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entitled 'Supporting Congressional Oversight: Budgetary Implications 
of Selected GAO Work for Fiscal Year 2003' which was released on April 
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United States General Accounting Office: 
GAO: 

Report to the Congress: 

Supporting Congressional Oversight: 

Budgetary Implications of Selected GAO Work for Fiscal Year 2003: 

GAO-02-576: 
	
Contents: 

Letter: 

Appendixes: 

Appendix I: Explanation of Conventions Used to Estimate Savings and
Revenue Gains: 

Appendix II: A Framework for Considering Cost Savings and Revenue 
Increases: 
Reassess Objectives: 
Redefine Beneficiaries: 
Improve Efficiency: 

Appendix III: Options for Increased Savings and Revenue Gains: 

050 National Defense: 
Reduce the Number of Carrier Battle Group Expansions and Upgrades: 
Limit Commitment to Production of the F-22 Fighter until Operational 
Testing Is Complete: 
Delay the Army's Comanche Helicopter Program's Low-Rate Initial 
Production: 
Reassess the Army's Crusader Program: 
Reassess the Need for the Selective Service System: 
Consolidate Military Exchange Stores: 
Assign More Air Force Bombers to Reserve Components Reorganize C-130 
and KC-135 Reserve Squadrons: 
Eliminate Unneeded Naval Materials and Supplies Distribution Points: 
Acquire Conventionally Rather than Nuclear-Powered Aircraft Carriers: 
Improve the Administration of Defense Health Care: 
Seek Additional Opportunities for VA and DOD Medical Sharing to 
Enhance Services to Beneficiaries and Reduce Costs: 
Continue Defense Infrastructure Reform: 
Reduce Funding for Renovation and Replacement of Military: 
Housing until DOD Completes Housing Needs Assessment: 
Delay Production of Space-Based Infrared System-low Satellite
System until Testing Is Complete: 
Consolidate the Nuclear Cities Initiative and the Initiatives for 
Proliferation Prevention Program into One Effort: 

150 International Affairs: 
Eliminate U.S. Contributions to Administrative Costs in Rogue
States: 
Improve State Department Business Processes: 
Streamline U.S. Overseas Presence: 
250 Science, Space, and Technology: 
Continue Oversight of the International Space Station and Related
Support Systems: 

270 Energy: 
Corporatize or Divest Selected Power Marketing Administrations: 
Recover Power Marketing Administrations' Costs: 
Increase Nuclear Waste Disposal Fees: 
Recover Federal Investment in Successfully Commercialized
Technologies: 
Reduce the Costs of the Rural Utilities Service's Electricity and
Telecommunications Loan Programs: 
Consolidate or Eliminate Department of Energy Facilities: 
300 Natural Resources and Environment: 
Terminate Land-Exchange Programs: 
Defer Fish and Wildlife Service's Acquisition of New Lands: 
Deny Additional Funding for Commercial Fisheries Buyback Programs: 
Revise the Mining Law of 1872: 
Coordinate Federal Policies for Subsidizing Water for Agriculture
and Rural Uses: 
Reassess Federal Land Management Agencies' Functions and
Programs: 
Pursue Cost-Effective Alternatives to NOAA's Research/Survey
Fleet: 
Increase Federal Revenues through Water Transfers: 

350 Agriculture: 
Terminate or Significantly Reduce the Department of Agriculture's
Market Access Program: 
Lower the Sugar Program's Loan Rate to Processors: 
Consolidate Common Administrative Functions at USDA: 
Further Consolidate USDA's County Offices: 
Revise the Marketing Assistance Loan Program to Better Reflect
Market Conditions: 

370 Commerce and Housing Credit: 
Recapture Interest on Rural Housing Loans: 
Require Self-Financing of Mission Oversight by Fannie Mae and
Freddie Mac: 
Reduce FHA's Insurance Coverage: 
Merging USDA and HUD Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs: 
Consolidate Homeless Assistance Programs: 

400 Transportation: 
Eliminate the Pulsed Fast Neutron Analysis Inspection System: 
Restructure Amtrak to Reduce or Eliminate Federal Subsidies: 
Eliminate Cargo Preference Laws to Reduce Federal Transportation
Costs: 
Increase Aircraft Registration Fees to Enable the Federal Aviation
Administration to Recover Actual Costs: 
Improve Department of Transportation's Oversight of Its University
Research: 
Apply Cost-Benefit Analysis to Replacement Plans for Airport
Surveillance Radars: 
Close, Consolidate, or Privatize Some Coast Guard Operating and
Training Facilities: 
Convert Some Support Officer Positions to Civilian Status: 

450 Community and Regional Development: 
Limit Eligibility for Federal Emergency Management Agency Public
Assistance: 
Eliminate the Flood Insurance Subsidy on Properties That Suffer the
Greatest Flood Loss: 
Eliminate Flood Insurance for Certain Repeatedly Flooded Properties: 
Consolidate or Terminate the Department of Commerce's Trade Adjustment 
Assistance for Firms Program: 

500 Education, Training, Employment, and Social Services: 
Consolidate Student Aid Programs: 

550 Health: 
Improve Fairness of Medicaid Matching Formula: 
Charge Beneficiaries for Food Inspection Costs: 
Implement Risk-Based Meat and Poultry Inspections at USDA: 
Prevent States from Using Illusory Approaches to Shift Medicaid
Program Costs to the Federal Government: 
Create a Uniform Federal Mechanism for Food Safety: 
Convert Public Health Service Commissioned Corps Officers to
Civilian Status: 
Control Provider Enrollment Fraud in Medicaid: 

570 Medicare: 
Reassess Medicare Incentive Payments in Health Care Shortage
Areas: 
Adjust Medicare Payment Allowances to Reflect Changing
Technology, Costs, and Market Prices: 
Increase Medicare Program Safeguard Funding: 
Continue to Reduce Excess Payments to Medicare+Choice Health
Plans: 
Modify the New Skilled Nursing Facility Payment Method to Ensure
Appropriate Payments: 
Implement Risk-Sharing in Conjunction with Medicare Home Health
Agency Prospective Payment System: 
Eliminate Medicare Competitive Sourcing Restrictions: 
Change Pricing Formula for Medicare-Covered Drugs: 

600 Income Security: 
Develop Comprehensive Return-to-Work Strategies for People with 
Disabilities: 
Revise Benefit Payments under the Federal Employees' Compensation Act: 
Increase Congressional Oversight of PBGC's Budget: 
Share the Savings from Bond Refundings: 
Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections: 
Improve Reporting of DOD Reserve Employee Payroll Data to State
Unemployment Insurance Programs: 
Improve Social Security Benefit Payment Controls: 
Simplify Supplemental Security Income Recipient Living Arrangements: 
Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems: 
Obtain and Share Information on Medical Providers and Middlemen to 
Reduce Improper Payments to Supplemental Security Income Recipients: 
Provide Congress More Information to Assess the Performance of the 
Special Supplemental Nutrition Program for Women, Infants, and 
Children: 

700 Veterans Benefits and Services: 
Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses: 
Discontinue Veterans' Disability Compensation for Nonservice Connected 
Diseases: 
Increase Cost Sharing for Veterans' Long-Term Care: 
Reassess Unneeded Health Care Assets within the Department of Veterans 
Affairs: 
Reducing VA Inpatient Food and Laundry Service Costs: 

800 General Government, 900 Net Interest, and 999 Multiple: 
Prevent Delinquent Taxpayers from Benefiting from Federal Programs: 
Target Funding Reductions in Formula Grant Programs: 
Adjust Federal Grant Matching Requirements: 
Replace the 1-Dollar Note with a 1-Dollar Coin: 
Eliminate Pay Increases after Separation in Calculating Lump-Sum
Annual Leave Payments: 
Increase Fee Revenue from Federal Reserve Operations: 
Recognize the Costs Up-front of Long-Term Space Acquisitions: 
Seek Alternative Ways to Address Federal Building Repair Needs: 
Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared: 
Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals: 
Information Sharing Could Improve Accuracy of Workers' Compensation 
Offset Payments: 
Determine Feasibility of Locating Federal Facilities in Rural Areas: 

Receipts: 
Tax Interest Earned on Life Insurance Policies and Deferred Annuities: 
Further Limit the Deductibility of Home Equity Loan Interest: 
Limit the Tax Exemption for Employer-Paid Health Insurance: 
Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels: 
Index Excise Tax Rates for Inflation: 
Increase Highway User Fees on Heavy Trucks: 
Require Corporate Tax Document Matching: 
Improve Administration of the Tax Deduction for Real Estate Taxes: 
Increase Collection of Returns Filed by U.S. Citizens Living Abroad: 
Increase the Use of Seizure Authority to Collect Delinquent Taxes: 
Increase Collection of Self-employment Taxes: 
Increase the Use of Electronic Funds Transfer for Installment Tax
Payments: 
Reduce Gasoline Excise Tax Evasion: 
Improve Independent Contractor Tax Compliance: 
Expand the Use of IRS's TIN-Matching Program: 

Appendix IV: Options Not Updated for This Report: 

Appendix V: GAO Contacts and Staff Acknowledgments: 

Figures: 

Figure 1: Reassess Objectives (Budget Function): 
Figure 2: Redefine Beneficiaries (Budget Function): 
Figure 3: Improve Efficiency (Budget Function): 

[End of section] 

Comptroller General of the United States: 
United States General Accounting Office: 
Washington, D.C. 20548: 

April 26, 2002: 

To the President of the Senate and the Speaker of the House of 
Representatives: 

This report contains in a single document the budgetary implications 
of selected program reforms discussed in past GAO work but not yet 
implemented or enacted. Since 1994, we have prepared annual reports 
similar to this product. In order to continue to assist congressional 
budget and appropriations committees in identifying approaches to 
reduce federal spending or increase revenues, this year's report 
contains over 100 examples of budget options organized by budget 
function. Where possible, budgetary savings estimates provided by the 
Congressional Budget Office (CBO) or the Joint Committee on Taxation 
(JCT) are presented. The conventions used by CBO and JCT to estimate 
budgetary savings are described in appendix I. 

Following the events of September 11, 2001 and the anticipated return 
of budget deficits in Fiscal Year 2002, the Congress and the 
administration face a new set of challenges, both immediate and long 
term. In the near term, Congress and the administration are faced with 
the challenge of combating terrorism and ensuring the security of our 
homeland. In the long term, the nation faces immense fiscal and 
economic pressures created by known demographic trends and rising 
health care costs. Both new commitments undertaken after September 11 
and longer-term pressures sharpen the need to look at competing claims 
and new priorities. As we have noted in recent testimonies,[Footnote 
1] a fundamental review of existing programs and activities is 
necessary both to increase fiscal flexibility and adapt government 
programs and activities to the 21st Century. This report provides 
specific options that Congress may wish to consider as it reexamines 
current federal programs. These budget options are based on past GAO 
work, and have not yet been addressed by any federal agency or 
Congress. While this report is not intended to represent a complete 
summary of possible options, it does provide specific examples that 
demonstrate the programmatic and fiscal oversight needed as we 
reassess our nations priorities in light of our short and long-term 
challenges. 

To assist the Congress in its oversight capacity, we have developed an 
oversight framework that is intended to allow the Congress to 
systematically address the goals, scope and approaches for delivering 
these on-going programs. Specifically, the options in this report fall 
under one of the following three areas that constitute one potential 
framework for congressional oversight: 

* Reassess objectives: Options for reconsidering whether to terminate 
or revise services and programs because goals have been achieved, have 
been persistently not met, or are no longer relevant due to changing 
conditions. 

* Redefine beneficiaries: Options for revising formulas or eligibility 
rules or improved targeting of benefits or fees. 

* Improve efficiency: Options to address program execution problems 
through consolidation, reorganization, improving collections methods, 
or attacking high-risk activities. 

The specific options described in each example are not intended to 
suggest the only way to address some of the significant problems 
identified in our reviews of federal programs and activities. Each 
example presents only one of many possible options available to the 
Congress, and including a specific option in this report does not mean 
that we endorse it or that the chosen option is the only or the most 
feasible approach. 

Lastly, Appendix IV lists options from our March 2001 report[Footnote 
2] that are not included in this report. These options were not 
updated either because (1) the option was fully or substantially acted 
upon by the Congress or the cognizant agency, (2) the option was no 
longer relevant due to environmental changes or the recency of our 
work, or (3) the Congress or the cognizant agency chose a different 
approach to address the issues discussed in the option. We will 
continue to monitor many of these areas to assess whether underlying 
issues are ultimately resolved based on the actions taken. 

Each example in this report includes a listing of relevant GAO reports 
and testimonies and a GAO contact. Although we derived the examples in 
this report from our existing body of work, there are similarities 
between the specific options presented in this report and other 
proposals. For example, some options contained in this report have 
also been included in CBO's annual spending and revenue options 
publication,[Footnote 3] House and Senate Budget Resolution proposals, 
and the President's annual budget submission. 

We are sending copies of this report to the chairmen and ranking 
minority members of the Senate Committee on Appropriations and 
relevant subcommittees, the Senate Committee on the Budget, the Senate 
Committee on Governmental Affairs, the Senate Committee on Finance, 
the House Committee on Appropriations and relevant subcommittees, the 
House Committee on the Budget, the House Committee on Government 
Reform, and the House Committee on Ways and Means. Copies will be made 
available to others upon request. 

This report was prepared under the direction of Paul L. Posner, 
managing director, Federal Budget Analysis, Strategic Issues, who may 
be reached at (202) 512-9573. Specific questions about individual 
options may be directed to the GAO contact listed with each option. 
Major contributors to this report are listed in appendix V. 

Signed by: 

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

Appendix I: Explanation of Conventions Used to Estimate Savings and 
Revenue Gains: 

CBO and JCT provided cost estimates for many of our options. As in our 
March 2001 report, a brief explanation is included with the option if 
specific estimates could not be provided. Where estimates are 
provided, the following conventions were followed.[Footnote 4] 

* For revenue estimates, the increase in collections reflects what 
would occur, over and above amounts due under current law, if the 
option were enacted. 

* For direct spending programs, estimated savings show the difference 
between what the program would cost under the CBO baseline, which 
assumes continuation of current law, and what it would cost after the 
suggested modification. 

* For discretionary spending programs the estimates show savings 
compared to the fiscal year 2001 appropriations adjusted for 
inflation. Savings for most defense options are estimated relative to 
DOD's planned program levels. 

* Specific assumptions made in estimating individual options are noted 
in the option narratives in appendix III. 

Subsequent savings and revenue estimates provided by CBO and JCT may 
not match exactly those contained in this report. Differences in 
details of specific proposals, changes in assumptions which underlie 
the analyses, and updated baselines can all lead to significant 
differences in estimates. Also, a few of our options—involving the 
sale of real estate and other government-owned property—constitute 
asset sales. Under the Balanced Budget and Emergency Deficit Control 
Act of 1985, as amended, proceeds from an asset sale may be counted 
only if the sale entails no net financial cost to the government. We 
have included those options that constitute asset sales whether or not 
they meet that test. 

Finally, some of the options could not be scored by CBO or JCT. 
Several of these involve management improvements that we believe can 
contribute to reduced spending or increased revenues but whose effects 
are too uncertain to be estimated. A few options are not estimated 
because they concern future choices about spending that are not 
currently in the baseline used to calculate annual spending and 
revenue. In other cases, savings are likely to come in years beyond 
the 10-year estimation period that CBO uses. 

[End of section] 

Appendix II: A Framework for Considering Cost Savings and Revenue 
Increases: 

The history of deficit reduction efforts suggests that basing 
decisions on explicit policy rationales, rather than considering 
separate program-by-program assessments, may improve chances for 
success. A consistent and systematic framework can be an effective 
means to formulate and package broad-based spending and revenue 
proposals. Also, this kind of approach can be used regardless of any 
other budgetary control mechanism (for example, discretionary spending 
limits or sequestration procedures) or any given level of desired 
deficit reduction. 

Our framework consists of three broad themes: reassess objectives, 
redefine beneficiaries, and improve efficiency. These three 
fundamental strategies are based on an implicit set of decision rules 
that encourage decision makers to think systematically, within an ever-
changing environment, about: 

* what services the government provides or should continue to provide, 

* for whom these services are or should be provided, and, 

* how services are or should be provided. 

By using a policy-oriented framework such as this, choices can be made 
more clearly and the results become more defensible. 

Reassess Objectives: 

The first framework theme focuses on the objectives of federal 
programs or services. These options offer opportunities to 
periodically reconsider a program's original purpose, the conditions 
under which it continues to operate, and whether its cost 
effectiveness is appropriate. Our work suggests three decision rules 
that illustrate this strategy. 

* Programs can be considered for termination if they have succeeded in 
accomplishing their intended objectives or if it is determined that 
the programs have persistently failed to accomplish their objectives. 

* Programs can be considered for termination or revision when 
underlying conditions change so that the original objectives may no 
longer be valid. 

* Programs can be reexamined when cost estimates increase 
significantly above those associated with original objectives, when 
benefits fall substantially below original expectations, or both. 

For example, the Comanche helicopter is intended to replace the 
Vietnam-era scout and attack helicopters that the army considers 
incapable of meeting its existing or future requirements. However, 
real and probable development cost increases, uncertain operating and 
support cost savings, questions about the role of the Comanche 
compared to other more affordable army helicopters, deferral of the 
production decision, and current defense budgets raise questions about 
the cost/benefits of this program. 

Figure 1: Reassess Objectives (Budget Function): 

* Reduce the Number of Carrier Battle Group Expansions and Upgrades 
(050); 

* Limit Commitment to Production of the F-22 Fighter Until Testing is 
Complete (050); 

* Delay the Army's Comanche Helicopter Program's Low-Rate Initial 
Production (050); 

* Reassess the Army's Crusader Program (050); 

* Reassess the Need for the Selective Service System (050); 

* Delay Production of Space-Based Infrared System-low Satellite System 
Until Testing is Complete (050); 

* Eliminate U.S. Contributions to Administrative Costs in Rogue States 
(150); 

* Continue Oversight of the International Space Station and Related 
Support Systems (250); 

* Corporatize or Divest Selected Power Marketing Administrations (270); 

* Terminate Land-Exchange Programs (300); 

* Defer Fish and Wildlife Service's Acquisition of New Lands (300); 

* Deny Additional Funding for Commercial Fisheries Buyback Programs 
(300); 

* Terminate or Significantly Reduce the Department of Agriculture's 
Market Access Program (350); 

* Eliminate the Pulsed Fast Neutron Analysis Inspection System (400); 

* Restructure Amtrak to Reduce or Eliminate Federal Subsidies (400); 

* Eliminate Cargo Preference Laws to Reduce Federal Transportation 
Costs (400); 

* Consolidate or Terminate the Department of Commerce's Trade 
Adjustment Assistance for Firms Program (450); 

* Improve Fairness of Medicaid Matching Formula (550); 

* Reassess Medicare Incentive Payments in Health Care Shortage Areas 
(570); 

* Develop Comprehensive Return-to-Work Strategies for People With 
Disabilities (600); 

* Revise Benefit Payments Under the Federal Employees' Compensation 
Act (600); 

* Increase Congressional Oversight of PBGC's Budget (600); 

* Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses (700); 

* Tax Interest Earned on Life Insurance Policies and Deferred 
Annuities (Receipt); 

* Further Limit the Deductibility of Home Equity Loan Interest 
(Receipt). 

[End of figure] 

Redefine Beneficiaries: 

The second theme within our framework focuses on the intended 
beneficiaries for federal programs or services. The Congress 
originally defines the intended audience for any program or service 
based on some perception of eligibility and/or need. To better reflect 
and target increasingly limited resources, these definitions can be 
periodically reviewed and revised. Our body of work suggests four 
decision rules that illustrate this strategy. 

* Formulas for a variety of grant programs to state and local 
governments can be revised to better reflect the fiscal capacity of 
the recipient jurisdiction. This strategy could reduce overall funding 
demands while simultaneously redistributing available grant funds so 
that the most needy receive the same or increased levels of support. 

* Eligibility rules can be revised, without altering the objectives of 
the program or service. 

* Fees can be targeted to individuals, groups, or industries that 
directly benefit from federal programs. Also, existing charges can be 
increased so that the direct beneficiaries share a greater portion of 
a program's cost. 

* Tax preferences can be narrowed or eliminated by revising eligibility
criteria or limiting the maximum amount of preference allowable. 

For example, at a time when federal domestic discretionary resources 
are constrained, better targeting of grant formulas offers a strategy 
to bring down federal outlays by concentrating reductions on wealthier 
localities with fewer needs and greater capacity to absorb cuts. 
Federal grant formulas could be redesigned to lower federal costs by 
disproportionately reducing federal funds to states and localities 
with the strongest tax bases and fewer needs, as shown in our option 
on formula grants. 

Figure 2: Redefine Beneficiaries (Budget Function): 

* Recover Power Marketing Administrations' Costs (270); 

* Increase Nuclear Waste Disposal Fees (270); 

* Recover Federal Investment in Successfully Commercialized 
Technologies (270); 

* Revise the Mining Law of 1872 (300); 

* Coordinate Federal Policies for Subsidizing Water for Agriculture 
and Rural Uses (300); 

* Lower the Sugar Program's Loan Rate To Processors (350); 

* Recapture Interest on Rural Housing Loans (370); 

* Require Self-Financing of Mission Oversight by Fannie Mae and 
Freddie Mac (370); 

* Increase Aircraft Registration Fees to Enable the Federal Aviation 
Administration to Recover Actual Costs (400); 

* Limit Eligibility for Federal Emergency Management Agency Public 
Assistance (450); 

* Eliminate the Flood Insurance Subsidy on Properties That Suffer the 
Greatest Flood Loss (450); 

* Eliminate Flood Insurance for Certain Repeatedly Flooded Properties 
(450); 

* Charge Beneficiaries for Food Inspection Costs (550); 

* Implement Risk-Based Meat and Poultry Inspections (550); 

* Prevent States from Using Illusory Prevent States from Using 
Illusory Approaches to Shift Medicaid Program Costs to the Federal 
Government (550); 

* Change Pricing Formula for Medicare-covered Drugs (570); 

* Share the Savings From Bond Refundings (600); 

* Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections (600); 

* Improve Reporting of DOD Reserve Payroll Data to State Unemployment 
Insurance Programs (600); 

* Discontinue Veterans' Disability Compensation for Non-Service 
Connected Diseases (700); 

* Increase Cost Sharing for Veterans' Long-Term Care (700); 

* Prevent Delinquent Taxpayers from Benefiting from Federal Programs 
(800); 

* Target Funding Reductions in Formula Grant Programs (800); 

* Adjust Federal Grant Matching Requirements (800); 

* Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels (Receipt); 

* Index Excise Tax Bases for Inflation (Receipt); 

* Increase Highway User Fees on Heavy Trucks (Receipt). 

Improve Efficiency: 

The third theme within our framework addresses how the program or 
service is delivered. This strategy suggests that focusing on the 
approach or delivery method can significantly reduce spending or 
increase collections. Our body of work suggests the following decision 
rules that illustrate this strategy: 

* Reorganizing and consolidating programs or activities with similar 
objectives and audiences can eliminate duplication and improve 
operational efficiency. 

* Using reengineering, benchmarking, streamlining, and other process 
change techniques can reduce the cost of delivering services and 
programs. 

* Using performance measurement and generally improving the accuracy 
of available program information can promote accountability and 
effectiveness and reduce errors. 

* Attacking activities at risk of fraud, waste, abuse, and 
mismanagement. 

* Improving collection methods and ensuring that all revenues and 
debts owed are collected can increase federal revenues. 

* Establishing market-based prices can help the government recover the 
cost of providing services while encouraging the best use of the 
government's resources. 

As an illustration of this theme, the Department of Veterans Affairs 
(VA) and the Department of Defense (DOD) provide health care services 
to more than 12 million beneficiaries and operate more than 700 
medical facilities at a cost of about $34 billion annually. Over the 
past two decades, DOD and VA have entered into a sharing program that 
has yielded benefits in both dollar savings and qualitative gains, 
illustrating what can be achieved when the two agencies work together 
to identify where excess capacity and cost advantages exist. However, 
although VA and DOD continue to share resources to provide quality and 
cost-effective health care services, existing sharing agreements are 
not being taken full advantage of and additional sharing opportunities 
could be pursued. Long-standing barriers along with recent changes in 
how VA and DOD provide medical care have created confusion about the 
status of current agreements and present challenges for future 
collaboration and cost efficiencies. Given the changing health care 
environment, the criteria and conditions that make resource sharing a 
cost-effective option for the federal government need to be reviewed 
and strategies for sharing rethought. VA and DOD need to work together 
to determine an appropriate course of action to ensure that resource-
sharing opportunities are realized, and the Congress may wish to 
provide specific guidance clarifying the criteria, conditions, and 
expectations for VA and DOD collaboration. 

Figure 3: Improve Efficiency (Budget Function): 

* Consolidate Military Exchange Stores (050); 

* Assign More Air Force Bombers to Reserve Components (050); 

* Reorganize C-130 and KC-135 Reserve Squadrons (050); 

* Eliminate Unneeded Naval Materials and Supplies Distribution Points 
(050); 

* Acquire Conventionally Rather than Nuclear-Powered Aircraft Carriers 
(050); 

* Improve the Administration of Defense Health Care (050); 

* Seek Additional Opportunities for VA and DOD Medical Sharing to 
Enhance Services to Beneficiaries and Reduce Costs (050); 

* Continue Defense Infrastructure Reform (050); 

* Reduce Funding for Renovation and Replacement of Military Housing 
Until DOD Completes Housing Needs Assessment (050); 

* Consolidate the Nuclear Cities Initiative and the Initiatives for 
Proliferation Prevention Program Into One Effort (050); 

* Improve State Department Business Processes (150); 

* Streamline U.S. Overseas Presence (150); 

* Reduce the Costs of the Rural Utilities Service's Electricity and 
Telecommunications Loan Programs (270); 

* Consolidate or Eliminate Department of Energy Facilities (270); 

* Reassess Federal Land Management Agencies Functions and Programs 
(300); 

* Pursue Cost Effective Alternatives to NOAA's Research/Survey Fleet 
(300); 

* Increase Federal Revenues Through Water Transfers (300); 

* Consolidate Common Administrative Functions at the Department of 
Agriculture (350); 

* Further Consolidate USDA's County Offices (350); 

* Revise the Marketing Assistance Loan Program to Better Reflect 
Market Conditions (350); 

* Reduce FHA's Insurance Coverage (370); 

* Merging USDA and HUD Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs (370); 

* Consolidate Homeless Assistance Programs (370); 

* Improve Department of Transportation's Oversight of its University 
Research (400); 

* Apply Cost-Benefit Analysis to Replacement Plans for Airport 
Surveillance Radars (400); 

* Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities (400); 

* Convert Some Support Officer Positions to Civilian Status (400); 

* Consolidate Student Aid Programs (500); 

* Create a Uniform Federal Mechanism for Food Safety (550); 

* Convert Public Health Service Commissioned Corps Officers to 
Civilian Status (550); 

* Control Provider Enrollment Fraud in Medicaid (550); 

* Adjust Medicare Payment Allowances to Reflect Changing Technology, 
Costs, and Market Prices (570); 

* Increase Medicare Program Safeguard Funding (570); 

* Continue to Reduce Excess Payments to Medicare+Choice Health Plans 
(570); 

* Modify the Skilled Nursing Facility Payment Method to Ensure 
Appropriate Payments (570); 

* Implement Risk-sharing in Conjunction with Medicare Home Health 
Agency Prospective Payment System (570); 

* Eliminate Medicare Competitive Sourcing Restrictions (570); 

* Improve Social Security Benefit Payment Controls (600); 

* Simplify Supplemental Security Income Recipient Living Arrangements 
(600); 

* Reduce Federal Funding Participation Rate for Automated Child 
Support Enforcement Systems (600); 

* Obtain and Share Information on Medical Providers and Middlemen to 
Reduce Improper Payments to Supplemental Security Income Recipients 
(600); 

* Reassess Unneeded Health Care Assets Within the Department of 
Veterans Affairs (700); 

* Reducing VA Inpatient Food and Laundry Service Costs (700); 

* Replace the 1-Dollar Note With the 1-Dollar Coin (800); 

* Eliminate Pay Increases After Separation in Calculating Lump-Sum 
Annual Leave Payments (800); 

* Increase Fee Revenue From Federal Reserve Operations (800); 

* Recognize the Costs Up-Front of Long-Term Space Acquisitions (800); 

* Seek Alternative Ways to Address Federal Building Repair Needs (800); 

* Improper Benefit Payments Could be Avoided or More Quickly Detected 
if Data from Various Programs Were Shared (999); 

* Better Target Infrastructure Investments To Meet Mission and Results-
Oriented Goals (999); 

* Information Sharing Could Improve Accuracy of Workers' Compensation 
Offset Payments (999); 

* Determine Feasibility of Locating Federal Facilities in Rural Areas 
(999); 

* Require Corporate Tax Document Matching (Receipt); 

* Improve Administration of the Tax Deduction for Real Estate Taxes 
(Receipt); 

* Increase Collection of Returns Filed by U.S. Citizens Living Abroad 
(Receipt); 

* Increase the Use of Seizure Authority to Collect Delinquent Taxes 
(Receipt); 

* Increase Collection of Self-Employment Taxes (Receipt); 

* Increase the Use of Electronic Funds Transfer for Installment Tax 
Payments (Receipt); 

* Reduce Gasoline Excise Tax Evasion (Receipt); 

* Improve Independent Contractor Tax Compliance (Receipt); 

* Expand the Use of IRS' TIN-Matching Program (Receipt). 

[End of section] 

Appendix III: Options for Increased Savings and Revenue Gains: 

050 National Defense: 
* Reduce the Number of Carrier Battle Group Expansions and Upgrades. 

* Limit Commitment to Production of the F-22 Fighter until Operational 
Testing Is Complete. 

* Delay the Army's Comanche Helicopter Program's Low-Rate Initial 
Production. 

* Reassess the Army's Crusader Program. 

* Reassess the Need for the Selective Service System. 

* Consolidate Military Exchange Stores. 

* Assign More Air Force Bombers to Reserve Components. 

* Reorganize C-130 and KC-135 Reserve Squadrons. 

* Eliminate Unneeded Department of Navy Distribution Sites. 

* Acquire Conventionally Rather than Nuclear-Powered Aircraft Carriers. 

* Improve the Administration of Defense Health Care. 

* Seek Additional Opportunities for VA and DOD Medical Sharing to 
Enhance Services to Beneficiaries and Reduce Costs. 

* Continue Defense Infrastructure Reform. 

* Delay Commitment to New Radar Countermeasures System. 

* Reduce Funding for Renovation and Replacement of Military Housing 
until DOD Completes Housing Needs Assessment. 

* Delay Production of Space-Based Infrared System-Low Satellite System 
until Testing Is Complete. 

* Consolidate the Nuclear Cities Initiative and the Initiatives for 
Proliferation Prevention Program into One Effort. 

Reduce the Number of Carrier Battle Group Expansions and Upgrades: 
		
Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 051/Department of Defense—Military; 
Framework theme: Reassess objectives. 

Aircraft carrier battle groups are the centerpiece of the Navy's 
surface force and significantly influence the size, composition, and 
cost of the fleet. The annualized cost to acquire, operate, and 
support a single navy carrier battle group is about $2 billion (in 
fiscal year 2000 dollars) and is likely to increase as older units are 
replaced and modernized. The Navy has several costly ongoing carrier-
related programs: two nuclear-powered Nimitz-class carriers are under 
construction ($9.9 billion); a research and development program ($3.6 
billion) for a new nuclear-powered carrier design is underway; the 
second ship of the 10-ship Nimitz-class began its 3-year refueling 
complex overhaul in 2001 ($2.5 billion) and subsequent class 
refuelings will follow about every 3 years; AEGIS destroyers are being 
procured and the next generation of surface combatants is being 
designed; and carrier-based aircraft are expected to be 
replaced/upgraded by a new generation of strike fighters and mission 
support aircraft throughout the next decade. 

Our analysis indicates that there are opportunities to use less costly 
options to satisfy many of the carrier battle groups' traditional 
roles without unreasonably increasing the risk that U.S. national 
security would be threatened. For example, one less costly option 
would be to rely more on increasingly capable surface combatants and 
submarines, such as cruisers, destroyers, and Trident SSGNs, for 
overseas presence and crisis response. If the Congress chose to retire 
one aircraft carrier, the CVN-70, and one active air wing in 2005, the 
following savings could be achieved. 

Table: Five-Year Savings: 					 

Savings from 2002 plan: Budget authority; 
FY03: $300 million; 
FY04: $360 million; 
FY05: $940 million; 
FY06: $1,860 million; 
FY07: $870 million. 

Savings from 2002 plan: Outlays; 
FY03: $100 million; 
FY04: $220 million; 
FY05: $710 million; 
FY06: $1,330 million; 
FY07: $1,320 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and
Nuclear-Powered Carriers (GAO/NSIAD-98-1, Aug. 27, 1998). 

Aircraft Acquisition: Affordability of DOD's Investment Strategy 
(GAO/NSIAD-97-88, Sept. 8, 1997). 

Surface Combatants: Navy Faces Challenges Sustaining Its Current 
Program (GAO/NSIAD-97-57, May 21, 1997). 

Cruise Missiles: Proven Capability Should Affect Aircraft and Force 
Structure Requirements (GAO/NSIAD-95-116, Apr. 20, 1995). 

Navy's Aircraft Carrier Program: Investment Strategy Options 
(GAO/NSIAD-95-17, Jan. 1, 1995). 

Navy Carrier Battle Groups: The Structure and Affordability of the 
Future Force (GAO/NSIAD-93-74, Feb. 25, 1993). 

GAO Contact: 

Henry L. Hinton, Jr., (202) 512-4300. 

Limit Commitment to Production of the F-22 Fighter until Operational 
Testing Is Complete: 
		
Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Aircraft Procurement, Air Force (57-3010); 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military; 
Framework theme: Reassess objectives. 

The fiscal year 2001 Defense Appropriations Act provided funds for low-
rate initial production of 10 F-22 aircraft, but prohibited award of a 
fully funded contract until DOD met requirements specified in the Act. 
In September 2001, DOD declared that it had met the requirements 
specified in the Act and the Under Secretary of Defense for 
Acquisition, Technology and Logistics approved award of the contract 
for 10 aircraft in fiscal year 2001. The fiscal year 2002 Defense 
Appropriations Act provided funds for low-rate initial production of 
13 F-22 aircraft, and DOD plans to procure 23 aircraft in fiscal year 
2003, 27 aircraft in fiscal year 2004, 32 aircraft in fiscal year 2005 
and begin full-rate production of 40 aircraft in fiscal year 2006. 

In several reports over the last 7 years, and as recently as March 
2002, GAO concluded that DOD should minimize commitments to F-22 
production until completion of Initial Operational Test and 
Evaluation, now planned for fiscal year 2004. Limiting initial 
production rates until completion of Initial Operational Test and 
Evaluation affords the opportunity to confirm the stability and 
soundness of a new system before committing large amounts of 
production funding to purchase aircraft. In the past, buying 
production articles before they can be adequately tested has resulted 
in buying systems that require modifications to achieve satisfactory 
performance. Commercial and Department of Defense (DOD) best practices 
have shown that completing a system's testing prior producing 
significant quantities will substantially lower the risk of costly 
fixes and retrofits. Conversely, lower production rates could increase 
average procurement cost over the life of the program and, if the Air 
Force maintains its current plan to procure 333 production aircraft, 
lead to difficulties in completing the production program within the 
current production cost estimate. 

Low-rate initial production of 13 aircraft has been approved by the 
Congress for fiscal year 2002. To avoid the acceleration of production 
until completion of Initial Operational Test and Evaluation, low-rate 
initial production could be maintained at 13 aircraft through 2004. If 
the Congress were to limit funding to no more than 13 aircraft for 
fiscal years 2003 and 2004, and then proceed with the planned 
acceleration of production to 23 aircraft in fiscal year 2005, 27 
aircraft in 2006, and 32 aircraft in 2007 the following budget savings 
could be achieved during the next 5 years. 

Table: Five-Year Savings: 

Savings from the 2002 plan: Budget authority; 
FY03: $1,812 million; 
FY04: $2,144 million; 
FY05: $1,200 million; 
FY06: $1,177 million; 
FY07: $1,859 million. 

Savings from the 2002 plan: Outlays; 
FY03: $451 million; 
FY04: $1,364 million; 
FY05: $1,667 million; 
FY06: $1,415 million; 
FY07: $1,405 million. 

Source: Congressional Budget 
Office.					 

[End of table] 

Related GAO Products: 

Tactical Aircraft: Continuing Difficulty Keeping F-22 Production Costs 
Within the Congressional Limitation (GAO-01-782, July 16, 2001). 

Tactical Aircraft: F-22 Development and Testing Delays Indicate Need 
for Limit on Low-Rate Production (GAO-01-310, Mar. 15, 2001). 

Defense Acquisitions: Recent F-22 Production Cost Estimates Exceeded 
Congressional Limitation (GAO/NSIAD-00-178, Aug. 15, 2000). 

F-22 Aircraft: Development Cost Goal Achievable If Major Problems Are 
Avoided (GAO/NSIAD-00-68, Mar. 14, 2000). 

Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals 
(GAO/T-NSIAD-00-58, Dec. 7, 1999). 

Fiscal Year 2000 Budget: DOD's Procurement and RDT&E Programs 
(GAO/NSIAD-99-233R, Sept. 23, 1999). 

Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering 
and Manufacturing Development Programs (GA0a-NSIAD-99-113, Mar. 17, 
1999). 

F-22 Aircraft: Issues in Achieving Engineering and Manufacturing 
Development Goals (GAO/NSIAD-99-55, Mar. 15, 1999). 

1999 DOD Budget: DOD's Procurement and RDT&E Programs
(GAO/NSIAD-98-216R, Aug. 14, 1998). 

F-22 Aircraft: Progress of the Engineering and Manufacturing 
Development Program (GA0a-NSIAD-98-137, Mar. 25, 1998). 

F-22 Aircraft: Progress in Achieving Engineering and Manufacturing 
Development Goals (GAO/NSIAD-98-67, Mar. 10, 1998). 

Aircraft Acquisition: Affordability of DOD's Investment Strategy 
(GAO/NSIAD-97-88, Sept. 8, 1997). 

F-22 Restructuring (GAO/NSIAD-97-100BR, Feb. 28, 1997). 

Tactical Aircraft: Concurrency in Development and Production of F-22 
Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr. 19, 1995). 

Weapons Acquisition: Low-Rate Initial Production Used to Buy Weapon 
Systems Prematurely (GAO/NSIAD-95-18, Nov. 21, 1994). 

Tactical Aircraft: F-15 Replacement Is Premature As Currently Planned 
(GAO/NSIAD-94-118, Mar. 25, 1994). 

GAO Contact: 

Jim Wiggins, (202) 512-4530. 

Delay the Army's Comanche Helicopter Program's Low-Rate Initial 
Production: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Aviation Procurement, Army (21-2031); 
Spending type: Discretionary; 
Budget subfunction: 051/Department of Defense—Military; 
Framework theme: Reassess objectives. 
	
Since 1983, the Army has been developing its next-generation 
helicopter, the Comanche, with the intention of significantly 
expanding the Army's capability to conduct attack and reconnaissance 
operations in all battlefield environments, day or night and during 
adverse weather conditions. With a projected total acquisition cost of 
about $48 billion, Comanche is the Army's largest aviation acquisition 
program. In June 2000, the Comanche program awarded a 6-year 
engineering and manufacturing development contract to Boeing-Sikorsky. 
The program office plans to begin low-rate initial production in June 
2005 and full-rate production in December 2006. Current Army plans 
call for the acquisition of 1,213 Comanches through fiscal years 2026. 

The Army is not likely to have the knowledge it should have to begin 
production when scheduled. Before entering low-rate initial 
production, our work has shown that successful commercial firms 
already know that (1) technologies match customer requirements; that 
is, they can fit onto a product and function as expected, (2) the 
product's design meets performance requirements, and (3) the product 
can be produced within cost, schedule, and quality targets. It is 
unlikely that the Army will have this level of knowledge about 
Comanche by the June 2005 scheduled low-rate production decision. 
Further, program office officials acknowledge that there is risk that 
the December 2006 full-rate production decision date will not be met. 
In particular, the development and testing schedule has become more 
compressed with many critical development and test events coming close 
together or concurrently in the late stages of development. This, in 
turn, has left the army with very little time to correct deficiencies 
found during testing. Failure to do so during development could result 
in costly retrofits and repairs to aircraft already produced. These 
costs could be substantial because the Army is planning to buy a 
significant number of pre production and low-rate production aircraft 
before design and testing are completed. Finally, the Army continues 
to face the risk that critical performance requirements may not be 
met--at least for the helicopters it initially produces. Specifically, 
the program is at risk of not (1) achieving the "rate-of-vertical-
climb" requirement (2) completing development and integration of its 
mission equipment package, which is needed to support a range of 
important functions including early warning, target acquisition, 
piloting, navigation, and communications (3) completing development of 
the system for detecting equipment problems and (4) achieving the 
"beyond-line-of-sight" communications capability needed to perform its 
mission. 

In light of the current status and the significant challenges ahead, 
the potential for undesirable outcomes for the Comanche program—
including higher than expected costs, longer than expected schedules, 
uncertain performance, and affordability concerns—are high. As a 
result, Congress may wish to consider the benefits of delaying the 
Comanche's low-rate decision date by 1 year. If the Congress elected 
to delay the decision date, the following savings would be achieved. 

Table: Five-Year Savings: 

Savings from 2002 plan: Budget authority; 
FY03: 0; 
FY04: $182 million; 
FY05: $758 million; 
FY06: $263 million; 
FY07: $797 million. 

Savings from 2002 plan: Outlays; 
FY03: 0; 
FY04: $41 million; 
FY05: $261 million; 
FY06: $465 million; 
FY07: $452 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Defense Acquisitions: Comanche Program Objectives Need to Be Revised 
to More Achievable Levels (GAO-01-450, June 7, 2001). 

Defense Acquisitions: Comanche Program Cost, Schedule, and Performance 
Status (GAO/NSIAD-99-146, Aug. 24, 1999). 

Comanche Helicopter: Testing Needs To Be Completed Prior to Production 
Decisions (GAO/NSIAD-95-112, May 18, 1995). 

GAO Contact: 

Jack L. Brock, Jr., (202) 512-6204. 

Reassess the Army's Crusader Program: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Accounts: Research, Development, Test, and Evaluation, Army (21-2040); 
Spending type: Discretionary; 
Budget subfunction: 051/Department of Defense-Military; 
Framework theme: Reassess objectives. 
		
According to information presented by the army in August 2000, the 
Army plans to spend about $9 billion dollars to develop and procure 
the Crusader self-propelled howitzer and its resupply vehicle as part 
of a broader program to modernize its armored forces. The system's 
five key performance requirements call for improved performance over 
the Paladin—the Army's existing self-propelled howitzer. 

The Crusader artillery system has been in development since 1994 and 
has undergone two major restructures. The first was in 1996 in 
response to escalating cost and delays due primarily to problems 
developing a liquid propellant cannon. The second was in January 2000, 
after the Army Chief of Staff concluded that the Army needed to be 
able to respond more quickly to contingencies and that the forces of 
the future needed to be more mobile and quickly deployable, and 
required a much smaller logistics support structure. To accomplish 
these goals, the Army is transitioning from large and heavy armored 
systems to lighter, smaller, more fuel efficient, and more reliable 
systems with a common chassis–known as Future Combat Systems. These 
systems are expected to replace the Crusader and other heavy armored 
systems. After announcing its transformation plans, the Army decided 
to continue development of the Crusader, but restructured the program 
to make it more deployable by reducing its size and weight. Even, with 
the weight reduction, the Crusader is expected to be about 20 tons 
heavier than the Future Combat Systems and less deployable. 

The Army's transition to a lighter and more mobile force will require 
a substantial investment in new combat vehicles, which is not fully 
reflected in the army's current outyear spending plans. To fund these 
new requirements, the army will need to substantially increase funding 
or to reduce planned spending on traditional large and heavy armored 
systems, such as the Crusader, or make other funding tradeoffs. Given 
the Crusader's high acquisition cost, deployment limitations, plans to 
replace it with Future Combat Systems, and other transformation 
funding priorities, the Congress may wish to terminate this program. 
If the Congress elected to terminate the program, the following 
savings would be achieved. 

Table: Five-Year Savings: 

Savings from 2002 plan: Budget authority; 
FY03: $474 million; 
FY04: $498 million; 
FY05: $596 million; 
FY06: $931 million; 
FY07: $1,230 million. 

Savings from 2002 plan: Outlays; 
FY03: $341 million; 
FY04: $437 million; 
FY05: $478 million; 
FY06: $630 million; 
FY07: $760 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Defense Acquisitions: Steps to Improve the Crusader Program's
Investment Decisions (GAO-02-201, Feb. 25, 2002). 

Army Armored Systems: Meeting Crusader Requirements Will Be A 
Technical Challenge (GAO/NSIAD-97-121, June 6, 1997). 

Army Armored Systems: Advanced Field Artillery System Experiences 
Problems With Liquid Propellant (GAO/NSIAD-95-25, Nov. 2, 1994). 

GAO Contact: 

Jack L. Brock, Jr., (202) 512-6204. 

Reassess the Need for the Selective Service System: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Defense; 
Accounts: Selective Service System (90-0400); 
Spending type: Discretionary; 
Budget subfunction: 054/Defense-related activities; 
Framework theme: Reassess objectives. 
		
No one has been drafted since 1973 and the advent of the all-volunteer 
force. Since 1980, after the Soviet invasion of Afghanistan, males 
between the ages of 18 and 26 have continued registering with the 
Selective Service System for a potential draft in the event of a 
national emergency. However, it would still require congressional 
action to actually draft anyone into the military. A return to a 
military draft seems unlikely even under the current recruiting 
difficulties the military services are facing. One reason for this is 
that the recruiting shortfalls represent only a minute percentage of 
the over 13 million males of draft age and it would be very difficult 
to ensure a fair and equitable draft to cover such shortfalls. The 
likelihood of the United States engaging in a manpower-intensive 
conflict in the future is very remote, so alternative approaches to a 
draft could be devised to fill personnel needs. 

Supporters of continuing registration maintain that it is a relatively 
inexpensive insurance policy in case the government underestimates the 
threat level the U.S. military may face in a future contingency. 
Supporters also contend that registration maintains the link between 
the military and society-at-large and reinforces the notion that 
citizenship involves an obligation to the nation. They also maintain 
that it would ensure a fair and equitable draft should one need to be 
reinstated in the future. Nevertheless, it was estimated in 1997 that 
it would take a little more than a year and cost about $23 million (or 
about 1 year's appropriation) to bring the Selective Service System 
back from a "deep standby" status. If the Congress chose to terminate 
the Selective Service System, the following savings could be achieved. 

Five-Year Savings: 

Savings from 2002 funding level: Budget authority; 
FY03: $13 million; 
FY04: $27 million; 
FY05: $28 million; 
FY06: $29 million; 
FY07: $30 million. 

Savings from 2002 funding level: Outlays; 
FY03: $9 million; 
FY04: $23 million; 
FY05: $27 million; 
FY06: $29 million; 
FY07: $30 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Selective Service: Cost and Implications of Two Alternatives to the
Present System (GAO/NSIAD-97-225, Sept. 10, 1997). 

GAO Contact: 

Henry L. Hinton, Jr., (202) 512-5140. 

Consolidate Military Exchange Stores: 

Authorizing committees: Armed Services (Senate and House); 
Appropriation subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 051/Department of Defense—Military; 
Framework theme: Improve efficiency. 

Since 1968, studies by GAO, DOD, and others have concluded that 
financial benefits could be achieved through consolidation of military 
exchange stores into a single entity. The Office of the Secretary of 
Defense has proposed the integration of the Army/Air Force Exchange 
System (AAFES) with the Navy and Marine Corps exchange programs, and a 
task force commissioned to review this consolidation plan in 1996 
concluded that a merger would result in annual recurring savings. 

In January 1997, DOD advised its congressional oversight committees 
that it planned to continue studying options for integrating exchange 
functions, under the joint direction of the military departments. DOD 
stated that a more rigorous analysis was needed before judgments could 
be made on the optimal organizational structure. In April 1998, DOD 
awarded a contract to study consolidation. The contractor's April 30, 
1999, report presented three organizational options: (1) total 
consolidation, (2) integration of all support functions, such as 
shipping and receiving, with separate exchange front offices, and (3) 
maintenance of the status quo with best commercial practices 
implemented at the exchanges. Based on the contractor's April 1999 
report, DOD projected at that time that total consolidation would take 
3 to 5 years to complete, require an investment of $391 million over 
that period (although a one-time savings from the liquidation of 
excess inventory were expected to offset this investment), and produce 
5-year savings of over $1 billion, based on annual recurring savings 
of about $206 million. However, rather than take action at that time, 
DOD continued its contracted study efforts through April 2000. At that 
time, DOD officials decided that rather than pursue consolidation they 
should initiate a series of cooperative efforts to maximize 
efficiencies across the exchange services. On July 31, 2000, the 
services were instructed to submit implementation plans outlining a 
formal process with goals and timelines to achieve efficiencies within 
individual exchange services and collectively through cooperative 
efforts. The services were also instructed to report progress of their 
plans annually. To what extent these current efforts can produce 
savings comparable to those previously projected from consolidating 
exchange services' operations is uncertain. 

Another initiative is the Hybrid initiative, which DOD has been 
implementing since 1995. These BXMARTS---smaller versions of the 
larger stores—are operated by the exchanges and often located at bases 
scheduled for closure. The "hybrid" stores sell both hard goods 
normally found in a military exchange and the grocery-type goods 
associated with military commissaries. According to DOD officials, 
this initiative could result in financial benefits, but DOD has not 
yet quantified the savings. Currently, four hybrids are operating in 
the United States. In addition, there are 14 stores located in Europe 
that are variations of the combined model; commissaries and the 
exchange service operate these small stores. 

In light of the potential savings involved concerning the 
consolidation of military exchanges, the Congress may wish to direct 
DOD to consolidate the Navy and Marine Corps exchange operations with 
the existing Air Force/Army exchange operations. CBO has estimated 
that consolidating into a single exchange system would yield the 
following savings. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: $20 million; 
FY04: $40 million; 
FY05: $60 million; 
FY06: $62 million; 
FY07: $63 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $15 million; 
FY04: $34 million; 
FY05: $53 million; 
FY06: $59 million; 
FY07: $62 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Excess Equipment for Former Castle AFB (BXMART) (GAO/NSIAD-98-94R, 
Feb. 27, 1998). 

Morale, Welfare, and Recreation: Declining Funds Require DOD to Take 
Action (GAO/NSIAD-94-120, Feb. 28, 1994). 

GAO Contact: 

Henry L. Hinton, Jr., (202) 512-4300. 

Assign More Air Force Bombers to Reserve Components: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 051/Department of Defense—Military; 
Framework theme: Improve efficiency. 

Bombers currently in the force (B-2s, B-1Bs, and B-52Hs) were 
initially designed and procured by DOD primarily to meet nuclear war-
fighting requirements. Since the end of the Cold War, DOD has placed 
increased emphasis on the role of bombers in future conventional 
conflicts while reducing the number of bombers significantly from a 
total of about 360 in 1989 to 208 bombers in fiscal year 2001. Senior 
DOD officials have said that DOD cannot afford all of the services' 
stated requirements, and difficult decisions must be made regarding 
which investment programs to cancel so that DOD can develop and 
implement a long-term, sustainable recapitalization plan. 

The Air Force has 18 B-1Bs assigned to the Air National Guard--9 to 
the Kansas Air National Guard and 9 to the Georgia Air National Guard. 
No B-1Bs are currently assigned to Air Force Reserve units. Placing 
more B-1Bs in the reserve component (either the Air Force Reserve or 
the Air National Guard) could reduce the cost to operate the B-1B 
bomber force without adversely affecting day-to-day peacetime training 
or critical wartime missions or closing any bases. However, the 
availability of recruitable personnel in some locations limits where 
reserve component units can operate. 

