiently and effectively as possible.

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

* Strategies for Identifying, Evaluating, Prioritizing, Financing, and 
Implementing Integrated Solutions to the Nation's Transportation 
Infrastructure Challenges;

* The Impact of Transportation and Telecommunications Policies and 
Practices on Competition and Consumers;

* The Federal Government's Role in Fostering and Overseeing 
Telecommunications in the Public Interest;

* Efforts to Improve Safety in Moving People and Goods across the 
Nation's Transportation System;

* Efforts to Improve Security in All Transportation Modes;

* The U.S. Postal Service's Transformation Efforts to Ensure Its 
Viability and Accomplish Its Mission; and:

* Federal Efforts to Plan for, Acquire, Manage, Maintain, Secure, and 
Dispose of the Government's Real Property Assets.

Performance Goal 1.8.1: Strategies for Identifying, Evaluating, 
Prioritizing, Financing, and Implementing Integrated Solutions to the 
Nation's Transportation Infrastructure Challenges:

Key Efforts:

* Assess national approaches and best practices to address challenges 
to promoting mobility and establish a framework for an integrated, 
multimodal transportation system to sustain economic growth:

* Evaluate federal management and oversight of infrastructure 
investments, including efforts to control costs and make more effective 
use of existing infrastructure:

* Identify increased efficiency and equity in financing strategies for 
funding infrastructure projects and improvements, including 
opportunities to optimize state, local, regional, and private roles in, 
and accountability for, efficient investments of public funds:

Significance:

An integrated and efficient transportation system is critically 
important to the well-being and financial security of the American 
people. The nation's highways and transit systems move people to and 
from jobs, shopping centers, and recreation. Highways and railroads 
help move raw materials to plants and finished products to the 
marketplace. Airports and airlines facilitate rapid movement of people 
about the nation for business and pleasure. The federal government 
already invests heavily in transportation--for example, in 2000, it 
invested $27 billion for highways, $5.2 billion for transit, and $9 
billion for aviation infrastructure. However, federal, state, and local 
decision makers face daunting challenges in meeting the public's 
expectations in every mode--highway, transit, aviation, and rail. The 
Department of Transportation estimates that nearly $130 billion per 
year could be needed over 20 years from federal and nonfederal entities 
to maintain and improve the nation's roads, bridges, and transit 
systems. Also, highway travel time--an indicator of congestion--
increased sharply in the last decade. In aviation, decision makers must 
determine how capital development funds will be allocated between 
capacity and security enhancements, while ensuring that air traffic 
control modernization progresses cost effectively, efficiently, and 
expeditiously. The role of intercity passenger rail continues to be 
questioned. Amtrak reports that nearly $2 billion in federal assistance 
will be needed to stabilize and maintain its system, which carries less 
than 0.1 percent of the nation's intercity travelers. Freight railroads 
are experiencing increasing congestion, particularly at intermodal 
connection points.

At present, no national strategy exists to integrate these modes of 
transportation into a system that is more than the sum of its parts. 
Taking steps to break down funding decisions that are currently made 
within modal stovepipes could lead to decisions that consider a variety 
of alternatives when deciding which mode or combination of modes will 
best achieve a specific transportation objective. As federal, state, 
and local decision makers face competing demands for scarce funds, they 
must understand the costs and benefits of potential investments, search 
for and apply best practices, and consider innovative and efficient 
financing alternatives to ensure that federal expenditures maximize the 
nation's mobility benefits.

Potential Outcomes:

* Sound management and investment decisions regarding improved 
mobility, infrastructure conditions, and the costs and benefits of 
diverse strategies for investments in infrastructure:

* More informed decisions that consider the potential 
interrelationships of all modes of transportation when planning for an 
integrated transportation system, and better decisions by federal, 
state, and local governments in planning, prioritizing, and 
implementing new infrastructure investments:

* More effective infrastructure project financing; more efficient 
infrastructure use; and better leveraging of federal, state, local, and 
private funds:

Performance Goal 1.8.2: The Impact of Transportation and 
Telecommunications Policies and Practices on Competition and Consumers:

Key Efforts:

* Determine the effects of government organization, policies, and 
practices and private market forces on the status of competition and 
the ability to provide affordable and accessible services in the 
transportation and telecommunications industries:

* Assess whether federal and state programs and regulations adequately 
protect consumers and communities from anticompetitive, abusive, and 
unfair business practices:

* Assess U.S. policies and management approaches in supporting the 
competitiveness, financial health, and performance of the 
transportation and telecommunications industries in light of increased 
globalization and emerging technologies:

Significance:

The various modes of transportation and the telecommunications industry 
provide networks to move people, cargo, and information around the 
country and abroad. These networks directly contributed over $600 
billion to the nation's GDP in 2000. These industries are subject to 
varying degrees and types of regulation but generally are free to 
develop products, establish prices, and otherwise compete for business 
in the commercial marketplace. As these industries have changed over 
time, concerns have arisen as to whether the existing policies, 
procedures, and organizational structures are adequate to address 
certain consumer and industry needs. For example, the economic 
slowdown, combined with the terrorist attacks of September 11, 2001, 
and subsequent upheaval in world affairs, led to reduced air travel 
that exacerbated the financial woes of the airline industry.

The Congress recently provided the airline industry with $2.4 billion 
in financial aid and asked GAO to report on the measures that air 
carriers have taken to reduce costs and to improve their revenues and 
profits. In the telecommunications industry, the Congress looks to GAO 
and others to determine whether competition has developed sufficiently 
to ensure that new technologies are introduced and lower costs are 
passed on to consumers.

