GAO-04-649, Opportunities for Congressional Oversight and Improved Use of Taxpayer Funds: Budgetary Implications of Selected GAO Work


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Report to the Committees on the Budget:

May 2004:

OPPORTUNITIES FOR CONGRESSIONAL OVERSIGHT AND IMPROVED USE 
OF TAXPAYER FUNDS:

Budgetary Implications of Selected GAO Work:

GAO-04-649:

Contents:

Letter:

Appendixes:

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

Appendix II: Budget Options by Theme:

Reassess Objectives:

Redefine Beneficiaries:

Improve Efficiency:

Appendix III: Opportunities to Improve the Economy, Efficiency, and 
Effectiveness of Federal Programs:

050 National Defense:

Reduce the Number of Carrier Strike Group Expansions and Upgrades:

Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers:

Reorganize C-130 Reserve Squadrons:

Continue Defense Infrastructure Reform:

Improve DOD Procurement Practices Regarding Canceling Orders:

Revising Occupancy Policies Could Reduce Barracks Requirements:

Reduce Construction Cost of Military Barracks:

Reduce the Corrosion of Military Assets:

Limit Commitment to Production of the F/A-22 Fighter until Operational 
Testing Is Complete:

Reassess Business Cases for Selected Weapon Systems Before Making 
Further Investments:

Address Overpayments to Defense Contractors:

Require DOD Report Its Progress in Implementing the Debt Collection 
Improvement Act of 1996 (DCIA):

Improve the Administration of Defense Health Care:

Seek Additional Opportunities for VA and DOD to Increase Joint 
Activities to Enhance Services to Beneficiaries and Reduce Costs:

150 International Affairs:

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

Streamline U.S. Overseas Presence:

Reduce International Broadcasting Overlap:

Reduce or Eliminate Eximbank Subsidies:

250 General 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:

Improve the Department of Energy's Management of Its Capital Asset 
Acquisition, Weapons Refurbishment, and Site Cleanup Projects:

Reduce the Costs of the Rural Utilities Service's Electricity Loan 
Program:

300 Natural Resources and Environment:

Terminate Land-Exchange Programs:

Deny Additional Funding for Commercial Fisheries Buyback Programs:

Revise the Mining Law of 1872:

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

Reassess Federal Land Management Agencies' Functions and Programs:

350 Agriculture:

Eliminate or Reduce the Agriculture Department's Market Access Program:

Consolidate Common Administrative Functions at the U.S. Department of 
Agriculture:

Further Consolidate the U.S. Department of Agriculture's County 
Offices:

Eliminate the Public Law 480 Title I Food Aid Program:

Reduce or Eliminate the Export Credit Guarantee Programs:

370 Commerce and Housing Credit:

Recapture Interest on Rural Housing Loans:

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

Reduce Federal Housing Administration's Insurance Coverage:

Merging Department of Agriculture and Department of Housing and Urban 
Development Single-Family Insured Lending Programs and Multifamily 
Portfolio Management Programs:

Consolidate Homeless Assistance Programs:

Reorganize and Consolidate Small Business Administration's 
Administrative Structure:

Improve Reviews of Small Business Administration's Preferred Lenders:

Eliminate NIST's Advanced Technology Program:

400 Transportation:

Make Further Appropriations on the Pulsed Fast Neutron Analysis 
Inspection System Dependent on Results of Operational Testing:

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

Convert Some Support Officer Positions to Civilian Status:

Develop a Passenger Intercity Rail Policy to Meet National Goals:

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs:

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

Improve the Coordination of Transportation Services for Transportation-
Disadvantaged Populations:

450 Community and Regional Development:

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

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties:

Reduce or Eliminate the Trade Adjustment Assistance Program for Firms 
and Industries:

Improve Federal Foreclosure and Property Sales Processes:

500 Education, Training, Employment, and Social Services:

Improve Targeting of Title I Basic Grants:

Change Borrower Interest Rate on Federal Consolidation Loans From Fixed 
to Variable:

550 Health:

Improve Fairness of Medicaid Matching Formula:

Prevent States from Using Illusory Approaches to Shift Medicaid Program 
Costs to the Federal Government:

Control Provider Enrollment Fraud in Medicaid:

Eliminate Federal Funding for SCHIP Covering Adults without Children:

Charge Beneficiaries for Food Inspection Costs:

Redirect Carcass-by-Carcass Inspection Resources in Meat and Poultry 
Plants:

Create a Uniform Federal Mechanism for Food Safety:

570 Medicare:

Reassess Medicare Incentive Payments in Health Care Shortage Areas:

Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, 
and Market Prices:

Increase Medicare Program Safeguard Funding:

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:

Allow Provisions for Direct Laboratory Payment for Certain Medicare 
Pathology Services to Expire:

Require Information on Enrollees from Private Health Insurers to 
Improve Identification of Medicare Beneficiaries with Other Health 
Coverage:

600 Income Security:

Revise Benefit Payments under the Federal Employees' Compensation Act:

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:

Sustain/Expand Range of SSI Program Integrity Activities:

Better Congressional Oversight of PRWORA's Fugitive Felon Provisions:

Improve the Administrative Oversight of Food Assistance Programs:

Share the Savings from Bond Refundings:

Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems:

700 Veterans Benefits and Services:

Discontinue Veterans' Disability Compensation for Nonservice Connected 
Diseases:

Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses:

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; 999 Multiple:

Taking a Strategic Approach Could Improve Federal Agencies' Acquisition 
of Supplies and Services:

Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared:

Prevent Delinquent Taxpayers from Benefiting from Federal Credit 
Programs:

Increase Fee Revenue from Federal Reserve Operations:

Eliminate the 1-Dollar Note:

Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals:

Identify and Dispose of Unneeded Real Property Assets Held by GSA:

Target Funding Reductions in Formula Grant Programs:

Adjust Federal Grant Matching Requirements:

Consolidate Grants for First Responders to Improve Efficiency:

Improve IRS's Ability to Collect Delinquent Taxes:

Receipts:

Enhance Nontax Debt Collection Using Available Tools:

Increase Highway User Fees on Heavy Trucks:

Implement Tolling or Other Alternative Revenue Sources for the Fuel Tax 
on Highways:

Restrict the Preferential Federal Income Tax Treatment of Business-
Owned Life Insurance:

Reassess Annual Charges for FERC-licensed Hydropower Projects that Use 
Federal Lands:

Tax Interest Earned on Life Insurance Policies and Deferred Annuities:

Further Limit the Deductibility of Home Equity Loan Interest:

Limit the Individual Tax Exclusions for Employer-Paid Health Insurance:

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels:

Index Excise Tax Rates for Inflation:

Require Corporate Tax Document Matching:

Improve Administration of the Tax Deduction for Real Estate Taxes:

Increase Filing of Returns 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:

Improve Administration of the Federal Payment Levy Program:

Increase Penalties and Consistency of Disclosure for Abusive Tax 
Shelters:

Authorize IRS to Use Private Collection Agencies to Collect Certain 
Delinquent Taxes:

Tables:

Table 1: Reassess Objectives:

Table 2: Redefine Beneficiaries:

Table 3: Improve Efficiency:

Letter May 7, 2004:

The Honorable Don Nickles: Chairman: The Honorable Kent Conrad: Ranking 
Minority Member: Committee on the Budget: United States Senate:

The Honorable Jim Nussle: Chairman: The Honorable John Spratt: Ranking 
Minority Member: Committee on the Budget: 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 
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 return of unified 
budget deficits in fiscal year 2002, the Congress and the 
administration face both immediate and long-term challenges. 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 a recent testimony,[Footnote 1] there is a need to begin 
reexamining the base of government programs, policies, and operations 
to make government more effective and relevant to a changing society.

In this report, we highlight opportunities for, and specific examples 
of, legislative and administrative change that might yield budgetary 
savings. These budget options are based on past GAO work. While this 
report is not intended to represent a complete summary of all possible 
options, it does provide specific examples that demonstrate the 
programmatic and fiscal oversight needed as our nation's priorities are 
reassessed in light of short and long-term challenges.

As consistent with our prior budgetary implications reports, we have 
organized the options presented in this report as falling in one of the 
following three areas:

* 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 improving the 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.

Options in this report include 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 2]

We are also sending copies of this report to other interested 
committees of the Congress. Copies will be made available to others 
upon request.

This report was prepared under the coordination of Paul L. Posner, 
Managing Director, and Susan J. Irving, Director, Federal Budget 
Analysis, Strategic Issues, who may be reached at (202) 512-9573 or 
(202) 512-9142, respectively. Specific questions about individual 
options may be directed to the GAO contact listed with each option.

Signed by:

David M. Walker:

Comptroller General of the United States:

[End of section]

Appendixes:

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

The Congressional Budget Office (CBO) and the Joint Committee on 
Taxation (JCT) provided cost estimates where possible for many of our 
options. As in our April 2002 report, a brief explanation is included 
with the option if specific estimates could not be provided.[Footnote 
3] 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. Most of the estimates come from the JCT, although 
a few were produced by CBO.

* 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 2004 funding level adjusted for inflation. 
Savings for most defense options are estimated relative to DOD's 
planned program levels.

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 that underlie the 
analyses, and updated baselines can all lead to significant differences 
in estimates.

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: Budget Options by Theme:

As consistent with our previous past budgetary implications reports, 
this appendix groups our options in one of three broad themes: reassess 
objectives, redefine beneficiaries, and improve efficiency. These three 
themes 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.

Reassess Objectives:

The first theme focuses on the objectives of federal programs or 
services. These options (see table 1) 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, aircraft carrier strike groups are the centerpiece of the 
Navy's surface force and significantly influence the size, composition, 
and cost of the fleet. Our analysis indicates that there are 
opportunities to use less costly options to satisfy many of the carrier 
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 battle groups centered around 
increasingly capable amphibious assault ships, surface combatants and 
Trident Nuclear-Powered Guided Missile Submarines for overseas presence 
and crisis response.

Table 1: Reassess Objectives:

Budget function: 050; 
Option: Reduce the Number of Carrier Strike Group Expansions and 
Upgrades.

Budget function: 050; 
Option: Limit Commitment to Production of the F/A-22 Fighter until 
Operational Testing Is Complete.

Budget function: 050; 
Option: Reassess Business Cases for Selected Weapon Systems Before 
Making Further Investments.

Budget function: 150; 
Option: Eliminate U.S. Contributions to Administrative Costs in Rogue 
States.

Budget function: 150; 
Option: Reduce International Broadcasting Overlap.

Budget function: 250; 
Option: Continue Oversight of the International Space Station and 
Related Support Systems.

Budget function: 270; 
Option: Corporatize or Divest Selected Power Marketing Administrations.

Budget function: 300; 
Option: Terminate Land-Exchange Programs.

Budget function: 300; 
Option: Deny Additional Funding for Commercial Fisheries Buyback 
Programs.

Budget function: 350; 
Option: Eliminate or Reduce the Agriculture Department's Market Access 
Program.

Budget function: 350; 
Option: Eliminate Public Law 480 Title I Food Aid Program.

Budget function: 350; 
Option: Reduce or Eliminate the Export Credit Guarantee Program.

Budget function: 370; 
Option: Eliminate NIST's Advanced Technology Program.

Budget function: 400; 
Option: Make Further Appropriations on the Pulsed Fast Neutron Analysis 
Inspection System Dependent on Results of Operational Testing.

Budget function: 400; 
Option: Develop a Passenger Intercity Rail Policy to Meet National 
Goals.

Budget function: 400; 
Option: Eliminate Cargo Preference Laws to Reduce Federal 
Transportation Costs.

Budget function: 450; 
Option: Reduce or Eliminate the Trade Adjustment Assistance Program for 
Firms and Industries.

Budget function: 550; 
Option: Improve Fairness of Medicaid Matching Formula.

Budget function: 570; 
Option: Reassess Medicare Incentive Payments in Health Care Shortage 
Areas.

Budget function: 600; 
Option: Revise Benefit Payments under the Federal Employees' 
Compensation Act.

Budget function: 700; 
Option: Revise VA's Disability Ratings Schedule to Better Reflect 
Veterans' Economic Losses.

Budget function: 800+; 
Option: Improve IRS's Ability to Collect Delinquent Taxes.

Budget function: Receipt; 
Option: Implement Tolling or Other Alternative Revenue Sources for the 
Fuel Tax on Highways.

Budget function: Receipt; 
Option: Restrict the Preferential Federal Income Tax Treatment of 
Business-Owned Life Insurance.

Budget function: Receipt; 
Option: Reassess Annual Charges for FERC-licensed Hydropower Projects 
that Use Federal Lands.

Budget function: Receipt; 
Option: Tax Interest Earned on Life Insurance Policies and Deferred 
Annuities.

Budget function: Receipt; 
Option: Further Limit the Deductibility of Home Equity Loan Interest.

Budget function: Receipt; 
Option: Increase Penalties and Consistency of Disclosure for Abusive 
Tax Shelters.

Budget function: Receipt; 
Option: Authorize IRS to Use Private Collection Agencies to Collect 
Certain Delinquent Taxes.

Source: GAO analysis.

[End of table]

Redefine Beneficiaries:

The second theme focuses on the intended beneficiaries for federal 
programs or services (see table 2). 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.

Table 2: Redefine Beneficiaries:

Budget function: 150; 
Option: Reduce or Eliminate Eximbank Subsidies.

Budget function: 270; 
Option: Recover Power Marketing Administrations' Costs.

Budget function: 270; 
Option: Increase Nuclear Waste Disposal Fees.

Budget function: 270; 
Option: Recover Federal Investment in Successfully Commercialized 
Technologies.

Budget function: 300; 
Option: Revise the Mining Law of 1872.

Budget function: 300; 
Option: Reexamine Federal Policies for Subsidizing Water for 
Agriculture and Rural Uses.

Budget function: 370; 
Option: Recapture Interest on Rural Housing Loans.

Budget function: 370; 
Option: Require Self-Financing of Mission Oversight by Fannie Mae and 
Freddie Mac.

Budget function: 400; 
Option: Increase Aircraft Registration Fees to Enable the Federal 
Aviation Administration to Recover Actual Costs.

Budget function: 450; 
Option: Eliminate the Flood Insurance Subsidy on Properties That Suffer 
the Greatest Flood Loss.

Budget function: 450; 
Option: Eliminate Flood Insurance for Certain Repeatedly Flooded 
Properties.

Budget function: 500; 
Option: Improve Targeting of Title I Basic Grants.

Budget function: 550; 
Option: Prevent States from Using Illusory Approaches to Shift Medicaid 
Program Costs to the Federal Government.

Budget function: 550; 
Option: Eliminate Federal Funding for SCHIP Covering Adults without 
Children.

Budget function: 550; 
Option: Charge Beneficiaries for Food Inspection Costs.

Budget function: 550; 
Option: Redirect Carcass-by-Carcass Inspection Resources in Meat and 
Poultry Plants.

Budget function: 600; 
Option: Implement a Service Fee for Successful Non-Temporary Assistance 
for Needy Families Child Support Enforcement Collections.

Budget function: 600; 
Option: Improve Reporting of DOD Reserve Employee Payroll Data to State 
Unemployment Insurance Programs.

Budget function: 600; 
Option: Better Congressional Oversight of PRWORA's Fugitive Felon 
Provisions.

Budget function: 600; 
Option: Share the Savings from Bond Refundings.

Budget function: 700; 
Option: Discontinue Veterans' Disability Compensation for Nonservice 
Connected Diseases.

Budget function: 800+; 
Option: Prevent Delinquent Taxpayers from Benefiting from Federal 
Credit Programs.

Budget function: 800+; 
Option: Target Funding Reductions in Formula Grant Programs.

Budget function: 800+; 
Option: Adjust Federal Grant Matching Requirements.

Budget function: Receipt; 
Option: Increase Highway User Fees on Heavy Trucks.

Budget function: Receipt; 
Option: Limit the Individual Tax Exclusions for Employer-Paid Health 
Insurance.

Budget function: Receipt; 
Option: Repeal the Partial Exemption for Alcohol Fuels from Excise 
Taxes on Motor Fuels.

Budget function: Receipt; 
Option: Index Excise Tax Rates for Inflation.

Source: GAO analysis.

[End of table]

Improve Efficiency:

The third theme addresses how the program or service is delivered (see 
table 3). 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, in May 2000, GAO reported that the 
Department of Veterans Affairs (VA) and the Department of Defense (DOD) 
provide health care services to more than 12 million beneficiaries at a 
cost of about $34 billion annually;

in 2003, the cost was nearly $50 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 continue to present challenges 
for future collaboration and cost efficiencies, such as the current 
inability of VA and DOD to electronically share health data information 
in a two-way exchange. 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.

Table 3: Improve Efficiency:

Budget function: 050; 
Option: Acquire Conventionally Rather Than Nuclear-Powered Aircraft 
Carriers.

Budget function: 050; 
Option: Reorganize C-130 Reserve Squadrons.

Budget function: 050; 
Option: Continue Defense Infrastructure Reform.

Budget function: 050; 
Option: Improve DOD Procurement Practices Regarding Canceling Orders.

Budget function: 050; 
Option: Revising Occupancy Policies Could Reduce Barracks Requirements.

Budget function: 050; 
Option: Reduce Construction Cost of Military Barracks.

Budget function: 050; 
Option: Reduce the Corrosion of Military Assets.

Budget function: 050; 
Option: Address Overpayments to Defense Contractors.

Budget function: 050; 
Option: Require DOD Report Its Progress in Implementing the Debt 
Collection Improvement Act of 1996 (DCIA).

Budget function: 050; 
Option: Improve the Administration of Defense Health Care.

Budget function: 050; 
Option: Seek Additional Opportunities for VA and DOD to Increase Joint 
Activities to Enhance Services to Beneficiaries and Reduce Costs.

Budget function: 150; 
Option: Streamline U.S. Overseas Presence.

Budget function: 270; 
Option: Improve the Department of Energy's Management of Its Capital 
Asset Acquisition, Weapons Refurbishment, and Site Cleanup Projects.

Budget function: 270; 
Option: Reduce the Costs of the Rural Utilities Service's Electricity 
Loan Program.

Budget function: 300; 
Option: Reassess Federal Land Management Agencies' Functions and 
Programs.

Budget function: 350; 
Option: Consolidate Common Administrative Functions at the U.S. 
Department of Agriculture.

Budget function: 350; 
Option: Further Consolidate the U.S. Department of Agriculture's County 
Offices.

Budget function: 370; 
Option: Reduce Federal Housing Administration's Insurance Coverage.

Budget function: 370; 
Option: Merging Department of Agriculture and Department of Housing and 
Urban Development Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs.

Budget function: 370; 
Option: Consolidate Homeless Assistance Programs.

Budget function: 370; 
Option: Reorganize and Consolidate Small Business Administration's 
Administrative Structure.

Budget function: 370; 
Option: Improve Reviews of Small Business Administration's Preferred 
Lenders.

Budget function: 400; 
Option: Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities.

Budget function: 400; 
Option: Convert Some Support Officer Positions to Civilian Status.

Budget function: 400; 
Option: Improve the Coordination of Transportation Services for 
Transportation-Disadvantaged Populations.

Budget function: 450; 
Option: Improve Federal Foreclosure and Property Sales Processes.

Budget function: 500; 
Option: Change Borrower Interest Rate on Federal Consolidation Loans 
From Fixed to Variable.

Budget function: 550; 
Option: Control Provider Enrollment Fraud in Medicaid.

Budget function: 550; 
Option: Create a Uniform Federal Mechanism for Food Safety.

Budget function: 570; 
Option: Adjust Medicare Payment Rates to Reflect Changing Technology, 
Costs, and Market Prices.

Budget function: 570; 
Option: Increase Medicare Program Safeguard Funding.

Budget function: 570; 
Option: Modify the New Skilled Nursing Facility Payment Method to 
Ensure Appropriate Payments.

Budget function: 570; 
Option: Implement Risk-Sharing in Conjunction with Medicare Home Health 
Agency Prospective Payment System.

Budget function: 570; 
Option: Allow Provisions for Direct Laboratory Payment for Certain 
Medicare Pathology Services to Expire.

Budget function: 570; 
Option: Require Information on Enrollees from Private Health Insurers 
to Improve Identification of Medicare Beneficiaries with Other Health 
Coverage.

Budget function: 600; 
Option: Improve Social Security Benefit Payment Controls.

Budget function: 600; 
Option: Simplify Supplemental Security Income Recipient Living 
Arrangements.

Budget function: 600; 
Option: Sustain/Expand Range of SSI Program Integrity Activities.

Budget function: 600; 
Option: Improve the Administrative Oversight of Food Assistance 
Programs.

Budget function: 600; 
Option: Reduce Federal Funding Participation Rate for Automated Child 
Support Enforcement Systems.

Budget function: 700; 
Option: Reassess Unneeded Health Care Assets within the Department of 
Veterans Affairs.

Budget function: 700; 
Option: Reducing VA Inpatient Food and Laundry Service Costs.

Budget function: 800+; 
Option: Taking a Strategic Approach Could Improve Federal Agencies' 
Acquisition of Supplies and Services.

Budget function: 800+; 
Option: Improper Benefit Payments Could Be Avoided or More Quickly 
Detected if Data from Various Programs Were Shared.

Budget function: 800+; 
Option: Increase Fee Revenue from Federal Reserve Operations.

Budget function: 800+; 
Option: Eliminate the 1-Dollar Note.

Budget function: 800+; 
Option: Better Target Infrastructure Investments to Meet Mission and 
Results-Oriented Goals.

Budget function: 800+; 
Option: Identify and Dispose of Unneeded Real Property Assets Held by 
GSA.

Budget function: 800+; 
Option: Consolidate Grants for First Responders to Improve Efficiency.

Budget function: Receipt; 
Option: Enhance Nontax Debt Collection Using Available Tools.

Budget function: Receipt; 
Option: Require Corporate Tax Document Matching.

Budget function: Receipt; 
Option: Improve Administration of the Tax Deduction for Real Estate 
Taxes.

Budget function: Receipt; 
Option: Increase Filing of Returns by U.S. Citizens Living Abroad.

Budget function: Receipt; 
Option: Increase the Use of Seizure Authority to Collect Delinquent 
Taxes.

Budget function: Receipt; 
Option: Increase Collection of Self-employment Taxes.

Budget function: Receipt; 
Option: Increase the Use of Electronic Funds Transfer for Installment 
Tax Payments.

Budget function: Receipt; 
Option: Reduce Gasoline Excise Tax Evasion.

Budget function: Receipt; 
Option: Improve Independent Contractor Tax Compliance.

Budget function: Receipt; 
Option: Expand the Use of IRS's TIN-Matching Program.

Budget function: Receipt; 
Option: Improve Administration of the Federal Payment Levy Program.

Source: GAO analysis.

[End of table]

[End of section]

Appendix III: Opportunities to Improve the Economy, Efficiency, and 
Effectiveness of Federal Programs:

050 National Defense:
Reduce the Number of Carrier Strike Group Expansions and Upgrades:
Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers:
Reorganize C-130 Reserve Squadrons:
Continue Defense Infrastructure Reform:
Improve DOD Procurement Practices Regarding Canceling Orders:
Revising Occupancy Policies Could Reduce Barracks Requirements:
Reduce Construction Cost of Military Barracks:
Reduce the Corrosion of Military Assets:
Limit Commitment to Production of the F/A-22 Fighter until Operational:
Testing Is Complete:
Reassess Business Cases for Selected Weapon Systems Before Making:
Further Investments:
Address Overpayments to Defense Contractors:
Require DOD Report Its Progress in Implementing the Debt Collection:
Improvement Act of 1996 (DCIA):
Improve the Administration of Defense Health Care:
Seek Additional Opportunities for VA and DOD to Increase Joint:
Activities to Enhance Services to Beneficiaries and Reduce Costs:
Reduce the Number of Carrier Strike Group Expansions and Upgrades:
Primary agency: Department of Defense.
Accounts: Multiple.
Spending type: Discretionary.
Budget subfunction: 051/Department of Defense--Military.
Theme: Reassess objectives.

[End of table]

Aircraft carrier strike 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 strike group is about $2.2 billion (in fiscal 
year 2004 dollars) and is likely to increase as older units are 
replaced and modernized. The strike group includes the carrier and its 
air wing, and the cruisers, destroyers and other ships that accompany 
the carrier during its deployment, as well as the costs to support the 
carrier strike group. The Navy has several costly ongoing carrier-
related programs: one nuclear-powered Nimitz-class carrier is under 
construction ($5.2 billion); a research and development program ($3.6 
billion) for a new nuclear-powered carrier design is underway; 
production ($8.7 billion) of that new carrier is set to begin in 2007; 
and the second ship of the 10-ship Nimitz-class began its 3-year 
refueling complex overhaul in 2001 ($2.5 billion) and the third ship is 
scheduled to begin in 2006. 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 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 strike groups centered around increasingly capable 
amphibious assault ships, surface combatants and Trident SSGNs for 
overseas presence and crisis response.

CBO estimates that savings could total $3.7 billion over the 2005-2009 
period from retiring one aircraft carrier (CVN-70), and one carrier air 
wing. This estimate includes savings from foregoing the overhaul ($2.4 
billion) and savings from not operating the carrier ($1.3 billion).

Five-Year Savings:

Dollars in millions.

Savings from the 2004 defense plan:

Budget authority;
FY05: 640;
FY06: 1,440;
FY07: 720;
FY08: 0;
FY09: 900.

Outlays;
FY05: 430;
FY06: 600;
FY07: 800;
FY08: 720;
FY09: 1,030.

Source: Congressional Budget Office.

Note: The Navy's plans call for production of a replacement carrier 
(CVN-21) in 2007 and a refueling complex overhaul of an existing 
carrier (CVN-70) in 2006. This option would continue the production of 
the CVN-21 carrier but would retire the CVN-70 in 2005.

[End of table]

Related GAO Products:

Force Structure: Options for Enhancing the Navy's Attack Submarine 
Force.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-97] 
Washington, D.C.: November 14, 2001.

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 
Nuclear-Powered Carriers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-98-1] 
Washington, D.C.: August 27, 1998.

Aircraft Acquisition: Affordability of DOD's Investment Strategy.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-88] 
Washington, D.C.: September 8, 1997.

Surface Combatants: Navy Faces Challenges Sustaining Its Current 
Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-57] 
Washington, D.C.: May 21, 1997.

Cruise Missiles: Proven Capability Should Affect Aircraft and Force 
Structure Requirements.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-95-116] 
Washington, D.C.: April 20, 1995.

Navy's Aircraft Carrier Program: Investment Strategy Options.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-95-17] 
Washington, D.C.: January 1, 1995.

Navy Carrier Battle Groups: The Structure and Affordability of the 
Future Force.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-93-74] 
Washington, D.C.: February 25, 1993.

GAO Contact:

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

Acquire Conventionally Rather Than Nuclear-Powered Aircraft Carriers:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

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 1991 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.[Footnote 5] 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. During fiscal year 2003, a new nuclear-powered carrier replaced 
a retiring conventionally powered carrier, leaving a mix of 10 nuclear 
and 2 conventionally 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.

CBO estimates that savings could be achieved if the Congress chose to 
acquire a conventionally powered carrier in 2007 instead of a nuclear-
powered carrier.

Five-Year Savings:

Dollars in millions.

Savings from the 2004 defense plan:

Budget authority;
FY05: -50;
FY06: 100;
FY07: 2,280;
FY08: 1,140;
FY09: -650.

Outlays;
FY05: -90;
FY06: -70;
FY07: 230;
FY08: 630;
FY09: 690.

Source: Congressional Budget Office.

Note: The Navy's plans call for production of a replacement carrier 
(CVN-21) in 2007 and a refueling complex overhaul of an existing 
carrier (CVN-70) in 2006. This option would replace the CVN-21 carrier 
with a CVX carrier.

[End of table]

Related GAO Products:

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 
Nuclear-Powered Carriers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-98-1] 
Washington, D.C.: August 27, 1998.

Nuclear Waste: Impediments to Completing the Yucca Mountain Repository 
Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-30] 
Washington, D.C.: January 17, 1997.

Navy Carrier Battle Groups: The Structure and Affordability of the 
Future Force.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-
93-74] 
Washington, D.C.: February 25, 1993.

Nuclear-Powered Ships: Accounting for Shipyard Costs and Nuclear Waste 
Disposal Plans.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-92-256] 
Washington, D.C.: July 1, 1992.

GAO Contact:

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

Reorganize C-130 Reserve Squadrons:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

Currently, the majority of the Air Force's C-130 aircraft is 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. However, active Air Force wings 
flying the same aircraft are generally organized in two to three 
squadrons of 14 C-130 aircraft. Given this organizational approach, 
reserve component C-130 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 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, we reported in 1998 that 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.[Footnote 6]

Several alternatives could be developed to redistribute existing 
reserve component C-130 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 by redistributing aircraft from 13 C-130 
squadrons to other squadrons.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the 2004 defense plan:

Budget authority;
FY05: 73;
FY06: 142;
FY07: 216;
FY08: 279;
FY09: 304.

Outlays;
FY05: 60;
FY06: 128;
FY07: 200;
FY08: 264;
FY09: 296.

Source: Congressional Budget Office.

[End of table]

Related GAO Product:

Air Force Aircraft: Reorganizing Mobility Aircraft Units Could Reduce 
Costs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-98-55] 
Washington, D.C.: January 21, 1998.

GAO Contact:

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

Continue Defense Infrastructure Reform:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

Although the Department of Defense (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 costs.[Footnote 7] 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 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.

Secretary of Defense Rumsfeld announced his own management reform 
program in 2001, referred to as the DOD Business Transformation 
program, also with the intent of improving the effectiveness and 
efficiency of the department's business operations. The new management 
structure--led by the Senior Executive Council and the Business 
Initiative Council--recommends 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. While council members have put forth many new 
initiatives, they also have endorsed several initiatives that were part 
of the DRI program (e.g., family housing and utilities privatization 
and public-private competitions under the Office of Management and 
Budget's Circular A-76). Further, most of the other DRI initiatives 
have continued, although not under the direct oversight of the new 
business transformation structure. The new councils plan to 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, as the following illustrate. A major efficiency initiative is to 
subject 226,000 government positions to public-private competition 
using OMB Circular A-76 or to subject those positions to alternative 
sourcing such as partnering or divestiture. Competitive sourcing is one 
of the five governmentwide initiatives in the President's Management 
Agenda. Under this initiative, OMB directed agencies to compete 15 
percent of positions deemed commercial in their fiscal year 2000 
Federal Activities Inventory Reform Act inventories by the end of 
fiscal year 2003, with the ultimate goal of at least 50 percent through 
fiscal year 2008. DOD reported that as of June 1, 2003 it has met OMB's 
short-term goal. While OMB has revised its goals to allow each agency 
flexibility in order to better reflect agency missions, DOD's goal is 
to meet the 50 percent target by 2009. Regardless, this longer-term 
goal could be a challenge, requiring completion of a significantly 
larger number of positions for study than has actually been completed 
in a similar period in the past. DOD has not attached savings targets 
to these goals, although it has in the past. Nevertheless, we have 
noted that these efforts can produce significant savings regardless of 
whether governmental organizations or private contractors win the 
competitions. However, we have raised questions about the precision of 
DOD's past savings estimates and the likelihood that the savings will 
not be realized as quickly as projected. Congress authorized a base 
realignment and closure (BRAC) round in 2005[Footnote 8] to reduce 
unneeded infrastructure and free up funds for readiness, weapon 
modernization, and other needs. DOD projects that base closure rounds 
could save several billion dollars annually 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. 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 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.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products:

Defense Management: DOD Faces Challenges Implementing Its Core 
Competency Approach and A-76 Competitions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-818] 
Washington, D.C.: July 15, 2003.

Defense Management: New Management Reform Program Still Evolving.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-58] 
Washington, D.C.: December 12, 2002.

Military Base Closures: Progress in Completing Actions from Prior 
Realignments and Closures.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-433] 
Washington, D.C.: April 5, 2002.

Major Management Challenges and Program Risks, Department of Defense.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-244] 
Washington, D.C.: January 2001.

Future Years Defense Program: Risks in Operation and Maintenance and 
Procurement Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-33] 
Washington, D.C.: October 5, 2000.

Defense Infrastructure: Improved Performance Measures Would Enhance 
Defense Reform Initiative.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-169] 
Washington, D.C.: August 4, 1999.

Defense Reform Initiative: Organization, Status and Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-87] 
Washington, D.C.: April 21, 1999.

Defense Reform Initiative: Progress, Opportunities, and Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-99-95] 
Washington, D.C.: March 2, 1999.

Force Structure: A-76 Not Applicable to Air Force 38th Engineering 
Installation Wing Plan.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-73] 
Washington, D.C.: February 26, 1999.

Major Management Challenges and Program Risks: Department of Defense.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OCG-99-4] 
Washington, D.C.: January 1999.

Army Industrial Facilities: Workforce Requirements and Related Issues 
Affecting Depots and Arsenals.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-31] 
Washington, D.C.: November 30, 1998.

Military Bases: Review of DOD's 1998 Report on Base Realignment and 
Closure.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-17] 
Washington, D.C.: November 13, 1998.

Defense Infrastructure: Challenges Facing DOD in Implementing Reform 
Initiatives.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-98-115] 
Washington, D.C.: March 18, 1998.

Best Practices: Elements Critical to Successfully Reducing Unneeded 
RDT&E Infrastructure.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD/RCED-98-23] 
Washington, D.C.: January 8, 1998.

Future Years Defense Program: DOD's 1998 Plan Has Substantial Risk in 
Execution.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-98-26] 
Washington, D.C.: October 23, 1997.

1997 Defense Reform Bill: Observations on H.R. 1778.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-97-187] 
Washington, D.C.: June 17, 1997.

Defense Infrastructure: Demolition of Unneeded Buildings Can Help Avoid 
Operating Costs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-125] 
Washington, D.C.: May 13, 1997.

DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid Billions 
of Dollars in Waste.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD/AIMD-97-143] 
Washington, D.C.: May 1, 1997.

Defense Acquisition Organizations: Linking Workforce Reductions With 
Better Program Outcomes.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-97-140] 
Washington, D.C.: April 8, 1997.

Defense Budget: Observations on Infrastructure Activities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-127BR] 
Washington, D.C.: April 4, 1997.

GAO Contact:

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

Improve DOD Procurement Practices Regarding Canceling Orders:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

As of September 30, 2002, Department of Defense (DOD) records showed 
that the department had inventory on order valued at about $1.75 
billion that would not have been ordered based on current requirements. 
We have issued several reports in the past few years highlighting 
weaknesses in the department's requirements determination processes for 
materials and its procedures for canceling orders for items that are no 
longer needed. We reported in May 2003 that the causes most frequently 
cited by DOD inventory managers for excess inventory are (1) buildup of 
repair parts to support a new program or for a retrofit, modification, 
upgrade, or replacement; (2) foreign military sales program 
requirements; (3) low or decreasing demand for a specific part; and (4) 
retirement or phasing out of an aircraft. We also reported in May 2001 
that the Army was unable to accurately identify its requirements for 
war reserve spare parts because (1) it was not using the best available 
data concerning the rate at which spares would be consumed during 
wartime and (2) a potential mismatch existed between how the Army 
determined spare parts requirements for war reserves and how the Army 
plans to repair equipment on the battlefield.

Additional budgetary savings in this area can be anticipated because 
the department has a number of initiatives underway to better define 
spare parts requirements and to more efficiently cancel orders for 
items it determines are no longer needed.

The Congress may wish to continue to monitor the DOD's annual reports 
on the value of its unneeded inventory in order to ensure that the 
value continues to decrease. In addition, the Congress could consider 
requiring that the department's logistics transformation initiatives 
include (1) enhancements to its models for computing inventory 
requirements to ensure greater accuracy and (2) more efficient 
procedures for canceling orders it determines are no longer needed.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products:

Defense Inventory: Air Force Item Manager Views of Repair Parts Issues 
Consistent With Issues Reported in the Past.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-684R] 
Washington, D.C.: May 21, 2003.

Major Management Challenges and Program Risks: Department of Defense.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-98] 
Washington, D.C.: January 2003.

GAO Contact:

William Solis, (202) 512-8365:

Revising Occupancy Policies Could Reduce Barracks Requirements:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

In January 2003, GAO reported that over the next few years the military 
services plan to eliminate barracks with gang latrines and provide 
private sleeping rooms (to meet the Department of Defense's (DOD) 1+1 
barracks design standard) for all permanent party service members. The 
Navy has an additional goal to provide barracks for sailors who 
currently live aboard ships when in homeport. To implement these goals, 
the services plan to spend about $6 billion over the next 7 years to 
construct new barracks.

GAO reported that the DOD Housing Management manual, which provides 
policy guidance about who should live in barracks, appears to be out of 
date and is under revision, and the military services have adopted 
different barracks occupancy requirements. The rationale for the 
services' requirements, and in particular for the requirement that more 
experienced junior service members live in barracks, appears to be a 
matter of military judgment and preference with less emphasis on 
systematic, objective analyses. Requiring more personnel (more pay 
grades) to live in barracks than is justified results in increased 
barracks program and construction costs and may be inconsistent with 
DOD's policy to maximize reliance on civilian housing. There are also 
quality-of-life implications because most junior service members prefer 
to live off base. GAO reported that the timely resolution of these 
matters could potentially affect future budget decisions by reducing 
the number of new barracks to construct.

GAO recommended that DOD revise its barracks occupancy guidance based, 
at least in part, on the results of objective, systematic analyses that 
consider the contemporary needs of junior servicemembers, quality-of-
life issues, the services' mission requirements, and other relevant 
data to determine who should be required to live in barracks on base or 
permitted to reside off base and seek to ensure greater consistency in 
requirements among the military services to the extent practical. DOD 
agreed, in principle, to base the department's barracks policy revision 
and the services' barracks occupancy requirements--at least in part--on 
the results of systematic analyses, but left unclear the extent to 
which it is likely to do so. GAO continues to believe that, given the 
variations noted in the report, the services' requirements 
determinations should be supported with more objective analyses to the 
extent practical. An option for Congress is to require DOD to revise 
its barracks occupancy guidance according to our above recommendation, 
lowering significantly the future construction and operation costs for 
barracks.

Although CBO agrees that the option may result in savings, it could not 
develop a savings estimate for this option.

Related GAO Products:

Military Housing: Opportunities That Should Be Explored to Improve 
Housing and Reduce Costs for Unmarried Junior Servicemembers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-602] 
Washington, D.C.: June 10, 2003.

Military Housing: Opportunity for Reducing Planned Military 
Construction Costs for Barracks.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-257R] 
Washington, D.C.: January 7, 2003.

GAO Contact:

Barry W. Holman, (202) 512-8412:

Reduce Construction Cost of Military Barracks:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

In June 2003, GAO reported that opportunities existed to reduce costs 
of constructing barracks through adoption of private-sector 
construction practices. Traditional barracks construction practices 
call for the use of steel frame, concrete, and cement block. Similar 
multi-unit housing in the private sector, such as college dormitories 
and hotels, normally use construction practices that include the use of 
wood frame construction.

The Army estimated that the use of private-sector wood frame 
construction instead of steel frame, concrete, and cement block could 
reduce barracks construction costs by 23 percent, or about $11,200 per 
occupant. Because of its lower initial construction costs and 
comparable operations and maintenance costs, Army analyses also 
indicate that total lifetime costs for barracks constructed with 
private-sector construction practices would be less than barracks using 
traditional construction practices. For example, the Army estimated 
that using residential construction practices will cost from $12,600 to 
$31,800 less per occupant at its pilot project under construction at 
Fort Meade, Maryland. However, barriers--including unanswered 
questions about durability and the ability of wood-frame barracks to 
meet all antiterrorism force protection requirements--have prevented 
widespread adoption of these cost saving private-sector practices.

GAO recommended that the military services jointly undertake an 
engineering study to resolve questions about use of private-sector 
construction practices for barracks. We also recommended that, if the 
engineering study shows that barracks built with private-sector 
construction practices can economically meet all force protection 
requirements, the military services adopt to the maximum extent 
practical private-sector construction practices for future barracks 
projects. DOD stated that it supports the study and that the Army Corps 
of Engineers had begun a study of private-sector construction practices 
and compliance with antiterrorism force protection requirements for 
barracks.

