[Senate Hearing 105-427]
[From the U.S. Government Printing Office]


[DOCID: f:39866]
                                                        S. Hrg. 105-427
 
 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

=======================================================================

                                HEARINGS

                                before a

                          SUBCOMMITTEE OF THE

            COMMITTEE ON APPROPRIATIONS UNITED STATES SENATE

                       ONE HUNDRED FIFTH CONGRESS

                             FIRST SESSION

                                   on

                           H.R. 2158/S. 1034

 AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF VETERANS AFFAIRS 
AND HOUSING AND URBAN DEVELOPMENT, AND FOR SUNDRY INDEPENDENT AGENCIES, 
  BOARDS, COMMISSIONS, CORPORATIONS, AND OFFICES FOR THE FISCAL YEAR 
           ENDING SEPTEMBER 30, 1998, AND FOR OTHER PURPOSES

                               __________

        American Battle Monuments Commission
      Consumer Product Safety Commission
      Corporation for National and Community Service
      Department of Defense--Civil
      Department of Health and Human Services
      Department of Housing and Urban Development
      Department of the Treasury
      Department of Veterans Affairs
        
      Environmental Protection Agency
      Executive Office of the President
      Federal Emergency Management Agency
      General Services Administration
      National Aeronautics and Space Administration
      National Credit Union Administration
      National Science Foundation
      Nondepartmental witnesses
      Selective Service System
      U.S. Court of Veterans Appeals

                                     
                               __________

         Printed for the use of the Committee on Appropriations


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                                 senate

                    U.S. GOVERNMENT PRINTING OFFICE
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                      COMMITTEE ON APPROPRIATIONS

                     TED STEVENS, Alaska, Chairman
THAD COCHRAN, Mississippi            ROBERT C. BYRD, West Virginia
ARLEN SPECTER, Pennsylvania          DANIEL K. INOUYE, Hawaii
PETE V. DOMENICI, New Mexico         ERNEST F. HOLLINGS, South Carolina
CHRISTOPHER S. BOND, Missouri        PATRICK J. LEAHY, Vermont
SLADE GORTON, Washington             DALE BUMPERS, Arkansas
MITCH McCONNELL, Kentucky            FRANK R. LAUTENBERG, New Jersey
CONRAD BURNS, Montana                TOM HARKIN, Iowa
RICHARD C. SHELBY, Alabama           BARBARA A. MIKULSKI, Maryland
JUDD GREGG, New Hampshire            HARRY REID, Nevada
ROBERT F. BENNETT, Utah              HERB KOHL, Wisconsin
BEN NIGHTHORSE CAMPBELL, Colorado    PATTY MURRAY, Washington
LARRY CRAIG, Idaho                   BYRON DORGAN, North Dakota
LAUCH FAIRCLOTH, North Carolina      BARBARA BOXER, California
KAY BAILEY HUTCHISON, Texas
                   Steven J. Cortese, Staff Director
                 Lisa Sutherland, Deputy Staff Director
               James H. English, Minority Staff Director
                                 ------                                

           Subcommittee on VA, HUD, and Independent Agencies

                CHRISTOPHER S. BOND, Missouri, Chairman
CONRAD BURNS, Montana                BARBARA A. MIKULSKI, Maryland
TED STEVENS, Alaska                  PATRICK J. LEAHY, Vermont
RICHARD C. SHELBY, Alabama           FRANK R. LAUTENBERG, New Jersey
BEN NIGHTHORSE CAMPBELL, Colorado    TOM HARKIN, Iowa
LARRY CRAIG, Idaho                   BARBARA BOXER, California
                                     ROBERT C. BYRD, West Virginia
                                       (ex officio)

                   Jon Kamarck, Clerk to Subcommittee
                          Carolyn E. Apostolou

                             Minority Staff
                            Sally Chadbourne




                            C O N T E N T S

                              ----------                              

                      Thursday, February 25, 1997

                                                                   Page

Executive Office of the President: Council on Environmental 
  Quality and Office of Environmental Quality....................     1
Department of the Treasury: Community Development Financial 
  Institution....................................................    27
National Credit Union Administration.............................    63