In addition, recent consolidation across the transportation and 
telecommunications industries has raised concerns in the Congress and 
elsewhere about the existence of a level playing field and the ability 
of competition to act as a natural control over prices in the future. 
Increasingly, the globalization of the economy brings the practices and 
policies of foreign entities to bear on U.S. providers of 
transportation and telecommunications services as well.

Potential Outcomes:

* A more informed congressional assessment of U.S. policies affecting 
the level of competition in the transportation and telecommunications 
industries:

* Improvements in consumer protection, enforcement of existing 
requirements, and prevention of abusive and unfair practices:

* More informed congressional decisions on the appropriate role and 
organization of regulatory bodies, including their interaction with 
relevant state and international regulatory organizations:

* A more informed congressional assessment of technological 
developments, market factors, and resource utilization issues in the 
telecommunications sector, including efforts to accommodate the rapidly 
growing consumer demand for advanced wireless communications services:

Performance Goal 1.8.3: The Federal Government's Role in Fostering and 
Overseeing Telecommunications in the Public Interest:

Key Efforts:

* Assess the federal universal service program in promoting the 
availability and affordability of basic and advanced telecommunications 
services to all Americans:

* Assess the effectiveness of key federal agencies in managing the 
technical resources needed to meet the growing demand by government and 
commercial users:

* Assess the ability of the Federal Communications Commission to 
respond to and resolve legal, regulatory, capacity, and policy issues 
that affect how the commercial telecommunications industry can develop 
and operate:

Significance:

Faster than ever before, technology is changing how Americans 
communicate, conduct business, and educate themselves. The rapid growth 
of the Internet and mobile phone service is unmatched by any other 
telecommunications technology--whether telephone, radio, or 
television. Since 1997, for example, the U.S. mobile phone industry has 
grown from 50 million to over 140 million subscribers, with annual 
revenues increasing from $27 billion to $76 billion. Broadband 
technology--which can bring high-speed voice, video, and data services 
to businesses, schools, and homes--also has enormous potential to 
transform Americans' lives even more fundamentally. However, with such 
innovations come questions about the adequacy of the laws, regulations, 
and practices that have guided federal involvement in fostering and 
overseeing telecommunications in the public interest since the 1930s. 
Take, for example, the federal government's multibillion-dollar 
"universal service" program to support affordable basic telephone 
service to rural and low-income Americans. Should this program be 
expanded to include affordable access to the Internet and broadband 
services in order to avoid having a nation of "haves and have nots" for 
advanced telecommunications services? As wireless communications 
services continue to grow, how should the government apportion the 
limited technical resources available to support their operation, such 
as orbital slots for communications satellites and radio frequencies 
for mobile communications? Can the commission keep pace with the need 
to reexamine and redefine the regulatory framework as new services 
emerge that do not easily fit into current policies and practices? 
Finding answers to these and other challenging questions has become an 
intense concern for both the commission and the Congress as they 
consider regulatory and legislative options for fostering and 
overseeing telecommunications.

Potential Outcomes:

* Strengthened effectiveness and long-term viability for the federal 
universal service program:

* Improved legislative and regulatory framework for managing the radio 
frequency spectrum:

* More informed federal decision making to facilitate the availability 
and deployment of modern telecommunications infrastructure:

Performance Goal 1.8.4: Efforts to Improve Safety in Moving People and 
Goods across the Nation's Transportation System:

Key Efforts:

* Assess federal research, development, and demonstration efforts to 
improve the safety of the nation's transportation system:

* Examine the oversight, guidance, and regulations federal 
organizations provide to state and local governments and private 
organizations to ensure that the American public and its goods travel 
as safely as possible:

* Examine how state, local, and private organizations are using the 
billions of dollars provided by the federal government to address 
important transportation safety issues and determine whether efforts 
have been made to assess the effectiveness of these activities:

Significance:

Ensuring the safe movement of people and goods on the nation's 
transportation infrastructure is a top priority for the Department of 
Transportation, as reflected in the administration's surface 
transportation reauthorization proposal, the Safe, Accountable, 
Flexible, and Efficient Transportation Equity Act of 2003. The proposal 
would more than double funding for highway safety and contains many 
initiatives to improve transportation safety. In addition, the Congress 
is also considering the Federal Aviation Administration's 
reauthorization bill, which proposes to fund about $59 billion over 4 
years to address aviation safety, security, and infrastructure needs.

Transportation safety continues to be a concern, with over 6 million 
traffic accidents in 2001 or 1 every 5 seconds; over 40,000 traffic 
deaths each year, with traffic accidents becoming the leading cause of 
death for people ages 4 through 33; an annual average of 6 commercial 
airline and over 350 general aviation fatal crashes in recent years; 
and over 2,200 major pipeline accidents over a recent 10-year period, 
killing over 225 people. Transportation must ensure the safety of 
people, and the nation's economy relies on the safe movement of goods. 
For example, in 2001 over 27 million freight cars moved over 179,000 
miles of track. In 2001, the railroads transported 83 million tons of 
hazardous materials. In addition, over 2.2 million miles of pipelines 
moved oil, natural gas, and hazardous products.