One option for Congress, providing that the engineering studies show 
that barracks built with residential construction practices can 
economically meet all force protection requirements, is to require that 
the funding amounts that DOD requests for barracks construction 
projects be based on use of residential construction practices to the 
maximum extent practical.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products:

Military Housing: Opportunities That Should Be Explored to Improve 
Housing and Reduce Costs for Unmarried Junior Servicemembers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-602] 
Washington, D.C.: June 10, 2003.

Military Housing: Opportunity for Reducing Planned Military 
Construction Costs for Barracks.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-275R] 
Washington, D.C.: January 7, 2003.

GAO Contact:

Barry Holman, (202) 512-8412:

Reduce the Corrosion of Military Assets:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

Congress has recognized the need to significantly reduce the economic 
burden on the military services from damage caused by 
corrosion[Footnote 9] on military equipment and infrastructure and of 
the efforts to mitigate its adverse affects. In fact, corrosion's 
impact on military costs appears to be enormous, representing one of 
the largest life-cycle cost components of military weapon systems and 
infrastructure. In a 2001 government-sponsored study, corrosion was 
estimated to cost the Department of Defense (DOD) at least $20 billion 
a year.

The Bob Stump National Defense Authorization Act for Fiscal Year 2003 
required the DOD to take several steps to address corrosion and provide 
Congress a long-term strategy for corrosion prevention and mitigation. 
Major commands, program offices, and research and development centers 
servicewide have made and continue to make improvements in the methods 
and techniques for preventing corrosion. For example, durable coatings, 
composite materials, and cathodic protection are being incorporated to 
an increasing extent in the design and construction of military 
facilities and equipment to reduce corrosion-related maintenance. The 
military services estimate that as much as 25 to 35 percent of 
corrosion costs can be eliminated by using corrosion prevention 
efforts, amounting to billions of dollars in potential savings each 
year.

There is much evidence that corrosion is an extensive problem and 
impacts military costs, readiness and safety. For example, in 1993, the 
Army estimated spending about $2 billion to $2.5 billion a year to 
mitigate the corrosion of wheeled vehicles, including 5-ton trucks. 
Also, in a 1998 analysis, the estimated cost to repair damage to Army 
helicopters attributed to corrosion was about $4 billion. In addition, 
many proposed projects--even those with the potential for very large 
future-cost savings--are often assigned a low funding priority compared 
to operations and repair projects offering more immediate results, 
potentially costing billions of dollars in additional net savings 
annually that would accrue from a long-term reduction in corrosion of 
military equipment and infrastructure. For example, the Naval Sea 
Systems Command has developed durable coatings that increase the amount 
of corrosion protection for various kinds of tanks (such as fuel and 
ballast tanks) on Navy ships to 20 years instead of 5 years. While the 
Navy has installed the coatings on less than 7 percent of the tanks, it 
has estimated the net savings at about $10 million a year. If the Navy 
fully funded this effort, it projects than an additional $161 million 
annual net cost savings could be achieved.

Without a more systematic approach to corrosion problems, prevention 
efforts that have a high return on investment potential will likely 
continue to be underresourced and continue to proceed at a slow pace. 
We have identified several examples of projects, such as the Army 
National Guard's Controlled Humidity Preservation project that pumps 
dehumidified air into buildings or equipment to reduce the rate of 
corrosion, that show potential for a high return on investment and 
advances in the technologies of corrosion prevention but which have 
not, for various reasons, been fully implemented. In this case, project 
officials claimed net savings of $225 million through the end of fiscal 
year 2002.

DOD and the military services have not systematically assessed 
proposals for corrosion control projects; they have disseminated 
project results on a limited, ad hoc basis. This approach has led to 
readiness and safety issues as well as billions of dollars of 
corrosion-related maintenance costs for DOD and the services annually.

DOD recently submitted its report to Congress on its long-term strategy 
for reducing corrosion and its effects on military equipment and 
facilities.[Footnote 10] However, the department has had little time to 
implement the strategy and, as a result, has not yet demonstrated 
progress towards reducing corrosion impacts. To minimize the costs 
associated with corrosion-related maintenance, one option for the 
Congress is to require DOD to place a high priority on the 
implementation of its new strategy to prevent and mitigate corrosion, 
and that the strategy emphasize coordination within and among the 
services and has effective incentives and priorities.

Although CBO agrees that the option may result in savings, it could not 
develop a savings estimate for this option.

Related GAO Product:

Defense Management: Opportunities to Reduce Corrosion Costs and 
Increase Readiness.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-753] 
Washington, D.C.: July 7, 2003.

GAO Contact:

William Solis, (202) 512-8365:

Limit Commitment to Production of the F/A-22 Fighter until Operational 
Testing Is Complete:

Primary agency: Department of Defense.

Account: Aircraft Procurement, Air Force (57-3010).

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Reassess objectives.

[End of table]

The fiscal year 2004 Defense Appropriations Act provided funds for low-
rate initial production of 22 F/A-22 aircraft, and Department of 
Defense (DOD) plans to procure 24 aircraft in fiscal year 2005, 26 
aircraft in fiscal year 2006, and begin full-rate production of 32 
aircraft in fiscal year 2007.

In several reports over the last 8 years, and as recently as March 
2003, GAO concluded that the DOD should minimize commitments to F/A-22 
production until completion of initial operational testing, now planned 
for October 2004. Limiting initial production rates until completion of 
operational testing 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 could be adequately tested has resulted in buying 
systems that require modifications to achieve satisfactory performance. 
The F/A-22 development and test program is ongoing. Avionics problems 
have not been resolved and the start of initial operational testing has 
been delayed another 7 months to March 2004. While the start has 
slipped 7 months, the completion date has slipped only 4 months to 
October 2004, compressing the time available to complete this testing. 
With the aircraft still experiencing problems, the start of testing 
could be further delayed. Additionally, if problems occur during 
initial operational testing, more time will be needed to complete 
actual flight testing, analysis of data, and reporting of the results. 
These results are needed to prepare the Beyond Low-Rate Initial 
Production Report required to start full rate production.

The Congress for fiscal year 2004 has approved low-rate initial 
production of 22 aircraft. To avoid the acceleration of production 
until completion of operational testing, the low-rate production could 
be maintained at 22 aircraft through fiscal year 2005. If Congress were 
to limit funding to no more than 22 aircraft in fiscal year 2005, and 
then proceed with the planned acceleration of production to 26 aircraft 
in 2006, and 32 aircraft in 2007, budget savings could be achieved. 
Conversely, lower production rates could increase average procurement 
cost over the life of the program and, if the Air Force maintains its 
plan to procure 277 production aircraft, lead to difficulties in 
completing the production program within the production cost estimate.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the defense 2004 plan:

Budget authority;
FY05: 288;
FY06: -40;
FY07: -35;
FY08: -20;
F709: -17.

Outlays;
FY05: 76;
FY06: 120;
FY07: 27;
FY08: -10;
F709: -18.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Best Practices: Better Acquisition Outcomes Are Possible If DOD Can 
Apply Lessons from F/A-22 Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-645T] 
Washington, D.C.: April 11, 2003.

Tactical Aircraft: Status of the F/A-22 Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-603T] 
Washington, D.C.: April 2, 2003.

Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22 
Production Rates While Development Risks Continue.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-431] 
Washington, D.C.: March 14, 2003.

Tactical Aircraft: DOD Needs to Better Inform Congress about 
Implications of Continuing F/A-22 Cost Growth.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-280] 
Washington, D.C.: February 28, 2003.

GAO Contact:

Allen Li, (202) 512-4841:

Reassess Business Cases for Selected Weapon Systems Before Making 
Further Investments:

Primary agency: Department of Defense.

Account: Multiple.

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Reassess objectives.

[End of table]

The Department of Defense (DOD) is currently in the midst of a 
modernization and transformation effort that will drive its spending 
priorities well into the next decade. Investment in the research, 
development, and procurement of major weapon systems is expected to 
grow considerably as these efforts progress, rising from $135 billion 
in fiscal year 2004 to a projected $166 billion in 2009. DOD's total 
investment over this period will, in fact, approach almost $1 trillion. 
Weapon systems routinely take much longer to field, cost more to buy, 
and require more support than investment plans provide for. This 
results in reduced buying power of the defense dollar, delayed 
capabilities for the war fighter, and unplanned--and possibly 
unnecessary--trade-offs in desired acquisition quantities, as well as 
an adverse ripple effect among other weapon programs or defense needs.

The Army dealt with such consequences in its recent decision to end 
development of the RAH-66 Comanche helicopter program after almost 16 
years of development. Since July 2000, the research and development 
costs had grown 41 percent, the unit costs had grown 62 percent and the 
quantities had shrunk 46 percent. While the need for an armed 
reconnaissance helicopter may remain, the Army in effect decided that 
the business case for investing in the Comanche as the best solution 
for that need was no longer valid. Instead the Army opted for other 
investments that would provide significantly more quantities of less 
expensive aircraft and take into consideration lessons learned from 
recent military operations. There are several weapon system programs 
that have experienced significant cost increases and schedule delays 
and were conceived before recent operations such as those in 
Afghanistan and Iraq. An option for the Congress is to have the 
Secretary of Defense reexamine the business cases for such programs 
before additional investments are made. Such a business case analysis 
should consider (1) the continued need for the capability and (2) 
whether the program at hand is still the best way to meet the need 
given lessons learned from recent military operations, the likelihood 
that the weapon system can be delivered within estimated costs and 
schedule, and the viability of alternatives. Weapon system programs 
that warrant a renewed look at their business cases follow.

F/A-22 Raptor Fighter:

The Air Force's F/A-22 program began in 1986. It was originally planned 
to be an air superiority fighter, but is currently planned to also have 
air-to-ground attack capability. It is being designed with advanced 
features, such as stealth characteristics, to make it less detectable 
to adversaries and capable of high speeds for long ranges. It also has 
integrated aviation electronics (avionics) designed to greatly improve 
pilots' awareness of the situation surrounding them. It is designed to 
replace the Air Force's F-15 aircraft.

Factors that affect its business case include:

* A 127 percent increase in development costs.

* A 122 percent increase in unit procurement costs.

* A 111 percent increase in development time.

* A 94 percent increase in testing time.

Instead of buying 750 aircraft as originally planned, the Air Force can 
only afford 218 aircraft, assuming a production cost limitation that 
Congress has imposed is maintained. Even without the limitation, the 
Air Force plans allow for only 277 aircraft.

Furthermore, the development and test program continues to experience 
problems and risks further delays. Initial operational testing, to 
demonstrate the system's effectiveness and suitability, has not yet 
started. The F/A-22's advanced avionics system, maintenance systems and 
its reliability are all experiencing problems that could result in 
further increases in development costs and delays in delivering the F/
A-22 to the war fighter.

The Air Force has also decided to add, as part of its modernization 
plan, an air-to-ground attack capability not previously envisioned but 
now considered necessary to increase the utility of the aircraft. The 
Office of Secretary of Defense estimated the Air Force would need as 
much as $11.7 billion to develop and incorporate the planned 
modernization efforts into the F/A-22. Excluding these improvements and 
assuming no new problems occur, $33 billion (in fiscal year 2004 
dollars) will be needed to complete the program from fiscal year 2005 
on. This does not include the cost needed to provide new avionics 
computer processors and architecture, which are needed to support some 
planned enhancements. The Air Force version of the Joint Strike Fighter 
currently in development will primarily be an air-to-ground replacement 
for the F-16 and the A-10, and should be considered in any review of 
the F/A-22 business case.

Advanced SEAL Delivery System (ASDS):

The Special Operations Forces' ASDS has been in development since 1994. 
It is a battery-powered, dry interior mini-submarine developed for 
clandestine insertion and extraction of Navy SEALs and their equipment. 
It is carried to its deployment area by a specially configured SSN-688 
class submarine. ASDS is intended to provide increased range, payload, 
on-station loiter time, and endurance over current submersibles.

Factors that affect its business case include:

* A 227 percent increase in development costs.

* A 985 percent increase in production costs.

* A 235 percent increase in unit procurement costs.

Two of ASDS's three critical technologies, the battery and the 
propulsion, are not fully mature, even though system development began 
over 9 years ago. Key technical problems, such as the battery and the 
propeller, were discovered late--during testing on the first boat--
rather than in component or subsystem-level testing. Although 
significant progress has been made in the past year, not all critical 
technologies have achieved maturity and will not meet maturity until 
the second ASDS boat is produced, currently estimated to be in 2008. 
Assuming no new problems are encountered, $1.3 billion (in fiscal year 
2004 dollars) will be needed to complete the program from fiscal year 
2005 and beyond.

Extended Range Guided Munition (ERGM):

The Navy's ERGM program began development in 1996. It is a rocket-
assisted projectile that is fired from a gun aboard ships. It can be 
guided to targets on land at ranges of between about 15 and 50 nautical 
miles to provide fire support for ground troops. ERGM is expected to 
offer increased range and accuracy compared to the Navy's current gun 
range of 13 nautical miles. ERGM requires modifications to existing 5-
inch guns, a new munitions-handling system (magazine), and a new fire 
control system.

Factors that affect its business case include:

* A 316 percent increase in development costs.

* A 262 percent increase in unit procurement costs.

* A 147 percent increase in development time.

* A 63 percent reduction in quantities.

The ERGM program began development with very few of its critical 
technologies mature. Design stability was also not achieved by the 
design review in May 2003. Finally, due to several test failures, the 
program did not meet a Navy deadline that required successful 
completion of two land-based flight tests by November 2003. The Navy is 
conducting an independent assessment of the program's readiness to 
proceed with further flight-testing.

Program costs may grow because the current estimate is based on a much 
lower production quantity than is contained in current program 
documents and the Navy has yet to establish a firm ERGM inventory 
requirement.

In October 2003, the Navy issued a solicitation for alternative 
precision-guided munition concepts that could be a complement or 
competitor to ERGM. In particular, the Navy is concerned about the unit 
cost of the ERGM round and is looking to develop alternatives that 
could offer cost savings. The Navy plans to spend $35 million in fiscal 
years 2004 and 2005 to pursue a technology demonstration of other 
extended range munition concepts by September 2005. Assuming no new 
problems are encountered, $207 million (in fiscal year 2004 dollars) 
will be needed to complete the program from fiscal year 2005 and 
beyond.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products:

Defense Acquisitions: Assessments of Major Weapon Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-248] 
Washington, D.C.: March 31, 2004.

Tactical Aircraft: Changing Conditions Drive Need for New F/A-22 
Business Case.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-391] 
Washington, D.C.: March 15, 2004.

Defense Acquisitions: Assessments of Major Weapon Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-476] 
Washington, D.C.: May 15, 2003.

Best Practices: Better Acquisition Outcomes Are Possible If DOD Can 
Apply Lessons from F/A-22 Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-645T] 
Washington, D.C.: April 11, 2003.

Tactical Aircraft: Status of the F/A-22 Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-603T] 
Washington, D.C.: April 2, 2003.

Defense Acquisitions: Advanced SEAL Delivery System Program Needs 
Increased Oversight. GAO-03-442.
Washington, D.C.: March 31, 2003.

Tactical Aircraft: DOD Should Reconsider Decision to Increase F/A-22 
Production Rates While Development Risks Continue.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-431] 
Washington, D.C.: March 14, 2003.

Tactical Aircraft: DOD Needs to Better Inform Congress about 
Implications of Continuing F/A-22 Cost Growth.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-280] 
Washington, D.C.: February 28, 2003.

GAO Contact:

Paul Francis, (202) 512-2811:

Address Overpayments to Defense Contractors:

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

Ensuring prompt, proper, and accurate payments is a key element of a 
sound contract management process. Yet, for the Department of Defense 
(DOD), completing such basic tasks has long been a challenge. GAO first 
reported problems with contractor overpayments in 1994. That report, 
and those issued subsequently, noted that contractors were refunding 
hundreds of millions of dollars to DOD each year, for a total of about 
$6.7 billion between fiscal year 1994 and 2001. GAO also found that a 
substantial portion of overpayments was not repaid promptly--in some 
cases for years. As an example, in a 1999 review of 13 contractors, GAO 
found that it took about a year, on average, before overpayments of 
$56.2 million were refunded to DOD. The time taken for repayment ranged 
from 2 weeks to nearly 6 years.

While DOD has a number of initiatives underway to address its payment 
problems, it will be some time before the problems are resolved. Until 
then, DOD contractors will continue receiving a sizable amount of cash 
beyond what is intended to finance and pay for the goods and services 
DOD is purchasing. In effect, such overpayments provide an interest-
free loan to contractors.

In December 2001, in response to GAO's work, the Federal Acquisition 
Regulation (FAR) was revised to require contractors receiving 
overpayments on invoice payments to notify the government and seek 
instructions for disposing of the overpayment. However, the revision 
did not address overpayments stemming from financing payments[Footnote 
11]--although GAO found that most overpayments involve contracts with 
financing payments. Subsequently, in October 2003, the Civilian Agency 
Acquisition Council and the Defense Acquisition Regulations Council 
revised the FAR to require contractors to notify the government when 
they received overpayments stemming from either invoice or financing 
payments on commercial item and non-commercial item contracts. In turn, 
contracting officers, in coordination with the cognizant payment 
office, are to promptly provide instructions to the contractor 
regarding the timely disposition of the overpayment.

Given the extent of the overpayment problem additional steps could be 
taken to create incentives for contractors to refund money they have 
not earned. For example, a requirement could be established for 
contractors to pay interest on overpayments at the discretion of DOD on 
a facts and circumstances basis if they do not return the money 
promptly.

CBO estimates the following revenues with this option.

Five-Year Savings:

Dollars in millions.

Increased revenue against the 2004 defense plan:

Budget authority;
FY05: 4;
FY06: 4;
FY07: 4;
FY08: 4;
FY09: 4.

Outlays;
FY05: 4;
FY06: 4;
FY07: 4;
FY08: 4;
FY09: 4.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Financial Management: Status of the Governmentwide Efforts to Address 
Improper Payment Problems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-99] 
Washington, D.C.: October 17, 2003.

DOD Contract Payments: Management Action Needed to Reduce Billions in 
Adjustments to Contract Payment Records.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-727] 
Washington, D.C.: August 8, 2003.

Major Management Challenges and Program Risks: Department of Defense.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-98] 
Washington, D.C.: January 2003.

Financial Management: Coordinated Approach Needed to Address the 
Government's Improper Payments Problems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-749] 
Washington, D.C.: August 9, 2002.

DOD Contract Management: Overpayments Continue and Management and 
Accounting Issues Remain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-635] 
Washington, D.C.: May 30, 2002.

Department of Defense: Status of Achieving Outcomes and Addressing 
Major Management Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-783] 
Washington, D.C.: June 25, 2001.

Contract Management: Excess Payments and Underpayments Continue to Be a 
Problem at DOD.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-309] 
Washington, D.C.: February 22, 2001.

DOD Contract Management: Greater Attention Needed to Identify and 
Recover Overpayments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-131] 
Washington, D.C.: July 19, 1999.

Recovery Auditing: Reducing Overpayments, Achieving Accountability, 
and the Government Waste Corrections Act of 1999.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-99-213] 
Washington, D.C.: June 29, 1999.

DOD Procurement: Millions in Contract Payment Errors Not Detected and 
Resolved Promptly.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-96-8] 
Washington, D.C.: October 6, 1995.

GAO Contact:

David E. Cooper, (617) 788-0555:

Require DOD Report Its Progress in Implementing the Debt Collection 
Improvement Act of 1996 (DCIA):

Primary agency: Department of Defense.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

Department of Defense (DOD) and Internal Revenue Service (IRS) records 
showed that over 27,000 contractors registered in DOD's Central 
Contractor Registration system owed about $3 billion in unpaid taxes as 
of September 30, 2002. DOD has not fully implemented provisions of the 
Debt Collection Improvement Act of 1996 (DCIA) that would assist IRS in 
levying up to 15 percent of each contract payment to offset a DOD 
contractor's federal tax debt. We estimate that DOD could have 
collected at least $100 million in fiscal year 2002 had it and IRS 
fully utilized the levy process authorized by the Taxpayer Relief Act 
of 1997. As of September 2003, DOD had collected only about $687,000, 
in part, because DOD provides contractor payment information from only 
1 of its reported more than 20 payment systems to the Treasury Offset 
Program (TOP).

IRS's continuing challenges in collecting unpaid federal taxes also 
contributed to the problem. In several of our case study contractors, 
IRS was not pursuing DOD contractors due to resource and workload 
management constraints. For other cases, control breakdowns resulted in 
IRS freezing collection activities for reasons that were no longer 
applicable. For many of our case study contractors, this resulted in 
businesses and individuals continuing to receive federal contract 
payments without making any payments on their unpaid federal taxes.

To improve collection of DOD contractor tax debt, we have recommended 
to DOD that it immediately provide its contractor payment information 
to TOP and to IRS to use the levy program as one of the first steps in 
the collection process. Until such time as DOD is able to demonstrate 
that it is meeting its responsibilities under DCIA, including providing 
payment information to TOP, and to facilitate action by the Department, 
Congress may wish to consider requiring that DOD report periodically to 
Congress on its progress in implementing DCIA for each of its contract 
and vendor payment systems. This report should include details of 
actual collections by system and in total for all contract and vendor 
payment systems during the reporting period.

We believe that DOD's reporting of its progress in implementing DCIA to 
Congress is necessary to facilitate oversight since DOD, until 
recently, had taken little action to implement the offset provisions of 
DCIA since its passage almost 8 years ago. We believe that Congress may 
wish to consider such oversight as the federal government is missing 
opportunities to collect hundreds of millions of dollars in unpaid 
taxes owed by DOD contractors.

Although CBO agrees that the option may result in savings, it could not 
develop a savings estimate for this option.

Related GAO Product:

Financial Management: Some DOD Contractors Abuse the Federal Tax System 
with Little Consequence.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-95] 
Washington, D.C.: February 12, 2004.

GAO Contact:

Gregory Kutz, (202) 512-9505:

Improve the Administration of Defense Health Care:

Primary agency: Department of Defense.

Account: Defense Health Program (97-0130).

Spending type: Discretionary.

Budget subfunction: 051/Department of Defense--Military.

Theme: Improve efficiency.

[End of table]

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 the 
Department of Defense (DOD) for the centralized management and 
administration of the three systems. Most of these studies encouraged 
some form of organizational consolidation. A DOD 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 agreed that improving the administration of DOD health 
care had the potential to create savings, it could not develop a 
savings estimate without a specific legislative proposal.

Related GAO Products:

Defense Health Care: TRICARE Resource Sharing Program Failing to 
Achieve Expected Savings.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-130] 
Washington, D.C.: August 22, 1997.

Defense Health Care: Actions Under Way to Address Many TRICARE Contract 
Change Order Problems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-141] 
Washington, D.C.: July 14, 1997.

TRICARE Administrative Prices in the Northwest Region May Be Too High.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-149R] 
Washington, D.C.: June 24, 1997.

Defense Health Care: New Managed Care Plan Progressing, but Cost and 
Performance Issues Remain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-128] 
Washington, D.C.: June 14, 1996.

Defense Health Care: Despite TRICARE Procurement Improvements, Problems 
Remain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-95-142] 
Washington, D.C.: August 3, 1995.

Defense Health Care: DOD's Managed Care Program Continues to Face 
Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-95-117] 
Washington, D.C.: March 28, 1995.

Defense Health Care: Issues and Challenges Confronting Military 
Medicine.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-95-104] 
Washington, D.C.: March 22, 1995.

GAO Contact:

Marcia Crosse, (202) 512-7114:

Seek Additional Opportunities for VA and DOD to Increase Joint 
Activities to Enhance Services to Beneficiaries and Reduce Costs:

Primary agencies: Department of Defense; Department of Veterans 
Affairs.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

Together, the Department of Veterans Affairs (VA) and the Department of 
Defense (DOD) provide health care services to about 12 million 
beneficiaries at a cost of more than $50 billion annually. To promote 
more cost-effective use of these health care resources and more 
efficient delivery of care, in 1982 the Congress passed the VA and DOD 
Health Resources Sharing and Emergency Operations 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.

VA and DOD continue to be hampered by long-standing barriers, including 
inconsistent reimbursement and budgeting policies and burdensome 
agreement approval processes. These long-standing barriers present 
challenges for future collaboration and cost efficiencies. Although VA 
and DOD have taken some actions to address these barriers and seek more 
opportunities to maximize resources, challenges still remain. In a 
February 2002 staff report to the House Committee on Veterans Affairs, 
new opportunities for enhancing sharing authority between the VA and 
DOD were discussed and legislation recommended to achieve more VA and 
DOD resource sharing. Further, in May 2003, the President's Task Force 
to Improve Health Care Delivery For Our Nation's Veterans submitted its 
final report, which included a series of recommendations to remove 
barriers and improve collaboration between VA and DOD. It is too early 
to determine what impact the findings and recommendations of the 
Presidential Task Force will have on joint activities between VA and 
DOD.

VA and DOD sharing partners generally believe the sharing program 
yielded benefits in both dollar savings and qualitative gains. 
Recognizing joint purchasing as an area where efficiencies could be 
achieved, in June 1999, VA and DOD signed a memorandum of agreement to 
combine their buying power and eliminate contracting redundancies for 
certain items, including pharmaceuticals and medical and surgical 
supplies. In 2001, we reported that VA and DOD saved over $170 million 
annually by jointly procuring pharmaceuticals. However, as we testified 
in June 2002, VA and DOD had not awarded joint contracts for medical 
and surgical supplies, as envisioned by their memorandum of agreement. 
In fiscal year 2001, VA spent about $500 million and DOD spent about 
$240 million for medical and surgical supplies. Our analysis of about 
100 identical medical and surgical items that VA and DOD now contract 
for separately indicates that jointly purchasing these items will yield 
additional savings, although we were unable to quantify the full 
potential. For example, in fiscal year 2001, if VA had collaborated 
with DOD and obtained a discounted price from one of DOD's regions for 
needle and syringe disposal containers, VA could have saved tens of 
thousands of dollars on this one item alone. Similarly, DOD could have 
realized additional savings if it had obtained VA's lower national 
contract price on one type of intravenous tubing.

While it is difficult to quantify the potential savings that joint 
contracting and other shared approaches could yield, as we reported in 
2002, these savings could be meaningful given that VA's and DOD's 
separate approaches to procuring surgical and medical supplies have 
yielded an estimated $19 million annually in savings. However, much 
needs to be done to take advantage of additional savings opportunities. 
At this point, neither department has accurate, reliable, and 
comprehensive procurement information--a basic requirement for 
identifying potential medical and surgical items to standardize. 
Furthermore, because DOD has opted to follow a regional rather than a 
national approach to standardization, opportunities for national joint 
procurement will be more difficult to achieve.

Other types of potential sharing exist to maximize each system's 
capacities and result in the most effective delivery of health care. 
For example, having DOD use VA's consolidated mail outpatient 
pharmacies 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.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products:

VA and Defense Health Care: Potential Exists for Savings through Joint 
Purchasing of Medical and Surgical Supplies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-872T] 
Washington, D.C.: June 26, 2002.

DOD and VA Pharmacy: Progress and Remaining Challenges in Jointly 
Buying and Mailing Out Drugs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-588] 
Washington, D.C.: May 25, 2001.

DOD and VA Health Care: Jointly Buying and Mailing Out Pharmaceuticals 
Could Save Millions of Dollars.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-121] 
Washington, D.C.: May 25, 2000.

VA and Defense Health Care: Rethinking of Resource Sharing Strategies 
Is Needed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-117] 
Washington, D.C.: May 17, 2000.

VA and Defense Health Care: Evolving Systems Require Rethinking of 
Resource Sharing Strategies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-52] 
Washington, D.C.: May 17, 2000.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

150 International Affairs:

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

Streamline U.S. Overseas Presence:

Reduce International Broadcasting Overlap:

Reduce or Eliminate Eximbank Subsidies:

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

Primary agency: Department of State.

Account: Contributions to International Organizations (19-1126).

Spending type: Discretionary.

Budget subfunction: 151/International development and humanitarian 
assistance.

Theme: Reassess objectives.

[End of table]

International organizations, such as the U.N. 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 countries falling under section 307, known as rogue 
states, have varied over time but have included Burma, Cuba, Iran, 
Libya, and Syria. To comply with the legislation, the State Department 
withholds from its voluntary contributions to international 
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 supports 
projects in states prohibited from receiving U.S. funds. We did not 
attempt to calculate the total amount that the United States 
contributes to all international organizations for administrative 
expenses in rogue states.

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

Savings could be achieved if the State Department were to include field 
office administrative costs when calculating the amount of U.S. 
withholdings for all international organizations that are subject to 
section 307 of the Foreign Assistance Act of 1961.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the 2004 funding level:

Budget authority;
FY05: 0;
FY06: 0;
FY07: 0;
FY08: 0;
FY09: 0.

Outlays;
FY05: [A]
FY06: [A]
FY07: [A]
FY08: [A]
FY09: [A].

Source: Congressional Budget Office.

[A]: Less than $500,000.

[End of table]

Related GAO Products:

Multilateral Organizations: U.S. Contributions to International 
Organizations for Fiscal Years 1993-95.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-42] 
Washington, D.C.: May 1, 1997.

International Organizations: U.S. Participation in the United Nations 
Development Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-8] 
Washington, D.C.: April 17, 1997.

GAO Contacts:

Joseph Christoff, (202) 512-8979 Tet Miyabara, (202) 512-8974:

Streamline U.S. Overseas Presence:

Primary agency: Department of State.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: Multiple.

Theme: Improve efficiency.

[End of table]

The U.S. overseas presence consists of more than 90,000 people 
(including dependents) at more than 260 overseas posts. The workforce 
at these posts has been estimated to comprise as many as 60,000 
personnel representing over 30 U.S. agencies. The State Department 
employs about a third of the U.S. overseas workforce, and its embassies 
and consulates have become bases for the operations of agencies 
involved in hundreds of activities. U.S. direct-hire staffing levels 
have increased over the years, most notably in non-foreign affairs 
agencies.

The costs of overseas operations and related security requirements are 
directly linked to the size of the overseas workforce. Reducing the 
number of employees at posts where U.S. strategic interests are lower 
priority, consolidating functions, establishing regional centers, or 
relocating personnel to the United States could significantly reduce 
the costs of overseas operations. The average annual cost of stationing 
an American (and dependents) overseas varies by location but can amount 
to several hundred thousand dollars (not including salary) and has been 
estimated at about twice the average cost for Washington-based staff. 
Reducing the number of personnel overseas also could substantially 
enhance the safety of Americans and other U.S. employees, lower the 
costly security demands placed on the State Department, and help 
control new embassy construction costs. (The State Department has 
embarked on a $16 billion program to build modern, safe, and secure 
diplomatic facilities.):

In late 1999, the Overseas Presence Advisory Panel concluded that 
substantial monetary savings and reductions in security vulnerabilities 
could be achieved through streamlining staffing at overseas posts. 
Because of the high cost of stationing personnel and their families 
overseas, The President's Management Agenda identified rightsizing of 
embassies and consulates as a management priority. One administration 
goal is to develop accurate staffing projections for new overseas 
construction. OMB is leading an interagency effort to develop a cost-
sharing mechanism for funding embassy construction that would provide 
more discipline for determining overseas staffing needs and encourage 
agencies to scrutinize their overseas staffing more closely.

We have encouraged actions to reevaluate overseas staffing requirements 
and levels since the mid-1990s. In 2002, we developed a rightsizing 
framework that facilitates basing overseas staffing decisions on a full 
consideration of cost, security, and mission factors. In 2003, we 
reported that staffing projections for new embassy compounds are 
developed without a systematic approach or comprehensive rightsizing 
analysis. The State Department gave agencies little guidance on factors 
to consider in developing staffing projections, and agencies 
consequently did not take consistent or systematic approaches to 
determining long-term staffing needs. Limited documentation of embassy 
staffing projection exercises further complicated the process. 
Additionally, the State Department did not consistently vet overseas 
posts' staffing projections with agencies' headquarters.

In 2003, we also reported on the administration's plans for 
implementing cost-sharing arrangements, including proposals that would 
require agencies to pay rent or a construction surcharge based on their 
worldwide overseas staffing levels. The Overseas Presence Advisory 
Panel had reported that tenant agencies did not share overseas facility 
costs, particularly for capital improvements and maintenance. The panel 
recommended charging tenant agencies rent for space in overseas 
facilities, just as the General Services Administration would charge 
agencies for use of domestic office space. In 2003, we reported that a 
number of issues needed to be resolved before effective cost-sharing 
mechanisms could be implemented, such as how the mechanism would be 
structured and how charges would be calculated. Additionally, we 
reported that some agencies were reluctant to assume costs that the 
State Department had previously paid.

Since our 2003 report, the State Department and OMB have developed a 
cost-sharing mechanism. Starting in fiscal year 2005, all agencies with 
staff overseas will be required to pay a portion of the cost of State's 
embassy construction program. In March 2004, we started a review of the 
development and implementation of this new cost-sharing mechanism.

Congress could consider a range of options for streamlining staffing at 
overseas posts, such as mandating rightsizing requirements or across-
the-board cuts for overseas staffing. CBO estimates that the following 
savings could be achieved for every 1 percent reduction in overseas 
staffing.

Five-Year Savings:

Dollars in millions.

Relocate overseas staffing domestically by 1 percent:

Change from the 2004 funding level:

Budget authority;
FY05: 7;
FY06: 13;
FY07: 20;
FY08: 26;
FY09: 33.

Outlays;
FY05: 5;
FY06: 11;
FY07: 18;
FY08: 24;
FY09: 31.

Source: Congressional Budget Office.

[End of table]

Five-Year Savings:

Dollars in millions.

Eliminate overseas staffing by 1 percent.

Savings from the 2004 baseline.

Budget authority;
FY05: 12;
FY06: 23;
FY07: 35;
FY08: 47;
FY09: 59.

Outlays;
FY05: 9;
FY06: 20;
FY07: 32;
FY08: 43;
FY09: 55.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Overseas Presence: Rightsizing Is Key to Considering Relocation of 
Regional Staff to New Frankfurt Center.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1061] 
Washington, D.C.: September 2, 2003.

Embassy Construction: Process for Determining Staffing Requirements 
Needs Improvement.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-411] 
Washington, D.C.: April 7, 2003.

Overseas Presence: Rightsizing Framework Can Be Applied at U.S. 
Diplomatic Posts in Developing Countries.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-396] 
Washington, D.C.: April 7, 2003.

Overseas Presence: Systematic Processes Needed to Rightsize Posts and 
Guide Embassy Construction.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-582T] 
Washington, D.C.: April 7, 2003.

Overseas Presence: Conditions of Overseas Diplomatic Facilities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-557T] 
Washington, D.C.: March 20, 2003.

Overseas Presence: Framework for Assessing Embassy Staff Levels Can 
Support Rightsizing Efforts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-780] 
Washington, D.C.: July 26, 2002.

GAO Contacts:

Jess T. Ford, (202) 512-4268 John Brummet, (202) 512-5260:

Reduce International Broadcasting Overlap:

Primary agency: Broadcasting Board of Governors.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 154/Foreign information and exchange activities.

Theme: Reassess objectives.

[End of table]

The Broadcasting Board of Governors oversees 5 broadcast entities that 
provide a variety of news and information programming to more than 125 
markets worldwide. Each broadcast entity is responsible for a 
collection of language services that produce program content.

* The Voice of America provides news and the U.S. position on various 
foreign policy matters to a global audience;

* Radio Free Europe/Radio Liberty provides entertainment and regional 
and local news to countries in Central, Eastern, and Southeastern 
Europe; Russia; the Caucasus; and Central and Southwestern Asia;

* The Middle East Television Network provides entertainment and 
regional and local news to countries throughout the Middle 
East;[Footnote 12] and:

* Radio Free Asia and Radio/TV Marti provide regional and local news to 
Asia and Cuba, respectively.

In July 2003, we reported that there was about a 55 percent overlap 
between the Voice of America and the other broadcast entities[Footnote 
13] that was intended to allow them to achieve their distinct missions 
by offering separate program content in the same language.[Footnote 14] 
This overlap among language services has been a long-standing issue of 
concern to the Board given evolving broadcast priorities and a desire 
to maximize the use of limited resources. We recommended that the Board 
develop a vision of its target scope-of-operations and more precisely 
define the appropriate level of overlap between Voice of America's and 
other broadcast entities' language services.

In response to our recommendation, the board conducted a detailed 
overlap analysis as part of its 2003 language service review. This 
analysis reviewed all overlapping language services in light of several 
potential approaches to managing overlap. The Board's 2004 program plan 
to Congress proposes the reallocation of $4.9 million in savings 
generated by this analysis. The Board plans to conduct this analysis 
annually to determine if additional opportunities for savings exist. 
Although it is difficult to predict potential future savings, the Board 
has noted that the Voice of America's worldwide English broadcasts 
represent a special case of overlap that deserves closer 
scrutiny.[Footnote 15] According to Board records, only a very small 
number of individuals listen to the Voice of America's broadcasts 
exclusively in English.[Footnote 16] The annual budget for the Voice of 
America's worldwide English program is about $14.9 million.

CBO was not able to determine the budgetary effect of reducing 
international broadcasting overlap.

Related GAO Products:

U.S. International Broadcasting: Challenges Facing the Broadcasting 
Board of Governors.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-627T] 
Washington, D.C.: April 1, 2004.

U.S. International Broadcasting: Enhanced Measure of Local Media 
Conditions Would Facilitate Decisions to Terminate Language Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-374] 
Washington, D.C.: February 26, 2004.

U.S. Public Diplomacy: State Department and the Broadcasting Board of 
Governors Expand Efforts in the Middle East but Face Significant 
Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-435T] 
Washington, D.C.: February 10, 2004.

U.S. International Broadcasting: New Strategic Approach Focuses on 
Reaching Large Audiences but Lacks Measurable Program Objectives.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-772] 
Washington, D.C.: July 15, 2003.

U.S. International Broadcasting: Strategic Planning and Performance 
Management System Could Be Improved.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-00-222] 
Washington, D.C.: September 27, 2000.

GAO Contacts:

Jess T. Ford, (202) 512-4268 Diana Glod, (202) 512-8945:

Reduce or Eliminate Eximbank Subsidies:

Primary agency: Export-Import Bank.

Accounts: Export-Import Bank Loans Program Account (83-0100).

Spending type: Discretionary.

Budget subfunction: 155/International financial programs.

Theme: Redefine beneficiaries.

[End of table]

The Export-Import Bank of the United States (Eximbank) is an 
independent federal agency that assists in financing the export of U.S. 
goods and services to international markets. Eximbank is intended to 
absorb risks that the private sector is unable or unwilling to assume 
and also to help level the playing field for U.S. exporters by matching 
the financing that foreign governments provide to their exporters. 
Eximbank offers subsidized direct loans, guarantees of private loans, 
and export credit insurance; its congressional mandate is to supplement 
(but not compete with) private financing. Eximbank operates under a 
renewable charter that has been reauthorized through September 30, 
2006.[Footnote 17] The President's fiscal year 2005 budget requests 
$125.7 million for Eximbank subsidies and an additional $73.2 million 
for administrative expenses.[Footnote 18]

Eximbank programs require substantial levels of taxpayer support. Our 
work has identified two broad options that would allow Eximbank to 
reduce its subsidy costs and operate with reduced federal funding while 
remaining competitive with foreign export credit agencies. First, 
Eximbank could raise its loan risk exposure and insurance fees[Footnote 
19] to the mid-range of those charged by foreign export credit 
agencies. Currently its fees are as low as, or lower than, about 75 
percent of those charged by other major export credit agencies. 
However, Eximbank officials have expressed concerns that raising fees 
could affect U.S. export competitiveness and need to be considered in 
the broader context of international efforts to reduce government 
export finance subsidies. Second, Eximbank could reduce program risks 
by capping the maximum allowable subsidies offered, limiting program 
availability in high-risk markets, or lowering loan risk 
protection.[Footnote 20] Eximbank provides financing in a greater 
number of high-risk markets than other major export credit agencies. 
Although financing commitments for high-risk markets represent a 
relatively small share of Eximbank's total financing commitments--about 
15 percent of total commitments over the period from 1999 to 2003--
these markets absorb a relatively large share of its credit subsidy 
costs and, under Eximbank's revised subsidy estimates, the share 
absorbed by high-risk markets has increased.[Footnote 21]

CBO estimates that providing only short-term coverage in high-risk 
markets could produce substantial subsidy savings relative to the 
President's request.