B-1B reserve component units have training, readiness, and deployment 
requirements similar to active-duty B-1B units and are considered just 
as capable of carrying out operational missions as their active duty 
counterparts. Moreover, the cost to operate a reserve component unit 
is generally lower than for an active duty unit for several reasons. 
First, reserve component aircrews are more experienced than their 
active duty counterparts and require fewer flying hours to meet 
mission training requirements. Second, reserve component units employ 
fewer full-time military personnel than active units. Additionally, 
because of the part-time maiming of traditional reserve component 
units, there are fewer requirements for permanent and costly base 
infrastructure—such as family housing and base medical care facilities—
necessary to support full-time active duty personnel and their families.
Our analysis shows that the Air Force could select a variety of 
options if it were to place more B-1Bs in the reserve component. The 
cost savings would vary depending upon the option selected. If an 18-
aircraft aircrew training squadron and 6-aircraft operational squadron 
were transferred to the reserve component, the following savings could 
be achieved. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: 0; 
FY04: $24 million; 
FY05: $98 million; 
FY06: $177 million; 
FY07: $208 million. 

Savings from the 2002 baseline: Outlays; 
FY03: 0; 
FY04: $18 million; 
FY05: $78 million; 
FY06: $152 million; 
FY07: $195 million. 

Source: Congressional Budget Office. 

[End of table] 

RElated GAO Products: 

Air Force Bombers: Moving More B-ls to the Reserves Could Save 
Millions Without Reducing Mission Capability (GAO/NSIAD-98-64, Feb. 
26, 1998). 

Air Force Bombers: Options to Retire or Restructure the Force Would 
Reduce Planned Spending (GAO/NSIAD-96-192, Sept. 30, 1996). 

Embedded Computers: B-1B Computers Must Be Upgraded to Support 
Conventional Requirements (GAO/AIMD-96-28, Feb. 27, 1996). 

B-1B Conventional Upgrades (GAO/NSIAD-96-52BR, Dec. 4, 1995). 

B-1B Bomber: Evaluation of Air Force Report on B-1B Operational 
Readiness Assessment (GAO/NSIAD-95-151, July 18, 1995). 

Air Force: Assessment of DOD's Report on Plan and Capabilities for 
Evaluating Heavy Bombers (GAO/NSIAD-94-99, Jan. 10, 1994). 

Strategic Bombers: Issues Relating to the B-1B's Availability and 
Ability to Perform Conventional Missions (GAO/NSIAD-94-81, Jan. 10, 
1994). 

Strategic Bombers: Adding Conventional Capabilities Will Be Complex, 
Time-Consuming, and Costly (GAO/NSIAD-93-45, Feb. 5, 1993). 

Strategic Bombers: Need to Redefine Requirements for B-1B Defensive 
Avionics System (GAO/NSIAD-92-272, July 17, 1992). 

Strategic Bombers: Updated Status of the B-1B Recovery Program 
(GAO/NSIAD-91-189, May 9, 1991). 

Strategic Bombers: Issues Related to the B-1B Aircraft Program
(GA0a-NSIAD-91-11, Mar. 6, 1991). 

GAO Contact: 

Henry L. Hinton, Jr., (202) 512-5140. 

Reorganize C-130 and KC-135 Reserve Squadrons: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Multiple; 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military. 
Framework theme: Improve efficiency. 
				
Currently, the majority of the Air Force's C-130 and KC-135 aircraft 
are in the reserve component—that is, assigned to the Air Force 
Reserve and the Air National Guard. Typically, reserve component wings 
are organized in one squadron of 8 C-130 aircraft or 10 KC-135 
aircraft. However, active Air Force wings flying the same aircraft are 
generally organized in two to three squadrons of 14 C-130 aircraft or 
12 KC-135 aircraft. Given this organizational approach, reserve 
component C-130 and KC-135 aircraft are widely dispersed throughout 
the continental United States, Hawaii, and Alaska. 

The Air Force could reduce costs and meet peacetime and wartime 
commitments if it reorganized its reserve component C-130 and KC-135 
aircraft into larger squadrons and wings at fewer locations. These 
savings would primarily result from fewer people being needed to 
operate these aircraft. For example, redistributing 16 C-130 aircraft 
from two 8-aircraft reserve wings to one 16-aircraft reserve wing 
could save about $11 million dollars annually. This reorganization 
could eliminate about 155 full-time positions and 245 part-time 
positions; the decrease in full-time positions is especially 
significant, since the savings associated with these positions 
represents about $8 million, or 75 percent of the total savings. Fewer 
people would be needed in areas such as wing headquarters, logistics, 
operations, and support group staffs as well as maintenance, support, 
and military police squadrons. 

Several alternatives could be developed to redistribute existing 
reserve component C-130 and KC-135 aircraft into larger squadrons. 
Sufficient personnel could be recruited for the larger squadrons, and 
most locations' facilities could be inexpensively expanded to 
accommodate the unit sizes. 

Overall savings will depend on the organizational model selected, but 
each should produce savings to help make additional funding available 
for force modernization. The alternative that requires the most 
reorganizing would increase the squadron size to 16 aircraft for the C-
130 and 12 for the KC-135 by redistributing aircraft from 13 C-130 
squadrons and 5 KC-135 squadrons to other squadrons. The table below 
shows the potential savings from this option. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: $100 million; 
FY04: $184 million; 
FY05: $288 million; 
FY06: $375 million; 
FY07: $492 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $91 million; 
FY04: $175 million; 
FY05: $278 million; 
FY06: $367 million; 
FY07: $399 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Air Force Aircraft: Reorganizing Mobility Aircraft Units Could Reduce
Costs (GAO/NSIAD-98-55, Jan. 21, 1998). 

GAO Contact: 

Henry L. Hinton, Jr., (202) 512-5140. 

Eliminate Unneeded Naval Materials and Supplies Distribution Points: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Operations and Maintenance, Navy (17-1804); 
Spending type: Discretionary
Budget subfunction: 050/Department of Defense—Military. 
Framework theme: Improve efficiency. 

Our broad-based reviews of various aspects of the Department of the 
Navy's financial management operations and its ability to meet 
existing management and reporting requirements[Footnote 5] have 
identified numerous deficiencies, some of which can have significant 
budgetary implications. For example, in 1996 we reported that because 
of inadequate systems, Navy item managers did not have sufficient 
visibility over $5.7 billion in operating materials and supplies on 
ships and at 17 Navy redistribution sites. These 17 sites, which 
contained almost half of the excess items, were often located in the 
same general area as other DOD suppliers. Because about $883 million, 
or 15 percent of this inventory, was excess to current operating 
allowances or needs, and because the Navy ordered or purchased items 
that were already on hand in excess quantities, the Navy incurred 
unnecessary costs of approximately $27 million in the first half of 
fiscal year 1995. 

The Navy could achieve savings by providing item managers with better 
visibility over these assets and by eliminating redundant or 
unnecessary redistribution sites. Eliminating the 17 sites would cost 
about $50 million over 3 years but would reduce associated operating 
costs by $3 million annually and could reduce redundant supply 
operations and streamline visibility efforts. Additionally, a 
significant one-time saving could occur due to the reintroduction of 
previously unused inventory back into the supply system. An estimate 
of this one-time saving cannot be performed until a more current study 
of the supply system is undertaken. However, we estimated in 1996 that 
this unused inventory may be valued at as much as $445 million. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: -$18 million; 
FY04: -$16 million; 
FY05: -$15 million; 
FY06: $3 million; 
FY07: $4 million. 

Savings from the 2002 baseline: Outlays; 
FY03: -$5 million; 
FY04: -$13 million; 
FY05: -$14 million; 
FY06: -$9 million; 
FY07: 0. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

CFO Act Financial Audits: Programmatic and Budgetary Implications
of Navy Financial Data Deficiencies (GAO/AIMD-98-56, Mar. 16, 1998). 

High-Risk Series: Defense Financial Management (GAO/HR-97-3, Feb. 
1997). 

Navy Financial Management: Improved Management of Operating Materials 
and Supplies Could Yield Significant Savings (GAO/AIMD-96-94, Aug. 16, 
1996). 

CFO Act Financial Audits: Navy Plant Property Accounting and Reporting 
Is Unreliable (GAO/AIMD-96-65, July 8, 1996). 

Financial Management: Control Weaknesses Increase Risk of Improper 
Navy Civilian Payroll Payments (GAO/AIMD-95-73, May 8, 1995). 

GAO Contact: 

Gregory D. Kutz, (202) 512-9505. 

Acquire Conventionally Rather than Nuclear-Powered Aircraft Carriers: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Multiple; 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military. 
Framework theme: Improve efficiency. 

Throughout the 1960s and most of the 1970s, the Navy pursued a goal of 
creating a fleet of nuclear carrier task forces. The centerpiece of 
these task forces, the nuclear-powered aircraft carrier, would be 
escorted by nuclear-powered surface combatants and nuclear-powered 
submarines. In deciding to build nuclear-powered surface combatants, 
the Navy believed that the greatest benefit would be achieved when all 
the combatant ships in the task force were nuclear-powered. However, 
the Navy stopped building nuclear-powered surface combatants after 
1975 because of the high cost. The last nuclear-powered surface 
combatants were decommissioned in the late 1990s because they were not 
cost effective to operate and maintain. 

Our analysis shows that both conventional and nuclear aircraft 
carriers have been effective in fulfilling U.S. forward presence, 
crisis response, and war-fighting requirements and share many 
characteristics and capabilities. Conventionally and nuclear-powered 
carriers both have the same standard air wing and train to the same 
mission requirements. Each type of carrier offers certain advantages. 
For example, conventionally powered carriers spend less time in 
extended maintenance and, as a result, can provide more forward 
presence coverage. By the same token, nuclear carriers can store 
larger quantities of aviation fuel and munitions and, as a result, are 
less dependent upon at-sea replenishment. There was little difference 
in the operational effectiveness of nuclear and conventional carriers 
in the Persian Gulf War. 

The United States maintains a continuous presence in the Pacific 
region by homeporting a conventionally powered carrier in Japan. If 
the Navy switches to an all-nuclear carrier force, it would need to 
homeport a nuclear-powered carrier there to maintain the current level 
of worldwide overseas presence with a 12-carrier force. Homeporting a 
nuclear-powered carrier in Japan could prove difficult and costly 
because of the need for support facilities, infrastructure 
improvements, and additional personnel. The United States would need a 
larger carrier force if it wanted to maintain a similar level of 
presence in the Pacific region with nuclear-powered carriers 
homeported in the United States. The Navy currently has three 
conventionally powered and nine nuclear-powered carriers. 

The life-cycle costs--investment, operating and support, and 
inactivation and disposal costs--are greater for nuclear-powered 
carriers than conventionally powered carriers. Our analysis, based on 
historical and projected costs, shows that life-cycle costs for 
conventionally powered and nuclear-powered carriers (for a notional 50-
year service life) are estimated at $14.1 billion and $22.2 billion 
(in fiscal year 1997 dollars), respectively. 

In assessing design concepts for the next class of aircraft carriers--
and consistent with the Navy's objectives to reduce life-cycle costs 
by 20 percent--our analysis indicates that national security 
requirements can be met at less cost with conventionally powered 
carriers rather than nuclear-powered carriers. If the Congress chose 
to acquire a conventionally powered carrier in 2006 instead of a 
nuclear-powered carrier, the following savings could be achieved. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: $330 million; 
FY04: $490 million; 
FY05: $130 million; 
FY06: $430 million; 
FY07: $50 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $20 million; 
FY04: $90 million; 
FY05: $170 million; 
FY06: $220 million; 
FY07: $230 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 
Nuclear-Powered Carriers (GAO/NSIAD-98-1, Aug. 27, 1998). 

Nuclear Waste: Impediments to Completing the Yucca Mountain Repository 
Project (GAO/RCED-97-30, Jan. 17, 1997). 

Defense Infrastructure: Budget Estimates For 1996-2001 Offer Little 
Savings for Modernization (GAO/NSIAD-96-131, Apr. 4, 1996). 

Navy's Aircraft Carrier Program: Investment Strategy Options 
(GAO/NSIAD-95-17, Jan. 1, 1995). 

Navy Carrier Battle Groups: The Structure and Affordability of the 
Future Force (GAO/NSIAD-93-74, Feb. 25, 1993). 

Nuclear-Powered Ships: Accounting for Shipyard Costs and Nuclear Waste 
Disposal Plans (GAO/NSIAD-92-256, July 1, 1992). 

GAO Contact: 

Henry L. Hinton, Jr., (202) 512-4300. 
Page 38	GAO-02-576 Budget Implications of GAO Work 

Improve the Administration of Defense Health Care: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Defense Health Program (97-0130); 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military. 
Framework theme: Improve efficiency. 

Each of the three military departments (Army, Navy, and Air Force) 
operates its own health care system, providing medical care to active 
duty personnel, their dependents, retirees, and survivors of military 
personnel. To a large extent, these separate, costly systems perform 
many of the same administrative, management, and operational functions. 

Numerous studies since 1949, with the most recent completed in 2001, 
have reviewed whether a central entity should be created within DOD 
for the centralized management and administration of the three 
systems. Most of these studies encouraged some form of organizational 
consolidation. A Defense health agency would consolidate the three 
military medical systems into one centrally managed system, 
eliminating duplicate administrative, management, and operational 
functions. No specific budget estimate can be developed until numerous 
variables, such as the extent of consolidation and the impact on 
command and support structures, are determined. 

Although CBO agrees that improving the administration of Defense 
health care has the potential to create savings, it cannot develop a 
savings estimate until a specific legislative proposal is identified. 

Related GAO Products: 

Defense Health Care: TRICARE Resource Sharing Program Failing to
Achieve Expected Savings (GAO/HEHS-97-130, Aug. 22, 1997). 

Defense Health Care: Actions Under Way to Address Many TRICARE 
Contract Change Order Problems (GAO/HEHS-97-141, July 14, 1997). 

TRICARE Administrative Prices in the Northwest Region May Be Too High 
(GAO/HEHS-97-149R, June 24, 1997). 

Defense Health Care: New Managed Care Plan Progressing, but Cost and 
Performance Issues Remain (GAO/HEHS-96-128, June 14, 1996). 

Defense Health Care: Despite TRICARE Procurement Improvements, 
Problems Remain (GAO/HEHS-95-142, Aug. 3, 1995). 

Defense Health Care: DOD's Managed Care Program Continues to Face 
Challenges (GAO/T-HEHS-95-117, Mar. 28, 1995). 

Defense Health Care: Issues and Challenges Confronting Military 
Medicine (GAO/HEHS-95-104, Mar. 22, 1995). 

GAO Contact: 

Cynthia A. Bascetta, (202) 512-7207. 

Page 40	GAO-02-576 Budget Implications of GAO Work 

Seek Additional Opportunities for VA and DOD Medical Sharing to 
Enhance Services to Beneficiaries and Reduce Costs: 

Authorizing committees: Armed Services (Senate and House); Veterans' 
Affairs (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); VA, HUD, and 
Independent Agencies (Senate and House); 
Primary agency: Department of Defense; Defense Department of Veteran's 
Affairs; 
Account: Defense Health Program (97-0130); Medical Care (36-0160); 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military. 
Framework theme: Improve efficiency. 

Together, the Department of Veterans Affairs (VA) and the Department 
of Defense (DOD) provide health care services to more than 12 million 
beneficiaries and operate more than 700 medical facilities at a cost 
of about $34 billion annually. To promote more cost-effective use of 
these health care resources and more efficient delivery of care, in 
May 1982 the Congress enacted the VA and DOD Health Resources Sharing 
and Emergency Operations Act (Sharing Act). Specifically, the act 
authorizes VA medical centers (VAMC) and military treatment facilities 
(MTF) to become partners and enter into sharing agreements to buy, 
sell, and barter medical and support services. 

Over the past two decades, the sharing program has yielded benefits in 
both dollar savings and qualitative gains, illustrating what can be 
achieved when the two agencies work together to identify where excess 
capacity and cost advantages exist. Although VA and DOD continue to 
share resources to provide quality and cost-effective health care 
services, existing sharing agreements are not being taken full 
advantage of and additional sharing opportunities could be pursued. 
For example, in fiscal year 1998, 75 percent of direct medical care 
occurred under just 12 agreements for inpatient care, 19 agreements 
for outpatient care, and 12 agreements for ancillary care. Most joint 
venture activity was similarly concentrated at two sites where many 
hospital services and administrative processes are integrated. In 
addition, relatively few VA facilities reported that they participate 
in the national joint disability discharge initiative—an initiative 
intended to eliminate duplicative physical examinations that military 
personnel were required to undergo to be discharged and receive VA 
disability benefits. VA and DOD continue to be hampered by 
longstanding barriers, including inconsistent reimbursement and 
budgeting policies and burdensome agreement approval processes. These 
longstanding barriers, along with recent changes in how VA and DOD 
provide medical care, present challenges for future collaboration and 
cost efficiencies. Although VA and DOD have taken some recent actions 
to address these barriers and seek more opportunities to maximize 
resources, challenges still remain. 

VA and DOD sharing partners generally believe the sharing program 
yielded benefits in both dollar savings and qualitative gains, 
illustrating what can be achieved when the two agencies work together. 
Although it may be difficult at times to quantify, it seems worthwhile 
to continue to pursue opportunities to share resources, including such 
activities as jointly procuring pharmaceuticals and medical and 
surgical supplies, when clinically appropriate and cost advantages 
exist. For example, based on our work, VA and DOD have made 
significant progress in procuring pharmaceuticals—awarding 30 joint 
contracts by January 2001 estimated to save $70 million. An additional 
126 more are planned with possible savings of $100 million. Despite 
this significant progress, much more potential still exists—
particularly where VA and DOD medical facilities are within close 
proximity of each other—to maximize each system's capacities and 
result in the most cost effective delivery of care. Other 
opportunities for increasing sharing—such as DOD's use of VA's 
consolidated mail outpatient pharmacies, joint procurement of higher-
cost brand name drugs, medical and surgical supplies, and equipment—
could yield additional significant savings. VA and DOD need to 
continue to work together to determine an appropriate course of action 
to ensure that resource-sharing opportunities are realized to the 
maximum extent possible. 

Related GAO Products: 

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 
Buying and Mailing Out Drugs (GAO-01-588, May 25, 2001). 

DOD and VA Health Care: Jointly Buying and Mailing Out Pharmaceuticals 
Could Save Millions of Dollars (GAO/T-HEHS-00-121, May 25, 2000). 

VA and Defense Health Care: Rethinking of Resource Sharing Strategies 
Is Needed (GAO/T-HEHS-00-117, May 17, 2000). 

VA and Defense Health Care: Evolving Systems Require Rethinking of 
Resource Sharing Strategies (GAO/HEHS-00-52, May 17, 2000). 

GAO Contact: 

Cynthia A. Bascetta, (202) 512-7207. 

Continue Defense Infrastructure Reform: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Multiple; 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military. 
Framework theme: Improve efficiency. 

Although DOD has made significant reductions in defense force 
structure and military spending since the end of the Cold War, it has 
not achieved commensurate reductions in infrastructure[Footnote 6] 
costs. We previously reported that the proportion of planned 
infrastructure funding in DOD's budgets would remain relatively 
constant at about 60 percent through 2005. DOD recognized that it must 
make better use of its scarce resources and announced a major reform 
effort—the Defense Reform Initiative (DRI). This effort began almost 4 
years ago in November 1997. A major thrust of the DRI was to reduce 
unneeded infrastructure, primarily through a number of initiatives 
aimed at substantially streamlining and improving the economy and 
efficiency of DOD's business operations and support activities. The 
resulting savings were expected to help DOD modernize its war fighting 
forces. 

While the new administration has not continued the formal DRI program, 
it has recognized the need to continue reform efforts. Secretary of 
Defense Rumsfeld announced on June 18, 2001, the creation of two new 
management committees to recommend ways to improve DOD's business 
activities and transform the U.S military into a 21st century fighting 
force. The Senior Executive Committee, which includes the Secretary 
and Deputy Secretaries of Defense and the Service Secretaries, is 
expected to meet monthly and use its members' unique qualifications as 
business leaders to recommend changes to DOD's business practices. The 
second committee, the Business Initiative Council, also includes the 
service secretaries but is chaired by the Under Secretary of Defense 
for Acquisition, Technology, and Logistics. Its mission is to 
recommend good business practices and achieve cost savings that will 
help pay for other DOD priorities. Although the agendas of these 
committees are not clear at this time, their members have endorsed 
several ongoing initiatives that were part of the DRI program (e.g., 
family housing and utilities privatization) and indicated that they 
would consider 25 other areas that impact readiness and quality of 
life. They also emphasized that the committees do not intend to 
conduct another study. Rather, they will execute those initiatives or 
ideas that have already been researched and offer opportunities to 
fundamentally change DOD's business practices and reduce 
infrastructure costs. 

Despite the change in the management structure, a number of old 
initiatives continue. However, progress in achieving the goals is 
mixed. For example: 

* A major efficiency initiative was to subject over 200,000 government 
positions to public-private competitions through fiscal year 2005. 
Since the DRI was announced, this A-76 initiative has been 
incorporated with the department's strategic sourcing initiative. 
Strategic sourcing introduces the idea of applying manpower management 
techniques—such as reengineering, reorganization, and privatization—as 
a way to improve efficiency and reduce personnel requirements. In 
March 2001, DOD set new targets for its A-76 and strategic sourcing 
efforts. The A-76 program is to study 160,000 positions and the 
strategic sourcing effort is to study 120,000 positions. Although its 
savings estimates are subject to change, DOD expects the A-76 
competitions to save about $9.2 billion by 2005 and $2.8 billion 
annually thereafter. It expects its strategic sourcing efforts to save 
$2.5 billion by 2005 and recurring annual savings of $0.7 billion 
thereafter. We have raised questions about the precision of DOD's 
estimates and the likelihood that savings will be realized as quickly 
as DOD projects. Nevertheless, we have noted that these efforts can 
produce significant savings regardless of whether governmental 
organizations or private contractors win the competitions. 

* DOD has initiated a program to demolish and dispose of over 80 
million square feet of excess buildings on military facilities. The 
military services were each given a demolition goal and expect to meet 
their goals and complete the program by 2003. 

* Closing unneeded research development test and evaluation (RDT&E) 
facilities has proved to be more difficult. DOD's RDT&E infrastructure 
consists of 131 facilities that develop and test military 
technologies. Over the years, DOD has tried to reduce the size of its 
RDT&E infrastructure and expected to close 62 sites by 2001. In 
addition, DOD reduced its RTD&E personnel by about 40,000 between 
fiscal years 1990 and 1997, saving an estimated $2.4 billion annually 
in personnel costs. Despite these reductions, the RDT&E infrastructure 
continues to have excess capacity. DOD estimates that excess capacity, 
in terms of square footage, is between 20 percent and 60 percent, 
depending on the military service and the method of estimation used. 
Moreover, DOD has stated that estimated personnel reductions are 
somewhat inflated because many government employees were replaced by 
on-site contractor employees who are conducting essentially the same 
tasks as government employees. 

* Privatizing utilities has also proved to be more complicated and 
costly than anticipated and, consequently, progress has been very 
limited. The department established the goal of privatizing utility 
systems on military bases by September 30, 2003. However, as of June 
2001, almost 4 years after the goal was established, DOD had 
privatized only 23 of the approximately 1,700 systems it was 
considering for privatization. The effort has proven to be more 
complex, time consuming, and expensive than originally anticipated. 
Although exact costs are not known, DOD estimates that it could cost 
hundreds of millions of dollars to complete required feasibility and 
environmental studies and upgrade the facilities to make them 
attractive to private investors. Additionally, instead of realizing 
significant savings, as once envisioned, the program might instead 
increase costs to the department's operations and maintenance budgets 
to pay for privatized utility services. By not privatizing, however, 
DOD faces large capital costs (possibly in the billions) to repair the 
utility systems and ensure they continue to operate at an acceptable 
level. DOD sees privatization as a way to use private resources to 
finance these needed capital repairs and to get out of a business that 
is clearly not central to its mission. 

* Privatizing family housing through private sector financing, 
ownership, operation, and maintenance has also experienced delays. 
Since the program began, the department has awarded a small number of 
contracts. DOD has not implemented a departmentwide standard process 
for determining housing requirements. DOD and the services have worked 
to develop the framework for this process, but technical concerns—such 
as standards for affordable housing and commuting distance—have 
stalled its adoption. Also, DOD's life-cycle cost analyses for housing 
privatization have been incomplete and inaccurate, and have overstated 
savings. Moreover, increasing military members' housing allowance to 
secure private sector housing may be a better alternative to more 
quickly increase the availability of quality housing to military 
members. 

The new administration also continues to emphasize the need for at 
least one additional base realignment and closure round in 2003 to 
reduce unneeded infrastructure and free up funds for readiness, weapon 
modernization, and other needs. DOD projects that additional base 
closure rounds could produce new savings of $3.4 billion a year once 
realignment and closure actions are completed and the costs of 
implementing the actions are offset by savings. While we have 
previously raised questions about the precision of DOD's savings 
estimate, our work has nevertheless shown that the department will 
realize net annual recurring savings once initial investment costs 
from implementing realignment and closure decisions have been offset. 

Undoubtedly, opportunities remain for DOD to reduce its infrastructure 
costs through additional strategic sourcing, streamlining, 
consolidating, and possibly privatizing efforts. However, DOD needs a 
plan and investment strategy to maximize the results of these efforts. 
In particular, a comprehensive integrated consolidation and downsizing 
plan that sets goals, identifies specific initiatives, and sets 
priorities across DOD is needed to guide and sustain reform efforts. 
Ongoing DRI initiatives from the previous administration as well as 
initiatives involving the 25 business areas being evaluated by the 
Business Initiatives Council need to be addressed by the plan. Savings 
for this option cannot be fully estimated until such a plan is 
developed. 

Related GAO Products: 

Major Management Challenges and Program Risks, Department of Defense 
(GAO-01-244, Jan. 2001). 

Future Years Defense Program: Risks in Operation and Maintenance and 
Procurement Programs (GAO-01-33, Oct. 5, 2000). 

Defense Infrastructure: Improved Performance Measures Would Enhance 
Defense Reform Initiative (GAO/NSIAD-99-169, Aug. 4, 1999). 

Defense Reform Initiative: Organization, Status and Challenges 
(GAO/NSIAD-99-87, Apr. 21, 1999). 

Defense Reform Initiative: Progress, Opportunities, and Challenges
(GAO/T-NSIAD-99-95, Mar. 2, 1999). 

Force Structure: A-76 Not Applicable to Air Force 38th Engineering 
Installation Wing Plan (GAO/NSIAD-99-73, Feb. 26, 1999). 

Major Management Challenges and Program Risks: Department of
Defense (GAO/OCG-99-4, Jan. 1999). 

Army Industrial Facilities: Workforce Requirements and Related Issues 
Affecting Depots and Arsenals (GAO/NSIAD-99-31, Nov. 30, 1998).
Military Bases: Review of DOD's 1998 Report on Base Realignment and 
Closure (GAO/NSIAD-99-17, Nov. 13, 1998). 

Defense Infrastructure: Challenges Facing DOD in Implementing Reform 
Initiatives (GAO/T-NSIAD-98-115, Mar. 18, 1998). 

Best Practices: Elements Critical to Successfully Reducing Unneeded 
RDT&E Infrastructure (GAO/NSIAD/RCED-98-23, Jan. 8, 1998). 

Future Years Defense Program: DOD's 1998 Plan Has Substantial Risk in 
Execution (GAO/NSIAD-98-26 Oct. 23, 1997). 

1997 Defense Reform Bill: Observations on H.R. 1778 (GAO/T-NSIAD-97-
187, June 17, 1997). 

Defense Infrastructure: Demolition of Unneeded Buildings Can Help 
Avoid Operating Costs (GAO/NSIAD-97-125, May 13, 1997). 

DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid Billions 
of Dollars in Waste (GAO/T-NSIAD/AIMD-97-143, May 1, 1997). 

Defense Acquisition Organizations: Linking Workforce Reductions With 
Better Program Outcomes (GAO/T-NSIAD-97-140, Apr. 8, 1997). 

Defense Budget: Observations on Infrastructure Activities (GAO/NSIAD97-
127BR, Apr. 4, 1997). 

GAO Contact: 

Henry L. Hinton, Jr., (202) 512-4300. 

Reduce Funding for Renovation and Replacement of Military Housing 
until DOD Completes Housing Needs Assessment: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Multiple; 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military. 
Framework theme: Improve efficiency. 

One of DOD's most pressing problems is its outsized and decaying 
infrastructure, and this problem is prominent in the family housing 
program.[Footnote 7] By DOD's estimates, about two-thirds of military 
housing is inadequate and would require $16 billion and almost 30 
years to renovate or replace using traditional military construction. 
Efforts to use private contractors to build and operate housing are 
off to a slow start and may require a long-term (50 years or more) 
commitment from the government. DOD's policy is to rely on the private 
sector first for housing, but military members that receive a cash 
allowance to live in private sector housing must often pay out-of-
pocket costs also. These additional costs have been a significant 
disincentive for living in civilian housing. However, in fiscal year 
2001, the Congress authorized an initiative to eliminate the service 
members' out-of-pocket costs for living in civilian housing by fiscal 
year 2005. While the full impact of this initiative on military 
housing requirements is not known, it will provide added incentive for 
service members to move into civilian housing, thereby reducing the 
potential need for DOD constructed housing. 

Despite efforts to improve the quality and availability of housing for 
military families, DOD has not implemented a departmentwide standard 
process for determining military housing requirements. A requirements-
setting process that first considers the housing available around 
installations would likely decrease the amount of needed military 
housing. Without an accurate requirements-setting process based on the 
availability of private sector housing, DOD will continue to have 
inadequate information with which to make decisions about where it 
should renovate, build, or seek to privatize military housing. 
Increasing the housing allowance heightens the urgency for a 
consistent process to determine military housing requirements because 
it is expected to increase demand for civilian housing, and lessen the 
demand for military housing. Considerable evidence suggests that it is 
less expensive to provide allowances for military personnel to live on 
the civilian market than to provide military housing. While overall 
program costs are increasing significantly over the short term to 
cover increased allowances, DOD could save money in the longer term by 
encouraging more personnel to move into civilian housing. In the 
meantime, without an accurate determination of military housing needs, 
the Department may spend millions of dollars to construct, renovate, 
or privatize housing that in some locations is unnecessary. 

In order to better ensure that DOD's renovation and replacement of 
military housing is needed, the Congress may wish to reduce spending 
on noncritical housing construction and renovation until DOD completes 
a full needs assessment to determine if less expensive alternatives 
exist in the private market. Such a needs assessment would better 
enable DOD to target its limited financial resources to where military 
housing needs are most immediate. CBO cannot estimate the savings for 
this option until the funds needed for noncritical construction and 
renovation projects are identified. Although CBO agrees some savings 
would result from this option, some of those savings would be offset 
in future years by additional spending for projects that are delayed 
but ultimately funded. 

Related GAO Product: 

Military Housing: DOD Needs to Address Long-Standing Requirements
Determination Problems (GAO-01-889, August 3, 2001). 

GAO Contact: 

Barry W. Holman, (202) 512-5581. 

Delay Production of Space-Based Infrared System-low Satellite System 
until Testing Is Complete: 

Authorizing committees: Armed Services (Senate and House); 
Appropriations subcommittees: Defense (Senate and House); 
Primary agency: Department of Defense; 
Account: Missile Procurement, Air Force (57-3020); 
Spending type: Discretionary
Budget subfunction: 051/Department of Defense—Military. 
Framework theme: Reassess objectives. 

The Air Force is developing a new satellite system, called Space-Based 
Infrared System-low (SBIRS-low), to expand DOD's current infrared 
satellite capabilities for supporting ballistic missile defense. The 
ability to detect missile launches, track missiles throughout their 
flights, and counter these threats is essential to ballistic missile 
defense. The primary mission of SBIRS-low is to track ballistic 
missiles throughout the middle portion of the flight (midcourse 
tracking) and discriminate between the warheads and other objects, 
such as decoys. DOD plans to begin launching SBIRS-low satellites in 
fiscal year 2006 and estimates the life-cycle cost through fiscal year 
2022 to be about $14 billion. 

The Air Force's SBIRS-low acquisition schedule is at high risk of not 
delivering the system on time, at cost, or with expected performance. 
While the Air Force's previous schedules for SBIRS-low provided for 
the flight test of crucial satellite functions and capabilities to be 
available to support the decision to enter satellite production, the 
current schedule does not provide for completion of such tests until 
after production has started. If design changes are identified as a 
result of the test, these changes will have to be incorporated into 
satellites already under production, and parts that have already been 
purchased based on the initial design may become obsolete and replaced 
by new parts, increasing program costs and causing schedule delays. 

Testing a small number of SBIRS-low satellites before beginning full-
scale production can reduce cost and schedule risks to the government. 
Consequently, the Congress may wish to require the Air Force to delay 
production of SBIRS-low satellites until testing of the initial 
satellites takes place. This testing generally can be expected to take 
1 or 2 years to complete. Since the administration's fiscal year 2003 
budget request proposes delaying deployment by 2 years, CBO estimates 
that the option would have no budgetary impact.[Footnote 8] 

Related GAO Product: 

Defense Acquisitions: Space Based Infrared System-low at Risk of
Missing Initial Deployment Date (GAO-01-6, Feb. 28, 2001). 

GAO Contact: 

Jack L. Brock, Jr., (202) 512-4841. 

Consolidate the Nuclear Cities Initiative and the Initiatives for 
Proliferation Prevention Program into One Effort: 

Authorizing committees: Energy and Natural Resources (Senate); Energy 
and Commerce (House); 
Appropriations subcommittees: Energy and Water Development (Senate and 
House); 
Primary agency: Department of Energy; 
Account: Defense Nuclear Nonproliferation (89-0309); 
Spending type: Discretionary
Budget subfunction: 053/Atomic Energy Defense Activities; 
Framework theme: Improve efficiency. 

The Initiatives for Proliferation Prevention (IPP) program was 
established in 1994 to engage scientists in the former Soviet Union in 
peaceful commercial activities to reduce the risk that unemployed 
weapons scientists will sell sensitive information. In late 1998, the 
administration launched a new program—the Nuclear Cities Initiative 
(NCI)—to create jobs for displaced weapons scientists in the 10 cities 
that form the core of Russia's nuclear weapons complex. These programs 
are implemented through research and development projects involving 
the Department of Energy's headquarters and national laboratories, 
U.S. industry, and scientific institutes in the Newly Independent 
States. A major purpose of these programs is to identify commercial 
opportunities through these projects to attract investment by U.S. 
companies. 

During its first 2 years, the NCI funded 26 projects that have had 
limited success in meeting the program's principal objectives—creating 
jobs for weapons scientists and helping to downsize Russia's weapons 
complex. Of the roughly $15.9 million in program expenditures through 
December 2000, about $11.2 million (or 70 percent) had been spent in 
the United States for Department of Energy and National Laboratories' 
program-related expenses, with the remainder spent for projects and 
activities in Russia. These projects, based in Russia, employed about 
370 people, including many weapons scientists, working on a part-time 
basis, who continue to work on Russia's weapons of mass destruction 
program. About one half of the projects funded by NCI are not designed 
to create jobs for weapons scientists and instead focus on such 
activities as the delivery of medical equipment and school exchange 
programs. Also, the NCI and IPP programs have similar objectives and 
both serve Russia's nuclear cities, leading to duplication of effort. 

Given the limited impact of NCI projects to date, the large percentage 
of funds used to pay overhead costs, and the overlap with the IPP 
program, the Congress may wish to consolidate the two programs into 
one effort. While CBO agrees that consolidating the two programs could 
yield administrative and programmatic savings, it cannot develop an 
estimate until specific proposals are identified. 

Related GAO Products: 

Nuclear Nonproliferation: DOE's Efforts to Assist Weapons Scientists in
Russia's Nuclear Cities Face Challenges (GAO-01-429, May 30, 2001). 

Nuclear Nonproliferation: DOE's Efforts to Secure Nuclear Material and 
Employ Weapons Scientists in Russia (GAO-01-726T, May 15, 2001). 

Nuclear Nonproliferation: Concerns With DOE's Efforts to Reduce the 
Risks Posed by Russia's Unemployed Weapons Scientists (GAO/RCED-99- 
54, Feb. 19, 1999). 

GAO Contact: 

Ms. Gary Jones, (202) 512-3841. 

[End of section] 

150 International Affairs: 

* Eliminate U.S. Contributions to Administrative Costs in Rogue States; 
* Improve State Department Business Processes; 
* Streamline U.S. Overseas Presence. 

Eliminate U.S. Contributions to Administrative Costs in Rogue States: 

Authorizing committees: Foreign Relations (Senate); International 
Relations (House); 
Appropriations subcommittees: Foreign Operations, Export Financing and
Related Programs (Senate and House); 
Primary agency: State Department; 
Account: International Organizations and Programs (72-1005); 
Spending type: Discretionary
Budget subfunction: 151/International development and humanitarian 
assistance; 
Framework theme: Reassess objectives. 

Organizations of the United Nations system, such as the United Nations 
Development Program, fund projects in countries that are legislatively 
prohibited from receiving U.S. funding under section 307 of the 
Foreign Assistance Act of 1961, as amended. The list of countries 
varies over time but has included Afghanistan, Burma, Cuba, Iran, 
Iraq, Libya, Serbia, and Syria. To comply with the legislation, the 
Department of State withholds from its voluntary contributions to 
United Nations organizations the U.S. share of funding for projects in 
these countries. 

However, the department does not withhold administrative expenditures 
associated with the operation of field offices in these countries. 
Consequently, a portion of the U.S. contribution still goes to states 
prohibited from receiving U.S. funds. We did not attempt to calculate 
the total amount that the United States contributes to all United 
Nations organizations for administrative expenses in rogue states. 
However, in 1998 GAO estimated that the amount for one United Nations 
organization, the United Nations Development Program, was about 
$600,000. 

The Department of State has indicated that it would not, as a matter 
of policy, withhold U.S. contributions to United Nations organizations 
for administrative expenses in these countries. The department 
believes the legislative restriction invites politicization and 
contradicts the principle of universality for participating in United 
Nations organizations. 

Savings may be achieved if the Department of State were to include 
field office administrative costs when calculating the amount of U.S. 
withholdings for all United Nations organizations that are subject to 
section 307 of the Foreign Assistance Act of 1961. Although CBO agrees 
savings may be achieved, it cannot develop an estimate for this option 
until a specific proposal is identified. 

Related GAO Products: 

Multilateral Organizations: U.S. Contributions to International
Organizations for Fiscal Years 1993-95 (GAO/NSIAD-97-42, May 1, 1997). 

International Organizations: U.S. Participation in the United Nations 
Development Program (GAO/NSIAD-97-8, Apr. 17, 1997). 

GAO Contact: 

Susan S. Westin, (202) 512-4128. 

Improve State Department Business Processes: 

Authorizing committees: Foreign Relations (Senate); International 
Relations (House); 
Appropriations subcommittees: Commerce, Justice, State, and the
Judiciary (Senate and House); 
Primary agency: Department of State; 
Accounts: Diplomatic and Consular Programs (19-0113); Salaries and 
Expenses (19-0107); Security/maintenance of U.S. Missions (190535); 
Spending type: Discretionary
Budget subfunction: 153/Conduct of foreign affairs; 
Framework theme: Improve efficiency. 

The Department of State has a number of outmoded and inefficient 
business processes. For example, one of the problems confronting the 
department is how to efficiently relocate its employees overseas, find 
suitable housing abroad, and provide household furniture. Our work 
suggests that millions of dollars could be saved while providing high-
quality services if the department adopted relocation practices used 
in the private sector--including outsourcing various parts of the 
transfer process. 

The State Department's employee transfer process has remained 
virtually unchanged for years. Department employees are confronted 
with a myriad of steps and multiple offices to navigate. The 
department also separately contracts for each segment of most moves. 
In addition to incurring annual direct costs of about $36 million to 
ship household effects, the State Department incurs as much as $1,600 
in overhead costs for each move. Moves are typically processed in the 
State Department's Transportation Division in Washington, D.C.; one of 
its four regional dispatch agencies; and its European Logistical 
Support Office. We found that leading companies in the private sector 
use a number of "best practices" to provide better service and reduce 
costs. Such practices include having one point of contact for 
assistance to employees, known as one-stop-shopping, and using 
commercial, door-to-door shipments to lower the cost of shipping 
employees' household effects. Private sector firms also generally use 
one contractor for all segments of the move, minimizing in-house 
support requirements and reducing total costs. 

Another important State Department process is providing overseas 
housing. The Department of State and other U.S. government agencies 
operating overseas spend over $200 million annually to lease housing 
and purchase furniture for employees and their families. This process 
appears to be more costly than necessary. Our comparison of the State 
Department's processes with those of key private sector firms 
operating overseas indicates that if the department adopted private 
sector practices at a number of posts, it could potentially save the 
U.S. government substantial amounts of money and still meet its 
employees' overseas residential housing and furniture needs. Specific 
practices that can reduce costs include (1) using relocation companies 
and similar service providers to search for housing and negotiate 
leases to reduce in-house support costs and shift some property 
preparation expenses to landlords, (2) providing employees with 
housing allowances to select their own homes rather than managing and 
maintaining a housing pool of government leases and preassigning 
residences, and (3) acquiring residential furniture overseas instead 
of buying and shipping it from the United States. The Overseas 
Presence Advisory Panel convened by the Secretary of State also 
suggested that the department explore incentives for greater private 
sector involvement in managing residential property to improve 
operational efficiency. 

Our cost analysis of the U.S. mission's housing office in Brussels and 
the housing support function at the U.S. embassy in London illustrate 
how using a relocation company could potentially yield significant 
savings at those posts. For example, based on cost data provided by 
the mission in Brussels, the annual salary cost alone attributable to 
the short-term leasing process totaled about $700,000 in fiscal year 
1996. If property preparation and other support costs are included, 
the embassy's direct and indirect costs for short-term residential 
leases exceed $1.5 million annually. In contrast, a relocation company 
would charge between $207,000 and $277,000 for home-finding services. 
For London, the support costs for residential leasing totaled about 
$700,000 annually. Outsourcing home-finding services would cost 
between $118,000 and $151,000. 

While CBO agrees that improving the State Department's business 
processes could yield savings, it cannot develop an estimate until 
specific proposals are identified. 

Related GAO Products: 

State Department: Options for Reducing Overseas Housing and Furniture 
Costs (GAO/NSIAD-98-128, July 31, 1998). 

State Department: Using Best Practices to Relocate Employees Could 
Reduce Costs and Improve Service (GAO/NSIAD-98-19, Oct. 17, 1997). 

GAO Contact: 

Jess T. Ford, (202) 512-4128. 

Streamline U.S. Overseas Presence: 

Authorizing committees: Foreign Relations (Senate); International 
Relations (House); 
Appropriations subcommittees: Commerce, Justice, State and the Judiciary
(Senate and House); 
Primary agency: Department of State; 
Accounts: Diplomatic and Consular Programs (19-0113); Salaries and 
Expenses (19-0107); 
Spending type: Discretionary
Budget subfunction: 153/Conduct of foreign affairs; 
Framework theme: Improve efficiency. 

The Department of State maintains a physical presence in the form of 
embassies in over 160 countries, usually in the capital city, and 
consulates general, consulates, and other offices in the capital or 
other cities. Almost 18,000 U.S. direct-hire employees (over 6,400 
from the State Department and 11,200 from other agencies) work 
overseas at a total of more than 250 diplomatic posts. In addition, 
U.S. direct-hire staffing levels have increased over the years, most 
notably in the nonforeign affairs agencies. The U.S. government also 
employs over 35,000 locally hired and contract staff at its diplomatic 
posts. U.S. embassies have become bases to at least 27 other U.S. 
government agencies involved in more than 300 activities. 

Security requirements and the increasing costs of diplomacy are 
directly linked to the size of the overseas work force. Moreover, U.S. 
foreign policy needs, which have changed dramatically with the end of 
the cold war, call into question whether the current overseas post and 
staff structure is appropriate. By reducing the number of Americans at 
posts where U.S. interests are of lesser importance, consolidating 
functions, or using regional embassies in certain regions, the State 
Department could reduce its security requirements and enhance the 
safety of Americans overseas. In addition to security concerns, the 
costs of maintaining Americans overseas are high. It costs over 
$200,000 annually to station an American overseas, which is about two 
times as much as for Washington-based staff. 

For several years, we have been encouraging actions to reevaluate 
overseas staffing requirements. In 1999, the Secretary of State 
established the Overseas Presence Advisory Panel to review how the 
United States carries out its activities overseas. In November 1999, 
the panel recommended the formation of an interagency committee to 
review and streamline every overseas post. Although the panel did not 
specify the amount of savings that could be achieved through 
streamlining posts, it expressed the belief that the savings would be 
substantial. If the Congress chose to reduce overseas staffing by 1 
percent, either through domestic reallocation or elimination, the CBO 
estimates that the following savings could be achieved. 

Five-Year Savings: Option: Relocate overseas staffing domestically by 
1 percent: 

Savings from the 2002 baseline: Budget authority; 
FY03: $4 million; 
FY04: $8 million; 
FY05: $12 million; 
FY06: $16 million; 
FY07: $20 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $3 million; 
FY04: $6 million; 
FY05: $10 million; 
FY06: $14 million; 
FY07: $18 million. 

Note: CBO assumes that these direct-hire positions would be relocated 
gradually or through attrition to minimize costs. This would occur at 
an even pace over 5 years and, based on information from GAO, savings 
are estimated at $100,000 per position. 

Source: Congressional Budget Office. 

[End of table] 

Five-Year Savings: Option: Eliminate overseas staffing by 1 percent: 

Savings from the 2002 baseline: Budget authority; 
FY03: $1 million; 
FY04: $14 million; 
FY05: $21 million; 
FY06: $28 million; 
FY07: $35 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $6 million; 
FY04: $12 million; 
FY05: $19 million; 
FY06: $25 million; 
FY07: $32 million. 

Note: CBO assumes that these direct-hire positions would be eliminated 
through attrition rather than a reduction-in-force, which would 
involve significant costs. Attrition would occur at an even pace over 5
years and, based on information from GAO, savings are estimated at 
$200,000 per position eliminated. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

State Department: Major Management Challenges and Program Risks
(GAO/T-NSIAD/AIMD-99-99, Mar. 4, 1999). 

Foreign Affairs Management: Major Challenges Facing the Department of 
State (GAO/T-NSIAD-98-251, Sept. 17, 1998). 

Overseas Presence: Staffing at U.S. Diplomatic Posts (GAO/NSIAD-95- 
50FS, Dec. 28, 1994). 

State Department: Overseas Staffing Processes Not Linked to Policy 
Priorities (GAO/NSIAD-94-228, Sept. 20, 1994). 

GAO Contact: 

Jess T. Ford, (202) 512-4128. 

[End of section] 

250 Science, Space, and Technology: 

* Continue Oversight of the International Space Station and Related 
Support Systems. 

Continue Oversight of the International Space Station and Related 
Support Systems: 

Authorizing committees: Commerce, Science, and Transportation (Senate)
Science (House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies; 
Primary agency: National Aeronautics and Space Administration; 
Accounts: Multiple; 
Spending type: Discretionary
Budget subfunction: 252/Space flight, research, and supporting 
activities; 
Framework theme: Reassess objectives. 

In December 1998, the National Aeronautics and Space Administration 
(NASA) accomplished a significant step in its construction of the 
International Space Station (ISS): coupling the first two elements of 
the station in orbit. More recently, the first permanent crew boarded 
the ISS. Notwithstanding these noteworthy achievements, there appears 
to be no abatement in the number of challenges NASA will face in the 
years to come. Recent GAO studies have focused on (1) the increasing 
cost of building the space station, (2) uncertainties regarding costs 
of operating the space station, and (3) the impact of Russia not 
meeting its commitments as a partner. Specifically, NASA has estimated 
that the annual cost to operate the ISS will average $1.3 billion, or 
$13 billion over a 10-year mission life. However, this estimate does 
not include all funding requirements, such as (1) costs associated 
with necessary upgrades to combat component obsolescence, (2) end-of-
mission costs to either extend or decommission the ISS, and (3) a 
variety of supports costs (space shuttle flights, personnel, space 
communications, etc.) that are currently shown in other portions of 
NASA's budget. Similarly, Russia's ongoing problems in funding its 
share of the station's construction costs—problems which delayed 
delivery of the first major Russian-funded component—have raised 
questions about its ability to continue to support operations costs 
during and after assembly. In addition, NASA is facing a potential 
estimated cost overrun in excess of $4.5 billion for the space station. 

ISS will impose significant demands on future budgets that warrant 
continued congressional oversight. As evidence of continued 
congressional concerns, the National Aeronautics and Space 
Administration Authorization Act of 2000 also requires GAO to verify 
NASA's accounting of certain cost limitations the act imposes on the 
ISS and related space shuttle operations. However, other areas would 
also benefit from congressional oversight. For example, in addition to 
ongoing NASA efforts to resolve human capital shortfalls in the space 
shuttle program, activities are now underway to develop a reusable 
launch vehicle to support space station-related and other activities 
now being done by the space shuttle. The $4.5 billion Space Launch 
Initiative in particular is a major NASA program intended to develop 
the advanced technologies for a reusable launch vehicle needed to 
achieve those capabilities, and to do so at a significantly lower 
cost. Overall, continued congressional oversight also helps ensure 
that NASA's other priorities are not sacrificed to fund ISS 
operations. Because specific reduction options have not been proposed, 
CBO is unable to estimate cost savings. 

Related GAO Products: 

Space Shuttle Safety: Update on NASA's Progress in Revitalizing the 
Shuttle Workforce and Making Safety Upgrades (GAO-01-1122T, Sept. 6, 
2001). 

NASA: International Space Station and Shuttle Support Cost Limits (GAO-
01-1000R, Aug. 31, 2001). 

Space Transportation: Critical Areas NASA Needs to Address in Managing 
Its Reusable Launch Vehicle Program (GAO-01-826T, June 20, 2001). 

Space Station: Inadequate Planning and Design Led to Propulsion Module 
Project Failure (GAO-01-633, June 20, 2001). 

Space Shuttle: Human Capital and Safety Upgrade Challenges Require 
Continued Attention (GAO/NSIAD/GGD-00-186, Aug. 15, 2000). 

Space Station: Russian-Built Zarya and Service Module Compliance With 
Safety Requirements (GAO/NSIAD-00-96R, Apr. 28, 2000). 

Space Station: Russian Commitment and Cost Control Problems
(GAO/NSIAD-99-175, Aug. 17, 1999). 

Space Station: Cost to Operate After Assembly Is Uncertain 
(GAO/NSIAD99-177, Aug. 6, 1999). 

Space Station: Status of Russian Involvement and Cost Control Efforts
(GA0a-NSIAD-99-117, Apr. 29, 1999). 

GAO Contact: 

Jack L. Brock, Jr., (202) 512-4841. 

[End of section] 

270 Energy: 

* Corporatize or Divest Selected Power Marketing Administrations; 
* Recover Power Marketing Administrations' Costs; 
* Increase Nuclear Waste Disposal Fees; 
* Recover Federal Investment in Successfully Commercialized 
Technologies; 
* Reduce the Costs of the Rural Utilities Service's Electricity and 
Telecommunications Loan Programs; 
* Consolidate or Eliminate Department of Energy Facilities. 

Corporatize or Divest Selected Power Marketing Administrations: 

Authorizing committees: Energy and Natural Resources (Senate) 
Resources (House); 
Primary agency: Department of Energy; 
Spending type: Direct; 
Framework theme: Reassess objectives. 