Potential Outcomes:

* A better understanding of the root causes of transportation-related 
accidents, injuries, and fatalities and their related societal cost to 
aid the Congress and the Department of Transportation in implementing 
potential solutions:

* Improved federal program administration directed at finding new 
technologies and adopting new solutions for increasing the safety of 
people and goods on the transportation system:

* Enhanced federal oversight and regulation of actions taken by state, 
local, and private organizations to improve transportation pipeline 
safety:

* Improved information available to the Congress when it considers the 
safety aspects of the next multiyear, multibillion-dollar 
transportation reauthorization bills:

Performance Goal 1.8.5: Efforts to Improve Security in All 
Transportation Modes:

Key Efforts:

* Assess federal efforts to identify, prioritize, address, and provide 
oversight of key vulnerabilities in the security of the nation's 
transportation systems:

* Assess federal efforts to work with state and local governments and 
the private sector to enhance transportation security:

* Evaluate federal efforts to embed security concepts and practices 
into ongoing federal and federally funded programs and business 
processes:

* Assess the direct and indirect costs of transportation security; 
different financing alternatives for federal, state, local, and private 
sector contributions to meeting these costs; and accountability for the 
proper use of security funding:

Significance:

Terrorist events around the world have shown that transportation 
systems are often targets of attack--roughly one-third of terrorist 
attacks worldwide target transportation systems. The terrorist attacks 
of September 11, 2001, demonstrated the vulnerabilities of U.S. 
transportation systems and the impact these vulnerabilities can have on 
the nation. While most of the early attention following the September 
11, 2001, attacks focused on aviation security, emphasis on the other 
modes of transportation has since grown as potential vulnerabilities 
are identified, such as the introduction of weapons of mass destruction 
through ports of entry or launching chemical attacks on mass transit 
systems.

The entire transportation industry has remained on a heightened state 
of alert since the attacks of September 11, 2001, due in part to 
numerous terrorist advisories received targeting different segments of 
the transportation network, which includes 3.9 million miles of roads, 
almost 600,000 bridges, over 300 ports, 2.2 million miles of pipelines, 
and over 5,000 public-use airports. Securing this vast network from 
terrorism is critically important to the economy and the American way 
of life. In addition, because the effectiveness of transportation 
systems depends on their accessibility, security measures must be 
considered as transportation systems are developed or modified and must 
be incorporated into the overall transportation infrastructure. Adding 
to the complexity of securing the nation's transportation systems is 
the shared responsibility of federal, state, and local agencies, as 
well as private companies, for funding, and maintaining accountability 
for, transportation security enhancements.

Potential Outcomes:

* Better focus, prioritization, coordination, and management of 
federal, state, and local efforts to improve security measures and 
reduce vulnerabilities in transportation systems:

* Improvements in the nation's ability to act proactively to prevent 
loss of life and property because of security threats and respond to 
those threats as they materialize:

* Expanded use of a risk management approach to focus and target 
limited resources on transportation security needs:

* Clarification of roles and responsibilities in ensuring improved 
transportation security:

Performance Goal 1.8.6: The U.S. Postal Service's Transformation 
Efforts to Ensure Its Viability and Accomplish Its Mission:

Key Efforts:

* Evaluate the U.S. Postal Service's financial condition and outlook as 
well as its efforts to improve its financial viability:

* Assess whether postal staff and facilities are effectively deployed 
and used to support postal operations and identify where cost savings 
in these areas may be realized:

* Assess the effectiveness and efficiency of the regulatory oversight 
structure and other issues affecting the U.S. Postal Service's ability 
to meet its mission:

* Assess quality of service issues, including the U.S. Postal Service's 
performance compared to its performance measures and how well it 
protects its customers and employees from potential hazards sent 
through the mail:

* Evaluate the U.S. Postal Service's plans to address persistent labor-
management issues, including plans to restructure its workforce, 
address future retirements, and improve incentive programs:

Significance:

The U.S. Postal Service faces major financial, operational, and human 
capital challenges that collectively call for a structural 
transformation if it is to remain viable in the 21st century. The 
Postal Service has faced increasing financial challenges as its mail 
volumes peaked in fiscal year 2000 and have continued to decline since 
then. Of particular significance is the decline in First-Class Mail 
volume, which generates the largest contribution to covering 
institutional costs and has an unfavorable projected outlook due to 
increased competition and electronic alternatives. Consequently, 
despite multiple rate increases, freezes on capital spending, and 
significant cost reduction efforts, the service still incurred deficits 
of $1.7 billion and $676 million in fiscal years 2001 and 2002, 
respectively. Reduced mail volume, excess capacity, and the large 
number of retirements expected over the next several years will place 
even more pressure on the Postal Service's expenses and its need for 
cash. Thus, the service's ability to provide universal postal service 
as it is known today will be increasingly threatened unless changes are 
made, both within current law and to the legal and regulatory framework 
that governs the Service. In April 2001, GAO designated the Postal 
Service's transformation and long-term outlook as a high-risk area--a 
designation that was reaffirmed in February 2003 with GAO's latest 
update.

Potential Outcomes:

* A better understanding of the U.S. Postal Service's financial 
position and the options available to address its long-term financial 
situation, including its outstanding obligations for postretirement 
health care costs:

* Increased cost savings and more effective mail processing and service 
delivery:

* Improved protections for customers and employees from hazardous 
materials sent through the mail:

* More informed congressional decision making on postal policy and 
structural issues and proposals for reform:

* More effective implementation of human capital initiatives and 
programs:

Performance Goal 1.8.7: Federal Efforts to Plan for, Acquire, Manage, 
Maintain, Secure, and Dispose of the Government's Real Property Assets:

Key Efforts:

* Assess the efforts of federal agencies to realign and restore federal 
real property assets to meet current and future mission needs and 
identify best practices and innovative asset management approaches that 
federal agencies are using or could pursue:

* Assess the efforts of federal government agencies to acquire or 
construct new facilities in a timely and cost-effective manner:

* Assess efforts of federal agencies to ensure that their facilities 
effectively and efficiently support the agencies' strategic planning, 
service-delivery, and mission accomplishment needs:

* Assess the efforts of federal agencies to prepare for, prevent, 
detect, and respond to the consequences of terrorist attacks and other 
possible security breaches aimed at federal facilities and their 
occupants:

Significance:

Over 30 federal agencies, including DOD, the General Services 
Administration, VA, and U.S. Postal Service, control hundreds of 
thousands of real property assets in the United States and abroad that 
are worth hundreds of billions of dollars. Unfortunately, many of these 
assets are no longer effectively aligned with, or responsive to, 
agencies' changing missions and are therefore no longer needed. 
Furthermore, many assets are in an alarming state of deterioration; 
agencies have estimated restoration and repair needs to be in the tens 
of billions of dollars. In addition, new federal facilities, such as 
courthouses, prisons, and visitor centers, are planned that need to be 
constructed in a timely and cost-effective manner.