Five-Year Savings:

Dollars in millions.

Limit Eximbank Lending in High-Risk Markets.

Savings from the President's request.

Budget authority;
FY05: 126;
FY06: 314;
FY07: 220;
FY08: 220;
FY09: 220.

Outlays;
FY05: 49;
FY06: 138;
FY07: 171;
FY08: 196;
FY09: 204.

Source: Congressional Budget Office.

[End of table]

Another option for achieving savings would be to consider reducing 
Eximbank's program budget or eliminating Eximbank altogether.[Footnote 
22] In recent years, there has been considerable debate about whether 
Eximbank makes a significant contribution to the U.S. economy by 
promoting exports and jobs or unfairly subsidizes large corporations 
that have adequate access to private export financing and insurance. 
Our past work indicates that the economic benefits of Eximbank's 
programs are uncertain. However, the agency's programs may help "level 
the playing field" for U.S. exporters by offsetting the subsidies that 
foreign governments provide to their exporters.[Footnote 23]

CBO estimates that reducing Eximbank's program budget by 5 
percent[Footnote 24] or eliminating Eximbank altogether would result in 
savings relative to the President's request.

Five-Year Savings:

Dollars in millions.

Reduce Eximbank's Program Budget by 5 Percent.

Cost Avoidance relative to the President's Request.

Budget authority;
FY05: 18;
FY06: 20;
FY07: 20;
FY08: 20;
FY09: 20.

Outlays;
FY05: 1;
FY06: 11;
FY07: 17;
FY08: 18;
FY09: 19.

Source: Congressional Budget Office.

[End of table]

Five-Year Savings:

Dollars in millions.

Eliminate Eximbank.

Cost Avoidance relative to the President's request.

Budget authority;
FY05: 121;
FY06: 391;
FY07: 394;
FY08: 418;
FY09: 424.

Outlays;
FY05: 0;
FY06: 128;
FY07: 275;
FY08: 341;
FY09: 389.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

U.S. Export-Import Bank: Issues Raised by Recent Market Developments 
and Foreign Competition.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-99-23] 
Washington, D.C.: October 7, 1998.

International Affairs Budget: Framework for Assessing Relevance, 
Priority, and Efficiency.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-98-18] 
Washington, D.C.: October 30, 1997.

Export-Import Bank: Key Factors in Considering Eximbank 
Reauthorization.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-NSIAD-97-215] 
Washington, D.C.: July 17, 1997.

Export Finance: Federal Efforts to Support Working Capital Needs of 
Small Business.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-20] 
Washington, D.C.: February 13, 1997.

Export-Import Bank: Options for Achieving Possible Budget Reductions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-7] 
Washington, D.C.: December 20, 1996.

Export Finance: Comparative Analysis of U.S. and European Union Export 
Credit Agencies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-96-1] 
Washington, D.C.: October 24, 1995.

Export Finance: The Role of the U.S. Export-Import Bank.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-93-39] 
Washington, D.C.: December 23, 1992.

GAO Contact:

Loren Yager, (202) 512-4347:

250 General Science, Space, and Technology:

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

Primary agency: National Aeronautics and Space Administration.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 252/Space flight, research, and supporting 
activities.

Theme: Reassess objectives.

[End of table]

Since 1990, the National Aeronautics and Space Administration (NASA) 
has been on GAO's high-risk list for contract management, in part 
because the agency has failed to implement a modern, fully integrated 
financial management system. The lack of such a system has hampered 
NASA's ability to oversee contracts, control program costs, and ensure 
an effective human capital strategy, raising serious concerns about 
NASA's management of its largest and most costly programs, including 
the space shuttle program and the International Space Station (ISS). 
Although NASA implemented the Core Financial module of its Integrated 
Financial Management Program in June 2003, the agency cannot ensure 
that the system routinely provides its program managers with the 
financial information needed to measure program performance and ensure 
accountability.

The importance of resolving this weakness was recently amplified. In 
January 2004, President Bush announced a new vision for space 
exploration that will provide NASA with increased funding and require 
the agency to examine its current space flight and exploration 
activities and direct them towards new goals. The President's plan 
calls for (1) completing assembly of the ISS by 2010 with its research 
focused on the long-term effects of space travel on human biology, and 
retiring the space shuttle upon station completion, (2) developing a 
new multipurpose spacecraft--the Crew Exploration Vehicle (CEV)--to 
carry humans into space by 2014, and (3) returning to the moon by 2020 
as a precursor for missions to Mars and beyond. The plan also calls for 
the development of enabling technologies, such as power generation, 
propulsion, life support, and other systems that can support more 
distant travels. The President's estimate for the new vision is $12 
billion over the next five years, $1 billion of which is additional 
funding.

The Congress is well aware of the challenges NASA faces in developing, 
building, and transporting crew to and from the ISS--challenges that 
have in the past resulted in schedule delays and higher program costs. 
However, the President's vision offers additional challenges. First, 
NASA's own Return to Flight Task Group recently reported that it is too 
soon to predict the timing of the next shuttle flight, thus rendering 
the ISS completion date uncertain. Second, the CEV is NASA's fourth 
attempt since 1994 to modernize its human space transportation system. 
Finally, NASA will be challenged with effectively managing a larger 
budget and refocused programs and contracts. For example, the ISS and 
shuttle programs must undergo changes to align with the new vision, 
while a relatively new program--the nuclear systems initiative--could 
provide power generation and propulsion necessary for journeys to Mars 
and beyond.

As NASA returns the shuttle fleet to safe flight and refocuses its 
programs to implement the President's vision, continued congressional 
oversight is critical to ensure that NASA's priorities and supporting 
funding are appropriately matched. In addition, continued improvements 
in the Agency's financial management infrastructure--people, systems 
and processes--must keep pace with anticipated project management 
challenges.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products:

Business Modernization: NASA's Challenges in Managing Its Integrated 
Financial Management Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-255] 
Washington, D.C.: November 21, 2003.

Business Modernization: Disciplined Processes Needed to Better Manage 
NASA's Integrated Financial Management Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-118] 
Washington, D.C.: November 21, 2003.

NASA: Shuttle Fleet's Safe Return to Flight Is Key to Space Station 
Progress.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-201T] 
Washington, D.C.: October 29, 2003.

Space Station: Impact of the Grounding of the Shuttle Fleet.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1107] 
Washington, D.C.: September 12, 2003.

NASA: Major Management Challenges and Program Risks.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-849T] 
Washington, D.C.: June 12, 2003.

Business Modernization: Improvements Needed in Management of NASA's 
Integrated Financial Management Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-507] 
Washington, D.C.: April 30, 2003.

Major Management Challenges and Program Risks: National Aeronautics and 
Space Administration.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-114] 
Washington, D.C.: January 1, 2003.

Relocation of Space Shuttle Major Modification Work.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-294R] 
Washington, D.C.: December 2, 2002.

Space Transportation: Challenges Facing NASA's Space Launch Initiative.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-1020] 
Washington, D.C.: September 17, 2002.

NASA Management Challenges: Human Capital and Other Critical Areas Need 
to be Addressed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-945T] 
Washington, D.C.: July 18, 2002.

Space Station: Actions Under Way to Manage Cost, but Significant 
Challenges Remain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-735] 
Washington, D.C.: July 17, 2002.

NASA: Compliance With Cost Limits Cannot Be Verified.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-504R] 
Washington, D.C.: April 10, 2002.

GAO Contact:

Allen Li, (202) 512-4841:

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:

Improve the Department of Energy's Management of Its Capital Asset 
Acquisition, Weapons Refurbishment, and Site Cleanup Projects:

Reduce the Costs of the Rural Utilities Service's Electricity Loan 
Program:

Corporatize or Divest Selected Power Marketing Administrations:

Primary agency: Department of Energy.

Spending type: Direct.

Theme: Reassess objectives.

[End of table]

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 (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. 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. In addition, appropriated 
and other debt that is recoverable through the PMAs' power sales 
totaled about $19.5 billion at the end of fiscal year 2002. 
Furthermore, our work has demonstrated that the availability of federal 
power plants to generate electricity has, in the past, been below that 
of nonfederal plants because federal planning and resource allocation 
decisions do not always ensure that funds are available to make repairs 
when needed.

Our March 1998 report outlined 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 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 budgetary 
savings. The savings assumed that the divestiture would not occur for 2 
years and was based on the net present value of outstanding debt for 
the Southeastern, Southwestern, and Western PMAs.

Five-Year Savings:

Dollars in millions.

Discretionary spending.

Budget authority;
FY05: 0;
FY06: 0;
FY07: 0;
FY08: 233;
FY09: 241.

Outlays;
FY05: 0;
FY06: 0;
FY07: 0;
FY08: 230;
FY09: 237.

Source: Congressional Budget Office.

Note: Figures are based on the most recent audited statements of assets 
and liabilities.

[End of table]

Five-Year Savings:

Dollars in millions.

Direct spending.

Budget authority;
FY05: 0;
FY06: 0;
FY07: -6,891;
FY08: 537;
FY09: 547.

Outlays;
FY05: 0;
FY06: 0;
FY07: -6,891;
FY08: 537;
FY09: 547.

Source: Congressional Budget Office.

Note: Figures are based on the most recent audited statements of assets 
and liabilities. The receipt in 2007 would be an inflow of cash to the 
government from the sale of PMA assets. The loss of receipts after that 
would be from the loss of the stream of annual receipts received from 
the sale of electricity.

[End of table]

Related GAO Products:

Bonneville Power Administration: Long-Term Fiscal Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-918R] 
Washington, D.C.: July 1, 2003.

Budget Issues: Effective Oversight and Budget Discipline Are Essential-
-Even in a Time of Surplus.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-00-73] 
Washington, D.C.: February 1, 2000.

Potential Candidates for Congressional Oversight.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OGC-00-3R] 
Washington, D.C.: November 1, 1999.

Federal Power: The Role of the Power Marketing Administrations in a 
Restructured Electricity Industry.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED/AIMD-99-229] 
Washington, D.C.: June 24, 1999.

Federal Power: PMA Rate Impacts by Service Area.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-55] 
Washington, D.C.: January 28, 1999.

Federal Power: Regional Effects of Changes in PMAs' Rates.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-15] 
Washington, D.C.: November 16, 1998.

Power Marketing Administrations: Repayment of Power Costs Needs Closer 
Monitoring.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-164] 
Washington, D.C.: June 30, 1998.

Federal Power: Options for Selected Power Marketing Administrations' 
Role in a Changing Electricity Industry.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-43] 
Washington, D.C.: March 6, 1998.

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-110] 
Washington, D.C.: September 19, 1997.

Federal Power: Issues Related to the Divestiture of Federal Hydropower 
Resources.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-48] 
Washington, D.C.: March 31, 1997.

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-96-145] 
Washington, D.C.: September 19, 1996.

Federal Power: Recovery of Federal Investment in Hydropower Facilities 
in the Pick-Sloan Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-96-142] 
Washington, D.C.: May 2, 1996.

GAO Contacts:

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

Recover Power Marketing Administrations' Costs:

Primary agency: Department of Energy.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

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 25] 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.

In part because the PMAs sell power generated almost exclusively from 
hydropower and are not required to earn a profit or pay taxes, they are 
generally able to sell power more cheaply than other providers. 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 $19.5 billion at the end of fiscal year 2002. This option 
would likely also lead to more efficient management of the taxpayers' 
assets.

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.

Although CBO agrees that the option will result in savings, it could 
not develop a savings estimate.

Related GAO Products:

Congressional Oversight: Opportunities to Address Risks, Reduce Costs, 
and Improve Performance.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-00-96] 
Washington, D.C.: February 17, 2000.

Federal Power: The Role of the Power Marketing Administrations in a 
Restructured Electricity Industry.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED/AIMD-99-229] 
Washington, D.C.: June 24, 1999.

Federal Power: PMA Rate Impacts, by Service Area.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-55] 
Washington, D.C.: January 28, 1999.

Federal Power: Regional Effects of Changes in PMAs' Rates.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-15] 
Washington, D.C.: November 16, 1998.

Power Marketing Administrations: Repayment of Power Costs Needs Closer 
Monitoring.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-164] 
Washington, D.C.: June 30, 1998.

Federal Power: Options for Selected Power Marketing Administrations' 
Role in a Changing Electricity Industry.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-43] 
Washington, D.C.: March 6, 1998.

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-110] 
Washington, D.C.: September 19, 1997.

Federal Power: Issues Related to the Divestiture of Federal Hydropower 
Resources.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-48] 
Washington, D.C.: March 31, 1997.

Power Marketing Administrations: Cost Recovery, Financing, and 
Comparison to Nonfederal Utilities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-96-145] 
Washington, D.C.: September 19, 1996.

Federal Power: Outages Reduce the Reliability of Hydroelectric Power 
Plants in the Southeast.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-96-180] 
Washington, D.C.: July 25, 1996.

Federal Power: Recovery of Federal Investment in Hydropower Facilities 
in the Pick-Sloan Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-96-142] 
Washington, D.C.: May 2, 1996.

Federal Electric Power: Operating and Financial Status of DOE's Power 
Marketing Administrations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED/AIMD-96-9FS] 
Washington, D.C.: October 13, 1995.

GAO Contacts:

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

Increase Nuclear Waste Disposal Fees:

Primary agency: Department of Energy.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

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. The Nuclear 
Waste Policy Act requires DOE to annually assess the adequacy of the 
fee. Despite this requirement, DOE has not reported on the fee adequacy 
since May 2001. Accordingly, utilities continue to pay a fee of 0.1 
cent per kilowatt-hour, without any adjustment for inflation. To help 
ensure that sufficient revenues are collected to cover increases in 
cost estimates caused by price inflation, we recommend that the 
Congress 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.

Five-Year Savings:

Dollars in millions.

Direct spending;
FY05: -8;
FY06: -18;
FY07: -32;
FY08: -47;
FY09: -63.

Source: Congressional Budget Office.

Note: Since this is a mandatory account, the increase in receipts is a 
negative number. However, the proposal would end up bringing in more 
receipts to the Treasury.

[End of table]

Related GAO Products:

Status of Actions to Improve DOE User-Fee Assessments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-92-165] 
Washington, D.C.: June 10, 1992.

Changes Needed in DOE User-Fee Assessments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-91-52] 
Washington, D.C.: May 8, 1991.

Changes Needed in DOE User-Fee Assessments to Avoid Funding Shortfall.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-90-65] 
Washington, D.C.: June 7, 1990.

GAO Contacts:

Bob Robinson, (202) 512-3841 Robin Nazzaro, (202) 512-3841:

Recover Federal Investment in Successfully Commercialized 
Technologies:

Primary agency: Department of Energy.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.

Theme: Redefine beneficiaries.

[End of table]

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. We 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 would be subject to repayment. However, we 
found that DOE generally has not required repayment of its investment 
in technologies that are successfully commercialized. 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 currently exist for substantial repayment in some 
of DOE's programs, one option for the Congress is to require repayment 
under a flexible policy that would allow the government to share in the 
benefits of successfully commercialized technologies, which could 
result in significant cost savings. However, repayment provisions would 
only apply to future technology development projects not yet negotiated 
with industry.

CBO agrees that the option may result in savings, but it could not 
develop a savings estimate.

Related GAO Products:

Fossil Fuel R&D: Lessons Learned in the Clean Coal Technology Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-854T] 
Washington, D.C.: June 12, 2001.

Clean Coal Technology: Status of Projects and Sales of Demonstrated 
Technology.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-86R] 
Washington, D.C.: March 9, 2000.

Energy Research: Opportunities Exist to Recover Federal Investment in 
Technology Development Projects.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-96-141] 
Washington, D.C.: June 26, 1996.

GAO Contacts:

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

Improve the Department of Energy's Management of Its Capital Asset 
Acquisition, Weapons Refurbishment, and Site Cleanup Projects:

Primary agency: Department of Energy.

Account: Multiple.

Spending type: Discretionary.

Budget subfunction: Multiple.

Theme: Improve efficiency.

[End of table]

As of January 2002, the Department of Energy (DOE) had at least 42 
ongoing projects estimated to cost more than $100 million at its 
national laboratories, weapons production facilities, and other 
locations. These projects included the construction of new specialized 
facilities, such as the National Ignition Facility at Lawrence 
Livermore National Laboratory; the refurbishment of nuclear weapons; 
and the cleanup of nuclear waste at active and closed DOE facilities. 
Our September 2002 review of 16 major DOE projects found no indication 
that DOE or its contractors had improved their management performance 
as compared with our 1996 assessment of management performance. 
Specifically, we found that the estimated cost of 6 of the 16 projects 
was more than double DOE's initial estimate and that 6 projects had 
experienced schedule delays of 5 years or more.

DOE has taken several steps to improve the way its major projects are 
managed. For example, in 2000 DOE issued new policy, order, and 
guidance on managing and controlling projects, including enhancing the 
project management skills within the department. The DOE Order requires 
detailed project reviews by senior managers at five different decision 
points during the project. In addition, DOE's Office of Engineering and 
Construction Management set a goal for 2002 that 85 percent of the 
projects it tracks (projects costing more than $5 million) will have 
less than a 10-percent variance in cost and schedule. For 2004, the 
office's goal is that 90 percent of the projects it tracks will have 
less than a 10-percent variance in cost and schedule.

Even with these project management requirements and controls in place, 
performance problems continue. One reason for continuing problems is 
that DOE is not consistently applying the requirements and controls to 
all of its acquisition, refurbishment, and cleanup projects. For 
example, some projects in DOE's Office of Science and its National 
Nuclear Security Administration (NNSA) have avoided project validation 
and other requirements. As a result, the cost and schedule estimates 
may not be reliable and the projects may have a greater likelihood to 
cost more and take longer to complete than DOE had estimated.

One option available to the Congress to help minimize cost and schedule 
increases on DOE projects is to require that all DOE projects costing 
more than $5 million, regardless of the responsible DOE program office, 
(1) follow the requirements in DOE's project management order and (2) 
be validated and approved by DOE's Office of Engineering and 
Construction Management--or a similar office within NNSA for nuclear 
weapons refurbishment--before construction funding is requested in 
DOE's budget submission to Congress.

CBO was not able to determine the budgetary effect of this option.

Related GAO Products:

Nuclear Weapons: Opportunities Exist to Improve the Budgeting, Cost 
Accounting, and Management Associated with the Stockpile Life Extension 
Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-583] 
Washington, D.C.: July 28, 2003.

Nuclear Waste: Challenges to Achieving Potential Savings in DOE's High-
Level Waste Cleanup Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-593] 
Washington, D.C.: June 17, 2003.

Department of Energy: Status of Contract and Project Management Reform.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-570T] 
Washington, D.C.: March 20, 2003.

Contract Reform: DOE Has Made Progress, but Actions Needed to Ensure 
Initiatives Have Improved Results.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-798] 
Washington, D.C.: September 13, 2002.

Nuclear Waste: Technical, Schedule, and Cost Uncertainties of the Yucca 
Mountain Repository Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-191] 
Washington, D.C.: December 21, 2001.

National Ignition Facility: Management and Oversight Failures Caused 
Major Cost Overruns and Schedule Delays.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-271] 
Washington, D.C.: August 8, 2000.

Nuclear Waste Cleanup: DOE's Paducah Plan Faces Uncertainties and 
Excludes Costly Cleanup Activities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-96] 
Washington, D.C.: April 28, 2000.

Department of Energy: Opportunity to Improve Management of Major System 
Acquisitions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-17] 
Washington, D.C.: November 26, 1996.

GAO Contacts:

Bob Robinson, (202) 512-3841 Robin Nazzaro, (202) 512-3841:

Reduce the Costs of the Rural Utilities Service's Electricity Loan 
Program:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 271/Energy supply.

Theme: Improve efficiency.

[End of table]

The Rural Utilities Service (RUS), created by the Federal Crop 
Insurance Reform and Department of Agriculture Reorganization Act of 
1994 (P.L. 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 facility systems through direct 
loans and through repayment guarantees on loans made by other lenders. 
According to the Financial Statements For Fiscal Year 2003 of Rural 
Development (the U.S. Department of Agriculture agency responsible for 
administering RUS), RUS loans receivable totaled about $40.1 billion as 
of September 30, 2003. From a financial standpoint, RUS has 
successfully operated the telecommunications loan program, but the 
agency continues to have significant financial problems with the 
electricity loan program. For example, since fiscal year 1992, RUS 
wrote off the debt of 9 electricity loan borrowers totaling more than 
$4.9 billion.

The Congress may need to consider options to reduce RUS's vulnerability 
to losses in its electricity program such as (1) establishing loan and 
indebtedness limits, (2) setting the loan repayment guarantee at a 
level below 100 percent, and (3) prohibiting loans to delinquent 
borrowers or to borrowers who have caused the agency to incur loan 
losses.

CBO agrees that the option would result in savings, but it could not 
develop a savings estimate.

[End of table]

Related GAO Products:

Financial Management: Impact of RUS' Electricity Loan Restructurings.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-288] 
Washington, D.C.: September 29, 2000.

Rural Utilities Service: Status of Electric Loan Portfolio.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-264R] 
Washington, D.C.: August 17, 1999.

Rural Water Projects: Federal Assistance Criteria and Potential 
Benefits of the Proposed Lewis and Clark Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-99-252] 
Washington, D.C.: July 29, 1999.

Rural Water Projects: Identifying Benefits of the Proposed Lewis and 
Clark Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-115] 
Washington, D.C.: May 28, 1999.

Rural Water Projects: Federal Assistance Criteria Related to the Fort 
Peck Reservation Rural Water Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-98-230] 
Washington, D.C.: June 18, 1998.

Rural Utilities Service: Risk Assessment for the Electric Loan 
Portfolio.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-98-123] 
Washington, D.C.: March 30, 1998.

Rural Utilities Service: Opportunities to Operate Electricity and 
Telecommunications Loan Programs More Effectively.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-42] 
Washington, D.C.: January 21, 1998.

Federal Electricity Activities: The Federal Government's Net Cost and 
Potential for Future Losses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-110] 
Washington, D.C.: September 19, 1997.

Rural Development: Financial Condition of the Rural Utilities Service's 
Electricity Loan Portfolio.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-97-198] 
Washington, D.C.: July 8, 1997.

Rural Development: Financial Condition of the Rural Utilities Service's 
Loan Portfolio.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-82] 
Washington, D.C.: April 11, 1997.

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-3841 McCoy 
Williams, (202) 512-6906:

300 Natural Resources and Environment:

Terminate Land-Exchange Programs:

Deny Additional Funding for Commercial Fisheries Buyback Programs:

Revise the Mining Law of 1872:

Reexamine Federal Policies for Subsidizing Water for Agriculture and 
Rural Uses: Reassess Federal Land Management Agencies' Functions and 
Programs:

Terminate Land-Exchange Programs:

Primary agencies: Department of the Interior; Department of 
Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 302/Conservation and land management.

Theme: Reassess objectives.

[End of table]

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. Between fiscal years 1989 and 1999, BLM and 
the Forest Service acquired about 1,500 total 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 fiscal year 2002, BLM contracted with the 
Appraisal Foundation to conduct a review of the agency's appraisal 
organization, policies, and procedures. The Appraisal Foundation's 
report listed numerous problems with BLM's appraisal process and 
concluded "violations of law may have occurred." The report contained 
seven principal recommendations including the recommendation that the 
"previously recommended moratorium on BLM land exchanges be implemented 
immediately." The Foundation performed a similar evaluation for the 
U.S. Department of Agriculture (USDA) Forest Service in 2000. That 
study resulted in a number of recommendations, which the Foundation 
noted, "have been successfully implemented." In most circumstances, 
cash-based transactions would be simpler and less costly.

While both agencies have taken steps to improve their land-exchange 
programs, problems still exist given the inherent difficulties and 
inefficiencies in exchange programs in general. On the basis of these 
difficulties and inefficiencies, the Congress may wish to consider 
directing both agencies to terminate their land-exchange programs.

CBO could not develop a savings estimate for this option.

Related GAO Products:

National Park Service: Federal Taxpayers Could Have Benefited More From 
Potomac Yard Land Exchange.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-292] 
Washington, D.C.: March 15, 2001.

BLM and the Forest Service: Land Exchanges Need to Reflect Appropriate 
Value and Serve the Public Interest.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-73] 
Washington, D.C.: June 22, 2000.

GAO Contacts:

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

Deny Additional Funding for Commercial Fisheries Buyback Programs:

Primary agency: Department of Commerce.

Account: Operations, Research, and Facilities (13-1450).

Spending type: Discretionary.

Budget subfunction: 306/Other natural resources.

Theme: Reassess objectives.

[End of table]

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 provided $140 million from 
1994 to 2002 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 
continues to be a problem in many fisheries, several additional 
buybacks have been proposed and authorized since we last reported on 
this issue in June 2000.

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 over-fishing--one option the Congress may wish to 
consider is limiting additional funding for proposed programs until 
these fundamental weaknesses are resolved.

CBO agrees that the option may result in savings, but it could not 
develop a savings estimate for this option.

[End of table]

Related GAO Products:

Commercial Fisheries: Effectiveness of Fishing Buyback Programs Can Be 
Improved.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-699T] 
Washington, D.C.: May 10, 2001.

Commercial Fisheries: Entry of Fishermen Limits Benefits of Buyback 
Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-120] 
Washington, D.C.: June 14, 2000.

GAO Contact:

Anu Mittal, (202) 512-9846:

Revise the Mining Law of 1872:

Primary agencies: Department of the Interior; Department of 
Agriculture.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

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. Furthermore, miners do not pay royalties to the 
government on hardrock minerals they extract from federal lands.

Since we issued our report in 2001, one option that remains available 
is to require the payment of fair market value for a patent, or 
otherwise modify the requirements for patenting. Without a specific 
definition of fair market value or other specific proposals to reform 
the patenting system, CBO cannot estimate savings from this option.

Legislation could also be enacted to impose royalties on hardrock 
minerals extracted from federal lands, such as a 5 percent royalty on 
net smelter returns. CBO estimates below that a 5 percent royalty could 
increase gross receipts, but the estimates do not account for 
subsequent receipt-sharing, if any, with states.

Five-Year Savings:

Dollars in millions.

Savings from increased offsetting receipts.

Offsetting receipts;
FY05: 6;
FY06: 6;
FY07: 6;
FY08: 6;
FY09: 6.

Source: Congressional Budget Office.

Note: Estimates do not account for subsequent receipt-sharing, if any, 
with states.

[End of table]

Related GAO Products:

Bureau of Land Management: Improper Charges Made to Mining Law 
Administration Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-491T] 
Washington, D.C.: March 29, 2001.

Bureau of Land Management: Improper Charges Made to Mining Law 
Administration Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-356] 
Washington, D.C.: March 8, 2001.

National Park Service: Agency Should Recover Costs of Validity 
Examinations for Mining Claims.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-265] 
Washington, D.C.: September 19, 2000.

Review of the Bureau of Land Management's Administration and Use of 
Mining Maintenance Fees.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-184R] 
Washington, D.C.: June 2, 2000.

Mineral Royalties: Royalties in the Western States and in Major 
Mineral-Producing Countries.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-93-109] 
Washington, D.C.: March 29, 1993.

Natural Resources Management Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OCG-93-17TR] 
Washington, D.C.: December 1992.

Mineral Resources: Value of Hardrock Minerals Extracted From and 
Remaining on Federal Lands.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-92-192] 
Washington, D.C.: August 24, 1992.

Federal Land Management: The Mining Law of 1872 Needs Revision.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-89-72] 
Washington, D.C.: March 10, 1989.

GAO Contacts:

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

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

Primary agency: Department of the Interior.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

Federal water programs to promote efficient use of finite water 
resources for the nation's agricultural and rural water systems have 
been used to provide higher subsidies than Congress may have intended. 
To improve the effectiveness and efficiency of federal water programs, 
the Congress could consider several options to reduce duplication or 
inconsistencies. Although we first raised this issue in 1990, these 
options remain valid.

The Congress could, for example, consider collecting the full costs of 
federal water for large farms. The Reclamation Reform Act of 1982 
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, the act does not prohibit multiple 
landholdings from being operated collectively as one farm while 
individually qualifying for federally subsidized water. Some farmers 
have reorganized large farming operations into multiple, smaller land 
holdings to be eligible to receive federally subsidized irrigation 
water. As a result, the flow of federally subsidized water to large 
farms has not been stopped, and the government is not receiving the 
revenues to which it would have been entitled if the multiple 
landholdings were considered collectively as one farm subject to the 
act's 960 acre limit.

Another option would be for the Congress to consider restructuring the 
subsidies for crops produced with federally subsidized water. According 
to the Department of the Interior, a portion of the acreage served by 
the Bureau of Reclamation was used to produce crops that were also 
eligible for USDA commodity subsidies. Farmers received the water 
subsidy for using irrigated water from Interior as well as USDA 
subsidies per crop production.

CBO was not able to develop a savings estimate without a specific 
proposal.

Related GAO Products:

Freshwater Supply: States' View of How Federal Agencies Could Help Them 
Meet the Challenges of Expected Shortages.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-514] 
Washington, D.C.: July 9, 2003.

Bureau of Reclamation: Water Marketing Activities and Costs at the 
Central Valley Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-553] 
Washington, D.C.: March 4, 2001.

Bureau of Reclamation: Information on Operations and Maintenance 
Activities and Costs at Multipurpose Water Projects.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-127] 
Washington, D.C.: May 31, 2000.

Rural Water Projects: Federal Assistance Criteria and Potential 
Benefits of the Proposed Lewis and Clark Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-252T] 
Washington, D.C.: July 29, 1999.

Rural Water Projects: Identifying the Benefits of the Proposed Lewis 
and Clark Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-115] 
Washington, D.C.: May 28, 1999.

Rural Water Projects: Federal Assistance Criteria Related to the Lewis 
and Clark Rural Water Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-231T] 
Washington, D.C.: June 18, 1998.

Rural Water Projects: Federal Assistance Criteria Related to the Fort 
Peck Reservation Rural Water Project.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-230] 
Washington, D.C.: June 18, 1998.

Rural Water Projects: Federal Assistance Criteria.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-204R] 
Washington, D.C.: May 29, 1998.

Federal Power: Recovery of Federal Investment in Hydropower Facilities 
in the Pick-Sloan Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-96-142] 
Washington, D.C.: May 2, 1996.

Rural Development: Patchwork of Federal Water and Sewer Programs Is 
Difficult to Use.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-95-160BR] 
Washington, D.C.: April 13, 1995.

Water Subsidies: Impact of Higher Irrigation Rates on Central Valley 
Project Farmers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-8] 
Washington, D.C.: April 19, 1994.

Natural Resources Management Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OCG-93-17TR] 
Washington, D.C.: December 1992.

Reclamation Law: Changes Needed Before Water Service Contracts Are 
Renewed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-91-175] 
Washington, D.C.: August 22, 1991.

Water Subsidies: The Westhaven Trust Reinforces the Need to Change 
Reclamation Law.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-90-198] 
Washington, D.C.: June 5, 1990.

Water Subsidies: Basic Changes Needed to Avoid Abuse of the 960-Acre 
Limit.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-90-6] 
Washington, D.C.: October 12, 1989.

GAO Contacts:

Bob Robinson, (202) 512-3841 Lawrence J. Dyckman, (202) 512-9692:

Reassess Federal Land Management Agencies' Functions and Programs:

Primary agencies: Department of the Interior; Department of 
Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 302/Conservation and land management.

Theme: Improve efficiency.

[End of table]

The responsibilities of the four major federal land management 
agencies--the National Park Service, the Bureau of Land Management 
(BLM), the Fish and Wildlife Service within the Department of the 
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 constraints 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 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 colocated 
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.

CBO could not develop a savings estimate for this option.

Related GAO Products:

Wildland Fires: Better Information Needed on Effectiveness of Emergency 
Stabilization and Rehabilitation Treatments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-430] 
Washington, D.C.: April 4, 2003.

Severe Wildland Fires: Leadership and Accountability Needed to Reduce 
Risks to Communities and Resources.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-259] 
Washington, D.C.: January 31, 2002.

The National Fire Plan: Federal Agencies Are Not Organized to 
Effectively and Efficiently Implement the Plan.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-1022T] 
Washington, D.C.: July 31, 2001.

Land Management Agencies: Ongoing Initiative to Share Activities and 
Facilities Needs Management Attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-50] 
Washington, D.C.: November 21, 2000.

Federal Wildfire Activities: Current Strategy and Issues Needing 
Attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-223] 
Washington, D.C.: August 13, 1999.

Land Management: The Forest Service's and BLM's Organizational 
Structures and Responsibilities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-227] 
Washington, D.C.: July 29, 1999.

Ecosystem Planning: Northwest Forest and Interior Columbia River Basin 
Plans Demonstrate Improvements in Land-Use Planning.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-64] 
Washington, D.C.: May 26, 1999.

Land Management Agencies: Revenue Sharing Payments to States and 
Counties.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-261] 
Washington, D.C.: September 17, 1998.

Federal Land Management: Streamlining and Reorganization Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-96-209] 
Washington, D.C.: June 27, 1996.

National Park Service: Better Management and Broader Restructuring 
Efforts Are Needed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-95-101] 
Washington, D.C.: February 9, 1995.

Forestry Functions: Unresolved Issues Affect Forest Service and BLM 
Organizations in Western Oregon.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-124] 
Washington, D.C.: May 17, 1994.

Forest Service Management: Issues to Be Considered in Developing a New 
Stewardship Strategy.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-94-116] 
Washington, D.C.: February 1, 1994.

GAO Contacts:

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

350 Agriculture:

Eliminate or Reduce the Agriculture Department's Market Access Program:
Consolidate Common Administrative Functions at the U.S. Department of 
Agriculture: Further Consolidate the U.S. Department of Agriculture's 
County Offices:
Eliminate Public Law 480 Title I Food Aid Program:
Reduce or Eliminate the Export Credit Guarantee Program:

Eliminate or Reduce the Agriculture Department's Market Access Program:

Primary agency: Department of Agriculture.

Account: Commodity Credit Corporation (12-4336).

Spending type: Direct.

Budget subfunction: 351/Farm income stabilization.

Theme: Reassess objectives.

[End of table]

The Market Access Program is an export promotion program operated by 
the Department of Agriculture's Foreign Agricultural Service. The 
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. Under the Farm Security and 
Rural Development Act of 2002, authorized funding for the program has 
increased from $110 million in fiscal year 2003 to $125 million in 
fiscal year 2004, $140 million in fiscal year 2005, and rising to $200 
million in fiscal years 2006 and 2007.

Beginning in fiscal year 1993, the Congress directed that the program 
to increase its 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, 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 OMB benefit-cost guidelines. 
In addition, the evidence from market-level studies is inconclusive 
regarding program impact on specific commodities in specific markets. 
Moreover, it is difficult to ensure that funds for promotional 
activities supplement 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 benefit-
cost guidelines, and evaluates the additional spending of participants 
and additional exports resulting from the program. As of 2003, the 
Foreign Agricultural Service had not completed this report. CBO's 
budget options reports in recent years have included an option to 
eliminate the Market Access Program.[Footnote 26] Congress might choose 
to terminate the program or significantly reduce its funding absent 
convincing evidence that the program has a positive economic impact, 
results in increased exports that would not have occurred without the 
program, and supplements (rather than supplants) private sector 
expenditures.

CBO estimates the following budgetary savings with this option.

Five-Year Savings (for Termination):

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: 7;
FY06: 115;
FY07: 188;
FY08: 200;
FY09: 200.

Outlays;
FY05: 7;
FY06: 115;
FY07: 188;
FY08: 200;
FY09: 200.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Agricultural Trade: Changes Made to Market Access Program, but 
Questions Remain on Economic Impact.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-38] 
Washington, D.C.: April 5, 1999.

U.S. Agricultural Exports: Strong Growth Likely, but U.S. Export 
Assistance Programs' Contribution Uncertain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-260] 
Washington, D.C.: September 30, 1997.

Farm Bill Export Options.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-96-39R] 
Washington, D.C.: December 15, 1995.

Agricultural Trade: Competitor Countries' Foreign Market Development 
Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-95-184] 
Washington, D.C.: June 14, 1995.

International Trade: Changes Needed to Improve Effectiveness of the 
Market Promotion Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-93-125] 
Washington, D.C.: July 7, 1993.

U.S. Department of Agriculture: Improvements Needed in Market Promotion 
Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-93-17] 
Washington, D.C.: March 25, 1993.

GAO Contacts:

Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892:

Consolidate Common Administrative Functions at the U.S. Department of 
Agriculture:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending types: Discretionary/Direct.

Budget subfunction: 352/Agricultural research and services.

Theme: Improve efficiency.

[End of table]

In accordance with the Federal Crop Insurance Reform and Department of 
Agriculture Reorganization Act of 1994, the U.S. Department of 
Agriculture (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) 
colocating 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' colocation of county offices, little has changed 
in how the three agencies currently serve their customers. Each of its 
agencies emphasizes a different client base and the delivery of 
different programs. Consequently, little has changed in how the three 
agencies work together to serve their customers, particularly in terms 
of cross-servicing and sharing of information. On the other hand, USDA 
has made substantial progress in deploying personal computers and a 
telecommunications network to link its service centers, and deployed a 
shared network server. However, the full range of service delivery 
efficiencies has not yet been realized because the agencies' program 
applications are not fully integrated and not all service center 
employees have been trained to use the system.

In terms of merging and streamlining administrative functions, some 
progress has been made in sharing space and equipment and agreeing upon 
some common human capital practices. However, to further streamline its 
organization, increase efficiency, and reduce overhead costs associated 
with running separate offices, USDA could still 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. While it has been a 
few years since we last reported on this issue, the situation has not 
materially changed.

CBO agreed that this option would result in budgetary savings, but it 
could not develop a savings estimate.

Related GAO Products:

Major Management Challenges and Program Risks: Department of 
Agriculture.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-96] 
Washington, D.C.: January 2003.

U.S. Department of Agriculture: State Office Collocation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-208R] 
Washington, D.C.: June 30, 2000.

USDA Reorganization: Progress Mixed in Modernizing the Delivery of 
Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-43] 
Washington, D.C.: February 3, 2000.

U.S. Department of Agriculture: Administrative Streamlining is Expected 
to Continue Through 2002.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-34] 
Washington, D.C.: December 11, 1998.

U.S. Department of Agriculture: Update on Reorganization and 
Streamlining Efforts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-186R] 
Washington, D.C.: June 24, 1997.

GAO Contacts:

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

Further Consolidate the U.S. Department of Agriculture's County 
Offices:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 351/Farm income stabilization.

Theme: Improve efficiency.

[End of table]

The U.S. Department of Agriculture (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. About one-
third of USDA's approximately 100,000 employees are involved in 
delivering the nearly $25 billion a year farm and rural programs. As 
the client base for the USDA programs changes and as technology offers 
opportunities for program delivery efficiencies, USDA needs to consider 
alternative program delivery approaches. In this regard, the service 
center agencies--Farm Service Agency, Natural Resources Conservation 
Service, and Rural Development--need to reassess the types of services 
they now provide and how they can work more efficiently to deliver 
these services in the future with fewer office locations.

At various times, the Congress has attempted to reduce the number of 
county offices serving farmers and/or reduce county office staffing. 
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 this 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. 
USDA's county offices are managed through a state office structure that 
could also be streamlined. Currently, USDA maintains a state office for 
each of its three service center agencies in each of the 50 states. As 
with the county offices, as the client base for USDA's programs change 
and as technology offers opportunities for program delivery 
efficiencies, USDA could consolidate some state offices to a regional 
or national level.

CBO agreed that this option would result in budgetary savings, but it 
could not develop a savings estimate.

Related GAO Products:

Major Management Challenges and Program Risks: Department of 
Agriculture.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-96] 
Washington, D.C.: January 2003.

USDA Reorganization: Progress Mixed in Modernizing the Delivery of 
Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-43] 
Washington, D.C.: February 3, 2000.

Farm Service Agency: Characteristics of Small County Offices.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-102] 
Washington, D.C.: May 28, 1999.

U.S. Department of Agriculture: Status of Closing and Consolidating 
County Offices.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-98-250] 
Washington, D.C.: July 29, 1998.

Farm Programs: Service to Farmers Will Likely Change as Farm Service 
Agency Continues to Reduce Staff and Close Offices.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-136] 
Washington, D.C.: May 1, 1998.

Farm Programs: Administrative Requirements Reduced and Further Program 
Delivery Changes Possible.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-98] 
Washington, D.C.: April 20, 1998.