                         Tuesday, March 4, 1997

Corporation for National and Community Service...................    81
U.S. Court of Veterans Appeals...................................   109
American Battle Monuments Commission.............................   121
Department of Defense--Civil: Cemeterial Expenses, Army..........   139
Selective Service System.........................................   145

                        Tuesday, March 11, 1997

Consumer Product Safety Commission...............................   155
General Services Administration: Consumer Information Center.....   165
Department of Health and Human Services: Office of Consumer 
  Affairs........................................................   169

                        Tuesday, March 18, 1997

Federal Emergency Management Agency..............................   193

                         Tuesday, April 8, 1997

Environmental Protection Agency..................................   247

                        Tuesday, April 22, 1997

Executive Office of the President: Office of Science and 
  Technology Policy..............................................   433
National Science Foundation......................................   457

                         Thursday, May 1, 1997

Department of Veterans Affairs: Office of the Secretary..........   511

                          Tuesday, May 6, 1997

National Aeronautics and Space Administration....................   601

                         Tuesday, May 13, 1997

Department of Housing and Urban Development......................   665
Nondepartmental witnesses........................................   723
    Department of Veterans Affairs...............................   723
    Department of Housing and Urban Development..................   732
    Environmental Protection Agency..............................   830
    Federal Emergency Management Agency..........................   889
    National Aeronautics and Space Administration................   896
    National Science Foundation..................................   909
    Miscellaneous................................................   923




 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                              ----------                              


                      THURSDAY, FEBRUARY 25, 1997

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:38 a.m., in room SD-192, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Burns, Stevens, Bennett, Mikulski, 
and Lautenberg.

                   EXECUTIVE OFFICE OF THE PRESIDENT

  Council on Environmental Quality and Office of Environmental Quality

STATEMENT OF KATHLEEN MC GINTY, CHAIR

                OPENING STATEMENT OF CHRISTOPHER S. BOND

    Senator Bond. Good morning, and welcome to the VA, HUD, and 
Independent Agencies Subcommittee meeting. We will come to 
order.
    My apologies. I have spent the better part of the morning 
stuck in traffic. If this were the D.C. appropriations 
subcommittee, I would have questions on the construction 
schedule. But all I can do now is apologize to the witnesses, 
guests, and fellow members.
    This is the subcommittee's first hearing on the fiscal year 
1998 budget. I welcome the new members of the subcommittee, and 
I look forward to working with our ranking member, Senator 
Mikulski, and she probably has a story about traffic on the 
Baltimore-Washington Parkway which will exceed my story.
    I welcome our witnesses and guests.
    We will face another year of very difficult budget 
decisions as Congress continues to focus on its priorities and 
seeks to balance a budget by the year 2002. I must emphasize 
the need to continue to be proactive in consolidating and 
reforming our many Federal programs, including many under the 
jurisdiction of this subcommittee. There was much to be done 
over the last several years, but there is a lot of work still 
to be done.
    In particular, after 4 years of sharp decline, the Federal 
deficit is likely to begin to increase again, so that by 2010, 
when some of us, past baby boom and baby boomers, begin to 
retire, the deficit is going to skyrocket unless Congress makes 
meaningful policy and spending changes. It took us more than 
200 years to acquire our first trillion dollars of debt. We are 
now increasing our outstanding debt by $1 trillion about every 
5 years. This is a mortgage on America's future that is going 
to be difficult to sustain.
    I note, with interest and some concern, the President's 
budget proposes some $92 billion in budget authority for the 
departments and agencies under the VA, HUD, and Independent 
Agencies Appropriations Subcommittee jurisdiction, of which $72 
billion is discretionary spending. I would note that this 
amount represents a proposed increase of approximately $8 
billion over the current level. As I understand it, there are 
discussions underway between leaders, the Congress, the White 
House, and OMB about reaching a budget agreement. We have some 
very important spending priorities to meet in this 
subcommittee, and I will fight to assure that all of our 
programs are adequately funded, but I would have to say that 
unless some agreement is reached that is a very ambitious goal 
for our 602(b) allocation.