Compounding these problems are the lack of reliable data for strategic 
asset management, a heavy reliance on costly leasing instead of 
ownership when ownership is more advantageous, and the cost and 
challenge of protecting these assets against potential terrorism. These 
challenges have been exacerbated by competing stakeholder interests in 
real property decisions; various legal and budget-related disincentives 
to businesslike outcomes; the need for better capital planning among 
agencies; and the lack of a strategic, governmentwide focus on federal 
real property issues. Given the persistence of the problems and related 
obstacles, GAO added federal real property to its high-risk list in 
January 2003 and believes that a comprehensive and integrated 
transformation needs to take place in this area.

Potential Outcomes:

* Enhanced use of businesslike best practices by agencies to acquire, 
manage, protect, and dispose of real property, such as public-private 
partnerships, sales, and exchanges of property:

* More efficient use of energy consumed by federal facilities:

* Enhanced space quality, safety, and operational efficiency and 
effectiveness of federal facilities:

* Improved efficiency and effectiveness in preparing for, deterring, 
detecting, and responding to terrorist and other threats on federal 
facilities and their occupants:

Strategic Objective 2.1: Respond to Emerging Threats to Security:

Issue: The nature of the threats to national and international security 
and the means of attack have changed significantly in the post-Cold War 
era. Threats stem from differences in national or state ideologies and 
geopolitical economic and strategic considerations and now, 
increasingly, from religious conflicts and the aims of non-state-
sponsored groups. Adversaries are more likely to strike vulnerable 
civilian or military targets at home and overseas in nontraditional 
ways to avoid direct confrontation with U.S. military forces or their 
allies on the battlefield.

The nation must assess and defend against a wide range of means and 
methods of attack, ranging from unconventional means to conventional 
weapons to weapons of mass destruction. International access, global 
interdependencies, interconnected and less diverse systems, and rapid 
technological change make such threats more viable and decrease the 
effectiveness of physical borders in ensuring security. The continuing 
proliferation of weapons of mass destruction increases concerns that 
terrorists or a rogue regime could threaten the United States or its 
allies with nuclear, chemical, or biological attack.

These threats put at risk the nation's values, economic interests, way 
of life, and the personal security of its citizens at home and abroad. 
National strategies propose homeland security and combating terrorism 
initiatives to address these threats, yet their implementation and 
their associated costs, both direct and indirect, remain unclear. 
Decision-making approaches based on risk analysis and cost-benefit 
effectiveness and the alignment of federal funding with state, local, 
and private sector investments are still works in progress. In the 
international arena, U.S. efforts to prevent the proliferation of 
weapons of mass destruction directly support domestic homeland security 
missions, yet much remains to be done.

Preparing and responding to emerging security threats will entail a 
national effort involving defense and domestic federal agencies and 
programs; state, local, and regional governments and organizations; the 
private sector; and the international community. At the federal level, 
the effectiveness of major structural changes to provide leadership 
will be important. The primary mission of DHS is to prevent, reduce 
vulnerability to, and aid in recovery from domestic terrorist attacks. 
Homeland security will require an effective DHS implementation and the 
efforts of other federal agencies, such as the FBI and the intelligence 
community. Responsibility for oversight and coordination across the 
executive branch, for example, with the Executive Office of the 
President, is still evolving.

Moreover, homeland security is, in large part, dependent on the efforts 
of state and local governments and the private sector. Internationally, 
the cooperation of the United States and its allies is needed to 
prevent terrorists and others from using dangerous weapons to carry out 
threats to the nation's security. In addition, long-term success in 
homeland security will mean seamlessly integrating homeland security 
concepts into normal business decisions and practices across government 
and within the areas of the private sector responsible for critical 
infrastructures and key assets, so that efforts are sustainable over 
the long term and balanced with important non-homeland-security 
objectives.

Performance Goals: To support congressional and federal decision making 
on national preparation for and response to emerging threats to 
security, GAO will:

* Assess Federal Homeland Security Management, Responsibility, 
Effectiveness, and Achievement of Mission Goals;

* Identify Ways to Strengthen Strategies Related to Homeland Security 
and Their Implementation;

* Evaluate Homeland Security Resource Priorities, Costs, and Approaches 
to Stimulate Desired Investments;

* Identify Opportunities to Embed Homeland Security Concepts in Ongoing 
National Initiatives;

* Evaluate Ways to Strengthen Government Information Security and 
Protect Computer and Telecommunications Systems That Support the 
Nation's Critical Infrastructures; and:

* Assess the Effectiveness of U.S. and International Efforts to Prevent 
the Proliferation of Nuclear, Biological, Chemical, and Conventional 
Weapons and Sensitive Technologies.

Performance Goal 2.1.1: Assess Federal Homeland Security Management, 
Responsibility, Effectiveness, and Achievement of Mission Goals:

Key Efforts:

* Assess Department of Homeland Security (DHS) readiness to manage its 
missions:

* Evaluate DHS efforts to achieve homeland security results:

* Evaluate the effectiveness of other federal agencies responsible for 
key homeland security mission areas:

* Evaluate central federal oversight to ensure the coordination and 
integration of homeland security efforts across the federal government:

* Evaluate the effectiveness of federal partnerships and 
intergovernmental coordination with state and local governments and the 
private sector for homeland security initiatives:

Significance:

Federal structural changes to provide homeland security leadership will 
be important. In November 2002, the President signed the Homeland 
Security Act, which established DHS. Among other things, the mission of 
DHS is to prevent, reduce vulnerability to, and help the nation recover 
from domestic terrorist attacks. The new department is to provide a 
focused leadership structure for national initiatives. It also is 
intended to serve as the primary liaison and facilitator for 
cooperation among federal departments and agencies, state and local 
governments, and the private sector.