Farm Programs: Impact of the 1996 Farm Act on County Office Workload.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-214] 
Washington, D.C.: August 19, 1997.

GAO Contacts:

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

Eliminate the Public Law 480 Title I Food Aid Program:

Primary agency: Department of Agriculture.

Accounts: P.L. 480 Grants (12-2278); P.L. 480 Program (12-2277).

Spending type: Discretionary/Direct.

Budget subfunction: 351/Farm income stabilization.

Theme: Reassess objectives.

[End of table]

Over the past 50 years, the United States has allocated billions of 
dollars in food assistance under Title I of the 1954 Agricultural Trade 
Development and Assistance Act, commonly known as P.L. 480.[Footnote 
27] Under the Title I program, administered by the Department of 
Agriculture (USDA), U.S. agricultural commodities are sold to eligible 
countries under concessional terms.[Footnote 28] In support of broad 
U.S. foreign policy goals, the program's objectives are to enhance food 
security, promote broad-based sustainable development, develop and 
expand markets for U.S. agricultural commodities, and prevent conflict. 
However, the Title I program does not effectively further these goals.

First, there is little evidence that the Title I program has promoted 
broad-based sustainable development. In 1995, we reported that the 
primary means by which Title I assistance could contribute to broad-
based sustainable development would be by helping recipient countries 
save foreign exchange when importing U.S. agricultural commodities; the 
savings could be invested in projects that promote long-term economic 
development. However, we found that the value of foreign exchange that 
countries might save through purchasing Title I commodities on 
concessional terms is small relative to their development needs. Also, 
the program provides USDA with little leverage to influence development 
activities or initiate policy reforms in recipient countries, and 
competing objectives dilute whatever leverage might be associated with 
the program.

Second, there is little evidence that the Title I program has 
contributed to the long-term, foreign market development for U.S. 
agricultural goods. None of the many studies of the Title I program 
that we reviewed established a link between Title I assistance and the 
establishment of a long-term commercial market for U.S. agricultural 
products. Title I commodities tend to be price sensitive, making it 
difficult to transform the concessional market share established 
through the Title I program into commercial market share.

Moreover, we found that legislative requirements impose constraints on 
recipient countries that undermine market development efforts. For 
example, "cargo preference" provisions require that 75 percent of food 
aid tonnage be shipped on U.S.-flagged ships. As a result, some 
recipient countries were forced to purchase different commodities than 
planned based on the availability of U.S.-flagged ships rather than the 
availability of U.S. commodities. Other program requirements severely 
restrict recipients' ability to reexport Title I commodities after 
processing, which discouraged potential importers from participating 
and eliminated an important source of foreign exchange earnings for 
recipient countries.

Since the 1980s, the Title I program has accounted for a declining 
share of total U.S. food assistance. Title I accounted for about 52 
percent of the $15.8 billion in food assistance provided between fiscal 
years 1980 and 1989 but only about 11 percent of the $9.2 billion in 
food assistance provided between fiscal years 2000 and 2004. This 
decline reflects a growing need and priority for humanitarian food 
assistance provided under other programs (primarily Title II) and 
concerns about the Title I program's effectiveness.

In 2001, The President's Management Agenda identified U.S. food aid 
programs (including Title I) as 1 of 14 government areas most in need 
of reform and characterized these programs as duplicative, wasteful, 
and inefficient. The agenda commented on the fact that six different 
food aid programs are administered by two government agencies with 
similar bureaucracies (USDA and the U.S. Agency for International 
Development). The agenda called for more direct feeding of hungry 
populations as a primary goal; better analysis of benefits, costs, and 
performance to determine priorities; minimizing bureaucratic 
duplication and inefficiency; and greater efficiency and transparency 
in program management and implementation.

OMB's fiscal year 2004 Program Assessment Rating Tool rated USDA's food 
aid programs[Footnote 29] as "results not demonstrated." OMB's 
assessment concluded that these programs were not optimally designed, 
lacked performance measures linked to strategic goals and the budget, 
and did not collect annual performance data or make such data available 
to the public in a transparent and meaningful manner. Additionally, 
OMB's assessment identified the need for better coordination between 
USDA and the U.S. Agency for International Development, but concluded 
that meaningful steps to address this and other strategic planning 
deficiencies had not been taken.

In summary, there is little evidence that the Title I program has 
promoted economic development or contributed to developing long-term 
foreign markets for U.S. agricultural goods. Moreover, multiple and 
sometimes competing objectives, as well as contradictory program 
requirements, encumber the program, making it difficult to create and 
implement an effective program strategy. Furthermore, the trend in U.S. 
food aid reflects a growing need and priority for humanitarian food 
assistance provided under other programs. Thus, one option that 
Congress may wish to consider is the elimination of the Title I 
program.

CBO estimates that eliminating the Title I program would produce 
savings.

Five-Year Savings:

Dollars in millions.

Savings from the 2004 plan.

Budget authority;
FY05: 132;
FY06: 135;
FY07: 137;
FY08: 140;
FY09: 142.

Outlays;
FY05: 69;
FY06: 124;
FY07: 132;
FY08: 135;
FY09: 137.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Food Aid: Experience of U.S. Programs Suggests Opportunities for 
Improvement.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-801T] 
Washington, D.C.: June 4, 2002.

U.S. Agricultural Exports: Strong Growth Likely But U.S. Export 
Assistance Programs' Contribution Uncertain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-260] 
Washington, D.C.: September 30, 1997.

Farm Bill Export Options.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-96-39R] 
Washington, D.C.: December 15, 1995.

Food Aid: Competing Goals and Requirements Hinder Title I Program 
Results.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-95-68] 
Washington, D.C.: June 26, 1995.

Cargo Preference Requirements: Objectives Not Significantly Advanced 
When Used in U.S. Food Aid Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-94-215] 
Washington, D.C.: September 29, 1994.

Public Law 480 Title I: Economic and Market Development Objectives Not 
Met.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-94-191] 
Washington, D.C.: August 3, 1994.

GAO Contacts:

Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892:

Reduce or Eliminate the Export Credit Guarantee Programs:

Primary agency: Department of Agriculture.

Accounts: Commodity Credit Corporation Loans; Program Account (12-
1336); Commodity Credit Corporation Fund; (12-4336).

Spending type: Direct.

Budget subfunction: 351/Farm income stabilization.

Theme: Reassess objectives.

[End of table]

Export credit guarantee programs are intended to promote the export of 
U.S. agricultural products by facilitating access to export credit for 
countries that lack adequate commercial credit. These programs 
encourage U.S. lenders to extend credit to approved foreign banks 
financing imports of U.S. agricultural products. Under these programs, 
the Department of Agriculture (USDA) provides a guarantee to U.S. banks 
willing to finance such transactions for exporters shipping U.S. 
products to foreign importers in eligible countries. The Export Credit 
Guarantee Program covers loans up to 3 years, while the Intermediate 
Export Credit Guarantee Program covers loans up to 10 years.[Footnote 
30] Through 2007, USDA is authorized to make a total of $5.5 billion in 
government loan guarantees available each year to finance imports of 
U.S. agricultural commodities, plus an additional $1 billion for 
"emerging markets"--countries that are in the process of becoming 
commercial markets for U.S. agricultural products.[Footnote 31] The 
actual level of credit guarantees depends on market conditions and the 
demand for financing by eligible (i.e., creditworthy) countries.

Since the export credit guarantee programs began in the 1980s, the U.S. 
government has paid billions in claims because foreign country buyers 
rescheduled or defaulted on their loan repayments.[Footnote 32] USDA 
reports that, as of February 2004, the government had paid claims 
totaling about $8.9 billion against issued guarantees of about $77.6 
billion.[Footnote 33] In 1997, we reported that the programs had 
incurred high claims costs because USDA provided a large amount of loan 
guarantees to high-risk countries (such as Iraq and the former Soviet 
Union) for market development reasons and foreign policy 
considerations. According to USDA officials, claims have been lower in 
recent years because fewer guarantees have been issued for exports to 
high-risk countries.[Footnote 34] USDA reports that activity in fiscal 
year 2003 for both export credit programs totaled $2.55 billion. The 
major recipient countries were Turkey ($532 million), South Korea ($372 
million), and Mexico ($177 million). Guarantees have helped facilitate 
sales of a broad range of commodities but, according to CRS, have 
mainly benefited exports of wheat, wheat flour, oil seeds, feed grains, 
and cotton.[Footnote 35]

Proponents of the export credit guarantee (and other export assistance) 
programs, including USDA and some industry groups, maintain that these 
programs benefit the overall U.S. economy, benefit the U.S. 
agricultural sector, counter competitor nations' agricultural export 
programs, and promote U.S. trade negotiating objectives. However, we 
reported in 1997 that there is limited evidence that these programs 
have (1) measurably expanded aggregate employment and output, (2) 
reduced trade and budget deficits, or (3) provided income and 
employment benefits in the U.S. agricultural sector. These programs 
largely reallocate production, employment, and income between sectors 
or targeted markets. Regarding competitor nations' programs, we 
reported that that lack of openness in other nations' agricultural 
assistance efforts makes it difficult to determine conclusively how 
effectively U.S. export programs counter these foreign practices. 
Additionally, several economic studies indicated that foreign 
competitors find U.S. export subsidies relatively inexpensive to 
offset.

Concerning U.S. trade negotiating objectives, we reported in 1997 that 
there are widely divergent views about the amount of leverage these 
programs have provided in the past. Although USDA views the credit 
guarantee programs as commercial programs, the European Union and other 
trading partners charge that these programs have a subsidy element that 
gives the United States an unfair competitive advantage. In September 
1999, U.S. negotiators presented a comprehensive proposal for 
significant disciplines on the use of agriculture export credit 
programs to the Organization for Economic Cooperation and Development. 
Many in the U.S. agricultural community have expressed concern that 
these programs--which they regard as effective tools for expanding 
agricultural exports--not be adversely affected by trade negotiations. 
The Trade Act of 2002 (P.L. 107-210) makes preservation of export 
credit programs a principal U.S. negotiating objective for the current 
round of multilateral trade negotiations. Nevertheless, CRS reports 
that U.S. officials have indicated a willingness to discuss new 
disciplines on export credit programs. These new disciplines would 
mainly focus on limiting the repayment period of the credit programs.

Congress may wish to consider reducing these programs' costs. One 
option would be to reduce credit guarantees to high-risk countries, 
which would lessen the potential for additional program costs due to 
defaults. A second option would be to reduce USDA's annual program 
budget for credit guarantees, allowing USDA to determine where to make 
reductions. A third option would be to eliminate one or both of the 
programs.

Although CBO agreed that these options could result in budgetary 
savings, it could not develop savings estimates.

Related GAO Products:

U.S. Agricultural Exports: Strong Growth Likely but U.S. Export 
Assistance Programs' Contribution Uncertain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-97-260] 
Washington, D.C.: September 30, 1997.

Farm Bill Export Options.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-96-39R] 
Washington, D.C.: December 15, 1995.

Former Soviet Union: Creditworthiness of Successor States and U.S. 
Export Credit Guarantees.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-95-60] 
Washington, D.C.: February 24, 1995.

GSM Export Credit Guarantees.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-94-211R] 
Washington, D.C.: September 29, 1994.

U.S. Department of Agriculture: Issues Related to the Export Credit 
Guarantee Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-93-28] 
Washington, D.C.: May 6, 1993.

Loan Guarantees: Export Credit Guarantee Programs' Costs Are High.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-93-45] 
Washington, D.C.: December 22, 1992.

International Trade: Iraq's Participation in U.S. Agricultural Export 
Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-91-76] 
Washington, D.C.: November 14, 1990.

GAO Contacts:

Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892:

370 Commerce and Housing Credit:

Recapture Interest on Rural Housing Loans:
Require Self-Financing of Mission Oversight by Fannie Mae and Freddie 
Mac:
Reduce Federal Housing Administration's Insurance Coverage:
Merging U.S. Department of Agriculture and Department of Housing and 
Urban Development Single-Family Insured Lending Programs and 
Multifamily Portfolio Management Programs:
Consolidate Homeless Assistance Programs:
Reorganize and Consolidate Small Business Administration's 
Administrative Structure: Improve Reviews of Small Business 
Administration's Preferred Lenders:
Eliminate NIST's Advanced Technology Program:

Recapture Interest on Rural Housing Loans:

Primary agency: Department of Agriculture.

Account: Rural Housing Insurance Fund (12-2081).

Spending type: Direct.

Budget subfunction: 371/Mortgage credit.

Theme: Redefine beneficiaries.

[End of table]

The Housing Act of 1949, as amended, requires U.S. Department of 
Agriculture's (USDA) 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 is 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's 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's 
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. Actual savings could 
differ depending on how this proposal would affect the rate at which 
homes are sold.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: 45;
FY06: 0;
FY07: 0;
FY08: 0;
FY09: 0.

Outlays;
FY05: 45;
FY06: 0;
FY07: 0;
FY08: 0;
FY09: 0.

Source: Congressional Budget Office.

[End of table]

Related GAO Product:

Rural Housing Programs: Opportunities Exist for Cost Savings and 
Management Improvement.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-96-11] 
Washington, D.C.: November 16, 1995.

GAO Contact:

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

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

Primary agency: Department of Housing and Urban Development.

Account: Office of Federal Housing Enterprise Oversight, Salaries and 
Expenses (86-5272).

Spending type: Direct.

Budget subfunction: 371/Mortgage credit.

Theme: Redefine beneficiaries.

[End of table]

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 budgetary savings but 
would also enable HUD to strengthen its oversight activities.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: 10;
FY06: 10;
FY07: 10;
FY08: 10;
FY09: 10.

Outlays;
FY05: 10;
FY06: 10;
FY07: 10;
FY08: 10;
FY09: 10.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Housing Enterprises: The Roles of Fannie Mae and Freddie Mac in the 
U.S. Housing Finance System.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-00-182] 
Washington, D.C.: July 25, 2000.

Federal Housing Enterprises: HUD's Mission Oversight Needs to Be 
Strengthened.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-98-173] 
Washington, D.C.: July 28, 1998.

Government-Sponsored Enterprises: Advantages and Disadvantages of 
Creating a Single Housing GSE Regulator.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-97-139] 
Washington, D.C.: July 9, 1997.

Government-Sponsored Enterprises: A Framework for Limiting the 
Government's Exposure to Risks.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-91-90] 
Washington, D.C.: May 22, 1991.

GAO Contact:

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

Reduce Federal Housing Administration's Insurance Coverage:

Primary agency: Department of Housing and Urban Development.

Account: FHA-Mutual Mortgage Insurance Program Account (86-0183).

Spending types: Discretionary/Direct.

Budget subfunction: 371/Mortgage credit.

Theme: Improve efficiency.

[End of table]

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 FHA's 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 FHA's 1995 loans was 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 FHA's 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 could not provide an estimate for this option.

Related GAO Products:

Mortgage Financing: Changes in the Performance of FHA-Insured Loans.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-773] 
Washington, D.C.: July 10, 2002.

Mortgage Financing: FHA's Fund Has Grown, but Options for Drawing on 
the Fund Have Uncertain Outcomes.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-460] 
Washington, D.C.: February 28, 2001.

Homeownership: Potential Effects of Reducing FHA's Insurance Coverage 
for Home Mortgages.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-93] 
Washington, D.C.: May 1, 1997.

GAO Contact:

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

Merging Department of Agriculture and Department of Housing and Urban 
Development Single-Family Insured Lending Programs and Multifamily 
Portfolio Management Programs:

Primary agencies: Department of Agriculture; Department of Housing and 
Urban Development.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunction: 371/Mortgage credit.

Theme: Improve efficiency.

[End of table]

The Department of Agriculture (USDA), primarily through its Rural 
Housing Service (RHS), has jurisdiction over most federal rural housing 
programs. The Department of Housing and Urban Development (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's single-family guaranteed loan program and 
FHA's 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's program offers more attractive 
terms for the borrower and is available only in rural areas, whereas 
FHA's 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 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.

Although CBO agrees that the option may result in savings, it could not 
develop a savings estimate for this option.

Related GAO Product:

Rural Housing: Options for Optimizing the Federal Role in Rural Housing 
Development.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-241] 
Washington, D.C.: September 15, 2000.

GAO Contact:

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

Consolidate Homeless Assistance Programs:

Primary agency: Department of Housing and Urban Development.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

In 1987, the Congress passed the Stewart B. McKinney Act (P.L. 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 long-term 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 2001, the targeted programs were funded at 
roughly $1.7 billion.

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 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.

The 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 responsible for administering most of the funds for 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.

CBO was not able to estimate the budget savings for this option.

Related GAO Products:

Homelessness: Improving Program Coordination and Client Access to 
Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-485T] 
Washington, D.C.: March 6, 2002.

Homelessness: Consolidating HUD's McKinney Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-00-187] 
Washington, D.C.: May 23, 2000.

Homelessness: State and Local Efforts to Integrate and Evaluate 
Homeless Assistance Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-178] 
Washington, D.C.: June 29, 1999.

Homelessness: Coordination and Evaluation of Programs Are Essential.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-49] 
Washington, D.C.: February 26, 1999.

Homelessness: McKinney Act Programs Provide Assistance but Are Not 
Designed to Be the Solution.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-37] 
Washington, D.C.: May 31, 1994.

GAO Contact:

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

Reorganize and Consolidate Small Business Administration's 
Administrative Structure:

Primary agency: Small Business Administration.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 376/Other advancement of commerce.

Theme: Improve efficiency.

[End of table]

The Small Business Administration's (SBA) complicated and overlapping 
organizational relationships and a field structure that does not 
consistently match mission requirements have combined to impede staff 
efforts to deliver services effectively. Some of the complex 
organizational relationships stem from legislative requirement. Others 
result from past SBA realignment efforts that changed how the agency 
performs its functions but left aspects of the previous structure 
intact.

For example, district staff working on SBA loan programs report to 
their district management, while loan processing and servicing center 
staff report directly to the Office of Capital Access in headquarters. 
Yet, district office loan program staffs sometimes need to work with 
the loan processing and servicing centers to get information or to 
expedite loans for lenders in their district. Because loan processing 
and servicing centers report directly to the Office of Capital Access, 
requests that are directed to the centers sometimes must go from the 
district through the Office of Capital Access then back to the centers. 
District managers and staff said that sometimes they cannot get answers 
to questions when lenders call and that they have trouble expediting 
loans because they lack authority to direct the centers to take any 
action. Lender association representatives said that the lines of 
authority between headquarters and the field can be confusing and that 
practices vary from district to district.

In 2002, GAO reported that SBA drafted a 5-year workforce 
transformation plan. The draft plan recognizes SBA's need to 
restructure its workforce, privatize noncore functions, adjust 
incentives and goals, and streamline its headquarters' operation. In 
October 2003, GAO reported that SBA had made some progress in 
implementing the first phase of its transformation but that further 
progress could be hampered by budget staff realignment challenges. 
Improvements in SBA's organizational structure could lead to savings in 
human capital and office space costs.

Some options that the Congress could consider to assist SBA in its 
transformation effort include:

* rescinding or combining some of the legislatively mandated offices, 
programs, or aspects of existing programs,

* rescinding some of the reporting relationships, grades, or types of 
appointments for senior SBA officials, and:

* giving the agency the ability to close or consolidate some of its 
inefficiently located field offices.

CBO agrees that this option would result in budgetary savings, but it 
could not develop a savings estimate.

Related GAO Products:

Small Business Administration: Progress Made, but Transformation Could 
Benefit from Practices Emphasizing Transparency and Communication.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-76] 
Washington, D.C.: October 31, 2003.

Small Business Administration: Workforce Transformation Plan Is 
Evolving.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-931T] 
Washington, D.C.: July 16, 2002.

Small Business Administration: Current Structure Presents Challenges 
for Service Delivery.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-17] 
Washington, D.C.: October 26, 2001.

GAO Contact:

Davi D'Agostino, (202) 512-8678:

Improve Reviews of Small Business Administration's Preferred Lenders:

Primary agency: Small Business Administration.

Account: Business Loans Program Account (73-1154).

Spending types: Direct/Discretionary.

Budget subfunction: 376/Other advancement of commerce.

Theme: Improve efficiency.

[End of table]

The Small Business Administration's (SBA) largest business loan 
program, the "7(a) program," is intended to serve small business 
borrowers who cannot otherwise obtain financing under reasonable terms 
and conditions from the private sector. As of September 30, 2002, SBA 
had a total portfolio of about $46 billion, including $42 billion in 
direct and guaranteed small business loans and other guarantees. SBA 
delegates full authority to preferred lenders to make loans without 
prior SBA approval. In fiscal year 2002, preferred lenders approved 55 
percent of the dollar value of all 7(a) loans--about $7 billion. 
Because SBA guarantees up to 85 percent of the 7(a) loans made by its 
lending partners, there is risk to SBA if the loans are not repaid. The 
default rate in recent years has been around 14 percent.

SBA is required by law to review preferred lenders at least annually. 
SBA has made progress in developing its lender oversight program, 
including ranking SBA lenders based on their projected financial risk 
to the agency. However, SBA has yet to fully develop and implement 
effective oversight programs that assess lenders' decisions on 
borrowers' creditworthiness and eligibility.

To improve its reviews of preferred lenders, SBA should develop 
specific criteria to apply to the "credit elsewhere" standard,[Footnote 
36] and perform qualitative assessments of lenders' performance and 
lending decisions. Implementation of these recommendations could lead 
to lower defaults on 7(a) loans and/or a smaller 7(a) loan program.

CBO could not estimate the budget savings for this option.

Related GAO Product:

Small Business Administration: Progress Made but Improvements Needed in 
Lender Oversight.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-90] 
Washington, D.C.: December 9, 2002.

GAO Contact:

Davi D'Agostino, (202) 512-8678:

Eliminate NIST's Advanced Technology Program:

Primary agency: Department of Commerce.

Account: Industrial Technology Services (13-0525).

Spending type: Discretionary.

Budget subfunction: 376/Other advancement of commerce.

Theme: Reassess objectives.

[End of table]

The Advanced Technology Program, administered by the National Institute 
of Standards and Technology (NIST), was established in 1988 to improve 
the competitive position of U.S. businesses by supporting private 
industry research that accelerates the development of high-risk 
technologies with potential for broad-based economic benefits for the 
nation. The Advanced Technology Program is designed to fund research 
that businesses alone would not fund. While NIST has reported 
successes, NIST cannot ensure that the business or a competitor would 
not conduct this research in the same time period without government 
assistance. For example, our April 2000 retrospective look at three 
Advanced Technology Program research projects found that their goals 
were similar to research goals already being funded by the private 
sector.

In 2004, U.S. businesses are in a markedly improved competitive 
position compared with Japanese and other foreign businesses competing 
in the global economy. In addition, NIST cannot ensure that Advanced 
Technology Program funding is critical for the timely development of 
generic technologies that may be vital to the U.S. and global 
economies. For these reasons, one option for the Congress is to 
terminate the Advanced Technology Program.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the 2004 funding level.

Budget authority;
FY05: 172;
FY06: 174;
FY07: 178;
FY08: 181;
FY09: 186.

Outlays;
FY05: 173;
FY06: 171;
FY07: 173;
FY08: 176;
FY09: 180.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Advanced Technology Program: Inherent Factors in Selection Process 
Could Limit Identification of Similar Research.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-114] 
Washington, D.C.: April 24, 2000.

Federal Research: Information on the Advanced Technology Program's 
Award Selection.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-258R] 
Washington, D.C.: August 3, 1999.

Federal Research: Information on the Advanced Technology Program's 1997 
Award Selection.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-82R] 
Washington, D.C.: February 24, 1998.

National Institute of Standard and Technology: Carryover Balances for 
Fiscal Year 1997.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-144R] 
Washington, D.C.: April 30, 1997.

R&D Funding Sources for ATP Applicants.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED/OCE-96-258R] 
Washington, D.C.: September 20, 1996.

Measuring Performance: The Advanced Technology Program and Private-
Sector Funding.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-96-47] 
Washington, D.C.: January 11, 1996.

Federal Research: Advanced Technology Program's Indirect Cost Rates and 
Program Evaluation Status.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-93-221] 
Washington, D.C.: September 10, 1993.

GAO Contacts:

Bob Robinson, (202) 512-3841 Robin Nazzaro, (202) 512-3841:

400 Transportation:

Make Further Appropriations on the Pulsed Fast Neutron Analysis 
Inspection System Dependent on Results of Operational Testing:
Close, Consolidate, or Privatize Some Coast Guard Operating and 
Training Facilities: Convert Some Support Officer Positions to Civilian 
Status:
Develop a Passenger Intercity Rail Policy to Meet National Goals:
Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs:
Increase Aircraft Registration Fees to Enable the Federal Aviation 
Administration to Recover Actual Costs:
Improve the Coordination of Transportation Services for Transportation-
Disadvantaged Populations:

Make Further Appropriations on the Pulsed Fast Neutron Analysis 
Inspection System Dependent on Results of Operational Testing:

Primary agency: Multiple.

Account: FAA--Research, Engineering and Development (69-8108).

Spending type: Discretionary.

Budget subfunction: 402/Air transportation.

Theme: Reassess objectives.

[End of table]

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. Four government agencies--the Transportation Security 
Administration (TSA), Bureau of Customs and Border Protection (CBP), 
Department of Defense (DOD), and Federal Aviation Administration (FAA)-
-are currently involved in two separate joint efforts to test and 
demonstrate PFNA's capabilities at ports of entry. As we reported 
initially in 1999 and in subsequent budget options reports for 
Congress, the agencies involved in developing PFNA believed that PFNA 
was too expensive[Footnote 37] and too large for operational use in 
most ports of entry or other sites. TSA continues to believe that PFNA 
will not meet its operational requirements for maritime and land 
applications. While CBP also believes PFNA will not be able to meet its 
operational requirements, it also believes PFNA shows enough promise to 
continue with the operational test. DOD now prefers not to express an 
opinion on whether PFNA would satisfy its requirements or be too 
expensive until after operational testing and a cost benefit analysis 
are completed.

The first PFNA effort,[Footnote 38] is a DOD-led joint operational 
evaluation with CBP and TSA at the Ysleta border crossing in El Paso, 
Texas. This operational evaluation will test PFNA's ability to detect 
drugs, explosives, chemical warfare agents, currency, and nuclear 
materials. It is currently scheduled for completion in October 
2004[Footnote 39] with a final report due in December 2004, and a cost 
benefit analysis scheduled for completion in March 2005. It is 
estimated to cost $17.8 million[Footnote 40] to the government, which 
includes $8.5 million for a firm, fixed-price contract with PFNA's 
manufacturer, The Ancore Corporation, to deliver a system to Ysleta and 
provide support and maintenance for the test. The $17.8 million total 
consists of $6.7 million from DOD, $4.8 million from TSA, and $6.3 
million from CBP. DOD officials stated that its lead role in the joint 
Ysleta operational test is as an independent evaluator and does not 
indicate an endorsement of the system for use by DOD.

The second PFNA effort,[Footnote 41] is a demonstration at the George 
Bush Intercontinental Airport in Houston, Texas. TSA is currently in 
discussions with FAA and Ancore's parent company, OSI Systems, Inc., to 
conduct a joint demonstration. A total of $8 million in government 
funds has thus far been allocated for the demonstration--$4 million 
each from TSA and FAA with an additional $4 million to be provided by 
OSI Systems. TSA began the discussions in February 2004 and could not 
provide additional information at this time. TSA also stated that this 
demonstration is unrelated to a previous cooperative agreement it had 
made with Ancore to test PFNA in a laboratory for aviation 
applications, which could have led to an operational test at an 
airport, as we reported last year. TSA stated that it discontinued 
funding the cooperative agreement before systems development was 
completed.

One option is for the Congress to make further appropriations dependent 
upon a careful evaluation of the results of both the Ysleta land border 
crossing operational test and the Bush Intercontinental Airport 
demonstration.

CBO said that it could not estimate the savings from this option, since 
it is subject to appropriation, which could be higher or lower, 
depending on the results of the evaluation.

Related GAO Product:

Terrorism and Drug Trafficking: Testing Status and Views on Operational 
Viability of Pulsed Fast Neutron Analysis Technology.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-99-54] 
Washington, D.C.: April 13, 1999.

GAO Contact:

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

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

Primary agency: Department of Homeland Security.

Account: United States Coast Guard (70-0600).

Spending type: Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

The Coast Guard could achieve budget savings by downsizing its 
facilities. One such facility is the Curtis Bay facility, which the 
Coast Guard abandoned plans to close in 1988, when GAO reported that it 
lacked supporting data. While the cost effectiveness of this facility 
had been questioned, the Coast Guard had not conducted a detailed study 
to compare the facility's cost effectiveness with that of commercial 
shipyards. A second group of facilities includes over 20 small boat 
stations, which in fiscal year 1996, GAO testified that if closed or 
consolidated, could save the Coast Guard $6 million. Third, GAO 
recommended in 1996 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 year 1995, GAO recommended that the Coast Guard close one of 
its large training centers in Petaluma, Calif.--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 and the 
fundamental challenges in being able to accomplish new homeland 
security responsibilities it has been given while maintaining levels of 
effort in its traditional missions, 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, Calif., would help the Coast Guard to achieve these required 
savings.

Although CBO agreed that this option would result in budgetary savings, 
it could not develop a savings estimate.

Related GAO Products:

Coast Guard: Challenges During the Transition to the Department of 
Homeland Security.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-594T] 
Washington, D.C.: April 1, 2003.

Coast Guard: Comprehensive Blueprint Needed to Balance and Monitor 
Resource Use and Measure Performance for All Missions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-544T] 
Washington, D.C.: March 12, 2003.

Coast Guard: Strategy Needed for Setting and Monitoring Levels of 
Effort for All Missions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-155] 
Washington, D.C.: November 12, 2002.

Coast Guard: Budget Challenges for 2001 and Beyond.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-00-103] 
Washington, D.C.: March 15, 2000.

Coast Guard: Review of Administrative and Support Functions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-62R] 
Washington, D.C.: March 10, 1999.

Coast Guard: Challenges for Addressing Budget Constraints.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-110] 
Washington, D.C.: May 14, 1997.

Marine Safety: Coast Guard Should Address Alternatives as It Proceeds 
With VTS 2000.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-96-83] 
Washington, D.C.: April 22, 1996.

Coast Guard: Issues Related to the Fiscal Year 1996 Budget Request.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-95-130] 
Washington, D.C.: March 13, 1995.

Coast Guard: Improved Process Exists to Evaluate Changes to Small Boat 
Stations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-147] 
Washington, D.C.: April 1, 1994.

GAO Contact:

Margaret Wrightson, (415) 904-2200:

Convert Some Support Officer Positions to Civilian Status:

Primary agency: Department of Homeland Security.

Account: United States Coast Guard (70-0600).

Spending type: Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

The Coast Guard uses officers in operational positions--to command 
boats, ships, and aircraft that can be deployed during times 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 pay 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 active-duty commissioned officers in the positions 
we reviewed is, on average, 21 percent more costly than filling the 
same positions with comparable civilian employees. 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 July 31, 2001 through February 28, 2003, the Coast Guard had 
converted 68 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.

Although CBO agreed that this option would result in budgetary savings, 
it could not develop a savings estimate.

Related GAO Product:

Coast Guard Workforce Mix: Phased-In Conversion of Some Support Officer 
Positions Would Produce Savings.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-60] 
Washington, D.C.: March 1, 2000.

GAO Contact:

Margaret Wrightson, (415) 904-2200:

Develop a Passenger Intercity Rail Policy to Meet National Goals:

Primary agency: National Railroad Passenger Corporation.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 401/Ground transportation.

Theme: Reassess objectives.

[End of table]

The National Railroad Passenger Corporation (Amtrak) operates the 
nation's intercity passenger rail service. As a private corporation, it 
operates trains in 46 states, and, in fiscal year 2002, served about 
23.4 million riders (about 64,000 per day). Amtrak plays only a small 
part in the nation's overall transportation system with the exception 
of some short-distance routes. It has sizeable market shares (compared 
to travel by air) between certain relatively close cities. However, by 
far, the automobile dominates most intercity travel. 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 Amtrak with operating and capital 
assistance, and in the past 5 years, it has provided Amtrak an average 
of about $1 billion each year.

Throughout its existence, Amtrak's financial condition has never been 
strong, and the corporation has been on the edge of bankruptcy several 
times, most recently in 2002. Current levels of federal funding are not 
sufficient to support the existing level of intercity passenger rail 
service being provided by Amtrak. Amtrak has indicated that it will 
need about $2 billion annually--about twice the amount provided in 
recent years--in federal operating and capital assistance over the next 
few years to stabilize its system and to cover operating losses. 
Additional assistance would be needed to expand or enhance service or 
develop high-speed rail corridors.

Amtrak and the administration have offered differing views on Amtrak 
and the future of intercity passenger rail service in America. Amtrak 
focuses primarily on the importance of Amtrak's receiving the funding 
it needs to improve the condition of its equipment, its reliability and 
utilization, and its infrastructure. In contrast, the administration 
has proposed a fundamental restructuring of intercity passenger rail in 
the U.S. The administration's proposal would transition the 
responsibility for Amtrak operations to the states. The federal 
government would support capital costs. States and multi-state compacts 
would decide the type and amount of passenger rail service to be 
provided, and states would select operators for passenger trains based 
on competition. Various members of Congress have also proposed other 
legislative visions for intercity passenger rail.

One option for the Congress is to develop a passenger intercity rail 
policy to meet national goals, based on an evaluation framework. In 
extensive analyses of federal investment approaches across a broad 
stratum of national activities, we have found that the key components 
of a framework for evaluating federal investments include (1) 
establishing clear, nonconflicting goals, (2) establishing the roles of 
governmental and private entities, (3) establishing funding approaches 
that focus on and provide incentives for results and accountability, 
and (4) ensuring that the strategies developed address diverse 
stakeholder interests and limit unintended consequences.

CBO was not able to estimate the budgetary savings of this option.

[End of table]

Related GAO Products:

Intercity Passenger Rail: Issues for Consideration in Developing an 
Intercity Passenger Rail Policy.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-712T] 
Washington, D.C.: April 30, 2003.

Intercity Passenger Rail: Potential Financial Issues in the Event That 
Amtrak Undergoes Liquidation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-871] 
Washington, D.C.: September 20, 2002.

Intercity Passenger Rail: Amtrak Needs to Improve Its Decisionmaking 
Process for Its Route and Service Proposals.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-398] 
Washington, D.C.: April 12, 2002.

Intercity Passenger Rail: Congress Faces Critical Decisions in 
Developing a National Policy.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-522T] 
Washington, D.C.: April 11, 2002.

GAO Contact:

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

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs:

Primary agencies: Multiple.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 403/Water transportation.

Theme: Reassess objectives.

[End of table]

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. Our work showed that 
four federal agencies--the Departments of Defense, Agriculture, Energy, 
and the Agency for International Development--were responsible for 
almost all of the government cargo subject to cargo preference laws and 
that these laws increased these agencies' transportation costs 
substantially. In recent years, the Office of Management and Budget's 
Program Assessment Rating Tool summaries have stated that the Public 
Law 480 Title II food aid program would be more cost effective if these 
laws were eliminated, because they increase delivery cost and time.

CBO estimates the following budget savings if cargo preference laws 
were eliminated.

Five-Year Savings:

Dollars in millions.

Change from the 2004 funding level.

Budget authority;
FY05: 294;
FY06: 377;
FY07: 465;
FY08: 473;
FY09: 481.

Outlays;
FY05: 248;
FY06: 354;
FY07: 441;
FY08: 465;
FY09: 476.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Management Reform: Implementation of the National Performance Review's 
Recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OCG-95-1] 
Washington, D.C.: December 5, 1994.

Maritime Industry: Cargo Preference Laws--Their Estimated Costs and 
Effects.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-95-34] 
Washington, D.C.: November 30, 1994.

Cargo Preference: Effects of U.S. Export-Import Cargo Preference Laws 
on Exporters.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-95-2BR] 
Washington, D.C.: October 31, 1994.

Cargo Preference Requirements: Objectives Not Significantly Advanced 
When Used in U.S. Food Aid Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-94-215] 
Washington, D.C.: September 29, 1994.

GAO Contacts:

Loren Yager, (202) 512-4347 Phil Thomas, (202) 512-9892:

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

Primary agency: Department of Transportation.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

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 2003, 334,594 aircraft were 
registered in the United States. In fiscal year 2003, 61,074 
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.

CBO estimates additional revenue could be achieved if the FAA recovers 
the full cost of processing aircraft registration applications.

Five-Year Savings:

Dollars in millions.

Added collections;
FY05: 5;
FY06: 5;
FY07: 5;
FY08: 5;
FY09: 5.

Source: Congressional Budget Office.

[End of table]

Related GAO Product:

Aviation Safety: Unresolved Issues Involving U.S.-Registered Aircraft.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-93-135] 
Washington, D.C.: June 18, 1993.

GAO Contact:

Gerald Dillingham, (202) 512-4803:

Improve the Coordination of Transportation Services for Transportation-
Disadvantaged Populations:

Primary agency: Multiple.

Accounts: Multiple.

Spending type: Direct/Discretionary.

Budget subfunction: Multiple.

Theme: Improve efficiency.

[End of table]

The ability to access personal or public transportation is fundamental 
for people to connect with employment opportunities, health and medical 
services, educational services, and the community at large. However, 
transportation-disadvantaged persons--those who may have an age-
related condition, a disability, or income constraints--lack the 
ability to provide their own transportation or have difficulty 
accessing whatever conventional public transportation may be available. 
This is a sizeable group; according to the 2000 U.S. Census, 35.1 
million people were over the age of 65, 44.5 million were over age 21 
and disabled, and 33.9 million people were living below the poverty 
line.

Providing transportation services to these populations and coordinating 
them across program lines are becoming more critical issues as the 
transportation-disadvantaged populations grow and financial 
constraints on the federal government and other government levels 
increase. With these trends, it will become more important to maximize 
efficiency wherever possible to avoid having to reduce services. The 
coordination of transportation services--through pooling resources, 
consolidating transportation services under a single state or local 
agency, or sharing information about available services--has been found 
to improve the cost-effectiveness and quality of service. At the state 
and local levels, some agencies have realized substantial benefits by 
coordinating their transportation services while others that do not 
coordinate have experienced overlapping, fragmented, or confusing 
services. In locations where coordination among programs has occurred, 
agencies and users are realizing significant benefits such as improved 
customer service. In areas without coordination, local officials 
reported some examples of (1) overlapping services, such as the 
transportation provider who often runs two vehicles on the same route 
at nearly the same time to accommodate different paperwork 
requirements; (2) fragmented services, when transportation services by 
different counties or programs do not connect and riders have 
difficulty scheduling complete trips; and (3) confusion, when both 
providers and users are overwhelmed by the sheer number of programs and 
their different requirements.

Although decision makers face numerous obstacles in trying to 
coordinate transportation services for the transportation-
disadvantaged, GAO identified several options to mitigate the obstacles 
and improve coordination among federal, state, and local agencies. We 
grouped the obstacles into three categories: (1) reluctance to share 
vehicles and fund coordination activities due to concerns about 
possible adverse effects on clients; (2) different eligibility 
requirements, safety standards, and other programmatic requirements 
that can limit programs' ability to share transportation resources; and 
(3) lack of leadership and commitment to coordinate, as evidenced by 
the limited guidance and information provided by federal and state 
agencies on the possible techniques for coordinating services. The 
options for addressing these obstacles include:

* Harmonizing program standards among federal programs so that programs 
can serve additional populations or better share transportation 
resources, e.g., providing more flexible regulatory language that would 
allow providers to serve additional client groups, developing 
consistent cost accounting methods, and adopting common safety 
standards.

* Expanding interagency forums that would facilitate communication 
among agencies involved in coordination efforts and sharing additional 
technical guidance and information on coordination among federal and 
state agencies through a central clearinghouse or improved Web site.

* Providing financial incentives or mandates that would give priority 
in federal funding to those grant applicants that show a strong 
commitment to coordinate or requiring specific coordination efforts 
among grant recipients as a condition of receiving federal funding.

CBO could not estimate a budget savings for this option.

Related GAO Products:

Transportation-Disadvantaged Populations: Some Coordination Efforts 
Among Programs Providing Transportation Services, but Obstacles 
Persist.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-697] 
Washington, D.C.: June 30, 2003.