                           prepared statement

    This morning we will hear testimony from four of the 
independent agencies under the subcommittee's jurisdiction, 
Council on Environmental Quality, the National Credit Union 
Administration, the Neighborhood Reinvestment Corporation, and 
the community development and financial institutions fund. 
While programs covered by today's hearings are small relative 
to others in the subcommittee's portfolio, they are very 
important programs and activities that impact millions of 
Americans.
    [The statement follows:]

                   Prepared Statement of Senator Bond

    The VA, HUD and Independent Agencies Appropriations Subcommittee 
hearing will come to order. This is the Subcommittee's first hearing on 
the fiscal year 1998 budget. I welcome the new Members to the 
Subcommittee, and, as always, I look forward to working closely with 
our Ranking Member, Senator Mikulski. I also welcome our witnesses and 
guests this morning.
    The Appropriations Committee and the VA/HUD Appropriations 
Subcommittee will face another year of very difficult budget decisions 
as the Congress continues to refocus its priorities and seek to balance 
the federal budget by the year 2002. I cannot emphasize enough the need 
to continue to be proactive in consolidating and reforming our many 
federal programs, including many under this subcommittee. We have done 
much over the last several years, but there is still a lot of work to 
be done.
    In particular, after four years of sharp decline, the federal 
deficit is likely to begin to increase again so that by 2010, when the 
babyboomers begin to retire, the deficit will skyrocket unless the 
Congress makes meaningful policy changes. While it took us more than 
200 years to acquire our first trillion dollars of debt, we are now 
increasing our outstanding debt by a trillion dollars every 5 years, 
with the total national debt now standing at some $5.3 trillion. This 
means that every man, woman, and child in our Nation has an individual 
debt of almost $20,000. This is the mortgage on America's future that 
we must begin to pay off now.
    In particular, I am concerned that the President's budget proposes 
some $92 billion in budget authority for the departments and agencies 
under the VA, HUD and Independent Agencies Subcommittee, of which $72 
billion is discretionary spending. The amount proposed represents an 
increase of approximately $8 billion over the current level. And I must 
tell you, absent some very compelling reasons, it is going to be very 
difficult for this subcommittee to provide any increases over our 1997 
budget levels.
    This morning we take testimony from 4 of the independent agencies 
under the subcommittee's jurisdiction: the Council on Environmental 
Quality, the National Credit Union Administration, the Neighborhood 
Reinvestment Corporation and the Community Development Financial 
Institutions fund. While the programs covered by today's hearing are 
small relative to others under the subcommittee's portfolio, they are 
important programs and activities that impact millions of Americans.
                                panel i
    We will hear first from Ms. Kathleen McGinty, Chair of the Council 
on Environmental Policy or CEQ, which is responsible for coordinating 
federal policy on environmental issues as well as primary 
responsibility for implementation of the National Environmental Policy 
Act (NEPA).
    The Administration is requesting a budget for CEQ for fiscal year 
1998 of $3.02 million and 23 Full-Time equivalent employees. This 
Budget Request represents an increase for CEQ of $584,000, a 24 percent 
increase over the fiscal year 1997 Appropriation and an increase of 4 
FTE's.
    I look forward to your testimony this morning.
                                panel ii
    The second panel consists of Mr. John Hawke, Jr., the Under 
Secretary for Domestic Finance for the Department of the Treasury, and 
Ms. Kirsten Moy, Director of the Community Development Financial 
Institutions fund program. The Administration's Budget Request for the 
CDFI Fund asks for an increase of $75 million from $50 million for 
fiscal year 1997 to $125 million for fiscal year 1998. I also 
understand that the President also plans to ask for increases each year 
to bring the 5-year total to $1 billion by fiscal year 2002.
    The CDFI fund was established in the Community Development and 
Regulatory Improvement Act of 1994 to provide equity investments, 
grants, loans, and technical assistance to new and existing community 
development financial institutions such as community development banks, 
community development credit unions, community development loan funds, 
community development venture capital funds and micro-loan funds.
    CDFI funds are intended to enhance the capacity of these 
institutions to finance economic development, housing, and community 
development in distressed urban and rural communities.
    I am very concerned about the amount of the CDFI funding request, 
especially as we prioritize the funding needs of some of the primary 
programs and activities under this subcommittee, such as the renewal of 
expiring section 8 housing assistance contracts and the additional cost 
of Veterans medical care. The CDFI fund is the new kid on the block--it 
has no track record and looks like a number of other programs and 
activities that are designed to revitalize distressed communities.
    In addition, we need to see how well the CDFI funds will leverage 
other public and private investment in distressed communities and also 
to what degree any leveraged investment is being drained from other 
activities and programs currently serving distressed communities. I 
also am interested in understanding the extent to which CDFI's 
discourage traditional financial institutions from opening branches and 
lending in distressed communities. Opening special banks for distressed 
communities is not necessarily the best way to revitalize and 
incorporate these communities into, hopefully, the overall economic 
growth and revitalization of our urban and rural areas.
    I look forward to hearing your testimony