The creation of DHS represents one of the largest and most complex 
restructurings in the federal government. The department's 
implementation will require ongoing oversight to ensure effectiveness 
and years to transform into an efficient, integrated, and smooth-
running operation. Components merged into the new department already 
face a wide array of existing challenges. DHS also must develop strong 
partnerships with other federal, state, local, and private entities. 
Moreover, critical aspects of DHS's success will depend on well-
functioning relationships with other federal agencies with homeland 
security responsibilities, such as the State Department, the Federal 
Bureau of Investigation (FBI), the Central Intelligence Agency, the 
Department of Defense (DOD), the Department of Health and Human 
Services (HHS), and the Department of Transportation. Agencies such as 
these must be part of an overall federal collaboration, coordination, 
and communication structure to improve homeland security and ensure 
mission accountability and sustainability over time.

In light of these complexities, in 2003 GAO designated the 
transformation and implementation of DHS as high risk. This initial 
designation recognized the importance and difficulties of forming DHS, 
and highlighted certain program areas as continued areas of concern, 
but acknowledged that it is too early to comprehensively evaluate 
homeland security program effectiveness during the transitional stages 
of agency reorganization and in relatively new areas such as 
information analysis and protection and response to bioterrorism and 
emerging threats from other weapons of mass destruction (WMD). However, 
in future years, and in preparation for GAO's 2005 High-Risk Series, 
GAO will continue to assess homeland security programs and missions, 
such as border or aviation security, with an eye toward making 
constructive recommendations for improvement and refining which areas 
are of greater risk. High-risk consideration will analyze both agency-
specific and governmentwide major management challenges, such as 
progress in implementation of homeland security national strategies and 
whether there is successful coordination with state and local 
governments and the private sector.

Currently, at least nine major national strategies for aspects of 
homeland security and combating terrorism have been prepared. 
Prioritization, responsibility, implementation, and funding for these 
strategies remain problematic. At the present time, central oversight 
and coordination of federal efforts above the federal departmental 
level involve many entities. The White House Homeland Security Council-
-formerly the Office of Homeland Security--will be involved with 
efforts such as coordinating interagency initiatives, but the 
coordinative role of it and DHS and other Executive Office of the 
President organizations are still evolving.

Identifying and responding to evolving threats will require major 
federal policy and operational efforts and partnership with state and 
local governments and the private sector to coordinate federal 
strategies with counterpart state, local, and private sector 
strategies, and to craft a national decision-making framework and 
security initiatives. Together, these organizations will be challenged 
to (1) adopt threat and risk management to estimate the character, 
probability, and impact of terrorist attacks; (2) identify desirable or 
attainable levels of risk, prevention, vulnerability, and recovery 
response; (3) sustain efforts despite fiscal, legal, jurisdictional, 
and human capital constraints; (4) leverage multiple organizational 
roles, responsibilities, and relationships; (5) set realistic budgets 
and funding arrangements to address implementation and maintenance 
costs; and (6) strengthen intelligence sharing while protecting civil 
liberties and appropriate public information access.

Potential Outcomes:

* A better understanding of the effectiveness of oversight and 
coordination across the federal government for homeland security and 
the specific homeland security responsibilities of each organization or 
entity:

* Improved effectiveness of DHS efforts to develop, implement, and 
sustain long-term homeland security initiatives:

* Increased congressional understanding of new federal structural 
changes and readiness:

* A better understanding of the homeland security responsibilities of 
other federal agencies and their collaboration and coordination with 
DHS:

* Improved federal partnership with nonfederal actors and a better 
understanding of the roles of government and the private sector:

Performance Goal 2.1.2: Identify Ways to Strengthen Strategies Related 
to Homeland Security and Their Implementation:

Key Efforts:

* Evaluate requirements and content of the national strategies 
individually and collectively:

* Assess federal implementation and results of the National Strategy 
for Homeland Security and directly related, lower-level strategies:

* Assess state and local government and private sector involvement in 
and adoption of homeland security initiatives in which they play a 
major role:

Significance:

Since the September 11, 2001, attacks, the administration has issued 
numerous national strategies detailing specific initiatives for 
homeland security and combating terrorism to address these threats. The 
strategies are organized in a hierarchy, with the National Security 
Strategy of the United States of America and the National Strategy for 
Homeland Security as top-level strategies that together address U.S. 
security both overseas and domestically. Other strategies, such as the 
National Strategy for the Physical Protection of Critical 
Infrastructures and Key Assets, provide further levels of detail on 
specific functions related to security.

In its national effort, the federal government will need to integrate 
federal strategies addressing homeland security and combating terrorism 
with those of state and local governments and private sector 
counterparts. For the longer term, the integrated efforts will need to 
focus on implementing and sustaining these initiatives, identifying and 
correcting inconsistencies and unwanted gaps, assessing and renewing 
the individual strategies over time, and holding individual agencies 
and organizations accountable for improving security against emerging 
security threats. Federal strategies must also take into consideration 
the costs of implementation, the ability to sustain efforts, and the 
need to balance homeland security and non-homeland-security objectives.