Transportation-Disadvantaged Populations: Many Federal Programs Fund 
Transportation Services, but Obstacles to Coordination Persist.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-698T] 
Washington, D.C.: May 1, 2003.

Transportation Coordination: Benefits and Barriers Exist, and Planning 
Efforts Progress Slowly.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-1] 
Washington, D.C.: October 22, 1999.

Hindrances to Coordinating Transportation of People Participating in 
Federally Funded Grant Programs: Volume I.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-77-119] 
Washington, D.C.: October 17, 1977.

GAO Contact:

Kate Siggerud, (202) 512-6570:

450 Community and Regional Development:

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 
Greatest Flood Loss:
Eliminate Flood Insurance for Certain Repeatedly Flooded Properties:
Reduce or Eliminate the Trade Adjustment Assistance Program for Firms 
and Industries: Improve Federal Foreclosure and Property Sales 
Processes:

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

Primary agency: Department of Homeland Security.

Account: National Flood Insurance (70-4236).

Spending type: Direct.

Budget subfunction: 453/Disaster relief and insurance.

Theme: Redefine beneficiaries.

[End of table]

The National Flood Insurance Program is not actuarially sound because 
approximately 30 percent of the 4.3 million policies in force are 
subsidized. Federal Insurance Administration officials estimate that 
total premium income from subsidized policyholders is about $500 
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 Federal Emergency 
Management Agency (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.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Net increase in offsetting receipts.

Budget authority.

Outlays (net increased receipts);
FY05: -49;
FY06: -147;
FY07: -193;
FY08: -190;
FY09: -188.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

National Flood Insurance Program: Actions to Address Repetitive Loss 
Properties.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-401T] 
Washington, D.C.: March 25, 2004.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-00-23] 
Washington, D.C.: October 27, 1999.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-99-280] 
Washington, D.C.: August 25, 1999.

Flood Insurance: Financial Resources May Not Be Sufficient to Meet 
Future Expected Losses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-80] 
Washington, D.C.: March 21, 1994.

GAO Contact:

William Jenkins, Jr., (202) 512-8757:

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties:

Primary agency: Department of Homeland Security.

Account: National Flood Insurance (70-4236).

Spending type: Direct.

Budget subfunction: 453/Disaster relief and insurance.

Theme: Redefine beneficiaries.

[End of table]

Repetitive flood losses are one of the major factors contributing to 
the financial difficulties facing the National Flood Insurance Program 
(NFIP). A repetitive-loss property is one that has two or more losses 
greater than $1,000 each within any 10-year period. In 2002, 
approximately 45,000 buildings insured under the NFIP have been flooded 
on more than one occasion and have received flood insurance claims 
payments of $1,000 or more for each loss. As we reported in July 2001, 
these repetitive losses account for about 38 percent of all program 
claims historically (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. The Federal Emergency Management Agency 
(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.

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 NFIP to increase the number of buyouts of 
properties that suffer repetitive losses.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: 0;
FY06: 0;
FY07: 0;
FY08: 0;
FY09: 0.

Outlays;
FY05: 58;
FY06: 62;
FY07: 67;
FY08: 72;
FY09: 77.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Flood Insurance: Information on the Financial Condition of the National 
Flood Insurance Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-992T] 
Washington, D.C.: July 19, 2001.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-00-23] 
Washington, D.C.: October 27, 1999.

Flood Insurance: Information on Financial Aspects of the National Flood 
Insurance Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-99-280] 
Washington, D.C.: August 25, 1999.

GAO Contact:

William Jenkins, Jr., (202) 512-8757:

Reduce or Eliminate the Trade Adjustment Assistance Program for Firms 
and Industries:

Primary agency: Department of Commerce.

Account: Economic Development Assistance Programs (13-2050).

Spending type: Discretionary.

Budget subfunction: 452/Area and regional development.

Theme: Reassess objectives.

[End of table]

The Trade Adjustment Assistance Program for Firms and Industries is 
designed to assist domestic firms that have been adversely affected by 
imports. The Department of Commerce's Economic Development 
Administration (EDA) administers the program. EDA is responsible for 
certifying firms' eligibility to receive assistance and approving the 
certified firms' business plans for economic recovery. Twelve regional 
centers help firms prepare petitions for certification, assess their 
economic viability, develop business recovery plans, and fund and 
oversee consultants' efforts to implement the business recovery plans. 
In 2002, Congress extended the Trade Adjustment Assistance Program 
through fiscal year 2007 at an authorized annual funding level of $16 
million. The President's fiscal year 2003 budget request was for $13 
million.

Between fiscal years 1995 and 1999, EDA annually certified an average 
of 157 firms as eligible for assistance[Footnote 42] (about 13 per 
regional center) and 127 firms had certified recovery plans (about 11 
per regional center). During this period, most Trade Adjustment 
Assistance 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 
business recovery plans. The remainder of the program funding--an 
annual average of $3.8 million, or approximately 39 percent of the 
total--was used to fund technical assistance to implement the business 
recovery plans.

In December 2000, we reported that the impact of the Trade Adjustment 
Assistance Program was unclear. EDA had not developed appropriate 
outcome measures to demonstrate the program's value in achieving its 
goal of assisting firms adversely affected by imports and did not 
formally monitor and track program outcomes for program recipients. In 
April 2003, the Congressional Research Service reported that evaluation 
of the program had been largely inconclusive. An independent study 
suggested that the Trade Adjustment Assistance Program had been helpful 
to firms at the margin; however, this study had several flaws that may 
have biased its results. EDA added new performance measures for the 
Trade Adjustment Assistance Program for fiscal year 2003 to better 
track outcomes of the assistance provided by the regional centers. 
However, we have not evaluated whether these new measures are 
sufficient to assess how the program is helping firms adjust to import 
competition.

Given the low percentage of program funds used to implement the 
business recovery plans and the lack of information about the program's 
impact, Congress may wish to consider several options for this program:

* Direct the Commerce Department to consolidate the 12 regional centers 
to reduce administrative and overhead costs.

* Direct the Commerce Department to co-locate the regional centers with 
other programs (such as the department's Manufacturing Extension 
Partnership) to reduce administrative and overhead costs and provide 
some synergy with other federal efforts to assist firms.

* Reduce or eliminate the Trade Adjustment Assistance Program.

CBO estimates that the following budgetary savings would occur if the 
Congress chooses to terminate the program.

Five-Year Savings[A]:

Dollars in millions.

Savings from the 2004 funding level:

Budget authority;
FY05: 12;
FY06: 12;
FY07: 13;
FY08: 13;
FY09: 13.

Outlays;
FY05: 1;
FY06: 4;
FY07: 7;
FY08: 10;
FY09: 12.

Source: Congressional Budget Office.

[A] Estimate reflects savings if the Trade Adjustment Assistance 
Program is eliminated.

[End of table]

Related GAO Product:

Trade Adjustment Assistance: Impact of Federal Assistance to Firms Is 
Unclear.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-12] 
Washington, D.C.: December 15, 2000.

GAO Contacts:

Loren Yager, (202) 512-4347 Phil Herr, (202) 512-8509:

Improve Federal Foreclosure and Property Sales Processes:

Primary agencies: Department of Housing and Urban Development; 
Department of Veterans Affairs.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

Opportunities exist to reduce the time necessary to sell foreclosed 
properties and minimize costs to the federal government. Federal 
programs in the Department of Housing and Urban Development's Federal 
Housing Administration (FHA), the Department of Veterans Affairs (VA), 
and the Department of Agriculture's Rural Housing Service (RHS) promote 
mortgage financing for, among other groups, low-income, first-time, 
minority, veteran, and rural home buyers. Fannie Mae and Freddie Mac 
are private corporations chartered by the Congress that also promote 
mortgage financing and home ownership opportunities. Although these 
programs have expanded home ownership opportunities, many home owners 
fall behind in their mortgage payments each year due to unemployment, 
health problems, or the death of a provider. When mortgage lenders 
cannot assist home owners in meeting their payments, FHA, VA, RHS, 
Fannie Mae, and Freddie Mac (the organizations) may instruct the 
lenders to begin foreclosure proceedings. Once foreclosure proceedings 
have been initiated, it is generally in the best interests of the 
organizations and communities that foreclosed properties are adequately 
maintained and resold as quickly as feasible. Otherwise, property 
conditions can deteriorate, thereby resulting in lower sales prices, 
which could limit the government's ability to recover the costs that it 
incurs.[Footnote 43] In addition, vacant and poorly maintained 
properties that are on the market for extended periods contribute to 
neighborhood decay.

FHA procedures can delay the initiation of critical steps necessary to 
preserve the value of foreclosed properties and to sell them quickly. 
While Fannie Mae, Freddie Mac, VA, and RHS designate one entity as 
responsible for the custody, maintenance, and sale of foreclosed 
properties, FHA divides these responsibilities between its mortgage 
servicers and management and marketing contractors. We found that FHA's 
divided approach to foreclosed property custody can prevent the 
initiation of critical maintenance necessary to make properties 
attractive to potential buyers, such as the timely removal of all 
exterior and interior debris, and results in disputes between servicers 
and contractors. Because FHA's divided approach delays maintenance and 
other steps necessary to preserve the value and marketability of 
foreclosed properties, the properties may be sold at lower prices than 
would otherwise be the case. In fact, we estimated that FHA takes about 
55 to 110 days longer to sell foreclosed properties than the other 
organizations. In a June 2003 conversation, an FHA official said that 
the agency continues to consider unified custody as the best means of 
managing its inventory of foreclosed properties. Given legal and other 
complexities associated with changing its approach to selling 
foreclosed properties, FHA does not expect to complete its ongoing 
review of the best means of implementing unified custody until October 
2004.

FHA and VA together spent about $31.5 million in 2000 on new title 
insurance policies to help establish that they had clear title to 
foreclosed properties, while Fannie Mae, Freddie Mac, and RHS generally 
did not purchase new title insurance policies. Neither FHA nor VA 
collects data to determine the need for these expenditures, and 
available information suggests they are not cost effective. In 1995, 
VA's Office of Inspector General (OIG) issued a report that questioned 
whether VA's title insurance expenditures offered value to the 
government, and VA has not implemented recommendations contained in the 
report to assess the expenditures' cost effectiveness. In addition, 
Fannie Mae, Freddie Mac, and RHS report few title-related problems when 
they sell foreclosed properties. We recommended that FHA and VA collect 
additional data and reevaluate the cost effectiveness of their title 
insurance expenditures. In a June 2003 conversation, an FHA official 
said that FHA expects to complete its review of purchasing title 
insurance during the foreclosure process by October 2004. In a December 
2003 conversation, a VA official said that the department expects to 
complete its review in early calendar year 2004.

As an option, Congress may wish to consider enacting legislation to 
establish unified custody as a priority for the sale of foreclosed 
properties that FHA takes into its inventory and directing the agency 
to complete its review of the best means of implementing unified 
custody by the close of fiscal year 2004.

As an option, Congress may wish to consider enacting legislation 
directing FHA and VA to complete their ongoing reviews of the cost 
effectiveness of purchasing new title insurance policies during the 
foreclosure process by the close of fiscal year 2004.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Product:

Single-Family Housing: Opportunities to Improve Federal Foreclosure and 
Property Sales Processes.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-305] 
Washington, D.C.: April 17, 2002.

GAO Contact:

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

500 Education, Training, Employment, and Social Services:

Improve Targeting of Title I Basic Grants:
Change Borrower Interest Rate on Federal Consolidation Loans From Fixed 
to Variable:

Improve Targeting of Title I Basic Grants:

Primary agency: Department of Education.

Account: Education for the disadvantaged (10-900).

Spending type: Discretionary.

Budget subfunction: 501/Elementary, secondary, and vocational 
education.

Theme: Redefine beneficiaries.

[End of table]

Title I is the largest federal program supporting elementary and 
secondary education. While state and local funds account for the vast 
majority of total education expenditures nationally, Title I is an 
important source of funding for many high-poverty districts and 
schools. Created in 1965 as part of the War on Poverty, Title I is 
designed to help educate disadvantaged children--those with low 
academic achievement attending schools serving high-poverty areas.

To distribute Title I funds to school districts, the law authorizing 
the program provides for several types of grants; "basic grants," 
however, are the primary vehicle for Title I funding and are the 
easiest grants for which school districts can qualify. Districts are 
eligible for basic grants if they have at least 10 poor children and 
the number of poor children is more than 2 percent of the district's 
school-age children. Nationally, about 92 percent of school districts 
(containing over 99 percent of poor children) received basic grants in 
fiscal year 1999, accounting for about 85 percent of total Title I 
funds.

Title I grants have sometimes been criticized because the poverty 
threshold for basic grant eligibility is so low that nearly all school 
districts can participate in the program. It is often noted that by 
funding nearly all districts, less funding is available for districts 
with higher concentrations of poverty. One policy option to further 
target funding for higher poverty districts would be to raise the basic 
grant eligibility threshold, making fewer districts eligible. With 
fewer districts eligible, the remaining districts would receive more 
funds per poor child, even if total Title I funding were to remain 
constant. Another policy option would be to raise the basic grant 
eligibility threshold, but redistribute only half of the funds 
resulting from fewer districts being eligible, while reducing federal 
expenditures by retaining the remaining funds. Yet another option would 
be to raise the basic grant eligibility threshold without 
redistributing any of the funds obtained from doing so. We reported in 
2002 that increasing the poverty threshold for basic grant eligibility 
from 2 to 10 percent would reduce the percentage of school districts 
qualifying for basic grants from 92 to 74 percent of school districts 
nationwide. Such an increase in the eligibility threshold would have 
generated over $570 million, which could have been used to redistribute 
to school districts remaining eligible for Title I basic grants and/or 
to reduce federal expenditures.

CBO estimates no budgetary savings from this option with a decrease in 
appropriation.

Related GAO Product:

Title I Funding: Poor Children Benefit Though Funding Per Poor Child 
Differs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-242] 
Washington, D.C.: January 31, 2002.

GAO Contact:

Marnie S. Shaul, (202) 512-7215:

Change Borrower Interest Rate on Federal Consolidation Loans From Fixed 
to Variable:

Primary agency: Department of Education.

Account: Federal Family Education Loan Program; (91-0231); Federal 
Direct Student Loan Program; (91-0243).

Spending type: Direct.

Budget subfunction: 502/Higher education.

Theme: Improve efficiency.

[End of table]

Student consolidation loans, available under the Department of 
Education's two major student loan programs--the Federal Family 
Education Loan Program (FFELP) and the William D. Ford Federal Direct 
Loan Program (FDLP)--were created to help borrowers cope with large 
amounts of federal student loan debt. Consolidation loans allow 
borrowers to combine loans, extend their repayment period, and reduce 
monthly repayments, thereby helping to reduce the government's costs of 
paying for defaults. Consolidation loans also allow borrowers to lock 
in a fixed interest rate, unlike most other federal student loans, 
which carry an interest rate that varies from year to year. Between 
fiscal year 2000 and 2002, the number of borrowers consolidating their 
federal student loans nearly doubled to almost 1 million, and the total 
amount of loans being consolidated rose from $12 billion to over $31 
billion. Lower interest rates and the increased consolidation loan 
volumes of recent years have increased the estimated long-term cost--or 
subsidy cost--to the government of guaranteeing FFELP consolidation 
loans. The estimated subsidy costs for FFELP consolidation loans grew 
from $1.3 billion for loans made in fiscal year 2002 to nearly $3 
billion for loans made in fiscal year 2003. Interest rates and loan 
volume also affected costs for FDLP consolidation loans by reducing the 
net gain to the government to $286 million for loans made in fiscal 
year 2003, down from $460 million the year before.

The surge in the number of borrowers consolidating their loans suggests 
that many borrowers who face little risk of default are choosing 
consolidation as a way of obtaining low fixed interest rates. If 
borrowers continue to consolidate their loans in the current low 
interest rate environment, and interest rates rise, the government will 
continue to assume relatively high subsidy costs for FFELP 
consolidation loans due to the payments the government must make to 
lenders to ensure their statutorily guaranteed rate of return on the 
loans they make. (Lenders' guaranteed rates of return vary, based on 
prevailing market interest rates and are projected to be higher in the 
future.) Providing for higher subsidy costs for consolidation loans may 
outweigh any government savings associated with the reduced costs of 
loan defaults for the smaller number of borrowers who might default in 
the absence of the repayment flexibility offered by consolidation 
loans.

One option for the Congress is to change the interest charged to 
borrowers on consolidation loans from a fixed to a variable rate that 
is consistent with the interest rates carried by most other federal 
student loans--which underlie borrowers' consolidation loans. Such an 
option might reduce overall federal costs by reducing the volume and 
subsidy costs of consolidation loans. When low fixed interest rates are 
no longer an option on consolidation loans, borrowers who are not 
experiencing difficultly in managing their student loan debt would have 
less incentive to consolidate their loans.[Footnote 44] For borrowers 
who are, however, experiencing difficulties in paying their student 
loans and at risk of default, the program would continue to be an 
important tool to help them manage their educational debt by 
consolidating multiple loan repayments into one and extending their 
repayment term, thereby reducing their monthly repayments.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Product:

Student Loan Programs: As Federal Costs of Loan Consolidation Rise, 
Other Options Should be Examined.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-101] 
Washington, D.C.: October 31, 2003.

GAO Contact:

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

550 Health:

Improve Fairness of Medicaid Matching Formula:
Prevent States from Using Illusory Approaches to Shift Medicaid Program 
Costs to the Federal Government:
Control Provider Enrollment Fraud in Medicaid:
Eliminate Federal Funding for SCHIP Covering Adults without Children 
Charge Beneficiaries for Food Inspection Costs:
Redirect Carcass-by-Carcass Inspection Resources in Meat and Poultry 
Plants:
Create a Uniform Federal Mechanism for Food Safety:

Improve Fairness of Medicaid Matching Formula:

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.

Theme: Reassess objectives.

[End of table]

The Medicaid program provides medical assistance to individuals who are 
low-income, aged, blind, or disabled. 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. 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.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Products:

Medicaid Formula: Differences in Funding Ability among States Often Are 
Widened.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-620. ] 
Washington, D.C.: July 10, 2003.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 
State Spending.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-29R] 
Washington, D.C.: February 19, 1999.

Medicaid Matching Formula: Effects of Need Indicators on New York's 
Funding.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-152R] 
Washington, D.C.: June 9, 1997.

Medicaid: Matching Formula's Performance and Potential Modifications.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-95-226] 
Washington, D.C.: July 27, 1995.

Medicaid Formula: Fairness Could Be Improved.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HRD-91-5] 
Washington, D.C.: December 7, 1990.

GAO Contact:

Kathryn G. Allen, (202) 512-7114:

Prevent States from Using Illusory Approaches to Shift Medicaid Program 
Costs to the Federal Government:

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.

Theme: Redefine beneficiaries.

[End of table]

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, which 
limits such payments to unreimbursed Medicaid and uninsured costs for 
state-owned facilities, (2) the Balanced Budget Act of 1997, which 
further limits Medicaid payments to state psychiatric hospitals, and 
(3) the Medicare, Medicaid, and SCHIP Benefits Improvement and 
Protection Act of 2000,[Footnote 45] which directed the Health Care 
Financing Administration (HCFA) to issue a final regulation that 
further curtailed states' ability to claim excessive federal matching 
funds through financing schemes, which HCFA, now called the Centers for 
Medicare & Medicaid Services (CMS), did in January 2001.

Despite these legislative and regulatory restrictions, our ongoing work 
has demonstrated that some states continue to benefit from financing 
schemes to draw down federal Medicaid payments that substantially 
exceed costs. Moreover, while CMS has taken steps to strengthen its 
oversight of states' financing arrangements, these steps have not gone 
far enough to ensure that federal funds are used for the purposes for 
which Medicaid funds are intended. For example, a 2001 regulation 
limited the use of these arrangements and provided for transition 
periods for states to phase out their excessive claims for federal 
matching funds. Our ongoing work has found that CMS's decisions to 
grant 8-year transition periods to two states with nursing home 
arrangements were not consistent with the stated purpose of the 
agency's regulation intended to curtail these financing schemes. We are 
also currently examining the extent to which states are hiring private 
consulting firms to inappropriately maximize federal reimbursement 
through the Medicaid program.

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.

CBO agrees that the option may result in savings, but it could not 
develop a savings estimate for this option.

Related GAO Products:

Medicaid: Intergovernmental Transfers Have Facilitated State Financing 
Schemes.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-574T] 
Washington, D.C.: March 18, 2004.

Medicaid: Improved Federal Oversight of State Financing Schemes Is 
Needed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-228] 
Washington, D.C.: February 13, 2004.

Major Management Challenges and Program Risks: Department of Health and 
Human Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-101] 
Washington, D.C.: January 2003.

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 
Projects Raise Concerns.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-817] 
Washington, D.C.: July 12, 2002.

Medicaid: HCFA Reversed Its Position and Approved Additional State 
Financing Schemes.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-147] 
Washington, D.C.: October 30, 2001.

Medicaid: State Financing Schemes Again Drive Up Federal Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-193] 
Washington, D.C.: September 6, 2000.

Medicaid: Managed Care and Individual Hospital Limits for 
Disproportionate Share Hospital Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-73R] 
Washington, D.C.: January 28, 1998.

Medicaid: Disproportionate Share Payments to State Psychiatric 
Hospitals.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-52] 
Washington, D.C.: January 23, 1998.

Medicaid: Disproportionate Share Hospital Payments to Institutions for 
Mental Disease.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-181R] 
Washington, D.C.: July 15, 1997.

State Medicaid Financing Practices.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-76R] 
Washington, D.C.: January 23, 1996.

Michigan Financing Arrangements.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-95-146R] 
Washington, D.C.: May 5, 1995.

Medicaid: States Use Illusory Approaches to Shift Program Costs to the 
Federal Government.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-94-133] 
Washington, D.C.: August 1, 1994.

Medicaid: The Texas Disproportionate Share Program Favors Public 
Hospitals.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HRD-93-86] 
Washington, D.C.: March 30, 1993.

GAO Contact:

Kathryn G. Allen, (202) 512-7118:

Control Provider Enrollment Fraud in Medicaid:

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.

Theme: Improve efficiency.

[End of table]

Continuing prosecutions of provider fraud in the California Medicaid 
program, which have resulted in more than $134 million in restitution 
and 550 criminal convictions since 1999, 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. Since 1999, California has coupled its increased enforcement with 
closer monitoring of providers and increased scrutiny prior to 
enrollment.

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 reported 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 & 
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 has a work group that is considering options for a limited pilot 
project to study coordinating aspects of Medicaid and Medicare provider 
enrollment activities.

CBO agrees that the option may result in savings, but it could not 
develop a savings estimate for it.

Related GAO Products:

Major Management Challenges and Program Risks: Department of Health and 
Human Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-101] 
Washington, D.C.: January 2003.

Medicaid: State Efforts to Control Improper Payment Vary.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-662] 
Washington, D.C.: June 7, 2001.

Medicaid: HCFA and States Could Work Together to Better Ensure the 
Integrity of Providers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-159] 
Washington, D.C.: July 18, 2000.

Medicaid: Federal and State Leadership Needed to Control Fraud and 
Abuse.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-30] 
Washington, D.C.: November 9, 1999.

Health Care: Fraud Schemes Committed by Career Criminals and Organized 
Criminal Groups and Impact on Consumers and Legitimate Health Care 
Providers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OSI-00-1R] 
Washington, D.C.: October 5, 1999.

Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded 
Providers From Federal Health Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-63] 
Washington, D.C.: March 31, 1997.

Fraud and Abuse: Providers Excluded From Medicaid Continue to 
Participate in Federal Health Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-96-205] 
Washington, D.C.: September 5, 1996.

Prescription Drugs and Medicaid: Automated Review Systems Can Help 
Promote Safety, Save Money.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-96-72] 
Washington, D.C.: June 11, 1996.

GAO Contact:

Leslie G. Aronovitz, (312) 220-7767:

Eliminate Federal Funding for SCHIP Covering Adults without Children:

Primary agency: Department of Health and Human Services.

Account: State Children's Health Insurance Fund (75-0515).

Spending type: Direct.

Budget subfunction: 551/Health care service.

Theme: Redefine beneficiaries.

[End of table]

In July 2002, we reported both legal and policy concerns about the 
extent to which the Department of Health and Human Services (HHS) has 
ensured that approved demonstration waivers, authorized under section 
1115 of the Social Security Act, were consistent with the goals and 
fiscal integrity of the Medicaid and State Children's Health Insurance 
Program (SCHIP). The legal concern was that HHS approved a waiver to 
allow a state to use unspent SCHIP funding to cover adults without 
children, despite the program's statutory objective of expanding health 
coverage to low-income children. We also reported policy concerns that 
approved waivers may increase the federal liability for program 
expenditures. Specifically, despite HHS's oversight responsibilities 
for ensuring that states' demonstration programs do not put the federal 
government at risk for spending more on Medicaid than it would have 
without such programs, two of the four approved waivers we reviewed 
could potentially cost the federal government at least $330 million 
more than if they had not been approved. We recommended that the 
Congress consider amending title XXI of the Social Security Act to 
specify that SCHIP funds are not available to provide health insurance 
coverage for childless adults. We also recommended that the Secretary 
of HHS better ensure that valid methods are used to demonstrate budget 
neutrality and appropriately adjust the federal obligation for the 
reviewed waivers. In January 2004, we reported that HHS has continued 
to approve waivers that allow states to use SCHIP funds to cover 
childless adults. We concluded that it appeared likely that HHS will, 
in the absence of action in response to the matters for congressional 
consideration raised in our July 2002 report, continue to allow states 
to use SCHIP funds to cover childless adults.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: 0;
FY06: -12;
FY07: -10;
FY08: -13;
FY09: -30.

Outlays;
FY05: -18;
FY06: -32;
FY07: -46;
FY08: -102;
FY09: -174.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

SCHIP: HHS Continues to Approve Waivers That Are Inconsistent with 
Program Goals.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-166R] 
Washington, D.C.: January 5, 2004.

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver 
Projects Raise Concerns.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-817] 
Washington, D.C.: July 12, 2002.

GAO Contact:

Kathryn G. Allen, (202) 512-7118:

Charge Beneficiaries for Food Inspection Costs:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 554/Consumer and occupational health and safety.

Theme: Redefine beneficiaries.

[End of table]

User fees--charges individuals or firms pay for services they receive 
from the federal government--are not new but 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 currently 
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. Office of 
Management and Budget (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. The U.S. Department of Agriculture 
(USDA) Food Safety and Inspection Service (FSIS) provides a special 
benefit to meat and poultry slaughter and processing plants that 
incidentally benefits the general public.

USDA inspection agencies recovered through user fees only about $403 
million of the $1.3 billion they spent in 2002 to inspect, test, grade, 
and approve agricultural commodities and products. Federal 
appropriations have traditionally funded the agencies' remaining 
inspection expenses. While it has been a few years since we last 
reported on this issue, the situation has not materially changed. 
Accordingly, an option the Congress may want to consider is to set the 
user fees to cover the full cost of USDA inspection services provided 
to meat and poultry slaughter and processing plants.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the 2004 funding level.

Budget authority;
FY05: -380;
FY06: -785;
FY07: -813;
FY08: -843;
FY09: -874.

Outlays;
FY05: -342;
FY06: -745;
FY07: -810;
FY08: -840;
FY09: -871.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-224] 
Washington, D.C.: August 6, 1998.

Food-Related Services: Opportunities Exist to Recover Costs by Charging 
Beneficiaries.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-97-57] 
Washington, D.C.: March 20, 1997.

Food Safety and Quality: Uniform Risk-based Inspection System Needed to 
Ensure Safe Food Supply.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-92-152] 
Washington, D.C.: June 26, 1992.

GAO Contacts:

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

Redirect Carcass-by-Carcass Inspection Resources in Meat and Poultry 
Plants:

Primary agency: Department of Agriculture.

Account: Food Safety and Inspection Service (12-3700).

Spending type: Discretionary.

Budget subfunction: 554/Consumer and occupational health and safety.

Theme: Redefine beneficiaries.

[End of table]

Foodborne illness in the United States is extensive and expensive. 
Foodborne diseases cause about 76 million illnesses, 325,000 
hospitalizations, and 5,200 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 U.S. Department of Agriculture (USDA) estimates.

Currently, 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 relies on outdated, labor-
intensive inspection methods. Under current law, USDA inspects each of 
the over 8 billion livestock and bird carcasses slaughtered annually. 
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 ($730 million in 2002), 
they are unable to detect most microbial contamination. While USDA has 
implemented a risk-based meat and poultry inspection system, it still 
maintains a carcass-by-carcass inspection system under current law.

Legislative revisions could allow FSIS to further emphasize risk-based 
inspections. Much of the funding used to fulfill current meat and 
poultry carcass-by-carcass inspection activities could be redirected.

CBO agrees that the option may result in savings, but it could not 
develop a savings estimate for this option.

Related GAO Products:

Meat and Poultry: Better USDA Oversight and Enforcement of Safety Rules 
Needed to Reduce Risk of Foodborne Illnesses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-902] 
Washington, D.C.: August 30, 2002.

Food Safety: Weaknesses in Meat and Poultry Inspection Pilot Should Be 
Addressed Before Implementation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-59] 
Washington, D.C.: December 17, 2001.

Food Safety: Overview of Federal and State Expenditures.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-177] 
Washington, D.C.: February 20, 2001.

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-224] 
Washington, D.C.: August 6, 1998.

Food Safety: Risk-Based Inspections and Microbial Monitoring Needed for 
Meat and Poultry.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-192] 
Washington, D.C.: September 26, 1994.

Food Safety and Quality: Uniform Risk-Based Inspection System Needed to 
Ensure Safe Food Supply.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-92-152] 
Washington, D.C.: June 26, 1992.

GAO Contacts:

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

Create a Uniform Federal Mechanism for Food Safety:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunction: 554/Consumer and occupational health and safety.

Theme: Improve efficiency.

[End of table]

Today, a multitude of agencies oversees food safety. Two agencies 
account for most federal spending on, and regulatory responsibilities 
for, food safety. The Food Safety and Inspection Service (FSIS), under 
the U.S. Department of Agriculture (USDA), is responsible for the 
safety of meat, poultry, eggs, and some egg products, while the Food 
and Drug Administration (FDA), under the Department of Health and Human 
Services (HHS), 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 brings 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 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 inspection activities in an existing 
department, such as USDA or HHS.

CBO agrees that the option may result in savings, but it could not 
develop a savings estimate for this option.

Related GAO Products:

Food Safety: Continued Vigilance Needed to Ensure Safety of School 
Meals.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-669T] 
Washington, D.C.: April 30, 2002.

Food Safety: CDC Is Working to Address Limitations in Several of Its 
Foodborne Surveillance Systems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-973] 
Washington, D.C.: September 7, 2001.

Food Safety: Federal Oversight of Shellfish Safety Needs Improvement.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-702] 
Washington, D.C.: July 9, 2001.

Food Safety: Overview of Federal and State Expenditures.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-177] 
Washington, D.C.: February 20, 2001.

Food Safety: Federal Oversight of Seafood Does Not Sufficiently Protect 
Consumers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-204] 
Washington, D.C.: January 31, 2001.

Food Safety: Actions Needed by USDA and FDA to Ensure That Companies 
Promptly Carry Out Recalls.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-195] 
Washington, D.C.: August 17, 2000.

Food Safety: Improvements Needed in Overseeing the Safety of Dietary 
Supplements and "Functional Foods.":
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-156] 
Washington, D.C.: July 11, 2000.

Meat and Poultry: Improved Oversight and Training Will Strengthen New 
Food Safety System.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-16] 
Washington, D.C.: December 8, 1999.

Food Safety: Agencies Should Further Test Plans for Responding to 
Deliberate Contamination.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-3] 
Washington, D.C.: October 27, 1999.

Food Safety: U.S. Needs a Single Agency to Administer a Unified, Risk-
Based Inspection System.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-RCED-99-256] 
Washington, D.C.: August 4, 1999.

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 
Enhance Effectiveness.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-224] 
Washington, D.C.: August 6, 1998.

Food Safety: Federal Efforts to Ensure the Safety of Imported Foods Are 
Inconsistent and Unreliable.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-103] 
Washington, D.C.: April 30, 1998.

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-192] 
Washington, D.C.: September 26, 1994.

Food Safety and Quality: Uniform Risk-Based Inspection System Needed to 
Ensure Safe Food Supply.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-92-152] 
Washington, D.C.: June 26, 1992.

GAO Contacts:

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

570 Medicare:

Reassess Medicare Incentive Payments in Health Care Shortage Areas:
Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, 
and Market Prices:
Increase Medicare Program Safeguard Funding:
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:
Allow Provisions for Direct Laboratory Payment for Certain Medicare 
Pathology Services to Expire:
Require Information on Enrollees from Private Health Insurers to 
Improve Identification of Medicare Beneficiaries with Other Health 
Coverage:

Reassess Medicare Incentive Payments in Health Care Shortage Areas:

Primary agency: Department of Health and Human Services.

Account: Federal Supplemental Insurance Trust Fund Account (20-8004).

Spending type: Direct.

Budget subfunction: 571/Medicare.

Theme: Reassess objectives.

[End of table]

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 (HHS) as having a shortage of 
primary care physicians. In 2002, Medicare Incentive Payments totaled 
$104 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, 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 & 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.

HHS 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 
goals and better structure the program to link limited federal funds to 
intended outcomes. For example, if the program's goal 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.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Products:

Physician Workforce: Physician Supply Increased in Metropolitan and 
Nonmetropolitan Areas but Geographic Disparities Persisted.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-124] 
Washington, D.C.: October 31, 2003.

Physician Shortage Areas: Medicare Incentive Payments Not an Effective 
Approach to Improve Access.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-36] 
Washington, D.C.: February 26, 1999.

Health Care Shortage Areas: Designations Not a Useful Tool for 
Directing Resources to the Underserved.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-95-200] 
Washington, D.C.: September 8, 1995.

GAO Contact:

A. Bruce Steinwald, (202) 512-7114:

Adjust Medicare Payment Rates to Reflect Changing Technology, Costs, 
and Market Prices:

Primary agency: Department of Health and Human Services.

Account: Federal Supplementary Medical Insurance Trust Fund (20-8004).

Spending type: Direct.

Budget subfunction: 571/Medicare.

Theme: Improve efficiency.

[End of table]

Medicare's supplementary medical insurance program (Medicare Part B) 
spent almost $9.4 billion for durable medical equipment, prosthetics, 
orthotics, and supplies in 2002 on behalf of its beneficiaries. For 
most medical equipment and supplies, Medicare payments are primarily 
based on historical charges, indexed forward, rather than current costs 
or market prices.

We have reported that Medicare payments for some medical equipment and 
supplies are out of line with actual 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 payment rates. In 
fact, through the years, the Congress has legislatively adjusted 
Medicare rates for some products and services, such as home oxygen, 
clinical laboratory tests, intraocular lenses, computed tomography 
scans, and magnetic resonance imaging scans.

To address 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.) The 
agency issued an interim final rule to implement its authority in 
December 2002. However, in the rule, the agency limited its ability to 
use its new authority to bring its payment rates into line with market 
prices by indicating that it would adjust Medicare payment rates only 
when they were at least 15 percent above or below a realistic and 
equitable amount.

An additional limitation to effectively using this new authority is 
that CMS frequently does not know specifically what Medicare 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 products of comparable 
quality and price. 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.

Several options could help to better align Medicare fees with actual 
costs and market prices. One option that the Congress has recently 
acted upon is to give CMS the authority to implement competitive 
bidding for durable medical equipment, prosthetics, orthotics, and 
supplies. Competitive bidding creates incentives for providers to 
provide items and services at lower costs to obtain business. The 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003 
requires CMS to develop programs for the competitive acquisition of 
durable medical equipment and supplies and off the shelf orthotics in 
10 of the largest statistical metropolitan areas in 2007, 80 of the 
largest metropolitan statistical areas in 2009, and in additional areas 
thereafter. Priority may be given to those items and services that 
represent the highest cost and volume to the Medicare program or have 
the greatest potential for program savings. CMS can use information on 
the payments determined through competitive bidding in these localities 
for specific items to adjust the amounts Medicare will pay for them in 
other localities.

In November 2003, CBO estimated that giving CMS authority to conduct 
competitive bidding for durable medical equipment, off-the-shelf 
orthotics and supplies and other changes in payment for these items in 
the Medicare legislation could result in a net reduction of Medicare 
spending of $6.8 billion from fiscal years 2004 through 2013.

A second option for paying more appropriately for medical equipment and 
supplies would be to base 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 would be to develop separate fee schedules 
that distinguish between wholesale and retail acquisition to ensure 
that large suppliers do not receive inappropriately large Medicare 
reimbursements. Although none of these options 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.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Products:

Major Management Challenges and Program Risks: Department of Health and 
Human Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-101] 
Washington, D.C.: January 2003.

Medicare: Challenges Remain in Setting Payments for Medical Equipment 
and Supplies and Covered Drugs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-833T] 
Washington, D.C.: June 12, 2002.

Medicare Payments: Use of Revised "Inherent Reasonableness" Process 
Generally Appropriate.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-79] 
Washington, D.C.: July 5, 2000.

Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA 
Monitoring Needed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-56] 
Washington, D.C.: April 5, 1999.

Medicare: Progress to Date in Implementing Certain Major Balanced 
Budget Act Reforms.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-99-87] 
Washington, D.C.: March 17, 1999.

Medicare: Need to Overhaul Costly Payment System for Medical Equipment 
and Supplies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-102] 
Washington, D.C.: May 12, 1998.

Medicare: Home Oxygen Program Warrants Continued HCFA Attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-17] 
Washington, D.C.: November 7, 1997.

Medicare: Problems Affecting HCFA's Ability to Set Appropriate 
Reimbursement Rates for Medical Equipment and Supplies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-157R] 
Washington, D.C.: June 17, 1997.

Medicare: Comparison of Medicare and VA Payment Rates for Home Oxygen.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-120R] 
Washington, D.C.: May 15, 1997.

Medicare Spending: Modern Management Strategies Needed to Curb Billions 
in Unnecessary Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-95-210] 
Washington, D.C.: September 19, 1995.

Medicare High Spending Growth Calls for Aggressive Action.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-95-75] 
Washington, D.C.: February 6, 1995.

GAO Contact:

Leslie G. Aronovitz, (312) 220-7767:

Increase Medicare Program Safeguard Funding:

Primary agency: Department of Health and Human Services.

Accounts: Health Care Fraud and Abuse Control Account (75-8393); 
Federal Hospital Insurance Trust Fund; (20-8005); Federal Supplementary 
Medical Insurance Trust Fund (20-8004).

Spending type: Discretionary/Direct.

Budget subfunction: 571/Medicare.

Theme: Improve efficiency.

[End of table]

Medicare program safeguard activities designed to combat fraud, waste, 
and abuse have historically returned about $10 in savings for each 
dollar spent, and Centers for Medicare & Medicaid Services (CMS) 
reported a return of $16 for each dollar spent in fiscal year 2002. 
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 the agency now called CMS 
with increased funding for program safeguard activities. CMS has taken 
a number of actions under MIP to promote more efficient and effective 
contractor safeguard operations.

While funding has increased, in 2002 it remained 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. 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 have suggested that the Congress consider increasing the 
agency's MIP funds to allow an expansion of postpayment medical review 
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 CMS evaluate the effectiveness of 
prepayment and postpayment activities to determine the relative 
benefits of various safeguards.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Products:

Major Management Challenges and Program Risks: Department of Health and 
Human Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-101] 
Washington, D.C.: January 2003.

Medicare: Opportunities and Challenges in Contracting for Program 
Safeguards.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-616] 
Washington, D.C.: May 18, 2001.

Major Management Challenges and Program Risks: Department of Health and 
Human Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-247] 
Washington, D.C.: January 2001.

Medicare: HCFA Could Do More to Identify and Collect Overpayments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS/AIMD-00-304] 
Washington, D.C.: September 7, 2000.

Medicare: Health Care Fraud and Abuse Control Program Financial Reports 
for Fiscal Years 1998 and 1999.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-00-257R] 
Washington, D.C.: July 31, 2000.

Medicare Contractors: Further Improvement Needed in Headquarters and 
Regional Office Oversight.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-46] 
Washington, D.C.: March 23, 2000.

Medicare: Program Safeguard Activities Expand, but Results Difficult to 
Measure.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-165] 
Washington, D.C.: August 4, 1999.