                               PANEL III

    The third panel consists of Mr. Norman D'Amours, Chairman of 
National Credit Union Administration (NCUA), and Mr. George Knight, 
Executive Director of the Neighborhood Reinvestment Corporation.
    NCUA is responsible for the chartering and regulating of federal 
credit unions. In addition, NCUA administers an insurance fund to carry 
out a program of insurance for member accounts in federal credit unions 
and State-chartered credit unions which apply and qualify for 
insurance. There are currently some 7,200 federally chartered credit 
unions and it is estimated that approximately 4,500 State-chartered 
credit unions will be insured by NCUA by the end of 1997.
    The NCUA is self-funded through an operating fee on its member 
institutions and from reimbursements from the insurance fund for 
administration of the insurance fund.
    Second, Mr. Knight will testify on the Administration's budget 
request for the Neighborhood Reinvestment Corporation which calls for 
flat funding of $50 million for fiscal year 1998. Neighborhood 
Reinvestment was created in 1978 to help local communities establish 
working partnerships between residents and representatives of the 
public and private sectors through nonprofit entities which include 
neighborhood housing services, mutual housing associations and 
apartment improvement programs. Collectively, these nonprofits are 
known as the NeighborWorks' network.
    Neighborhood Reinvestment and the NeighborWorks' network 
have a long track record and have become a good model of how the 
federal government can spend a small amount of money and reap 
tremendous benefits. For example, as the written testimony ably states, 
$38.7 million in fiscal year 1996 appropriations allowed the 
Neighborhood Reinvestment and NeighborWorks' to leverage 
$420 million in affordable housing investments.
    Again, I look forward to the testimony.

                    STATEMENT OF FRANK R. LAUTENBERG

    Senator Bond. In the absence of Senator Mikulski, I will 
call on Senator Lautenberg for his opening statement.
    Senator Lautenberg. Thank you, Mr. Chairman. I will be 
relatively brief, and relatively brief around here may have 
different meanings for different people, but we will try. 
[Laughter.]
    I thank you for calling this hearing. I welcome Ms. 
McGinty. If I may be so familiar, Katie, you have made many 
important contributions here. We are glad to see you here 
making the case for your small department--small, but 
important.
    Mr. Chairman, the Federal Government may have a single 
agency devoted to environmental protection, but every agency 
has environmental responsibilities and interests. The 
Department of Energy spends more money on hazardous waste 
cleanup than EPA. The Navy has taken dramatic steps to reduce 
pollution at sea. And NOAA's weather satellites have provided 
dramatic scientific information on the ozone hole and global 
warming.
    Additionally, although EPA enforces Superfund, the largest 
responsible parties are not Fortune 500 companies. They are the 
Department of Defense and the Department of Energy. Given the 
many agencies involved in environmental protection, it is 
important that some organization coordinate environmental 
policy. And the Council on Environmental Quality performs that 
critical task. And it generally does a good job.
    One area where there have been problems is the processing 
for reviewing disputes under NEPA, the National Environmental 
Policy Act. I have some concerns about the process, and I am 
pleased that the President has proposed to review it, to 
reinvent it perhaps. For one thing, we need to ensure that 
environmental impact statements are easier to understand so 
that public participation can be more meaningful. It is also 
critical that the environmental impact statement process become 
a real tool in agency decisionmaking rather than a paperwork 
exercise, to justify an agency previous intention.
    I understand that the President's budget would provide 
increased funding for four new staffers, to establish primarily 
a new NEPA process. And I hope that we can find the funds to 
make that happen. I think it is a very important step. I think 
that it needs to be attended to, and I think it is a relatively 
small request to take this important step.
    So I look forward to Ms. McGinty's comments on these 
issues, and I, once again, Mr. Chairman, thank you for holding 
this hearing.
    Senator Bond. Thank you very much, Senator Lautenberg, and 
since we have been joined by the chairman of the full 
committee, I would like to call on Senator Stevens for any 
comments.
    Senator Stevens. Thank you. I have no comment.
    Senator Bond. Thank you.
    I will now welcome and turn to our ranking member, and say 
that we are looking forward to working together in another 
challenging year, and hope that we can pass one good VA, HUD, 
and Independent Agencies bill, and move on with the business.
    Senator Mikulski, welcome.