Potential Outcomes:

* Greater congressional understanding of the national strategies, their 
implications, and their interdependencies:

* Improved federal attention to national strategy implementation and 
improvement:

* A more integrated approach by federal and nonfederal agencies and 
organizations in implementing and strengthening the strategies:

* Improved homeland security performance expectations and 
accountability:

Performance Goal 2.1.3: Evaluate Homeland Security Resource Priorities, 
Costs, and Approaches to Stimulate Desired Investments:

Key Efforts:

* Assess the direct and indirect costs of national homeland security in 
response to changes such as threat levels and national strategies' 
implementation:

* Evaluate federal risk management approaches and support of nonfederal 
risk management efforts:

* Assess federal homeland security priority-setting and investment 
strategies:

* Evaluate the intelligence community's threat analysis challenges in 
providing intelligence and threat information to federal, state, and 
local authorities:

Significance:

Effective resource management for homeland security involves setting 
priorities, targeting funds, and assessing their effect. The starting 
point is risk management, which sets specifics for homeland security 
plans, cost analysis, and investments. Threat, risk, and criticality 
assessments--the general risk management framework--provide decision 
makers with the information to identify risks, alternative initiatives 
to address those risks, their direct and indirect costs, and their 
impact on other priorities; select initiatives to fund; and evaluate 
the effectiveness of those initiatives in reducing risk. At present, 
the national homeland security threat level provides broad threat 
levels nationally, with differing levels of action accompanying each 
level. The current national threat designation takes into account 
neither regional or local threats and necessary responses nor the cost 
implications of changing designations. Moreover, there should be a 
concerted effort to improve the threat information received from 
foreign and domestic sources; to understand the nature of threats to 
vulnerable assets; and to protect the nation's critical infrastructure, 
key assets, and population.

Comparing threats, risks, and criticality components is intended to 
determine how to allocate homeland security resources. Overall, this 
approach balances the costs and benefits of security measures, 
including the collateral or unintended consequences on other measures. 
Setting priorities and addressing security threats have placed new 
fiscal demands on federal, state, and local governments and the private 
sector. Improper or incomplete uses of assessments can result in 
misinformed decision making and poor targeting of resources to those 
areas at highest risk. Moreover, as threat levels change in response to 
risk management, decision makers face the challenge of changing 
priorities and redirecting investments. Finally, prudent decision 
making calls for better use of resources to address both homeland 
security and other security needs.

Potential Outcomes:

* Improved ability to identify threats and provide advance warning of 
impending attacks to all organizations responsible for homeland 
security:

* Better information on the relationship between costs and priorities 
established in the national strategies:

* Improved budgeting approaches and federal homeland security 
investment targeting in order to stimulate desired state, local, and 
private sector efforts:

* Improved understanding of the state of risk management approaches and 
decision making:

* Enhanced ability of governmental levels and the private sector to 
coordinate their homeland security intelligence collection, analysis, 
and information sharing:

* A better understanding of the effectiveness of proposed federal 
stimulus programs:

* Increased emphasis on the importance of "dual use" investment 
strategies to address both homeland security and other security 
priorities:

Performance Goal 2.1.4: Identify Opportunities to Embed Homeland 
Security Concepts in Ongoing National Initiatives:

Key Efforts:

* Identify opportunities to embed homeland security in proposed federal 
legislative and regulatory changes:

* Assess the government's homeland security tools and funding strategy 
alternatives:

Significance:

An organizing principle for homeland security might be "weaving 
homeland security into the fabric of American life." The Congress faces 
the difficult task of "weaving" by deciding how to sustain homeland 
security and integrate efforts with non-homeland-security missions. The 
Congress must also consider the "fabric" that is woven--effectively 
balancing fighting terrorism with efforts to maintain economic vitality 
and innovation; create jobs; and improve education, housing, and 
quality of life in general while protecting core American values. 
Homeland security can be viewed as integral to everyday life--in which 
measures are consistently expected, applied, and integrated into the 
underlying business processes or programs from the very beginning, not 
apart from other strategic and operational decisions. Long-term success 
in securing the homeland will mean seamlessly integrating homeland 
security concepts into normal business decisions and practices. 
Designing new programs and redesigning or recapitalizing existing 
programs provide opportunities to support both homeland security and 
non-homeland-security needs.

In addition, policy tools--direct spending, tax preferences, loans and 
guarantees, grants, and regulations--are available to address homeland 
security needs within the context of existing programs. The challenge 
is for the federal government to design, select, and manage the various 
tools to prompt federal and nonfederal actors to work together on 
homeland security results and effectively leverage scarce resources.

Potential Outcomes:

* Identification of opportunities for the Congress or federal decision 
makers to better integrate homeland security concepts into ongoing 
processes and programs:

* Better targeting of the tools of government to provide incentives for 
addressing homeland security and non-homeland-security priorities:

* Greater fiscal discipline in leveraging non-homeland-security efforts 
to address homeland security priorities and to sustain the efforts:

Performance Goal 2.1.5: Evaluate Ways to Strengthen Government 
Information Security and Protect Computer and Telecommunications 
Systems That Support the Nation's Critical Infrastructures:

Key Efforts:

* Review the effectiveness of computer and network security at federal 
agencies to better ensure the protection of government information:

* Assess efforts to manage and protect the computer/cyber information 
systems that support the nation's critical infrastructures:

Significance:

Protection of the nation's critical infrastructure--including energy, 
financial services, transportation, vital human services, and 
communications systems--is becoming increasingly important largely due 
to the dependence on complex interconnected computer and 
telecommunications systems. Criminals, terrorists, and others, working 
anonymously from remote locations and with relatively limited 
resources, can use computers and the open interconnectivity of the 
Internet to severely disrupt this infrastructure, which is essential to 
national defense, economic prosperity, and quality of life. Similar 
means can be used to commit massive fraud and gain access to highly 
sensitive information. In response, new laws, such as the Federal 
Information Security Management Act, and presidential initiatives, such 
as Presidential Decision Directive 63 and Executive Order 13231, have 
prompted an array of federal efforts aimed at improving critical 
infrastructure protection, especially information security, in both the 
public and private sectors. These efforts have also raised a variety of 
policy and budgetary issues that will need to be addressed as 
government works with the private sector to develop an effective 
strategy for protecting against computer-based attacks.