The federal government began to market electricity after the Congress 
authorized the construction of dams and established major water 
projects, primarily in the 1930s to the 1960s. The Department of 
Energy's (DOE) power marketing administrations (PMAs)—Bonneville Power 
Administration, Southeastern Power Administration, Southwestern Power 
Administration, and Western Area Power Administration--market 
primarily wholesale power in 33 states produced at large, multiple-
purpose water projects. Our March 1998 report identified options that 
the Congress and other policymakers can pursue to address concerns 
about the role of three PMAs—Southeastern, Southwestern, and Western–
in emerging restructured markets or to manage them in a more business-
like fashion. Our work has demonstrated that, although federal laws 
and regulations generally require that the PMAs recover the full costs 
of building, operating, and maintaining the federal power plants and 
transmission assets, in some cases federal statutes and DOE's rules 
are ambiguous about or prohibit the recovery of certain costs. For 
fiscal years 1992 through 1996, the federal government incurred a net 
cost of $1.5 billion from its involvement in the electricity-related 
activities of Southeastern, Southwestern, and Western. We also 
reported that the appropriated and other debt that is recoverable 
through the PMAs' power sales totaled about $22 billion at the end of 
fiscal year 1997 and included nearly $2.5 billion in irrigation costs. 
In addition, our work has demonstrated that the availability of 
federal power plants to generate electricity has been below that of 
nonfederal plants because the federal planning and budgeting processes 
do not always ensure that funds are available to make repairs when 
needed. 

Our March 1998 report outlines three general options to address the 
federal role in restructuring markets: (1) maintaining the status quo 
of federal ownership and operation of the power generating projects, 
(2) maintaining the federal ownership of these assets but improving 
how they are operated (an example of which is reorganizing the PMAs to 
operate as federally owned corporations), and (3) divesting these 
assets. The third option would eliminate the government's presence in 
a commercial activity and, depending on a divestiture's terms and 
conditions and the price obtained, could produce both a net gain and a 
future stream of tax payments to the Treasury. Corporatization or 
divestitures of government assets have been accomplished recently in 
the United States and also overseas, and corporatization could serve 
as an interim step toward ultimate divestiture. Our March 1997 report 
concluded that divesting the federal hydropower assets would be 
complicated but not impossible. Such a transaction would need to 
balance the multiple purposes of the water project as well as other 
claims on the water. 

CBO estimates that divesting the federal hydropower assets for 
Southeastern, Southwestern, and Western would result in the savings 
shown below. The estimate assumes that the divestiture would not occur 
for 2 years and is based on the net present value of outstanding debt 
for the Southeastern, Southwestern, and Western PMAs. Terms 
established in legislation would significantly change the estimate. 
Although the foregone receipts result in a loss of revenue in 2004 and 
2005, it is mitigated by the large receipts from divestiture in 2004 
and by the savings in discretionary spending. 

Five-Year Savings: 

Discretionary spending: Savings from 2002 plan: Budget authority; 
FY03: 0; 
FY04: 0; 
FY05: 0; 
FY06: $200 million; 
FY07: $200 million. 

Discretionary spending: Savings from 2002 plan: Outlays; 
FY03: 0; 
FY04: 0; 
FY05: 0; 
FY06: $100 million; 
FY07: $197 million. 

Source: Congressional Budget Office. 

[End of table] 

Five-Year Savings: 

Direct spending: Savings from 2002 plan: Budget authority; 
FY03: 0; 
FY04: 0; 
FY05: -$4,900 million; 
FY06: $530 million; 
FY07: $540 million. 

Direct spending: Savings from 2002 plan: Outlays; 
FY03: 0; 
FY04: 0; 
FY05: -$4,900 million; 
FY06: $530 million; 
FY07: $540 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 
					
Budget Issues: Effective Oversight and Budget Discipline Are Essential—
Even in a Time of Surplus (GAO/T-AIMD-00-73, Feb. 1, 2000). 

Potential Candidates for Congressional Oversight (GAO/OGC-00-3R, Nov. 
1, 1999). 

Federal Power: The Role of the Power Marketing Administrations in a 
Restructured Electricity Industry (GAO/T-RCED/AIMD-99-229, June 24, 
1999). 

Federal Power: PMA Rate Impacts by Service Area (GAO/RCED-99-55, Jan. 
28, 1999). 

Federal Power: Regional Effects of Changes in PMAs' Rates (GAO/RCED99-
15, Nov. 16, 1998). 

Power Marketing Administrations: Repayment of Power Costs Needs Closer 
Monitoring (GAO/AIMD-98-164, June 30, 1998). 

Federal Power: Options for Selected Power Marketing Administrations' 
Role in a Changing Electricity Industry (GAO/RCED-98-43, Mar. 6, 1998). 

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept. 19, 1997). 

Federal Power: Issues Related to the Divestiture of Federal Hydropower 
Resources (GAO/RCED-97-48, Mar. 31, 1997). 

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept. 19, 1996). 

Federal Power: Recovery of Federal Investment in Hydropower Facilities 
in the Pick-Sloan Program (GAO/T-RCED-96-142, May 2, 1996). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Jim Wells, (202) 512-3841: 

Recover Power Marketing Administrations' Costs: 

Authorizing committees: Energy and Natural Resources (Senate) 
Resources (House); 
Primary agency: Department of Energy; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

Four of the Department of Energy's (DOE) power marketing 
administrations (PMA)–Bonneville Power Administration, Southeastern 
Power Administration, Southwestern Power Administration, and Western 
Area Power Administration--market primarily wholesale power in 33 
states produced at large, multiple-purpose water projects. Except for 
Bonneville, these PMAs receive annual appropriations to cover 
operating and maintenance (O&M) expenses and, if applicable, the 
capital investment in transmission assets.[Footnote 9] Federal law 
requires the PMAs to repay these appropriations as well as the power-
related O&M and the capital appropriations expended by the operating 
agencies generating the power. 

Current monitoring activities do not ensure that the federal 
government recovers the full cost of its power-related activities from 
the beneficiaries of federal power. The full cost of the power-related 
activities—which are to be recovered under current legislation and DOE 
policy—include all direct and indirect costs incurred by the federal 
government in producing, transmitting, and marketing federal power. 
Neither DOE nor the Federal Energy Regulatory Commission, which 
reviews the PMAs' rate proposals, is effectively monitoring the rate-
making process and the amounts due and repayments made to ensure their 
accuracy, completeness, and timeliness. Unrecovered power-related 
costs relate to (1) Civil Service Retirement System (CSRS) pensions 
and postretirement health benefits, (2) life insurance benefits, (3) 
certain workers' compensation benefits, and (4) interest on some of 
the federal appropriations used to construct certain projects. The 
full magnitude of the underrecovery of power-related costs is unknown. 
Until an effective monitoring system is implemented, the federal 
government will continue to be exposed to financial loss due to the 
underrecovery of power-related costs. 

The federal government is also incurring other substantial net costs 
annually—the amount by which the full costs of providing electric 
power exceed the revenues from the sale of power—from the electricity-
related activities of the PMAs. Although the PMAs are generally 
required to recover all costs, favorable financing terms and the lack 
of specific requirements to recover certain costs have resulted in net 
costs to the federal government because these PMAs' electricity rates 
do not recover all costs that are to be repaid through the sale of 
power. It is important to note that the PMAs were generally following 
applicable laws and regulations applying to the recovery of costs; 
however, in some cases, federal statutes and an applicable DOE order 
are ambiguous about or prohibit the recovery of certain costs. 

In part because the PMAs sell power generated almost exclusively from 
hydropower, are not required to earn a profit, and do not fully 
recover the government's costs in their rates, they are generally able 
to sell power more cheaply than other providers. Southeastern, 
Southwestern, and Western sold wholesale power to their preference 
customers, such as public entities and rural cooperatives, from 1990 
through 1995, at average rates from 40 to 50 percent below the rates 
nonfederal utilities charged. If the PMAs were authorized to charge 
market rates for power in conjunction with federal restructuring 
legislation, some preference customers who now purchase power from the 
PMAs at rates that are less than those available from other sources 
would see their rates increase. However, we have reported that 
slightly more than two-thirds of the preference customers, which are 
located in varying portions of 29 states, that purchased power 
directly from Southeastern, Southwestern, and Western would experience 
small or no rate increases—increases of one-half cent per kilowatt 
hour or less—if those PMAs charged market rates. 

The Congress and/or the Secretary of Energy may wish to consider 
directing the PMAs to more fully recover power-related costs or 
revising DOE's policy on high-interest debt repayment. We have 
recommended a number of specific actions aimed at enhancing DOE's 
oversight. For example, changes could be implemented to recover the 
full costs to the federal government of providing postretirement 
health benefits and pensions for current employees and operating 
agency employees engaged in producing and marketing the power sold by 
the PMAs. We and CBO agree that several PMAs have begun to address 
some of these actions. The Congress has the option of requiring the 
PMAs to sell their power at market rates to better ensure the full 
recovery of the appropriated and other debt that is recoverable 
through the PMAs' power sales. This debt totaled about $22 billion at 
the end of fiscal year 1997 and included nearly $2.5 billion in 
irrigation costs that are to be recovered through the PMAs' power 
sales. This option would likely also lead to more efficient management 
of the taxpayers' assets. 

Although CBO agrees that savings would occur if the PMAs were directed 
to fully recover power-related costs or set their power at market 
rates, it cannot develop an estimate for this option until a specific 
proposal is identified. 

Related GAO Products: 

Congressional Oversight: Opportunities to Address Risks, Reduce Costs, 
and Improve Performance (GAO/T-AIMD-00-96, Feb. 17, 2000). 

Federal Power: The Role of the Power Marketing Administrations in a 
Restructured Electricity Industry (GAO/T-RCED/AIMD-99-229, June 24, 
1999). 

Federal Power: PMA Rate Impacts, by Service Area (GAO/RCED-99-55, Jan. 
28, 1999). 

Federal Power: Regional Effects of Changes in PMAs' Rates (GAO/RCED99-
15, Nov. 16, 1998). 

Power Marketing Administrations: Repayment of Power Costs Needs Closer 
Monitoring (GAO/AIMD-98-164, June 30, 1998). 

Federal Power: Options for Selected Power Marketing Administrations' 
Role in a Changing Electricity Industry (GAO/RCED-98-43, Mar. 6, 1998). 

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept. 19, 1997). 

Federal Power: Issues Related to the Divestiture of Federal Hydropower 
Resources (GAO/RCED-97-48, Mar. 31, 1997). 

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept. 19, 1996). 

Federal Power: Outages Reduce the Reliability of Hydroelectric Power 
Plants in the Southeast (GAO/T-RCED-96-180, July 25, 1996). 

Federal Power: Recovery of Federal Investment in Hydropower Facilities 
in the Pick-Sloan Program (GAO/T-RCED-96-142, May 2, 1996). 

Federal Electric Power: Operating and Financial Status of DOE's Power 
Marketing Administrations (GAO/RCED/AIMD-96-9FS, Oct. 13, 1995). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Jim Wells, (202) 512-3841: 

Increase Nuclear Waste Disposal Fees: 

Authorizing committees: Energy and Natural Resources (Senate); 
Commerce (House) Resources (House); 
Primary agency: Department of Energy; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

Utilities pay a fee to the Nuclear Waste Fund to finance the 
development of storage and permanent disposal facilities for high-
level radioactive wastes. The amount of this fee has not changed since 
1983, making the fund susceptible to future budget shortfalls To help 
ensure that sufficient revenues are collected to cover increases in 
cost estimates caused by price inflation, the Congress should amend 
the Nuclear Waste Policy Act of 1982 to direct the Secretary of Energy 
to automatically adjust for inflation the nuclear waste disposal fee 
that utilities pay into the Nuclear Waste Fund. If the fee were 
indexed to inflation, CBO estimates the following additional receipts 
could be expected. 

Five-Year Savings: 

Added receipts: 
FY03: $11 million; 
FY04: $25 million; 
FY05: $40 million; 
FY06: $53 million; 
FY07: $68 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Status of Actions to Improve DOE User-Fee Assessments (GAO/RCED-92- 
165, June 10, 1992). 

Changes Needed in DOE User-Fee Assessments (GAO/T-RCED-91-52, May 8, 
1991). 

Changes Needed in DOE User-Fee Assessments to Avoid Funding Shortfall 
(GAO/RCED-90-65, June 7, 1990). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Ms. Gary Jones, (202) 512-3841: 

Recover Federal Investment in Successfully Commercialized Technologies: 

Authorizing committees: Energy and Natural Resources (Senate); Science 
(House); Commerce (House); 
Appropriations subcommittees: Energy and Water Development (Senate and 
House); Interior and Related Agencies (Senate and House); 
Primary agency: Department of Energy; 
Accounts: Multiple; 
Spending type: Discretionary
Budget subfunction: Multiple; 
Framework theme: Redefine beneficiaries. 

The Department of Energy (DOE) and the private sector are involved in 
hundreds of cost-shared projects aimed at developing a broad spectrum 
of cost-effective, energy-efficiency technologies that protect the 
environment, support the nation's economic competitiveness, and 
promote the increased use of oil, gas, coal, nuclear, and renewable 
energy resources. In June 1996, we reported that DOE generally does 
not require repayment of its investment in technologies that are 
successfully commercialized. Our review identified four DOE programs 
that require industry repayment if the technologies are ultimately 
commercialized. The offices in which we focused most of our work 
planned to devote about $8 billion in federal funds to cost-shared 
projects over their lifetime, of which about $2.5 billion is subject 
to repayment. 

Our June 1996 report discussed the advantages and disadvantages of 
having a repayment policy and pointed out that many of the 
disadvantages can be mitigated by structuring a flexible repayment 
requirement with the disadvantages in mind. It also discussed the 
types of programs and projects that would be the most appropriate or 
suitable for repayment of the federal investment. 

Because opportunities exist for substantial repayment in some of DOE's 
programs, requiring repayment under a flexible policy would allow the 
government to share in the benefits of successfully commercialized 
technologies that could amount to hundreds of millions of dollars. The 
potential for repayment can be illustrated by assuming that if only 50 
percent of the funds planned for projects that are currently not 
subject to repayment lend themselves to repayment, and if about 15 
percent of research and development funds result in commercialized 
technologies (which DOE officials say is about average), then about 
$400 million could be repaid to the federal government. However, 
repayment provisions would only apply to future technology development 
projects not yet negotiated with industry. CBO estimates that this 
option would have no effect on receipts in the next 5 years because of 
the time lag between research and commercialization. 

Related GAO Product: 

Energy Research: Opportunities Exist to Recover Federal Investment in
Technology Development Projects (GAO/RCED-96-141, June 26, 1996). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Jim Wells, (202) 512-3841: 

Reduce the Costs of the Rural Utilities Service's Electricity and 
Telecommunications Loan Programs: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Agriculture (House); 
Appropriations subcommittees: Agriculture, Rural Development, and 
Related Agencies (Senate); Agriculture, Rural Development, FDA and 
Related Agencies (House); 
Primary agency: Department of Agriculture; 
Accounts: Multiple; 
Spending type: Discretionary
Budget subfunction: 271/Energy supply; 
Framework theme: Improve efficiency. 

The Rural Utilities Service (RUS), created by the Federal Crop 
Insurance Reform and Department of Agriculture Reorganization Act of 
1994 (Pi. 103-354, Oct. 13, 1994), was established to provide loan 
funds intended to assist in the development of the utility 
infrastructure in the nation's rural areas. RUS finances the 
construction, improvement, and repair of electrical, 
telecommunications, and water and waste disposal systems through 
direct loans and through repayment guarantees on loans made by other 
lenders. According to RUS reports, the outstanding principal owed on 
RUS loans totaled about $41 billion as of September 30, 1998. From a 
financial standpoint, RUS has successfully operated the 
telecommunications loan program, but the agency has had, and continues 
to have, significant financial problems with the electricity loan 
program. For example, during fiscal years 1992 through July 31, 1997, 
RUS wrote off the debt of four electricity loan borrowers totaling 
more than $1.5 billion. Since then, the agency has written off $0.3 
billion and is in the process of writing off an additional $3.0 
billion, and it is probable that the agency will continue to incur 
losses in the future. 

RUS needs to take steps to increase the effectiveness and reduce the 
costs of its loan programs. RUS could, for example, (1) target loans 
to borrowers that provide services to areas with low populations, (2) 
target subsidized direct loans to borrowers that have a financial need 
for the agency's assistance, and (3) graduate the agency's financially 
viable borrowers from direct loans to commercial credit. Also, to 
reduce its vulnerability to losses, RUS could (1) establish loan and 
indebtedness limits, (2) set the repayment guarantee at a level below 
100 percent, and (3) prohibit loans to delinquent borrowers or to 
borrowers who have caused the agency to incur loan losses. CBO cannot 
develop an estimate for this option until specific proposals to 
improve efficiency are identified. 

Related GAO Products: 

Rural Utilities Service: Status of Electric Loan Portfolio (GAO/AIMD-99-
264R, Aug. 17, 1999). 

Rural Water Projects: Federal Assistance Criteria and Potential 
Benefits of the Proposed Lewis and Clark Project (GAO/T-RCED-99-252, 
July 29, 1999). 

Rural Water Projects: Identifying Benefits of the Proposed Lewis and 
Clark Project (GAO/RCED-99-115, May 28, 1999). 

Rural Water Projects: Federal Assistance Criteria Related to the Fort 
Peck Reservation Rural Water Project (GAO/T-RCED-98-230, June 18, 
1998). 

Rural Utilities Service: Risk Assessment for the Electric Loan Portfolio
(GAO/T-AIMD-98-123, Mar. 30, 1998). 

Rural Utilities Service: Opportunities to Operate Electricity and 
Telecommunications Loan Programs More Effectively (GAO/AIMD-98-42, 
Jan. 21, 1998). 

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses (GAO/AIMD-97-110, Sept. 19, 1997). 

Rural Development: Financial Condition of the Rural Utilities 
Service's Electricity Loan Portfolio (GAO/T-RCED-97-198, July 8, 1997). 

Rural Development: Financial Condition of the Rural Utilities 
Service's Loan Portfolio (GAO/RCED-97-82, Apr. 11, 1997). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Lawrence J. Dyckman, (202) 512-3841: 
Linda M. Calbom, (202) 512-9508: 

Consolidate or Eliminate Department of Energy Facilities: 

Authorizing committees: Energy and Natural Resources (Senate); Energy 
and Commerce (House); 
Appropriations subcommittees: Energy and Water Development (Senate and 
House); 
Primary agency: Department of Energy; 
Account: Energy Supply, R&D Activities (89-0224); 
Spending type: Discretionary
Budget subfunction: 053/Atomic energy defense activities; 
Framework theme: Improve efficiency. 

Since 1982, many panels, commissions, and task forces, and several GAO 
studies have addressed how the Department of Energy (DOE) could 
achieve operational efficiencies in its research and development 
facilities. Recommendations have included focusing unclear missions, 
aligning laboratory activities more closely with DOE goals, 
consolidating facilities, and replacing cumbersome, inefficient 
management structures. In particular, with the end of the Cold War, 
DOE may no longer need to maintain three nuclear weapons laboratories. 
A DOE-chartered task force—the 1995 Task Force on Alternative Futures 
for the Department of Energy National Laboratories—reported that DOE's 
entire laboratory system could be reduced productively by eliminating 
obsolete and redundant missions and supporting infrastructure. Because 
such consolidations have not occurred, science budgets are being spent 
increasingly on maintenance of obsolete and inappropriate 
infrastructure, rather than innovative research and development, or to 
support other important DOE missions. 

Congress recently reorganized DOE's defense laboratories and put them 
under control of the new semi-autonomous National Nuclear Security 
Administration. However, what is still needed is a mission-by-mission 
examination of DOE. This reassessment should explore alternative 
organizational approaches to best implement DOE's missions and, 
ideally, should be part of a governmentwide restructuring of related 
programs and activities. An outcome of this reassessment could be to 
reorganize existing national laboratories to focus on specific DOE 
programs and activities, eliminating duplication of both structures 
and personnel. This could include converting some labs into private or 
quasi-private entities, transferring labs to universities, or 
assigning them to different agencies whose missions better match lab 
strengths. 

One specific option that Congress could consider is consolidating the 
nuclear weapons functions of the Lawrence Livermore facility into the 
Los Alamos laboratory. In 1999, when funding requests at Lawrence 
Livermore totaled about $500 million a year, DOE estimated that 
consolidating engineering and testing efforts could save about $200 
million in annual operating costs. The table below reflects savings 
from phasing in such a consolidation over a 5-year period. 

Five-Year Savings: 

Savings from the 2003 plan: Budget authority; 
FY03: $70 million; 
FY04: $140 million; 
FY05: $220 million; 
FY06: $300 million; 
FY07: $380 million. 

Savings from the 2003 plan: Outlays; 
FY03: $50 million; 
FY04: $110 million; 
FY05: $190 million; 
FY06: $270 million; 
FY07: $350 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Department of Energy: Need to Address Longstanding Management 
Weaknesses (GAO/T-RCED-99-255, July 13, 1999). 

Department of Energy: Key Factors Underlying Security Problems at DOE 
Facilities (GAO/T-RCED-99-159, Apr. 20, 1999). 

Department of Energy: Uncertain Progress in Implementing National 
Laboratory Reforms (GAO/RCED-98-197, Sept. 10, 1998). 

Federal R&D Laboratories (GAO/RCED/NSIAD-96-78R, Feb. 29, 1996). 

Department of Energy: A Framework for Restructuring DOE and Its 
Missions (GAO/RCED-95-197, Aug. 21, 1995). 

Department of Energy: National Laboratories Need Clearer Mission and 
Better Management (GAO/RCED-95-10, Jan. 27, 1995). 

DOE's National Laboratories: Adopting New Missions and Managing 
Effectively Pose Significant Challenges (GAO/T-RCED-94-113, Feb. 3, 
1994). 

Department of Energy: Management Problems Require a Long-term 
Commitment to Change (GAO/RCED-93-72, Aug. 31, 1993). 

Nuclear Weapons Complex: Issues Surrounding Consolidating Los Alamos 
and Lawrence Livermore National Laboratories (GAO/RCED-92-98, Sept. 
24, 1992). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Ms. Gary Jones, (202) 512-3841: 

[End of section] 

300 Natural Resources and Environment: 

* Terminate Land-Exchange Programs; 
* Defer Fish and Wildlife Service's Acquisition of New Lands; 
* Deny Additional Funding for Commercial Fisheries Buyback Programs 
Revise the Mining Law of 1872; 
* Coordinate Federal Policies for Subsidizing Water for Agriculture 
and Rural Uses; 
* Reassess Federal Land Management Agencies' Functions and Programs; 
* Pursue Cost-Effective Alternatives to NOAM Research/Survey Fleet; 
* Increase Federal Revenues through Water Transfers. 

Terminate Land-Exchange Programs: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Energy and Natural Resources (Senate); Agriculture (House);
Resources (House); 
Appropriations subcommittees: Interior and Related Agencies (Senate 
and House); 
Primary agency: Department of the Interior; Department of Agriculture; 
Accounts: Multiple; 
Spending type: Discretionary
Budget subfunction: 302/Conservation and Land Management; 
Framework theme: Reassess objectives. 

The Bureau of Land Management (BLM) and the Forest Service have long 
used land exchanges—trading federal lands for lands that are owned by 
corporations, individuals, or state or local governments—as a tool for 
acquiring nonfederal land and conveying federal land. By law, for an 
exchange to occur, the estimated value of the nonfederal land must be 
within 25 percent of the estimated value of the federal land, the 
public interest must be well served, and certain other exchange 
requirements must be met. Recognizing the importance of land exchanges 
in supplementing the federal funds that were available for purchasing 
land, the Congress, in 1988, passed legislation to facilitate and 
expedite land exchanges. Since then, BLM and the Forest Service have 
acquired about 1,500 square miles of land through land exchanges. 

Several fundamental issues create significant problems in the use of 
land exchanges. For instance, in 1998, the cognizant inspectors 
general identified exchanges in which lands were inappropriately 
valued and the public interest was not well served. Also, although 
current law does not authorize BLM to retain or use proceeds from 
selling federal land, BLM sold federal land and retained the sales 
proceeds in escrow accounts. Further, BLM did not track these sales 
proceeds in its financial management system. At least some of BLM's 
and the Forest Service's continuing problems may reflect inherent 
underlying difficulties associated with exchanging land—rather than 
buying and selling land for cash. In most circumstances, cash-based 
transactions would be simpler and less costly. 

While both agencies have taken steps to improve their land-exchange 
programs, the many controversies and problems associated with their 
programs reflect, in part, the difficulties and inefficiencies 
inherent in these exchange programs. On the basis of these 
difficulties and inefficiencies, the Congress may wish to consider 
directing both agencies to terminate their land-exchange programs. CBO 
was unable to develop a savings estimate for this option. 

Related GAO Products: 

National Park Service: Federal Taxpayers Could Have Benefited More
From Potomac Yard Land Exchange (GAO-01-292, Mar. 15, 2001). 

BLM and the Forest Service: Land Exchanges Need to Reflect Appropriate 
Value and Serve the Public Interest (GAO/RCED-00-73, June 22, 2000). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Barry Hill, (202) 512-3841: 

Defer Fish and Wildlife Service's Acquisition of New Lands: 

Authorizing committees: Environment and Public Works (Senate); 
Resources (House); 
Appropriations subcommittees: Interior and Related Agencies (House and
Senate); 
Primary agency: Department of the Interior; 
Accounts: Land Acquisition (14-5020); Resource Management (14-1611); 
Spending type: Discretionary
Budget subfunction: 303/Recreational Resources; 
Framework theme: Reassess objectives. 

The Fish and Wildlife Service has increased its land holdings through 
acquisitions with appropriated and nonappropriated funds and by 
accepting donated land from nonfederal entities or transferred land 
that other federal agencies have acquired. It has a goal of annually 
acquiring land for refuges as it identifies acquisition opportunities 
or new areas of biological value. Over the last 30 years, it has 
established more than 200 refuges and acquired about 63 million acres 
of land for the national wildlife refuge system. While the Service 
does not have an estimate of the number of acres remaining to complete 
the refuge system, it did have estimates for 144 refuges as of fiscal 
year 1998. For these, the Service plans showed that about 2.8 million 
acres were still to be acquired with about $3.8 billion in 
appropriated funds. 

The Service continues to acquire land even though it has an almost
$2 billion backlog of operations and maintenance needs. It focuses on 
acquiring lands—to meet its land protection mission—but has not 
adequately considered whether funds will be available for future 
operations and maintenance expenses. For example, in its fiscal year 
2001 budget request, the Service requested a much larger increase for 
land acquisition (116 percent or about $60 million) than it did for 
refuge operations and maintenance (8 percent or nearly $20 million). 
For fiscal year 2000, in comparison, the Service had requested a 53 
percent increase for land acquisition and about 11 percent for refuge 
operations and maintenance. 

Acquiring additional holdings, while a current backlog of operations 
and maintenance needs continues to increase, could potentially 
exacerbate long-term budgetary pressures and contribute to further 
deterioration of the existing program. If the Congress chose to 
address this growing problem, one approach would be to withhold all 
funding for additional land acquisitions for 5 years, so that the Fish 
and Wildlife Service can focus on improving its stewardship 
responsibilities. CBO estimates that deferring Fish and Wildlife land 
purchases for 5 years would result in the following savings. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $101 million; 
FY04: $104 million; 
FY05: $106 million; 
FY06: $109 million; 
FY07: $111 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $38 million; 
FY04: $64 million; 
FY05: $86 million; 
FY06: $98 million; 
FY07: $103 million. 

Note: This estimate is only for savings from deferring land 
acquisition costs and does not account for any changes in operations 
and maintenance expenditures. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Fish and Wildlife Service: Agency Needs to Inform Congress of Future
Costs Associated With Land Acquisitions (GAO/RCED-00-52, Feb. 15, 
2000). 

Fish and Wildlife Service: Agency Needs to Inform Congress of Future 
Costs Associated With Land Acquisitions (GAO/T-RCED-00-89, Feb. 15, 
2000). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Barry Hill, (202) 512-3841: 

Deny Additional Funding for Commercial Fisheries Buyback Programs: 

Authorizing committees: Commerce, Science, and Transportation (Senate); 
Resources (House); 
Appropriations subcommittees: Commerce, Justice, State, and the 
Judiciary (Senate and House); 
Primary agency: Commerce; 
Accounts: Operations, research, and facilities (13-1450); 
Spending type: Discretionary
Budget subfunction: 306/Other natural resources; 
Framework theme: Reassess objectives. 

Fish populations in many commercial fisheries are declining, resulting 
in a growing imbalance between the number of vessels in fishing fleets 
and the number of fish available for harvest. In response to this 
growing imbalance, the federal government has provided $140 million 
since 1995 to purchase fishing permits, fishing vessels, and related 
gear from fishermen, thereby reducing the capacity of fishermen to 
harvest fish. Generally, the government designed these purchases, 
called buybacks, to achieve multiple goals, such as reducing the 
capacity to harvest fish, providing economic assistance to fishermen, 
and improving the conservation of fish. Coastal states issue permits 
and develop and enforce regulations for fishing in waters that are 
near their shores. In areas outside state jurisdiction, the National 
Marine Fisheries Service (NMFS) within the Department of Commerce is 
responsible for issuing permits and developing and enforcing 
regulations for harvesting fish. Because excessive fishing capacity 
has been a continuing problem in many fisheries, several additional 
buybacks have been proposed that, if implemented, would be in excess of
$250 million. 

GAO found that buyback programs in three fisheries we evaluated 
removed from 10 to 24 percent of their respective fishing capacities. 
However, the experiences of these three cases demonstrate that the 
long-term effectiveness of buyback programs depends upon whether 
previously inactive fishermen or buyback beneficiaries return to the 
fishery. For example, while 79 boats were sold in the New England 
buyback, 62 previously inactive boats have begun catching groundfish 
since the buyback. In addition, several buyback participants purchased 
boats with buyback funds and returned to the fishery. Long-term 
effectiveness of buyback programs may also depend on whether fishermen 
have incentives to increase remaining fishing capacity in a fishery. 
Importantly, buyback programs by themselves do not address the root 
cause of excess fishing capacity, that being the ongoing incentives 
fishermen have to invest in larger or better equipped fishing vessels 
in order to catch fish before someone else does. 

The problems of past buyback programs should be addressed as part of 
the design of any future programs. Given the experiences of buyback 
programs to date—both in terms of their limited effects on reducing 
fishing capacity and in terms of their inability to effectively 
address the root causes of overfishing—one option the Congress may 
wish to consider is denying additional funding for proposed programs 
until these fundamental weaknesses are resolved. CBO cannot develop a 
savings estimate without a more specific proposal. 

Related GAO Product: 

Commercial Fisheries: Entry of Fishermen Limits Benefits of Buyback
Programs (GAO/RCED-00-120, June 14, 2000). 

GAO Contact: 

Jim Wells, (202) 512-3841. 

Revise the Mining Law of 1872: 

Authorizing committees: Agriculture, Nutrition and Forestry (Senate); 
Energy and Natural Resources (Senate); Agriculture (House); Resources 
(House); 
Primary agency: Department of the Interior; Department of Agriculture; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

The Mining Law of 1872 allows holders of economically minable claims 
on federal lands to obtain all rights and interests to both the land 
and the hardrock minerals by patenting the claims for $2.50 or $5.00 
an acre--amounts that do not necessarily reflect the market value of 
such lands today. Since 1872, the federal government has patented more 
than 3 million acres of mining claims (an area about the size of 
Connecticut), and some patent holders have reaped huge profits by 
reselling their lands. For example, lands that had been appraised at 
between $14.4 million and $47.1 million in 1988 would have generated 
only about $16,000 for the federal government in 1989 if the claims 
were patented. Furthermore, miners do not pay royalties to the 
government on hardrock minerals they extract from federal lands. In 
1990, hardrock minerals worth at least $1.2 billion were extracted 
from federal lands, while known and economically recoverable reserves 
of hardrock minerals remaining on federal lands were estimated to be 
worth almost $64.9 billion. 

Among the options that are available are to prohibit the issuance of 
new patents, require the payment of fair market value for a patent, or 
otherwise modify the requirements for patenting. Legislation could 
also be enacted to impose royalties on hardrock minerals extracted 
from federal lands. As one possible option, if the Congress adopted a 
5-percent royalty on net smelter returns, CBO estimates that he 
following receipts would be gained. 

Five-Year Savings: 

Savings from the 2002 funding level: Offsetting Receipts; 
FY03: $7 million; 
FY04: $7 million; 
FY05: $7 million; 
FY06: $7 million; 
FY07: $7 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Bureau of Land Management: Improper Charges Made to Mining Law
Administration Program (GAO-01-491T, Mar. 29, 2001). 

Bureau of Land Management: Improper Charges Made to Mining Law 
Administration Program (GAO-01-356, Mar. 8, 2001). 

National Park Service: Agency Should Recover Costs of Validity 
Examinations for Mining Claims (GAO/RCED-00-265, Sept. 19, 2000). 

Review of the Bureau of Land Management's Administration and Use of 
Mining Maintenance Fees (GAO/AIMD-00-184R, June 2, 2000). 

Mineral Royalties: Royalties in the Western States and in Major 
Mineral-Producing Countries (GAO/RCED-93-109, Mar. 29, 1993). 

Natural Resources Management Issues (GAO/OCG-93-17TR, Dec. 1992). 

Mineral Resources: Value of Hardrock Minerals Extracted From and 
Remaining on Federal Lands (GAO/RCED-92-192, Aug. 24, 1992). 

Federal Land Management: The Mining Law of 1892 Needs Revision 
(GAO/RCED-89-72, Mar. 10, 1989). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Barry Hill, (202) 512-3841: 

Coordinate Federal Policies for Subsidizing Water for Agriculture and 
Rural Uses: 

Authorizing committees: Energy and Natural Resources (Senate); 
Resources (House); 
Primary agency: Department of the Interior; 
Spending type: Direct; 
Budget subfunction: 306/Other natural resources; 
Framework theme: Redefine beneficiaries. 

Federal water programs to promote efficient use of finite water 
resources for the nation's agricultural and rural water systems have 
developed inconsistencies that may cause the programs to work at cross-
purposes. In 1995, as many as eight different federal agencies 
administered 17 different programs in the area of rural water and 
wastewater systems. In the area of irrigation, the multiplicity of 
programs and approaches has allowed for inconsistencies and 
potentially counterproductive outcomes. 

To improve the effectiveness and efficiency of federal water programs, 
the Congress could consider several options to reduce duplication or 
inconsistencies, including the following. 

Collecting the Full Costs of Subsidized Federal Water for Large Farms: 

Under the Reclamation Reform Act of 1982, as amended, some farmers 
have reorganized large farming operations into multiple, smaller 
landholdings to be eligible to receive additional federally subsidized 
irrigation water. The act limits to 960 the maximum number of owned or 
leased acres that individuals or legal entities (such as partnerships 
or corporations) can irrigate with federal water at rates that exclude 
interest on the government's investment in the irrigation component of 
its water resource projects. However, due to the vague definition of 
the term "farm," the flow of federally subsidized water to land 
holdings above the 960 acre-limit has not been stopped, and the 
federal government is not collecting revenues to which it is entitled 
under the act. 

Phasing Out the Double Subsidies for Crops: 

The use of federally subsidized water to produce federally subsidized 
crops results in the government paying double subsidies. According to 
the Department of the Interior, from 1976 through 1985, an average of 
38 percent of the acreage served by the Bureau of Reclamation 
nationwide was used to produce crops that are also eligible for 
subsidies through the Department of Agriculture's commodity programs. 
Estimates of the cost of federal water subsidies vary but are 
substantial. The Department of the Interior estimated that irrigation 
subsidies used to produce subsidized crops throughout the 17 western 
states totaled $203 million in 1986; the Bureau of Reclamation placed 
the figure at $830 million. 

Accelerating the Repayment of Water Project Construction Costs: 

By the end of fiscal year 1990, after receiving water from the Central 
Valley Project (CVP) in California's Central Valley Basin for over 40 
years, irrigators had repaid only $10 million, 1 percent, of the over 
$1 billion in construction costs that they owe the federal government. 
In 1986, the Congress required irrigators and other users to pay their 
share of the federal investment in CVP by 2030. While construction 
costs ultimately may be recovered by 2030, the dollars that eventually 
flow to the Treasury could be worth much less than if they had been 
repaid sooner. The Congress may wish to accelerate the repayment 
schedule. 

Fully Recovering the Federal Investments in Rural Water Systems: 

Under the current repayment criteria, approximately $454 million of 
the federal investment in the Pick-Sloan Basin Program (a 
comprehensive plan to manage the water and hydropower resources of the 
Missouri River basin) is unrecoverable. A portion of Pick-Sloan's 
completed facilities was intended for use with irrigation facilities 
that have not been completed and are no longer considered feasible. In 
addition, as the overall federal investment in the other aspects of 
the completed hydropower facilities increases because of changes such 
as renovations and replacements, the amount of the federal investment 
that is unrecoverable will increase. Changing the terms of repayment 
to recover any of the $454 million investment would require 
congressional action. Consistent with previous congressional action 
concerning the program, the Congress could direct the Western Area 
Power Administration to recover the investment through power revenues 
and to take action to minimize any impact on power rates. 

Phasing Out the Interest Subsidies for Irrigators: 

Estimates of the current cost of federal water subsidies are 
substantial. For example, the Department of the Interior reported that 
irrigation subsidies throughout the 17 western states totaled $534 
million in 1986, while the Bureau of Reclamation placed the cost at 
$2.2 billion. Estimates differ because of different definitions of an 
irrigation subsidy, different interest rates used to calculate the 
subsidies, and different methods for compounding unpaid interest. Much 
has changed in the west since the subsidies were established in 1902, 
and it is not known whether the subsidies are still warranted or 
whether irrigators could pay more of the cost of the water delivered. 

CBO cannot estimate savings for these options without further 
information. 

Related GAO Products: 

Rural Water Projects: Federal Assistance Criteria and Potential 
Benefits of the Proposed Lewis and Clark Project (GAO/RCED-99-252T, 
July 29, 1999). 

Rural Water Projects: Identifying the Benefits of the Proposed Lewis 
and Clark Project (GAO/RCED-99-115, May 28, 1999). 

Rural Water Projects: Federal Assistance Criteria Related to the Lewis 
and Clark Rural Water Project (GAO/RCED-98-231T, June 18, 1998). 

Rural Water Projects: Federal Assistance Criteria Related to the Fort 
Peck Reservation Rural Water Project (GAO/RCED-98-230, June 18, 1998).
Rural Water Projects: Federal Assistance Criteria (GAO/RCED-98-204R, 
May 29, 1998). 

Federal Power: Recovery of Federal Investment in Hydropower Facilities 
in the Pick-Sloan Program (GAO/T-RCED-96-142, May 2, 1996). 

Rural Development: Patchwork of Federal Water and Sewer Programs Is 
Difficult to Use (GAO/RCED-95-160BR, Apr. 13, 1995). 

Water Subsidies: Impact of Higher Irrigation Rates on Central Valley 
Project Farmers (GAO/RCED-94-8, Apr. 19, 1994). 

Natural Resources Management Issues (GAO/OCG-93-17TR, Dec. 1992).
Reclamation Law: Changes Needed Before Water Service Contracts Are 
Renewed (GAO/RCED-91-175, Aug. 22, 1991). 

Water Subsidies: The Westhaven Trust Reinforces the Need to Change 
Reclamation Law (GAO/RCED-90-198, June 5, 1990). 

Water Subsidies: Basic Changes Needed to Avoid Abuse of the 960-Acre 
Limit (GAO/RCED-90-6, Oct. 12, 1989). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Barry Hill, (202) 512-3841: 

Reassess Federal Land Management Agencies' Functions and Programs: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Energy and Natural Resources (Senate); Agriculture (House); Resources 
(House); 
Appropriations subcommittees: Interior and Related Agencies (Senate 
and House); 
Primary agency: Department of the Interior; Department of Agriculture; 
Accounts: Multiple; 
Spending type: Discretionary
Budget subfunction: 302/Conservation and land management; 
Framework theme: Improve efficiency. 

The responsibilities of the four major federal land management 
agencies-the National Park Service, the Bureau of Land Management 
(BLM), and the Fish and Wildlife Service within the Department of 
Interior, and the Forest Service within the Department of Agriculture--
have grown more similar over time. Most notably, the Forest Service 
and BLM now provide more noncommodity uses, including recreation and 
protection for fish and wildlife, on their lands. In addition, 
managing federal lands has become more complex. Managers have to 
reconcile differences among a growing number of laws and regulations, 
and the authority for these laws is dispersed among several federal 
agencies and state and local agencies. These changes have coincided 
with two other developments-the federal government's increased 
emphasis on downsizing and budgetary constraint and scientists' 
increased understanding of the importance and functioning of natural 
systems whose boundaries may not be consistent with existing 
jurisdictional and administrative boundaries. Together, these changes 
and developments suggest a basis for reexamining the processes and 
structures under which the federal land management agencies currently 
operate. 

Two basic strategies have been proposed to improve federal land 
management: (1) streamlining the existing structure by coordinating 
and integrating functions, systems, activities, programs, and field 
locations and (2) reorganizing the structure by combining agencies. 
The two strategies are not mutually exclusive and some prior proposals 
have encompassed both. 

Over the last several years, the Forest Service and BLM have 
collocated some offices or shared space with other federal agencies. 
They have also pursued other means of streamlining, sharing resources, 
and saving rental costs. However, no significant legislation has been 
enacted to streamline or reorganize federal land management agencies 
and the four major federal land management agencies have not, to date, 
developed a strategy to coordinate and integrate their functions, 
systems, activities, and programs. 

Without a specific restructuring proposal that would eliminate certain 
programs or revise how the land is managed, CBO is unable to estimate 
savings due to shared resources among the four major land management 
agencies. Savings would depend on the extent of a workforce 
restructuring and implementation proposal. 

Related GAO Products: 

The National Fire Plan: Federal Agencies Are Not Organized to 
Effectively and Efficiently Implement the Plan (GAO-01-1022T, July 31, 
2001). 

Land Management Agencies: Ongoing Initiative to Share Activities and 
Facilities Needs Management Attention (GAO-01-50, Nov. 21, 2000). 

Federal Wildfire Activities: Current Strategy and Issues Needing 
Attention (GAO/RCED-99-223, Aug. 13, 1999). 

Land Management: The Forest Service's and BLM's Organizational 
Structures and Responsibilities (GAO/RCED-99-227, July 29, 1999). 

Ecosystem Planning: Northwest Forest and Interior Columbia River Basin 
Plans Demonstrate Improvements in Land-Use Planning (GAO/RCED-99-64, 
May 26, 1999). 

Land Management Agencies: Revenue Sharing Payments to States and 
Counties (GAO/RCED-98-261, Sept. 17, 1998). 

Federal Land Management: Streamlining and Reorganization Issues
(GAO/T-RCED-96-209, June 27, 1996). 

National Park Service: Better Management and Broader Restructuring 
Efforts Are Needed (GAO/T-RCED-95-101, Feb. 9, 1995). 

Forestry Functions: Unresolved Issues Affect Forest Service and BLM 
Organizations in Western Oregon (GAO/RCED-94-124, May 17, 1994). 

Forest Service Management: Issues to Be Considered in Developing a New 
Stewardship Strategy (GAO/T-RCED-94-116, Feb. 1, 1994). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Barry Hill, (202) 512-3841: 

Pursue Cost-Effective Alternatives to NOANs Research/Survey Fleet: 

Authorizing committees: Commerce, Science and Transportation (Senate); 
Energy and Commerce (House); 
Appropriations subcommittees: Commerce, Justice, State, and the 
Judiciary; 
Primary agency: Department of Commerce; 
Account: Procurement, Acquisition and Construction (13-1460); 
Spending type: Discretionary
Budget subfunction: 306/Other natural resources; 
Framework theme: Improve efficiency. 

The National Oceanic and Atmospheric Administration (NOAA) has an 
aging in-house fleet of 15 ships that are used to support its programs 
in fisheries research, oceanographic research, and hydrographic 
charting and mapping. Most of NOANs ships are past their 30-year life 
expectancies, and many of them are costly and inefficient to operate 
and maintain and lack latest state-of-the-art technology. NOANs ships 
are managed and operated by a NOAA Corps of about 240 uniformed 
service commissioned officers who, like the Public Health Service 
Commissioned Corps, perform civilian rather than military functions 
but are covered by a military-like pay and benefits system. 

For more than a decade, congressional committees, public and private 
sector advisory groups, the National Performance Review (NPR), the 
Commerce Office of Inspector General (OIG), and our office have urged 
NOAA to aggressively pursue more cost-effective alternatives to its in-
house fleet of ships. Since 1990, NOAA has developed several fleet 
replacement and modernization plans that call for investments of 
millions of dollars to upgrade or replace these ships, and each has 
been criticized by the Commerce OIG for not pursuing alternative 
approaches strongly enough. In 1996, the OIG recommended that NOAA 
terminate its fleet modernization efforts; cease investing in its 
ships; immediately begin to decommission, sell, or transfer them; and 
contract for the required ship services. 

In response, NOAA has decommissioned almost one-third of its fleet 
since 1990 and now outsources about 40 percent of its research and 
survey needs. Although NOAA has increased its outsourcing for these 
services and expects to further increase its use of outsourcing to 
about 50 percent over the next 10 years, NOAA continues to rely 
heavily on its old, inefficient fleet and still plans to replace or 
upgrade some of these ships. In this regard, the President's budget 
for fiscal year 2000 proposed $52 million for construction of a new 
fisheries research ship. In addition, Commerce's congressional budget 
presentation for fiscal year 2000 indicated that NOAA planed to spend 
another $133 million during fiscal years 2001 through 2004 for three 
additional replacement ships. 

The Congress approved the $52 million budget request for acquiring the 
first of four new ships. However, in its September 1999 Semiannual 
Report, the Commerce OIG stated that NOAA had not developed a 
contingency plan for collecting fisheries data in the case that it 
does not receive follow-on funding for the remaining vessels. 
According to the OIG, the absence of such a plan places the fisheries 
program at serious risk and NOAA's challenge remains to thoroughly 
assess and aggressively pursue alternative approaches instead of 
relying so heavily on owning and operating an in-house fleet. Pursuing 
cost-effective alternatives could help reduce the additional $133 
million NOAA estimates is needed through fiscal year 2004 for fleet 
replacement. CBO agrees that savings are possible depending on the 
specific alternative that is proposed. 

Related GAO Products: 

Department of Commerce: National Weather Service Modernization and 
NOAA Fleet Issues (GAO/T-AIMD/GGD-99-97, Feb. 24, 1999). 

Major Management Challenges and Program Risks: Department of Commerce 
(GAO/OCG-99-3, Jan. 1999). 

Issues on the National Oceanic and Atmospheric Administration's 
Commissioned Corps (GAO/GGD-98-35R, Dec. 2, 1997). 

National Oceanic and Atmospheric Administration: Issues on the 
Civilianization of the Commissioned Corps (GAO/T-GGD-98-22, Oct. 29, 
1997). 

Federal Personnel: Issues on the Need for NOAA's Commissioned Corps 
(GAO/GGD-97-10, Oct. 31, 1996). 

Research Fleet Modernization: NOAA Needs to Consider Alternatives to 
the Acquisition of New Vessels (GAO/RCED-94-170, Aug. 3, 1994). 

GAO Contact: 

J. Christopher Mihm, (202) 512-6806: 

Increase Federal Revenues through Water Transfers: 

Authorizing committees: Energy and Natural Resources (Senate); 
Resources (House); 
Primary agency: Department of the Interior; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

Water transfers, in which rights to use water are bought and sold, are 
a mechanism for reallocating scarce water to new users by allowing 
those who place the highest economic value on the resource to purchase 
it. Water transfers are a valuable tool for improving the efficiency 
of water use and environmental quality and can be a promising way to 
increase federal revenues for water development projects. Current 
reclamation law provides the Secretary of the Interior with discretion 
in establishing municipal and industrial charges to recover some of 
the costs of constructing the projects. However, Interior's principles 
governing water transfers focus on facilitating transfers and placing 
the government in the same or a better financial condition after a 
transfer is made, rather than charging the highest amounts possible 
without discouraging transfers. Increasing federal revenues will 
reduce the net benefits to the buyers and sellers, thereby 
discouraging some transfers. Deciding how much the Bureau of 
Reclamation should charge for transferred water involves balancing the 
increase in federal revenues with retaining incentives for water 
transfers to occur. Moreover, many reclamation projects have specified 
interest rates in authorizing legislation that limit interest charges 
below current levels. 

The Congress may wish to change reclamation law to allow the use of 
current Treasury borrowing rates in establishing charges for 
transferred water. If this change was implemented in 2000, CBO 
estimates the following additional receipts. This estimate assumes 
that 3 percent of the outstanding irrigation-related debt of about $2 
billion is annually traded, with the interest rate tied to the 30-year 
Treasury rate. 

Five-Year Savings: 

Added Receipts: 
FY03: $3 million; 
FY04: $4 million; 
FY05: $4 million; 
FY06: $4 million; 
FY07: $4 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Bureau of Reclamation: Water Marketing Activities and Costs at the
Central Valley Project (GAO-01-553, May 4, 2001). 

Water Markets: Increasing Federal Revenues Through Water Transfers 
(GAO/RCED-94-164, Sept. 21, 1994). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Barry Hill, (202) 512-3841: 

[End of section] 

350 Agriculture: 

* Terminate or Significantly Reduce the Department of Agriculture's 
Market Access Program; 
* Lower the Sugar Program's Loan Rate to Processors; 
* Consolidate Common Administrative Functions at USDA; 
* Further Consolidate USDA's County Offices; 
* Revise the Marketing Assistance Loan Program to Better Reflect 
Market Conditions. 

Terminate or Significantly Reduce the Department of Agriculture's 
Market Access Program: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Agriculture (House); 
Appropriations subcommittees: Agriculture, Rural Development, and 
Related Agencies (Senate); Agriculture, Rural Development, FDA, and 
Related Agencies (House); 
Primary agency: Department of Agriculture; 
Account: Commodity Credit Corporation (12-4336); 
Spending type: Discretionary; 
Budget subfunction: 351/Farm income stabilization; 
Framework theme: Reassess objectives. 

The Market Access Program is an export promotion program operated by 
the Foreign Agricultural Service of the Department of Agriculture. The 
$90 million program subsidizes the promotion of U.S. agricultural 
products in overseas markets. Through a cost-sharing arrangement, the 
program helps fund overseas promotions conducted by U.S. agricultural 
producers, cooperatives, exporters, and trade associations. About 
three-quarters of the program budget supports generic promotions, with 
the remaining funds supporting brand-name promotions. 

Beginning in fiscal year 1993, the Congress directed that changes be 
made to the program in order to increase the emphasis on small 
businesses, establish a graduation limit, and certify that program 
funds supplement, not supplant, private sector expenditures. From 
fiscal year 1994 through fiscal year 1997, program reforms resulted in 
increases to the number of small businesses participating in the 
program as well as small businesses' share of program funds. In 
addition, in 1998, the Foreign Agricultural Service prohibited direct 
and indirect assistance to large companies for brand-name promotions 
unless the assistance was provided through cooperatives and certain 
associations. The Service also implemented a 5-year graduation 
requirement for brand-name promotional activities but waived this 
requirement for cooperatives. As a result, $5 million of promotional 
activities by cooperatives for brand-name products remained eligible 
for program funding. 

Questions remain about the overall economic benefits derived from the 
Market Access Program. Estimates of the program's macroeconomic impact 
developed by the Foreign Agricultural Service are overstated and rely 
on a methodology that is inconsistent with Office of Management and 
Budget cost/benefit guidelines. In addition, the evidence from market-
level studies is inconclusive regarding program impact on specific 
commodities in specific markets. Furthermore, it is difficult to 
ensure that funds for promotional activities are in addition to 
private sector expenditures because it is hard to determine what would 
have been spent in the absence of program funds. 

The Conference Report on the Omnibus Consolidated and Emergency 
Supplemental Appropriations Act of 1999 directed the Secretary of 
Agriculture to submit a report that, among other things, estimates the 
economic impact of the Market Access Program, analyzes the costs and 
benefits of the program in a manner consistent with government 
cost/benefit guidelines, and evaluates the additional spending of 
participants and additional exports resulting from the program. In its 
report, the Foreign Agricultural Service plans to combine the results 
of an external review of a sample of promotional programs with a study 
of overall program impact. Unless the report provides convincing 
evidence that the program has a positive economic impact, results in 
increased exports that would not have occurred without the program, 
and supplements and does not supplant private sector expenditures, the 
Congress might choose to terminate the program or significantly reduce 
its funding. CBO estimates the following savings could be achieved if 
the Market Access Program is terminated. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $5 million; 
FY04: $73 million; 
FY05: $90 million; 
FY06: $90 million; 
FY07: $90 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $5 million; 
FY04: $73 million; 
FY05: $90 million; 
FY06: $90 million; 
FY07: $90 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Agricultural Trade: Changes Made to Market Access Program, but
Questions Remain on Economic Impact (GAO/NSIAD-99-38, Apr. 5, 1999). 