                    STATEMENT OF BARBARA A. MIKULSKI

    Senator Mikulski. Thank you very much, Mr. Chairman, and 
again, I apologize for my tardiness today. We oversee the space 
program, and I wish I could do as good a job getting down from 
Baltimore on the Baltimore-Washington Parkway as our astronauts 
do fixing the Hubble.
    I would like to welcome our new members to the panel, 
Senators Craig, Harkin, and Boxer, who I know will be active 
participants, and in this, today's hearing. I am looking 
forward to hearing what Ms. McGinty has to say about the CEQ's 
effort to study the effectiveness of its authorizing 
legislation, the NEPA, and to examine proposals aimed at 
reinventing the interagency process to carry out that statute. 
As we look at so many of the issues impacting on the 
environment, interagency coordination is absolutely essential.
    I will also be looking forward to listening to Mr. George 
Knight of the Neighborhood Reinvestment Corporation, which is 
really one of the best little agencies I think we have in the 
Federal Government. It has a modest budget of $50 million, and 
really does help communities empower themselves. I think you 
and I appreciate its self-help initiatives.
    Also on the issues of the community development, the CDFI, 
we look forward to hearing what they have to say, particularly 
leveraging Federal dollars, and the role that they will play in 
microenterprise initiatives, which I know will be crucial to 
economic development in our own country. We have seen how they 
work abroad. I would like to see how they work in our inner 
cities, and hopefully they can be a tool to welfare reform.
    And last but not at all least, I welcome an old colleague, 
Congressman D'Amours, on behalf of the National Credit Union 
Administration. I am worried about the credit unions. There are 
a lot of lawsuits about credit unions. Some are in fragile 
condition. I just want to be sure that they again are a tool 
for empowerment at local levels, but yet do not leave us with 
another unfunded fiasco.
    Senator Bond. Thank you very much, Senator Mikulski. We 
will now hear first from Ms. Kathleen McGinty, Chairman of the 
Council on Environmental Quality [CEQ], which is responsible 
for coordinating Federal policy on environmental issues, as 
well as the primary responsibility for implementation of the 
National Environmental Policy Act [NEPA], which has already 
been mentioned here today.
    I note the administration is requesting a budget for CEQ in 
fiscal year 1998 of $3.02 million and 23 full-time equivalents. 
This budget request represents an increase for CEQ of over $\1/
2\ million, or a 24-percent increase over fiscal year 1997 
appropriations and an increase of four full-time employees.
    I look forward to your testimony. Welcome, Ms. McGinty.