Potential Outcomes:

* Reasonable assurance that critical federal operations are protected 
from disruption, fraud, and misuse:

* Enhanced capability of organizations to detect, protect against, and 
respond to computer intrusions:

* Greater coordination among public and private sector institutions in 
protecting U.S. computer-based critical infrastructure systems:

* Improvements to the legislative framework for information security:

* Greater public assurance that the Internet, electronic commerce 
transactions, and the nation's telecommunication infrastructure are 
secure:

* More secure and efficient electronic government operations:

Performance Goal 2.1.6: Assess the Effectiveness of U.S. and 
International Efforts to Prevent the Proliferation of Nuclear, 
Biological, Chemical, and Conventional Weapons and Sensitive 
Technologies:

Key Efforts:

* Evaluate the management and effectiveness of U.S. programs and safety 
of facilities designed to minimize the proliferation of nuclear, 
biological, chemical, and conventional weapons, technologies, and 
expertise that pose the greatest risk to the United States and its 
interests:

* Assess the management and effectiveness of U.S. and multilateral 
controls over exports of goods and technologies that contribute to the 
proliferation of weapons of mass destruction (WMDs) or conventional 
weapons to sensitive regions of the world:

* Evaluate the United States' and other countries' use of accords aimed 
at reducing arsenals of WMDs and the impact of their efforts:

Significance:

The continuing proliferation of WMDs and delivery systems poses serious 
threats to the security of the United States and its allies. Increased 
concern that in the near future, a rogue regime or terrorists will be 
able to threaten the United States or its allies with nuclear, 
biological, or chemical weapons has prompted the United States to 
develop a new approach to combating proliferation. The President's 2002 
National Security Strategy identified the need to bolster 
counterproliferation efforts to deter and defend against these threats, 
manage the consequences of WMD use, and enhance nonproliferation 
efforts. The United States is placing a renewed emphasis on 
strengthening these efforts by encouraging increased political and 
financial support for such activities.

Currently, the centerpiece of nonproliferation efforts is the growing 
multibillion dollar array of efforts by DOD, DOE, and State to help 
former Soviet states control and reduce their vast, diverse holdings of 
Cold War-era nuclear, biological, and chemical weapons and their 
related delivery systems and infrastructure. However, U.S. programs to 
limit the proliferation of WMDs have begun to move beyond focusing on 
the former Soviet Union to also address proliferation risks in other 
countries such as Iran and North Korea, at borders, and from terrorist 
networks. In addition, the United States controls the export of certain 
sensitive technologies (such as chemical weapons precursors, missiles, 
and computers) and weapons systems through its national export control 
system and multilateral arrangements with other nations capable of 
supplying these technologies or weapons systems.

Nevertheless, the United States is seeking ways to strengthen 
multilateral export control regimes because rapidly evolving 
technologies and growing trade in sensitive items among countries of 
concern have weakened these controls. Finally, the United States is 
reassessing the effect of existing agreements and partnerships to 
control or reduce U.S. and foreign arsenals of WMDs in the post-Cold 
War era, including a multibillion-dollar program to dispose of Russian 
weapons-grade plutonium. The United States is also reassessing the 
ability of prospective agreements and coalitions to prohibit and detect 
development of WMDs.

Potential Outcomes:

* Improved management of programs and more effective use of U.S. 
assistance that reduces the proliferation of WMDs and diminishes the 
assets posing the greatest risks to U.S. national security:

* Enhanced controls over the export and use of sensitive technologies 
that could facilitate the proliferation of WMDs or other weapons of 
concern:

* Improved implementation of accords to achieve greater impact in 
reducing arsenals of WMDs:

Strategic Objective 2.2: Ensure Military Capabilities and Readiness:

Issue: In contrast to the downward trend in defense spending during the 
last decade, this first decade of the new century has already seen a 
significant upward trend in authorized defense spending. After dropping 
below $300 billion in prior years, total defense budget authority 
increased to about $360 billion in fiscal year 2002 and will exceed 
$400 billion in fiscal years 2003 and 2004, including substantial 
supplemental funding to support ongoing military operations. (See fig. 
2.1.) As the new decade began, some increases in funding authority were 
approved to enhance operational maintenance, quality-of-life programs, 
pay raises, and improvements to crumbling facilities. Since September 
2001, more significant increases in annual budget authority and 
supplemental appropriations have been approved to respond to the war on 
terrorism, including funding for Defense operations in Afghanistan and 
Iraq. Major increases have also been approved for weapon systems 
acquisition and modernization.

Figure 2.1: Total Defense Appropriations and Supplemental Funding for 
Fiscal Years 2000 through 2004, as of January 2004:

[See PDF for image] - graphic text:

Bar chart with 10 items.

Dollars in billions:

2000; Appropriations: $286.5;
Supplementals: $8.5.

2001: Appropriations: $310;
Supplementals: $19.9.

2002: Appropriations: $343;
Supplementals: $17.2.

2003: Appropriations: $382;
Supplementals: $72.6.

2004: Appropriations: $400.5;
Supplementals: $65.2.

Source: Congressional Research Service.

[End of figure]

Notwithstanding the ongoing war on terrorism, DOD has continued to 
focus on implementing the results of the 2001 Quadrennial Defense 
Review, which charted a new defense strategy that emphasized homeland 
security, military transformation, joint operations, and advanced war-
fighting capabilities related to IT, intelligence, and space 
operations. Follow-on studies were begun to more precisely define how 
existing DOD programs and priorities would change in light of the 
changing security environment and increased emphasis on homeland 
security.