U.S. Agricultural Exports: Strong Growth Likely, but U.S. Export 
Assistance Programs' Contribution Uncertain (GAO/NSIAD-97-260, Sept. 
30, 1997). 

Farm, Bill Export Options (GAO/GGD-96-39R, Dec. 15, 1995). 

Agricultural Trade: Competitor Countries' Foreign Market Development 
Program (GAO/T-GGD-95-184, June 14, 1995). 

International Trade: Changes Needed to Improve Effectiveness of the 
Market Promotion Program (GAO/GGD-93-125, July 7, 1993). 

U.S. Department of Agriculture: Improvements Needed in Market 
Promotion Program (GAO/T-GGD-93-17, Mar. 25, 1993). 

GAO Contact: 

Loren Yager, (202) 512-4128: 

Lower the Sugar Program’s Loan Rate to Processors: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Agriculture (House); 
Appropriations subcommittees: Agriculture, Rural Development, and 
Related Agencies (Senate); Agriculture, Rural Development, FDA, and 
Related Agencies (House); 
Primary agency: Department of Agriculture; 
Account: Commodity Credit Corporation (12-4336); 
Spending type: Direct; 
Budget subfunction: 351/Farm income stabilization; 
Framework theme: Redefine beneficiary. 

The sugar program, administered by the U.S. Department of Agriculture 
(USDA), guarantees domestic cane sugar and beet sugar producers 
(growers and processors) a minimum price for sugar, which during the 
past year has been about three times the world market price. The sugar 
program supports domestic sugar prices by offering loans to sugar 
processors at a rate established by law: 18 cents per pound for raw 
cane sugar and 22.9 cents per pound for refined beet sugar, with the 
sugar serving as collateral for these loans. The program has allowed 
processors to forfeit their sugar to the federal government instead of 
repaying their loans—which they are likely to do if domestic sugar 
prices fall below the level of the loan rate plus certain costs that 
processors would no longer incur if they forfeited. To minimize the 
likelihood of forfeitures, a direct cost to taxpayers, the sugar 
program has maintained artificially high sugar prices by using a 
tariff-rate quota to restrict the amount of sugar that can be imported 
at a low tariff duty. 

The sugar program increases users' costs. The program's costs depend 
on the world price of sugar and tend to be higher when the difference 
between the domestic and the world price is greater. GAO estimated 
that the program cost domestic sweetener users about $1.5 billion in 
1996 and about $1.9 billion in 1998 (in 1999 dollars). The program's 
costs were higher in 1998 because the world price dropped while the 
domestic price remained about the same. The sugar program also added 
to the federal government's costs in fiscal year 2000. USDA spent $54 
million to purchase sugar on the domestic market to help maintain 
prices and prevent sugar loan forfeitures in May and June 2000. USDA 
also took possession of about 950,000 tons of sugar valued at about 
$380 million that processors have forfeited instead of repaying their 
sugar loans. The sugar program has an additional effect on government 
costs because the government purchases sugar and sugar-containing 
products for food assistance programs, consumption by the military, 
and other purposes. 

The Congress and USDA may want to take steps to gradually lower the 
loan rates and increase the tariff-rate quota accordingly to reduce 
the costs of the sugar program to both sugar users and the government. 
For example, if the Congress lowered the loan rates for cane and beet 
sugar by two cents per pound each, government savings might accrue in 
two ways. The lower loan rates would reduce the likelihood of loan 
forfeitures and the resulting lower market price for sugar would 
reduce the amount the government spends for sugar and sugar-containing 
products that it buys for government feeding programs, consumption by 
the military, and other purposes. While CBO agrees that this proposal 
could lead to savings, they are not able to estimate specific savings 
at this time. 

Related GAO Products: 

Sugar Program: Supporting Sugar Prices Has Increased Users' Costs
While Benefiting Producers (GAO/RCED-00-126, June 9, 2000). 

Sugar Program: Changing the Method for Setting Import Quotas Could 
Reduce Cost to Users (GAO/RCED-99-209, July 26, 1999). 

Sugar Program: Impact on Sweetener Users and Producers (GAO/TRCED-95-
204, May 24, 1995). 

Sugar Program: Changing Domestic and International Conditions Require 
Program Changes (GAO/RCED-93-84, Apr. 16, 1993). 

GAO Contact: 

Lawrence J. Dyckman, (202) 512-5138: 

Consolidate Common Administrative Functions at USDA: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Agriculture (House); 
Appropriations subcommittees: Agriculture, Rural Development, and 
Related Agencies (Senate); Agriculture, Rural Development, FDA, and 
Related Agencies (House); 
Primary agency: Department of Agriculture; 
Accounts: Multiple; 
Spending type: Discretionary/Direct; 
Budget subfunction: 352/Agricultural research and services; 
Framework theme: Improve efficiency. 

In accordance with the Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994, USDA has engaged in a 
reorganization and modernization effort targeted at achieving greater 
economy and efficiency and better customer service by the Farm Service 
Agency, the Natural Resources and Conservation Service, and the 
agencies in the Rural Development mission. USDA's efforts consist of 
five interrelated initiatives: (1) collating the agencies' county and 
state offices, (2) merging the agencies' administrative functions at 
the state and headquarters level under a single support organization, 
(3) redesigning agencies' business processes, (4) modernizing 
information technology, and (5) changing the agencies' cultures to 
improve customer services. 

USDA's progress in these initiatives has been mixed. For example, 
despite the agencies' collocation of county offices and other efforts, 
little has changed in how the three agencies serve their customers. 
Also, many modernization and reengineering projects have encountered 
delays. 

To further streamline its organization, increase efficiency, and 
reduce overhead costs associated with running separate offices, USDA 
could do more to combine agencies' support functions, such as 
legislative and legal affairs and public information, into a single 
office serving the needs of all mission component agencies. In 
addition, even though USDA has developed a plan to converge 
administrative functions for county-based agencies, a number of 
obstacles need to be overcome if the plan is to be successfully 
implemented, including the selection of a strong leadership team to 
implement the convergence plan. CBO agrees that this option could 
potentially yield savings, but did not develop a savings estimate due 
to uncertainty of the extent to which improved efficiencies actually 
lead to budgetary savings. 

Related GAO Products: 

USDA Reorganization: Progress Mixed in Modernizing the Delivery of
Services (GAO/RCED-00-43, Feb. 3, 2000). 

U.S. Department of Agriculture: Administrative Streamlining is 
Expected to Continue Through 2002 (GAO/RCED-99-34, Dec. 11, 1998). 

U.S. Department of Agriculture: Update on Reorganization and 
Streamlining Efforts (GAO/RCED-97-186R, June 24, 1997). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Lawrence J. Dyckman, (202) 512-3841: 

Further Consolidate USDA’s County Offices: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Agriculture (House); 
Appropriations subcommittees: Agriculture, Rural Development, and 
Related Agencies (Senate); Agriculture, Rural Development, FDA, and 
Related Agencies (House); 
Primary agency: Department of Agriculture; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 351/Farm income stabilization; 
Framework theme: Improve efficiency. 

USDA maintains a field office structure that dates back to the 1930s 
when transportation and communication systems limited the geographic 
boundaries covered by a single field office and when there were a 
greater number of small, widely disbursed, family-owned farms. In 
1933, the United States had more than 6 million farmers; today the 
number of farms in the United States is less than 2 million and a 
small fraction of these produce more than 70 percent of the nation's 
agricultural output. At various times, the Congress has attempted to 
reduce the number of county offices serving farmers and/or reduce 
county office staffing. Most recently, the Federal Crop Insurance 
Reform and Department of Agriculture Reorganization Act of 1994 (P.L. 
103-354, Oct. 13, 1994) directed the Secretary of Agriculture to 
streamline departmental operations by consolidating county offices. 

In response to the Agriculture Reorganization Act, USDA has closed 
over 1,000 county office locations and reduced staffing at its county 
offices. However, as the agency states in its September 2001 Food and 
Agricultural Policy: Taking Stock for the New Century, "Further 
actions are necessary to ensure that the USDA farm service structure 
is appropriately sized, configured, and located for efficient 
provision of the new services demanded by a rapidly evolving food and 
agriculture system." 

USDA could further consolidate its county office field structure, for 
example, by closing more of its small county offices. Criteria for 
determining which small county offices to close could include the (1) 
distance from another county office, (2) time spent on administrative 
duties, and (3) number of farmers who receive USDA financial benefits. 
Although CBO agrees that closing offices that serve few farmers would 
produce savings, it cannot develop a savings estimate until a specific 
proposal is identified. 

Related GAO Products: 

USDA Reorganization: Progress Mixed in Modernizing the Delivery of
Services (GAO/RCED-00-43, Feb. 3, 2000). 

Farm, Service Agency: Characteristics of Small County Offices 
(GAO/RCED-99-102, May 28, 1999). 

U.S. Department of Agriculture: Status of Closing and Consolidating 
County Offices (GAO/T-RCED-98-250, July 29, 1998). 

Farm Programs: Service to Farmers Will Likely Change as Farm Service 
Agency Continues to Reduce Staff and Close Offices (GAO/RCED-98-136, 
May 1, 1998). 

Farm Programs: Administrative Requirements Reduced and Further Program 
Delivery Changes Possible (GAO/RCED-98-98, Apr. 20, 1998). 

Farm Programs: Impact of the 1996 Farm Act on County Office Workload 
(GAO/RCED-97-214, Aug. 19, 1997). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Lawrence J. Dyckman, (202) 512-3841: 

Revise the Marketing Assistance Loan Program to Better Reflect Market 
Conditions: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Agriculture (House); 
Appropriations subcommittees: Agriculture, Rural Development, and 
Related Agencies (Senate); Agriculture, Rural Development, FDA, and 
Related Agencies (House); 
Primary agency: Department of Agriculture; 
Account: Commodity Credit Corporation Fund (12-4336); 
Spending type: Direct; 
Budget subfunction: 351/Farm income stabilization; 
Framework theme: Improve efficiency. 

The U.S. Department of Agriculture's (USDA) marketing assistance loan 
program is designed to provide producers of certain crops—wheat, feed 
grains, oilseeds, upland cotton, and rice—with interim financial 
assistance at harvest, when prices are usually lower than at other 
times of the year. The program is composed of two major components—
loans and loan deficiency payments. Under the loan component, 
producers can use their harvested crop as collateral to obtain the 
loans. The program gives producers the choice of one of three options 
for settling marketing loans, effectively guaranteeing a minimum price 
for these crops. First, producers can sell their crop and repay the 
loan with interest, which they are likely to do if the market price is 
high. Second, if crop prices remain too low to allow producers to 
repay the loan plus interest, they can sell the crop and repay the 
loan at the posted county price and keep the difference, which is 
called a marketing loan gain. Finally, if the price is low, producers 
can forfeit their collateral and keep the loan amount. The program's 
other component—the loan deficiency payment—reflects the difference by 
which the applicable county loan rate exceeds the posted county price 
on the day a producer requests such a payment. If producers choose 
this component, they receive a cash payment and can sell their crop 
whenever they choose. The amount of a marketing assistance loan is 
based on the amount of the crop offered as collateral multiplied by 
the county loan rate. This rate is a per-unit price for each crop that 
is established on a national basis by law and then adjusted by USDA to 
reflect county variations in market prices across the country. In 
accordance with current farm legislation, the Secretary of Agriculture 
may adjust the marketing assistance loan rate annually within the 
national loan rates legislatively established for specific crops. 

Cash payments for this program have significantly increased in the 
last few years. In 1996, the market assistance loan program served 
primarily as a source of interim financing because crop prices were 
high enough to enable producers to sell their crops and repay their 
loans. However, in 1998, when market prices fell below the loan rates, 
a large number of producers turned to the program as a source of 
income. For 1998 crops, the program provided $6.7 billion in loans. It 
also provided $3.7 billion for cash payments (as of September 22, 
1999), up from $162 million in payments for 1997 crops. Payments grew 
to more than $15 billion for 1999 and 2000 crops combined. Although 
the Secretary of Agriculture has the authority to adjust county loan 
rates, USDA has generally not done so since 1995 because the demand 
for loans prior to 1998 was low. More recently, USDA did not want to 
lower loan rates during the current period of low crop prices. 
According to a USDA estimate, however, revising the marketing 
assistance loan rate for the 1999 crop of wheat, corn, and other feed 
grains to better reflect current market conditions would have reduced 
outlays for marketing loan gains and loan deficiency payments by about 
$900 million. 

To ensure proper controls over program costs, the Congress could 
direct the Secretary of Agriculture to annually adjust county loan 
rates for wheat, corn, other feed grains, and oilseeds to accurately 
reflect current market conditions. For example, in 1999, the Secretary 
was authorized to lower the marketing assistance loan rate for corn by 
about 5 percent. If the Congress had directed the Secretary to adjust 
the rates in 1999, USDA estimated that savings of $900 million would 
have occurred. Although future savings cannot be determined until 
final crop year prices are known, CBO agrees that savings can accrue 
through more timely adjustments. 

Related GAO Products: 

Farm Programs: Changes to the Marketing Assistance Loan Program Have 
Had Little Impact on Payments (GAO-01-964, Sept. 28, 2001). 

Farm Programs: Information on Recipients of Federal Payments (GAO-01-
606, June 15, 2001). 

U.S. Department of Agriculture: Marketing Assistance Loan Program 
Should Better Reflect Market Conditions (GAO/RCED-00-9, Nov. 23, 1999). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Lawrence J. Dyckman, (202) 512-5138: 

[End of section] 

370 Commerce and Housing Credit: 

* Recapture Interest on Rural Housing Loans; 
* Require Self-Financing of Mission Oversight by Fannie Mae and 
Freddie Mac; 
* Reduce FHA's Insurance Coverage; 
* Merging USDA and HUD Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs; 
* Consolidate Homeless Assistance Programs. 

Recapture Interest on Rural Housing Loans: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate); 
Financial Services (House); 
Appropriations subcommittees: Agriculture, Rural Development, and
Related Agencies (Senate); Agriculture, Rural Development, Food and 
Drug Administration, and Related Agencies (House); 
Primary agency: Department of Agriculture; 
Account: Rural Housing Insurance Fund (12-2081); 
Spending type: Direct; 
Budget subfunction: 371/Mortgage credit; 
Framework theme: Redefine beneficiaries. 
		
The Housing Act of 1949, as amended, requires the USDA's Rural Housing 
Service (RHS) to recapture a portion of the subsidy provided over the 
life of direct housing loans it makes when the borrower sells or 
vacates a property. The rationale being that because taxpayers paid a 
portion of the mortgage, they are entitled to a portion of the 
property's appreciation. 

Because recapture is not mandated when homes are refinanced, RHS' 
policy allows borrowers who pay off direct RHS loans but continue to 
occupy the properties to defer the payments for recapturing the 
subsidies. As of July 31, 1999, RHS' records showed that about $140 
million was owed by borrowers who had refinanced their mortgages but 
continued to occupy the properties. RHS does not charge interest on 
the amounts owed by these borrowers. 

Legislative changes could be made to allow RHS to charge market rate 
interest on recapture amounts owed by borrowers to help recoup the 
government's administrative and borrowing costs. CBO's estimate of the 
savings for this option is presented on a net present-value basis as 
required by the Federal Credit Reform Act of 1990. Actual savings 
could differ depending on how this proposal would affect the rate at 
which homes are sold. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $45 million; 
FY04: 0; 
FY05: 0; 
FY06: 0; 
FY07: 0. 

Savings from the 2002 funding level: Outlays; 
FY03: $45 million; 
FY04: 0; 
FY05: 0; 
FY06: 0; 
FY07: 0. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Rural Housing Programs: Opportunities Exist for Cost Savings and
Management Improvement (GAO/RCED-96-11, Nov. 16, 1995). 

GAO Contact: 

Stanley J. Czerwinski, (202) 512-7631: 

Require Self-Financing of Mission Oversight by Fannie Mae and Freddie 
Mac: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate); 
Financial Services (House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Housing and Urban Development; 
Accounts: Office of Federal Housing Enterprise Oversight, Salaries and 
Expenses (86-5272); 
Spending type: Direct; 
Budget subfunction: 371/Mortgage credit; 
Framework theme: Redefine beneficiaries. 

The Congress established and chartered the Federal National Mortgage 
Association (Fannie Mae) and the Federal Home Loan Mortgage 
Corporation (Freddie Mac) as government-sponsored enterprises. These 
enterprises are privately-owned corporations chartered to enhance the 
availability of mortgage credit across the nation. The Congress also 
charged the Department of Housing and Urban Development (HUD) with 
mission oversight responsibility for the enterprises, which includes 
ensuring that housing goals established by HUD result in enhanced 
housing opportunities for certain groups of borrowers. 

Other federal organizations responsible for regulating government-
sponsored enterprises are financed by assessments on the regulated 
entities. However, HUD's mission oversight expenditures are funded 
with taxpayer dollars from HUD's appropriations. Accordingly, HUD's 
capability to strengthen its enterprise housing mission oversight may 
be limited because resources that could be used for that purpose must 
compete with other priorities. For example, HUD's capacity to 
implement a program to verify housing goal data, which would 
necessarily involve a commitment of additional resources, may be 
limited. 

Requiring Fannie Mae and Freddie Mac to reimburse HUD for mission 
oversight expenditures would not only result in the savings shown 
below but would also enable HUD to strengthen its oversight activities. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $10 million; 
FY04: $10 million; 
FY05: $10 million; 
FY06: $10 million; 
FY07: $10 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $10 million; 
FY04: $10 million; 
FY05: $10 million; 
FY06: $10 million; 
FY07: $10 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Federal Housing Enterprises: HUD's Mission Oversight Needs to Be
Strengthened (GAO/GGD-98-173, July 28, 1998). 

Government-Sponsored Enterprises: Advantages and Disadvantages of 
Creating a Single Housing GSE Regulator (GAO/GGD-97-139, July 9, 1997). 

Government-Sponsored Enterprises: A Framework for Limiting the 
Government's Exposure to Risks (GAO/GGD-91-90, May 22, 1991). 

GAO Contact: 

Thomas J. McCool, (202) 512-8678: 

Reduce FHA’s Insurance Coverage: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate); 
Financial Services (House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Housing and Urban Development; 
Account: FHA-Mutual Mortgage Insurance Fund (86-0183); 
Spending type: Discretionary/Direct; 
Budget subfunction: 371/Mortgage credit; 
Framework theme: Improve efficiency. 

Through its Federal Housing Administration (FHA), the Department of 
Housing and Urban Development (HUD) insures private lenders against 
nearly all losses resulting from foreclosures on single-family homes 
insured under its Mutual Mortgage Insurance Fund. The Department of 
Veterans Affairs (VA) also operates a single-family mortgage guaranty 
program. However, unlike FHA, VA covers only 25 to 50 percent of the 
original loan amount against losses incurred when borrowers default on 
loans, leaving lenders responsible for any remaining losses. 

In May 1997, GAO reported that reducing FHAs insurance coverage to the 
level permitted for VA home loans would likely reduce the Fund's 
exposure to financial losses, thereby improving its financial health. 
As a result, the Fund's ability to maintain financial self-sufficiency 
in an uncertain future would be enhanced. For example, if insurance 
coverage on FHAs 1995 loans were reduced to VA's levels and a 14 
percent volume reduction in lending was assumed, GAO estimated that 
the economic value of the loans would increase by $52 million to $79 
million. Economic value provides an estimate of the profitability of 
FHA loans, which is important because estimated increases in economic 
value due to legislative changes allow additional mandatory spending 
authorizations to be made, other revenues to be reduced, or projected 
savings in the federal budget to be realized. Reducing FHAs insurance 
coverage would likely improve the financial health of the fund because 
the reduction in claim payments resulting from lowered insurance 
coverage would more than offset the decrease in premium income 
resulting from reduced lending volume. 

Legislative changes could be made to reduce FHA's insurance coverage. 
Savings under this option would depend on future economic conditions, 
the volume of loans made, how higher risk and lower risk borrowers 
would be identified for exclusion from the program, and whether some 
losses may be shifted from FHA to the Government National Mortgage 
Association. In addition, reducing FHA's insurance coverage does pose 
trade-offs affecting lenders, borrowers, and FHA's role, such as 
diminishing the federal role in stabilizing markets. Low-income, first-
time, and minority home buyers and those individuals purchasing older 
homes are most likely to experience greater difficulty in obtaining a 
home mortgage. 

CBO did not provide a savings estimate for this option because the 
amount of potential savings would depend on the reaction of lenders 
and the resulting demand for FHA's products. 

Related GAO Product: 

Homeownership: Potential Effects of Reducing FHA's Insurance
Coverage for Home Mortgages (GAO/RCED-97-93, May 1, 1997). 

GAO Contact: 

Stanley J. Czerwinski, (202) 512-7631: 

Merging USDA and HUD Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate); 
Financial Services (House); 
Appropriations subcommittees: Agriculture, Rural Development, FDA and 
Related Agencies; VA, HUD and Independent Agencies (House); 
Agriculture, Rural Development and Related Agencies; VA, HUD, and 
Independent Agencies (Senate); 
Primary agency: Department of Agriculture; Department of Housing and 
Urban Development; 
Accounts: Multiple; 
Spending type: Discretionary/Direct; 
Budget subfunction: 371/Mortgage credit; 
Framework theme: Improve efficiency. 

USDA, primarily through its Rural Housing Service (RHS), has 
jurisdiction over most federal rural housing programs. HUD, primarily 
through its Federal Housing Administration (FHA), has jurisdiction 
over the major nationwide federal housing programs. As the 
distinctions between rural and urban life have blurred and federal 
budgets have tightened, the need for the separate rural housing 
programs, first created in the mid-1930s to stimulate the rural 
economy and assist needy rural families, is questionable. 

Similarities exist between the RHS and FHA programs for delivering 
rural housing, and efficiencies could be achieved by merging the two 
programs. For instance, RHS' single-family guaranteed loan program and 
FHAs single-family insured loan program both primarily target low- and 
moderate-income households, use the same qualifying ratios, and 
operate in the same markets. Even though RHS' program offers more 
attractive terms for the borrower and is available only in rural 
areas, whereas FHAs program is available nationwide, both programs 
could be offered through the same network of lenders. Adapting each 
one's best practices for use by the other and eliminating 
inconsistencies in the rules applicable to private owners under the 
current programs would improve the efficiency with which the federal 
government delivers rural housing programs. 

As we recently reported, to optimize the federal role in rural 
housing, the Congress may wish to consider requiring USDA and HUD to 
examine the benefits and costs of merging those programs that serve 
similar markets and provide similar products. As a first step, the 
Congress could consider requiring RHS and HUD to explore merging their 
single-family insured lending programs and multifamily portfolio 
management programs, taking advantage of the best practices of each 
and ensuring that targeted populations are not adversely affected. CBO 
cannot estimate savings for this option without a more specific 
proposal. 

Related GAO Product: 

Rural Housing: Options for Optimizing the Federal Role in Rural
Housing Development (GAO/RCED-00-241, Sept. 15, 2000). 

GAO Contact: 

Stanley J. Czerwinski, (202) 512-7631. 

Consolidate Homeless Assistance Programs: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate); 
Financial Services (House); 
Appropriations subcommittees: Agriculture, Rural Development, FDA and 
Related Agencies; VA, HUD and Independent Agencies (House); 
Primary agency: Department of Housing and Urban Development; 
Accounts: Multiple; 
Spending type: Discretionary/Direct; 
Budget subfunction: Multiple; 
Framework theme: Improve efficiency. 
	
In 1987, the Congress passed the Stewart B. McKinney Act (Pi. 100-77) 
to provide a comprehensive federal response to address the multiple 
needs of homeless people. The act encompassed both existing and new 
programs, including those providing emergency food and shelter, those 
offering longterm housing and supportive services, and those designed 
to demonstrate effective approaches for providing homeless people with 
services. Over the years, some of the original McKinney programs have 
been consolidated or eliminated, and some new programs have been 
added. Today homeless people receive assistance through these programs 
as well as other federal programs that are not authorized under the 
McKinney Act but are nevertheless specifically targeted to serve the 
homeless population. In February 1999, we reported that seven federal 
agencies administer 16 programs that are targeted to serve the 
homeless population. In fiscal year 1997, these agencies obligated 
over $1.2 billion for homeless assistance programs, and the programs 
administered by the Department of Housing and Urban Development (HUD) 
accounted for about 70 percent of this total. 

While these federal programs offer a wide range of services to the 
homeless population, some of these services appear similar. For 
example, food and nutrition services can be provided to homeless 
people through eight different programs administered by five different 
agencies. Moreover, our work at the state and local level has found 
that state and local government officials generally believe that the 
federal government has not done a good job of coordinating its various 
homeless assistance programs. This perceived lack of coordination 
could adversely affect the ability of states and localities to 
integrate their own programs. Also, we recently reported that, because 
different homeless assistance programs have varying sets of 
eligibility and funding requirements, they can cause coordination 
difficulties for the federal agencies administering them as well as 
administrative and coordination burdens for the states and communities 
that have to apply for and use these funds. 

Congress may wish to consider consolidating all homeless assistance 
programs under HUD because HUD (1) has taken a leadership role in the 
area of homelessness, (2) has developed a well-respected approach for 
delivering homeless assistance programs called the Continuum of Care, 
and (3) is currently responsible for administering 70 percent of the 
funds for four key programs targeted to the homeless. Consolidating 
all of the homeless assistance programs under HUD should result in 
administrative and operational efficiencies at the federal level as 
well as reduce the administrative and coordination burdens of state 
and local governments. However, without a specific legislative 
proposal, CBO is unable to estimate the potential savings for this 
option.
Related GAO Products: 

Homelessness: Consolidating HUD's McKinney Programs (GAO/T-RCED-
00-187, May 23, 2000). 

Homelessness: State and Local Efforts to Integrate and Evaluate 
Homeless Assistance Programs (GAO/RCED-99-178, June 29, 1999). 

Homelessness: Coordination and Evaluation of Programs Are Essential 
(GAO/RCED-99-49, Feb. 26, 1999). 

Homelessness: McKinney Act Programs Provide Assistance but Are Not 
Designed to Be the Solution (GAO/RCED-94-37, May 31, 1994). 

GAO Contact: 

Stanley J. Czerwinski, (202) 512-7631: 

[End of section] 

400 Transportation: 

* Eliminate the Pulsed Fast Neutron Analysis Inspection System; 
* Restructure Amtrak to Reduce or Eliminate Federal Subsidies; 
* Eliminate Cargo Preference Laws to Reduce Federal Transportation 
Costs; 
* Increase Aircraft Registration Fees to Recover Actual Costs; 
* Improve Department of Transportation's Oversight of Its University 
Research; 
* Apply Cost-Benefit Analysis to Replacement Plans for Airport 
Surveillance Radars; 
* Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities; 
* Convert Some Support Officer Positions to Civilian Status. 

Eliminate the Pulsed Fast Neutron Analysis Inspection System: 

Authorizing committees: Multiple; 
Appropriations subcommittees: Multiple; 
Primary agency: Multiple; 
Account: FAA—Research, Engineering and Development (69-8108-07-402); 
Spending type: Discretionary; 
Budget subfunction: 402/Air Transportation; 
Framework theme: Reassess objectives. 

One type of technology under development for detecting explosives and 
narcotics is a pulsed fast neutron analysis (PFNA) inspection system. 
PFNA is designed to directly and automatically detect and measure the 
presence of specific materials (e.g., cocaine) by exposing their 
constituent chemical elements to short bursts of subatomic particles 
called neutrons. As reported in our April 1999 report, U.S. Customs 
Service, Department of Defense (DOD), and Federal Aviation 
Administration (FAA) officials stated they do not believe that the 
current PFNA system would meet their operational requirements because 
it was too expensive (at least $10 million per unit to acquire) and 
too large for operational use in most ports of entry or other sites. 
FAA currently has a PFNA development program and estimates that 
completing a PFNA field test at an airport could occur as late as 2005 
and cost about $40 million. Customs has made a commitment to conduct a 
controlled operational test of PFNA if the Congress provides funding 
of $10 million. DOD is no longer involved in PFNA testing and 
acquisition. 

If the Congress chose to eliminate PFNA—a system that the agencies do 
not want—the Congressional Budget Office states that the following 
savings would result for FAA. Because Customs did not receive specific 
appropriations for PFNA, there would be no savings for Customs. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $5 million; 
FY04: $5 million; 
FY05: $5 million; 
FY06: $6 million; 
FY07: $6 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $3 million; 
FY04: $5 million; 
FY05: $5 million; 
FY06: $5 million; 
FY07: $6 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Terrorism and Drug Trafficking: Testing Status and Views on
Operational Viability of Pulsed Fast Neutron Analysis Technology 
(GAO/GGD-99-54, Apr. 13, 1999). 

GAO Contact: 

Laurie E. Ekstrand, (202) 512-8777: 

Restructure Amtrak to Reduce or Eliminate Federal Subsidies: 

Authorizing committees: Commerce, Science, and Transportation (Senate); 
Transportation and Infrastructure (House); 
Appropriations subcommittees: Transportation (Senate and House); 
Primary agency: National Railroad Passenger Corporation; 
Account: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 401/Ground Transportation; 
Framework theme: Reassess objectives. 

The National Railroad Passenger Corporation (Amtrak) is the operator 
of the nation's intercity passenger rail service. As a private 
corporation, it operated trains in 45 states, serving about 22 million 
riders in 2000 (about 60,000 per day). Like major national intercity 
passenger rail systems outside the United States, Amtrak receives 
government support. Since Amtrak's creation in 1970, the federal 
government has provided nearly $24 billion in operating and capital 
assistance to Amtrak. In 2000, the railroad lost $944 million 
(exclusive of federal and state payments). In 1994, at the request of 
the administration, and later at the direction of the Congress, Amtrak 
pledged to eliminate the need for federal operating subsidies by the 
end of 2002. 

Amtrak has made relatively little progress in reducing its need for 
federal operating subsidies. For example, in fiscal year 2000, Amtrak 
reduced its need for operating subsidies by $5 million, substantially 
less than its plan for reducing the need for operating subsidies by 
$114 million for the year. Overall, in the past 6 years (fiscal years 
1995 through 2000), Amtrak has reduced its need for operating 
subsidies by only $83 million. It must make an addition $281 million 
in progress in the next 2 years (2001 and 2002) to achieve the goal of 
being free of operating subsidies. Given its lack of overall progress, 
it will be difficult for Amtrak to eliminate the need for federal 
operating subsidies by the end of 2002. 

The Amtrak Reform and Accountability Act of 1997 generally prohibits 
Amtrak from using federal funds for operating expenses after 2002. If 
Amtrak is not operationally self-sufficient by then, the act provides 
for the Congress to consider restructuring the national passenger rail 
system and liquidating Amtrak. Several options are available to the 
Congress. For instance, the Congress could retain intercity passenger 
rail in much the same form as it is today, which would likely require 
increased subsidies over current levels to meet both operating 
expenses and billions of dollars in unmet capital needs. The Congress 
could also restructure intercity passenger rail service by focusing on 
high-density corridors, which would most likely also require continued 
federal assistance. Alternatively, if Amtrak is liquidated and not 
replaced, then federal subsidies to it would be eliminated. 
Eliminating federal subsidies for Amtrak by the end of 2002 would have 
many effects. One effect, if Amtrak was not replaced, is that the 
public benefit of having intercity passenger rail as an alternative 
travel choice to air and highways would disappear. CBO estimates that 
the following savings could be achieved if the Amtrak subsidy is 
eliminated. CBO could not estimate whether savings might occur if 
Amtrak service is limited to high-density corridors until a specific 
proposal is identified. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $633 million; 
FY04: $646 million; 
FY05: $659 million; 
FY06: $672 million; 
FY07: $685 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $633 million; 
FY04: $646 million; 
FY05: $659 million; 
FY06: $672 million; 
FY07: $685 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 
					
Intercity Passenger Rail: The Congress Faces Critical Decisions About 
the Role of and Funding for Intercity Passenger Rail Systems (GAO-
01820T, July 25, 2001). 

High-Speed Rail Investment Act of 2001 (GAO-01-756R, June 25, 2001). 

Intercity Passenger Rail: Amtrak Will Continue to Have Difficulty 
Controlling Its Costs and Meeting Capital Needs (GAO/RCED-00-138, May 
31, 2000). 

Intercity Passenger Rail: Issues Associated With a Possible Amtrak 
Liquidation (GAO/RCED-98-60, Mar. 2, 1998). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs: 

Authorizing committees: Commerce, Science, and Transportation (Senate); 
Transportation and Infrastructure (House); 
Appropriations subcommittees: Multiple; 
Primary agency: Multiple; 
Account: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 403/Water transportation; 
Framework theme: Reassess objectives. 

Cargo preference laws require that certain government-owned or 
financed cargo shipped internationally be carried on U.S.-flagged 
vessels. Cargo preference laws are intended to guarantee a minimum 
amount of business for the U. S.-flagged vessels. These vessels are 
required by law to be crewed by U.S. mariners, are generally required 
to be built in U.S. shipyards, and are encouraged to be maintained and 
repaired in U.S. shipyards. In addition, U.S.-flag carriers commit to 
providing capacity in times of national emergencies. 

The effect of cargo preference laws has been mixed. These laws appear 
to have had a substantial impact on the U.S merchant marine industry 
by providing an incentive for vessels to remain in the U.S. fleet. 
However, because U.S.-flagged vessels often charge higher rates to 
transport cargo than foreign-flagged vessels, cargo preference laws 
increase the government's transportation costs. For fiscal years 1989 
through 1993, four federal agencies—the Departments of Defense, 
Agriculture, Energy, and the Agency for International Development—were 
responsible for more than 99 percent of the government cargo subject 
to cargo preference laws. Cargo preference laws increased these 
federal agencies' transportation costs by an estimated $578 million 
per year in fiscal years 1989 through 1993 over the cost of using 
foreign-flagged vessels. If the laws were eliminated, the following 
savings could be achieved. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $400 million; 
FY04: $427 million; 
FY05: $517 million; 
FY06: $536 million; 
FY07: $549 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $391 million; 
FY04: $407 million; 
FY05: $492 million; 
FY06: $527 million; 
FY07: $546 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Management Reform: Implementation of the National Performance
Review's Recommendations, (GAO/OCG-95-1, Dec. 5, 1994). 

Maritime Industry: Cargo Preference Laws—Their Estimated Costs and 
Effects, (GAO/RCED-95-34, Nov. 30, 1994). 

Cargo Preference: Effects of U.S. Export-Import Cargo Preference Laws 
on Exporters, (GAO/GGD-95-2BR, Oct. 31, 1994). 

Cargo Preference Requirements: Objectives Not Significantly Advanced 
When Used in U.S. Food Aid Programs, (GAO/GGD-94-215, Sept. 29, 1994). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

Increase Aircraft Registration Fees to Enable the Federal Aviation
Administration to Recover Actual Costs: 

Authorizing committees: Commerce, Science, and Transportation (Senate); 
Transportation and Infrastructure (House); 
Primary agency: Department of Transportation; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

In 1977, the Congress amended the Federal Aviation Act and identified 
three categories of aircraft owners—U.S. citizens, resident aliens, 
and U.S.based foreign companies—that may register aircraft in the 
United States. To register an aircraft, an eligible owner submits a $5 
fee. As of the end of fiscal year 1999, 355,518 aircraft were 
registered in the United States. In fiscal year 1999, 54,329 
certificate registrations were issued. 

In 1993 we reported that the Federal Aviation Administration (FAA) was 
not fully recovering the cost of processing aircraft registration 
applications and estimated that, by not increasing fees since 1968 to 
recover costs, FAA had foregone about $6.5 million in additional 
revenue. To recover the costs of services provided to aircraft 
registrants, we have recommended that FAA increase its aircraft 
registration fees to more accurately reflect actual costs. FAA plans 
to coordinate aircraft registration changes with the Drug Enforcement 
Agency and the U.S. Customs Service by the end of 2004. If those two 
agencies approve the proposed changes, FAA will prepare legislation 
for congressional approval for a rate increase for registration fees. 
FAA plans to complete changes to its aircraft registration system by 
mid-2005. 

If the FAA recovers the full cost of processing aircraft registration 
applications, the following additional revenue could be achieved. 

Five-Year Savings: 

Added Collections: 
FY03: 0; 
FY04: 0; 
FY05: 0; 
FY06: $5 million; 
FY07: $5 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Aviation Safety: Unresolved Issues Involving US.-Registered Aircraft
(GAO/RCED-93-135, June 18, 1993). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

Improve Department of Transportation's Oversight of Its University 
Research: 

Authorizing committees: Commerce, Science, and Transportation (Senate); 
Transportation and Infrastructure (House); 
Appropriations subcommittees: Transportation (Senate and House); 
Primary agency: Department of Transportation; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 401/402/403/407/Ground, Air, Water, and Other 
Transportation; 
Framework theme: Improve efficiency. 

The Department of Transportation (DOT) conducts research at 
universities to enhance safety, mobility, environmental quality, 
efficiency, and economic growth in the nation's transportation system. 
The results of DOT's research programs include prototypes of systems, 
new operating procedures, data
used to focus policy decisions, and regulations. DOT and each of its 
operating administrations have several offices responsible for 
overseeing this research to ensure that the awards' objectives are met 
and the costs are appropriate. 

While DOT's spending on research at universities has grown 
significantly from fiscal years 1988 through 1993, DOT does not have 
an integrated plan to ensure that research is needed to meet 
departmental goals. In addition, a lack of oversight on some 
university awards led to overcharges of almost $450,000 and unpaid 
cost-sharing totaling $3 million in a sample of awards that GAO 
reviewed in detail. More effective planning and management of the 
research program could reduce costs by limiting duplicate research and 
ensuring that recipients follow award guidelines on allowable costs 
and cost sharing. 

As GAO recommended, DOT has completed the development of a 
departmentwide database to track the purpose and costs associated with 
each university research award. GAO also recommended that DOT evaluate 
the operating administrations' processes to ensure that they have 
adequate policies and procedures to carry out their responsibilities 
for monitoring awards. However, DOT has no plans to do so. 

GAO findings of overcharges and unpaid cost sharing for a sample of 
grants suggest that the Congress could slow DOT's university research 
spending by reducing appropriations until improvements in necessary 
planning and management processes are made. CBO does not disagree that 
improved monitoring and oversight of DOT's university research can 
reduce outlays. However, savings from this option would depend on 
which among many small accounts are reduced and the amounts of these 
reductions. 

Related GAO Product: 

Department of Transportation: University Research Activities Need
Greater Oversight (GAO/RCED-94-175, May 13, 1994). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

Apply Cost-Benefit Analysis to Replacement Plans for Airport 
Surveillance Radars: 

Authorizing committees: Commerce, Science, and Transportation 
(Senate); Transportation and Infrastructure (House); 
Appropriations subcommittees: Transportation (Senate and House); 
Primary agency: Department of Transportation; 
Accounts: Facilities and Equipment (69-8107); 
Spending type: Discretionary; 
Budget subfunction: 402/Air transportation; 
Framework theme: Improve efficiency. 

Before installing an airport surveillance radar (ASR), FAA typically 
conducts benefit-cost studies to determine whether it will be cost 
effective. In addition to the $5 million cost of the new radars, other 
costs may be incurred for auxiliary equipment and infrastructure 
modifications. Benefits of these improvements include travelers' time 
saved through potential reductions in aircraft delays and lives saved 
and injuries avoided through reduced risk of midair and terrain 
collisions. Because there is a direct correlation between projected 
air traffic operations and the potential benefits associated with 
radar installation, airports with higher air traffic projections would 
receive more benefit from a radar than those with lower projections. 

FAA had planned to install technologically advanced ASR-11 radars to 
replace its model ASR-7 and ASR-8 radars, currently located at 101 
airports, without applying its benefit-cost criteria. FAA's rationale 
for not applying its benefit-cost criteria to these 101 airports was 
its belief that discontinuing radar operations at airports that no 
longer qualify could lead to public perceptions that safety was being 
reduced, even if safety was not compromised. However, some of these 
airports may no longer qualify for a radar based on FAA's benefit-cost 
criteria and 75 of them have less air traffic than an airport whose 
radar request FAA recently denied using its benefit-cost criteria. 
Furthermore, at some of these airports, the circumstances that 
originally justified a radar no longer exist. 

GAO recommended that FAA apply its benefit-cost criteria to all 101 
airports where it plans to replace the ASR-7 and ASR-8 radars and 
determine whether those airports had a continuing operational need for 
radar. In response to GAO's recommendation, FAA asked it's regional 
offices to verify the operational need for radars at the 75 airports 
that had less traffic than the airport whose radar was recently 
denied. FAA determined that there continues to be an operational need 
for radars at all 75 airports. However, FAA does not plan to do the 
benefit/cost studies that GAO recommended, does not plan to 
decommission any of the radars, and plans to proceed with replacing 
the old radars with the newer radars at all airports. We continue to 
believe that savings may result if FAA were to perform the 
benefit/cost studies at the 101 airports. 

Related GAO Product: 

Air Traffic Control: Surveillance Radar Request for the Cherry Capital
Airport (GAO/RCED-98-118, May 28, 1998). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities: 

Authorizing committees: Commerce, Science, and Transportation 
(Senate); Transportation and Infrastructure (House); 
Appropriations subcommittees: Transportation (Senate and House); 
Primary agency: Department of Transportation; 
Accounts: Operating Expenses (69-0201); 
Spending type: Discretionary; 
Budget subfunction: Multiple; 
Framework theme: Improve efficiency. 

The Coast Guard could achieve budget savings by downsizing its 
facilities. The Coast Guard abandoned plans to close its Curtis Bay 
facility in 1988, when GAO reported that it lacked supporting data. 
While the cost effectiveness of this facility has been questioned, the 
Coast Guard has not conducted a detailed study to compare the 
facility's cost effectiveness with that of commercial shipyards. In 
fiscal year 1996, GAO testified that the Coast Guard could save $6 
million by closing or consolidating over 20 small boat stations. Also 
in 1996, GAO recommended that the Coast Guard consider other 
alternatives—such as privatization—to operate its vessel traffic 
service centers, which cost $20.2 million to operate in fiscal year 
1999. Furthermore, in fiscal 1995, GAO recommended that the Coast 
Guard close one of its large training centers in Petaluma, California—
at a savings of $9 million annually. The Coast Guard agreed that this 
may be possible but did not close it largely because of public 
opposition. 

Given the serious budget constraints the Coast Guard now faces, it 
will need to achieve significant budgetary savings to offset the 
increased budgetary needs of the future. Closing, consolidating, or 
privatizing training and operating facilities, including the Curtis 
Bay facility, 20 small boat stations, the vessel traffic service 
centers, and one of its training centers in Petaluma, California, 
would help the Coast Guard to achieve these required savings. While 
CBO agrees that closing, consolidating, or privatizing Coast Guard 
facilities could yield savings, it cannot develop an estimate until 
specific proposals are identified. 

Related GAO Products: 

Coast Guard: Budget Challenges for 2001 and Beyond (GAO/T-RCED-00-
103, Mar. 15, 2000). 

Coast Guard: Review of Administrative and Support Functions
(GAO/RCED-99-62R, Mar. 10, 1999). 

Coast Guard: Challenges for Addressing Budget Constraints
(GAO/RCED-97-110, May 14, 1997). 

Marine Safety: Coast Guard Should Address Alternatives as It Proceeds 
With VTS 2000 (GAO/RCED-96-83, Apr. 22, 1996). 

Coast Guard: Issues Related to the Fiscal Year 1996 Budget Request
(GAO/T-RCED-95-130, Mar. 13, 1995). 

Coast Guard: Improved Process Exists to Evaluate Changes to Small Boat 
Stations (GAO/RCED-94-147, Apr. 1, 1994). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

Convert Some Support Officer Positions to Civilian Status: 

Authorizing committees: Commerce, Science, and Transportation 
(Senate); Transportation and Infrastructure (House); 
Appropriations subcommittees: Transportation (Senate and House); 
Primary agency: Department of Transportation; 
Accounts: Operating Expenses (69-0201); 
Spending type: Discretionary; 
Budget subfunction: 403/Water Transportation; 
Framework theme: Improve efficiency. 

The Coast Guard uses officers in operational positions--to command 
boats, ships, and aircraft that can be deployed during time of war--
and in support positions, such as personnel, public affairs, data 
processing, and financial management. Military standard personnel 
costs are paid out of the Coast Guard's discretionary budget and 
include all pay and allowances, permanent change of station costs, 
training costs, and active-duty medical costs associated with each pay 
grade. Certain allowances—housing and subsistence—are provided to 
military personnel tax-free. Additionally, military retirement costs 
are funded by an annual permanent appropriation separate from the 
Coast Guard's discretionary budget. Civilian standard personnel costs 
are also paid out of the Coast Guard's discretionary budget and 
include basic, locality, overtime, and special pays as well as the 
costs associated with permanent change of station, training, health 
insurance, life insurance, and the accrued cost of civilian retirement. 

Of 5,760 commissioned officer positions in the Coast Guard's workforce 
(as of the end of fiscal year 1999), GAO selectively evaluated nearly 
1,000 in 75 units likely to have support positions. Of these 
positions, GAO found about 800 in which officers were performing 
duties that offered opportunities for conversion to civilian 
positions. Such positions include those in, among other things, 
personnel, public affairs, civil rights, and data processing. In 
comparing all of the relevant costs associated with military and 
civilian positions, GAO found that employing an active-duty 
commissioned officer in the positions we reviewed is, on average, 21 
percent more costly than filling the same position with a comparable 
civilian employee. The cost differential is based on a comparison of 
average annual pay, benefits, and expenses associated with the Coast 
Guard's commissioned officers at different military ranks and federal 
civilian employees at comparable civilian grades for fiscal year 1999. 

From March 1, 2000 through July 31, 2001, the Coast Guard had 
converted 45 commissioned officer positions to civilian positions. 
Converting support positions currently filled by military officers to 
civilian status would reduce costs associated with delivering these 
services with no apparent impact on performance. By converting 
commissioned officer positions to civilian positions, savings would 
accrue to the federal government in the form of retirement savings, 
tax advantage savings, and savings to the Coast Guard's discretionary 
budget. CBO agrees that this option would lead to savings, but that 
those savings would primarily result from differences between military 
and civilian retirement plans. Consequently, the budgetary savings 
resulting from this shift would not begin until "new" civilian 
employees began to retire, which will occur after the 5-year 
projection period. 

Related GAO Product: 

Coast Guard Workforce Mix: Phased-In Conversion of Some Support
Officer Positions Would Produce Savings (GAO/RCED-00-60, Mar. 1, 2000). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

[End of section] 

450 Community and Regional Development: 

* Limit Eligibility for Federal Emergency Management Agency Public 
Assistance; 
* Eliminate the Flood Insurance Subsidy on Properties That Suffer the 
Greatest Flood Loss; 
* Eliminate Flood Insurance for Certain Repeatedly Flooded Properties; 
* Consolidate or Terminate the Department of Commerce's Trade 
Adjustment Assistance for Firms Program. 

Limit Eligibility for Federal Emergency Management Agency Public 
Assistance: 

Authorizing committees: Environment and Public Works (Senate); 
Transportation and Infrastructure (House); 
Appropriations subcommittees: VA, HUD and Independent Agencies (Senate 
and House); 
Primary agency: Federal Emergency Management Agency; 
Account: Disaster Relief Fund (58-0104); 
Spending type: Discretionary; 
Budget subfunction: 453/Disaster relief and insurance; 
Framework theme: Redefine beneficiaries. 

The Federal Emergency Management Agency's (FEMA) Public Assistance 
Program helps pay state and local governments' costs of repairing and 
replacing eligible public facilities and equipment damaged by natural 
disasters. Many private nonprofit organizations, such as schools, 
hospitals, and utilities, are also eligible for assistance. Since 
1990, FEMA has expended over $27 billion in disaster assistance, over 
half of which was spent for public assistance projects such as repairs 
of roads, government buildings, utilities, and hospitals damaged in 
declared disasters. 

A number of options identified by program officials in FEMM 10 
regional offices, if implemented, could reduce program costs. The 
agency has taken action to address some of these options. However, 
FEMA has not addressed some other identified options, stating that 
congressional direction would be needed for the agency to change 
policies. These include eliminating the eligibility for facilities not 
actively used to deliver government services, postdisaster beach 
renourishment, as well as increasing the damage threshold for 
replacing a facility.[Footnote 10] In addition, program costs could be 
reduced by policy changes such as eliminating eligibility for all 
private nonprofit organizations—many of which are revenue-generating 
facilities such as utilities, hospitals, and universities—or 
eliminating funding for publicly owned recreational facilities (e.g., 
boat docks, piers, and golf courses) which generate portions of their 
operational revenue through user fees, rents, admission charges, or 
similar fees. CBO estimates that eliminating eligibility for all 
private nonprofit organizations would yield the following savings. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $60 million; 
FY04: $60 million; 
FY05: $60 million; 
FY06: $60 million; 
FY07: $60 million. 

Savings from the 2002 funding level: Outlays; 
FY03: 0; 
FY04: $15 million; 
FY05: $30 million; 
FY06: $45 million; 
FY07: $54 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Disaster Assistance: Improvement Needed in Disaster Declaration
Criteria and Eligibility Assurance Procedures (GAO-01-837, Aug. 31, 
2001). 

Disaster Assistance: Information on Federal Costs and Approaches for 
Reducing Them (GAO/T-RCED-98-139, Mar. 26, 1998). 

Disaster Assistance: Improvements Needed in Determining Eligibility 
for Public Assistance (GAO/RCED-96-113, May 23, 1996). 

Disaster Assistance: Improvements Needed in Determining Eligibility 
for Public Assistance (GAO/T-RCED-96-166, Apr. 30, 1996). 

GAO Contact: 

JayEtta Z. Hecker, (202) 512-8984: 

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 
Greatest Flood Loss: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate);
Financial Services (House); 
Appropriations subcommittees: VA, HUD and Independent Agencies (Senate 
and House); 
Primary agency: Federal Emergency Management Agency; 
Account: National Flood Insurance Fund (58-4236); 
Spending type: Mandatory; 
Budget subfunction: 453/Disaster relief and insurance; 
Framework theme: Redefine beneficiaries. 

The National Flood Insurance Program is not actuarially sound because 
approximately 27 percent of the 4.3 million policies in force are 
subsidized. Federal Insurance Administration officials estimate that 
total premium income from subsidized policyholders is currently about 
$800 million less than it would be if these rates had been actuarially 
based and participation had remained the same. According to a Federal 
Insurance Administration official, if true actuarial rates were 
charged, insurance rates on currently subsidized policies would need 
to rise, on average, slightly more than twofold (to an annual average 
premium of about $1,500 to $1,600). Significant rate increases for 
subsidized policies, including charging actuarial rates, would likely 
cause some owners of properties built before the publication of the 
Flood Insurance Rate Map to cancel their flood insurance. However, the 
ultimate cost or savings to the federal government would depend on the 
actions of property owners. If these property owners, who suffer the 
greatest flood loss, canceled their insurance and subsequently 
suffered losses due to future floods, they could apply for low-
interest loans from the Small Business Administration or grants from 
FEMA, which would increase the overall cost to the federal government. 

FEMA received a May 1999 contractor's study concerning the economic 
effects of eliminating subsidized rates, and in June 2000 the agency 
transmitted the study to the Congress with recommendations for 
reducing the subsidy. According to FEMA, it is analyzing the impacts 
of specific alternatives for carrying out the recommendations, as well 
as working with stakeholders to refine and develop a comprehensive 
strategy to help it decide how to implement the study's 
recommendations. Some of the recommendations for reducing the subsidy 
depend on legislative change. In light of the potential savings 
associated with addressing this issue, FEMA should develop and advance 
legislative options for eliminating the National Flood Insurance 
Program's subsidy for properties that are more likely to suffer losses. 