Medicare Contractors: Despite Its Efforts, HCFA Cannot Assure Their 
Effectiveness or Integrity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-115] 
Washington, D.C.: July 14, 1999.

Medicare: Improprieties by Contractors Compromised Medicare Program 
Integrity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OSI-99-7] 
Washington, D.C.: July 14, 1999.

Medicare: Fraud and Abuse Control Pose a Continuing Challenge.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-215R] 
Washington, D.C.: July 15, 1998.

Medicare: Health Care Fraud and Abuse Control Program Financial Report 
for Fiscal Year 1997.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-157] 
Washington, D.C.: June 1, 1998.

Medicare: HCFA's Use of Anti-Fraud-and-Abuse Funding and Authorities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-160] 
Washington, D.C.: June 1, 1998.

Medicare: Improper Activities by Mid-Delta Home Health.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/OSI-98-5] 
Washington, D.C.: March 12, 1998.

Medicare Home Health: Success of Balanced Budget Act Cost Controls 
Depends on Effective and Timely Implementation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-98-41] 
Washington, D.C.: October 29, 1997.

Medicare: Recent Legislation to Minimize Fraud and Abuse Requires 
Effective Implementation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-98-9] 
Washington, D.C.: October 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.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-18R] 
Washington, D.C.: October 9, 1997.

Medicare: Control Over Fraud and Abuse Remains Elusive.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-97-165] 
Washington, D.C.: June 26, 1997.

Nursing Homes: Too Early to Assess New Efforts to Control Fraud and 
Abuse.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-97-114] 
Washington, D.C.: April 16, 1997.

Medicare: Inherent Program Risks and Management Challenges Require 
Continued Federal Attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-97-89] 
Washington, D.C.: March 4, 1997.

Medicare.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HR-97-10] 
Washington, D.C.: February 1, 1997.

GAO Contact:

Leslie G. Aronovitz, (312) 220-7767:

Modify the New Skilled Nursing Facility Payment Method to Ensure 
Appropriate Payments:

Primary agency: Department of Health and Human Services.

Account: Federal Hospital Insurance Trust Fund; (20-8005).

Spending type: Direct.

Budget subfunction: 571/Medicare.

Theme: Improve efficiency.

[End of table]

The Balanced Budget Act of 1997 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 & 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, and inadequate data used to establish rates 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 
unnecessary services, such as additional therapy services, and by 
changing their patient assessment practices to qualify patients into 
higher paying payment categories. Consistent with the PPS incentives to 
minimize costs, SNFs have provided fewer therapy services to patients 
categorized into rehabilitation payment groups. Without adequate 
adjustments, this could result in higher payments relative to service 
costs for some categories of patients. We are also concerned that 
increases in payments intended to encourage SNFs to increase their 
nursing staff appear to have been ineffective in increasing staffing 
ratios. This is true despite the fact that Medicare margins were high-
-a median of almost 19 percent for free-standing facilities in 2000. In 
addition, excluding certain services from the daily rate, and paying 
for them 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.

Changes in beneficiary eligibility and inadequate planned oversight of 
claims for payment may undermine efforts to control Medicare spending 
on SNF services. Under the PPS, 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 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 believe 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. CMS should also increase its vigilance 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.

[End of table]

Related GAO Products:

Skilled Nursing Facilities: Medicare Payments Exceed Costs for Most but 
Not All Facilities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-183] 
Washington, D.C.: December 31, 2002.

Skilled Nursing Facilities: Available Data Show Average Nursing Staff 
Time Changed Little after Medicare Payment Increase.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-176] 
Washington, D.C.: November 13, 2002.

Skilled Nursing Facilities: Providers Have Responded to Medicare 
Payment System By Changing Practices.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-841] 
Washington, D.C.: August 23, 2002.

Skilled Nursing Facilities: Services Excluded From Medicare's Daily 
Rate Need to be Reevaluated.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-816] 
Washington, D.C.: August 22, 2001.

Nursing Homes: Aggregate Medicare Payments Are Adequate Despite 
Bankruptcies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-192] 
Washington, D.C.: September 5, 2000.

Skilled Nursing Facilities: Medicare Payments Changes Require Provider 
Adjustments But Maintain Access.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-23] 
Washington, D.C.: December 14, 1999.

Medicare: Better Information Can Help Ensure That Refinements to BBA 
Reforms Lead to Appropriate Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-14] 
Washington, D.C.: October 1, 1999.

Skilled Nursing Facilities: Medicare Payments Need to Better Account 
for Nontherapy Ancillary Cost Variation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-185] 
Washington, D.C.: September 30, 1999.

Medicare Post-Acute Care: Better Information Needed Before Modifying 
BBA Reforms.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-99-192] 
Washington, D.C.: September 15, 1999.

Balanced Budget Act: Any Proposed Fee-for-Service Payment Modifications 
Need Thorough Evaluation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-99-139] 
Washington, D.C.: June 10, 1999.

Medicare: Progress to Date in Implementing Certain Major Balanced 
Budget Act Reforms.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-99-87] 
Washington, D.C.: March 17, 1999.

Balanced Budget Act: Implementation of Key Medicare Mandates Must 
Evolve to Fulfill Congressional Objectives.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-98-214] 
Washington, D.C.: July 16, 1998.

Long-Term Care: Baby Boom Generation Presents Financing Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-98-107] 
Washington, D.C.: March 9, 1998.

Medicare Post-Acute Care: Home Health and Skilled Nursing Facility Cost 
Growth and Proposals for Prospective Payment.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-97-90] 
Washington, D.C.: March 4, 1997.

GAO Contact:

Laura A. Dummit, (202) 512-7114:

Implement Risk-Sharing in Conjunction with Medicare Home Health Agency 
Prospective Payment System:

Primary agency: Department of Health and Human Services.

Account: Federal Supplementary Medical Insurance Trust Fund (20-8004) 
and Federal Hospital Insurance Trust Fund (20-8005).

Spending type: Direct.

Budget subfunction: 571/Medicare.

Theme: Improve efficiency.

[End of table]

Following a dramatic increase in Medicare spending for home health 
agencies (HHA), the Balanced Budget Act of 1997 (BBA) required the 
implementation of a prospective payment system (PPS) for HHAs. Under 
the PPS, which began October 1, 2000, Medicare pays a fixed, 
predetermined amount for each 60-day episode of care, adjusted for 
patient characteristics that are expected to affect the costs of 
providing care. Under this system, agencies are rewarded financially 
for keeping their per-episode costs below the payment rate and thus 
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 have an incentive 
to provide the minimum number of visits necessary to receive a full 
episode payment, or to lower the number of visits provided below that 
used to develop the episode payment, thereby increasing their profits. 
While the episode payment was set based on the assumption that about 32 
visits would be provided, agencies can provide as few as 5 visits. In 
fact, agencies have reduced the number of visits provided to 
beneficiaries and furnished on average about 22 visits per episode by 
the first half of 2001. As a result, on average, the Medicare program 
is paying HHAs considerably more than the estimated costs of care 
beneficiaries are actually receiving. Some HHAs that face extraordinary 
costs not accounted for by the payment groups, however, may be 
financially disadvantaged.

In order to reduce these incentives, the Congress could require CMS 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 HHA's 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 not able to determine if this option would result in a budget 
savings.

[End of table]

Related GAO Products:

Medicare Home Health Payment: Nonroutine Medical Supply Data Needed to 
Assess Payment Adjustments. GAO-03-878.

Washington, D.C.: August 15, 2003.

Medicare: Utilization of Home Health Care by State. GAO-02-782R.

Washington, D.C.: May 23, 2002.

Medicare Home Health Care: Payments to Home Health Agencies Are 
Considerably Higher than Costs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-663] 
Washington, D.C.: May 6, 2002.

Medicare Home Health: Clarifying the Homebound Definition Is Likely to 
Have Little Effect on Costs and Access. GAO-02-555R.

Washington, D.C.: April 26, 2002.

Medicare Home Health Care: Prospective Payment System Could Reverse 
Recent Declines in Spending.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-176] 
Washington, D.C.: September 8, 2000.

Medicare Home Health Care: Prospective Payment System Will Need 
Refinement as Data Become Available.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-9] 
Washington, D.C.: April 7, 2000.

GAO Contact:

Laura A. Dummit, (202) 512-7114:

Allow Provisions for Direct Laboratory Payment for Certain Medicare 
Pathology Services to Expire:

Primary agency: Department of Health and Human Services.

Accounts: Federal Hospital Insurance Trust Fund; (20-8005); Federal 
Supplementary Medical Insurance Trust Fund (20-8004).

Spending type: Direct/Discretionary.

Budget subfunction: 571/Medicare.

Theme: Improve efficiency.

[End of table]

Hospitals receive fixed, predetermined amounts under Medicare's 
hospital inpatient and outpatient prospective payment systems (PPS) for 
providing necessary services to Medicare beneficiaries. By paying 
hospitals fixed amounts under a PPS, Medicare seeks to encourage them 
to operate efficiently, because hospitals retain the difference if 
payments exceed their costs to provide necessary services. Hospitals 
that outsource services for their patients generally pay suppliers of 
those services directly, and the suppliers do not receive payment from 
Medicare.

In 2000, the Congress enacted provisions in the Medicare, Medicaid, and 
SCHIP Benefits Improvement and Protection Act of 2000 (BIPA) to delay 
for 2 years application of a rule issued by the Health Care Financing 
Administration (HCFA), now called the Centers for Medicare & Medicaid 
Service (CMS). The rule terminated an exception to the inpatient and 
outpatient PPS that permitted one type of supplier--laboratories--to 
receive payment directly from Medicare when providing technical 
pathology services[Footnote 46] to beneficiaries who are hospital 
patients. The BIPA provisions applied only to "covered hospitals," 
those hospitals that had agreements with laboratories for outsourced 
technical pathology services in effect as of July 22, 1999, the date 
HCFA proposed the rule. By terminating direct payments to laboratories, 
HCFA's 1999 rule would have resulted in hospitals either paying 
laboratories for outsourced services or providing the services 
themselves.

Although the BIPA provisions expired at the end of 2002, CMS made an 
administrative decision to continue directly paying laboratories for 
technical pathology services provided to hospital patients. In the 
Medicare Prescription Drug, Improvement, and Modernization Act of 2003, 
the BIPA provisions were amended to also apply to technical pathology 
services provided during 2005 and 2006.

We reported in 2003 that if laboratories had not received direct 
payment for services to hospital patients, Medicare spending would have 
been an estimated $42 million less in 2001, with $18 million and $24 
million in savings for inpatient and outpatient services, respectively. 
In addition, overall beneficiary cost sharing would have been reduced 
by $2 million. We believe hospitals are unlikely to experience a large 
financial burden from paying laboratories to provide technical 
pathology services.

In light of expected Medicare savings, we suggest that for calendar 
year 2005, the Congress may wish to consider permanently removing the 
exception that allows direct Medicare payment to laboratories for 
technical pathology services provided to hospital patients.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: -57;
FY06: -82;
FY07: -21;
FY08: 0;
FY09: 0.

Outlays;
FY05: -57;
FY06: -82;
FY07: -21;
FY08: 0;
FY09: 0.

Source: Congressional Budget Office.

[End of table]

Related GAO Product:

Medicare: Modifying Payments for Certain Pathology Services Is 
Warranted.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1056] 
Washington, D.C.: September 30, 2003.

GAO Contact:

A. Bruce Steinwald, (202) 512-7119:

Require Information on Enrollees from Private Health Insurers to 
Improve Identification of Medicare Beneficiaries with Other Health 
Coverage:

Primary agency: Department of Health and Human Services.

Accounts: Health Care Fraud and Abuse Control Account (75-8393); 
Federal Hospital Insurance Trust Fund; (20-8005); Federal Supplementary 
Medical Insurance Trust Fund (20-8004).

Spending type: Direct.

Budget subfunction: 571/Medicare.

Theme: Improve efficiency.

[End of table]

Until 1980, the Medicare program was the primary payer for covered 
health services for all beneficiaries, except those involving workers' 
compensation or veterans benefits. Since 1980, new laws have made 
Medicare the secondary payer for individuals with certain employer 
group health plan coverage[Footnote 47] and other categories of 
beneficiaries. The Centers for Medicare & Medicaid Services (CMS) uses 
a contractor to conduct a variety of activities to identify whether 
beneficiaries might have other sources of health insurance coverage 
with primary payment responsibility for their health care claims. For 
example, CMS's contractor matches Medicare data with employment and 
earnings data maintained by the Internal Revenue Service and the Social 
Security Administration to identify beneficiaries who may have health 
insurance through their or their spouse's employer. However, there can 
be a 2-year time lag between when a beneficiary or spouse is employed 
and when contractors can confirm the information about employment. As a 
result, even with current data match activities, Medicare can have paid 
for claims long before another liable insurer is identified.

GAO has long recognized that private health insurance companies and 
employers sponsoring their own health plans are in the best position to 
routinely identify enrollees who might also be Medicare beneficiaries. 
Currently, private health insurance companies are under no obligation 
to inform CMS that some of their enrollees are Medicare beneficiaries, 
unless there is a court settlement requiring such data sharing. CMS has 
entered into voluntary data sharing agreements with some private health 
insurers and employers to obtain data on their working enrollees and 
dependents. These private health insurers and employers represent over 
40 percent of Medicare beneficiaries and their voluntary data sharing 
agreements resulted in at least $61 million in Medicare savings in 
fiscal year 2003.

We believe if private health insurers were required to share the names 
and identifying information on their enrollees, CMS could more 
effectively identify beneficiaries with other primary health insurance 
coverage. As a result, one option we have suggested is that the 
Congress consider requiring private health insurers to provide CMS 
information on their enrolled beneficiaries, on a schedule and using a 
format determined by CMS. The President's budget made a similar 
proposal for fiscal year 2003, with a cost savings estimate of $1.0 
billion over a ten-year period.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: 0;
FY06: -125;
FY07: -125;
FY08: -125;
FY09: -125.

Outlays;
FY05: 0;
FY06: -125;
FY07: -125;
FY08: -125;
FY09: -125.

Source: Congressional Budget Office.

[End of table]

Related GAO Product:

Medicare: HCFA Could Do More to Identify and Collect Overpayments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS/AIMD-00-304] 
Washington, D.C.: September 7, 2000.

GAO Contact:

Leslie G. Aronovitz, (312) 220-7767:

600 Income Security:

Revise Benefit Payments under the Federal Employees' Compensation Act:
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:
Sustain/Expand Range of SSI Program Integrity Activities:
Better Congressional Oversight of PRWORA's Fugitive Felon Provisions:
Improve the Administrative Oversight of Food Assistance Programs:
Share the Savings from Bond Refundings:
Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems:

Revise Benefit Payments under the Federal Employees' Compensation Act:

Primary agency: Department of Labor.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunction: 609/Other income security.

Theme: Reassess objectives.

[End of table]

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.

CBO was not able to determine if this option would result in a budget 
savings.

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.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Revising Benefits for Retirement Eligible Beneficiaries.

Discretionary Spending.

Savings from the CBO baseline.

Budget authority;
FY05: 2;
FY06: 5;
FY07: 13;
FY08: 21;
FY09: 29.

Outlays;
FY05: 2;
FY06: 5;
FY07: 13;
FY08: 21;
FY09: 29.

Source: Congressional Budget Office.

[End of table]

Five-Year Savings:

Dollars in millions.

Revising Benefits for Retirement Eligible Beneficiaries.

Direct Spending.

Savings from the CBO baseline.

Budget authority;
FY05: 5;
FY06: 10;
FY07: 11;
FY08: 11;
FY09: 11.

Outlays;
FY05: 5;
FY06: 10;
FY07: 11;
FY08: 11;
FY09: 11.

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 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 the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Revising Benefits for Cases Involving Third Parties.

Discretionary Spending.

Savings from the CBO baseline.

Budget authority;
FY05: 0;
FY06: 1;
FY07: 2;
FY08: 2;
FY09: 2.

Outlays;
FY05: 0;
FY06: 1;
FY07: 2;
FY08: 2;
FY09: 2.

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, 2003, 
maximum authorized weekly FECA benefits were equal to $1,596, 75 
percent of the base salary of a GS-15, step 10. Only six states 
authorize additional benefits for dependents (about $5-$10 per week per 
dependent). However, one state authorizes an additional flat rate of 
$25 per week for dependents, regardless of the number of dependents. In 
all cases, the total benefits are not to exceed 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.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Revising Benefits for Comparability of FECA and Other Compensation 
Laws.

Discretionary Spending.

Savings from the CBO baseline.

Budget authority;
FY05: 11;
FY06: 15;
FY07: 25;
FY08: 35;
FY09: 45.

Outlays;
FY05: 11;
FY06: 15;
FY07: 25;
FY08: 35;
FY09: 45.

Source: Congressional Budget Office.

[End of table]

Five-Year Savings:

Dollars in millions.

Revising Benefits for Comparability of FECA and Other Compensation 
Laws.

Direct Spending.

Savings from the CBO baseline.

Budget authority;
FY05: 7;
FY06: 13;
FY07: 13;
FY08: 13;
FY09: 14.

Outlays;
FY05: 7;
FY06: 13;
FY07: 13;
FY08: 13;
FY09: 14.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Federal Employees' Compensation Act: Percentages of Take-Home Pay 
Replaced by Compensation Benefits.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-98-174] 
Washington, D.C.: August 17, 1998.

Federal Employees' Compensation Act: Issues Associated with Changing 
Benefits for Older Beneficiaries.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-96-138BR] 
Washington, D.C.: August 14, 1996.

Workers' Compensation: Selected Comparisons of Federal and State Laws.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-96-76] 
Washington, D.C.: April 3, 1996.

Federal Employees' Compensation Act: Redefining Continuation of Pay 
Could Result in Additional Refunds to the Government.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-95-135] 
Washington, D.C.: June 8, 1995.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Implement a Service Fee for Successful Non-Temporary Assistance for 
Needy Families Child Support Enforcement Collections:

Primary agency: Department of Health and Human Services.

Account: Payments to States for Child Support Enforcement and Family 
Support Programs (75-1501).

Spending type: Direct.

Budget subfunction: 609/Other income security.

Theme: Redefine beneficiaries.

[End of table]

The Child Support Enforcement program is a federal/state/local 
partnership designed 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 support orders, and 
collecting and distributing child support payments. From fiscal years 
1984 through 1998, non-TANF caseloads and costs rose about 500 percent 
and 1200 percent, respectively. For fiscal years 1999 through 2002, 
about 80 percent of the total cases were non-TANF cases--about 45 
percent were former TANF recipients and about 36 percent had never 
received TANF benefits.

The federal government pays 66 percent of the Child Support Enforcement 
program costs. While states have the authority to fully recover the 
costs of their services, states have exercised their discretion and 
most have charged only minimal application and service fees. 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.

CBO made the following estimates based on a service fee of 5 percent 
for each successful non-TANF child support collection.

Five-Year Savings:

Dollars in millions.

Savings from the CBO baseline.

Budget authority;
FY05: 530;
FY06: 560;
FY07: 600;
FY08: 640;
FY09: 670.

Outlays;
FY05: 530;
FY06: 560;
FY07: 600;
FY08: 640;
FY09: 670.

Source: Congressional Budget Office.

Note: Estimates based on a service fee of 5 percent for each successful 
non-TANF child support collection.

[End of table]

Related GAO Products:

Child Support Enforcement: Clear Guidance Would Help Ensure Proper 
Access to Information and Use of Wage Withholding by Private Firms.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-349] 
Washington, D.C.: March 26, 2002.

Child Support Enforcement: Effects of Declining Welfare Caseloads Are 
Beginning to Emerge.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-105] 
Washington, D.C.: June 30, 1999.

Welfare Reform: Child Support an Uncertain Income Supplement for 
Families Leaving Welfare.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-168] 
Washington, D.C.: August 3, 1998.

Child Support Enforcement: Early Results on Comparability of Privatized 
and Public Offices.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-4] 
Washington, D.C.: December 16, 1996.

Child Support Enforcement: Reorienting Management Toward Achieving 
Better Program Results.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS/GGD-97-14] 
Washington, D.C.: October 25, 1996.

Child Support Enforcement: States' Experience with Private Agencies' 
Collection of Support Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-11] 
Washington, D.C.: October 23, 1996.

Child Support Enforcement: States and Localities Move to Privatized 
Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-43FS] 
Washington, D.C.: November 20, 1995.

Child Support Enforcement: Opportunity to Reduce Federal and State 
Costs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-95-181] 
Washington, D.C.: June 13, 1995.

GAO Contact:

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

Improve Reporting of DOD Reserve Employee Payroll Data to State 
Unemployment Insurance Programs:

Primary agency: Department of Labor.

Account: Unemployment Trust Fund (20-8042).

Spending type: Direct.

Budget subfunctions: Multiple.

Theme: Redefine beneficiaries.

[End of table]

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 were also among the 800,000 
personnel who participated in National Reserve forces (Army National 
Guard, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National 
Guard, and the Air Force Reserve) in fiscal year 2002.

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 1996 analysis of benefit and Reserve data from seven 
states showed that some Reserve personnel were receiving improper 
benefit payments from state UI programs. In the seven states in our 
analysis, we estimated 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 were much greater because the seven states we reviewed 
accounted 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 Department of Defense and the Department of Homeland Security's 
Coast Guard have 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 Department of Labor 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 was 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 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. The 
potential for overpayments may be even greater given current national 
security conditions that involve a greater role for reservists.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the CBO baseline.

Budget authority;
FY05: 9;
FY06: 10;
FY07: 10;
FY08: 11;
FY09: 11.

Outlays;
FY05: 9;
FY06: 10;
FY07: 10;
FY08: 11;
FY09: 11.

Reduction in receipts;
FY05: 0;
FY06: -1;
FY07: -3;
FY08: -6;
FY09: -8.

Net effect on deficit;
FY05: 9;
FY06: 9;
FY07: 7;
FY08: 5;
FY09: 3.

Source: Congressional Budget Office.

[End of table]

Related GAO Product:

Unemployment Insurance: Millions in Benefits Overpaid to Military 
Reservists.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-101] 
Washington, D.C.: August 5, 1996.

GAO Contact:

Sigurd R. Nilsen, (202) 512-7215:

Improve Social Security Benefit Payment Controls:

Primary agency: Social Security Administration.

Account: Federal Old Age and Survivor's Insurance Trust Fund (20-8006).

Spending type: Direct.

Budget subfunction: 651/Social security.

Theme: Improve efficiency.

[End of table]

The 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 1998 report, an analysis of available data indicated that this 
lapse in payment controls for state and local government retirees cost 
the trust funds from $129 million to $323 million from 1978 to about 
1995.

In 1998, we recommended that SSA work with the Internal Revenue Service 
(IRS) to revise the reporting of pension income on IRS tax form 1099R. 
IRS has subsequently advised SSA that it needs a technical amendment to 
the Tax Code to obtain the information SSA needs. In 2003, we testified 
that complete and accurate reporting of government pension income is 
still needed. Given the IRS response to our previous recommendation, we 
have provided the following matter for congressional consideration: "To 
facilitate complete and accurate reporting of government pension 
income, the Congress should consider giving IRS the authority to 
collect this information, which could perhaps be accomplished through a 
simple modification to a single form." 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 the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the CBO baseline.

Budget authority;
FY05: 0;
FY06: 0;
FY07: 135;
FY08: 275;
FY09: 290.

Outlays;
FY05: 0;
FY06: 0;
FY07: 135;
FY08: 275;
FY09: 290.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Social Security: Issues Relating to Noncoverage of Public Employees.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-710T] 
Washington, D.C.: May 1, 2003.

Social Security: Better Payment Controls for Benefit Reduction 
Provisions Could Save Millions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-76] 
Washington, D.C.: April 30, 1998.

GAO Contact:

Barbara D. Bovbjerg, (202) 512-7215:

Simplify Supplemental Security Income Recipient Living Arrangements:

Primary agency: Social Security Administration.

Account: Supplemental Security Income Program (28-0406).

Spending types: Direct/Discretionary.

Budget subfunction: 609/Other income security.

Theme: Improve efficiency.

[End of table]

The 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 have 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. In light of the 
potential cost savings associated with addressing this issue, we 
recommended in September 2002 that SSA identify and move forward in 
implementing cost-effective options for simplifying complex living 
arrangement policies, with particular attention to those policies most 
vulnerable to fraud, waste, and abuse. We also suggested that an 
effective approach may include pilot testing various simplification 
options to better assess their effects. SSA told us that it will use 
sophisticated computer simulations to assess the potential impacts of 
various proposals on recipients, but has not completed these efforts 
yet.

CBO agrees that this option would result in budgetary savings, but it 
could not develop a savings estimate.

Related GAO Products:

Supplemental Security Income: SSA Could Enhance Its Ability to Detect 
Residency Violations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-724] 
Washington, D.C.: July 29, 2003.

Supplemental Security Income: Progress Made in Detecting and Recovering 
Overpayments, but Management Attention Should Continue.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-849] 
Washington, D.C.: September 16, 2002.

Supplemental Security Income: Status of Efforts to Improve Overpayment 
Detection and Recovery.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-962T] 
Washington, D.C.: July 25, 2002.

Supplemental Security Income: Action Needed on Long-Standing Problems 
Affecting Program Integrity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-158] 
Washington, D.C.: September 14, 1998.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Sustain/Expand Range of SSI Program Integrity Activities:

Primary agency: Social Security Administration.

Account: Supplemental Security Income Program (28-0406).

Spending types: Direct/Discretionary.

Budget subfunction: 609/Other income security.

Theme: Improve efficiency.

[End of table]

The 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 and costly to administer because even small changes 
in income, available resources, or living arrangements can affect 
recipients' monthly benefit amounts or continued eligibility. To a 
significant extent, SSA relies heavily on recipients to accurately 
report important eligibility information. The agency also verifies 
certain income and resource information through computer matching with 
the records of other federal and state agencies. To determine whether a 
recipient remains eligible for SSI benefits, SSA also periodically 
conducts financial redetermination reviews, which involve personal 
contact with recipients to document their income, resources, living 
arrangements, and other eligibility factors. Recipients are reviewed at 
least every 6 years, but reviews may be more frequent if SSA determines 
that changes in eligibility are likely.

We recently reported that SSA has made a variety of changes to improve 
its ability to detect SSI payment errors and recover overpayments. We 
also noted that SSA officials had estimated that conducting 
substantially more redeterminations would yield hundreds of millions of 
dollars in additional overpayment detections and preventions annually. 
In 2001, SSA estimated that it would be cost beneficial to do another 
2.5 million redeterminations. The additional reviews would produce $1.1 
billion in overpayment benefits (additional overpayment recoveries and 
future overpayments prevented). Subsequently, we recommended that SSA 
sustain and expand its program integrity activities. SSA processed 
138,000 more financial redeterminations in FY 2003 than it did in FY 
2002, and plans to increase redeterminations in FY 2004. SSA should 
continue to increase the number of redeterminations processed to the 
extent feasible.

CBO agrees that this option would result in budgetary savings, but it 
could not develop a savings estimate.

Related GAO Products:

Supplemental Security Income: SSA Could Enhance Its Ability to Detect 
Residency Violations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-724] 
Washington, D.C.: July 29, 2003.

Supplemental Security Income: Progress Made in Detecting and Recovering 
Overpayments, but Management Attention Should Continue.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-849] 
Washington, D.C.: September 16, 2002.

Supplemental Security Income: Status of Efforts to Improve Overpayment 
Detection and Recovery.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-962T] 
Washington, D.C.: July 25, 2002.

Supplemental Security Income: Action Needed on Long-Standing Problems 
Affecting Program Integrity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-158] 
Washington, D.C.: September 14, 1998.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Better Congressional Oversight of PRWORA's Fugitive Felon Provisions:

Primary agencies: Multiple.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunctions: Multiple.

Theme: Redefine beneficiaries.

[End of table]

In response to concerns that individuals wanted in connection with a 
felony, or violating terms of their parole or probation, could receive 
benefits from programs for the needy, the Congress added provisions to 
the Personal Responsibility and Work Opportunity Reconciliation Act 
(PRWORA) of 1996 that prohibit these individuals from receiving 
Supplemental Security Income (SSI) administered by the Social Security 
Administration (SSA), Food Stamp benefits administered by the 
Department of Agriculture (USDA), and Temporary Assistance to Needy 
Families (TANF) administered by the Department of Health and Human 
Services (HHS). These provisions also make fugitive felon[Footnote 48] 
status grounds for termination of tenancy in many federal housing 
assistance programs, administered by the Department of Housing and 
Urban Development (HUD).

In our September 2002 report, we found that, since PRWORA was enacted 
the SSI, Food Stamp, and TANF programs identified over 110,000 
beneficiaries who are fugitive felons--largely through computer matches 
of automated arrest warrant and recipient files. When these programs 
took the initiative or were in a position to match automated recipient 
and warrant data, many fugitive felons were identified, which led to 
substantial cost savings. SSA, for example, conducted the most 
comprehensive matches, comparing data from its entire SSI applicant and 
recipient files each month to warrant data it obtained from various 
federal, state, and local law enforcement agencies. SSA recently 
reported that, between August 1996 and February 2003, it identified 
more than 51,000 fugitive felons on the SSI rolls, incurring savings of 
over $83 million. In addition, SSA estimates that it may save an 
additional $206.9 million through recovery of fugitive felon 
overpayments for months up to and including February 2003.

Use of computer matches of benefit recipient and arrest warrant files 
to prevent fugitive felons from collecting benefits varies widely 
across programs, however. While SSA had by far the most comprehensive 
computer matching initiative, fewer than one-third of the state 
agencies administering the TANF and Food Stamp programs used periodic 
computer matching, to any extent. HUD had not conducted any matches of 
this kind since the enactment of PRWORA in 1996, but our own match of 
HUD's recipient file and arrest warrant files in a single year turned 
up nearly 1,000 housing assistance recipients for whom there were 
arrest warrants in Ohio and Tennessee, alone. We estimated that HUD 
could have saved $4.2 million annually in program costs if the housing 
assistance these individuals received had been terminated.

Given the savings SSA and some state Food Stamp and TANF programs have 
incurred using computer matching to identify and drop fugitive felons 
from their benefit rolls, and the potential savings we demonstrated HUD 
could achieve in the same way, use of computer matching for this 
purpose by additional state Food Stamp and TANF programs, as well as 
the HUD housing assistance program, represent opportunities for greater 
cost savings in this area.

Moreover, the law, as it applies to housing assistance programs, states 
that fugitive felon status is only grounds for termination of tenancy 
and not that fugitive felons are ineligible for housing assistance. 
Therefore, according to HUD officials, while public housing agencies 
and landlords have the authority to evict fugitive felons, they are not 
required to do so. This may explain why HUD has done little to ensure 
that fugitive felons do not receive housing assistance. The Congress 
may wish to consider amending the Housing Act of 1937 to explicitly 
make fugitive felons ineligible for housing benefits.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Products:

Welfare Reform: Implementation of Fugitive Felon Provisions Should Be 
Strengthened.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-716] 
Washington, D.C.: September 25, 2002.

Social Security Administration: Fugitive Felon Program Could Benefit 
from Better Use of Technology.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-346] 
Washington, D.C.: September 6, 2002.

Social Security Programs: The Scope of SSA's Authority to Deny Benefits 
to Fugitive Felons and to Release Information About OASI and DI 
Beneficiaries Who are Fugitive Felons.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-459R] 
Washington, D.C.: February 27, 2002.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Improve the Administrative Oversight of Food Assistance Programs:

Primary agency: Department of Agriculture.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunction: 605/Food and nutrition assistance.

Theme: Improve efficiency.

[End of table]

The U.S. Department of Agriculture (USDA) continues to face serious 
challenges in ensuring that eligible individuals receive the proper 
benefits from the food assistance programs administered by its Food and 
Nutrition Service. Each day, about 1 in every 5 Americans receives 
nutrition assistance through 1 or more of the 15 programs administered 
by this agency. These programs, which accounted for more than half of 
USDA's budget authority for fiscal year 2003, provide children and low-
income adults with access to food, a healthful diet, and nutrition 
education. Specifically, for fiscal year 2003, the Congress 
appropriated about $41.9 billion to operate these programs, including 
the Food Stamp Program and child nutrition programs, such as the 
school-breakfast and school-lunch programs. This high level of support 
dictates that USDA must continually address and minimize the amount of 
fraud and abuse occurring in these programs in order to ensure their 
integrity.

USDA's Food Stamp Program, the cornerstone of its nutrition assistance 
programs, provided 21.3 million individuals with more than $21.4 
billion in benefits in fiscal year 2003. As noted in the President's 
Management Agenda, USDA must continue to address the challenge of 
accurately issuing food stamp benefits to those who are eligible. 
Specifically, USDA estimated that about $1.4 billion in erroneous 
payments were made to food stamp recipients in fiscal year 2001--about 
$1 billion of the benefits issued were estimated to be overpayments and 
more than $370 million of the benefits issued were estimated to be 
underpayments--an error rate of approximately 9 percent. To deal with 
the complexity of the Food Stamp Program and the high error rate, the 
2002 Farm Bill contained a number of administrative and simplification 
reforms, such as allowing states to use greater flexibility in 
considering the income of recipients for eligibility purposes and to 
extend simplified reporting procedures for all program recipients.

In addition to ensuring that eligible individuals receive proper 
benefits, USDA faces the challenge of minimizing the illegal sale of 
benefits for cash--a practice known as trafficking. Food Stamps are 
accepted by about 152,000 authorized retail food stores, and in a July 
2003 report, USDA estimated that stores trafficked about $395 million, 
or about 2.5 cents of every dollar of food stamp benefits issued per 
year from 1999 through 2002. In addition, store owners generally do not 
pay the financial penalties assessed for trafficking. In May 1999, we 
reported that USDA and the courts collected only $11.5 million, or 
about 13 percent, of the $78 million in total penalties assessed 
against storeowners for violating food stamp regulations from 1993 
through 1998.[Footnote 49] USDA reduced the remaining amount owed by 
storeowners by about $49 million, or about 55 percent, through waivers, 
adjustments, and write-offs. While weaknesses in debt collection 
practices contribute to low collection rates, USDA officials noted that 
these rates also reflect the difficulties involved in collecting this 
type of debt, including problems in locating storeowners who have been 
removed from the Food Stamp Program and the refusal of some storeowners 
to pay their debts.

Better use of information technology has the potential to help USDA 
minimize fraud, waste, and abuse in the Food Stamp Program. For 
example, in our May 1999 report we recommended that the Food and 
Nutrition Service make better use of data from electronic benefit 
transfers (EBT) to identify and assess penalties against storeowners 
who violate the Food Stamp Program's regulations. Since that time, they 
have developed a new EBT-based technique for fighting trafficking that 
has become an important source of findings of trafficking. Also, we 
recommended in March 2000 that the Food and Nutrition Service work with 
the states to implement best practices for using EBT data to identify 
and take action against recipients engaged in trafficking of food stamp 
benefits.[Footnote 50] The Food and Nutrition Service has taken some 
actions to implement this recommendation, by providing increased 
financial incentives for states to be more aggressive in pursuing 
recipients who traffic food stamp benefits and by assisting states in 
the use of EBT data to identify traffickers.

USDA also faces fraud and abuse challenges in other nutrition programs, 
including the Child and Adult Care Food Program (CACFP), which for 
fiscal year 2003 was funded at $1.9 billion, and the National School 
Lunch and School Breakfast programs, which for that year were funded at 
$8.8 billion. In fiscal year 2003, CACFP provided subsidized meals for 
a daily average of 2.9 million participants in the care of about 
215,000 day care providers. Over the years, USDA's Office of Inspector 
General (OIG) has identified examples of the intentional misuse of 
CACFP funds, including cases in which program sponsors created 
fictitious day care providers and inflated the number of meals served. 
In response to our November 1999 recommendation[Footnote 51] and 
reports by the OIG, legislation was enacted in June 2000 to strengthen 
CACFP management controls and to reduce its vulnerability to fraud and 
abuse. As a result, the Food and Nutrition Service has intensified its 
management evaluations at the state and local levels and has trained 
its regional and state agency staff on revised management procedures.

Furthermore, in its strategic plan for fiscal years 2000 through 2005, 
USDA specifically identified the challenge it faces in ensuring that 
only eligible participants are provided benefits in the National School 
Lunch Program. In fiscal year 2003, this program provided nutritionally 
balanced, low-cost or free lunches for over 28 million children each 
school day in more than 99,000 public and nonprofit private schools and 
residential child care institutions. One study found that the number of 
children certified as eligible to receive free lunches in this program 
might have been as much as 27 percent greater than the number of 
children estimated eligible for this benefit. However, this estimate 
was based on a broad review of certain Census data and is best seen as 
an indicator of a problem rather than a precise measure of program 
misuse. USDA has taken some initial steps to develop a cost-effective 
strategy to address this integrity issue. One option for Congress to 
consider as it reauthorizes this program is to direct that USDA take 
steps to ensure that only eligible children receive low-cost or free 
lunches. USDA pilot tested certain policy changes and suggested other 
measures for Congress to consider during reauthorization. However, the 
agency believes more research and evaluation on the nature and extent 
of the problem would be invaluable in identifying additional measures 
to improve program integrity without simultaneously deterring 
participation by eligible children.

CBO was not able to determine if this option would result in a budget 
savings.

Related GAO Products:

Food Stamp Program: Better Use of Electronic Data Could Result in 
Disqualifying More Recipients Who Traffic Benefits.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-61] 
Washington, D.C.: March 7, 2000.

Food Assistance: Efforts to Control Fraud and Abuse in the Child and 
Adult Care Food Program Should Be Strengthened.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-00-12] 
Washington, D.C.: November 29, 1999.

Food Stamp Program: Storeowners Seldom Pay Financial Penalties Owed for 
Program Violations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-91] 
Washington, D.C.: May 11, 1999.

GAO Contacts:

Sigurd R. Nilsen, (202) 512-7003 David Bellis, (415) 904-2272:

Share the Savings from Bond Refundings:

Primary agency: Department of Housing and Urban Development.

Account: Housing Certificate Fund (86-0319).

Spending types: Discretionary/Direct.

Budget subfunction: 604/Housing assistance.

Theme: Redefine beneficiaries.

[End of table]

During the 1970s and early 1980s, the Department of Housing and Urban 
Development (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's 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 this option would result in budgetary savings, but it 
could not develop a savings estimate.

Related GAO Product:

Multifamily Housing: HUD Missed Opportunities to Reduce Costs on Its 
Uninsured Section 8 Portfolio.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-99-217] 
Washington, D.C.: July 30, 1999.

GAO Contact:

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

Reduce Federal Funding Participation Rate for Automated Child Support 
Enforcement Systems:

Primary agency: Department of Health and Human Services.

Account: Payments to States for Child Support Enforcement and Family 
Support Programs (75-1501).

Spending type: Direct.

Budget subfunction: 609/Other income security.

Theme: Improve efficiency.

[End of table]

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 
2002, the states reportedly spent about $7.0 billion to develop these 
systems, including about $5.0 billion from the federal government.

The 90 percent funding participation rate for development costs 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. 
The Personal Responsibility and Work Opportunity Reconciliation Act of 
1996 (P.L. 104-193) provided additional funding for the states to meet 
new systems requirements under this law. An 80 percent federal funding 
participation rate for development costs, 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 costs.

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 the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the CBO baseline.

Budget authority;
FY05: 240;
FY06: 260;
FY07: 270;
FY08: 280;
FY09: 280.

Outlays;
FY05: 240;
FY06: 260;
FY07: 270;
FY08: 280;
FY09: 280.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Human Services: Federal Approval and Funding Processes for States' 
Information Systems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-347T] 
Washington, D.C.: July 9, 2002.

Child Support Enforcement: Leadership Essential to Implementing 
Effective Automated Systems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-AIMD-97-162] 
Washington, D.C.: September 10, 1997.

Child Support Enforcement: Strong Leadership Required to Maximize 
Benefits of Automated Systems.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-72] 
Washington, D.C.: June 30, 1997.

GAO Contact:

Joel C. Willemssen, (202) 512-6408:

700 Veterans Benefits and Services:

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

Discontinue Veterans' Disability Compensation for Nonservice Connected 
Diseases:

Primary agency: Department of Veterans Affairs.

Account: Compensation and Pensions (36-0102).

Spending type: Direct.