Perhaps the most significant of the follow-on studies are those 
involving the ongoing reassessment of U.S. force structure and 
capabilities and of overseas presence and basing. The former has the 
potential for significant change in organization of forces and 
deployment planning. The latter has the potential for significant 
changes in the numbers and locations for U.S. bases overseas in keeping 
with the revised global military posture called for in the report of 
the Quadrennial Defense Review. That report called for developing a 
basing system that provides greater flexibility for U.S. forces in 
critical areas of the world, placing emphasis on additional bases and 
stations beyond western Europe and northeast Asia, and providing 
temporary access to facilities in foreign countries that enable U.S. 
forces to conduct training and exercises in the absence of permanent 
ranges and bases. The new defense strategy also highlights the 
criticality of reforming the department's business practices and human 
capital management, streamlining organizational structures, and 
eliminating excess infrastructure that unnecessarily diverts resources 
from other defense priorities. In that light, DOD also recently 
directed acquisition programs to tailor their strategies so that 
weapons can be fielded in a timelier manner at a fair and reasonable 
cost.

The debate about what capabilities DOD must maintain and develop, where 
they should exist, and to what extent additional defense spending is 
required will be significantly shaped by the debate over the military's 
role in homeland security and the augmentation of the civilian 
agencies' roles in the fight against terrorism. Nonetheless, the 
Quadrennial Defense Review ties many of these issues together. (See 
fig. 2.2.)

Figure 2.2: Key Topical Issues Framing the Defense Debate:

[See PDF for image] - graphic text:

* Jointness and interoperability;

* Capabilities-based strategy versus two major-theater wars;

* Force transformation, advanced warfighting capabilities, and 
training;

* Changes in global military presence;

* Antiterrorism and force protection;

* Chemical and biological defense;

* Human capital challenges;

* Quality of life and facilities infrastructure;

* Weapon systems modernization;

* Homeland security;

* Guard and reserve roles;

* Nuclear stockpile;

* Improved business practices.

Source: GAO analysis.

[End of figure]

There also are pressing issues concerning the defense establishment's 
program to maintain a safe and reliable nuclear weapons stockpile. This 
program is administered by the National Nuclear Security Administration 
(NNSA), a semiautonomous agency established in 2000 within DOE. NNSA 
faces numerous planning, organizational, procurement, personnel, and 
security challenges as it administers this $8 billion-a-year program, 
and questions remain about the impact of its 2002 reorganization plan 
on its capacity to address these challenges efficiently and 
effectively.

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

* Assess DOD's Ability to Maintain Adequate Readiness Levels While 
Addressing the Force Structure Changes Needed in the 21st Century;

* Assess Overall Human Capital Management Practices to Ensure a High-
Quality Total Force;

* Assess the Ability of Weapon System Acquisition Programs and 
Processes to Achieve Desired Outcomes;

* Identify Ways to Improve the Economy, Efficiency, and Effectiveness 
of DOD's Support Infrastructure and Business Systems and Processes;

* Assess the National Nuclear Security Administration's Efforts to 
Maintain a Safe and Reliable Nuclear Weapons Stockpile;

* Assess Whether DOD and the Services Have Developed Integrated 
Systems, Procedures, and Doctrines to Support Joint and Coalition 
Forces on the Battlefield Safely and Effectively; and:

* Analyze and Support DOD's Efforts to Improve Planning, Programming, 
Budgeting, Execution, and Program Performance.

Performance Goal 2.2.1: Assess DOD's Ability to Maintain Adequate 
Readiness Levels While Addressing the Force Structure Changes Needed in 
the 21st Century:

Key Efforts:

* Evaluate DOD's progress in developing and implementing its role in 
homeland security:

* Assess the military services' training and readiness to accomplish 
their missions:

* Assess DOD's worldwide antiterrorism/force protection program and 
implementation to provide adequate security to military forces and 
assets worldwide:

* Assess DOD's chemical and biological defense program's and related 
activities' ability to meet current and future threat-focused 
requirements:

* Assess the potential for the military services to adopt more 
efficient and effective concepts for organizing and deploying forces:

* Assess service efforts to manage and integrate force transformation 
plans effectively:

* Assess the extent to which the development and acquisition of weapons 
systems meet the needs of the armed forces, particularly for 
transformational capabilities:

* Assess the key lessons learned from recent military operations 
overseas:

* Provide the Congress with objective analysis of the costs and funding 
for military operations and follow-on activities:

Significance:

DOD's implementation of the 2001 Quadrennial Defense Review and its 
follow-on studies presents many opportunities for GAO to assist the 
Congress in analyzing the basis for and effect of changes to defense 
strategies and programs and changes in force structure and deployment 
plans. The Congress will be especially interested in the DOD strategy 
for homeland security and how it will affect DOD's ability to carry out 
more traditional missions. GAO's independent assessments will highlight 
potential risks associated with proposed changes and examine how such 
changes will affect DOD's ability to address readiness problems.

New areas of emphasis in the defense strategy--such as homeland 
security, force transformation, space, and information warfare--will 
force tough trade-off decisions and a closer examination of how to 
achieve defense goals most cost effectively. Accordingly, analyses of 
the cost-effectiveness of defense alternatives and options will be 
needed. Similarly, the Congress and DOD are likely to focus more 
attention on how DOD can best blend the diverse elements of its total 
force (active, reserve, and civilian forces) to achieve economies and 
increase effectiveness and how it can better contain costs related to 
overseas operations.

Potential Outcomes:

* Greater congressional understanding of the basis for key changes i