Five-Year Savings: 

Net increase in offsetting receipts: Budget authority; 
FY03: 0; 
FY04: 0; 
FY05: 0; 
FY06: 0; 
FY07: 0. 

Outlays (net increased receipts): 
FY03: $45 million; 
FY04: $135 million; 
FY05: $182 million; 
FY06: $181 million; 
FY07: $181 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Flood Insurance: Information on Financial Aspects of the National Flood
Insurance Program (GAO/T-RCED-00-23, Oct. 27, 1999). 

Flood Insurance: Information on Financial Aspects of the National 
Flood Insurance Program (GAO/T-RCED-99-280, Aug. 25, 1999). 

Flood Insurance: Financial Resources May Not Be Sufficient to Meet 
Future Expected Losses (GAO/RCED-94-80, Mar. 21, 1994). 

GAO Contact: 

JayEtta Z. Hecker, (202) 512-8984: 

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate);
Financial Services (House); 
Appropriations subcommittees: VA, HUD and Independent Agencies (Senate 
and House); 
Primary agency: Federal Emergency Management Agency; 
Account: National Flood Insurance Fund (58-4236); 
Spending type: Mandatory; 
Budget subfunction: 453/Disaster relief and insurance; 
Framework theme: Redefine beneficiaries. 

Repetitive flood losses is one of the major factors contributing to 
the financial difficulties facing the National Flood Insurance 
Program. A repetitive-loss property is one that has two or more losses 
greater than $1,000 each within any 10-year period. Approximately 
45,000 buildings currently insured under the National Flood Insurance 
Program have been flooded on more than one occasion and have received 
flood insurance claims payments of $1,000 or more for each loss. These 
repetitive losses account for about 38 percent of all program claims 
historically (currently about $200 million annually) even though 
repetitive-loss structures make up a very small portion of the total 
number of insured properties—at any one time, from 1 to 2 percent. The 
cost of these multiple-loss properties over the years to the program 
has been $3.8 billion. Under its repetitive-loss strategy, the Federal 
Insurance Administration intends to target for mitigation the most 
flood-prone repetitive-loss properties, such as those that are 
currently insured and have had four or more losses, by acquiring, 
relocating, or elevating them. FEMA reports NFIP paid out over
$800 million in claims for the most vulnerable repetitive loss 
properties (about 10,000) over the last 21 years, or $1.3 billion when 
adjusted for today's dollars. 

One option that would increase savings would be for FEMA to consider 
eliminating flood insurance for certain repeatedly flooded properties. 
In its fiscal year 2002 budget proposal, FEMA requested to transfer 
$20 million in fees from the National Flood Insurance Program to 
increase the number of buyouts of properties that suffer repetitive 
losses. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: 0; 
FY04: 0; 
FY05: 0; 
FY06: 0; 
FY07: 0. 

Savings from the 2002 funding level: Outlays; 
FY03: $60 million; 
FY04: $64 million; 
FY05: $69 million; 
FY06: $75 million; 
FY07: $80 million. 

Note: Savings estimate assumes that coverage would be denied after the 
fourth loss of at least 1,000 dollars in any 10-year period. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Flood Insurance: Information on Financial Aspects of the National Flood
Insurance Program (GAO/T-RCED-00-23, Oct. 27, 1999). 

Flood Insurance: Information on Financial Aspects of the National 
Flood Insurance Program (GAO/T-RCED-99-280, Aug. 25, 1999). 

GAO Contact: 

JayEtta Z. Hecker, (202) 512-8984: 

Consolidate or Terminate the Department of Commerce's Trade Adjustment 
Assistance for Firms Program: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate);
Financial Services (House); 
Appropriations subcommittees: Commerce, Justice, State, and the 
Judiciary (Senate and House); 
Primary agency: Department of Commerce; 
Accounts: Economic Development Assistance Programs (13-2050); 
Spending type: Discretionary; 
Budget subfunction: 452/Area and Regional Development; 
Framework theme: Reassess objectives. 

The Trade Adjustment Assistance (TAA) for firms program is 
administered by the Department of Commerce's Economic Development 
Administration. This $10.5 million program is designed to assist 
domestic firms that have been adversely affected by imports. Twelve 
regional centers help firms become certified for benefits, assess 
their economic viability, and develop business recovery plans. 

For fiscal years 1995 through 1999, an average of 157 firms were 
annually certified as eligible for assistance and 127 (an average of 
11 for each regional center) had certified recovery plans. During this 
period, however, most of the program funding-61 percent—was used to 
fund operational and administrative costs at the 12 regional centers, 
including helping firms become certified for assistance and developing 
firm-specific recovery plans. The remainder—an annual average of $3.8 
million, or approximately 39 percent of the total—was used to fund 
direct technical assistance. The Economic Development Administration 
does not formally monitor and track the outcomes of the assistance 
provided by the regional centers. As a result, there is not sufficient 
data to systematically assess whether this program is helping firms 
adjust to import competition. 

Given the low percentage of TAA for firms funds used to provide direct 
technical assistance and the lack of information on the impact of the 
program, the Congress may wish to consider several options for this 
program. First, the Congress may wish to have the Department of 
Commerce consolidate the regional centers and therefore reduce 
administrative and overhead costs. Another alternative would be to co-
locate the TAA centers with an existing program such as the Department 
of Commerce's Manufacturing Extension Partnership, reducing overhead 
and perhaps providing some synergy with other government efforts to 
assist firms. If the Congress chooses to terminate the TAA for firms 
program, CBO estimates that the resulting savings would occur. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $11 million; 
FY04: $11 million; 
FY05: $11 million; 
FY06: $11 million; 
FY07: $12 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $1 million; 
FY04: $3 million; 
FY05: $5 million; 
FY06: $8 million; 
FY07: $11 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is
Unclear (GAO-01-12, Dec. 15, 2000). 

GAO Contact: 

Susan S. Westin, (202) 512-4128: 

[End of section] 

500 Education, Training, Employment, and Social Services: 

* Consolidate Student Aid Programs. 

Consolidate Student Aid Programs: 

Authorizing committees: Banking, Health, Education, Labor, and 
Pensions (Senate); Education and the Workforce (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education, and Related Agencies (Senate and House); 
Primary agency: Department of Education; 
Account: Higher Education (91-0201); 
Spending type: Discretionary/Direct; 
Budget subfunction: 502/Higher education; 
Framework theme: Improve efficiency. 
		
The Department of Education provides loans and grants to students to 
help finance their higher education. The federal government's role in 
supporting higher education is contributing about 50 percent of its 
education budget to postsecondary education programs and activities, 
most of which are for student financial aid. The largest programs 
provide federally insured loans and Pell grants for students. The 
Federal Family Education Loan (FFEL) and Federal Direct Loan (FDL) 
programs compose the largest source of federal student financial aid. 
The FFEL and FDL programs are entitlements, but Pell grants, the 
largest federal grant-in-aid program, are awarded to the most needy 
eligible students, dependent on the availability of appropriated funds. 

Although the student loan and Pell grant programs provide the majority 
of federal financial aid to students for postsecondary education, 
another 14 smaller programs are targeted to specific segments of the 
postsecondary school population. The programs fund remedial and 
support services for prospective students from disadvantaged families, 
programs to enhance the labor pool in designated specialties, grants 
to students for volunteer activities, and grants to women and 
minorities who are underrepresented in graduate education. 

These 14 programs, which were funded at $1.8 billion in fiscal year 
2002, could be candidates for consolidation. For example, programs 
directed at attracting minority and disadvantaged students could be 
consolidated into one program. Or a certain amount of funds could be 
provided to states through a single grant, in lieu of several smaller 
grants, to cover some or all of the purposes of several small grant 
programs. 

In anticipation of the administrative savings that could be achieved 
through consolidation, funding for these programs could be reduced 10 
percent each year as part of the consolidation. Since all savings 
achieved through consolidation would be administrative in nature, we 
assume that there would be no adverse impact on students' access to 
postsecondary education—a principal object of the enabling 
legislation, the Higher Education Act of 1965, as amended. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $184 million; 
FY04: $188 million; 
FY05: $192 million; 
FY06: $196 million; 
FY07: $200 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $30 million; 
FY04: $141 million; 
FY05: $173 million; 
FY06: $191 million; 
FY07: $195 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Department of Education: Information on Consolidation Opportunities
and Student Aid (GAO/T-HEHS-95-130, Apr. 6, 1995). 

Department of Education: Opportunities to Realize Savings (GAO/THEHS-
95-56, Jan.18, 1995). 

GAO Contact: 

Cornelia M. Ashby, (202) 512-8403: 

550 Health: 

* Improve Fairness of Medicaid Matching Formula; 
* Charge Beneficiaries for Food Inspection Costs; 
* Implement Risk-Based Meat and Poultry Inspections at USDA; 
* Prevent States from Using Illusory Approaches to Shift Medicaid 
Program Costs to the Federal Government; 
* Create a Uniform Federal Mechanism for Food Safety; 
* Convert Public Health Service Commissioned Corps Officers to 
Civilian Status; 
* Control Provider Enrollment Fraud in Medicaid. 

Improve Fairness of Medicaid Matching Formula: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Appropriations subcommittees: Labor, Health and Human Services,
Education and Related Agencies (Senate); Labor, Health and Human 
Services and Education (House); 
Primary agency: Department of Health and Human Services; 
Account: Grant to States for Medicaid (75-0512); 
Spending type: Direct; 
Budget subfunction: 551/Health care services; 
Framework theme: Reassess objectives. 

The Medicaid program provides medical assistance to low-income, aged, 
blind, or disabled individuals. The federal government and the states 
share the financing of the program through an open-ended matching 
grant whereby federal outlays rise with the cost and use of Medicaid 
services. The federal share of the program costs varies inversely with 
state per capita income. Consequently, high-income states pay a larger 
share of the benefits than low-income states. By law, the federal 
share can be no less than 50 percent and no more than 83 percent. 

Since 1986, we have issued numerous reports and testimonies that 
identify ways in which the fairness of federal grant formulas could be 
improved. With respect to Medicaid, we believe that the fairness of 
the matching formula in the open-ended program could be improved by 
replacing the per capita income factor with four factors—the number of 
people living below the official poverty line, the total taxable 
resources of the state, cost differences associated with the 
demographic composition of state caseloads, and differences in health 
care costs across states—and by reducing the minimum federal share to 
40 percent. These changes could reduce federal reimbursements by 
reducing the federal share in states with the most generous benefits, 
the fewest low-income people in need, lower costs, and greater ability 
to fund benefits from state resources. These changes could redirect 
federal funding to states with the highest concentration of people in 
poverty and the least capability of funding these needs from state 
resources. 

To illustrate the savings that could be achieved from changes in the 
Medicaid formula, CBO estimates that, if the minimum federal share 
were reduced to 40 percent, the following savings could be achieved. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $7,280 million; 
FY04: $7,910 million; 
FY05: $8,670 million; 
FY06: $9,510 million; 
FY07: $10,410 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $7,280 million; 
FY04: $7,910 million; 
FY05: $8,670 million; 
FY06: $9,510 million; 
FY07: $10,410 million. 

Note: CBO assumes that the FMAP for the District of Columbia would 
remain at 70 percent. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Medicaid Formula: Effects of Proposed Formula on Federal Shares of
State Spending (GAO/HEHS-99-29R, Feb. 19, 1999). 

Medicaid Matching Formula: Effects of Need Indicators on New York's 
Funding (GAO/HEHS-97-152R, June 9, 1997). 

Medicaid: Matching Formula's Performance and Potential Modifications 
(GAO/T-HEHS-95-226, July 27, 1995). 

Medicaid Formula: Fairness Could Be Improved (GAO/T-HRD-91-5, Dec. 7, 
1990). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Charge Beneficiaries for Food Inspection Costs: 

Authorizing committees: Authorizing committees	Agriculture, 
Nutrition, and Forestry (Senate); Agriculture (House); Energy and 
Commerce (House); 
Appropriations subcommittees: Agriculture, Rural Development, and
Related Agencies (Senate); Agriculture, Rural Development, Food and 
Drug Administration, and Related Agencies (House); 
Primary agency: Department of Agriculture; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 554/Consumer and occupational health and safety; 
Framework theme: Redefine beneficiaries. 
		
User fees—charges individuals or firms pay for services they receive 
from the federal government—are not new but have begun to play an 
increasingly important role in financing federal programs, 
particularly since the Balanced Budget Act of 1985. In general, 
federal food inspection agencies have charged user fees only to 
beneficiaries of premarket reviews, such as the grading of grain and 
other commodities for quality. Federal food inspection agencies 
generally do not charge user fees or fully cover the cost of services 
provided for (1) compliance inspections of meat, poultry, domestic 
foods, and processing facilities to ensure adherence to safety 
regulations, (2) import inspections and export certifications to 
ensure that food products in international trade meet specified 
standards, and (3) standards setting and other support services 
essential to these functions. OMB Circular A-25, User Charges, states 
that user fees should be charged to cover the full cost of federal 
services when the service recipient receives special benefits beyond 
those received by the general public. USDA's Food Safety and 
Inspection Service (FSIS) provides a special benefit to meat and 
poultry slaughter and processing plants that incidentally benefits the 
general public. 

Historically, federal food inspection agencies recover through user 
fees only about $400 million of the $1.6 billion they spend annually 
to inspect, test, grade, and approve agricultural commodities and 
products. Although the 2002 budget did not include funds to cover 
additional expenses for these activities, federal appropriations have 
traditionally funded the remaining 75 percent of the agencies' 
expenses. Overall, federal food inspection agencies could recover an 
additional $700 million each year from the beneficiaries of food-
related inspection and testing services through user fees. For 
example, CBO estimates, based on the 2001 budget request, that the 
following savings could be achieved if meat and poultry inspections 
were funded through user fees instead of appropriations. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $352 million; 
FY04: $731 million; 
FY05: $758 million; 
FY06: $786 million; 
FY07: $815 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $352 million; 
FY04: $731 million; 
FY05: $758 million; 
FY06: $786 million; 
FY07: $815 million. 

Note: The CBO estimate, based on the 2001 budget, assumed the policy 
would become effective October 1, 2001. This analysis excludes egg 
inspection costs, Grants-to-States, and Special assistance for State 
Programs from the user fee program. This estimate assumes that only 50 
percent of fees will be collected in the first year because of 
industry opposition and administrative delays. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Food Safety: Opportunities to Redirect Federal Resources and Funds Can
Enhance Effectiveness (GAO/RCED-98-224, Aug. 6, 1998). 

Food-Related Services: Opportunities Exist to Recover Costs by 
Charging Beneficiaries (GAO/RCED-97-57, Mar. 20, 1997). 

Food Safety and Quality: Uniform Risk-based Inspection System Needed 
to Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Larry Dyckman, (202) 512-3841: 

Implement Risk-Based Meat and Poultry Inspections at USDA: 

Authorizing committees: Authorizing committees	Agriculture, 
Nutrition, and Forestry (Senate); Agriculture (House); 
Appropriations subcommittees: Agriculture, Rural Development, and
Related Agencies (Senate); Agriculture, Rural Development, Food and 
Drug Administration, and Related Agencies (House); 
Primary agency: Department of Agriculture; 
Accounts: Food Safety and Inspection Service; 
Spending type: Discretionary; 
Budget subfunction: 554/Consumer and occupational health and safety; 
Framework theme: Redefine beneficiaries. 

Foodborne illness in the United States is extensive and expensive. 
Foodborne diseases cause about 76 million illnesses, 325,000 
hospitalizations, and 5,000 deaths annually. In terms of medical costs 
and productivity losses, illness from just the five principal 
foodborne pathogens alone costs the nation about $7 billion annually, 
according to USDA's estimates. 

USDA's meat and poultry inspection system does not efficiently and 
effectively use its resources to protect the public from foodborne 
illness. USDA's system is hampered by inflexible legal requirements 
and relies on outdated, labor-intensive inspection methods. Under 
current law, each of the over 8 billion livestock and bird carcasses 
slaughtered annually must be inspected. Further, USDA's Food Safety 
and Inspection Service (FSIS) states that current law requires it to 
inspect each of the approximately 6,000 processing plants at least 
once during each operating shift. While these inspections consume most 
of FSIS's budget ($712 million and 9,700 staff-years), they are unable 
to detect microbial contamination, such as listeria, E. coli, and 
salmonella. While USDA has increased its microbial testing, it has not 
been successful in implementing regulatory changes in inspection 
practices—inspectors still rely on their sense of sight, smell, and 
touch to make judgments about disease conditions, contamination, and 
sanitation. 

Legislative revisions could allow FSIS to emphasize risk-based 
inspections. Much of the funding used to fulfill current meat and 
poultry inspection activities could be redirected to support more 
effective food safety initiatives, such as increasing the frequency of 
inspections at high-risk food plants. CBO agrees that this option 
could potentially yield savings, but cannot develop an estimate until 
specific proposals are identified. 

Related GAO Products: 

Food Safety: Opportunities to Redirect Federal Resources and Funds Can
Enhance Effectiveness (GAO/RCED-98-224, Aug. 6, 1998). 

Food Safety: Risk-Based Inspections and Microbial Monitoring Needed 
for Meat and Poultry (GAO/RCED-94-192, Sept. 26, 1994). 

Food Safety and Quality: Uniform Risk-based Inspection System Needed 
to Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Larry Dyckman, (202) 512-3841: 

Prevent States from Using Illusory Approaches to Shift Medicaid 
Program Costs to the Federal Government: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Accounts: Grant to States for Medicaid (75-0512); 
Spending type: Direct; 
Budget subfunction: 551/Health care services; 
Framework theme: Redefine beneficiaries. 

Since 1993, we have reported on a number of state financing schemes 
that inappropriately shift Medicaid costs to the federal government. 
In an early report, we documented that Michigan, Texas, and Tennessee 
used illusory financing approaches to obtain about $800 million in 
federal Medicaid funds without effectively committing their share of 
matching funds. Under these approaches, facilities that received 
increased Medicaid payments from the states, in turn, paid the states 
almost as much as they received. Consequently, the states realized 
increased revenue that was used to reduce their state Medicaid 
contributions, fund other health care needs, and supplement general 
revenue funding. For the period from fiscal year 1991 to fiscal year 
1995, Michigan alone reduced its share of Medicaid costs by almost 
$1.8 billion through financing partnerships with medical providers and 
local units of government. Our analysis of Michigan's transactions 
showed that even though legislation curtailed certain creative 
financing practices, the state was able to reduce its share of 
Medicaid costs at the expense of the federal government by $428 
million through other mechanisms. We subsequently reported on similar 
schemes involving state psychiatric hospitals and local government 
facilities, such as county nursing homes. 

The state schemes that involve excessive federal payments have been 
restricted by (1) the Omnibus Budget Reconciliation Act of 1993 that 
limits such payments to unreimbursed Medicaid and uninsured costs for 
state-owned facilities, (2) the Balanced Budget Act of 1997 that 
further limits Medicaid payments to state psychiatric hospitals, and 
(3) the Medicare, Medicaid, and State Children's Health Insurance 
Program Benefits Improvement and Protection Act of 2000 (BIPA), 
[Footnote 11] which mandated that the Health Care Financing 
Administration (HCFA) issue regulations to curtail financing schemes 
involving excessive payments to local government providers.[Footnote 
12] 

Despite these legislative and regulatory restrictions, states continue 
to develop schemes to draw down federal Medicaid payments that grossly 
exceed costs. Moreover, the Centers for Medicare and Medicaid Services 
(formerly HCFA) do not verify that such moneys are used for the 
purposes for which they were obtained. 

We believe that the Medicaid program should not allow states to 
benefit from illusory arrangements and that Medicaid funds should only 
be used to help cover the costs of medical care incurred by those 
medical facilities that provide care to Medicaid beneficiaries. We 
believe the Congress should continue its legislative efforts to 
minimize the likelihood that states can develop arrangements that 
claim excessive federal Medicaid payments and that inappropriately 
shift Medicaid costs to the federal government. Specifically, the 
Congress should consider legislation that would prohibit Medicaid 
payments that exceed costs to any government-owned facility. 

Savings are difficult to estimate for this option because national 
data on these practices are not readily available. In addition, 
Medicaid spending is influenced by the use of waivers from federal 
requirements, which allows states to alter Medicaid financing 
formulas. Future requests and use of waivers by states are uncertain. 

Related GAO Products: 

Medicaid: State Financing Schemes Again Drive Up Federal Payments
(GAO/T-HEHS-00-193, Sept. 6, 2000). 

Medicaid: Managed Care and Individual Hospital Limits for 
Disproportionate Share Hospital Payments (GAO/HEHS-98-73R, Jan. 28, 
1998). 

Medicaid: Disproportionate Share Payments to State Psychiatric 
Hospitals (GAO/HEHS-98-52, Jan. 23, 1998). 

Medicaid: Disproportionate Share Hospital Payments to Institutions for 
Mental Disease (GAO/HEHS-97-181R, July 15, 1997). 

State Medicaid Financing Practices (GAO/HEHS-96-76R, Jan. 23, 1996). 

Michigan Financing Arrangements (GAO/HEHS-95-146R, May 5, 1995). 

Medicaid: States Use Illusory Approaches to Shift Program Costs to the 
Federal Government (GAO/HEHS-94-133, Aug. 1, 1994). 

Medicaid: The Texas Disproportionate Share Program Favors Public 
Hospitals (GAO/HRD-93-86, Mar. 30, 1993). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Create a Uniform Federal Mechanism for Food Safety: 

Authorizing committees: Agriculture, Nutrition, and Forestry (Senate); 
Agriculture (House) Energy and Commerce (House); 
Appropriations subcommittees: Agriculture, Rural Development, and
Related Agencies (Senate); Agriculture, Rural Development, Food and 
Drug Administration, and Related Agencies (House); 
Primary agency: Department of Agriculture; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: 554/Consumer and occupational health and safety; 
Framework theme: Improve efficiency. 
		
A multitude of agencies oversee food safety, with two agencies 
accounting for most federal spending on, and regulatory 
responsibilities for, food safety. The Food Safety and Inspection 
Service (FSIS), under USDA, is responsible for the safety of meat, 
poultry, eggs, and some egg products, while the Food and Drug 
Administration (FDA), under MIS, is responsible for the safety of most 
other foods. 

The current food safety system emerged from a patchwork of often 
archaic laws and grew into a structure that actually hampers efforts 
to address existing and emerging food safety risks. Moreover, the 
current regulatory framework addresses only a segment—primarily food 
processing—of the continuum of activities that bring food from the 
farm to the table. Finally, scientific and technical advances in the 
production of food, such as the development of genetically modified 
foods, have further complicated the responsibilities of the existing 
federal food safety structure. Indeed, the current food safety system 
suffers from gaps, overlapping and duplicative inspections, poor 
coordination, and inefficient allocation of resources. 

The Congress could consider the following options to improve the 
effectiveness and efficiency of the federal food safety system and 
ensure a comprehensive farm-to-table approach—one that starts with 
growers and extends to retailers. One option would be to consolidate 
federal food safety agencies and activities under a single, 
independent, risk-based food safety agency responsible for 
administering a uniform set of laws. A second option would be to 
consolidate food safety activities in an existing department, such as 
USDA or HHS. CBO agrees that these options could potentially yield 
savings, but did not develop savings estimates due to the uncertainty 
of the extent to which improved efficiencies actually led to budgetary 
savings. 

Related GAO Products: 

Food Safety: CDC Is Working to Address Limitations in Several of Its 
Foodborne Surveillance Systems (GAO-01-973, Sept. 7, 2001). 

Food Safety: Federal Oversight of Shellfish Safety Needs Improvement 
(GAO-01-702, July 9, 2001). 

Food Safety: Overview of Federal and State Expenditures (GAO-01-177, 
Feb. 20, 2001). 

Food Safety: Federal Oversight of Seafood Does Not Sufficiently 
Protect Consumers (GAO-01-204, Jan. 31, 2001). 

Food Safety: Actions Needed by USDA and FDA to Ensure That Companies 
Promptly Carry Out Recalls (GAO/RCED-00-195, Aug. 17, 2000). 

Food Safety: Improvements Needed in Overseeing the Safety of Dietary
Supplements and "Functional Foods" (GAO/RCED-00-156, July 11, 2000). 

Meat and Poultry: Improved Oversight and Training Will Strengthen New 
Food Safety System (GAO/RCED-00-16, Dec. 8, 1999). 

Food Safety: Agencies Should Further Test Plans for Responding to 
Deliberate Contamination (GAO/RCED-00-3, Oct. 27, 1999). 

Food Safety: U.S. Needs a Single Agency to Administer a Unified, Risk-
Based Inspection System (GA0a-RCED-99-256, Aug. 4, 1999). 

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness (GAO/RCED-98-224, Aug. 6, 1998). 

Food Safety: Federal Efforts to Ensure the Safety of Imported Foods 
Are Inconsistent and Unreliable (GAO/RCED-98-103, Apr. 30, 1998). 

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food
(GAO/RCED-94-192, Sept. 26, 1994). 

Food Safety and Quality: Uniform Risk-based Inspection System Needed 
to Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992). 

GAO Contacts: 

Bob Robinson, (202) 512-3841: 
Lawrence J. Dyckman, (202) 512-3841: 

Convert Public Health Service Commissioned Corps Officers to Civilian 
Status: 

Authorizing committees: Health, Education, Labor and Pensions (Senate); 
Energy and Commerce (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education, and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Accounts: Multiple; 
Spending type: Discretionary/Direct; 
Budget subfunction: 551/Health care services; 
Framework theme: Improve efficiency. 

The Commissioned Corps of the Public Health Service (PHS) was 
established in the late 1800s to provide medical care to sick and 
injured merchant seamen. Over the ensuing years, the Corps' 
responsibilities have grown, and Corps officers today are involved in 
a wide range of PHS programs, such as providing medical care to Native 
Americans at tribal and Indian Health Service facilities; providing 
psychiatric, medical, and other services in federal prisons; and 
participating in health sciences research. As the result of their 
temporary service with the armed forces during World Wars I and II, 
members of the Corps were authorized to assume military ranks and 
receive military-like compensation, including retirement eligibility 
(at any age) after 20 years of service. Corps officers continue to 
receive virtually the same pay and benefits as military officers, 
including retirement. The functions of the Corps are essentially 
civilian in nature, and some civilian PHS employees carry out the same 
functions as Corps members. Further, 

* the Corps has not been incorporated into the armed forces since 1952; 

* generally, the Corps does not meet the criteria and principles cited 
in a DOD report as justification for the military compensation system; 
and; 

* other than Corps officers who are detailed to the Coast Guard and 
DOD, Corps members are not subject to the Uniform Code of Military 
Justice, which underlies how military personnel are managed. 

Corps officials maintain that uniformed Corps members are needed as 
mobile cadres of professionals who can be assigned with little notice 
to any location and function, often in hazardous or harsh conditions. 
However, other agencies, such as the Environmental Protection Agency, 
the National Transportation Safety Board, and the Federal Emergency 
Management Agency, use civilian employees to respond quickly to 
disasters and other emergency situations that could involve both 
hazardous and harsh conditions. 

Based on 1994 costs, when all of the components of personnel costs—
including basic pay and salaries; special pay, allowances, and 
bonuses; retirement; health care; life insurance; and Corps members' 
tax advantages—were considered, PHS personnel costs could have been 
reduced by converting the PHS Corps to civilian status. Any decision 
to convert the Corps could be implemented in a number of ways to 
address a variety of transition issues. For example, all officers with 
a specific number of years in the Corps could be allowed to continue 
until retirement or other separation, while all new entrants would be 
required to be civilian employees. 

Although CBO estimates that converting officers with fewer than 15 
years of service to civilian status would result in a net cost to the 
federal government during the initial 5-year estimation period, it 
agrees that annual savings of millions of dollars would continue to 
grow as new entrants were hired at a lower cost than PHS Corps 
recruits. 

Related GAO Products: 

Federal Personnel: Public Health Service Commissioned Corps Officers'
Health Care for Native Americans (GAO/GGD-97-111BR, Aug. 27, 1997). 

Federal Personnel: Issues on the Need for the Public Health Service's 
Commissioned Corps (GAO/GGD-96-55, May 7, 1996). 

GAO Contact: 

J. Christopher Mihm, (202) 512-6806: 

Control Provider Enrollment Fraud in Medicaid: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Grants to States for Medicaid (75-0512); 
Spending type: Direct; 
Budget subfunction: 551/Health care services; 
Framework theme: Improve efficiency. 

Recent investigations of fraud in the California Medicaid program, 
which could exceed $1 billion in program losses, involve cases in 
which closer scrutiny would have raised questions about the legitimacy 
of the providers involved. State Medicaid programs are responsible for 
processing millions of providers' claims each year, making it 
impossible to perform detailed checks on a significant portion of 
them. While most providers bill appropriately, states need enrollment 
procedures to help prevent entry into Medicaid by providers intent on 
committing fraud. Preventing such providers from billing the program 
is more efficient than attempted recovery once payments have already 
been made. 

Our July 2000 testimony highlighted several Medicaid programs that 
have comprehensive procedures to check the legitimacy of providers 
before they can bill the program. These states check that a provider 
has a valid license (if required) and no criminal record, has not been 
excluded from other federal health programs, and practices from a 
legitimate business location. However, only nine states report that 
they conduct all of these checks. In addition, we found that many 
states poorly control provider billing numbers. They either allow 
providers to bill indefinitely or fail to cancel inactive numbers. 
Since billing numbers are necessary to submit claims, poor control of 
them may allow fraudulent providers to obtain other providers' numbers 
and bill the program inappropriately. 

At present, the federal government has no uniform or minimum 
requirements in approving providers' applications. As a result, we 
believe that it would be beneficial for the Centers for Medicare and 
Medicaid Services (CMS)—the agency formerly called the Health Care 
Financing Administration (HCFA)—to assist states in developing 
effective provider enrollment procedures. If states could limit 
entrance of even a small percentage of dishonest providers by adopting 
such procedures, future Medicaid costs would be reduced substantially. 
CMS currently has a work group that is considering options for a 
limited pilot project to study coordinating aspects of Medicaid and 
Medicare provider enrollment activities. However, CBO cannot develop 
an estimate of the savings for this option until specific strategies 
are identified. Moreover, savings would be net of the additional 
resources required to implement such procedures. 

Related GAO Products: 

Medicaid: State Efforts to Control Improper Payment Vary (GAO-01-662,
June 7, 2001). 

Medicaid: HCFA and States Could Work Together to Better Ensure the 
Integrity of Providers (GAO/T-HEHS-00-159, July 18, 2000). 

Medicaid: Federal and State Leadership Needed to Control Fraud and 
Abuse (GAO/T-HEHS-00-30, Nov. 9, 1999). 

Health Care: Fraud Schemes Committed by Career Criminals and Organized 
Criminal Groups and Impact on Consumers and Legitimate Health Care 
Providers (GAO/OSI-00-1R, Oct. 5, 1999). 

Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded 
Providers From Federal Health Programs (GAO/HEHS-97-63, Mar. 31, 1997). 

Fraud and Abuse: Providers Excluded From Medicaid Continue to 
Participate in Federal Health Programs (GAO/T-HEHS-96-205, Sept. 5, 
1996). 

Prescription Drugs and Medicaid: Automated Review Systems Can Help 
Promote Safety, Save Money (GAO/AINID-96-72, June 11, 1996). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

[End of section] 

570 Medicare: 

* Reassess Medicare Incentive Payments in Health Care Shortage Areas; 
* Adjust Medicare Payment Allowances to Reflect Changing Technology, 
Costs, and Market Prices; 
* Increase Medicare Program Safeguard Funding; 
* Continue to Reduce Excess Payments to Medicare+Choice Health Plans; 
* Modify the Skilled Nursing Facility Payment Method to Ensure 
Appropriate Payments; 
* Implement Risk-Sharing in Conjunction with Medicare Home Health 
Agency Prospective Payment System; 
* Eliminate Medicare Competitive Sourcing Restrictions; 
* Change Pricing Formula for Medicare-Covered Drugs. 

Reassess Medicare Incentive Payments in Health Care Shortage Areas: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Federal Supplemental Insurance Trust Fund Account (20-8004); 
Spending type: Direct; 
Budget subfunction: 571/Medicare; 
Framework theme: Reassess objectives. 

The Medicare Incentive Payment program was established in 1987 amid 
concerns that low Medicare reimbursement rates for primary care 
services cause access problems for Medicare beneficiaries in 
underserved areas. The program pays physicians a 10-percent bonus 
payment for Medicare services they provide in areas identified by the 
Department of Health and Human Services as having a shortage of 
primary care physicians. In 1997, bonus payments paid from the 
Medicare Supplemental Medical Insurance trust found amounted to over 
$90 million. 

This program, however, may not be the most appropriate means of 
addressing medical underservice. 

* The need for this program may have changed; since 1987 the Congress 
generally increased reimbursement rates for primary care services and 
reduced the geographic variation in physician reimbursement rates. In 
addition, recent surveys of Medicare beneficiaries who have access 
problems, including those who may live in underserved areas, generally 
cite reasons other than the unavailability of a physician—such as the 
cost of services not paid by Medicare—for their access problems. 

* The relatively small bonus payments most physicians receive—a median 
payment of $341 for the year in 1996—are unlikely to have a 
significant impact on physician recruitment and retention. 

* Specialists receive most of the program dollars, even though primary 
care physicians have been identified as being in short supply, while 
shortages of specialists, if any, have not been determined. 

* The program provides no incentives or assurances that physicians 
receiving bonuses will actually treat people who have problems 
obtaining health care. 

* Centers for Medicare and Medicaid Services—formerly the Health Care 
Financing Administration—oversight of the program also has limitations 
that allow physicians and other providers to receive and retain bonus 
payments claimed in error. 

HIS has acknowledged problems in the program and agrees that making 
incentive payments to specialists in urban areas appears to be 
unnecessary. The department has stated that it is clear that certain 
structural changes to this program are necessary to better target 
incentive payments to rural areas with the highest degree of shortage.
If the Congress determines that this program is not an appropriate 
vehicle for addressing medical underservice, then termination is a 
reasonable option. However, if it is decided to continue the program, 
then the Congress could consider reforms that clarify the program's 
intent and better structure the program to link limited federal funds 
to intended outcomes. For example, if the program's intent is to 
improve access to primary care services in underserved rural areas, 
the bonus payments should be limited to physicians providing primary 
care services to underserved populations in rural areas with the 
greatest need. Better targeting of the payments and evaluations would 
also be needed to provide assurances that the payments are achieving 
their intended outcomes. 

The savings estimate that follows assumes that the Congress eliminates 
the additional 10-percent payment for services delivered in urban and 
rural HPSAs beginning in fiscal year 2001. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $110 million; 
FY04: $120 million; 
FY05: $125 million; 
FY06: $130 million; 
FY07: $140 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $110 million; 
FY04: $120 million; 
FY05: $125 million; 
FY06: $130 million; 
FY07: $140 million. 

Source: Congressional Budget Office. 

Note: Estimate includes HMO interaction and is net of Part B premium 
effects. 

[End of table] 

Related GAO Products: 				 

Physician Shortage Areas: Medicare Incentive Payments Not an Effective
Approach to Improve Access (GAO/HEHS-99-36, Feb. 26, 1999). 

Health Care Shortage Areas: Designations Not a Useful Tool for 
Directing Resources to the Underserved (GAO/HEHS-95-200, Sept. 8, 
1995). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Adjust Medicare Payment Allowances to Reflect Changing Technology, 
Costs, and Market Prices: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Federal Supplemental Insurance Trust Fund Account (20-8004); 
Spending type: Direct; 
Budget subfunction: 571/Medicare; 
Framework theme: Improve efficiency. 

Medicare's supplementary medical insurance program (Medicare Part B) 
allowed almost $6 billion for durable medical equipment, supplies, 
prosthetics, orthotics, enteral and parenteral nutrition, and 
outpatient drugs in 1998. For most medical equipment and supplies, 
Medicare payments are primarily based on historical charges, indexed 
forward, rather than current costs or market prices. For example, the 
Medicare payments for such items as walkers, catheters, and glucose 
test strips are based on supplier charges allowed in 1986 and 1987 and 
were adjusted for inflation each year. Beginning in 1998, Medicare law 
was amended to freeze Medicare payments for medical equipment and 
supplies and limit payment increases for prosthetics and orthotics to 
1 percent each year for 5 years. 

We have reported that Medicare payments for some medical equipment and 
supplies are out of line with market prices. This can occur when 
providers' costs for some procedures, equipment, and supplies have 
declined over time as competition and efficiencies increased. For 
example, when Medicare sets its payment rates for new items, the rates 
typically are based on the high initial unit costs. Over time, 
providers' unit costs decline as the equipment improves, utilization 
increases, and experience in using the equipment results in 
efficiencies. In other cases, medical innovations and advances have 
increased the cost of some procedures and products. However, Medicare 
did not have a process to routinely and systematically review these 
factors and make timely adjustments to the Medicare allowances. In 
fact, through the years, the Congress has legislatively adjusted 
Medicare allowances for some products and services, such as home 
oxygen, clinical laboratory tests, intraocular lenses, computed 
tomography scans, and magnetic resonance imaging scans. 

To respond to problems with excessive payments, the Balanced Budget 
Act of 1997 provided the Health Care Financing Administration (HCFA)—
the agency now called the Centers for Medicare & Medicaid Services 
(CMS)—the authority to use a streamlined process for adjusting 
Medicare Part B payments by up to 15 percent per year. (This revised 
authority does not extend to adjusting Medicare payments for physician 
services.) In 1998, HCFA issued an interim final rule with a comment 
period to implement the revised process. Under the revised process, 
HCFA and its contractors have each issued a notice proposing to reduce 
Medicare payments for different items of medical equipment, supplies, 
and prosthetics. The contractors' proposed payment reductions are 
based on retail prices that beneficiaries would pay. HCFA used 
competitive prices paid by the VA to account for supplier costs in 
proposing Medicare payment reductions. On July 2000, we issued a 
report on HCFA's and the contractors' actions to implement the revised 
authority in adjusting payments. The Congress also passed legislation 
requiring HCFA to publish a final rule that responds to issues raised 
in GAO's report and to public comments on the implementation of the 
revised authority. The agency has not yet issued a final rule. Once 
the final rule has been issued, CMS and its contractors plan to move 
forward with the proposed payment reductions. 

An obstacle to effectively using this new authority is that Medicare 
frequently does not know specifically what it is paying for. CMS does 
not require suppliers to identify on Medicare claims the specific 
items billed. Instead, suppliers are required to use CMS billing 
codes, most of which cover a broad range of products of various types, 
qualities, and market prices. For example, one Medicare billing code 
is used for more than 200 different urological catheters, even though 
some of these catheters sell at a fraction of the price of others 
billed under the same code. Unless Medicare claims contain more 
product-specific information, CMS cannot track what items are billed 
to ensure that each billing code is used for comparable products. 
Although the health care industry is increasingly using more specific 
universal product numbers and bar codes for inventory control, CMS 
does not currently require suppliers to use these identifiers on 
Medicare claims. 

CMS is exploring the use of universal product numbers as a way to 
improve Medicare's ability to pay for medical equipment and supplies. 
In September 1999, HCFA awarded a 1-year contract to an outside 
consultant to gather information on universal product numbers and 
determine how they could be integrated into the Medicare claims 
processing system. CBO is also collecting data on a Universal Product 
Code-based payment system and is unable to provide saving estimates at 
this time. 

There are a number of other options that could also help bring 
Medicare allowances more in line with actual costs and market prices. 
For example, the Congress authorized HCFA to implement competitive 
bidding demonstrations for some Part B services and supplies (except 
for physician services). In 1998, HCFA announced plans for the first 
competitive bidding demonstration project in Polk County, Florida. In 
the spring of 1999, HCFA selected competing suppliers to provide, at 
reduced Medicare payment rates, oxygen supplies, hospital beds, 
surgical dressings, enteral nutrition equipment and supplies, and 
urological supplies. When the local payment rates took effect for 
these items in October 1999 (and will remain in effect for 2 years), 
HCFA achieved a 17-percent reduction in Medicare payments on average. 
In 2000, HCFA began a second competitive bidding demonstration project 
in three counties near San Antonio, Texas for oxygen supplies, 
hospital beds, manual wheelchairs, non-customized orthotic devices 
(such as braces and splints), and nebulizer inhalation drugs. The new 
payment rates for these items, which are on average 20 percent below 
existing Medicare rates for Texas, will be in effect from February 1, 
2001 through December 31, 2002. 

These projects may eventually bring some Medicare payment rates more 
in line with actual costs and market rates, but none of these projects 
specifically targets expensive, evolving technologies. We believe 
significant program savings would result from an ongoing, systematic 
process for evaluating the reasonableness of Medicare payment rates 
for new medical technologies as those technologies mature. 

Another approach for paying more appropriately for medical equipment 
and supplies is basing Medicare payments on the lower of the fee 
schedule allowance or the lowest amount a provider has agreed to 
accept from other payers. CMS would need legislative authority to 
pursue this option. Yet another approach is to develop separate fee 
schedules that distinguish between wholesale and retail acquisition to 
ensure that large suppliers do not receive inappropriately large 
Medicare reimbursements. While the CBO agrees that aligning Medicare 
allowances with costs and market prices could yield savings, it cannot 
develop an estimate until CMS has completed its demonstration projects 
and implemented specific proposals. 

Related GAO Products: 
Medicare Payments: Use of Revised "Inherent Reasonableness" Process
Generally Appropriate (GAO/HEHS-00-79, July 5, 2000). 

Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA 
Monitoring Needed (GAO/HEHS-99-56, Apr. 5, 1999.) 

Medicare: Progress to Date in Implementing Certain Major Balanced 
Budget Act Reforms (GAO/T-HEHS-99-87, Mar. 17, 1999). 

Medicare: Need to Overhaul Costly Payment System for Medical Equipment 
and Supplies (GAO/HEHS-98-102, May 12, 1998). 

Medicare: Home Oxygen Program Warrants Continued HCFA Attention 
(GAO/HEHS-98-17, Nov. 7, 1997). 

Medicare: Problems Affecting HCFA's Ability to Set Appropriate 
Reimbursement Rates for Medical Equipment and Supplies (GAO/HEHS97-
157R, June 17, 1997). 

Medicare: Comparison of Medicare and VA Payment Rates for Home Oxygen 
(GAO/HEHS-97-120R, May 15, 1997). 

Medicare Spending: Modern Management Strategies Needed to Curb 
Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept. 19, 1995). 

Medicare High Spending Growth Calls for Aggressive Action (GAO/THEHS-
95-75, Feb. 6, 1995). 

Medicare: Excessive Payments Support the Proliferation of Costly 
Technology (GAO/HRD-92-59, May 27, 1992). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Increase Medicare Program Safeguard Funding: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Federal Supplemental Insurance Trust Fund Account (20-8004); 
Federal Supplementary Medical Insurance Trust Fund (20-8004); Program 
Management (75-0511); 
Spending type: Discretionary/Direct; 
Budget subfunction: 571/Medicare; 
Framework theme: Improve efficiency. 
		
Medicare program safeguard activities designed to combat fraud, waste, 
and abuse have historically returned about $10 in savings for each 
dollar spent, and HCFA has reported a return of $15 for each dollar 
spent in fiscal year 1999. These types of activities include pre- and 
post-payment medical review of claims to determine if services are 
medically necessary and appropriate, audits, and fraud unit 
investigations. The Health Insurance Portability and Accountability 
Act of 1996 established the Medicare Integrity Program (MIP) and 
provided HCFA—the agency now called the Centers for Medicare & 
Medicaid Services—with increased funding for program safeguard 
activities. CBO estimated a net savings of over $3 billion from these 
increased resources given to HCFA, as well as other resources given to 
the HHS Office of Inspector General and the Federal Bureau of 
Investigation to identify and pursue individuals or entities that 
defraud federal health care programs. As we recently reported, CMS has 
taken a number of actions under MIP to promote more efficient and 
effective contractor safeguard operations. However, measuring the 
effectiveness of its actions is difficult because funding levels rose 
so recently and because the agency does not have the kind of data 
needed to measure the effectiveness of its efforts. 

While funding has increased, in 2002 it will still remain below program
safeguard funding levels in the previous decade, adjusted for 
inflation. 

Comparing program safeguard expenditures from fiscal years 1995 
through 1998-2 years before and after MIP implementation—shows that 
expenditures increased by more than one-quarter to $544.6 million. 
However, in constant 1998 dollars, the amount spent on program 
safeguards per claim processed is still almost one-third less than was 
spent in fiscal year 1989. Further, the combined effects of increased 
claims volume of 3 to 5 percent annually in recent years and inflation 
will erode part of the benefits of increased funding authorized for 
future years. For example, appropriated fiscal year 2002 funding of 
$700 million, adjusted for inflation and claims growth, is expected to 
be about 10 percent below the 1991 through 1996 average. In response 
to reduced resources, contractors apply fewer or less stringent 
payment controls resulting in payment of claims that otherwise would 
not be paid. 

We believe that additional program safeguard funding might better 
protect Medicare from erroneous payments and yield net savings. As a 
result, we recently suggested that the Congress consider increasing 
the agency's MIP funds to allow an expansion of postpayment and other 
effective program safeguard activities. However, CMS needs a better 
understanding of costs and savings from particular activities—such as 
desk reviews and cost audits. It also needs to consistently code 
savings from different activities to understand their relative value, 
as well as determine which contractors are realizing the highest 
return on investment from their program safeguard activities. 
Therefore, we also recommended that HCFA evaluate the effectiveness of 
prepayment and postpayment activities to determine the relative 
benefits of various safeguards. 

CBO did not prepare a savings estimate for this option because it does 
not estimate changes in direct spending due to changes in 
discretionary spending. 

Related GAO Products: 

Medicare: Opportunities and Challenges in Contracting for Program 
Safeguards (GAO-01-616, May 18, 2001). 

Major Management Challenges and Program Risks: Department of Health 
and Human Services (GAO-01-247, Jan. 2001). 

Medicare: HCFA Could Do More to Identify and Collect Overpayments 
(GAO/HEHS/AIMD-00-304, Sept. 7, 2000). 

Medicare: Health Care Fraud and Abuse Control Program Financial 
Reports for Fiscal Years 1998 and 1999 (GAO/AIMD-00-257R, July 31, 
2000). 

Medicare Contractors: Further Improvement Needed in Headquarters and 
Regional Office Oversight (GAO/HEHS-00-46, Mar. 23, 2000). 

Medicare: Program Safeguard Activities Expand, but Results Difficult 
to Measure (GAO/HEHS-99-165, Aug. 4, 1999). 

Medicare Contractors: Despite Its Efforts, HCFA Cannot Assure Their 
Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999). 

Medicare: Improprieties by Contractors Compromised Medicare Program 
Integrity (GAO/OSI-99-7, July 14, 1999). 

Medicare: Fraud and Abuse Control Pose a Continuing Challenge
(GAO/HEHS-98-215R, July 15, 1998). 

Medicare: Health Care Fraud and Abuse Control Program Financial Report 
for Fiscal Year 1997 (GAO/AIMD-98-157, June 1, 1998). 

Medicare: HCFA's Use of Anti-Fraud-and-Abuse Funding and Authorities 
(GAO/HEHS-98-160, June 1, 1998). 

Medicare: Improper Activities by Mid-Delta Home Health (GAO/OSI-98-5, 
Mar. 12, 1998). 

Medicare Home Health: Success of Balanced Budget Act Cost Controls 
Depends on Effective and Timely Implementation (GAO/T-HEHS-98-41, Oct. 
29, 1997). 

Medicare: Recent Legislation to Minimize Fraud and Abuse Requires 
Effective Implementation (GAO/T-HEHS-98-9, Oct. 9, 1997). 

Medicare Fraud and Abuse: Summary and Analysis of Reform in the Health 
Insurance Portability and Accountability Act of 1996 and the Balanced 
Budget Act of 1997 (GAO/HEHS-98-18R, Oct. 9, 1997). 

Medicare: Control Over Fraud and Abuse Remains Elusive (GAO/THEHS-97-
165, June 26, 1997). 

Nursing Homes: Too Early to Assess New Efforts to Control Fraud and 
Abuse (GAO/T-HEHS-97-114, Apr. 16, 1997). 

Medicare: Inherent Program Risks and Management Challenges Require 
Continued Federal Attention (GAO/T-HEHS-97-89, Mar. 4, 1997). 

Medicare (GAO/HR-97-10, Feb. 1997). 

Funding Anti-Fraud and Abuse Activities (GAO/HEHS-95-263R, Sept. 29, 
1995). 

Medicare: High Spending Growth Calls for Aggressive Action (GAO/T-HEHS-
95-75, Feb. 6, 1995). 

Medicare Claims (GAO/HR-95-8, Feb. 1995). 

Medicare: Adequate Funding and Better Oversight Needed to Protect 
Benefit Dollars (GAO/T-HRD-94-59, Nov. 12, 1993). 

Medicare: Further Changes Needed to Reduce Program and Beneficiary 
Costs (GAO/HRD-91-67, May 15, 1991). 

Medicare: Cutting Payment Safeguards Will Increase Program Costs 
(GAO/T-HRD-89-06, Feb. 28, 1989). 

Medicare and Medicaid: Budget Issues (GAO/T-HRD-87-1, Jan. 29, 1987). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Continue to Reduce Excess Payments to Medicare+Choice Health Plans: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Federal Supplementary Medical Insurance Trust Fund (20-8004); 
Spending type: Direct[A]; 
Budget subfunction: 571/Medicare; 
Framework theme: Improve efficiency. 
		
[A] A small portion of this option includes administrative expenses 
that are discretionary in nature. 

The Balanced Budget Act of 1997 (BBA) created the Medicare+Choice 
program to encourage the wider availability of health maintenance 
organizations (HMO) and permit other types of health plans, such as 
preferred provider organizations, to participate in Medicare. BBA also 
modified the methodology used to pay plans, in part because the 
government was paying more to cover beneficiaries in managed care than 
it would have spent if these individuals had remained in the 
traditional fee-for-service program. Since BBA was enacted, a 
substantial number of HMOs have partially or completely withdrawn from 
Medicare or announced that they will do so at the end of December 
2001. Industry representatives have cited inadequate Medicare payment 
rates and regulatory burdens as primary reasons for the withdrawals. 
To address the HMOs' concerns, the Balanced Budget Refinement Act of 
1999(BBRA) and the Benefits Improvement and Protection Act of 2000 
(BIPA) moderated some of BBA's payment reforms and introduced new 
incentives for plan participation in the Medicare+Choice program. 

Our recent reports found that (1) HMO withdrawals were associated with 
many factors, including competitive market forces and the inherent 
difficulty HMOs have operating cost effectively in sparsely populated 
areas, and (2) 1998 payments to HMOs exceeded by an estimated $3.2 
billion the amount that Medicare would have spent to serve HMO 
enrollees in the traditional fee-for-service program. These excess 
payments occurred because HMO payment rates are largely determined by 
the cost of serving the average beneficiary while HMOs tend to attract 
a favorable selection of healthier-than-average beneficiaries with 
lower expected health care costs. We have has also reported that 
Medicare's administratively determined payment formula for HMOs does 
not harness competitive market forces. Competition among Medicare HMOs 
for market share may result in improved benefits packages or reduced 
fees charged to beneficiaries, but it does not produce program savings.
We have suggested that Medicare pursue the following strategies to 
address the problem of excess payments and help save the government 
money when Medicare beneficiaries enroll in HMOs. 

* Implement a risk adjustment method that uses comprehensive data to 
adjust payment rates on the basis of a beneficiary's expected annual 
health care costs. BBA mandated that the Secretary of Health and Human 
Services implement a health-based risk adjuster. In 2000, Medicare 
began to phase in an interim method based on inpatient hospital data 
only. This method, if fully implemented, would have reduced HMO 
payments by about 5.9 percent, or about half of the $3.2 billion in 
excess payments caused by favorable selection in 1998. However, BBRA 
and BIPA slowed the implementation of the interim adjuster and 
mandated additional studies on risk adjustment methods. 

* Shift to a system in which Medicare+Choice rates are competitively 
determined. Competitive bidding demonstrations were mandated by BBA, 
but provisions in BBRA will delay implementation of such 
demonstrations until at least January 1, 2002. 