Budget subfunction: 701/Income security for veterans.

Theme: Redefine beneficiaries.

[End of table]

In fiscal year 2002, the Department of Veterans Affairs (VA) paid more 
than $18.5 billion in compensation to more than 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 were 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 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.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings of Discontinuing Compensation for Non-service Connected 
Diseases.

Budget authority;
FY05: 20;
FY06: 61;
FY07: 94;
FY08: 130;
FY09: 158.

Outlays;
FY05: 20;
FY06: 61;
FY07: 91;
FY08: 128;
FY09: 156.

Source: Congressional Budget Office.

[End of table]

The Congress may also wish to consider enacting legislation proposed by 
VA to prohibit the payment of compensation for a disability related to 
drug or alcohol abuse, even if it is secondary to a service-connected 
disability such as Post-Traumatic Stress Disorder. Payment of VA 
compensation for alcohol or drug abuse related disabilities as a 
primary service-connected condition has been expressly prohibited by 
law since 1990. VA proposed this legislation in response to a February 
2001 court decision that allowed VA to compensate veterans for 
substance abuse-related disabilities if they arose secondarily from a 
service-connected disability. VA estimated that this legislative 
change, if enacted, would lead to savings of $55.1 million in fiscal 
year 2004, and $2.8 billion over 10 years.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from Prohibiting Payment of Compensation for Alcohol or Drug 
Abuse.

Budget authority;
FY05: 9;
FY06: 14;
FY07: 19;
FY08: 24;
FY09: 29.

Outlays;
FY05: 9;
FY06: 14;
FY07: 19;
FY08: 24;
FY09: 29.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

VA Benefits: Fundamental Changes to VA's Disability Criteria Need 
Careful Consideration.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1172T] 
Washington, D.C.: September 23, 2003.

SSA and VA Disability Programs: Re-Examination of Disability Criteria 
Needed to Help Ensure Program Integrity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-597] 
Washington, D.C.: August 9, 2002.

VA Disability Compensation: Disability Ratings May Not Reflect 
Veterans' Economic Losses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-9] 
Washington, D.C.: January 7, 1997.

Disabled Veterans Programs: U.S. Eligibility and Benefit Types Compared 
With Five Other Countries.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HRD-94-6] 
Washington, D.C.: November 24, 1993.

VA Benefits: Law Allows Compensation for Disabilities Unrelated to 
Military Service.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HRD-89-60] 
Washington, D.C.: July 31, 1989.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

Revise VA's Disability Ratings Schedule to Better Reflect Veterans' 
Economic Losses:

Primary agency: Department of Veterans Affairs.

Account: Compensation and Pensions (36-0102).

Spending type: Direct.

Budget subfunction: 701/Income security for veterans.

Theme: Reassess objectives.

[End of table]

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 2002, VA paid more than $22 billion in compensation to 
more than 2.3 million veterans, and more than 300,000 veterans' 
survivors and children, for these service-connected disabilities.

The disability ratings schedule that VA 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. In 1997, we reported 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 $22 billion VA paid in disability compensation to veterans and 
their families in fiscal year 2002. 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 was not able to determine the budgetary effect of this option.

Related GAO Products:

VA Benefits: Fundamental Changes to VA's Disability Criteria Need 
Careful Consideration.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1172T] 
Washington, D.C.: September 17, 2003.

Department of Veterans Affairs: Key Management Challenges in Health and 
Disability Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-756T] 
Washington, D.C.: May 8, 2003.

SSA and VA Disability Programs: Re-Examination of Disability Criteria 
Needed to Help Ensure Program Integrity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-597] 
Washington, D.C.: August 9, 2002.

VA Disability Compensation: Disability Ratings May Not Reflect 
Veterans' Economic Losses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-9] 
Washington, D.C.: January 7, 1997.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

Reassess Unneeded Health Care Assets within the Department of Veterans 
Affairs:

Primary agency: Department of Veterans Affairs.

Account: Medical Care (36-0160).

Spending type: Discretionary.

Budget subfunction: 703/Hospital and medical care for veterans.

Theme: Improve efficiency.

[End of table]

The Department of Veterans Affairs (VA) health care system owns 4,900 
buildings and 15,500 acres of land. Its health care delivery system 
includes over 160 major medical facilities and over 500 community based 
outpatient clinics. To improve the delivery of health care services, VA 
has shifted emphasis from inpatient to outpatient care in many 
instances and shortened lengths of stay when hospitalization was 
required. This change in health care delivery has resulted in excess 
inpatient capacity at many locations. As a result, VA's infrastructure 
is not efficiently aligned to meet veterans' needs. Without a 
realignment of its infrastructure, VA will continue to spend millions 
of dollars to operate unneeded VA facilities and miss the opportunity 
to reinvest the savings it could realize from asset realignment into 
better health care for all veterans.

In response to GAO concerns, VA initiated its Capital Asset Realignment 
for Enhanced Services (CARES) program to realign its assets and 
resources to better serve veterans. Any realignment--which could 
include facility closings--will take into consideration future 
directions in health care delivery, demographic projections, physical 
plant capacity, community health care capacity, and workforce 
requirements. VA plans to reinvest savings generated through the 
implementation of CARES to meet veterans' health care needs. VA plans 
to announce its proposed realignment plan in early calendar year 2004. 
Continued congressional oversight is warranted to review VA's plans and 
assess their impact on costs and services.

CBO was not able to determine the budgetary effect of this option.

[End of table]

Related GAO Products:

Department of Veterans Affairs: Key Management Challenges in Health and 
Disability Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-756T] 
Washington, D.C.: May 8, 2003.

VA Health Care: Improved Planning Needed for Management of Excess Real 
Property.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-326] 
Washington, D.C.: January 29, 2003.

VA Health Care: VA Is Struggling to Address Asset Realignment 
Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-00-88] 
Washington, D.C.: April 5, 2000.

VA Health Care: Improvements Needed in Capital Asset Planning and 
Budgeting.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-145] 
Washington, D.C.: August 13, 1999.

VA Health Care: Challenges Facing VA in Developing an Asset Realignment 
Process.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-99-173] 
Washington, D.C.: July 22, 1999.

Veterans' Affairs: Progress and Challenges in Transforming Health Care.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-99-109] 
Washington, D.C.: April 15, 1999.

VA Health Care: Capital Asset Planning and Budgeting Need Improvement.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-99-83] 
Washington, D.C.: March 10, 1999.

VA Health Care: Closing a Chicago Hospital Would Save Millions and 
Enhance Access to Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-64] 
Washington, D.C.: April 16, 1998.

VA Health Care: Opportunities to Enhance Montgomery and Tuskegee 
Service Integration.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-97-191] 
Washington, D.C.: July 28, 1997.

VA Health Care: Lessons Learned From Medical Facility Integrations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-97-184] 
Washington, D.C.: July 24, 1997.

Department of Veterans Affairs: Programmatic and Management Challenges 
Facing the Department.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-97-97] 
Washington, D.C.: March 18, 1997.

VA Health Care: Opportunities for Service Delivery Efficiencies Within 
Existing Resources.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-121] 
Washington, D.C.: July 25, 1996.

VA Health Care: Opportunities to Increase Efficiency and Reduce 
Resource Needs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-96-99] 
Washington, D.C.: March 8, 1996.

VA Health Care: Challenges and Options for the Future.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-HEHS-95-147] 
Washington, D.C.: May 9, 1995.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

Reducing VA Inpatient Food and Laundry Service Costs:

Primary agency: Department of Veterans Affairs.

Account: Medical Care (VA) (36-0160).

Spending type: Discretionary.

Budget subfunction: 703/Hospital and medical care for veterans.

Theme: Improve efficiency.

[End of table]

The Department of Veterans Affairs (VA) provides inpatient food 
services and laundry processing for thousands of inpatients a day in 
hospitals, nursing homes, and domiciliaries. In fiscal year 1999, VA 
spent about $324 million (food service) and $52 million (laundry) for 
these activities and employed 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.

As of November 2000, VA had consolidated 28 of its food production 
locations into 10, begun using less expensive Veterans Canteen Service 
(VCS) workers in 9 locations, and contracted out in 2 locations. For 
laundry services, VA had consolidated 116 of its laundries into 67 
locations and used competitive sourcing to contract with the private 
sector in other locations.

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, VA could consolidate food production 
locations within a 90-minute driving distance of each other and laundry 
locations within a 4-hour driving distance of each other. VA could also 
use less expensive VCS employees at all inpatient food locations. In 
addition, competitive sourcing could be a cost effective alternative 
for providing both food and laundry services.

VA has established a plan to complete studies of competitive sourcing 
of 55,000 positions, including about 13,000 laundry and food service 
positions, by 2008. However, VA has suspended this effort because its 
general counsel determined that VA could not use Veterans Health 
Administration appropriations for such studies without specific 
authorization from the Congress. VA has requested that Congress grant 
it this authorization.

CBO agrees that the option may result in savings, but it could not 
develop a savings estimate for this option.

[End of table]

Related GAO Products:

VA Health Care: Consolidations and Competitive Sourcing of Laundry 
Service Could Save Millions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-61] 
Washington, D.C.: November 30, 2000.

VA Health Care: Expanding Food Service Initiatives Could Save Millions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-64] 
Washington, D.C.: November 30, 2000.

VA Health Care: Laundry Service Operations and Costs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-16] 
Washington, D.C.: December 21, 1999.

VA Health Care: Food Service Operations and Costs at Inpatient 
Facilities.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-17] 
Washington, D.C.: November 19, 1999.

GAO Contact:

Cynthia A. Bascetta, (202) 512-7101:

800 General Government; 900 Net Interest; 999 Multiple:

Taking a Strategic Approach Could Improve Federal Agencies' Acquisition 
of Costs of Supplies and Services:
Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared:
Prevent Delinquent Taxpayers from Benefiting from Federal Credit 
Programs:
Increase Fee Revenue from Federal Reserve Operations:
Eliminate the 1-Dollar Note:
Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals: Identify and Dispose of Unneeded Real Property Assets 
Held by GSA:
Target Funding Reductions in Formula Grant Programs:
Adjust Federal Grant Matching Requirements:
Consolidate Grants for First Responders to Improve Efficiency:
Improve IRS's Ability to Collect Delinquent Taxes:

Taking a Strategic Approach Could Improve Federal Agencies' Acquisition 
of Supplies and Services:

Primary agencies: Multiple.

Accounts: Multiple.

Spending type: Discretionary.

Theme: Improve efficiency.

[End of table]

Federal agencies procured more than $250 billion in goods and services 
during fiscal year 2002. Additionally, federal civilian agencies spent 
over $15 billion using purchase cards in fiscal year 2002. Further 
growth in contract spending, at least in the short term, is likely 
given the President's request for additional funds for defense and 
homeland security, agencies' plans to update their information 
technology systems, and other factors.

The growth in contract spending, combined with decreases in the 
acquisition workforce, creates a challenging acquisition environment. 
The degree to which individual agencies contract for goods and services 
also underscores the importance of ensuring that acquisitions are 
managed properly. This money, however, is not always well spent. Our 
work, as well as the work of other oversight agencies, continues to 
find that millions of dollars of service contract dollars are at risk 
at defense and civilian agencies because acquisitions are poorly 
planned, not adequately competed, or poorly managed. Moreover, because 
agency procurement processes are decentralized and uncoordinated, it is 
not apparent that the federal government is fully leveraging its 
enormous buying power to obtain the most advantageous terms and 
conditions for its purchases. With the events of September 11, and the 
federal government's short-and long-term budget challenges, it is more 
important than ever that agencies effectively transform business 
processes to ensure that the federal government gets the most from 
every dollar spent.

In view of these challenges, we have examined alternative ways 
developed by leading companies to manage their spending on goods and 
services in order to reduce costs, stay competitive, and improve 
service levels. Leading companies are taking a strategic approach--
centralizing and reorganizing their procurement operations to get the 
best value for the company as a whole. Taking a strategic approach 
involves a range of activities from developing a better picture of what 
the company was spending to buying goods and services on a corporate 
rather than business unit basis.

A strategic approach pulls together participants from a variety of 
places within an organization who recommend changes in personnel, 
processes, structure, and culture that can constrain rising acquisition 
costs. These changes can include adjustments to procurement and other 
processes such as instituting companywide purchasing of specific 
services; reshaping a decentralized process to follow a more center-
led, strategic approach; and increasing the involvement of the 
enterprise procurement organization, including working across units to 
help identify requirements, select providers, and manage contractor 
performance.

The procurement best practices of leading companies should be 
considered in reforming the acquisition of goods and services in the 
federal government. Taking a strategic approach clearly pays off. One 
recent survey of 147 companies in 22 industries indicated a strategic 
approach to procurement had resulted in savings of more than $13 
billion in one year. Studies have reported some companies achieving 
reported savings of 10 to 20 percent of their total procurement costs 
through the use of a strategic approach to buying goods and services. 
The leading companies we studied reported achieving and expecting to 
achieve billions of dollars in savings by developing companywide spend 
analysis programs and strategic sourcing strategies.

Thus far, our work has focused on applying best practices to improving 
Department of Defense (DOD) acquisition of services--an agency where 
spending on information technology, administrative support, research 
and development and a wide range of other services is approaching $100 
billion annually. Recent legislation intends for DOD to manage its 
services procurement more effectively by promoting the use of best 
commercial practices. As a result, DOD is in the early stages of a 
pilot to analyze spending data from a DOD-wide perspective. The pilot 
is expected to identify 5 to 10 categories of smaller service 
requirements that can be consolidated for large-scale savings 
opportunities and other efficiencies over the current decentralized 
contracting environment. The military departments are also in the early 
stages of separate initiatives that may lead them to adopt a strategic 
approach to buying services at lower cost. Such commercial best 
practices could also benefit civilian agencies' procurement by 
leveraging buying power to reduce costs of supplies and services.

CBO was not able to determine if this option would result in a 
budgetary savings.

Related GAO Products:

Contract Management: High-Level Attention Needed to Transform DOD 
Services Acquisition.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-935] 
Washington, D.C.: September 10, 2003.

Best Practices: Improved Knowledge of DOD Service Contracts Could 
Reveal Significant Savings.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-661] 
Washington, D.C.: June 10, 2003.

Federal Procurement: Spending and Workforce Trends.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-443] 
Washington, D.C.: April 30, 2003.

Sourcing and Acquisition: Challenges Facing the Department of Defense.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-574T] 
Washington, D.C.: March 19, 2003.

Major Management Challenges and Program Risks: Department of Defense.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-98] 
Washington, D.C.: January 2003.

Contract Management: Taking a Strategic Approach to Improving Services 
Acquisition.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-499T] 
Washington, D.C.: March 7, 2002.

Best Practices: Taking a Strategic Approach Could Improve DOD's 
Acquisition of Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-230] 
Washington, D.C.: January 18, 2002.

Contract Management: Trends and Challenges in Acquiring Services.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-753T] 
Washington, D.C.: May 22, 2001.

GAO Contact:

David E. Cooper, (617) 788-0555:

Improper Benefit Payments Could Be Avoided or More Quickly Detected if 
Data from Various Programs Were Shared:

Primary agencies: Multiple.

Accounts: Multiple.

Spending types: Direct/Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

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. 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, based on a study that matched 
Department of Education (Education) and Internal Revenue Service (IRS) 
income information, the Education estimates that it made approximately 
$602 million in grant overpayments during fiscal years 2001 and 2002. 
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 Temporary Assistance to Needy Children (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--TANF, 
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. The Administration's fiscal year 2004 budget estimates that 
access to IRS income data could save $638 million in Pell Grant costs 
over 2003-2004.

CBO was not able to determine if this option would result in a 
budgetary savings.

Related GAO Products:

Public Assistance: PARIS Project Can Help States Reduce Improper 
Benefit Payments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-935] 
Washington, D.C.: September 6, 2001.

The Challenge of Data Sharing: Results of a GAO-Sponsored Symposium on 
Benefit and Loan Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-67] 
Washington, D.C.: October 20, 2000.

Benefit and Loan Programs: Improved Data Sharing Could Enhance Program 
Integrity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-00-119] 
Washington, D.C.: September 13, 2000.

GAO Contact:

Robert E. Robertson, (202) 512-7215:

Prevent Delinquent Taxpayers from Benefiting from Federal Credit 
Programs:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

The federal government's operations are funded primarily through tax 
revenue collected from the nation's taxpayers. In fiscal year 2002, the 
federal government, through the Internal Revenue Service (IRS), 
collected over $2 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 
$246 billion at the end of fiscal year 2003. Of this amount, the IRS 
estimates that only $20 billion, or about 8 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. Federal law, generally, 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, revised, 
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, GAO reviews of unpaid taxes 
conducted as part of its annual audits of IRS's financial statements, 
and as part of other financial management work at the agency, indicate 
that these policies have not been effective in preventing the 
disbursement of federal dollars to individuals and businesses with 
delinquent taxes.

In order to fully realize this benefit, the Congress could enact 
legislation implementing the prohibitions contained in OMB Circular A-
129, as revised, that relate to this matter. A key aspect of this 
legislation would be to ensure that IRS's efforts to modernize its 
business systems are successful in enabling it to generate timely and 
accurate information on the taxpayer's status to assist other agencies 
in making determinations about eligibility for federal benefits and 
payments.

CBO was not able to determine if this option would result in a 
budgetary savings.

Related GAO Products:

Financial Management: Some DOD Contractors Abuse the Federal Tax System 
with Little Consequence.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-95] 
Washington, D.C.: February 12, 2004.

Debt Collection: Barring Delinquent Taxpayers From Receiving Federal 
Contracts and Loan Assistance.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD/AIMD-00-167] 
Washington, D.C.: May 9, 2000.

Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty 
Assessments Are Owed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD/GGD-99-211] 
Washington, D.C.: August 2, 1999.

Tax Administration: Billions in Self-Employment Taxes Are Owed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-99-18] 
Washington, D.C.: February 19, 1999.

GAO Contacts:

Steven J. Sebastian, (202) 512-3406 James R. White, (202) 512-9110:

Increase Fee Revenue from Federal Reserve Operations:

Primary agency: Federal Reserve Board.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

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.

CBO estimates that budgetary savings could be achieved if fees were 
assessed similar to those charged national banks, with a credit allowed 
for fees paid to state regulators.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Added receipts;
FY05: 89;
FY06: 94;
FY07: 99;
FY08: 103;
FY09: 108.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Federal Reserve System: Update on GAO's 1996 Recommendations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-774] 
Washington, D.C.: September 25, 2002.

Federal Reserve System: Current and Future Challenges Require 
Systemwide Attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-96-159] 
Washington, D.C.: July 26, 1996.

Federal Reserve System: Current and Future Challenges Require 
Systemwide Attention.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-96-128] 
Washington, D.C.: June 17, 1996.

Federal Reserve Banks: Internal Control, Accounting, and Auditing 
Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-96-5] 
Washington, D.C.: February 9, 1996.

GAO Contact:

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

Eliminate the 1-Dollar Note:

Primary agency: Department of the Treasury.

Account: United States Mint Public Enterprise Fund (20-4159).

Spending type: Direct/Governmental Receipts.

Budget subfunction: 803/Central fiscal operations.

Theme: Improve efficiency.

[End of table]

Replacing the 1-dollar note with the new gold-colored 1-dollar coin 
would save the government hundreds of millions of dollars annually. 
Substituting a dollar coin for a 1-dollar note could yield over $522 
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, neither the Congress nor the executive branch has 
supported the replacement of the 1-dollar note with a coin. 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 released a new gold-colored dollar coin in 
2000. While initial demand for the coin had been strong, for it to 
realize its savings potential, the note has to be eliminated. Most of 
the coins that were issued are being held by collectors and do not 
circulate. With proper congressional oversight, public resistance to 
elimination of the 1-dollar 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-
dollar note. In addition, the Congress could require the Federal 
Reserve or the Department of the Treasury to designate a central 
spokesperson who would handle all public and press inquiries about the 
elimination of the 1-dollar note.

CBO estimates that budgetary savings could be achieved by eliminating 
the 1-dollar note.

Five-Year Savings:

Dollars in millions.

Change from the CBO baseline.

Budget authority;
FY05: 22;
FY06: 45;
FY07: 67;
FY08: 90;
FY09: 112.

Outlays;
FY05: 22;
FY06: 45;
FY07: 67;
FY08: 90;
FY09: 112.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

New Dollar Coin: Marketing Campaign Raised Public Awareness but Not 
Widespread Use.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-896] 
Washington, D.C.: September 13, 2002.

A Dollar Coin Could Save Millions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-95-203] 
Washington, D.C.: July 13, 1995.

1-Dollar Coin Reintroduction Could Save Millions if It Replaced the 1-
Dollar Note.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-95-146] 
Washington, D.C.: May 3, 1995.

1-Dollar Coin: Reintroduction Could Save Millions if Properly Managed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-93-56] 
Washington, D.C.: March 11, 1993.

National Coinage Proposals: Limited Public Demand for New Dollar Coin 
or Elimination of Pennies.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-90-88] 
Washington, D.C.: May 23, 1990.

GAO Contact:

Mark L. Goldstein, (202) 512-2834:

Better Target Infrastructure Investments to Meet Mission and Results-
Oriented Goals:

Primary agencies: Multiple.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

The federal government plays a prominent role in identifying the 
nation's infrastructure investment needs and spent $160.6 billion on 
the nation's infrastructure in 2002. 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.

The Office of Management and Budget (OMB) has developed a Capital 
Programming Guide to assist agencies with developing a disciplined 
capital programming process. OMB strongly recommends, but does not 
require, agencies to follow its guidance. In addition, GAO's Executive 
Guide: Leading Practices in Capital Decision-Making summarizes 
fundamental practices that have been successfully implemented by 
organizations that are recognized for their outstanding capital 
decision-making practices and provides examples of leading practices 
from which the federal government may draw lessons and ideas. In a 
review of seven federal agencies' U.S. infrastructure investment 
practices, GAO found that none of them followed leading practices for 
capital decision-making. In particular, five of the agencies did not 
develop assessments of the infrastructure 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 long-term 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. Similarly, in a January 2004 
review of four agencies' use of capital planning, GAO found that, while 
some of these agencies have long-term planning documents, none has a 
comprehensive plan that defines its long-term investment decisions.

Given the importance of federal infrastructure investment to the 
nation, developing long-term agency capital plans and following other 
leading practices are critical for sound infrastructure investment. One 
option for improving capital planning is to have the OMB require that 
agencies comply with the principles and practices of its Capital 
Programming Guide. Requiring agencies to link the benefits of 
investment projects to the achievement of mission goals and long-term 
strategic 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's capacity to make better investment decisions.

CBO was not able to determine if this option would yield budgetary 
savings.

Related GAO Products:

Budget Issues: Agency Implementation of Capital Planning Principles Is 
Mixed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-138] 
Washington, D.C.: January 16, 2004.

U.S. Infrastructure: Agencies' Approaches to Developing Investment 
Estimates Vary.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-835] 
Washington, D.C.: July 20, 2001.

U.S. Infrastructure: Funding Trends and Opportunities to Improve 
Investment Decisions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED/AIMD-00-35] 
Washington, D.C.: February 7, 2000.

Executive Guide: Leading Practices in Capital Decision-Making.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-99-32] 
Washington, D.C.: December 1998.

GAO Contact:

Katherine Siggerud, (202) 512-6570:

Identify and Dispose of Unneeded Real Property Assets Held by GSA:

Primary agency: General Services Administration.

Account: Federal Building Fund (47-4542).

Spending type: Discretionary.

Budget subfunction: 804/General property and records management.

Theme: Improve efficiency.

[End of table]

Despite significant changes in the size and mission needs of the 
federal government in recent years, the federal portfolio of real 
property assets in many ways still largely reflects the business model 
and technological environment of the 1950s. Many of the assets are no 
longer aligned with, or responsive to, agencies' changing missions, and 
are therefore no longer needed. Retaining unneeded assets presents 
significant potential risks for (1) lost dollars because such 
properties are costly to maintain; and (2) lost opportunities because 
the properties could be put to more cost-beneficial uses, exchanged for 
other needed property, or sold to generate revenue for the government. 
According to government data, as of September 2002, the federal 
government owned about 3 billion square feet of building floor space in 
the United States, and the General Services Administration (GSA) was 
the second largest nondefense holder of this space, after the U.S. 
Postal Service. GSA provides real estate services for federal agencies 
and owns approximately 1,700 facilities with about 200 million square 
feet of building floor space. GSA facilities include office buildings, 
courthouses, and border stations.

In June 2001, GSA started an overall effort, commonly referred to as 
the portfolio restructuring initiative, where it is reviewing its real 
property inventory nationwide to identify and remove all vacant and 
underutilized assets that are not financially self-sustaining, or for 
which there is not a substantial, long-term federal purpose. The 
objective of this initiative is to better align GSA's properties with 
its mission of providing quality space and services at a cost that is 
competitive with the private sector. GSA plans to complete 
implementation of the portfolio restructuring initiative by 2007 and 
expects by that time to have a portfolio of strong, income-producing 
properties that is much more responsive to changing agency mission 
needs. As of October 1, 2002, GSA reported that it had 236 vacant and 
underutilized properties with about 18.4 million square feet of space.

As part of its oversight of this effort, Congress could consider having 
GSA provide information on the status of properties it has identified 
as candidates for disposal or transfer and identify the specific steps 
Congress could take to facilitate the disposal or transfer of these 
properties. Oftentimes, GSA is hampered by factors outside of its 
control. Our work has shown that decisions about real property often do 
not reflect the most cost-effective alternative that is in the interest 
of the agency or the government as a whole but instead reflect other 
priorities. In particular, this situation often arises when the federal 
government attempts to consolidate facilities or otherwise dispose of 
unneeded assets. Congress's direct involvement could serve as a 
catalyst for action on individual properties. This would be 
particularly important in light of the cost of securing and maintaining 
these unneeded properties; the opportunity costs associated with not 
selling or exchanging these assets; and the image of government waste 
and inefficiency that these facilities present to the public.

CBO was not able to determine if this option would yield budgetary 
savings.

Related GAO Products:

Federal Real Property: Vacant and Underutilized Properties at GSA, VA, 
and USPS.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-747] 
Washington, D.C.: August 19, 2003.

High-Risk Series: Federal Real Property.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-122] 
Washington, D.C.: January 2003.

GAO Contact:

Mark L. Goldstein, (202) 512-2834:

Target Funding Reductions in Formula Grant Programs:

Primary agencies: Multiple.

Accounts: Multiple.

Spending types: Discretionary/Direct.

Budget subfunctions: Multiple.

Theme: Redefine beneficiaries.

[End of table]

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, as we pointed out in 1996 and in 1998,[Footnote 52] 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. 
There are a variety of ways in which budgetary savings could be 
achieved to improve the targeting of these programs, including the 
following:

* Reduce the minimum federal reimbursement rate to below 50 percent for 
Medicaid, for example. 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, Conn., received five times 
more funding per person in poverty in 1995 than that provided to 
Camden, N.J., 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. The 
estimated savings achieved through this option 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.

CBO estimates the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the CBO baseline.

Mandatory savings.

Budget authority;
FY05: 6,940;
FY06: 6,979;
FY07: 7,143;
FY08: 7,170;
FY09: 7277.

Outlays;
FY05: 1,316;
FY06: 2,556;
FY07: 2,674;
FY08: 2,765;
FY09: 2745.

Discretionary savings.

Budget authority;
FY05: 3,618;
FY06: 5,301;
FY07: 5,566;
FY08: 5,693;
FY09: 5,803.

Outlays;
FY05: 2,146;
FY06: 5,564;
FY07: 7,209;
FY08: 7,927;
FY09: 8,437.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Formula Grants: Effects of Adjusted Population Counts on Federal 
Funding to States.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-69] 
Washington, D.C.: February 26, 1999.

Medicaid Formula: Effects of Proposed Formula on Federal Shares of 
State Spending.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-99-29R] 
Washington, D.C.: February 19, 1999.

Welfare Reform: Early Fiscal Effect of the TANF Block Grant.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-137] 
Washington, D.C.: August 22, 1998.

Public Housing Subsidies: Revisions to HUD's Performance Funding System 
Could Improve Adequacy of Funding.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-98-174] 
Washington, D.C.: June 19, 1998.

School Finance: State Efforts to Equalize Funding Between Wealthy and 
Poor School Districts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-92] 
Washington, D.C.: June 16, 1998.

School Finance: State and Federal Efforts to Target Poor Students.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-98-36] 
Washington, D.C.: January 28, 1998.

School Finance: State Efforts to Reduce Funding Gaps Between Poor and 
Wealthy Districts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-31] 
Washington, D.C.: February 5, 1997.

Federal Grants: Design Improvements Could Help Federal Resources Go 
Further.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-7] 
Washington, D.C.: December 18, 1996.

Public Health: A Health Status Indicator for Targeting Federal Aid to 
States.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-97-13] 
Washington, D.C.: November 13, 1996.

School Finance: Options for Improving Measures of Effort and Equity in 
Title I.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-142] 
Washington, D.C.: August 30, 1996.

Highway Funding: Alternatives for Distributing Federal Funds.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-96-6] 
Washington, D.C.: November 28, 1995.

Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-26] 
Washington, D.C.: November 13, 1995.

Department of Labor: Senior Community Service Employment Program 
Delivery Could Be Improved Through Legislative and Administrative 
Action.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/HEHS-96-4] 
Washington, D.C.: November 2, 1995.

GAO Contact:

Paul L. Posner, (202) 512-9573:

Adjust Federal Grant Matching Requirements:

Primary agencies: Multiple.

Accounts: Multiple.

Spending types: Discretionary/Direct.

Budget subfunctions: Multiple.

Theme: Redefine beneficiaries.

[End of table]

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 approximately 660 in 2001 
with outlays of $317 billion, about 17 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' 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 1996 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 the following budgetary savings with this option.

Five-Year Savings:

Dollars in millions.

Savings from the CBO baseline.

Budget authority;
FY05: 2,973;
FY06: 3,736;
FY07: 3,801;
FY08: 3,872;
FY09: 3947.

Outlays;
FY05: 1,093;
FY06: 2,924;
FY07: 3,470;
FY08: 3,683;
FY09: 3827.

Source: Congressional Budget Office.

[End of table]

Related GAO Products:

Disadvantaged Students: Fiscal Oversight of Title I Could Be Improved.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-377] 
Washington, D.C.: February 28, 2003.

Welfare Reform: Challenges in Maintaining a Federal-State Fiscal 
Partnership.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-01-828] 
Washington, D.C.: August 10, 2001.

Welfare Reform: Early Fiscal Effects of the TANF Block Grant.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-98-137] 
Washington, D.C.: August 22, 1998.

Federal Grants: Design Improvements Could Help Federal Resources Go 
Further.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-97-7] 
Washington, D.C.: December 18, 1996.

Block Grants: Issues in Designing Accountability Provisions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/AIMD-95-226] 
Washington, D.C.: September 1, 1995.

GAO Contact:

Paul L. Posner, (202) 512-9573:

Consolidate Grants for First Responders to Improve Efficiency:

Primary agency: Department of Homeland Security.

Accounts: Multiple.

Spending type: Discretionary.

Budget subfunctions: Multiple.

Theme: Improve efficiency.

[End of table]

GAO's work over the years has repeatedly shown that mission 
fragmentation and program overlap are widespread in the federal 
government and that crosscutting program efforts are not well 
coordinated. As far back as 1975, GAO reported that many of the 
fundamental problems in managing federal grants were the direct result 
of the proliferation of federal assistance programs and the 
fragmentation of responsibility among different federal departments and 
agencies. While we noted that the large number and variety of programs 
tended to ensure that a program is available to meet a defined need, we 
found that substantial problems occur when state and local governments 
attempt to identify, obtain, and use the fragmented grants-in-aid 
system to meet their needs.

In a specific example of this fragmentation, in September 2003 GAO 
identified at least 21 different grant programs that can be used by the 
nation's first responders to address homeland security needs. Multiple 
fragmented grant programs can create a confusing and administratively 
burdensome process for state and local officials seeking to use federal 
resources for pressing homeland security needs.

It now falls to the Congress to redesign the nation's homeland security 
grant programs in light of the events of September 11, 2001. In so 
doing, the Congress must balance the needs of our state and local 
partners in their call for both additional resources and more 
flexibility for meeting the nation's goals of attaining the highest 
levels of preparedness. In addressing the fragmentation prompted by the 
current homeland security grant system, Congress' alternatives might 
include consolidating existing grants, using performance partnerships, 
and simplifying and streamlining administrative and planning 
requirements. These approaches could provide state and local 
governments with increased flexibility while potentially improving 
intergovernmental efficiency and homeland security program outcomes. An 
example of how consolidation of first responder grants might be 
achieved would be to merge the existing Emergency Management 
Performance Grant, the State Homeland Security Grant Program, and the 
Urban Area Security Initiative into one new grant program. If such a 
consolidation can be assumed to yield administrative efficiencies, then 
the Congress might reduce the amount of the combined grant by, for 
example, 10 percent. Alternatively, if the Congress did not want to 
reduce the overall amount of the consolidated grant, efficiencies 
achieved through consolidation could possibly result in an improved 
level of program performance given the current level of funding.

CBO was not able to determine if this option would yield budgetary 
savings.

Related GAO Products:

Homeland Security: Reforming Federal Grants to Better Meet Outstanding 
Needs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-1146T] 
Washington, D.C.: September 3, 2003.

Federal Assistance: Grant System Continues to Be Highly Fragmented.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-718T] 
Washington, D.C.: April 29, 2003.

Multiple Employment and Training Programs: Funding and Performance 
Measures for Major Programs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-589] 
Washington, D.C.: April 18, 2003.

Workforce Investment Act: States and Localities Increasingly Coordinate 
Services for TANF Clients, but Better Information Needed on Effective 
Approaches.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-696] 
Washington, D.C.: July 3, 2002.

Managing for Results: Continuing Challenges to Effective GPRA 
Implementation.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/T-GGD-00-178] 
Washington, D.C.: July 20, 2000.

Fundamental Changes are Needed in Federal Assistance to State and Local 
Governments.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-75-75] 
Washington, D.C.: August 19, 1975.

GAO Contact:

Paul L. Posner, (202) 512-9573:

Improve IRS's Ability to Collect Delinquent Taxes:

Primary agency: Internal Revenue Service.

Account: Tax law enforcement (20-0913).

Spending type: Discretionary.

Budget subfunction: Multiple.

Theme: Reassess objectives.

[End of table]

From fiscal years 1996 through 2001, the Internal Revenue Service's 
(IRS) compliance and enforcement programs experienced almost universal 
declines in workload coverage, cases closed, direct staff time used, 
productivity, and dollars of unpaid taxes collected. While IRS has 
other efforts to help taxpayers comply with tax laws, such as ensuring 
the clarity of tax forms and instructions, IRS's enforcement programs 
are viewed by many as critical for maintaining the public's confidence 
in our tax system. The Congress and others have expressed concern about 
the compliance and collections trends for their potential to undermine 
taxpayers' motivation to fulfill their tax obligations. IRS's inventory 
of delinquent accounts continues to grow and age as the gap in workload 
and capacity to complete work increases. For example, in 2002, IRS was 
deferring collection action on tax debts at a rate equal to one out of 
three new collection cases. One way to reverse the declines in IRS's 
compliance and enforcement programs would be to: devote more resources 
to them. This would enable IRS to close more delinquent tax cases and 
collect more unpaid tax revenues.

Congress has two basic alternatives if it wishes to devote more 
resources to IRS's enforcement programs. One, increase IRS's budget 
with additional funds targeted to compliance and collection staff and 
two, reallocate resources from other IRS programs. In recent years, IRS 
has proposed increasing enforcement staff funded partly out of budget 
increases and partly by reallocating resources from other areas within 
IRS. Despite budget requests that were almost fully funded and despite 
realizing some savings, the number of skilled enforcement staff 
actually declined between 1998 and 2003 because of other priorities 
including unbudgeted expenses.

JCT was not able to estimate a revenue effect for this option because 
the JCT does not estimate discretionary re-allocations of IRS 
resources. Nevertheless, we believe that should IRS succeed at 
increasing its ability to collect delinquent taxes, it would bring in 
additional revenues.

Related GAO Products:

Tax Administration: IRS Should Continue to Expand Reporting on Its 
Enforcement Efforts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-378] 
Washington, D.C.: January 31, 2003.

Tax Administration: Impact of Compliance and Collection Program 
Declines on Taxpayers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-674] 
Washington, D.C.: May 22, 2002.

GAO Contact:

James R. White, (202) 512-9110:

Receipts:

Enhance Nontax Debt Collection Using Available Tools:

Increase Highway User Fees on Heavy Trucks:

Implement Tolling or Other Alternative Revenue Sources for the Fuel Tax 
on Highways: Restrict the Preferential Federal Income Tax Treatment of 
Business-Owned Life Insurance:

Reassess Annual Charges for FERC-licensed Hydropower Projects that Use 
Federal Lands:

Tax Interest Earned on Life Insurance Policies and Deferred Annuities:

Further Limit the Deductibility of Home Equity Loan Interest:

Limit the Individual Tax Exclusions for Employer-Paid Health Insurance:

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels: Index Excise Tax Rates for Inflation:

Require Corporate Tax Document Matching:

Improve Administration of the Tax Deduction for Real Estate Taxes:

Increase Filing of Returns 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:

Improve Administration of the Federal Payment Levy Program:

Increase Penalties and Consistency of Disclosure for Abusive Tax 
Shelters:

Authorize IRS to Use Private Collection Agencies to Collect Certain 
Delinquent Taxes:

Enhance Nontax Debt Collection Using Available Tools:

Primary agency: Department of the Treasury.

Spending types: Direct/Discretionary.

Theme: Improve efficiency.

[End of table]

Nontax federal debt delinquent more than 180 days continues to be a 
significant problem governmentwide. The Department of Treasury reported 
that such debt totaled over $60 billion annually in recent years. As 
delinquent debts age, they become increasingly difficult to collect. In 
1996, the Congress enacted the Debt Collection Improvement Act of 1996 
(DCIA) to provide for more aggressive pursuit of delinquent debt. 
Treasury's Financial Management Service (FMS) has been instrumental in 
helping agencies identify and refer more seriously delinquent nontax 
debts to FMS for additional effort. FMS has had some success in these 
centralized efforts; however, two key aspects of the 1996 legislation 
have lagged behind other initiatives.

In particular, the law authorized federal agencies to perform 
administrative wage garnishment (AWG) for certain delinquent debt. Debt 
collection experts have emphasized that AWG is a powerful instrument 
for collecting debt since the mere threat of using it is often enough 
to motivate voluntary payment. Properly used in tandem with other debt 
recovery techniques such as Treasury's centralized debt collection 
program, AWG should generate collections and provide leverage for 
agencies to obtain voluntary payments from delinquent debtors. However, 
few agencies are using AWG. Although the Department of Education had 
implemented AWG granted under separate authority, none of the nine 
large Chief Financial Officers Act agencies we reviewed in fiscal year 
2001 had fully implemented AWG as authorized by the DCIA. According to 
a Treasury official, as of October 2003 only two of the nine large 
agencies, the Departments of Housing and Urban Development and 
Education (for administrative debts), had authorized Treasury to 
perform AWG as part of its centralized debt collection efforts. 
Although AWG is not mandatory, by failing to employ this tool--more 
than 7 years after the DCIA's enactment--agencies have missed 
collection opportunities.

DCIA also called for steps to prevent certain delinquent debtors from 
receiving additional federal financial assistance in the form of loans, 
loan guarantees, and loan insurance. Our March 2002 report discussed 
three major information sources that contain data on delinquent federal 
debtors: credit bureau reports, the Department of Housing and Urban 
Development's Credit Alert Interactive Voice Response System, and the 
Department of the Treasury's offset program (TOP) database. Each 
information source contained certain information on delinquent federal 
nontax debtors, but none provided all-inclusive, timely data or 
maintained data long enough to be an adequate basis for successfully 
barring future financial assistance to current or prior delinquent 
debtors. According to a Treasury official, FMS has implemented a new 
Internet-based program to assist agencies in identifying delinquent 
debtors. As of June 17, 2003, SBA is using this system to initiate 
searches of limited information from the TOP database to determine 
whether SBA applicants owe delinquent nontax debt. FMS is planning for 
additional agencies to participate in the future.