CBO agrees that savings are possible if the above strategies are 
followed, but savings would depend on the interactions between price 
and enrollment changes. Consequently, CBO cannot estimate savings for 
this option without a more specific proposal. 

Related GAO Products: 

Medicare+Choice: Plan Withdrawals Indicate Difficulty of Providing 
Choice While Achieving Savings (GAO/HEHS-00-183, Sept. 7, 2000). 

Medicare+Choice: Payments Exceed Cost of Fee-for-Service Benefits, 
Adding Billions to Spending (GAO/HEHS-00-161, Aug. 23, 2000). 

Medicare: Better Information Can Help Ensure That Refinements to BBA 
Reforms Lead to Appropriate Payments (GAO/T-HEHS-00-14, Oct. 1, 1999). 

Medicare+Choice: Reforms Have Reduced, but Likely Not Eliminated, 
Excess Plan Payments (GAO/HEHS-99-144, June 18, 1999). 

Medicare+Choice: Impact of 1997 Balanced Budget Act Payment Reforms on 
Beneficiaries and Plans (GAO/T-HEHS-99-137, June 9, 1999). 

Medicare Managed Care: Better Risk Adjustment Expected to Reduce 
Excess Payments Overall While Making Them Fairer to Individual Plans 
(GAO/T-HEHS-99-72, Feb. 25, 1999). 

Medicare HMOs: Setting Payment Rates Through Competitive Bidding
(GAO/HEHS-97-154R, June 12, 1997). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Modify the New Skilled Nursing Facility Payment Method to Ensure 
Appropriate Payments: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Federal Hospital Insurance Trust Fund (20-8005); 
Spending type: Direct; 
Budget subfunction: 571/Medicare; 
Framework theme: Improve efficiency. 

The Balanced Budget Act mandated the implementation of a prospective 
payment system (PPS) for skilled nursing facilities (SNF) to help 
address concerns about dramatic growth in Medicare spending for these 
services. A PPS provides incentives to deliver services efficiently by 
paying providers—regardless of their costs—fixed, predetermined rates 
that vary according to expected patient service needs. The Health Care 
Financing Administration (HCFA), now called the Centers for Medicare 
and Medicaid Services (CMS), began phasing in such a system for SNFs 
in July 1998. 

However, problems with the design of the PPS, the services excluded 
from the daily rate, inadequate data used to establish rates, and 
inadequate planned oversight of claims for payment could compromise 
Medicare's ability to stem spending growth while maintaining 
beneficiary access. We are concerned that the PPS preserves the 
opportunity for providers to increase their compensation by supplying 
potentially unnecessary services, such as additional therapy services, 
or by increasing length of stay. In addition, services that have been 
excluded from the daily rate, and are paid for separately, may 
encourage service provision and unnecessarily increase Medicare 
spending. For example, some services are excluded only when provided 
in hospital outpatient departments, which may encourage providers to 
use this setting when other, less costly ambulatory settings could be 
appropriate. Furthermore, the payment rates were computed using data 
that may overstate the reasonable cost of providing care and may not 
appropriately reflect the differences in costs for patients with 
different care needs. In addition, as part of the system, Medicare 
appears to have changed the process for determining eligibility for 
the Medicare SNF benefit. Beneficiaries with certain care needs are 
automatically eligible for the SNF benefit, while other beneficiaries 
with different care needs are required to be reviewed to ensure that 
they meet the eligibility criteria. This could expand the number of 
beneficiaries who will be covered. The planned oversight of claims to 
determine if a beneficiary is entitled to Medicare coverage and how 
much payment a SNF should receive is insufficient, increasing the 
potential to compromise expected savings. 

We believed that CMS should modify the SNF PPS regulations to address 
these concerns. Medicare needs to ensure that the payment rates 
reflect only necessary services that the facilities actually provide. 
It also needs to establish a process to review the services that are 
included and excluded from the PPS. Medicare should also increase its 
viligance over claims review and provider oversight so that payments 
are appropriate and made only for eligible beneficiaries. 

CBO agrees that improved payment methods and oversight could reduce 
spending. However, by convention, CBO only estimates the costs or 
savings of proposals that change current law, not administrative 
changes. 

Related GAO Products: 

Skilled Nursing Facilities: Services Excluded From Medicare's Daily 
Rate Need to be Reevaluated (GAO-01-816, Aug. 22, 2001). 

Nursing Homes: Aggregate Medicare Payments Are Adequate Despite 
Bankruptcies (GAO/T-HEHS-00-192, Sept. 5, 2000). 

Skilled Nursing Facilities: Medicare Payments Changes Require Provider 
Adjustments But Maintain Access (GAO/HEHS-00-23, Dec. 14, 1999). 

Medicare: Better Information Can Help Ensure That Refinements to BBA 
Reforms Lead to Appropriate Payments (GAO/T-HEHS-00-14, Oct. 1, 1999). 

Skilled Nursing Facilities: Medicare Payments Need to Better Account 
for Nontherapy Ancillary Cost Variation (GAO/HEHS-99-185, Sept. 30, 
1999). 

Medicare Post-Acute Care: Better Information Needed Before Modifying 
BBA Reforms (GAO/T-HEHS-99-192, Sept. 15, 1999). 

Balanced Budget Act: Any Proposed Fee-for-Service Payment 
Modifications Need Thorough Evaluation (GAO/T-HEHS-99-139, June 10, 
1999). 

Medicare: Progress to Date in Implementing Certain Major Balanced 
Budget Act Reforms (GAO/T-HEHS-99-87. Mar. 17, 1999). 

Balanced Budget Act: Implementation of Key Medicare Mandates Must 
Evolve to Fulfill Congressional Objectives (GAO/T-HEHS-98-214, July 
16, 1998). 

Long-Term Care: Baby Boom Generation Presents Financing Challenges 
(GAO/T-HEHS-98-107, Mar. 9, 1998). 

Medicare Post-Acute Care: Home Health and Skilled Nursing Facility 
Cost Growth and Proposals for Prospective Payment (GAO/T-HEHS-97-90, 
Mar. 4, 1997). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Implement Risk-Sharing in Conjunction with Medicare Home Health Agency 
Prospective Payment System: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Federal Supplementary Medical Insurance Trust Fund (20-8004); 
Spending type: Direct; 
Budget subfunction: 571/Medicare; 
Framework theme: Improve efficiency. 

Medicare spending for home health care rose from $3.7 billion in 1990 
to $17.8 billion in 1997—an annual growth rate of over 25 percent—
making it one of the fastest growing components of the Medicare 
program. This spending growth was primarily due to more beneficiaries 
receiving services and more visits provided per user, because 
Medicare's cost-based payment method reimbursed home health agencies 
(HHA) for each visit provided. To control spending, the Balanced 
Budget Act of 1997 (BBA) required the implementation of a prospective 
payment system (PPS) for home health agencies. Beginning October 1, 
2000, Medicare will pay a fixed, predetermined amount for each 60-day 
episode of care, adjusted for patient characteristics that affect the 
costs of providing care. Under this system, agencies will be rewarded 
financially for keeping their per-episode costs below the payment rate 
and thus will have a strong incentive to reduce the number of visits 
provided during an episode and to shift to a less costly mix of visits. 

However, under an episode-based payment system, HHAs will have an 
incentive to provide the minimum number of visits necessary to receive 
a full episode payment. While the initial episode payment is based on 
an average of 27 visits, agencies can receive an episode payment if 
they provide as few as 5 visits. Agencies providing more than the 
average number of visits in an episode can reduce their level of 
service provision below that used to develop the episode base payment, 
thereby increasing profits. Conversely, HHAs could treat beneficiaries 
who need only a few visits during a 60-day period and receive the full 
episode payment if they pass the 5-visit threshold. Such responses are 
likely, given that HHAs historically have responded quickly to 
Medicare payment incentives, and because no agreed-upon standards 
exist for what constitutes necessary or appropriate home health care 
against which such changes could be assessed. Because the new PPS 
payment rates are based on 60-day service patterns reflecting 
historically high utilization levels, many HHAs will not have trouble 
keeping their service provision within the episode below these levels. 
In such cases, Medicare would in essence be paying for services that 
were not received by its beneficiaries. 

In order to reduce these incentives, the Congress could require HCFA 
to implement a risk-sharing arrangement, in which total Medicare PPS 
payments to an HHA are adjusted at year-end in light of the provider's 
actual costs, to mitigate any unintended consequences of the payment 
change. Such an arrangement could moderate the incentive to manipulate 
services to maximize profits and the uncertainties associated with 
payment rates that are based on averages when so little is known about 
appropriate patterns of home health care. Limiting an HHM losses or 
gains would help protect the industry, the Medicare program, and 
beneficiaries from possible negative effects of the PPS until more is 
known about how best to design the PPS and the most appropriate home 
health treatment patterns. CBO was unable to estimate savings for this 
option due to a lack of data on how home health agencies' costs 
compare to the new payment rates implemented on October 1, 2000. 

Related GAO Products: 

Medicare Home Health Care: Prospective Payment System Could Reverse
Recent Declines in Spending (GAO/HEHS-00-176, Sept. 8, 2000). 

Medicare Home Health Care: Prospective Payment System Will Need 
Refinement as Data Become Available (GAO/HEHS-00-9, Apr. 7, 2000). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

Eliminate Medicare Competitive Sourcing Restrictions: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, and 
Education (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Program Management (75-0511); 
Spending type: Discretionary; 
Budget subfunction: 571/Medicare; 
Framework theme: Improve efficiency. 

Medicare is a federal health insurance program designed to assist 
elderly and disabled beneficiaries. Hospital insurance, or part A, 
covers inpatient hospital, skilled nursing facility, hospice care, and 
certain home health services. Supplemental medical insurance, or part 
B, covers physician and outpatient hospital services, laboratory and 
other services. Claims are paid by a network of 49 claims 
administration contractors called intermediaries and carriers. 
Intermediaries process claims from hospitals and other institutional 
providers under part A, while carriers process part B claims. The 
intermediaries' and carriers' responsibilities include reviewing and 
paying claims, maintaining program safeguards to prevent inappropriate 
payment, and educating and responding to provider and beneficiary 
concerns. 

Medicare contracting for fiscal intermediaries and carriers differs 
from that of most federal programs. Most federal agencies, under the 
Competition in Contracting Act and its implementing regulations known 
as the Federal Acquisition Regulation (FAR), generally may contract 
with any qualified entity for any authorized purpose so long as that 
entity is not debarred from government contracting and the contract is 
not for what is essentially a government function. The FAR generally 
requires agencies to conduct full and open competition for contracts 
and allows contractors to earn profits and requires contractors to 
perform until the end of the contract term. 

The Secretary of HHS, however, is authorized to enter into contracts 
without regard to federal procurement statutes under provision of the 
Social Security Act enacted in 1965. For example, there is no full and 
open competition for intermediary or carrier contracts. Rather, 
intermediaries are selected in a process called nomination by provider 
associations, such as the American Hospital Association. Because the 
statutory language authorizing Medicare claims administration 
contracting described a set of functions to be performed, claims 
administration contractors have generally been expected to perform the 
full set of functions, except when the Congress gave specific 
authority to contract separately for a function. The Social Security 
Act also generally calls for the use of cost-based reimbursement 
contracts under which contractors are reimbursed for necessary and 
proper costs of carrying out Medicare activities, but does not 
expressly provide for profit. Furthermore, the Medicare statute 
expressly limits the government's ability to terminate these contracts 
at its convenience, while allowing the claims administration 
contractors to terminate their contracts without penalty by providing 
the government with 180 days notice. 

Freeing the Medicare program to directly choose contractors on a 
competitive basis from a broader array of entities able to perform 
needed tasks would enable Medicare to benefit from efficiency and 
performance improvements related to competition. Allowing Medicare to 
have contractors specialize in specific functions rather than assume 
all claims-related activities, as is the case now, also could lead to 
greater efficiency and better performance. If the Congress chose to 
lift contracting restrictions on the Medicare program, CBO estimates 
that the following savings costs would occur over the next 5 years. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: $165 million; 
FY04: $170 million; 
FY05: $175 million; 
FY06: $180 million; 
FY07: $185 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $165 million; 
FY04: $170 million; 
FY05: $175 million; 
FY06: $180 million; 
FY07: $185 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 
					
Medicare: Improvements Needed in Provider Communications and 
Contracting Procedures (GAO-01-1141T, Sept. 25, 2001). 

Medicare: Comments on HHS' Claims Administration Contracting Reform 
Proposal (GAO-O1-1046R, Aug. 17, 2001). 

Medicare Contracting Reform: Opportunities and Challenges in 
Contracting for Claims Administration Services (GAO-01-918T, June 28, 
2001). 

Medicare Contractors: Despite Its Efforts, HCFA Cannot Ensure Their 
Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999). 

GAO Contact: 

Leslie G. Aronovitz, (312) 220-7767: 

Change Pricing Formula for Medicare-Covered Drugs: 

Authorizing committees: Finance (Senate); Energy and Commerce (House); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services; 
Education and Related Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Account: Federal Supplementary Medical Insurance Trust Fund (20-8004); 
Spending type: Direct; 
Budget subfunction: 571/Medicare; 
Framework theme: Redefine beneficiaries. 
		
While Medicare does not have a comprehensive outpatient drug benefit, 
certain drugs and biologicals are covered under part B of the program. 
In general, drugs are covered if they cannot be self-administered and 
are related to a physician's services, such as cancer chemotherapy, or 
are provided in conjunction with covered durable medical equipment. In 
addition, Medicare covers selected immunizations and certain drugs 
that can be self-administered, such as blood clotting factors. 
Medicare bases its reimbursement to physicians and other providers of 
drugs on average wholesale price (AWP). Manufacturers periodically 
report AWPs to publishers of drug pricing data. Publishers of AWPs and 
other drug prices stated that they list the prices as reported to them 
by the manufacturers. Medicare carriers, the contractors responsible 
for paying part B claims, use published AWPs to determine the Medicare-
allowed payment level, which is 95 percent of the AWP. 

Physicians are able to obtain Medicare-covered drugs at prices 
significantly below current Medicare payments, which are set at 95 
percent of AWP. Wholesalers' and group purchasing organizations' (GPO) 
prices that would be generally available to physicians were 
considerably less than the AWPs used to establish the Medicare payment 
for these drugs. The difference between these prices and AWP for 
physician-administered drugs in a GAO sample study varied by drug. For 
example, the average discount from AWP on physician-administered drugs 
varied from 13 percent to 34 percent. 

Medicare could achieve significant savings from the more than $3 
billion spent annually on Part B drug benefits if it reimbursed 
providers at levels that reflected acquisition costs or AWP, whichever 
is lower. While CBO agrees that this option would result in budgetary 
savings and in the past has developed a savings estimate for this 
option, it was unable to develop a savings estimate this year due to 
time constraints. 

Related GAO Products: 

Medicare: Payments for Covered Outpatient Drugs Exceed Providers'
Cost (GAO-01-1118, Sept. 21, 2001). 

Medicare Part B Drugs: Program Payments Should Reflect Market Prices 
(GAO-01-1142T, Sept. 21, 2001). 

GAO Contact: 

William J. Scanlon, (202) 512-7114: 

[End of section] 

600 Income Security: 

* Develop Comprehensive Return-to-Work Strategies for People with 
Disabilities; 

* Revise Benefit Payments under the Federal Employees' Compensation 
Act; 

* Increase Congressional Oversight of PBGC's Budget; 

* Share the Savings from Bond Refundings; 

* Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections; 

* Improve Reporting of DOD Reserve Payroll Data to State Unemployment 
Insurance Programs; 

* Improve Social Security Benefit Payment Controls; 

* Simplify Supplemental Security Income Recipient Living Arrangements; 

* Reduce Federal Funding Participation Rate for Automated Child 
Support Enforcement Systems; 

* Obtain and Share Information on Medical Providers and Middlemen to 
Reduce Improper Payments to Supplemental Security Income Recipients; 

* Provide Congress More Information to Assess the Performance of the 
Special Supplemental Nutrition Program for Women, Infants, and 
Children. 

Develop Comprehensive Return-to-Work Strategies for People with 
Disabilities: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Social Security Administration; 
Account: Federal Disability Insurance Trust Fund (20-8007); 
Supplemental Security Income Program (20-0406); 
Spending type: Direct; 
Budget subfunction: Multiple; 
Framework theme: Reassess objectives. 

The Social Security Administration (SSA) operates the Disability 
Insurance (DI) and Supplemental Security Income (SSI) programs—the 
nation's two largest federal programs providing cash benefits to 
people with disabilities. For fiscal year 1999, DI benefits to 
disabled workers were about $46.5 billion and SSI benefits were about 
$22.9 billion. SSA data show that over the past 10 years, the size of 
the working-age disabled beneficiary population increased 65 percent, 
from about 4.5 million to 7.5 million. Such growth has raised concerns 
that are compounded by the fact that less than one-half of 1 percent 
of DI beneficiaries ever leave the disability rolls by returning to 
work. 

We found that return-to-work strategies and practices may hold 
potential for improving federal disability programs by helping people 
with disabilities return to productive activity in the workplace and, 
at the same time, reducing benefit payments. Our analysis of practices 
advocated and implemented by the private sector in the United States 
and by social insurance programs in Germany and Sweden revealed three 
common strategies in the design of their return-to-work programs: 
intervene as soon as possible after an actual or potentially disabling 
event to promote and facilitate return-to-work, identify and provide 
necessary return-to-work assistance and manage cases to achieve return-
to-work goals, and structure cash and medical benefits to encourage 
people with disabilities to return-to-work. 

In line with placing greater emphasis on return-to-work, we 
recommended that the Commissioner of SSA develop a comprehensive 
return-to-work strategy that integrates, as appropriate, earlier 
intervention, earlier identification and provision of necessary return-
to-work assistance for applicants and beneficiaries, and cash and 
medical benefits that make work more financially advantageous. SSA has 
recently taken steps to improve work outcomes, including increasing 
access to private vocational rehabilitation providers and awarding 
cooperative agreements to 12 states to develop integrated services to 
assist beneficiaries, return-to-work. Moreover, the Congress recently 
passed the Ticket to Work and Work Incentives Improvement Act of 1999, 
which contains provisions, among others, to safeguard medical coverage 
for workers with disabilities, enhance VR services for beneficiaries, 
and demonstrate the effectiveness of allowing working beneficiaries to 
keep more of their earnings. We acknowledge the importance of the new 
legislation and of SSA's initiatives to improve work opportunities. 
However, these efforts would have greater impact if benefits were 
structured to give beneficiaries greater impetus to use VR services 
and attempt work, and if return-to-work assistance were provided 
earlier in the decision-making process. We believe that substantial 
savings could be achieved if SSA were to develop such a program. 
However, such savings would be offset by program costs and any net 
savings would depend on the program's participation rate. CBO could 
not estimate this option because no specific proposals are provided. 

Related GAO Products: 

Social Security Disability: Other Programs May Provide Lessons for 
Improving Return to Work Efforts (GAO/T-HEHS-00-151, July 13, 2000). 

Social Security Disability: Multiple Factors Affect Return to Work
(GAO/T-HEHS-99-82, Mar. 11, 1999). 

Social Security Disability Insurance: Multiple Factors Affect 
Beneficiaries' Ability to Return to Work (GAO/HEHS-98-39, Jan. 12, 
1998). 

Social Security: Disability Programs Lag in Promoting Return to Work 
(GAO/HEHS-97-46, Mar. 17, 1997). 

People With Disabilities: Federal Programs Could Work Together More 
Efficiently to Promote Employment (GAO/HEHS-96-126, Sept. 3, 1996). 

SSA Disability: Return-to-Work Strategies From Other Systems May 
Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996). 

SSA Disability: Program Redesign Necessary to Encourage Return to Work 
(GAO/HEHS-96-62, Apr. 24, 1996). 

GAO Contact: 

Robert E. Robertson, (202) 512-9889: 

Revise Benefit Payments under the Federal Employees' Compensation Act: 

Authorizing committees: Health, Education, Labor and Pensions (Senate); 
Education and the Workforce (House); 
Appropriations subcommittees: Labor, Health and Human Services, and 
Education (Senate and House); 
Primary agency: Department of Labor; 
Account: Multiple; 
Spending type: Direct/Discretionary; 
Budget subfunction: 609/Other income security; 
Framework theme: Reassess objectives. 

Federal workers who are disabled as a result of a work-related injury 
are entitled to tax-free workers' compensation benefits under the 
Federal Employees' Compensation Act (FECA). Several GAO reviews have 
identified ways in which benefit payment policies can be revised to 
better address eligibility and/or need or to bring FECA benefits more 
in line with other federal and state workers' compensation laws. 

Basing FECA Compensation on Spendable Earnings: 

For almost all totally disabled individuals, FECA benefits are 66 and 
two thirds percent of gross pay for beneficiaries without dependents 
and 75 percent of gross pay for beneficiaries with at least one 
dependent. We reported that nearly 30 percent of the more than 23,000 
beneficiaries included in our analyses received FECA compensation 
benefits that replaced more than 100 percent of their estimated take-
home pay. Another 40 percent of these beneficiaries received FECA 
benefits that were from 90 to 99 percent of their take-home pay. 
Benefit replacement rates tended to be higher for beneficiaries who 
(1) received higher amounts of pay before they were injured, (2) were 
injured before 1980, (3) received the FECA dependent benefit, and (4) 
lived in states that had an income tax. 

Workers' compensation program analysts are reluctant to take a 
position on what the "correct" level of workers' compensation benefits 
should be, leaving that matter to the judgment of legislators. 
According to a 1985 Workers Compensation Research Institute report, 
legislators in many states must walk a fine line between benefits that 
are high enough to provide adequate income, but not so high as to 
discourage an employee's return-to-work when he or she is no longer 
disabled. The 1972 Report of the National Commission on State 
Workmen's Compensation Laws recommended that workers' weekly benefits 
should replace at least 80 percent of their spendable weekly earnings, 
subject to a state's maximum weekly benefit. Six states use a 
percentage of spendable weekly earnings (ranging from 75 to 80 
percent) rather than a percentage of gross wages as the basis for 
computing compensation benefits. Spendable earnings (take-home pay) 
are computed by taking an employee's gross pay at the time of injury 
and subtracting Social Security taxes and federal and state income 
taxes. Taxes are based on published tax withholding tables, given an 
employee's actual exemptions and a standard deduction. 

If the Congress judges that current FECA benefits are so high as to 
discourage employees from returning to work, it could consider 
changing the current FECA benefit structure from one that bases 
compensation on gross pay to one that bases compensation on spendable 
earnings. The following savings estimates assume that the new FECA 
benefit formula would equal 80 percent of spendable earnings. The CBO 
estimates below assume that changes in benefits would be made 
prospectively. Additional savings could be achieved if changes were 
made to affect individuals who were already receiving FECA benefits. 
Fewer savings would be achieved if a higher percentage of spendable 
earnings were used as the basis for computing FECA benefits. 

Five-Year Savings: 

Discretionary spending: Savings from the 2002 baseline: Budget 
authority; 
FY03: $4 million; 
FY04: $9 million; 
FY05: $23 million; 
FY06: $37 million; 
FY07: $51 million. 

Discretionary spending: Savings from the 2002 baseline: Outlays; 
FY03: $4 million; 
FY04: $9 million; 
FY05: $23 million; 
FY06: $37 million; 
FY07: $51 million. 

Source: Congressional Budget Office. 

[End of table] 

Five-Year Savings: 

Direct spending: Savings from the CBO baseline: Budget authority; 
FY03: $9 million; 
FY04: $18 million; 
FY05: $19 million; 
FY06: $19 million; 
FY07: $19 million. 

Direct spending: Savings from the CBO baseline: Outlays; 
FY03: $9 million; 
FY04: $18 million; 
FY05: $19 million; 
FY06: $19 million; 
FY07: $19 million. 

Source: Congressional Budget Office. 

[End of table] 
					
Revising Benefits for Retirement Eligible Beneficiaries: 

Retirement-eligible federal workers who continue to be disabled as a 
result of work-related injuries could receive tax-free workers' 
compensation benefits under FECA for the remainder of their lives that 
would generally be greater than amounts these workers would receive as 
retirement benefits. FECA benefits are 75 percent of salary for a 
disabled employee with a dependent; Civil Service Retirement System 
benefits for a 55-year old employee with 30 years of service are 56 
percent of salary. We reported that 60 percent of the approximately 
44,000 long-term FECA beneficiaries were at least age 55, the age at 
which some federal employees are eligible for optional retirement with 
unreduced retirement benefits. Proponents for changing FECA benefits 
for older beneficiaries argue that an inequity is created between 
federal workers who retire normally and those who, in effect, "retire" 
on FECA benefits. Opponents of such a change argue that reducing 
benefits would break the implicit promise that injured workers have 
exchanged their right to tort claims for a given level of future 
benefits. 

We identified two prior proposals for reducing FECA benefits to those 
who become eligible for retirement. One would convert compensation 
benefits received by retirement-eligible disabled workers to 
retirement benefits. However, this approach raises complex issues 
related to the tax-free nature of workers' compensation benefits and 
to the individual's entitlement to retirement benefits. The second 
proposal would convert FECA benefits to a newly established FECA 
annuity, thus avoiding the complexity of shifting from one benefit 
program to another. 

To reduce benefits for retirement-eligible FECA beneficiaries, the 
Congress could consider converting from the current FECA benefit 
structure to a FECA annuity. The following savings estimate assumes 
that such an annuity would equal two-thirds of the previously provided 
FECA compensation benefit, and that the annuity would begin following 
the disabled individual's eligibility for retirement benefits. The CBO 
estimate assumes that changes in benefits would be made prospectively. 
Additional savings could be achieved if changes were made to affect 
individuals who were already receiving FECA benefits. 

Five-Year Savings: 

Discretionary spending: Savings from the 2002 baseline: Budget 
authority; 
FY03: $2 million; 
FY04: $3 million; 
FY05: $12 million; 
FY06: $19 million; 
FY07: $26 million. 

Discretionary spending: Savings from the 2002 baseline: Outlays; 
FY03: $2 million; 
FY04: $3 million; 
FY05: $12 million; 
FY06: $19 million; 
FY07: $26 million. 

Source: Congressional Budget Office. 

[End of table] 

Five-Year Savings: 

Direct spending: Savings from the CBO baseline: Budget authority; 
FY03: $5 million; 
FY04: $9 million; 
FY05: $9 million; 
FY06: $10 million; 
FY07: $10 million. 

Direct spending: Savings from the CBO baseline: Outlays; 
FY03: $5 million; 
FY04: $9 million; 
FY05: $9 million; 
FY06: $10 million; 
FY07: $10 million. 

Source: Congressional Budget Office. 

[End of table] 

FECA Cases Involving Third Parties: 

FECA authorizes federal agencies to continue paying employees their 
regular salaries for up to 45 days when they are absent from work due 
to work-related traumatic injuries. In cases in which third parties 
are responsible for employees' on-the-job injuries (e.g., dog bites or 
automobile-related injuries), the Department of Labor may require that 
employees pursue collection actions against these parties. However, 
based on current interpretations of FECA by the Employees' 
Compensation Appeals Board and a federal appeals court, the federal 
government has no legal basis to obtain refunds from third parties for 
the first 45 days of absence from work (called the continuation-of-pay 
(COP) period). 

Recoveries from third parties continue to be allowed for payments of 
compensation benefits following the COP period and for medical 
benefits. 

Based on the current interpretation of FECA, employees can receive 
regular salary payments from their employing agencies and 
reimbursements from third parties—in effect, a double recovery of 
income for their first 45 days of absence from work due to injuries 
for which third parties were was responsible. We recommended that the 
Congress amend FECA to expressly provide for refunds of amounts paid 
as COP when employees receive third-party recoveries. CBO estimates 
that the following savings could be achieved if the Congress redefined 
COP so that it could be included in amounts employees are required to 
reimburse the government when they recover damages from third parties. 

Five-Year Savings: 

Discretionary spending: Savings from the 2002 baseline: Budget 
authority; 
FY03: [A]; 
FY04: $1 million; 
FY05: $2 million; 
FY06: $2 million; 
FY07: $2 million. 

Discretionary spending: Savings from the 2002 baseline: Outlays; 
FY03: [A]; 
FY04: $1 million; 
FY05: $2 million; 
FY06: $2 million; 
FY07: $2 million. 

[A] Savings of less than $500,000. 

Source: Congressional Budget Office. 

[End of table] 

Comparability of FECA and Other Compensation Laws: 

We identified three major ways in which FECA differs from other 
federal and state workers' compensation laws, each of which results in 
relatively greater benefits under FECA. First, FECA authorizes maximum 
weekly benefit amounts that are greater than those authorized by other 
federal and state workers' compensation laws. As of January 1, 2001, 
maximum authorized weekly FECA benefits were equal to $1,495, 75 
percent of the base salary of a GS-15, step 10. FECA also authorizes 
additional benefits for one or more dependents equal to 8.33 percent 
of salary. Only seven states authorize additional benefits for 
dependents, ranging from $5 to $10 per week per dependent, with total 
benefits not exceeding maximum authorized benefit amounts. Finally, 
FECA provides eligible workers who suffer traumatic injuries with 
their regular salary for a period not to exceed 45 days. Compensation 
benefits for wage loss begin on the 48th day, after a 3-day waiting 
period. All other federal and state workers' compensation laws provide 
for a 3- to 7-day waiting period following the injury before paying 
compensation benefits. In either case, if employees continue to be out 
of work for extended periods ranging from 5 to 42 days, depending on 
the jurisdiction, retroactive benefits to cover the waiting period 
would be paid. 

Reducing FECA's authorized maximum weekly benefit to make it 
comparable to other compensation laws would have little effect on 
compensation costs because very few federal workers receive maximum 
benefits. However, eliminating augmented compensation benefits for 
dependents and establishing a 5-day waiting period immediately 
following the injury, and before the continuation of pay period, would 
produce the following savings, as estimated by CBO. 

Five-Year Savings: 

Discretionary spending: Savings from the 2002 baseline: Budget 
authority; 
FY03: $10 million; 
FY04: $13 million; 
FY05: $22 million; 
FY06: $31 million; 
FY07: $40 million. 

Discretionary spending: Savings from the 2002 baseline: Outlays; 
FY03: $10 million; 
FY04: $13 million; 
FY05: $22 million; 
FY06: $31 million; 
FY07: $40 million. 

Source: Congressional Budget Office. 

[End of table] 

Five-Year Savings: 

Direct spending: Savings from the CBO baseline: Budget authority; 
FY03: $6 million; 
FY04: $11 million; 
FY05: $12 million; 
FY06: $12 million; 
FY07: $12 million. 

Direct spending: Savings from the CBO baseline: Outlays; 
FY03: $6 million; 
FY04: $11 million; 
FY05: $12 million; 
FY06: $12 million; 
FY07: $12 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Federal Employees' Compensation Act: Percentages of Take-Home Pay
Replaced by Compensation Benefits (GAO/GGD-98-174, Aug. 17, 1998). 

Federal Employees' Compensation Act: Issues Associated with Changing 
Benefits for Older Beneficiaries (GAO/GGD-96-138BR, Aug. 14, 1996). 

Workers' Compensation: Selected Comparisons of Federal and State
Laws (GAO/GGD-96-76, Apr. 3, 1996). 

Federal Employees' Compensation Act: Redefining Continuation of Pay 
Could Result in Additional Refunds to the Government (GAO/GGD-95-135, 
June 8, 1995). 

GAO Contact: 

J. Christopher Mihm, (202) 512-6806: 

Increase Congressional Oversight of PBGC's Budget: 

Authorizing committees: Health, Education, Labor and Pensions (Senate); 
Education and the Workforce (House); 
Appropriations subcommittees: Labor, Health and Human Services, and 
Education (Senate and House); 
Primary agency: Department of Labor; 
Accounts: Pension Benefit Guaranty Corporation fund (16-4204); 
Spending type: Direct/Discretionary; 
Budget subfunction: 601/General retirement and disability insurance; 
Framework theme: Reassess objectives. 

The Pension Benefit Guaranty Corporation (PBGC) insures the benefits 
of more than 43 million participants against default of their employer-
sponsored defined benefit pension plans. Established in 1974 as a self-
financing government corporation, PBGC's primary responsibility is to 
assume administration of underfunded plans that either terminate or 
become insolvent. In 2000, about 227,000 retirees received over
$903 million in benefit payments from PBGC. To carry out its 
operations, PBGC relies heavily on the services of contractors whose 
headquarters and field employees account for almost half of its 
workforce. 

PBGC is self-financing in that it receives no general revenues. Its 
operating budget of $177 million is financed with funds from two 
sources: (1) insurance premiums paid by plan sponsors and (2) trust 
assets. However, the portion of its budget allocated to administrative 
expenses has been subject to a statutory limitation since 1985. The 
Congress revised this limitation on two occasions to provide PBGC more 
flexibility to address workload increases that followed several large 
pension plan failures. These revisions exempted from any limitation 
all expenses incurred in connection with the termination and 
management of pension plans and provided PBGC with discretion to 
determine which functions and activities qualified as such. Over time, 
PBGC has expanded the range of activities and functions classified as 
nonlimitation expenses and currently uses these resources to fund 
nearly all of its operations. This has resulted in a steep increase in 
PBGC's nonlimitation budget from $29 million in fiscal year 1989 to 
$165 million in fiscal year 2001. During this period, PBGC's 
limitation budget decreased from $40 million to $13 million. Thus, by 
fiscal year 1999, only 75 federal employees were funded out of PBGC's 
limitation budget, which receives shared OMB and congressional review 
and approval. The remaining 1,359 employees were funded out of PBGC's 
nonlimitation budget, which is primarily subject to review and 
approval by OMB rather than the Congress. 

We recently reported that PBGC's failure to strategically manage its 
longer term contracting needs, as well as weaknesses in its contractor 
selection and oversight processes, could result in the corporation 
paying too much for procured services. We also noted that PBGC's 
budget structure provides it with substantial flexibility to use 
nonlimitation funds that are not directly subject to congressional 
review and approval. This budgetary treatment shields most corporation 
spending for administration and operations from congressional 
scrutiny, creating a potentially favorable environment for management 
weaknesses. 

As a means of strengthening its oversight over PBGC's budget and 
operations, the Congress could act to restrict the range of activities 
to be supported by nonlimitation funds. This, however, would likely 
require a similar increase in PBGC's limitation budget in which the 
Congress has direct appropriations oversight. Thus, more of PBGC's 
spending for operational activities and functions would fall within 
the normal congressional appropriations process. Although this 
approach would not necessarily reduce PBGC's administrative spending 
initially, strengthened oversight could result in management 
improvements, more efficient use of funds, and slower spending growth 
in the future. CBO was unable able to estimate savings from this 
option without a more specific proposal. 

Related GAO Product: 

Pension Benefit Guaranty Corporation: Contracting Management Needs
Improvement (GAO/HEHS-00-130, Sept. 18, 2000). 

GAO Contact: 

Barbara D. Bovbjerg, (202) 512-5491: 

Share the Savings from Bond Refundings: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate); 
Financial Services (House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Housing and Urban Development; 
Account: Housing Certificate Fund (86-0319); 
Spending type: Direct/Discretionary; 
Budget subfunction: 604/Housing assistance; 
Framework theme: Redefine beneficiaries. 
		
During the 1970s and early 1980s, HUD administered programs to develop 
housing for low-income households using various types of financing 
arrangements and long-term Section 8 rental housing assistance 
contracts. While some properties were financed by loans and grants 
from HUD, others were financed by bonds issued by state and local 
housing finance agencies. During the late 1970s and early 1980s, the 
cost to finance housing development rose to unprecedented levels. In 
response, HUD authorized higher Section 8 rental assistance payments 
to cover the higher bond financing costs, first in 1980 and then in 
1981. Since then, as interest rates declined, many state and local 
housing finance agencies have refunded the bonds they issued and 
issued new bonds at lower interest rates. This action has generated 
substantial savings for the state agencies. These savings represent 
the difference between the amounts needed to repay the original bonds 
and the lower amounts needed to repay the new bonds. Agencies 
typically use these savings to provide affordable housing in their 
states. 

In 1999, we reported that HUD had not issued clear guidance on when 
state agencies are required to share the savings associated with bond 
refundings with the federal government. The need for clearer guidance 
specifically relates to state agency compliance with the bond 
refunding provisions in an October 1992 amendment to Section 1012 of 
the McKinney Act. The amendment was unclear as to whether the states 
were required to share the savings from bond refundings with the 
federal government for all properties covered by Section 8 rental 
assistance contracts that were entered into from 1979 through 1984. In 
the absence of clear guidance from HUD, we found that some state 
agencies have shared the savings from bond refunding for such 
properties with the federal government while other agencies have 
retained the savings. 

Legislative changes could be made to clarify the Congress' intent that 
state agencies should be required to share bond refunding savings with 
the federal government for all properties covered by Section 8 rental 
assistance contracts entered into from 1979 through 1984. CBO agrees 
that there could be savings but does not have nationwide data to 
quantify the savings amount. 

Related GAO Product: 

Multifamily Housing: HUD Missed Opportunities to Reduce Costs on Its
Uninsured Section 8 Portfolio (GAO/RCED-99-217, July 30, 1999). 

GAO Contact: 

Stanley J. Czerwinski, (202) 512-7631: 

Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections: 

Authorizing committees: Banking, Finance (Senate); Ways and Means 
(House); 
Primary agency: Department of Health and Human Services; 
Account: Family Support Payments to States (75-1501); 
Spending type: Direct; 
Budget subfunction: 609/Other income security; 
Framework theme: Redefine beneficiaries. 

The purpose of the Child Support Enforcement Program is to strengthen 
state and local efforts to obtain child support for both families 
eligible for Temporary Assistance for Needy Families (TANF) and non-
TANF families. The services provided to clients include locating 
noncustodial parents, establishing paternity, and collecting ongoing 
and delinquent child support payments. From fiscal year 1984 through 
1998, non-TANF caseloads and costs rose about 500 percent and 1200 
percent, respectively. While states have the authority to fully 
recover the costs of their services, states have exercised their 
discretion and charged only minimal application and service fees. 
Thus, they are doing little to recover the federal government's 66 
percent share of program costs. In fiscal year 1998, for example, 
state fee practices returned about $49 million of the estimated $2.1 
billion spent to provide non-TANF services. 

Since 1992, we have reported on opportunities to defray some of the 
costs of child support programs. Based on this work, we believe that 
mandatory application fees should be dropped and that states should be 
mandated to charge a minimum percentage service fee on successful 
collections for non-TANF families. Congressional action is necessary 
to put such a requirement in place. Application fees are 
administratively burdensome, and a service fee would ensure that 
families are charged only when the service has been successfully 
performed. The costs recovered from such a service fee would be 
determined by the percentage rate set by the Congress. For example, 
CBO estimates that if the Congress set the service fee at 5 percent 
for each successful non-TANF child support collection, the federal 
government could recover $2 billion in 5 years. The following savings 
estimate is based on states implementing this option beginning October 
1, 2002. 

Five-Year Savings: 

Savings from the CBO baseline: Budget authority; 
FY03: $460 million; 
FY04: $500 million; 
FY05: $540 million; 
FY06: $590 million; 
FY07: $630 million. 

Savings from the CBO baseline: Outlays; 
FY03: $460 million; 
FY04: $500 million; 
FY05: $540 million; 
FY06: $590 million; 
FY07: $630 million. 

Note: Estimate assumes that all fees collected are split between the 
federal and state government at the administrative cost match rate: 66 
percent federal and 34 percent state. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Child Support Enforcement: Effects of Declining Welfare Caseloads Are
Beginning to Emerge (GAO/HEHS-99-105, June 30, 1999). 

Welfare Reform,: Child Support an Uncertain Income Supplement for 
Families Leaving Welfare (GAO/HEHS-98-168, Aug. 3, 1998). 

Child Support Enforcement: Early Results on Comparability of 
Privatized and Public Offices (GAO/HEHS-97-4, Dec. 16, 1996). 

Child Support Enforcement: Reorienting Management Toward Achieving 
Better Program Results (GAO/HEHS/GGD-97-14, Oct. 25, 1996). 

Child Support Enforcement: States' Experience with Private Agencies' 
Collection of Support Payments (GAO/HEHS-97-11, Oct. 23, 1996). 

Child Support Enforcement: States and Localities Move to Privatized 
Services (GAO/HEHS-96-43FS, Nov. 20, 1995). 

Child Support Enforcement: Opportunity to Reduce Federal and State 
Costs (GAO/T-HEHS-95-181, June 13, 1995). 

GAO Contact: 

Cornelia M. Ashby, (202) 512-8403: 

Improve Reporting of DOD Reserve Employee Payroll Data to State 
Unemployment Insurance Programs: 

Authorizing committees: Banking, Finance (Senate); Ways and Means 
(House); 
Primary agency: Department of Labor; 
Account: Unemployment Trust Fund (20-8042); 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

The Congress established the national unemployment insurance (UI) 
system in the 1930s to provide partial income assistance to many 
temporarily unemployed workers with substantial work histories. Today, 
UI is the major federal program providing assistance to the 
unemployed. Many workers covered by the UI system are also among the 
1.25 million personnel participating in the National Reserve forces 
(Army National Guard, Army Reserve, Naval Reserve, Marine Corps 
Reserve, Air National Guard, Air Force Reserve, and the Coast Guard 
Reserve). 

Most UI claimants are required to report the income they receive while 
in the Reserves so that state UI programs can reduce their benefits 
accordingly. Our analysis of benefit and Reserve data from seven 
states shows that some Reserve personnel are receiving improper 
benefit payments from state UI programs. In the seven states in our 
analysis, we estimate that UI claimants who were active participants 
in the Reserve failed to report over $7 million in Reserve income in 
fiscal year 1994. This led to UI benefit overpayments of approximately 
$3.6 million, of which federal trust fund losses were about $1.2 
million. We expect that the federal and state trust fund losses from 
all UI programs are much greater because the seven states we reviewed 
account for only 27 percent of all reservists. 

State officials cited various reasons why claimants may not be 
reporting their Reserve income while receiving UI benefits. According 
to state officials, the claimants may not understand their reporting 
responsibilities, are often not specifically informed of these 
responsibilities, and may have incentives not to report all Reserve 
income—incentives that are amplified by the states' limited ability to 
detect nonreporting. 

The Defense Department and the Department of Transportation's Coast 
Guard have recently acted to ensure that reservists are reminded of 
their responsibility to report income from reserve activity to state 
UI agencies. All reservists now receive an annual notice with their 
leave and earnings statements reminding them of their duty to disclose 
their affiliation and any Reserve related earnings when filing an UI 
claim. In addition, the Labor Department has issued a directive to all 
state employment security agencies to ensure that they inform 
prospective and continuing UI benefit claimants of their 
responsibility to report Reserve related income. 

These actions should improve general reservist compliance with state 
UI program income reporting requirements. However, to detect 
unreported Reserve income, the most frequently suggested alternative 
by federal and state officials would be to require the Department of 
Defense (DOD) to report Reserve payroll and personnel data to states 
on a quarterly basis, as private-sector employers are required to do, 
to permit verification of claimant income regularly. DOD has stated 
that it will develop an action plan to provide such data to the state 
UI programs. However, completion of this plan has been delayed because 
of other competing agency priorities and a recognition that the task 
was more complex than originally envisioned. 

It is important to note that the nonreporting of claimant income 
appears to be a broader problem involving all UI claimants who were 
former federal civilian and military employees, rather than just those 
participating in the Reserves. Officials from many of the state 
programs we analyzed reported general difficulties in monitoring 
reported income from claimants who were former federal employees. 

DOD has made initial efforts to develop an action plan to implement 
it. However, it now reports that, given its effort to ensure any 
action taken be cost-effective and commensurate with potential 
savings, it does not intend to take further action to respond to this 
recommendation. According to DOD, 13 states effectively exempt reserve 
wages from any unemployment insurance payment offset, and there could 
be significant costs associated with providing automated data on the 
earnings of part-time reservists. We do not agree that implementation 
costs would necessarily outweigh savings. We found millions of dollars 
in unemployment insurance overpayments for just 7 states and 27 
percent of the reservists, which would likely lead to even greater 
levels of overpayments for the remaining states that offset reservist 
wages. 

If DOD was required to report Reserve payroll and personnel data to 
states on a quarterly basis, CBO estimates that the savings shown in 
the table would result from the reduction in overpayments. 

Five-Year Savings: 

Savings from the CBO baseline: Budget authority; 
FY03: $9 million; 
FY04: $10 million; 
FY05: $10 million; 
FY06: $10 million; 
FY07: $11 million. 

Savings from the CBO baseline: Outlays; 
FY03: $9 million; 
FY04: $10 million; 
FY05: $10 million; 
FY06: $10 million; 
FY07: $11 million. 

Savings from the CBO baseline: Reduction in receipts; 
FY03: 0; 
FY04: $1 million; 
FY05: $3 million; 
FY06: $6 million; 
FY07: $8 million. 

Savings from the CBO baseline: Net effect on deficit; 
FY03: $9 million; 
FY04: $9 million; 
FY05: $7 million; 
FY06: $5 million; 
FY07: $3 million. 

Note: Unemployment Insurance trust fund receipts are dependent on 
prior year benefit outlays. CBO estimates that, in addition to 
savings, this option would have the effect of reducing trust fund 
receipts in the out years. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Unemployment Insurance: Millions in Benefits Overpaid to Military
Reservists (GAO/HEHS-96-101, Aug. 5, 1996). 

GAO Contact: 

Sigurd R. Nilsen, (202) 512-7215: 

Improve Social Security Benefit Payment Controls: 

Authorizing committees: Banking, Finance (Senate); Ways and Means 
(House); 
Primary agency: Social Security Administration; 
Account: Federal Old Age and Survivor's Insurance Trust Fund (20-8006); 
Spending type: Direct; 
Framework theme: Improve efficiency. 

Social Security Administration (SSA) is required by law to reduce 
social security benefits to persons who also receive a pension from 
noncovered employment (typically persons who work for the federal 
government or state and local governmental agencies). The Government 
Pension Offset provision requires SSA to reduce benefits to persons 
whose social security entitlement is based on another person's social 
security coverage (usually their spouse's). The Windfall Elimination 
Provision requires SSA to use a modified formula to calculate a 
person's earned social security benefit whenever a person also earned 
a pension through a substantial career in noncovered employment. The 
modified formula reduces the social security benefit significantly. 

We found that SSA payment controls for these offsets were incomplete. 
For state and local retirees, SSA had no third-party pension data to 
verify whether persons were receiving a noncovered pension. At the 
time of our report (1998), an analysis of available data indicated 
that this lapse in payment controls for state and local government 
retirees cost the trust funds between $129 million to $323 million 
from 1978 to about 1995. 

We have recommended that SSA work with the Internal Revenue Service 
(IRS) to revise the reporting of pension income on IRS tax form 1099R. 
IRS has advised SSA that it needs a technical amendment to the Tax 
Code to obtain the information SSA needs. We believe that millions of 
dollars in reduced overpayments could be achieved each year with 
better payment controls. However, it should be noted that these 
savings would be offset somewhat by administrative costs associated 
with conducting additional computer matching at SSA. CBO estimates 
that improved payment controls could result in the savings shown in 
the table below. 

Five-Year Savings: 

Direct spending: Savings from the CBO baseline: Budget authority; 
FY03: 0; 
FY04: $20 million; 
FY05: $60 million; 
FY06: $75 million; 
FY07: $80 million. 

Direct spending: Savings from the CBO baseline: Outlays; 
FY03: 0; 
FY04: $20 million; 
FY05: $60 million; 
FY06: $75 million; 
FY07: $80 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Social Security: Better Payment Controls for Benefit Reduction
Provisions Could Save Millions (GAO/HEHS-98-76, Apr. 30, 1998). 

GAO Contact: 

Barbara D. Bovbjerg, (202) 512-7215: 

Simplify Supplemental Security Income Recipient Living Arrangements: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Appropriations subcommittees: Labor, HHS, Education and Related 
Agencies (Senate and House); 
Primary agency: Social Security Administration; 
Accounts: Supplemental Security Income Program (28-0406); 
Spending type: Direct/Discretionary; 
Budget subfunction: 609/Other income security; 
Framework theme: Improve efficiency. 

Social Security Administration (SSA) administers the Supplemental 
Security Income (SSI) program, which is the nation's largest cash 
assistance program for the poor. Since its inception, the SSI program 
has been difficult to administer because, similar to other means 
tested programs, it relies on complicated criteria and policies to 
determine initial and continuing eligibility and benefit levels. One 
of the factors considered is the living arrangements of the 
beneficiary. When determining SSI eligibility and benefit amounts, SSA 
staff apply a complex set of policies to document an individual's 
living arrangements and any additional support they may be receiving 
from others. This process depends heavily on self-reporting by 
recipients of whether they live alone or with others; the 
relationships involved; the extent to which rent, food, utilities, and 
other household expenditures are shared; and exactly what portion of 
those expenses the individual pays. These numerous rules and policies 
have made living arrangement determinations one of the most complex 
and error prone aspects of the SSI program, and a major source of 
overpayments. 

We recently reported that SSA has not addressed long-standing SSI 
living arrangement verification problems, despite numerous internal 
and external studies and many years of quality reviews denoting this 
as an area prone to error and abuse. Some of the studies we reviewed 
recommended ways to simplify the process by eliminating many complex 
calculations and thereby making it less susceptible to manipulation by 
recipients. Other studies we reviewed suggested ways to make this 
aspect of the program less costly to taxpayers. For example, in 1989, 
SSA's Office of Inspector General reported that a more simplified 
process that applied a shared expenditures rationale to all SSI 
recipients living with another person would result in fewer errors and 
reduce annual overpayments by almost $80 million. Such a change would 
require legislative action by the Congress. In light of the potential 
cost savings associated with addressing this issue, we recommended in 
September 1998 that SSA develop and advance legislative options for 
simplifying SSI living arrangement policies and ultimately reduce 
program overpayments. SSA told us that it is continuing to study SSI 
living arrangement policies and may ultimately consider proposing 
legislative options for change. 

Although CBO agrees that some changes that would simplify living 
arrangement policies have the potential to create savings, it cannot 
develop a savings estimate until a specific legislative proposal is 
identified. 

Related GAO Product: 

Supplemental Security Income: Action Needed on Long-Standing
Problems Affecting Program Integrity (GAO/HEHS-98-158, Sept. 14, 1998). 

GAO Contact: 

Barbara D. Bovbjerg, (202) 512-7215: 

Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Appropriations subcommittees: Labor, HHS, Education and Related 
Agencies (Senate and House); 
Primary agency: Department of Health and Human Services; 
Accounts: Family Support Payments to States (75-1501); 
Spending type: Direct; 
Budget subfunction: 609/Other income security; 
Framework theme: Improve efficiency. 

The Department of Health and Human Services' (HHS) Office of Child 
Support Enforcement (OCSE) oversees states' efforts to develop 
automated systems for the Child Support Enforcement Program. 
Established for both welfare and nonwelfare clients with children, 
this program is directed at locating parents not supporting their 
children, establishing paternity, obtaining court orders for the 
amounts of money to be provided, and collecting these amounts from 
noncustodial parents. Achievement of Child Support Enforcement Program 
goals depends in part on the effective planning, design, and operation 
of automated systems. The federal government is providing enhanced 
funding to develop these automated child support enforcement systems 
by paying up to 90 percent of states' development costs. From fiscal 
year 1981 through fiscal year 1999, the states have spent about $4.5 
billion to develop these systems, including about $3.3 billion from 
the federal government. 

The 90 percent funding participation rate was initially discontinued 
at the end of fiscal year 1995, the congressionally mandated date for 
the systems to be certified and operational. However, the Congress 
subsequently extended the deadline for these systems to the end of 
fiscal year 1997. The federal government will continue to reimburse 
states' costs to operate these systems at the 66 percent rate 
established for administrative expenses. Finally, the Personal 
Responsibility and Work Opportunity Reconciliation Act of 1996 (Pi. 
104-193) provided additional funding for the states to meet new 
systems requirements under this law. An 80 percent federal funding 
participation rate, with a total national funding cap of
$400 million was authorized through fiscal year 2001. The 66 percent 
federal funding participation rate was continued for systems operation 
and administrative expenses. 

The Congress could choose to reduce the federal funding participation 
rate for modification and operation of these systems from 66 percent 
to the 50 percent rate now common for such costs in other programs, 
such as Food Stamps and other welfare programs. CBO estimates that a 
reduced participation rate would produce the following savings. 

Savings from the CBO baseline: Budget authority; 
FY03: $215 million; 
FY04: $230 million; 
FY05: $250 million; 
FY06: $265 million; 
FY07: $275 million. 

Savings from the CBO baseline: Outlays; 
FY03: $215 million; 
FY04: $230 million; 
FY05: $250 million; 
FY06: $265 million; 
FY07: $275 million. 

Source: Congressional Budget Office. 

[End of table] 
				
Related GAO Products: 

Child Support Enforcement: Leadership Essential to Implementing
Effective Automated Systems (GAO/T-AIMD-97-162, Sept. 10, 1997). 

Child Support Enforcement: Strong Leadership Required to Maximize 
Benefits of Automated Systems (GAO/ABM-97-72, June 30, 1997). 

Child Support Enforcement: Timely Action Needed to Correct System 
Development Problems (GAO/IMTEC-92-46, Aug. 13, 1992). 

Child Support Enforcement: Opportunity to Defray Burgeoning Federal 
and State Non-AFDC Costs (GAO/HRD-92-91, June 5, 1992). 

GAO Contact: 

Joel C. Willemssen, (202) 512-6408: 

Obtain and Share Information on Medical Providers and Middlemen to 
Reduce Improper Payments to Supplemental Security Income Recipients: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Appropriations subcommittees: Labor, HHS, Education and Related 
Agencies (Senate and House); 
Primary agency: Social Security Administration; 
Accounts: Supplemental Security Income Program (28-0406); 
Spending type: Direct/Discretionary; 
Budget subfunction: 609/Other income security; 
Framework theme: Improve efficiency. 

The Supplemental Security Income (SSI) program guarantees a minimum 
level of income for needy aged, blind, or disabled individuals. In FY 
2000, the SSI program paid 6.6 million recipients about $31 billion in 
benefits. 

Over the years, some SSI recipients may have improperly gained access 
to program benefits by feigning or exaggerating disabilities with the 
help of middlemen (particularly interpreters) and medical providers. 
Although it is not possible to know the exact number of beneficiaries 
who became eligible for benefits through these practices, analysis 
suggests that the SSI program is vulnerable to this type of fraud and 
abuse. First, in an April 1998 sample, GAO found that more than 60 
percent of the SSI beneficiaries suffer from mental and physical 
impairments that are difficult to objectively verify. Second, medical 
providers who were investigated for defrauding Medicaid, Medicare, or 
private insurance companies provided at least some of the medical 
evidence for 6 percent of the 208,000 disabled SSI recipient cases we 
reviewed in six states. Third, over 96 percent of the 158 SSA 
officials and staff that we interviewed said that they believed that 
the practice of middlemen helping people improperly qualify for SSI 
benefits has continued. SSA has tried to address this problem by 
developing ways to better identify and assess the initial or 
continuing eligibility of applicants and recipients who may be 
feigning disabilities. The agency has not, however, taken steps to 
systematically obtain and distribute information on various medical 
providers and middlemen that would better help identify such 
applicants and recipients. These steps are important because past 
experiences have shown that a single middleman or medical provider can 
help hundreds of ineligible beneficiaries get on the rolls. Every 
individual who obtains benefits by feigning or exaggerating 
disabilities will cost the federal government an estimated $122,000 in 
SSI and Medicaid benefits over the 10-year period 1999 through 2009. 

In order to reduce the number of improper claims under the SSI 
program, the Congress could consider requiring SSA to systematically 
obtain information on various middlemen and service providers and 
routinely share it throughout SSA. Such information could be collected 
from other government agencies and private entities that also face 
similar fraud and abuse issues as well as from SSA staff. SSA could 
use this information, for example to determine which claims should 
receive increased scrutiny to prevent applicants from receiving 
improper benefits and to target investigations of current 
beneficiaries to determine if they should be removed from the program. 
Although CBO agrees that efforts to reduce fraud in the SSI program 
through greater information sharing about medical providers and 
middleman have the potential to create savings, it cannot develop a 
savings estimate until a specific legislative proposal is identified. 

Related GAO Products: 

Supplemental Security Income: Additional Action Needed to Reduce
Program Vulnerability to Fraud and Abuse (GAO/HEHS-99-151, Sept. 15, 
1999). 

Supplemental Security Income: Disability Program Vulnerable to 
Applicant Fraud When Middlemen Are Used (GAO/HEHS-95-116, Aug. 31, 
1995). 

GAO Contact: 

Barbara D. Bovbjerg, (202) 512-5491: 

Provide Congress More Information to Assess the Performance of the 
Special Supplemental Nutrition Program for Women, Infants, and 
Children: 

Authorizing committees: Health, Education, Labor and Pensions (Senate); 
Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, and 
Education (Senate and House); 
Primary agency: Department of Agriculture; 
Accounts: Special Supplemental Nutrition Program for Women, Infants, 
and Children (12-3510); 
Spending type: Discretionary; 
Budget subfunction: 605/Food and Nutrition Assistance; 
Framework theme: Reassess objective. 

The Special Supplemental Nutrition Program for Women, Infants, and 
Children (WIC) is a federally funded $4.1 billion-a-year nutrition 
assistance program administered by the U.S. Department of 
Agriculture's Food and Nutrition Service (FNS). FNS provides annual 
cash grants to support program operations at 88 state-level agencies 
that employ more than 1,800 local WIC agencies to administer the 
program. FNS grants are used to support three main activities—
nutrition education, breastfeeding promotion and support, and health 
referrals. The state agencies develop guidelines intended to ensure 
that local agencies effectively deliver WIC benefits to eligible 
participants, and monitor agencies' compliance with these guidelines. 
Local agencies serve participants directly or through one or more 
service delivery sites or clinics. Staff at local WIC agencies and 
clinics approve applicants for participation, provide food benefits, 
and make health referrals. 

FNS has an outcome-based measure for one of its three nutrition 
services—breastfeeding promotion and support. However, the measure, 
breastfeeding initiation rate, examines only one of several important 
aspects of the service's possible impact on WIC participants. Other 
key aspects, for which FNS has not established outcome measures, 
include the length of time that WIC mothers breastfeed their infants 
and breastfeeding's contribution to an infant's overall nutritional 
needs. Several obstacles have hindered FNS' efforts to develop and 
implement outcome-based measures for nutrition education and health 
referral services. These include difficulties in identifying measures 
that would allow the agency to appropriately link a particular 
service's activity to a desired outcome and resource constraints 
affecting FNS' ability to collect data needed to implement a proposed 
measure. 

Given the size and the importance of the WIC program and the apparent 
lack of outcome-based performance measures, Congress may want to 
require that the Department of Agriculture initiate a more active 
oversight role to assess the impact of the program. Until there is a 
clearer understanding of the extent to which child nutrition needs are 
being met, and the extent that any improvement can be attributed to 
the WIC program, it will be difficult for Congress to truly know to 
what extent this important program is improving child nutrition. 

Related GAO Product: 

Food Assistance: Performance Measures for Assessing Three WIC
Services (GAO-01-339, Feb 28, 2001). 

GAO Contact: 

Marnie S. Shaul, (202) 512-7215: 

[End of section] 

700 Veterans Benefits and Services: 

* Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses; 
* Discontinue Veterans' Disability Compensation for Nonservice 
Connected Diseases; 
* Increase Cost Sharing for Veterans' Long-Term Care; 
* Reassess Unneeded Health Care Assets within the Department of 
Veterans Affairs; 
* Reducing VA Inpatient Food and Laundry Service Costs. 

Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses: 

Authorizing committees: Veterans' Affairs (Senate and House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Veterans Affairs; 
Accounts: Compensation and Pensions (36-0153); 
Spending type: Direct; 
Budget subfunction: 701/Income security for veterans; 
Framework theme: Reassess objectives. 

The Department of Veterans Affairs' (VA) disability program is 
required by law to compensate veterans for the average loss in earning 
capacity in civilian occupations that results from injuries or 
conditions incurred or aggravated during military service. Veterans 
with such service-connected disabilities are entitled to monthly cash 
benefits under this program even if they are working and regardless of 
the amount they earn. The amount of compensation received is based on 
disability ratings that VA assigns to the service-connected 
conditions. In fiscal year 2000, VA paid more than $19 billion in 
compensation to about 2.3 million veterans, and more than 300,000 
veterans' survivors and children, for these service-connected 
disabilities. 

The disability ratings schedule that VA currently uses is still 
primarily based on physicians' and lawyers' judgments made in 1945 
about the effect service-connected conditions had on the average 
individual's ability to perform jobs requiring manual or physical 
labor. Although the ratings in the schedule have not changed 
substantially since 1945, dramatic changes have occurred in the labor 
market and in society. The results of an economic validation of the 
schedule conducted in the late 1960s indicated that ratings for many 
conditions did not reflect the actual average loss in earnings 
associated with them. Therefore, it is likely that some of the ratings 
in the schedule do not reflect the economic loss experienced by 
veterans today. Hence, the schedule may not equitably distribute 
compensation funds among disabled veterans. 

The Congress may wish to consider directing VA to determine whether 
the ratings for conditions in the schedule correspond to veterans' 
average loss in earnings due to these conditions and adjust disability 
ratings accordingly. Generally accepted and widely used approaches 
exist to statistically estimate the effect of specific service-
connected conditions on veterans' average earnings. These estimates 
could be used to set disability ratings in the schedule that are 
appropriate in today's socioeconomic environment. The cost to collect 
the data to produce these estimates was projected to be between $5 
million and $10 million, which would be a small fraction of the more 
than $19 billion VA pays annually in disability compensation to 
veterans and their families. Any savings associated with this option 
would depend on how the new disability schedule alters payments to 
beneficiaries. A reexamination of the disability schedule could find 
that some conditions are overpaid while others may require increased 
payments. CBO is unable to estimate any costs or savings that could 
result because a specific proposal for revising the disability ratings 
schedule has not been presented. 

Related GAO Product: 

VA Disability Compensation: Disability Ratings May Not Reflect
Veterans' Economic Losses (GAO/HEHS-97-9, Jan. 7, 1997). 

GAO Contact: 

Cynthia A. Bascetta, (202) 512-7101: 

Discontinue Veterans' Disability Compensation for Nonservice Connected 
Diseases: 

Authorizing committees: Veterans' Affairs (Senate and House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Veterans Affairs; 
Accounts: Compensation and Pensions (36-0153); 
Spending type: Direct; 
Budget subfunction: 701/Income security for veterans; 
Framework theme: Redefine beneficiaries, 

In fiscal year 1999, the Department of Veterans Affairs (VA) paid 
about $18 billion in compensation to about 2.3 million veterans for 
service-connected disabilities. A disease or injury resulting in 
disability is considered service-connected if it was incurred or 
aggravated during military service. No causal connection is required. 
In 1989, GAO reported on the U.S. practice of compensating veterans 
for conditions that were probably neither caused nor aggravated by 
military service. These conditions included diabetes, chronic 
obstructive pulmonary disease, arteriosclerotic heart disease, and 
multiple sclerosis. In 1993, GAO reported that other countries were 
less likely to compensate veterans when diseases are unrelated to 
military service, when the relationship of the disease to military 
service could not be established, or for off-duty injuries such as 
those that happen while on vacation. 

The Congress may wish to reconsider whether diseases neither caused 
nor aggravated by military service should be compensated as service-
connected disabilities. In 1996, the Congressional Budget Office (CBO) 
reported that about 230,000 veterans were receiving about $1.1 billion 
in disability compensation payments annually for diseases neither 
caused nor aggravated by military service. If disability compensation 
payments to veterans with nonservice connected, disease-related 
disabilities were eliminated in future cases, CBO estimates that the 
following savings would apply. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: $71 million; 
FY04: $221 million; 
FY05: $411 million; 
FY06: $556 million; 
FY07: $676 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $65 million; 
FY04: $208 million; 
FY05: $400 million; 
FY06: $551 million; 
FY07: $670 million. 

Note: These estimates take into account an increase in DOD retirement 
pay. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

VA Disability Compensation: Disability Ratings May Not Reflect
Veterans' Economic Losses (GAO/HEHS-97-9, Jan. 7, 1997). 

Disabled Veterans Programs: U.S. Eligibility and Benefit Types 
Compared With Five Other Countries (GAO/HRD-94-6, Nov. 24, 1993). 

VA Benefits: Law Allows Compensation for Disabilities Unrelated to 
Military Service (GAO/HRD-89-60, July 31, 1989). 

GAO Contact: 

Cynthia A. Bascetta, (202) 512-7207: 

Increase Cost Sharing for Veterans’ Long-Term Care: 

Authorizing committees: Veterans' Affairs (Senate and House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Veterans Affairs; 
Accounts: Medical Care (36-0160); 
Spending type: Discretionary; 
Budget subfunction: 703/Hospital and medical care for veterans; 
Framework theme: Redefine beneficiaries. 

State veterans' homes recover as much as 50 percent of the costs of 
operating their facilities through charges to veterans receiving 
services. Similarly, Oregon recovers about 14 percent of the costs of 
nursing home care provided under its Medicaid program through estate 
recoveries. Many other states also conduct estate recoveries. In 
contrast, in fiscal year 2001, the Department of Veterans Affairs (VA) 
offset an estimated less than one-tenth of 1 percent of its costs 
through beneficiary copayments. 

Potential recoveries appear to be greater within the VA system than 
under Medicaid. Home ownership is significantly higher among VA 
hospital users than among Medicaid nursing home recipients, and 
veterans living in VA nursing homes generally contribute less toward 
the cost of their care than do Medicaid recipients, allowing veterans 
to build larger estates. 

In the Veterans' Millennium Health Care and Benefits Act of November 
30, 1999, Congress required VA to increase cost sharing for those 
veterans without service-connected disabilities who use nursing home 
care, but VA has not yet issued rules to establish these cost-sharing 
amounts. To implement this requirement, VA may wish to establish cost 
sharing rules for such care by (1) adopting cost-sharing requirements 
similar to those imposed by most state veteran's homes and (2) 
implementing an estate recovery program similar to those operated by 
many states under their Medicaid programs. If VA recovered either 25 
or 50 percent of its costs of providing nursing home and domiciliary 
care to veterans with nonservice connected disabilities through a 
combination of cost sharing and estate recoveries, the savings shown 
in the following table would apply, as estimated by CBO. 

Five-Year Savings: 

Savings from the 2002 baseline: Option: Recovery of 25 percent of 
costs: Budget authority; 
FY03: $596 million; 
FY04: $615 million; 
FY05: $634 million; 
FY06: $654 million; 
FY07: $675 million. 

Savings from the 2002 baseline: Option: Recovery of 25 percent of 
costs: Outlays; 
FY03: $596 million; 
FY04: $615 million; 
FY05: $634 million; 
FY06: $654 million; 
FY07: $675 million. 

Source: Congressional Budget Office. 

[End of table] 

Five-Year Savings: 

Savings from the 2002 baseline: Option: Recovery of 50 percent of 
costs: Budget authority; 
FY03: $1,194 million; 
FY04: $1,232 million; 
FY05: $1,272 million; 
FY06: $1,311 million; 
FY07: $1,354 million. 

Savings from the 2002 baseline: Option: Recovery of 50 percent of 
costs: Outlays; 
FY03: $1,194 million; 
FY04: $1,232 million; 
FY05: $1,272 million; 
FY06: $1,311 million; 
FY07: $1,354 million. 

Source: Congressional Budget Office. 

[End of table]
					
Related GAO Products: 

VA Aid and Attendance Benefits: Effects of Revised HCFA Policy on
Veterans' Use of Benefits (GAO/HEHS-97-72R, Mar. 3, 1997). 

VA Health Care: Better Data Needed to Effectively Use Limited Nursing 
Home Resources (GAO/HEHS-97-27, Dec. 20, 1996). 

VA Health Care: Potential for Offsetting Long-Term Care Costs Through 
Estate Recovery (GAO/HRD-93-68, July 27, 1993). 

VA Health Care: Offsetting Long-Term Care Cost By Adopting State 
Copayment Practices (GAO/HRD-92-96, Aug. 12, 1992). 

GAO Contact: 

Cynthia A. Bascetta, (202) 512-7207: 

Reassess Unneeded Health Care Assets within the Department of Veterans 
Affairs: 

Authorizing committees: Veterans' Affairs (Senate and House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Veterans Affairs; 
Accounts: Medical Care (36-0160); 
Spending type: Discretionary; 
Budget subfunction: 703/Hospital and medical care for veterans; 
Framework theme: Improve efficiency. 

The Department of Veterans Affairs (VA) owns 4,700 buildings and 
18,000 acres of land, which it uses to operate 181 major health care 
delivery locations. These locations operate in 106 health care markets 
nationwide. These include 40 markets where multiple VA facilities 
compete with each other to serve veterans (115 locations) and 66 
markets served by a single VA delivery location. VA spends a sizeable 
portion of its $21 billion health care budget to operate, maintain, 
and improve its delivery locations. All VA delivery locations project 
a declining veteran population base for their primary market areas, 
with two-thirds expecting declines greater than 33 percent over the 
next 20 years. Without a major restructuring, billions of dollars will 
be used in the operation of hundreds of unneeded VA buildings over the 
next several years. 

In November 2000, VA contracted with a private consulting firm to 
conduct rigorous analyses of its networks. Such analyses are to 
include a determination of veterans' health care needs in each network 
and alternatives analyses to enable VA to evaluate options for meeting 
needs in the most cost-effective manner. In June 2001, VA proposed an 
asset realignment plan for its Great Lakes Health Care System, which 
is estimated to yield savings of $720 million over the next 20 years. 
Following receipt of public comments, VA plans to finalize its 
realignment plan. In future years, VA plans to complete asset 
realignment plans for other networks. 

Although CBO agrees that reducing unneeded health care assets at the 
VA has the potential to create savings, it cannot develop a savings 
estimate until a specific legislative proposal is identified. 

Related GAO Products: 
VA Health Care: VA Is Struggling to Address Asset Realignment
Challenges (GAO/T-HEHS-00-88, Apr. 5, 2000). 

VA Health Care: Improvements Needed in Capital Asset Planning and 
Budgeting (GAO/HEHS-99-145, Aug. 13, 1999). 

VA Health Care: Challenges Facing VA in Developing an Asset 
Realignment Process (GAO/T-HEHS-99-173, July 22, 1999). 

Veterans' Affairs: Progress and Challenges in Transforming Health Care 
(GAO/T-HEHS-99-109, Apr. 15, 1999). 

VA Health Care: Capital Asset Planning and Budgeting Need Improvement 
(GAO/T-HEHS-99-83, Mar. 10, 1999). 

VA Health Care: Closing a Chicago Hospital Would Save Millions and 
Enhance Access to Services (GAO/HEHS-98-64, Apr. 16, 1998). 

VA Health Care: Opportunities to Enhance Montgomery and Tuskegee 
Service Integration (GAO/T-HEHS-97-191, July 28, 1997). 

VA Health Care: Lessons Learned From Medical Facility Integrations
(GAO/T-HEHS-97-184, July 24, 1997). 

Department of Veterans Affairs: Programmatic and Management Challenges 
Facing the Department (GAO/T-HEHS-97-97, Mar. 18, 1997). 

VA Health Care: Opportunities for Service Delivery Efficiencies Within 
Existing Resources (GAO/HEHS-96-121, July 25, 1996). 

VA Health Care: Opportunities to Increase Efficiency and Reduce 
Resource Needs (GAO/T-HEHS-96-99, Mar. 8, 1996). 

VA Health Care: Challenges and Options for the Future (GAO/T-HEHS-95- 
147, May 9, 1995). 

GAO Contact: 

Cynthia A. Bascetta, (202) 512-7207: 

Reducing VA Inpatient Food and Laundry Service Costs: 

Authorizing committees: Veterans' Affairs (Senate and House); 
Appropriations subcommittees: VA, HUD, and Independent Agencies 
(Senate and House); 
Primary agency: Department of Veterans Affairs; 
Accounts: Medical Care (36-0160); 
Spending type: Discretionary; 
Budget subfunction: 703/Hospital and medical care for veterans; 
Framework theme: Improve efficiency. 
	
The Department of Veterans Affairs (VA) provides inpatient food 
services and laundry processing for more than 36,000 inpatients a day 
in hospitals, nursing homes, and domiciliaries at 177 inpatient 
locations. VA spends about $324 million and $52 million, respectively, 
for these activities and employs 7,000 Nutrition and Food Service 
(NFS) wage-grade workers, not including dietitians and 1,100 laundry 
processing workers. The NFS workers cook and prepare food, distribute 
food to patients, and retrieve and wash plates, trays, and utensils. 
The laundry processing workers sort, wash, dry, fold, and transport 
laundry. 

VA has downsized its inpatient volume by 35 percent over the last 5 
years while it has increased its outpatient volume. The total number 
of patients treated has increased from 2.9 to 3.6 million. As a result 
of the reduction in inpatient volume, the volume of inpatient food and 
laundry services has declined. In food services, VA has consolidated 
28 of its food production locations into 10, began using less 
expensive Veterans Canteen Service (VCS) workers in 9 locations, and 
contracted out in 2 locations. For laundry services, VA has 
consolidated 116 of its laundries into 67 locations and used 
competitive sourcing to contract with the private sector to operate 2 
VA laundries and to contract with 10 commercial laundries. 

VA has the potential to further reduce its inpatient food service and 
laundry costs by systematically assessing, at all its health care 
delivery locations, options it is already using at some of its health 
care locations. For example, using the benchmark of employees to food 
service volume at the consolidated Central Texas Health Care System, 
the Congress could require VA to consolidate 63 food production 
locations within a 90-minute driving distance of each other into 29 
production locations. Also, the Congress could require VA to use less 
expensive VCS employees at all inpatient food locations. Competitive 
sourcing between in-house and private sector operations is more cost-
effective and could also save additional food service costs. The 
Congress could also require VA to consolidate its laundry operations. 
Using VA's laundry productivity standard of 160,000 pounds per 
employee, VA could close 13 laundries and consolidate their workload 
at other laundries within a 4-hour drive. Finally, competitive 
sourcing to determine if VA-owned and operated laundries, private 
operation of VA-owned laundries, or commercial laundries are most cost 
effective could save additional laundry costs. If Congress required VA 
to consolidate and competitively bid its food service and laundry 
operations and use VCS employees at all impatient food locations, CBO 
estimates that the following budgetary savings could be achieved over 
5 years. 

Five-Year Savings: 

Savings from the 2002 baseline: Budget authority; 
FY03: $4 million; 
FY04: $40 million; 
FY05: $82 million; 
FY06: $98 million; 
FY07: $101 million. 

Savings from the 2002 baseline: Outlays; 
FY03: $4 million; 
FY04: $36 million; 
FY05: $77 million; 
FY06: $95 million; 
FY07: $100 million. 

Source: Congressional Budget Office. 

[End of table] 
					
Related GAO Products: 

VA Health Care: Consolidations and Competitive Sourcing of Laundry
Service Could Save Millions (GAO-01-61, Nov. 30, 2000). 

VA Health Care: Expanding Food Service Initiatives Could Save Millions 
(GAO-01-64, Nov. 30, 2000). 

VA Health Care: Laundry Service Operations and Costs (GAO/HEHS-00-16, 
Dec. 21, 1999). 

VA Health Care: Food Service Operations and Costs at Inpatient 
Facilities (GAO/HEHS-00-17, Nov. 19, 1999). 

GAO Contact: 

Cynthia A. Bascetta, (202) 512-7207: 

[End of section] 

800 General Government, 900 Net Interest, and 999 Multiple: 

* Prevent Delinquent Taxpayers from Benefiting from Federal Programs 
Target Funding Reductions in Formula Grant Programs; 

* Adjust Federal Grant Matching Requirements; 

* Replace the 1-Dollar Note with the 1-Dollar Coin; 

* Eliminate Pay Increases after Separation in Calculating Lump-Sum 
Annual Leave Payments; 

* Increase Fee Revenue from Federal Reserve Operations; 

* Recognize the Costs Up-front of Long-Term Space Acquisitions Seek 
Alternative Ways to Address Federal Building Repair Needs; 

* Improper Benefit Payments Could Be Avoided or More Quickly Detected 
if Data from Various Programs Were Shared; 

* Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals; 

* Information Sharing Could Improve Accuracy of Workers' Compensation 
Offset Payments; 

* Determine Feasibility of Locating Federal Facilities in Rural Areas. 

Prevent Delinquent Taxpayers from Benefiting from Federal Programs: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

The federal government's operations are funded primarily through tax 
revenue collected from the nation's taxpayers. In fiscal year 1999, 
the federal government, through the Internal Revenue Service (IRS), 
collected nearly $1.9 trillion in federal tax revenue to finance 
government operations. However, while most taxpayers comply with their 
tax obligation, a significant portion of taxpayers do not. Over time, 
this has led to unpaid taxes, penalties, and interest, which totaled 
about $231 billion at the end of fiscal year 1999. Of this amount, the 
IRS estimates that only $21 billion, or about 9 percent, will be 
collected. 

A significant number of taxpayers, both individuals and businesses, 
who owe the federal government billions of dollars in delinquent taxes 
receive significant federal benefits and other federal payments. In 
addition to Social Security Administration benefit payments, federal 
civilian retirement payments, and federal civilian salaries, payments 
on federal contracts and Small Business Administration loans are also 
provided to these delinquent taxpayers. Currently, federal law does 
not prevent businesses or individuals from receiving federal payments 
or loans when they are delinquent in paying federal taxes. 

The Office of Management and Budget's (OMB) Circular A-129 provides 
policies for the administration of federal credit programs. These 
policies specifically direct agencies to determine whether applicants 
are delinquent on any federal debt, including tax debt, and to suspend 
the processing of credit applications if applicants have outstanding 
tax debt until such time as the applicant pays the debt or enters into 
a payment plan. Unfortunately, these policies have not been effective 
in preventing the disbursement of federal dollars to individuals and 
businesses with delinquent taxes. On October 5, 2000, the House 
Committee on Government Reform voted unanimously to approve HR 4181, 
"The Debt Payment Incentive Act of 2000." The provisions of this bill 
are designed to enhance federal debt collection by providing an 
incentive for debtors to pay delinquent taxes and to prohibit 
delinquent taxpayers from being able to obtain federal contracts and 
certain federal financial assistance. This bill could serve as an 
incentive for delinquent taxpayers seeking federal assistance to 
fulfill their tax obligations, thus improving overall compliance and 
reducing the federal government's balance of uncollectible tax 
assessments. CBO cannot score this option until a specific proposal is 
developed. 

Related GAO Products: 

Debt Collection: Barring Delinquent Taxpayers From Receiving Federal
Contracts and Loan Assistance (GAO/T-GGD/AIMD-00-167, May 9, 2000). 

Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty 
Assessments Are Owed (GAO/AIMD/GGD-99-211, Aug. 2, 1999). 

Tax Administration: Billions in Self-Employment Taxes Are Owed 
(GAO/GGD-99-18, Feb. 19, 1999). 

GAO Contacts: 

Steven J. Sebastian, (202) 512-3406: 
James R. White, (202) 512-9110: 

Target Funding Reductions in Formula Grant Programs: 

Authorizing committees: Multiple; 
Appropriations subcommittees: Multiple; 
Primary agency: Multiple; 
Accounts: Multiple; 
Spending type: Discretionary/Direct; 
Budget subfunction: Multiple; 
Framework theme: Redefine beneficiaries. 

Many federal grant programs with formula-based distribution of funds 
to state and local governments are not well targeted to jurisdictions 
with high programmatic needs but comparatively low funding capacity. 
As a result, it is not uncommon that program recipients in areas with 
greater wealth and relatively lower needs may enjoy a higher level of 
services than available in harder pressed areas. Alternatively, these 
wealthier areas can provide the same level of services but at lower 
tax rates than harder pressed areas. 

At a time when federal discretionary resources are increasingly 
constrained, better targeting of formula-based grant awards offers a 
strategy to bring down federal outlays by concentrating reductions in 
wealthier localities with comparatively fewer needs and greater 
capacity to absorb the cuts. At the same time, redesigned formulas 
could hold harmless the hardest pressed areas that are most 
vulnerable. For example, three entitlement programs—Medicaid, Foster 
Care, and Adoption Assistance—reimburse approximately 55 percent of 
eligible state spending, with the federal share ranging from a minimum 
of 50 to a maximum of 83 percent depending on the per capita income of 
the state. There are a variety of ways in which budgetary savings 
could be achieved to improve the targeting of these programs, 
including: 

* Reduce the minimum federal reimbursement rate to below 50 percent. 
This example would focus the burden of the reduced federal share on 
those states with the highest per capita income. To the extent that 
per capita income provides a reasonable basis for comparing state tax
bases, this example would require states with the strongest tax bases 
to shoulder the burden of a reduced federal share. 

* Reduce federal reimbursement rates only for those states with 
comparatively low program needs and comparatively strong tax bases. 
Under this example, the matching formula could be revised to better 
reflect the relative number of people in need, geographic differences 
in the cost of services, and state tax bases. Under the revised 
formula, states with comparatively low need and strong tax bases would 
receive lower federal reimbursement rates while states with high needs 
and weak tax bases would continue to receive their current 
reimbursement percentage. This example would focus the burden of a 
reduced federal share in those states with the lowest need and the 
strongest ability to fund program services from state resources. 

Many other formulas used to distribute federal grant funding do not 
recognize the different fiscal capacities of states to provide 
benefits from their own resources. Moreover, many of these formulas 
have not been reassessed for years or even decades. One option that 
would realize budgetary savings in nonentitlement programs such as 
these would be to revise the funding formula to reflect the strength 
of state tax bases. A new formula could be calibrated so that funding 
is maintained in states or local governments with weak tax bases in 
order to maintain needed program services but reduced in high tax base 
states to realize budgetary savings. Examples of these types of 
formula grant programs include the following. 

* Federal Aid Highways: This program, the largest nonentitlement 
formula grant program, allocates funds among the states based on their 
historic share of funding. This approach reflects antiquated 
indicators of highway needs, such as postal road miles and the land 
area of the state. 

* Community Development Block Grant: This program allocates funds 
among local governments based on housing age and condition, 
population, and poverty, and does not include a factor recognizing 
local wealth or fiscal capacity. For example, Greenwich, Connecticut, 
received five times more funding per person in poverty in 1995 than 
that provided to Camden, New Jersey, even though Greenwich, with per 
capita income six times greater than Camden, could more easily afford 
to fund its own community development needs. This disparity is due to 
the formula's recognition of older housing stock and population and 
its exclusion of fiscal capacity indicators. 

An option that illustrates the potential savings from targeting 
formula grant programs is a 10 percent reduction in the aggregate 
total of all close-ended or capped formula grant programs exceeding $1 
billion.[Footnote 13] The savings achieved through this option, as 
estimated by CBO, could serve as a benchmark for overall savings from 
this approach but should not be interpreted as a suggestion for across-
the-board cuts. Rather, as the above examples indicate, the Congress 
may wish to determine specific reductions on a program-by-program 
basis, after examining the relative priority and performance of each 
grant program. 

Five-Year Savings: 

Discretionary spending: Savings from the 2002 baseline: Budget 
authority; 
FY03: $3,156 million; 
FY04: $4,264 million; 
FY05: $4,388 million; 
FY06: $4,509 million; 
FY07: $4,690 million. 

Discretionary spending: Savings from the 2002 baseline: Outlays; 
FY03: $1,867 million; 
FY04: $5,227 million; 
FY05: $6,925 million; 
FY06: $7,703 million; 
FY07: $8,162 million. 

Source: Congressional Budget Office. 

[End of table] 

Five-Year Savings: 

Direct spending: Savings from the 2002 baseline: Budget authority; 
FY03: $5,478 million; 
FY04: $5,703 million; 
FY05: $5,675 million; 
FY06: $5,622 million; 
FY07: $5,649 million. 

Direct spending: Savings from the 2002 baseline: Outlays; 
FY03: $801 million; 
FY04: $1,459 million; 
FY05: $1,967 million; 
FY06: $2,902 million; 
FY07: $2,593 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Formula Grants: Effects of Adjusted Population Counts on Federal 
Funding to States (GAO/HEHS-99-69, Feb. 26, 1999). 

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 
State Spending (GAO/HEHS-99-29R, Feb. 19, 1999). 

Welfare Reform: Early Fiscal Effect of the TANF Block Grant 
(GAO/AIMD98-137, Aug. 22, 1998). 

Public Housing Subsidies: Revisions to HUD's Performance Funding 
System Could Improve Adequacy of Funding (GAO/RCED-98-174, June 19, 
1998). 

School Finance: State Efforts to Equalize Funding Between Wealthy and 
Poor School Districts (GAO/HEHS-98-92, June 16, 1998). 

School Finance: State and Federal Efforts to Target Poor Students 
(GAO/HEHS-98-36, Jan. 28, 1998). 

School Finance: State Efforts to Reduce Funding Gaps Between Poor and 
Wealthy Districts (GAO/HEHS-97-31, Feb. 5, 1997). 

Federal Grants: Design Improvements Could Help Federal Resources Go 
Further (GAO/AIMD-97-7, Dec. 18, 1996). 

Public Health: A Health Status Indicator for Targeting Federal Aid to 
States (GAO/HEHS-97-13, Nov. 13, 1996). 

School Finance: Options for Improving Measures of Effort and Equity in 
Title: (GAO/HEHS-96-142, Aug. 30, 1996). 

Highway Funding: Alternatives for Distributing Federal Funds (GAO/RCED-
96-6, Nov. 28, 1995). 

Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity 
(GAO/HEHS-96-26, Nov. 13, 1995). 

Department of Labor: Senior Community Service Employment Program 
Delivery Could Be Improved Through Legislative and Administrative 
Action (GAO/HEHS-96-4, Nov. 2, 1995). 

GAO Contact: 

Paul L. Posner, (202) 512-9573: 

Adjust Federal Grant Matching Requirements: 

Authorizing committees: Multiple; 
Appropriations subcommittees: Multiple; 
Primary agency: Multiple; 
Accounts: Multiple; 
Spending type: Discretionary/Direct; 
Budget subfunction: Multiple; 
Framework theme: Redefine beneficiaries. 

Intergovernmental grants are a significant part of both federal and 
state budgets. From the first annual cash grant under the Hatch Act of 
1887, the number of grant programs rose to more than 900 in 2000 with 
outlays of $284 billion, about 16 percent of total federal spending. 
Grants serve many purposes beyond returning resources to taxpayers in 
the form of state services. For example, grants can serve as a tool to 
supplement state spending for nationally important activities. 
However, if states use federal grant dollars to reduce (i.e., 
substitute for) their own spending for the aided program either 
initially or over time, the fiscal impact of federal grant dollars is 
reduced. 

Public finance experts suggest that grants are unlikely to supplement 
completely a state's own spending, and thus some substitution is to be 
expected in any grant. Our review of economists' recent estimates of 
substitution suggests that every additional federal grant dollar 
results in less than a dollar of total additional spending on the 
aided activity. The estimates of substitution showed that about 60 
cents of every federal grant dollar substitutes for state funds that 
states otherwise would have spent. 

Our analysis linked substitution to the way in which most grants are 
designed. For example, many of the 87 largest grant programs did not 
include features, such as state matching and maintenance-of-effort 
requirements, that can encourage states to use federal funds as a 
supplement rather than a replacement for their own spending. While not 
every grant is intended to supplement state spending, proponents of 
grant redesign argue that if some grants incorporated more rigorous 
maintenance-of-effort requirements and lower federal matching rates, 
then fewer federal funds could still encourage states to contribute to 
approximately the same level of overall spending on nationally 
important programs. Critics of this approach argue that such redesign 
would put a higher burden on states because they would have to finance 
a greater share of federally aided programs. 

The savings that could be achieved from redesigning grants to increase 
their fiscal impact would depend on the nature of the design changes 
and state responses to those changes. For example, faced with more 
rigorous financing requirements, states might reduce or eliminate 
their own financial support for the aided activity. The outcome will 
be influenced by the trade-off decisions that the Congress makes to 
balance the importance of achieving each program's goals and 
objectives against the goal of encouraging greater state spending and 
lowering the federal deficit. 

We were unable to precisely measure the budgetary impact of inflation-
adjusted maintenance-of-effort requirements because current state 
spending levels are not reported consistently. However, it was 
possible to estimate the impact of changes in the matching rates on 
many close-ended federal grants. For example, many such grants do not 
require any state or local matching funds. The federal share of these 
programs could be reduced modestly, for example from 100 percent to 90 
percent, a reduction unlikely to discourage states from participating 
in the program. CBO estimates that the introduction of a 10 percent 
matching requirement on some of the largest federal discretionary 
grant programs that are currently 100 percent federally funded, and a 
corresponding 10 percent reduction from the appropriated grant levels, 
would result in the savings shown below. If such a change in match 
rates were combined with inflation-adjusted maintenance-of-effort 
requirements, states that choose to participate in the program would 
have to maintain the same or increase levels of program spending in 
order to receive federal funding. 

Five-Year Savings: 

Discretionary spending: Savings from the 2002 baseline: Budget 
authority; 
FY03: $2,480 million; 
FY04: $2,973 million; 
FY05: $3,068 million; 
FY06: $3,161 million; 
FY07: $3,261 million. 

Discretionary spending: Savings from the 2002 baseline: Outlays; 
FY03: $868 million; 
FY04: $2,113 million; 
FY05: $2,720 million; 
FY06: $2,975 million; 
FY07: $3,142 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Welfare Reform: Early Fiscal Effects of the TANF Block Grant
(GAO/AIMD-98-137, Aug. 22, 1998). 

Federal Grants: Design Improvements Could Help Federal Resources Go 
Further (GAO/AIMD-97-7, Dec. 18, 1996). 

Block Grants: Issues in Designing Accountability Provisions (GAO/AIMD-
95-226, Sept. 1, 1995). 

GAO Contact: 

Paul L. Posner, (202) 512-9573: 

Replace the 1-Dollar Note with a 1-Dollar Coin: 

Authorizing committees: Banking, Housing, and Urban Affairs (Senate); 
Financial Services (House); 
Appropriations subcommittees: Treasury and General Government (Senate); 
Treasury, Postal Service, and General Government (House); 
Primary agency: Department of the Treasury; 
Accounts: United States Mint Public Enterprise Fund (20-4159); 
Spending type: Direct/Governmental Receipts; 
Budget subfunction: 803/Central fiscal operations; 
Framework theme: Improve efficiency. 
		
Replacing the 1-dollar note with a new 1-dollar coin would save the 
government hundreds of millions of dollars annually. Substituting a 
dollar coin for a dollar note could yield over $450 million of savings 
to the government per year, on average, over a 30-year period. The 
savings come about because a coin lasts longer than paper money; the 
Federal Reserve has lower processing costs with coins than paper 
money; and a coin would result in interest savings from the additional 
seigniorage earned on a coin (i.e., the difference between the face 
value of a coin and its production cost). 

In the past, the executive branch has not supported the replacement of 
the $1 note with a coin because of the belief that the Congress would 
respond to public pressure and allow both the coin and note to be 
used. All Western economies now use a coin for monetary transactions 
at the same value that Americans use the more costly paper note. These 
countries have demonstrated that public resistance to such a change 
can be managed and overcome. The United States has released a new gold-
colored dollar coin this year. While initial demand for the coin has 
been strong, for it to realize its savings potential, the note has to 
be eliminated. About 1 billion coins have been issued, but for the 
most part they are being held by collectors and do not circulate. With 
proper congressional oversight, public resistance to elimination of 
the $1 note could be overcome and public support for the coin 
improved. For example the Congress could require the Treasury or the 
Federal Reserve to conduct a public awareness campaign, explaining the 
savings that could be achieved by eliminating the $1 note. In 
addition, the Congress could require the Federal Reserve or the 
Treasury Department to designate a central spokesperson who would 
handle all public and press inquiries about the elimination of the $1 
note. 

Even though this option would result in significant long-term savings, 
it does not yield savings over the first 5 years, as scored by CBO. 
First, seigniorage, which would lower interest costs to the government 
by either replacing the need to borrow from the public or allowing the 
government to pay down its accumulated debt more quickly, is not 
included in the savings estimate because it is not considered part of 
the budget. Second, while the initial 5-year window captures much of 
the additional cost for the U.S. Mint to produce and stockpile a 
sufficient number of 1-dollar coins for circulation, it includes only 
a fraction of the savings to the Federal Reserve System from lower 
production and processing costs. 

Related GAO Products: 

A Dollar Coin Could Save Millions (GAO/T-GGD-95-203, July 13, 1995). 

1-Dollar Coin Reintroduction Could Save Millions if It Replaced the 1-
Dollar Note (GAO/T-GGD-95-146, May 3, 1995). 

1-Dollar Coin: Reintroduction Could Save Millions if Properly Managed 
(GAO/GGD-93-56, Mar. 11, 1993). 

National Coinage Proposals: Limited Public Demand for New Dollar Coin 
or Elimination of Pennies (GAO/GGD-90-88, May 23, 1990). 

GAO Contact: 

Bernard L. Ungar, (202) 512-8387: 

Eliminate Pay Increases after Separation in Calculating Lump-Sum 
Annual Leave Payments: 

Authorizing committees: Governmental Affairs (Senate); Government 
Reform (House); 
Appropriations subcommittees: Multiple; 
Primary agency: Office of Personnel Management; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: Multiple; 
Framework theme: Improve efficiency. 

Employee pay and benefits is one of many areas of the federal budget 
receiving congressional attention because of scarce federal resources. 
One such benefit is an employee's entitlement under 5 U.S.C. 5551(a) 
to receive a lump-sum payment for any accumulated, unused annual leave 
upon separation from federal service. In calendar year 1996, the cost 
of lump-sum leave payments to separating civilian employees was about
$562 million governmentwide. We were requested to identify any 
personnel cost savings that could be achieved from limiting the lump-
sum leave payment to the employee's pay rate at the time of 
separation, instead of the current method of assuming the employee had 
remained in service until the entire leave balance had expired. 

Based in part on our information and analysis, CBO estimated that 
agencies could realize personnel cost savings of $20 million over 5 
years if lump-sum annual leave payments were limited to the rate of 
pay at the time of separation. If the Congress enacted such a 
limitation, no General Schedule (GS) pay increases that go into effect 
following an employee's separation would be added to the payment 
calculation. To illustrate how small the maximum reduction in payments 
would be to individual separating employees, we calculated what the 
maximum reduction in lump-sum leave payments would have been to 
separating employees in January 1996 at various GS pay levels if the 
net 2.54 percent pay increase had been eliminated from their lump-sum 
leave payments. For example, we reported that the maximum reduction 
for an average GS-15 pay level would be from $86 to $481, depending on 
the amount of accrued annual leave. 

Five-Year Savings: 

Savings from the 2002 funding level: Budget authority; 
FY03: $4 million; 
FY04: $4 million; 
FY05: $5 million; 
FY06: $5 million; 
FY07: $5 million. 

Savings from the 2002 funding level: Outlays; 
FY03: $4 million; 
FY04: $4 million; 
FY05: $5 million; 
FY06: $5 million; 
FY07: $5 million. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Product: 

Federal Civilian Personnel: Cost of Lump-Sum Annual Leave Payments
to Employees Separating From Government (GAO/GGD-97-100, May 29, 1997). 

GAO Contact: 

J. Christopher Mihm, (202) 512-6806: 

Increase Fee Revenue from Federal Reserve Operations: 

Authorizing committees: Banking, Housing and Urban Affairs (Senate); 
Financial Services (House); 
Primary agency: Federal Reserve Board; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

The Federal Reserve is responsible for conducting monetary policy, 
maintaining the stability of financial markets, providing services to 
financial institutions and government agencies, and supervising and 
regulating banks and bank-holding companies. The Federal Reserve is 
unique among governmental entities in its mission, structure, and 
finances. Unlike federal agencies funded through congressional 
appropriations, the Federal Reserve is a self-financing entity that 
deducts its expenses from its revenue and transfers the remaining 
amount to the U.S. Department of the Treasury. Although the Federal 
Reserve's primary mission is to support a stable economy, rather than 
to maximize the amount transferred to Treasury, its revenues 
contribute to total U.S. revenues and, thus, can help reduce the 
federal deficit. 

One way to enhance the Federal Reserve's revenue would be to charge 
fees for bank examinations, thus increasing the Federal Reserve's 
return to taxpayers. The Federal Reserve Act authorizes the Federal 
Reserve to charge fees for bank examinations, but the Federal Reserve 
has not done so, either for the state-member banks it examines or the 
bank-holding company examinations it conducts. Taxpayers in effect 
bear the cost of these examinations, which total hundreds of millions 
of dollars annually. If fees were assessed similar to those charged 
national banks with a credit allowed for fees paid to state 
regulators, the following savings could be achieved. 

Five-Year Savings: 

Savings from the 2002 funding level: Added receipts; 
FY03: $86 million; 
FY04: $90 million; 
FY05: $95 million; 
FY06: $99 million; 
FY07: $104 million. 

Note: Estimates are presented net of the tax effect. 

Source: Congressional Budget Office. 

[End of table] 

Related GAO Products: 

Federal Reserve System: Current and Future Challenges Require
Systemwide Attention (GAO/T-GGD-96-159, July 26, 1996). 

Federal Reserve System: Current and Future Challenges Require 
Systemwide Attention (GAO/GGD-96-128, June 17, 1996). 

Federal Reserve Banks: Internal Control, Accounting, and Auditing 
Issues (GAO/AIMD-96-5, Feb. 9, 1996). 

GAO Contact: 

Thomas J. McCool, (202) 512-8678. 

Recognize the Costs Up-front of Long-Term Space Acquisitions: 

Authorizing committees: Environment and Public Works (Senate); 
Transportation and Infrastructure (House); 
Appropriations subcommittees: Treasury and General Government
(Senate); Treasury, Postal Service, and General Government (House); 
Primary agency: General Services Administration; 
Account: Federal Buildings Fund (47-4542); 
Spending type: Discretionary; 
Budget subfunction: 804/General property and records management; 
Framework theme: Improve efficiency. 

Building ownership through construction or lease-purchase—where 
ownership of the asset is transferred to the government at the end of 
the lease period—is generally less costly than meeting agencies' long-
term requirements through ordinary operating leases. However, we have 
reported over the last decade that GSA relies heavily on operating 
leases to meet the long-term space needs of the federal government. In 
March 1999, we reported that for nine major operating lease 
acquisitions GSA proposed between fiscal years 1994 and 1996, 
construction would have been the least cost option in eight cases. In 
these eight cases, lease-purchase was estimated to be more costly than 
construction, but less than the operating lease option GSA proposed. 
For example, the present value cost for the operating lease to meet 
the Patent and Trademark Office's long-term requirements in northern 
Virginia was estimated to be about $973 million. Construction was 
estimated to be $925 million—or $48 million less—and lease-purchase 
was estimated at $935 million—or $38 million less than the operating 
lease option. In total for these eight cases, construction and lease-
purchase had cost advantages over operating leases estimated at about 
$126 million and $107 million, respectively. 

Historically, the Federal Buildings Fund (FBF) has not generated 
sufficient revenue for constructing new office buildings. Operating 
leases have become an attractive option because the total costs do not 
have to be scored up-front for budget purposes and payments are spread 
out over time. However, as shown above, they are a costly alternative 
to ownership over the long-run. A lease-purchase would seem to be a 
desirable alternative from GSA's point of view. However, the budget 
scorekeeping rules established by the Budget Enforcement Act of 1990 
(BEA) effectively prevent GSA from taking advantage of this option. 
Furthermore, we reported in August 2001 that the scorekeeping rules 
might result in shorter terms for some leases, which could result in 
higher costs than for longer-term leases. The scorekeeping rules 
require the total budget authority for lease-purchases and capital 
leases to be recognized and recorded up-front in the year they are 
approved. Although GSA has viewed the up-front funding requirement as 
an impediment to meeting agency space needs in a cost-effective 
manner, it is generally recognized as an important tool for 
maintaining governmentwide fiscal control. That is, the rules prevent 
agencies and Congress from committing the government to future 
payments that may exceed future resources and spending priorities. 

Since lease-purchases are not a viable option for improving the cost-
effectiveness of space acquisition, an option that could result in 
long-term savings for the government would be to recognize that many 
operating leases are used for long-term needs and should be treated on 
the same basis as the ownership options. This would make such 
instruments comparable in the budget to direct federal ownership and 
would foster more cost-effective decisionmaking by OMB and Congress. 
Applying the principle of up-front full recognition of the long-term 
costs to all options for satisfying long-term space needs—
construction, purchases, lease-purchases, or operating leases—is more 
likely to result in selecting the most cost-effective alternative than 
the current scoring rules. 

It is important to note that there would be implementation challenges 
if this option is pursued. If operating leases were scored up-front, 
adjustments to the BEA caps would be necessary to accommodate the 
scoring change. For existing leases, the additional budget authority 
would need to be provided and the caps would have to be adjusted 
upward initially to recognize the higher up-front costs. The caps 
would be lowered in succeeding years to recognize the lower annualized 
costs.[Footnote 14] Such a change may also need to be phased in 
because of resource constraints. Finally, it would be difficult to 
reach agreement on what constitutes long-term space needs that would 
warrant this up-front budgetary treatment. GSA officials suggested in 
July 1997 that if changes to the scoring rules are made, all operating 
leases should be scored up-front. The GSA officials said that its 
leases no longer contain a clause permitting the government to 
terminate them for convenience and thus, its leases effectively commit 
the government for the term of the lease when they are signed. Even 
though this option should result in long-term savings, it does not 
yield savings over the first 5 years, as scored by CBO. 

Related GAO Products: 

Budget Scoring: Budget Scoring Affects Some Lease Terms, but Full
Extent Is Uncertain (GAO-01-929, Aug. 31, 2001). 

Federal Buildings: Funding Repairs and Alterations Has Been a 
Challenge—Expanded Financing Tools Needed (GAO-01-452, Apr. 12, 2001). 

General Services Administration: Comparison of Space Acquisition 
Alternatives—Leasing to Lease-Purchase and Leasing to Construction 
(GAO/GGD-99-49R, Mar. 12, 1999). 

Space Acquisition Cost: Comparison of GSA Estimates for Three 
Alternatives (GAO/GGD-97-148R, Aug. 6, 1997). 

Budget Issues: Budgeting for Federal Capital (GAO/AIMD-97-5, Nov. 12, 
1996). 

Budget Issues: Budget Scorekeeping for Acquisition of Federal 
Buildings (GA0a-AIMD-94-189, Sept. 20, 1994). 

Federal Office Space: Increased Ownership Would Result in Significant 
Savings (GAO/GGD-90-11, Dec. 22, 1989). 

GAO Contact: 

Bernard L. Ungar, (202) 512-8387: 

Seek Alternative Ways to Address Federal Building Repair Needs: 

Authorizing committees: Environment and Public Works (Senate); 
Transportation and Infrastructure (House); 
Appropriations subcommittees: Treasury and General Government
(Senate); Treasury, Postal Service, and General Government (House); 
Primary agency: General Services Administration; 
Account: Federal Buildings Fund (47-4542); 
Spending type: Discretionary; 
Budget subfunction: 804/General property and records management; 
Framework theme: Improve efficiency. 

The General Services Administration (GSA) is the federal government's 
real property manager, providing office space for most federal 
agencies. In this capacity, GSA is responsible for keeping the 
approximately 1,700 federal buildings it manages in good repair to 
ensure that the value of these assets is preserved and that tenants 
occupy safe and modern space. Many buildings in GSA's portfolio are 
more than 50 years old, monumental in design, and historically 
significant. Consequently, unlike a private sector company, GSA cannot 
always dispose of a building simply because it would be economically 
advantageous to do so. GSA identifies needed repairs through detailed 
building inspections and sorts them into three tiers based on costs. 
Repairs in the highest cost tier must be approved by the Office of 
Management and Budget (OMB) and then authorized for funding by the 
Congress. GSA receives annual authority for funding for repairs in the 
other two tiers. 