We have recommended that agencies begin implementing AWG and that FMS 
enhance or supplement information in the TOP database to assist 
agencies in identifying delinquent debtors to prevent them from 
obtaining access to future federal financial assistance in the form of 
loans, loan guarantees, and loan insurance. Because it is not clear at 
this time how much federal agency debt is eligible for AWG, an estimate 
of additional receipts from full implementation of this debt collection 
tool would only be a preliminary indication. The same uncertainty 
exists for estimated benefits related to full implementation of the 
delinquent debtor bar provision. Given the pace of implementation, it 
may be desirable for the Congress to establish certain milestones and 
performance expectations for the debt collection function.

JCT agrees that the option has the potential for increased revenue, but 
it cannot be estimated without additional specification.

Related GAO Products:

Debt Collection: Agriculture Making Progress in Addressing Key 
Challenges.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-202T] 
Washington, D.C.: November 13, 2002.

Debt Collection Improvement Act of 1996: Major Data Sources Inadequate 
for Implementing the Debtor Bar Provision.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-462] 
Washington, D.C.: March 29, 2002.

Debt Collection Improvement Act of 1996: Status of Selected Agencies' 
Implementation of Administrative Wage Garnishment.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-313] 
Washington, D.C.: February 28, 2002.

Debt Collection Improvement Act of 1996: Department of Agriculture 
Faces Challenges Implementing Certain Key Provisions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-277T] 
Washington, D.C.: December 5, 2001.

Debt Collection Improvement Act of 1996: Agencies Face Challenges 
Implementing Certain Key Provisions.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-61T] 
Washington, D.C.: October 10, 2001.

GAO Contact:

Gary T. Engel, (202) 512-8815:

Increase Highway User Fees on Heavy Trucks:

Primary agency: Department of Transportation.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

To develop and maintain highways, the federal 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 2002, about $33.9 billion was collected from general federal 
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.

JCT made the following revenue estimates, effective the taxable years 
beginning after December 31, 2004.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: 0.1;
FY06: 0.1;
FY07: 0.1;
FY08: 0.1;
FY09: 0.1.

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[End of table]

Related GAO Products:

Freight Transportation: Strategies Needed to Address Planning and 
Financing Limitations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-165] 
Washington, D.C.: December 19, 2003.

Highway Financing: Factors Affecting Highway Trust Fund Revenues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-667T] 
Washington, D.C.: May 9, 2002.

Highway User Fees: Updated Data Needed To Determine Whether All Users 
Pay Their Fair Share.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-181] 
Washington, D.C.: June 7, 1994.

GAO Contact:

Katherine Siggerud, (202) 512-6570:

Implement Tolling or Other Alternative Revenue Sources for the Fuel Tax 
on Highways:

Primary agency: Department of Transportation.

Spending type: Direct.

Theme: Reassess objectives.

[End of table]

The Transportation Equity Act for the 21st Century (TEA-21) expired on 
September 30, 2003, and while the Congress has passed a short 
extension, it is considering a new reauthorization bill this session. 
The House has passed a $275 billion bill over six years, and the Senate 
has passed a $318 billion bill. To provide the necessary revenues 
needed, proposals such as spending down the balance in the Highway 
Trust Fund and transferring some gasohol tax revenues (currently 
deposited in the General Fund) into the Highway Trust Fund have been 
discussed.

Other sources of funding are available to supplement the current gas 
tax structure. Tolling has perhaps the most widespread support and 
appeal as an additional revenue source, and this method is more closely 
aligned with the "user pays" principle supported by GAO and most 
transportation experts. It is recognized, for example, that motor fuel 
taxes have the attribute of being a pay-as-you-go form of user charge. 
However, the amount of excise tax a user pays is only weakly related to 
the costs generated. Heavier trucks, for example, pay a smaller share 
of the expenditures highway agencies incur to serve them. Therefore, it 
may appear that these trucks are a less expensive means for shippers to 
transport their goods than railroads or other modes, resulting in a 
distortion of the competitive environment. From the standpoint of 
efficiency, motor fuel taxes are not entirely sufficient because it is 
not possible for government agencies to provide incentives to vehicle 
operators to change the nature of their road use. Improved pricing of 
transportation facilities could yield large payoffs in efficiency and 
promote competition. The more widespread use of tolling to raise 
revenues could provide this system benefit.

Congress may wish to consider several other revenue sources, including 
tolling and a weight-distance tax (where vehicles are charged based on 
the distance driven and the weight of the vehicle). Tolling of our 
nation's most congested highways could provide needed revenue as well 
as change driving patterns to reduce congestion. Based on estimates 
developed in a recent Federal Highway Administration (FHWA) study, we 
estimate that net revenues derived from peak-period tolling at the 
nation's 26 most congested urban areas would amount to $1.9 billion 
annually. However, one challenge in implementing congestion pricing is 
that, at present, greater use of pricing is limited by statutory 
restrictions. Another challenge involves effectively addressing 
concerns raised about equity and fairness. One equity concern that has 
frequently been raised about congestion pricing of public roads has 
been the potential effects of surcharges or tolls on lower-income 
drivers. Because a surcharge would represent a higher portion of the 
earnings of lower-income households, it imposes a greater financial 
burden on them and, therefore, is considered unfair. Other revenue 
approaches, such as a weight-distance tax, would also provide a more 
equitable tax form that would tie more closely to the "user pays" 
principle.

JCT agrees that the option has the potential for increased revenue, but 
it cannot be estimated without additional specification.

Related GAO Products:

Freight Transportation: Strategies Needed to Address Planning and 
Financing Limitations.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-165] 
Washington, D.C.: December 19, 2003.

Highway Financing: Factors Affecting Highway Trust Fund Revenues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-667T] 
Washington, D.C.: May 9, 2002.

Highway User Fees: Updated Data Needed To Determine Whether All Users 
Pay Their Fair Share.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/RCED-94-181] 
Washington, D.C.: June 7, 1994.

GAO Contacts:

JayEtta Z. Hecker, (202) 512-8984 Kate Siggerud, (202) 512-6570:

Restrict the Preferential Federal Income Tax Treatment of Business-
Owned Life Insurance:

Primary agency: Treasury.

Spending type: Direct.

Theme: Reassess objectives.

[End of table]

Business-owned life insurance--permanent life insurance on employees 
where the business is both the owner and the beneficiary--receives 
preferential federal income tax treatment because the policies' 
accumulated earnings are tax-deferred and death benefit payments are 
tax-free. Businesses purchase such policies for various reasons, such 
as to insure against financial losses associated with the deaths of key 
employees and to fund employee benefits. Questions have been raised 
about whether these policies should continue to receive preferential 
tax treatment, particularly when they cover other than key employees, 
and legislative proposals have sought to limit the preferences. Federal 
revenue estimators have estimated forgone tax revenues from the tax 
preferential treatment on policies' accumulated earnings for the 5-year 
period 2004-2008 as $7.3 billion to $9.5 billion, not including the 
forgone tax revenues on additional income from death benefit payments.

Disagreement exists over the appropriateness of preferential tax 
treatment on business-owned life insurance policies when businesses use 
policy proceeds to meet their general business needs, including the 
payment of employee benefits. Some assert that the purchase of 
business-owned life insurance is often related to employee benefit 
liabilities and that the tax preferential treatment is needed to help 
reduce these costs. Others state that allowing preferential tax 
treatment of business-owned life insurance undermines the laws Congress 
enacted that define the type and scope of preferential tax treatment 
businesses should receive for providing employee benefits. Also, the 
preferential tax treatment of business-owned life insurance provides 
this investment vehicle an advantage over other investments that lack 
such preferences.

IRS and others have expressed concern that businesses may be borrowing 
to indirectly finance life insurance purchases, even though 1986, 1996, 
and 1997 laws sought to restrict such borrowing. However, firms 
increase their liabilities for many purposes, making it difficult to 
make a direct connection between borrowing and purchasing life 
insurance. The Health Insurance Portability and Accountability Act of 
1996 provided that no deduction is allowed for interest paid or accrued 
on any debt with respect to a life insurance contract, with an 
exception which allowed deduction for interest paid to insure key 
persons. The Taxpayer Relief Act of 1997 provided that no deduction is 
allowed for that portion of a business's total deductions for interest 
expense equal to the portion of its total assets invested in permanent 
life insurance, with an exception for life insurance on 20-percent 
owners, officers, directors, and employees. An amendment was offered 
during the House Budget Committee's mark up of the Fiscal Year 2004 
Concurrent Budget Resolution in March 2003, as well as in prior Clinton 
administration budget proposals, to change the exception to only apply 
to key persons, but the change was not adopted. The Congressional 
Budget Office included a similar proposal in its March 2003 budget 
options.

Several other congressional proposals have attempted to limit the tax 
preferential treatment of business-owned life insurance. In May 2003, a 
bill was introduced in the House of Representatives and an amendment 
was offered in the Senate to repeal the preferential tax treatment of 
the proceeds related to certain business-owned life insurance policies. 
In addition, an amendment passed the Senate Finance Committee in 
September 2003 that would have required businesses to treat life 
insurance policy payments received as gross income, if the insured had 
not been an employee in the year preceding his or her death. These 
various proposals generally made an exception for insuring against the 
death of a key employee and may have included other exceptions, such as 
when the life insurance was held by a qualified retirement plan. Also, 
these various proposals would have generally grandfathered existing 
policies, allowing businesses to continue receiving tax-preferenced 
proceeds from existing policies. None of the proposals was enacted by 
the end of the first session of the 108th Congress.

To the extent that only new purchases of business-owned life insurance 
are taxed, revenues from changes in the tax treatment of the policies 
will be more limited because, without preferential tax treatment, 
purchases of the policies will likely decline. Because it is unclear 
what alternative investments businesses will make, the tax implications 
of their actions cannot be determined. Nonetheless, without further 
restrictions on the tax-preferred treatment of business-owned life 
insurance, the federal government will continue to forego tax revenue 
attributable to deferred policy earnings and tax-free death benefit 
payments.

In light of the potential for collecting tax revenues on business-owned 
life insurance and reducing the amount of foregone federal tax revenue 
attributable to business-owned life insurance, Congress may wish to 
consider further restrictions on the tax-preferred treatment of these 
policies.

JCT made the following revenue estimates, effective the taxable years 
after December 31, 2004.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: 0.2;
FY06: 0.5;
FY07: 0.6;
FY08: 0.6;
FY09: 0.7.

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[End of table]

Related GAO Product:

Business-Owned Life Insurance: Preliminary Observations on Uses, 
Prevalence, and Regulatory Oversight.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-191T] 
Washington, D.C.: October 23, 2003.

GAO Contact:

Davi M. D'Agostino, (202) 512-8678:

Reassess Annual Charges for FERC-licensed Hydropower Projects that Use 
Federal Lands:

Primary agency: Federal Energy Regulatory Commission (FERC).

Spending type: Discretionary.

Theme: Reassess objectives.

[End of table]

The Federal Power Act directs the Federal Energy Regulatory Commission 
(FERC) to establish and collect reasonable annual charges from 
hydropower projects that use federal lands. Since 1987, FERC's annual 
charges for the use of federal lands have been based on a linear 
rights-of-way fee schedule that was originally used to determine the 
annual fees other agencies charged for the rights to locate, among 
other things, powerlines, pipelines and communications lines on federal 
lands--uses that are generally less valuable than hydropower. FERC 
chose this system because it was simple and predictable and would not 
subject the commission to appeals from the electricity industry. 
However, this system has no relationship to the economic benefit of the 
federal lands used to produce hydropower.

The annual charges FERC currently collects for the use of federal lands 
are significantly less than the fair market value of these lands, 
according to our analysis of a stratified random sample of 24 
hydropower projects that use federal lands. On the basis of this 
analysis, FERC is receiving less than 2 percent of the fair market 
value for the use of these lands. In total, the estimated fair market 
value of the land used by our sample of projects is at least $157 
million annually and, under some market conditions, the value of these 
lands is worth hundreds of millions more. In comparison, FERC collected 
about $2.7 million in annual charges from the 24 sample projects in 
2002.

One option would be for Congress to direct FERC to develop new 
strategies for assessing annual charges for the use of federal lands 
that are proportionate with the benefits conveyed to hydropower project 
owners. If FERC decides to collect annual charges that more closely 
reflect the fair market value of federal lands, it would need to take 
into account the Federal Power Act's requirement to seek to avoid 
unreasonable rate increases to consumers, and the act's goal of 
encouraging the development of hydropower.

CBO agrees that this option would result in budgetary savings, but it 
could not develop a savings estimate.

Related GAO Product:

Federal Energy Regulatory Commission: Charges for Hydropower Projects' 
Use of Federal Lands Need to Be Reassessed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-383] 
Washington, D.C.: May 20, 2003.

GAO Contact:

Barry T. Hill, (202) 512-3841:

Tax Interest Earned on Life Insurance Policies and Deferred Annuities:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Reassess objectives.

[End of table]

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. Investment income from 
annuities purchased as part of a qualified individual retirement 
account would be tax-deferred until benefits were paid.

JCT estimated the following revenues, effective the taxable years after 
December 31, 2004.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: 11.5;
FY06: 23.4;
FY07: 24.0;
FY08: 24.6;
FY09: 25.2.

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[End of table]

Related GAO Product:

Tax Policy: Tax Treatment of Life Insurance and Annuity Accrued 
Interest.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-90-31] 
Washington, D.C.: January 29, 1990.

GAO Contact:

James R. White, (202) 512-9110:

Further Limit the Deductibility of Home Equity Loan Interest:

Primary agency: Department of the Treasury.

Spending type: Direct.

Theme: Reassess objectives.

[End of table]

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.

JCT made the following revenue estimates, effective the date of 
enactment.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: 3.5;
FY06: 3.6;
FY07: 3.8;
FY08: 4.0;
FY09: 4.3.

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[End of table]

Related GAO Product:

Tax Policy: Many Factors Contributed to the Growth in Home Equity 
Financing in the 1980s.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-93-63] 
Washington, D.C.: March 25, 1993.

GAO Contact:

James R. White, (202) 512-9110:

Limit the Individual Tax Exclusions for Employer-Paid Health Insurance:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

The current tax treatment of health insurance 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 agrees that the option has the potential for increased revenue, but 
an estimate is not available.

Related GAO Product:

Tax Policy: Effects of Changing Tax Treatment of Fringe Benefits.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-92-43] 
Washington, D.C.: April 7, 1992.

GAO Contact:

James R. White, (202) 512-9110:

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 
Motor Fuels:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

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, as we reported in 1997, 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 were 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 for transportation. Our report concluded that 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. (As of 2002, alcohol 
fuels still accounted for less than 1 percent of U.S. energy 
consumption for transportation.) 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, 2007; the equivalent blender's tax credit is 
scheduled to expire on January 1, 2008.

JCT estimated the following revenues, effective January 1, 2005.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: 1.0;
FY06: 1.4;
FY07: 1.4;
FY08: 1.5;
FY09: 1.5.

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[End of table]

Related GAO Product:

Tax Policy: Effects of the Alcohol Fuels Tax Incentives.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-97-41] 
Washington, D.C.: March 6, 1997.

GAO Contact:

James R. White, (202) 512-9110:

Index Excise Tax Rates for Inflation:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Redefine beneficiaries.

[End of table]

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.

JCT made the following revenue estimates, for beverages and tobacco 
removed after December 31, 2004.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: 0.5;
FY06: 0.8;
FY07: 1.1;
FY08: 1.5;
FY09: 1.9.

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[End of table]

Related GAO Products:

Alcohol Excise Taxes: Simplifying Rates Can Enhance Economic and 
Administrative Efficiency.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-90-123] 
Washington, D.C.: September 27, 1990.

Tax Policy: Revenue Potential of Restoring Excise Taxes to Past Levels.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-89-52] 
Washington, D.C.: May 9, 1989.

GAO Contact:

James R. White, (202) 512-9110:

Require Corporate Tax Document Matching:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

The Internal Revenue Service's (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 Department of 
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's 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's annual costs would have been 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 
it cannot be estimated without additional specification.

Related GAO Product:

Tax Administration: Benefits of a Corporate Document Matching Program 
Exceed the Costs.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-91-118] 
Washington, D.C.: September 27, 1991.

GAO Contact:

James R. White, (202) 512-9110:

Improve Administration of the Tax Deduction for Real Estate Taxes:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

Based on the Internal Revenue Service's (IRS) last compliance 
measurement study, individuals overstated their real estate tax 
deductions by about $1.5 billion nationwide in 1988. We estimate that 
this resulted in about $400 million federal tax loss 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 state 
governments that 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. 
JCT agrees that the option has the potential for increased revenue, but 
it cannot be estimated without additional specification.

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.

JCT made the following revenue estimates, effective for rebates issued 
after December 31, 2004, and amounts reported on tax bills after 
December 31, 2005.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: [A];
FY06: 0.1;
FY07: 0.2;
FY08: 0.2;
FY09: 0.3.

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[A] Gain of less than $50 million.

[End of table]

Related GAO Product:

Tax Administration: Overstated Real Estate Tax Deductions Need To Be 
Reduced.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-93-43] 
Washington, D.C.: January 19, 1993.

GAO Contact:

James R. White, (202) 512-9110:

Increase Filing of Returns by U.S. Citizens Living Abroad:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

U.S. citizens residing abroad are generally subject to the same filing 
requirements as citizens residing in the United States. 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 
it cannot be estimated without additional specification.

Related GAO Products:

Tax Administration: Nonfiling Among U.S. Citizens Abroad.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-98-106] 
Washington, D.C.: May 11, 1998.

IRS Activities to Increase Compliance on Overseas Taxpayers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-93-93] 
Washington, D.C.: May 18, 1993.

GAO Contact:

James R. White, (202) 512-9110:

Increase the Use of Seizure Authority to Collect Delinquent Taxes:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

The Internal Revenue Service's (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.

Since the enactment of the IRS Restructuring and Reform Act of 1998 
(Restructuring Act), IRS's use of seizure authority has declined. In 
fiscal year 1997, IRS carried out 10,090 seizures compared to only 399 
in fiscal year 2003. At this greatly reduced level of seizures, IRS is 
at risk of foregoing the collection of millions of dollars as indicated 
in our 1999 report. We reported that, 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.

Our 2002 survey of IRS employees showed that nearly two-thirds of those 
who collect tax debts said that their likelihood of recommending a 
seizure of a taxpayer's assets had decreased due to concerns about the 
Restructuring Act's requirements. According to an IRS official in 2003, 
the level of seizures is expected to remain substantially below the 
level before the Restructuring Act 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, and (3) increased time 
available to taxpayers to exercise rights to challenge seizures.

At the greatly reduced level of seizures that IRS has implemented since 
1997, it is at risk of foregoing the collection of millions of dollars. 
Although it may not be necessary to revert back to the 1997 levels, the 
Congress may want to ask IRS whether it is making full appropriate use 
of its seizure authority.

JCT agrees that the option has the potential for increased revenue, but 
it cannot be estimated without additional specification.

Related GAO Products:

Tax Administration: IRS and TIGTA Should Evaluate Their Processing of 
Employee Misconduct under Section 1203.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-394] 
Washington, D.C.: February 14, 2003.

IRS Seizures: Needed for Compliance but Processes for Protecting 
Taxpayer Rights Have Some Weaknesses.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-00-4] 
Washington, D.C.: November 29, 1999.

GAO Contact:

James R. White, (202) 512-9110:

Increase Collection of Self-employment Taxes:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

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. We reported in 1999 that, 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 cannot estimate the revenue effect of this option without 
additional specification.

Related GAO Product:

Tax Administration: Billions in Self-Employment Taxes Are Owed.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-99-18] 
Washington, D.C.: February 19, 1999.

GAO Contact:

James R. White, (202) 512-9110:

Increase the Use of Electronic Funds Transfer for Installment Tax 
Payments:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

The Internal Revenue Code authorizes the Internal Revenue Service (IRS) 
to allow taxpayers to pay their taxes in installments, with interest, 
if this arrangement would facilitate collection of the liability. As of 
April 2003, IRS had about 251,000 installment agreements outstanding, 
worth about $2.3 billion. At the end of fiscal year 2000, approximately 
35 percent of such installment agreements were in default.

A number of states use electronic funds transfer (EFT) to make their 
installment agreement program more efficient and effective. In 1998, we 
reported on two states' use of EFT. 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 had 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's outstanding installment agreements were EFT agreements.

JCT cannot estimate the revenue effect of this option without 
additional specification.

Related GAO Products:

Tax Administration: Increasing EFT Usage for Installment Agreements 
Could Benefit IRS.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-98-112] 
Washington, D.C.: June 10, 1998.

Tax Administration: Administrative Improvements Possible in IRS' 
Installment Agreement Program.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-95-137] 
Washington, D.C.: May 2, 1995.

GAO Contact:

James R. White, (202) 512-9110:

Reduce Gasoline Excise Tax Evasion:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

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 made the following revenue estimates, effective January 1, 2005.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: 0.9;
FY06: [A];
FY07: [A];
FY08: [A];
FY09: [A].

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[A] Gain of less than $50 million.

[End of table]

Related GAO Product:

Tax Administration: Status of Efforts to Curb Motor Fuel Tax Evasion.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-92-67] 
Washington, D.C.: May 12, 1992.

GAO Contact:

James R. White, (202) 512-9110:

Improve Independent Contractor Tax Compliance:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

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 its Employment Tax Examinations 
program. For fiscal year 2002, 90 percent of the examinations found 
misclassified workers and associated unpaid taxes. 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.

In the past, the Congress considered but rejected extending 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.

While there have been various proposals on clarifying the definition of 
independent contractors and improving related information reporting, as 
well as various congressional hearings that have dealt with some of 
these bills, there remain opportunities for change. One option the 
Congress may consider is to require the IRS clarify the definition of 
independent contractors and extend information reporting requirements 
for unincorporated independent contractors to incorporated ones. 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 
it cannot be estimated without additional specification.

Related GAO Products:

Tax Administration: Estimates of the Tax Gap for Service Providers.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-95-59] 
Washington, D.C.: December 28, 1994.

Tax Administration: Approaches for Improving Independent Contractor 
Compliance.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-92-108] 
Washington, D.C.: July 23, 1992.

GAO Contact:

James R. White, (202) 512-9110:

Expand the Use of IRS's TIN-Matching Program:

Primary agency: Internal Revenue Service.

Spending type: Direct.

Theme: Improve efficiency.

[End of table]

The Internal Revenue Service's (IRS) and the Department of Treasury's 
Financial Management Service (FMS) have 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 match 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's 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.

JCT estimates the following revenue for contracts entered into or after 
December 31, 2004.

Five-Year Revenues:

Dollars in billions.

Revenue gain;
FY05: [A];
FY06: [A];
FY07: [A];
FY08: [A];
FY09: [A].

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

[A] Gain of less than $50 million.

[End of table]

Related GAO Product:

Tax Administration: IRS' Levy of Federal Payments Could Generate 
Millions of Dollars.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/GGD-00-65]

GAO Contact:

James R. White, (202) 512-9110:

Improve Administration of the Federal Payment Levy Program:

Primary agency: Internal Revenue Service.

Spending type: Direct/Discretionary.

Theme: Increase efficiency.

[End of table]

The Internal Revenue Service (IRS) and the Department of Treasury's 
Financial Management Service (FMS) have initiated the Federal Payment 
Levy Program, which is designed to continuously levy federal payments 
made to taxpayers that owe federal taxes. The potential effectiveness 
of this program will be reduced because IRS has blocked certain 
delinquent taxpayers from being levied.

Since July 2000, IRS has been levying federal payments of delinquent 
taxpayers. Certain taxpayers are not levied because they meet certain 
exclusion criteria, such as taxpayers who are paying their taxes 
through installment agreements or those who have contacted IRS and 
demonstrated that they currently do not have the means to pay their 
taxes. However, there are many other delinquent taxpayers who do not 
meet IRS's exclusion criteria but are not having their federal payments 
levied. In a March 2003 report, we found that about 112,000 delinquent 
taxpayers were collectively receiving about $6.8 billion in federal 
payments and owed about $1.6 billion in delinquent taxes that IRS had 
blocked from the levy program. While IRS began to unblock about 20,000 
of these accounts in January 2003, it does not plan to unblock the 
remaining portion until sometime in 2005 because of expected impact on 
workload. The sooner IRS unblocks these accounts, the more likely it is 
to collect the delinquent taxes.

JCT agrees that the option has the potential for increased revenue, but 
it cannot be estimated without additional specification.

Related GAO Product:

Tax Administration: Federal Payment Levy Program Measures, Performance, 
and Equity Can Be Improved.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-356] 
Washington, D.C.: March 6, 2003.

GAO Contact:

Michael Brostek, (202) 512-9110:

Increase Penalties and Consistency of Disclosure for Abusive Tax 
Shelters:

Primary agency: Internal Revenue Service.

Spending type: Discretionary.

Theme: Reassess Objectives.

[End of table]

Abusive tax shelters tend to be very complicated transactions promoted 
to corporations and wealthy individuals to exploit tax loopholes by 
providing these taxpayers with large, unintended tax benefits designed 
to lower their overall tax bills. By their nature, abusive tax shelters 
are varied, complex, and difficult to detect and measure.

Recently, Internal Revenue Service (IRS) has been giving abusive tax 
shelters substantially increased attention. IRS's strategy for 
combating the use of abusive tax shelters includes assessing penalties 
and requiring taxpayers to disclose information about their use of 
abusive transactions. IRS has data that suggest the tax loss to be in 
the tens of billions of dollars. As of September 2003, an IRS database 
of tax avoidance transactions contained information estimating a tax 
loss of $33 billion, the majority of which concentrated from tax year 
1993 to the present.

Measures such as increased penalties and consistency of disclosure 
could possibly reduce the use of abusive shelters and the resulting 
loss of tax revenues. In 2002, the Treasury Department developed an 
enforcement proposal to increase penalties and uniformity of disclosure 
for taxpayers and promoters of abusive tax shelters. Similar 
enforcement measures are contained in the President's FY 2005 budget 
proposal, which has provisions for expanded penalties and more uniform 
disclosure rules for taxpayers and promoters involved in abusive tax 
shelters.

Congress has considered various options for expanding abusive shelter 
penalties including the Treasury proposal. To reduce the use of abusive 
shelters and the loss of tax revenues, one option the Congress may want 
to consider is enacting legislation to expand penalties and make 
disclosure more uniform for taxpayers and promoters of abusive tax 
shelters.

JCT agrees that the option has the potential for increased revenue, but 
it cannot be estimated without more specifics of penalties and 
disclosures to be required.

Related GAO Products:

Internal Revenue Service: Challenges Remain in Combating Abusive Tax 
Schemes.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-50] 
Washington, D.C.: November 19, 2003.

Internal Revenue Service: Challenges Remain in Combating Abusive Tax 
Shelters.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-104T] 
Washington, D.C.: October 21, 2003.

Internal Revenue Service: Efforts to Identify and Combat Abusive Tax 
Schemes Have Increased, but Challenges Remain.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-733] 
Washington, D.C.: May 22, 2002.

GAO Contact:

Michael Brostek, (202) 512-9110:

Authorize IRS to Use Private Collection Agencies to Collect Certain 
Delinquent Taxes:

Primary agency: Internal Revenue Service.

Spending type: Discretionary.

Theme: Reassess objectives.

[End of table]

The Department of the Treasury has proposed that Congress authorize the 
Internal Revenue Service (IRS) to contract with private collection 
agencies (PCA) to help collect the growing inventory of tax debts. 
According to IRS, as of May 2003, the total amount of outstanding tax 
liabilities was $283.5 billion, of which IRS believes $85.4 billion has 
a realistic possibility of being collected. Treasury and IRS have 
identified a portion--as much as 25 percent of the $85.4 billion--as 
potentially being eligible for referral to PCAs. In addition, IRS is 
continuing to assess the inventory of outstanding tax liabilities to 
determine whether additional amounts may be appropriate for referral to 
PCAs.

In pursing the private collection of tax debts, IRS would have to 
address certain important issues, including selecting cases appropriate 
for PCAs and assuring the protection of taxpayer rights. IRS's 1996-
1997 pilot program using private collection agencies showed that 
various challenges must be overcome to assure the success of such a 
program. As of January 2004, IRS has taken a number of steps to address 
critical success factors for this proposed program. For example, IRS 
has (1) developed program performance measures and goals, (2) been 
planning to implement a computer system to transmit data to PCAs, (3) 
been developing a method to select PCA cases based on collection 
potential, and (4) written draft contract provisions to govern the 
security of taxpayer data and PCAs' interactions with taxpayers.

The proposal would allow IRS to pay PCAs from money collected. 
According to Treasury, using PCAs would yield $1.5 billion over 10 
years. One option the Congress may wish to consider is allowing IRS to 
contract with private collection companies to collect delinquent taxes.

JCT agrees that the option has the potential for increased revenue, but 
it cannot be estimated without additional specification.

Related GAO Product:

Compliance and Collections: Challenges for IRS in Reversing Trends and 
Implementing New Initiatives.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-03-732T] 
Washington, D.C.: May 7, 2003.

GAO Contact:

Michael Brostek, (202) 512-9110:

(450277):

FOOTNOTES:

[1] U.S. General Accounting Office, Results-Oriented Government: 
Shaping the Government to Meet 21st Century Challenges, GAO-03-1168T 
(Washington, D.C.: Sept. 17, 2003).

[2] Congressional Budget Office, Budget Options (Washington, D.C.: 
March 2003).

[3] The options were not scored in our August 2003 report. Instead, we 
reported whether or not the CBO estimate was included in the April 2002 
report.

[4] For a complete discussion of the uses and caveats of the CBO 
estimates, see CBO's report, Budget Options (March 2003).

[5] The State Department has noted that the entry of nuclear-powered 
vessels into Japanese ports remains sensitive in Japan and there would 
have to be careful consultations with the government of Japan should 
the U.S. Government wish to homeport a nuclear-powered carrier in 
Japan.

[6] To the extent that alternatives are selected that would cause 
civilian personnel reductions that exceed the thresholds established in 
10 U.S.C. 2687, the department would have to follow the procedures 
provided in that section.

[7] 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.

[8] The National Defense Authorization Act for Fiscal Year 2002 
authorized another Base Realignment and Closure (BRAC) round to be 
conducted in 2005.

[9] Corrosion--the unintended destruction or deterioration of a 
material due to interaction with the environment--affects all military 
assets, including approximately 350,000 ground and tactical vehicles, 
15,000 aircraft and helicopters, 1,000 strategic missiles, and 300 
ships;

and hundreds of thousands of additional mission support assets and 
thousands of facilities.

[10] In December 2003, DOD submitted to Congress its Long-Term Strategy 
to Reduce Corrosion and the Effects of Corrosion on the Military 
Equipment and Infrastructure of the Department of Defense. The 
Authorization Act also requires that GAO monitor the implementation of 
the strategy and provide an assessment no later than June 2, 2004.

[11] Contract payments involve payments for the delivery of goods and 
services and financing payments. Financing payments include (1) 
progress payments to cover a contractor's costs as they are incurred 
during the construction of facilities or the production of major 
weapons systems and (2) performance-based payments that are based on 
the accomplishment of particular events or milestones--typically used 
on production contracts.

[12] The Middle East Television Network consists of Radio Sawa and 
Alhurra, the Broadcasting Board of Governors' new satellite television 
service.

[13] In 2003, the Board broadcasted in 66 languages through 97 language 
services.

[14] The Voice of America's mission is to (1) serve as a consistently 
reliable and authoritative, accurate, objective, and comprehensive news 
source;

(2) represent American society by presenting a balanced and 
comprehensive projection of significant American thought and 
institutions; and (3) present U.S. policies clearly and effectively and 
also present responsible discussions and opinion on these policies. In 
contrast, the other broadcast entities' mission is to serve as 
temporary "surrogates" for the local media of countries where a free 
and open press does not exist.

[15] These broadcasts are viewed as overlapping because they reach the 
same target audiences as the Board's local language broadcasts.

[16] The Board reported that English broadcasts added on average less 
than 0.2 percent to the Voice of America's audience.

[17] The Export-Import Bank Act of 1945, as amended.

[18] Appropriations for subsidies totaled about $2.1 billion for fiscal 
years 2001-2003. No funds were requested for subsidies in fiscal year 
2004 because Eximbank had sufficient unobligated balances from prior 
years for its lending operations.

[19] Eximbank charges exporters risk exposure fees for its loan and 
loan guarantee programs and insurance premiums for its insurance 
programs. These fees (1) are intended to compensate Eximbank for the 
risk it assumes when supporting a loan, guarantee, or insurance 
transaction; (2) are payable as loans are disbursed or may be financed 
as part of the transactions; and (3) should not be confused with 
Eximbank's application processing fees or commitment fees charged on 
the undisbursed portion of loans.

[20] Eximbank provides 100 percent unconditional political and 
commercial risk protection on most of the medium-and long-term coverage 
it issues. In contrast, similar European export credit agencies 
generally require exporters and banks to assume a portion of the risks 
(usually 5-10 percent) associated with such support. Although Eximbank 
and its competitors generally offer similar products--direct loans, 
insurance and guarantees--only Eximbank offers all three products.

[21] Some borrowers in high-risk markets miss payments or default on 
entire loans. Eximbank covers these losses, resulting in subsidy costs 
to the federal government.

[22] In recent years, CBO's budget options reports have included an 
option to eliminate the Eximbank, the Overseas Private Investment 
Corporation, and the Trade and Development Agency. See, for example, 
Congressional Budget Office, Budget Options 
(Washington, D.C.: March 2003).

[23] All major industrialized countries have similar programs.

[24] The 5 percent reduction was selected for illustrative purposes.

[25] 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.

[26] See, for example, Congressional Budget Office, Budget Options 
(Washington, D.C.: March 2003).

[27] This option does not address P.L. 480 Titles II or III, which fund 
the donation of commodities for emergency and developmental needs.

[28] Title I offers credit terms with low interest rates with a maximum 
30-year repayment period and a maximum 5-year grace period.

[29] OMB's assessment included the following USDA programs: P.L. 480 
Title I, 416(b), Food for Progress, and the Bill Emerson Humanitarian 
Trust. It did not include the Global Food for Education program.

[30] Also known, respectively, as the General Sales Manager (GSM)-102 
and GSM-103 programs.

[31] The 2002 Farm Security and Rural Investment Act authorized this 
level of export credit guarantees annually through fiscal year 2007. 
The act gives USDA's Commodity Credit Corporation the flexibility to 
determine the allocation between short-and intermediate-term programs.

[32] Under these programs, if a purchaser defaults on its loan, the 
lending bank may file a claim with USDA's Commodity Credit Corporation. 
The corporation then becomes responsible for collecting the amount of 
the claim and any accrued interest (calculated using the bank's lending 
rate).

[33] The Export Credit Guarantee Program (GSM-102) issued the bulk of 
these guarantees--more than $75.4 billion. The Intermediate Export 
Credit Guarantee Program (GSM-103), which has not been used much in 
recent years, issued over $2.2 billion.

[34] In 1997, we reported that as of January 1997, the government had 
paid claims totaling about $7.8 billion since 1980 (an average of about 
$488 million per year). Between January 1997 and February 2004, the 
government paid additional claims totaling about $1.1 billion (an 
average of about $157 million per year).

[35] Congressional Research Service, Agricultural Export and Food Aid 
Programs (Washington, D.C.: Jan. 30, 2004).

[36] The "credit elsewhere" standard is a test to determine whether the 
borrower can obtain credit without the SBA guarantee.

[37] We reported last year that PFNA was estimated at between $10 
million to $15 million per unit to acquire. See U.S. General Accounting 
Office, Opportunities for Oversight and Improved Use of Taxpayer Funds: 
Examples of Selected GAO Work, GAO-03-1006 (Washington, D.C.: Aug. 1, 
2003).

[38] Senate Report 107-109, Department of Defense Appropriation Bill, 
2002, and Supplemental Appropriations, 2002, December 5, 2001, page 
155.

[39] We reported in the August 2003 report that the operational test 
was scheduled for completion in June 2004. DOD stated that the 
completion date slipped to October 2004 because the initial location 
selected at the Ysleta test site had to be changed, which resulted in 
additional costs and delaying the program until the required funds were 
identified.

[40] We reported in the August 2003 report that the estimated cost of 
the operational test was $13.9 million.

[41] See Conference Report 108-401, Making Appropriations for 
Agriculture, Rural Development, Food and Drug Administration, and 
Related Agencies for the Fiscal Year Ending September 30, 2004, and for 
Other Purposes, November 25, 2003, page 926. Congress initially 
provided FAA $4 million in fiscal year 2004 to conduct the 
demonstration and directed it to provide a status report on the 
demonstration by July 1, 2004. However, according to TSA and FAA 
officials, FAA agreed to transfer both its $4 million and the 
responsibility of the PFNA demonstration to TSA since it no longer has 
authority over airport security. The FAA had been involved for several 
years with the PFNA program until TSA assumed responsibility of the 
program after its creation.

[42] At the time of certification, firms had annual sales that ranged 
from $1,563 to more than $219 million, with median sales of $3.2 
million. The number of employees ranged from 1 to more than 3,000, but 
the median number was 45. About half of these firms came from four 
industries--industrial machinery and computers (14 percent), 
electronic equipment (13 percent), apparel manufacturers (12 percent), 
and fabricated metals (10 percent).

[43] Generally, FHA, VA, and RHS pay claims to mortgage servicers to 
cover the outstanding loan balances on foreclosed mortgages and 
interest and other expenses. If foreclosed properties are resold at 
relatively low prices, then the organizations' ability to recover their 
claim payments may be limited.

[44] Under current law, borrower interest rates on Stafford loans--
which comprise the majority of student loans underlying consolidation 
loans--originated on or after July 1, 2006 will carry a fixed borrower 
interest rate of 6.8 percent. Presently, borrower interest rates on 
Stafford loans are variable and based on a statutorily established 
market-indexed rate setting formula, while borrower interest rates on 
consolidation loans are determined by taking the weighted average of 
the interest rates in effect on the loans being consolidated rounded up 
to the nearest one-eighth of 1 percent. Unless current law is changed, 
future borrowers with fixed-rate Stafford loans will have less of an 
interest rate incentive to obtain consolidation loans. However, 
borrowers who will have obtained loans prior to July 1, 2006 may still 
have an interest rate incentive to obtain consolidation loans beyond 
July 1, 2006. Further, in this fiscal year 2005 budget request, the 
President has proposed eliminating the scheduled interest rate change 
for Stafford loans and maintaining the variable interest rate formula.

[45] SCHIP is the State Children's Health Insurance Program.

[46] Technical pathology services involve the preparation of tissue 
samples removed during surgery for examination by a pathologist. Such 
services involve cutting, mounting, and staining the specimen on a 
microscope slide.

[47] Employer-sponsored group health plans can be the primary payers 
for Medicare beneficiaries. An employer with 20 or more employees must 
offer the same health insurance coverage to workers age 65 and over as 
to other employees, and, if it is offered, health insurance coverage 
for employees' spouses aged 65 and older. If a worker accepts the 
coverage, then Medicare is the secondary payer. A large group health 
plan, defined as a health plan offered by an employer with 100 or more 
employees, is the primary payer for disabled Medicare beneficiaries 
under age 65 who are working or the spouses of individuals who are 
working.

[48] Here, the term "fugitive felons" also refers to probation and 
parole violators.

[49] U.S. General Accounting Office, Food Stamp Program: Storeowners 
Seldom Pay Financial Penalties Owed for Program Violations, GAO/RCED-
99-91 (Washington, D.C.: May 11, 1999).

[50] U.S. General Accounting Office, Food Stamp Program: Better Use of 
Electronic Data Could Result in Disqualifying More Recipients Who 
Traffic Benefits, GAO/RCED-00-61 (Washington, D.C.: Mar. 7, 2000).

[51] U.S. General Accounting Office, Food Assistance: Efforts to 
Control Fraud and Abuse in the Child and Adult Care Food Program Should 
Be Strengthened, GAO/RCED-00-12 (Washington, D.C.: Nov. 29, 1999).

[52] U.S. General Accounting Office, Deficit Reduction: Better 
Targeting Can Reduce Spending and Improve Programs and Services, GAO/
AIMD-96-14 (Washington, D.C.: Jan. 16, 1996), and School Finance: State Efforts to 
Equalize Funding Between Wealthy and Poor School Districts, GAO/HEHS-
98-92 (Washington, D.C.: June 16, 1998).

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