As of the end of fiscal year 1999, GSA data showed an unfunded 
inventory of approximately $4 billion in repairs and alterations that 
needed to be completed at its buildings. A major reason for this large 
and growing backlog is the lack of available funding. For example, 
from 1995 through 2001, the Congress approved only 63 percent of the 
approximately $6.8 billion GSA requested for repair and alteration 
projects. 

Unless the Congress increases the funding available to GSA to address 
its backlog of repair and alteration needs, it is likely that this 
backlog will continue to grow given the age of the current federal 
inventory of buildings. 

Delaying or not performing needed repairs and alterations can have 
serious consequences, including health and safety concerns, and lead 
to higher operating costs associated with inefficient heating and 
cooling systems. Given the current and likely increasing demands on 
discretionary appropriations, the Congress may wish to grant GSA the 
authority to experiment with funding alternatives, such as exploring 
public-private partnerships, and retaining funds from real property 
transactions, like the sale of unneeded assets. While CBO agrees that 
alternative funding sources could potentially offset repair expenses, 
it could not develop an estimate until a specific proposal is 
developed. 

Related GAO Products: 

General Services Administration: Status of Achieving Key Outcomes and
Addressing Major Management Challenges (GAO-01-931, Aug. 3, 2001). 

Public-Private Partnerships: Pilot Program Needed to Demonstrate the 
Actual Benefits of Using Partnerships (GAO-01-906, July 25, 2001). 

Federal Buildings: Funding Repairs and Alterations Has Been a 
Challenge—Expanded Financing Tools Needed (GAO-01-452, Apr. 12, 2001). 

Federal Buildings: Billions are Needed for Repairs and Alterations 
(GAO/GGD-00-98, Mar. 30, 2000). 

GAO Contact: 

Bernard L. Ungar, (202) 512-8387: 

Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared: 

Authorizing committees: Multiple; 
Appropriations subcommittees: Multiple; 
Primary agency: Multiple; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: Multiple; 
Framework theme: Improve efficiency. 

Many federally funded benefit and loan programs rely on applicants and 
current recipients to accurately report information, such as the 
amount of income they earn, that affects their eligibility for 
assistance. To the extent that such information is underreported or 
not reported at all, the federal government overpays benefits or 
provides loans to individuals who are ineligible. In recent years, 
others and we have demonstrated that federally funded benefit and loan 
programs, such as housing and higher education assistance, have made 
hundreds of millions of dollars in improper payments. Some of these 
payments were made improperly because the federal, state, and local 
entities that administer the programs sometimes lacked adequate, 
timely data needed to determine applicants' and current recipients' 
eligibility for assistance. Our previous work has demonstrated that 
improper payments can be avoided or detected more quickly by using 
data from other programs, or data maintained for other purposes, to 
verify self-reported information. 

Federally funded benefit and loan programs provide cash or in-kind 
assistance to individuals who meet specified eligibility criteria. 
Because these programs require similar information to make eligibility 
determinations, it is more efficient to share the necessary data with 
one another rather than requiring each program to independently verify 
similar data. These programs may verify self-reported information by 
comparing their records with independent, third-party data sources 
from other federal or state agencies as well as private organizations. 
For example, benefit and loan programs can compare large amounts of 
information on applicants and recipients by using computers to match 
automated records. Electronic transmission of data and on-line access 
to agencies' databases are additional tools program administrators can 
use to share important information on applicants and recipients in a 
timely, efficient manner. If used consistently, they can help program 
administrators check the accuracy of individuals' self-reported 
statements as well as identify information relevant to eligibility 
that the applicants and recipients themselves have not provided. 

Various opportunities exist for federal, state, and local agencies to 
save taxpayer dollars by sharing information that affects individuals' 
eligibility for benefits. For example, the Department of Education's 
OIG estimates that underreported income contributed to about $109 
million in excess Pell Grant awards in 1995 and 1996. Access to IRS 
taxpayer information could have helped Education prevent some of these 
overpayments. Improper payments could also be avoided or detected more 
quickly in other programs. For example, four states and the District 
of Columbia estimate that they prevented about $16 million in improper 
TANF, Medicaid and Food Stamp benefit payments by participating in the 
Public Assistance Reporting Information System (PARIS). PARIS could 
also help other states save program funds by identifying and 
preventing future improper payments. 

The three federally funded benefit and loan programs we examined—
Temporary Assistance for Needy Families, Tenant-Based Section 8 and 
Public Housing, and student grants and loans—all use data sharing to 
varying degrees to verify information that applicants and current 
benefit recipients provide. However, the weaknesses in these programs' 
eligibility determination processes could be mitigated if additional 
data sources were available for sharing. For example, the Congress 
could grant the Department of Education access to IRS taxpayer data 
which could reduce overpayments in student loan programs. CBO could 
not estimate savings until a more specific option is developed. 

Related GAO Products: 

Public Assistance: PARIS Project Can Help States Reduce Improper 
Benefit Payments (GAO-01-935, Sept. 6, 2001). 

The Challenge of Data Sharing: Results of a GAO-Sponsored Symposium on 
Benefit and Loan Programs (GAO-01-67, Oct. 20, 2000). 

Benefit and Loan Programs: Improved Data Sharing Could Enhance Program 
Integrity (GAO/HEHS-00-119, Sept. 13, 2000). 

GAO Contact: 

Robert E. Robertson, (202) 512-7215: 

Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals: 

Authorizing committees: Multiple; 
Appropriations subcommittees: Multiple; 
Primary agency: Multiple; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: Multiple; 
Framework theme: Improve efficiency. 

The federal government plays a prominent role in identifying the 
nation's infrastructure investment needs and has spent an average of 
$149 billion (in constant 1998 dollars) annually since the late 1980s 
on the nation's infrastructure. A sound public infrastructure plays a 
vital role in encouraging a more productive and competitive national 
economy and meeting public demands for safety, health, and improved 
quality of life. Little, however, is known about the comparability and 
reasonableness of federal agencies' estimates for infrastructure 
needs. In fact, infrastructure "need" is difficult to define and to 
distinguish from "wish lists" of capital projects. 

In a recent review of seven federal agencies' investment practices, 
GAO found that none of them followed leading practices for capital 
decisionmaking. In particular, five of the agencies did not develop 
assessments of the investments needed to meet outcomes. Rather, these 
agencies developed estimates that were summations of the costs of 
projects eligible to receive federal funding or projects identified by 
the Congress and others. Also, agencies were not likely to (1) develop 
a longterm capital plan, (2) use cost-benefit analysis as the primary 
method to compare alternative investments, (3) rank and select 
projects for funding based on established criteria, and (4) budget for 
projects in useful segments. 

Given the importance of federal infrastructure investment to the 
nation, the Congress may wish to have the Office of Management and 
Budget to develop standards for agencies to follow when submitting 
funding requests. At a minimum, requiring agencies to link the 
benefits of investment projects to the achievement of mission goals 
would give decisionmakers better information to base funding decisions 
on. 

Infrastructure investment requests based on other leading practices, 
especially those enumerated above, could also increase the Congress' 
capacity to make better investment decisions. CBO cannot develop a 
savings estimate until a specific proposal is developed. 

Related GAO Products: 
U.S. Infrastructure: Agencies' Approaches to Developing Investment
Estimates Vary (GAO-01-835, July 20, 2001). 

Executive Guide: Leading Practices in Capital Decision-Making (GAO/ABM-
99-32, Dec. 1998). 

GAO Contact: 

Peter F. Guerrero, (202) 512-4907: 

Information Sharing Could Improve Accuracy of Workers' Compensation 
Offset Payments: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Appropriations subcommittees: Labor, Health and Human Services, and 
Education (Senate and House); 
Primary agency: Social Security Administration; 
Accounts: Supplemental Security Income Program (28-0406); Federal 
Disability Insurance Trust Fund (20-8007); 
Spending type: Direct; 
Budget subfunction: Multiple; 
Framework theme: Improve efficiency. 

Between 1991 and 1998, workers received an average of about $43 
billion each year in cash and medical benefits through the nation's 
workers' compensation (WC) programs to cover work-related injuries. 
Workers' compensation consists of a complex array of programs that 
provide benefits to persons injured while working or who suffer 
occupational diseases. Each state and the District of Columbia 
requires employers operating in its jurisdictions to provide WC 
insurance for their employees and to report work-related injuries to 
the state WC agency. WC beneficiaries may also be eligible for federal 
program benefits, such as Social Security Disability Insurance (DI) 
and Supplemental Security Income (SSI). In such programs, the law 
often limits access or reduces benefits for those receiving workers' 
compensation. Generally, if a person receives both DI and WC benefits, 
and together these benefits exceed 80 percent of the injured worker's 
average current earnings, the Social Security Administration (SSA) 
generally reduces the DI benefit. This reduction in benefits is 
referred to as the WC offset. A number of other federal programs also 
rely on information on WC benefit payments as a determinant of federal 
benefit payments. For example, Medicare covers medical expenses for 
persons who have received DI benefits for 2 years, but WC insurers are 
supposed to be the primary payer and Medicare the secondary payer of 
medical expenses that arise from work-related injuries and are covered 
under the WC program. Similarly, other federal programs, including 
food stamps and Section 8 rental housing assistance consider WC 
benefits as income or assets when determining program eligibility and 
benefit payment amounts. 

Because there is no national reporting system that identifies WC 
beneficiaries, federal agencies largely rely on applicants and 
beneficiaries to report their WC benefits. This fragmented reporting 
system has resulted in federal agencies making erroneous payments. For 
example, evaluations by GAO, SSA, and SSA's Office of Inspector 
General (OIG) have found significant overpayment and underpayment 
errors related to the WC offset provision. Ongoing SSA reviews of 
benefit payments indicate that more than 50 percent of DI 
beneficiaries whose benefits are being offset have been paid 
inaccurately. Another study projected $1.5 billion in payment errors 
related to the WC offset. About 85 percent of these errors are 
underpayments of entitled benefits that result when DI beneficiaries 
do not report reductions in their WC benefits. SSA's administration of 
the WC offset provision continues to be undermined by the lack of 
reliable information identifying the receipt of WC benefits by DI 
beneficiaries. Other federal programs, such as Medicare, food stamps, 
and Section 8 rental housing also rely on self-reported WC information 
as a basis for determining benefit payments, and similarly are 
vulnerable to payment errors as a result. For example, Medicare relies 
on its applicants and beneficiaries to self-report WC benefits and is 
vulnerable to payment errors when they do not. HCFA officials have 
estimated that about 8 percent of its beneficiaries have medical 
claims that may be the responsibility of another health insurer, 
liability insurer or WC program. A GAO review of one state (not 
nationally representative) found that (1) Medicare's interests 
relative to the payment of future medical benefits were not considered 
in any of the WC cases resolved through settlements (83 percent of our 
sample), (2) HCFA was aware of WC benefits being received in only one-
third of the cases where it paid benefits under Part A (a nonrandom 
sample), and (3) about 39 percent of joint WC and Medicare 
beneficiaries had received Medicare benefits for treatments that were 
potentially related to the WC injury. Finally, an inability to obtain 
WC benefit information could affect the accuracy of benefit payments 
for other federal programs such as food stamps and Section 8 housing 
and could result in the overpayment of benefits. 

Given the fragmented nature of WC programs, the Congress could 
establish a reporting requirement that WC Insurers provide SSA with 
information on changes to WC benefit payments. SSA could use this 
information to make adjustments to DI and SSI payments accordingly, 
and this information could be shared with other federal agencies. 
Doing so would reduce the potential for errors in the disbursing of 
benefits. Because budgetary savings would depend on the key details of 
the requirements—such as which insurers would be covered and how 
frequently they would be required to report—CBO cannot estimate them 
without more information. 

Related GAO Product: 

Workers' Compensation: Action Needed to Reduce Payment Errors in SSA
Disability and Other Programs (GAO-01-367, May 4, 2001). 

GAO Contact: 

Barbara D. Bovbjerg, (202) 512-7515: 

Determine Feasibility of Locating Federal Facilities in Rural Areas: 

Authorizing committees: Multiple; 
Appropriations subcommittees: Multiple; 
Primary agency: General Services Administration; 
Accounts: Multiple; 
Spending type: Discretionary; 
Budget subfunction: Multiple; 
Framework theme: Improve efficiency. 

The Rural Development Act of 1972 (RDA) and the Competition in 
Contracting Act of 1984 (CICA), as well as executive orders, provide 
guidance on site location decisions for federal facilities. While 
considering areas in which to locate, RDA requires all executive 
departments and agencies to establish policies and procedures giving 
first priority to the location of new offices and other facilities in 
rural areas.[Footnote 15 The General Services Administration (GSA) is 
the central management agency for acquiring real estate for many 
federal agencies, while some other agencies, such as the Department of 
Defense, have their own authority to acquire space. 

A recent survey of 115 new federal site locations acquired between 
1998 and 2000 for buildings over 25,000 square feet found that about 
72 percent were located in urban areas. Agencies said they selected 
urban areas primarily because of the need to be near agency clients 
and related government and private sector facilities to accomplish 
their missions. Eight of the 13 cabinet agencies surveyed had no 
formal RDA siting policy, and there was little evidence that agencies 
considered RDA's requirements when siting new federal facilities. 
Furthermore, GSA has not developed a cost-conscious, governmentwide 
location policy. Federal site acquisition practices differ from 
private sector practices in that private sector companies are more 
likely to take advantage of local incentives and of lower real estate 
and labor costs. 

Obviously, many factors are considered in site location decisions, and 
chief among them should be the agency's ability to accomplish its 
mission in the best way possible and to retain an adequate number of 
skilled employees. But, where there are opportunities to reduce costs 
and/or improve service by locating to rural areas, federal agencies 
may benefit from more closely following private sector practices. 
Consequently, the Congress may wish to follow through on the intent of 
RDA by requiring federal agencies to establish siting policies 
consistent with RDA's goals and also requiring GSA to establish a 
formal governmentwide siting policy that takes into account potential 
cost savings from locating in rural areas. Because specific options 
have not been proposed, CBO is unable to estimate cost savings. 

Related GAO Product: 

Facilities Location: Agencies Should Pay More Attention to Costs and
Rural Development Act Has Had Limited Impact (GAO-01-805, July 31, 
2001). 

GAO Contact: 

Bernard L. Ungar, (202) 512-8387: 

[End of section] 

Receipts: 

* Tax Interest Earned on Life Insurance Policies and Deferred 
Annuities; 

* Further Limit the Deductibility of Home Equity Loan Interest; 

* Limit the Tax Exemption for Employer-Paid Health Insurance; 

* Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on
Motor Fuels; 

* Index Excise Tax Bases for Inflation; 

* Increase Highway User Fees on Heavy Trucks; 

* Require Corporate Tax Document Matching; 

* Improve Administration of the Tax Deduction for Real Estate Taxes; 

* Increase Collection of Returns Filed by U.S. Citizens Living Abroad; 

* Increase the Use of Seizure Authority to Collect Delinquent Taxes; 

* Increase Collection of Self-employment Taxes; 

* Increase the Use of Electronic Funds Transfer for Installment Tax 
Payments; 

* Reduce Gasoline Excise Tax Evasion; 

* Improve Independent Contractor Tax Compliance; 

* Expand the Use of IRS's TIN-Matching Program. 

Tax Interest Earned on Life Insurance Policies and Deferred Annuities: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Reassess objectives. 

Interest earned on life insurance policies and deferred annuities, 
known as "inside buildup," is not taxed as long as it accumulates 
within the contract. Although the deferred taxation of inside buildup 
is similar to the tax treatment of income from some other investments, 
such as capital gains, it differs from the policy of taxing interest 
as it accrues on certain other investments, such as certificates of 
deposit and original issue discount bonds. 

Not taxing inside buildup may have merit if it increases the amount of 
insurance coverage purchased and the amount of income available to 
retirees and beneficiaries. However, the tax preference given life 
insurance and annuities mainly benefits middle- and upper-income 
people. Coverage for low-income people is largely provided through the 
Social Security system, which provides both insurance and annuity 
protection. 

The Congress may wish to consider taxing the interest earned on life 
insurance policies and deferred annuities. The table below reflects 
JCT's estimated savings from this option, effective taxable years 
beginning after December 31, 2001. Investment income from annuities 
purchased as part of a qualified individual retirement account would 
be tax-deferred until benefits were paid. 

Five-Year Revenues: 

Revenue gain: 
FY03: $11.4 billion; 
FY04: $23.2 billion; 
FY05: $23.8 billion; 
FY06: $24.5 billion; 
FY07: $25.2 billion. 

Note: JCT provided its revenue estimates in billions of dollars. 

Source: Joint Committee on Taxation. 

[End of table] 

Related GAO Product: 

Tax Policy: Tax Treatment of Life Insurance and Annuity Accrued
Interest (GAO/GGD-90-31, Jan. 29, 1990). 

GAO Contact: 

James R. White, (202) 512-9110: 

Further Limit the Deductibility of Home Equity Loan Interest: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Department of the Treasury; 
Spending type: Direct; 
Framework theme: Reassess objectives. 
	
The term home equity borrowing or financing is usually applied to 
mortgages other than the original loan used to acquire a home or to 
any subsequent refinancing of that loan. Interest is deductible on up 
to $100,000 of home equity indebtedness and $1 million of indebtedness 
used to acquire a home. Home equity financing is not limited to home-
related uses and can be used to finance additional consumption by 
borrowers. 

Use of mortgage-related debt to finance nonhousing assets and 
consumption purchases through home equity loans could expose borrowers 
to increased risk of losing their homes should they default. Equity 
concerns may exist because middle- and upper-income taxpayers who 
itemize primarily take advantage of this tax preference, and such an 
option is not available to people who rent their housing. 

One way to address the issues concerning the amounts or uses of home 
equity financing would be to limit mortgage interest deductibility up 
to $300,000 of indebtedness for the taxpayer's principal and second 
residence. Assuming an effective date of taxable years beginning after 
December 31, 2002, JCT estimates that this option would generate the 
following revenues. 

Five-Year Revenues: 

Revenue gain: 
FY03: $4.7 billion; 
FY04: $5.1 billion; 
FY05: $5.7 billion; 
FY06: $6.1 billion; 
FY07: $6.6 billion. 

Note: JCT provided its revenue estimates in billions of dollars. 

Source: Joint Committee on Taxation. 

[End of table] 

Related GAO Product: 

Tax Policy: Many Factors Contributed to the Growth in Home Equity
Financing in the 1980s (GAO/GGD-93-63, Mar. 25, 1993). 

GAO Contact: 

James R. White, (202) 512-9110: 

Limit the Tax Exemption for Employer-Paid Health Insurance: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

The current tax treatment of health insurance—amounting to revenue 
losses of about $67.6 billion in 2001—gives few incentives to workers 
to economize on purchasing health insurance. Employer contributions 
for employee health protection are considered deductible, ordinary 
business expenses and employer contributions are not included in an 
employee's taxable income. The same is true for a portion of the 
premiums paid by self-employed individuals. Although some employers or 
employees could drop employer-sponsored coverage without the tax 
exemption, some analysts believe that the tax-preferred status of 
these benefits has contributed to the overuse of health care services 
and large increases in our nation's health care costs. In addition, 
the primary tax benefits accrue to those in high tax brackets who also 
have above average incomes. 

Placing a cap on the amount of health insurance premiums that could be 
excluded—including in a worker's income the amount over the cap—could 
improve incentives and, to a lesser extent, tax equity. Alternatively, 
including health insurance premiums in income but allowing a tax 
credit for some percentage of the premium would improve equity since 
tax savings per dollar of premium would be the same for all taxpayers. 
Incentives could be improved for purchasing low-cost insurance if the 
amounts given credits were capped. 

One specific option the Congress may wish to consider would be to tax 
all employer-paid health insurance, while providing individuals a 
refundable tax credit of 20 percent of premiums that they or their 
employers would pay, with eligible premiums capped at $500 and $200 
per month for family coverage and individuals, respectively.
JCT did not develop a revenue estimate for this option due to 
uncertainty in determining the amount of health insurance that would 
be purchased given a repeal of the employer exclusion. 

Related GAO Product: 

Tax Policy: Effects of Changing Tax Treatment of Fringe Benefits
(GAO/GGD-92-43, Apr. 7, 1992). 

GAO Contact: 

James R. White, (202) 512-9110: 

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

The tax code partially exempts biomass-derived alcohol fuels—made from 
nonfossil material of biological origin—from excise taxes on motor 
fuels. The tax code also provides that income tax credits for alcohol 
fuel use may be claimed instead of the excise tax exemption. However, 
the credit is in almost all cases less valuable than the exemption and 
is rarely used. 

Tax incentives that encourage alternatives to fossil fuels might have 
merit if energy security or environmental benefits were realized. 
However, if alcohol fuel use was not subsidized it is unlikely that 
U.S. energy security or air quality would be significantly affected. 
Even with tax subsidies, alcohol fuels are not competitive in price 
with fossil fuels in most markets. In 1995, alcohol fuels accounted 
for less than 1 percent of total U.S. energy consumption. The 
incentives have not created enough usage to affect the likelihood of 
an oil price shock. Nor could their use be expanded enough to counter 
such a shock given existing production technologies. Use of oxygenated 
fuels such as ethanol-gasoline mixtures in motor vehicles generally 
produces less carbon monoxide pollution than does straight gasoline. 
However, the Clean Air Act Amendments of 1990 reduced the need for an 
ethanol subsidy by mandating the minimum oxygen content of gasoline in 
areas with poor air quality. The global warming effects of using 
ethanol are likely to be no better than, and could be worse than, 
those of gasoline. 

The Congress may wish to consider repealing the partial excise tax 
exemption and the alcohol fuels tax credit. The repeal could result in 
higher federal outlays for price support loan programs, but any 
increase in outlays probably would be much smaller than the estimated 
revenue increase. The excise tax exemption is currently scheduled to 
expire on October 1, 2008; the equivalent blender's tax credit is 
scheduled to expire on January 1, 2008. The table below reflects JCT's 
estimated savings from this option assuming an effective date of 
January 1, 2003. 

Five-Year Revenues: 

Revenue gain: 
FY03: $0.6 billion; 
FY04: $0.8 billion; 
FY05: $0.8 billion; 
FY06: $0.8 billion; 
FY07: $0.9 billion. 

Note: JCT provided its revenue estimates in billions of dollars. 

Source: Joint Committee on Taxation. 

[End of table] 

Related GAO Product: 

Tax Policy: Effects of the Alcohol Fuels Tax Incentives (GAO/GGD-97-41,
Mar. 6, 1997). 

GAO Contact: 

James R. White, (202) 512-9110: 

Index Excise Tax Rates for Inflation: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

Federal excise taxes are sometimes set at a fixed dollar amount per 
unit of taxed good. For example, alcoholic beverages are taxed at a 
set rate per gallon or barrel, with the rate varying for different 
types of beverages and differing concentrations of alcohol. When set 
in this manner, the real dollar value of the tax falls with inflation. 

The real dollar value of these taxes can be maintained over time if 
the tax is indexed for inflation or set as a percentage of the price 
of the taxed product or service. Tax policy issues would need to be 
considered, and administrative difficulties may be encountered, but 
they are not insurmountable. The Congress may wish to consider 
indexing excise tax rates for alcohol and tobacco. The table reflects 
JCT's estimated revenue gains from this option with an effective date 
of December 31, 2002. 

Five-Year Revenues: 

Revenue gain: 
FY03: $0.2 billion; 
FY04: $0.5 billion; 
FY05: $0.9 billion; 
FY06: $1.2 billion; 
FY07: $1.5 billion. 

Note: JCT provided its revenue estimates in billions of dollars. 

Source: Joint Committee on Taxation. 

[End of table] 

Related GAO Products: 

Alcohol Excise Taxes: Simplifying Rates Can Enhance Economic and
Administrative Efficiency (GAO/GGD-90-123, Sept. 27, 1990). 

Tax Policy: Revenue Potential of Restoring Excise Taxes to Past Levels 
(GAO/GGD-89-52, May 9, 1989). 

GAO Contact: 

James R. White, (202) 512-9110: 

Increase Highway User Fees on Heavy Trucks: 

Authorizing committees: Commerce, Science, and Transportation
(Senate); Transportation and Infrastructure (House); 
Primary agency: Department of Transportation; 
Spending type: Direct; 
Framework theme: Redefine beneficiaries. 

To develop and maintain highways, the government collects user fees 
including fuel taxes, a heavy vehicle use tax, an excise tax on truck 
and tractor sales, and an excise tax on heavy tires. In fiscal year 
1999, about $35.1 billion was collected from general highway user 
taxes. For many years, questions have been raised concerning whether 
highway users, including owners of heavy trucks, pay taxes in 
proportion to the wear and tear that their vehicles impose on highway 
pavement. 

In 1982, the Congress passed the first major increase in federal 
highway use taxes since 1956 in order to increase highway revenues and 
to respond to a Federal Highway Administration (FHWA) report that 
heavy trucks underpaid by about 50 percent their fair share relative 
to the pavement damage that they caused. FHWA also reported that 
lighter trucks were overpaying by between 30 and 70 percent (depending 
on weight), and automobiles were overpaying by 10 percent. The 1982 
tax increase required that the ceiling for the heavy vehicle use tax 
be increased from $240 a year to $1,900 a year by 1989. In response to 
the concerns of the trucking industry about the new tax structure, the 
Congress again revised the system in the Deficit Reduction Act of 
1984. Under the act, the ceiling for the heavy vehicle use tax was 
lowered from $1,900 to $550 a year. To ensure that this action was 
revenue neutral, the Congress raised the tax on diesel fuel from 9 
cents to 15 cents per gallon. 

As GAO recommended in June 1994, FHWA conducted a cost allocation 
study. The study, released in August 1997, noted that the overall 
equity of highway user fees could be incrementally improved by 
implementing either a weight-distance tax or eliminating the existing 
$550 cap on the Heavy Vehicle Use Tax. However, the study made no 
recommendations; the administration continues to monitor highway user 
fees but plans no action unless the overall equity of highway user 
fees worsens. The Joint Committee on Taxation (JCT) estimates that 
removing the $550 cap on the Heavy Vehicle Use Tax, effective December 
31, 2001, would result in the revenue gains shown in the table below. 

Five-Year Revenues: 

Revenue gain: 
FY03: $0.1 billion; 
FY04: $0.1 billion; 
FY05: $0.1 billion; 
FY06: $0.1 billion; 
FY07: $0.1 billion. 

Note: JCT provided its revenue estimates in billions of dollars. 

Source: Joint Committee on Taxation. 

[End of table] 

Related GAO Product: 

Highway User Fees: Updated Data Needed To Determine Whether All
Users Pay Their Fair Share (GAO/RCED-94-181, June 7, 1994). 

GAO Contact: 

John H. Anderson, Jr., (202) 512-2834: 

Require Corporate Tax Document Matching: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

IRS' document matching program for payments to individuals has proven 
to be a highly cost-effective way of bringing in billions of dollars 
in tax revenues to the Treasury while at the same time boosting 
voluntary compliance. However, unlike payments to individuals, the law 
does not require that information returns be submitted on most 
payments to corporations. 

Generally using IRS' assumptions, we estimated the benefits and costs 
for a corporate document matching program that would cover interest, 
dividends, rents, royalties, and capital gains. Assuming that a 
corporate document matching program began in 1993, we estimated that 
for years 1995 through 1999, IRS' annual costs would be about $70 
million and annual increased revenues about $1 billion. This estimate 
did not factor in compliance costs and changes in taxpayer behavior. 
Given increased corporate noncompliance, and declining audit coverage, 
the Congress may wish to require a corporate document matching program. 

JCT agrees that the option has the potential for increased revenue but 
has not developed estimates of revenue gain. 

Related GAO Product: 

Tax Administration: Benefits of a Corporate Document Matching
Program Exceed the Costs (GAO/GGD-91-118, Sept. 27, 1991). 

GAO Contact: 

James R. White, (202) 512-9110: 

Improve Administration of the Tax Deduction for Real Estate Taxes: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

IRS audits show that individuals overstated their real estate tax 
deductions by about $1.5 billion nationwide in 1988. We estimate that 
this resulted in a nearly $300 million federal tax loss, which would 
increase to about $400 million for 1992. However, this may understate 
lost revenues because our review also found that IRS auditors detected 
only about 29 percent of $127 million in overstated deductions in 
three locations we reviewed. Revenues could be lost not only for the 
federal government but also for the 31 states which in 1991 tied their 
itemized deductions to those used for federal tax purposes. 

Two changes to the reporting of real estate cash rebates and real 
estate taxes could reduce noncompliance and increase federal tax 
collections. First, the Congress could require that states report to 
IRS, and to taxpayers on Form 1099s, cash rebates of real estate 
taxes. Second, the Congress could require that state and local 
governments conform real estate tax statements to specifications 
issued by IRS that would separate real estate taxes from nondeductible 
fees, which are often combined on these statements. 

For estimation purposes, the proposals would be effective for rebates 
issued after December 31, 2001, and for amounts reported on tax bills 
after December 31, 2002. JCT estimates that the proposals together, 
would increase federal fiscal revenues as shown in the table below. 

Five-Year Revenues: 

Revenue gain: 
FY03: $; 
FY04: [A]; 
FY05: $0.1 billion; 
FY06: $0.2 billion; 
FY07: $0.2 billion. 

[A] less than $50 million. 

Note: JCT provided its revenue estimates in billions of dollars. 

Source: Joint Committee on Taxation. 

[End of table] 

Related GAO Product: 

Tax Administration: Overstated Real Estate Tax Deductions Need To Be
Reduced (GAO/GGD-93-43, Jan. 19, 1993). 

GAO Contact: 

James R. White, (202) 512-9110: 

Increase Collection of Returns Filed by U.S. Citizens Living Abroad: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

U.S. citizens residing abroad are generally subject to the same filing 
requirements as citizens residing in the United States. The State 
Department estimated the total population of U.S. citizens living 
abroad at about 3.1 million in 1995, excluding active military and 
current government personnel. Some evidence suggests that the failure 
to file tax returns may be relatively prevalent in some segments of 
the U.S. population abroad, and the revenue impact, while unknown, 
could be significant. 

IRS's ability to identify and collect taxes from nonfilers residing 
abroad is restricted by the limited reach of U.S. laws in foreign 
countries, particularly U.S. laws on tax withholding, information 
reporting, and enforced collection through liens, levies, and 
seizures. Another factor that could contribute to nonfiling abroad is 
the ambiguity in IRS's filing instructions for its Form 1040 and 
related guidance. For example, it may not be clear that income 
qualifying for the foreign earned income or housing expense exclusions 
must be considered in determining whether one's gross income exceeds 
the filing threshold. 

In pursuing nonfilers abroad, IRS has not fully explored the 
usefulness of passport application data as a means of identifying 
potential nonfilers. While passport applications contain no income 
information, they could be used to collect applicants' social security 
number, age, occupation, and country of residence. 

IRS may want to take additional steps to enforce the current 
information requirement that all passport applicants provide their 
social security numbers as a means of identifying potential nonfilers 
abroad. IRS may also want to clarify its instructions for determining 
what income must be considered in determining whether gross income 
exceeds the filing threshold. Initial projects to increase the number 
of returns filed from overseas suggest that the potential increase in 
tax revenues would justify the costs to improve compliance. 

JCT agrees that the option has the potential for increased revenue but 
has not developed estimates of revenue gain. 

Related GAO Products: 

Tax Administration: Nonfiling Among U.S. Citizens Abroad (GAO/GGD-
98-106, May 11, 1998). 

IRS Activities to Increase Compliance on Overseas Taxpayers (GAO/GGD-
93-93, May 18, 1993). 

GAO Contact: 

James R. White, (202) 512-9110: 

Increase the Use of Seizure Authority to Collect Delinquent Taxes: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

IRS' use of its statutory authority to seize taxpayer assets has been 
instrumental in bringing into compliance (i.e., full pay status) many 
delinquent taxpayers who had been unresponsive to other tax collection 
efforts, including demands for payment through letters, phone calls, 
personal visits, and levies on bank accounts and wages. Of the 
approximate 8,300 taxpayers whose assets were seized by IRS in fiscal 
year 1997, about 42 percent became fully tax compliant--resolving about
$186 million in tax debts--as a result of the seizures. In total, the 
seizure of taxpayer property in fiscal year 1997 resulted in resolving 
about $235 million or about 22 percent of the $1.1 billion of tax 
debts owed by the 8,300 taxpayers. 

IRS' use of seizure authority has been in a period of transition as 
IRS adapts to the requirements of the IRS Restructuring and Reform Act 
of 1998. During this transition the number of seizures has declined 
over 98 percent. IRS employees told GAO that seizures have nearly 
stopped because of their uncertainty over the act's seizure 
requirements and IRS' slow development of workable policies and 
procedures for implementing the act. 

IRS national office officials indicated to GAO that they expected the 
number of seizures to rebound as changes to the seizure program are 
implemented and employees adapt to the new requirements. The officials 
also indicated that the expected rebound would be to levels 
significantly below preact experience given (1) IRS program changes 
that provide taxpayers with additional opportunities to resolve their 
tax delinquencies prior to seizure, (2) expanded definition of 
taxpayer property statutorily exempt from seizure, (3) increased time 
available to taxpayers to exercise rights to challenge seizures, and 
(4) reductions in collection staff available to make seizures. 

Until the anticipated rebound begins, however, IRS is at risk of 
forgoing the collection of millions of dollars as indicated by the 
1997 data. To facilitate the rebound and to help ensure that seizure 
authority is used when warranted, GAO has made a number of 
recommendations to IRS. In part, GAO recommended that IRS provide 
written guidance to employees on when seizure action ought to be 
taken, that is, the conditions and circumstances that would justify 
seizure action and the responsibilities of senior managers to ensure 
that such actions are taken. Effective implementation of the 
recommendations, particularly those involving the responsibilities of 
IRS managers, is contingent on the success of the ongoing time-phased 
organizational restructuring of IRS as mandated by the 1998 act. 

JCT agrees that the option has the potential for increased revenue but 
has not developed estimates of revenue gain. 

Related GAO Product: 

IRS Seizures: Needed for Compliance but Processes for Protecting
Taxpayer Rights Have Some Weaknesses (GAO/GGD-00-4, Nov. 29, 1999). 

GAO Contact: 

James R. White, (202) 512-9110: 

Increase Collection of Self-employment Taxes: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

Self-employed taxpayers can get Social Security benefits based on 
earnings for which they did not pay taxes because the Social Security 
Act requires the Social Security Administration to grant earnings 
credits, which are used to determine benefit eligibility and amounts, 
and pay benefits without regard to whether the Social Security taxes 
have been paid. As of September 1997, more than 1.9 million self-
employed taxpayers were delinquent in paying $6.9 billion in self-
employment taxes. Also, more than 144,000 taxpayers with delinquent 
self-employment taxes of $487 million were receiving about $105 
million annually in monthly Social Security benefits. 

While IRS's ability to collect self-employment taxes before taxpayers 
become delinquent is hampered because there is no withholding on self-
employment income, most self-employed taxpayers are required to make 
estimated tax payments. However, as of September 1997, about 90 
percent of the delinquent self-employed taxpayers required to make 
estimated tax payments did not. 

In the past, there have been proposals to deny social security credits 
to taxpayers that fail to pay their self-employment taxes and to 
require withholding on certain self-employment income. No actions were 
taken on these proposals. One way to collect self-employment taxes 
before taxpayers become delinquent that does not require a law change 
would be to encourage more self-employed individuals to make their 
required estimated tax payments. IRS could do this by establishing a 
program to remind previously noncompliant taxpayers (i.e., those who 
were assessed an estimated tax penalty the previous year) to make such 
payments. 

JCT agrees that the option has the potential for increased revenue but 
has not developed estimates of revenue gain. 

Related GAO Product: 

Tax Administration: Billions in Self-Employment Taxes Are Owed
(GAO/GGD-99-18, Feb. 19, 1999). 

GAO Contact: 

James R. White, (202) 512-9110: 

Increase the Use of Electronic Funds Transfer for Installment Tax 
Payments: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

The Internal Revenue Code authorizes IRS to allow taxpayers to pay 
their taxes in installments, with interest, if this arrangement would 
facilitate collection of the liability. As of September 2000, IRS had 
about 2.2 million installment agreements outstanding, worth about $8.3 
billion. At the end of fiscal year 2000, approximately 35 percent of 
these installment agreements were in default. 

A number of states use electronic funds transfer (EFT) to make their 
installment agreement program more efficient and effective. One state, 
Minnesota, requires taxpayers to pay by EFT, with some exceptions. As 
of late 1997, approximately 90 percent of Minnesota's installment 
agreements were EFT agreements, and the default rate had dropped from 
about 50 percent to between 3 percent and 5 percent in the 2 years the 
EFT requirement has been in effect. In California, within 6 months of 
implementing its EFT procedures, its default rate for new installment 
agreements dropped from around 40 percent to 5 percent. 

EFT payments also produce administrative savings through lower 
processing costs involved in recording and posting remittances, lower 
postage and handling costs associated with sending monthly payment 
reminders, and lower collection enforcement costs needed to pursue 
fewer taxpayers in default. IRS's initial comparison of the cost of 
EFT payments with the cost of having taxpayers send installment 
payments to lockboxes in commercial banks showed that EFT payment 
costs were about 37 percent less than the lockbox costs. 

The reported benefits for IRS of using EFT for installment agreement 
payments include the potential to reduce the percentage of taxpayer 
defaults, decrease administrative costs, and achieve faster 
collections. At the end of fiscal year 2000, less than 1.5 percent of 
IRS' outstanding installment agreements were EFT agreements. 

JCT agrees that the option has the potential for increased revenue but 
has not developed estimates of revenue gain. 

Related GAO Products: 

Tax Administration: Increasing EFT Usage for Installment Agreements
Could Benefit IRS (GAO/GGD-98-112, June 10, 1998). 

Tax Administration: Administrative Improvements Possible in IRS' 
Installment Agreement Program (GAO/GGD-95-137, May 2, 1995). 

GAO Contact: 

James R. White, (202) 512-9110: 

Reduce Gasoline Excise Tax Evasion: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

Although no current and reliable estimate of gasoline excise tax 
evasion exists, the most recent Federal Highway Administration 
estimate, from 1992, was that evasion amounted to between 3 and 7 
percent of gasoline excise tax revenue. From a tax administration 
perspective, moving the collection point for gasoline excise taxes 
from the terminal to the refinery level may reduce tax evasion because 
(1) gasoline would change hands fewer times before taxation, (2) 
refiners are presumed to be more financially sound and have better 
records than other parties in the distribution system, and (3) fewer 
taxpayers would be involved. However, industry representatives raise 
competitiveness and cost-efficiency questions associated with moving 
the collection point. 

In a May 1992 report, we suggested that the Congress explore the level 
of gasoline excise tax evasion and, if it was found to be sufficiently 
high, move tax collection to the point at which gasoline leaves the 
refinery. JCT agrees that the option has the potential for increased 
revenue but has not developed estimates of revenue gain. 

Related GAO Product: 

Tax Administration: Status of Efforts to Curb Motor Fuel Tax Evasion
(GAO/GGD-92-67, May 12, 1992). 

GAO Contact: 

James R. White, (202) 512-9110: 

Improve Independent Contractor Tax Compliance: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

Common law rules for classifying workers as employees or independent 
contractors are unclear and subject to conflicting interpretations. 
While recognizing this ambiguity, the Internal Revenue Service (IRS) 
enforces tax laws and rules through employment tax examinations. 
Through fiscal year 1995, 90 percent of these examinations had found 
misclassified workers. From October 1987 through December 1991, the 
average IRS tax assessment relating to misclassified workers was 
$68,000. 

Establishing clear rules is difficult. Nevertheless, taxpayers need--
and the government is obligated to provide-clear rules for classifying 
workers if businesses are to voluntarily comply. In addition, improved 
tax compliance could be gained by requiring businesses to (1) withhold 
taxes from payments to independent contractors and/or (2) file 
information returns with IRS on payments made to independent 
contractors constituted as corporations. Both approaches have proven 
to be effective in promoting individual tax compliance. 

During 1993, the Congress considered but rejected extending current 
information reporting requirements for unincorporated independent 
contractors to incorporated ones. Thus, independent contractors 
organized as either sole proprietors or corporations could have been 
on equal footing, and IRS could have had a less intrusive means of 
ensuring their tax compliance. 

In recent years, various proposals on clarifying the definition of 
independent contractors and improving related information reporting 
emerged. Congressional hearings dealt with some of these bills.
We believe that revenues from this option could possibly increase by 
billions of dollars. JCT agrees that the option has the potential for 
increased revenue but has not developed estimates of revenue gain. 

Related GAO Products: 

Tax Administration: Estimates of the Tax Gap for Service Providers
(GAO/GGD-95-59, Dec. 28, 1994). 

Tax Administration: Approaches for Improving Independent Contractor 
Compliance (GAO/GGD-92-108, July 23, 1992). 

GAO Contact: 

James R. White, (202) 512-9110: 

Expand the Use of IRS’s TIN-Matching Program: 

Authorizing committees: Finance (Senate); Ways and Means (House); 
Primary agency: Internal Revenue Service; 
Spending type: Direct; 
Framework theme: Improve efficiency. 

The IRS and FMS have recently initiated a continuous tax levy program 
designed to identify and levy federal payments to taxpayers that owe 
federal taxes. The potential effectiveness of this program will be 
reduced because payment records submitted to FMS by federal agencies 
often have an inaccurate Taxpayer Identification Number (TIN) and/or 
name. 

Since 1997, IRS has had a TIN-matching program that federal agencies 
can use to verify the accuracy of TIN and name combinations furnished 
by federal payees that are necessary for issuing information returns. 
This program was intended to reduce the number of notices of incorrect 
TIN and name combinations issued for backup withholding by allowing 
agencies the opportunity to identify TIN and name discrepancies and to 
contact payees for corrected information before issuing an information 
return. Monthly, federal agencies may submit a batch of name and TIN 
combinations to IRS for verification. IRS matches each record 
submitted and informs the agency whether the TIN and name submitted 
matches its records. However, IRS cannot explicitly tell an agency 
what the correct TIN, name, or both TIN and name should be if the 
records do not match. To do so would violate tax disclosure laws. 

In an April 2000 report, we found that about 33 percent of vendor 
payment records submitted by federal agencies to FMS during one 
quarter in fiscal year 1999 had TINs and/or names that differed with 
the TINs and/or names in IRS' accounts receivable records. As a 
result, vendor payment records totaling almost $20 billion were 
unsuitable for matching against IRS's accounts receivable records and 
therefore would not be included in the joint FMS/IRS continuous tax 
levy program for the purpose of reducing federal tax delinquencies. 

The Congress may wish to expand the use of IRS's TIN-matching program 
for purposes other than information reporting to enable federal 
agencies to specifically verify the accuracy of vendor TINs and names. 
This would help to reduce the number of federal payment records that 
are unsuitable for matching against IRS's accounts receivable records 
and to increase the number of federal tax delinquencies that could be 
collected through the continuous tax levy program. We estimate that 
resolving inconsistencies between the names payees use to receive 
federal payments and the names payees use on their federal tax returns 
could generate as much as $74 million annually. The table below 
reflects JCT's estimated savings from this option for contracts 
entered into after December 31, 2001. 

Five-Year Revenues: 

Revenue gain: 
FY03: [A]; 
FY04: [A]; 
FY05: [A]; 
FY06: [A]; 
FY07: [A]. 

[A]: less than $50 million. 

Note: JCT provided its revenue estimates in billions of dollars. 

Source: Joint Committee on Taxation. 

[End of table] 

Related GAO Product: 

Tax Administration: IRS' Levy of Federal Payments Could Generate
Millions of Dollars (GAO/GGD-00-65, April 7, 2000). 

GAO Contact: 

James R. White, (202) 512-9110: 

[End of section] 

[End of Appendix III] 

Appendix IV: Options Not Updated for This Report: 

The following table provides information on options presented in 
earlier versions of this series that are not included in this product. 
Seventeen options from our last report are not included in this report 
because (1) the option was fully or substantially acted upon by the 
Congress or the cognizant agency, (2) the option was no longer 
appropriate due to environmental changes or the aging of our work, or 
(3) the Congress or the cognizant agency chose a different approach to 
address the issues discussed in the option. We will continue to 
monitor many of these options to assess whether underlying issues are 
ultimately resolved based on the actions taken. It is possible that 
some of the issues discussed below may appear in subsequent editions 
of this series. 

Option (budget function): Limit Funding for Procurement of Antiarmor 
Weapons (050); 
Comments: In response to antiarmor inventories that are more than 
adequate to defeat current threats, the services have reduced spending 
on antiarmor programs to less than $1 billion—the suggested spending 
ceiling in our option last year. 

Option (budget function): Eliminate or Retask Dedicated Continental 
Air Defense Units (050); 
Comments: The remaining four Air National Guard units are no longer 
dedicated to air defense. The Air Force has aligned these units with 
its Aerospace Expeditionary Forces and expects them to participate in 
rotational deployments to support contingency operations, as do all 
other Air National Guard Units. 

Option (budget function): Reduce the Risk Assumed by Export-Import 
Bank Programs (150); 
Comments: We will reconsider this option in light of recent Eximbank 
efforts to reduce loans and loan guarantees in high-risk markets. 

Option (budget function): Monitor Department of Energy's Strategic 
Computing Initiative and Supercomputer Utilization (270); 
Comments: This option was based on 1997 utilization rate data and more 
recent data are not readily available. 

Option (budget function): Exempt Department of Energy's Operating 
Contractors from Certain State Taxes (270); 
Comments: Recent data are not readily available on the extent to which 
DOE contractors are reimbursed by the federal government for state tax 
payments. 

Option (budget function): Reduce Department of Energy's Contractors' 
Separation Benefits (270); 
Comments: Recent data are not readily available on the extent to which 
DOE contractor separation benefits exceed separation benefits provided 
to federal employees. 

Option (budget function): Rescind Clean Coal Technology Funds (270); 
Comments: DOE has acted to reduce unobligated balances for this 
program. 

Option (budget function): Increase Flexibility in ATSDR's Health 
Assessment Process to Better Meet EPA's Needs in Evaluating Superfund 
Sites (300); 
Comments: The Congress included language in P.L. 106-74 that provides 
ATSDR with flexibility in its health assessment process. Similar 
language was provided in EPA's appropriation bill for fiscal year 2001. 

Option (budget function): Improve Oversight of Superfund 
Administrative Expenditures to Better Identify Opportunities for Cost 
Savings (300); 
Comments: EPA has acted to periodically analyze Superfund expenditures 
for the purpose of identifying opportunities to reduce non-site-
specific expenditures. 

Option (budget function): Strengthen Controls Over Crop Insurance 
Claims (350); 
Comments: The Risk Management Agency and the participating crop 
insurance companies announced a joint initiative to strengthen 
oversight of improper payments. 

Option (budget function): Adequacy of Affordability and Contract 
Approach of the Coast Guard Deepwater Project (400); 
Comments: DOT received $320 million for the Deepwater Program in its 
fiscal year 2002 appropriations act. The act prohibited the obligation 
or expenditure of these funds until DOT and OMB (1) jointly certify 
that funding for the program for fiscal years 2003 through 2007 is 
fully funded in the Coast Guard's Capital Investment Plan and within 
OMB's budgetary projections and (2) jointly approve a contingency 
procurement strategy for the recapitalization of Coast Guard deepwater 
assets and capabilities. 

Option (budget function): Improve FAA Oversight and Enforcement to 
Ensure Proper Use of General Aviation Airport Land and Revenue (400); 
Comments: The Wendell H. Ford Aviation Investment and Reform Act for 
the 21st Century requires that the Secretary of Transportation provide 
a list of airports believed not to comply with	federal requirements 
for land and revenue use, along with plans for corrective action. 

Option (budget function): Design New Payment System so that Medicare 
Does Not Overpay for Home Health Care (570); 
Comments: The Health Care Financing Administration (HCFA), now known 
as the Centers for Medicare and Medicaid Services implemented a new 
prospective payment system under which Medicare makes a single payment 
for each 60-day episode of home health care rather than paying home 
health agencies for their costs, subject to limits, for services 
provided to beneficiaries. 

Option (budget function): Limit Enrollment in Veterans Affairs Health 
Care System (700); 	
Comments: VA has acted to collect and provide the Congress with 
information it needs on VA's workload. 

Option (budget function): Consolidate Asset Forfeiture Programs at the 
Departments of Justice and Treasury (750); 
Comments: Given recent efforts by Treasury and DOJ to better 
coordinate their asset forfeiture programs, including four joint pilot 
projects, we will reassess this option and continue to monitor their 
progress. 

Option (budget function): Repeal the Davis-Bacon Act (999); 
Comments: The Department of Labor has acted to improve the accuracy of 
wage data used to calculate prevailing wage rates used as a floor in 
federal construction contracts. Thus, whether or not Davis-Bacon wage 
requirements inflate construction costs is no longer an issue of the 
accuracy of wage rates. 

Option (budget function): Impose Pollution Fees and Taxes (Receipts); 
Comments: Administrative initiatives to "reinvent" environmental 
regulation represent alternatives to pollution fees or tax schemes in 
that they retain a focus on compliance with environmental regulations, 
rather than relying on pricing mechanisms, to determine the overall 
level of pollution that is generated. 

[End of table] 

[End of Appendix IV] 

Appendix V: GAO Contacts and Staff Acknowledgments: 

GAO Contacts: 

Hundreds of people throughout GAO were responsible for either 
preparing the options included in this product or producing the 
reports and testimonies that form the basis for the options. At the 
end of each option, a key contact name is provided to address 
questions pertaining to the specific option. 

Staff Acknowledgments: 

Michael J. Curro, Assistant Director, Bryon Gordon, Senior Analyst, 
and Landis Lindsey, Analyst, prepared this report. Questions may be 
directed to these staff in the Strategic Issues Team, at (202) 512-
9573. 

[End of Appendix V] 

Footnotes: 

[1] Budget Issues: Long-Term Fiscal Challenges (GAO-02-467T, February 
27, 2002) and Homeland Security: Challenges and Strategies in 
Addressing Short- and Long-Term National Needs (GAO-02-160T, November 
7, 2001). 

[2] Supporting Congressional Oversight: Framework for Considering the 
Budgetary Implications of Selected GAO Work (GAO-01-447, Mar. 9, 2001). 

[3] Congressional Budget Office, Budget Options (Feb. 2001). 

[4] For a complete discussion of the uses and caveats of the CBO 
estimates, see CBO's report, Budget Options (March 2000). 

[5] The Chief Financial Officers Act of 1990, as amended, requires 
that each agency chief financial officer (CFO) develop an integrated 
agency accounting and financial management system that complies with 
applicable principles and standards and provides for complete, 
reliable, consistent, and timely information that is responsive to the 
agency's financial information needs. The act also specifies that each 
agency CFO should direct, manage, and provide policy guidance and 
oversight of asset management systems, including inventory management 
and control. 

[6] DOD defines infrastructure as those activities that provide 
support services to mission programs, such as combat forces, and 
primarily operate from fixed locations. They include such program 
elements as installation support, acquisition infrastructure, central 
logistics, central training, central medical and central personnel. In 
fiscal year 2001, approximately $33 billion of infrastructure costs 
are expected to be related to maintenance and upkeep of facilities 
across these program elements. 

[7] The Fiscal Year 2002 Defense Authorization Act authorized another 
round of Base Realignment and Closure (BRAC) to be conducted in 2005. 

[8] CBO estimates savings for some defense-related options relative to 
DOD's planned program levels. 

[9] In 1974, the Congress stopped providing Bonneville with annual 
appropriations and instead provided it with a revolving fund 
maintained by the Treasury; however, Bonneville remains responsible 
for repaying its debt prior to 1974 and debt stemming from 
appropriations expended by the operating agencies on power-related 
expenses. 

[10] FEMA will now pay to replace rather than repair buildings if the 
repair costs would be more than 50 percent of the estimated 
replacement cost. 

[11] P.L. 106-554. 

[12] See 42 C.F.R. §§ 447.272; 447.304; 447.321. 

[13] In the transportation function, several very small, close-ended 
grants could not be easily isolated in the baseline and these are 
included in the estimate. 

[14] Existing contracts could also be "grandfathered" in as occurred 
under the lease-purchase rule. 

[15] Government agencies have different definitions of what 
constitutes a rural area See GAO-01-805, p. 25 for more detail. 

[End of section] 

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