                     STATEMENT OF KATHLEEN MCGINTY

    Ms. McGinty. Thank you very much, Mr. Chairman and members 
of the committee. It is a pleasure to appear before you today 
to present the President's request for CEQ for fiscal year 
1998. I want to start by thanking all of you, and especially 
your staff, who have been very much available to CEQ in the 
last years to really help us do our job.
    I would like to focus today on three things: First, 
briefly, the level of our request; second, our work over the 
past year; and third, I'd like to turn to our top priority for 
the coming year, which is the reinvention of the National 
Environmental Policy Act. First, the level of our request.
    As you know, Mr. Chairman, CEQ currently operates at a 
staff level of 19 FTE's and a budget of $2.4 million. Our 
request today is for 23 FTE's, which would be $3,020,000. As 
you noted, Mr. Chairman, especially in these budget times, this 
increase in percentage terms is significant. However, I would 
like to emphasize to the committee that even at 23 FTE's, CEQ 
would still be significantly below the average in the Bush 
administration, which was 31 FTE's, and very significantly 
below CEQ's peak staffing level of nearly 70 FTE's during the 
Nixon administration.
    These resources are critical, Mr. Chairman, if CEQ is to 
take on what I will describe in a moment as our very first 
priority, the comprehensive reinvention of NEPA. Many, 
including the Western Governor's Association, industry, 
nongovernmental organizations, and others, have urged us to 
undertake this effort, and I agree with them, it is a top 
priority. But I do need resources to get that job done, 
resources that could be taken out of the daily fire fights that 
we find ourselves constantly involved in and consumed by, 
people who are senior, professional, dedicated staff who really 
can get this job done.
    As I noted, I will return to the substance of this endeavor 
in a moment. Before doing that, I want to turn briefly to some 
of CEQ's work over the past year that we anticipated in our 
meetings last year. As this committee is aware, CEQ has 
responsibility both for immediate oversight of the 
environmental impact assessment process conducted by every 
Federal agency, as well as in our capacity as the President's 
senior environmental policy advisers, policy coordination, and 
dispute resolution among agencies on environmental matters.
    First, environmental assessments. CEQ has worked hard over 
the last year to use NEPA as it was intended, to improve agency 
implementation and decisionmaking. For example, CEQ used NEPA 
to design a process that will allow us to conclude even the 
most complex habitat conservation plans, and these are the 
plans that we have developed under the Endangered Species Act 
that provide for species protection but also gives certainty to 
landowners. Through NEPA we will complete those processes for 
even the most complex HCP's in 10 months or less.
    I recently returned from Washington State, where I signed 
our latest HCP with the Governor of Washington. That HCP will 
cover 1.6 million acres, and gives the State of Washington 70 
to 100 years certainty that it has fulfilled its Federal 
Endangered Species Act obligations. We achieved that through 
NEPA.
    In addition, CEQ responded to the request of Gov. Tony 
Knowles, the Alaska delegation, members of the oil industry, 
and others, to launch a process to identify lands for possible 
oil production and environmental protection in the national 
petroleum reserve in Alaska. Because of our efforts and because 
of NEPA's ability to integrate various statutes, we will be 
able to see that process through to completion in 18 months or 
less. This builds on our effort that we achieved in just 6 
months to allow for the export of oil from the Alaska North 
Slope.
    Through NEPA, CEQ has also worked, for example, to cut 
processing times for timber salvage sales. Now, we complete 
them in 1 year instead of the 3 years that was previously 
required. We worked recently to resolve a longstanding dispute 
between the Air Force and the FAA that now allows military 
training activities again to be commenced in Alaska. And we 
provided most recently for the transfer of the Homestead Air 
Force Base in Florida to Dade County, FL, but in a way that 
will ensure that Everglades restoration is not impaired. So we 
are improving the environmental assessment process and 
implementation.
    On the policy front, CEQ has worked hard coordinating the 
agencies and resolving disputes. CEQ developed, for example, 
targeted reforms to RCRA. These reforms will avoid duplication 
between RCRA and the Clean Water Act. They were developed and 
signed into law last year, and in their implementation industry 
will save tens of millions of dollars. CEQ also worked to 
achieve an agreement that will ensure the financial viability 
of the Bonneville Power Administration, while also securing 
significant resources and sufficient resources to protect and 
restore salmon in the Columbia and Snake Rivers. This agreement 
was significant not only in substance, but also for the first 
time it opened up Federal salmon decisionmaking to the tribes 
and to State and local governments. That had not been done 
before.
    Working with the States' Attorneys General and the 
International Association of Police Chiefs, CEQ also designed a 
bill to take on environmental crimes. This bill, among other 
things, will provide for enhanced partnerships and the sharing 
of resources between Federal and State and local law 
enforcement officials.
    Finally, CEQ worked to craft significant reforms in a 
wetlands program, and now with OMB to ensure that nonstructural 
options are offered to flood victims in the wake of the recent 
flooding experiences we have seen. So CEQ has worked hard to 
ensure coordination, coherence, and efficiency in environmental 
policy matters. NEPA is an effective tool to that end.
    Turning briefly now, Mr. Chairman, to our proposal to 
reinvent NEPA, we hope to build on the progress we have made 
and that I have just discussed, as well as the new learning and 
insights we have gained as a result of our NEPA effectiveness 
study. We are already underway, working with the Western 
Governors Association; Governors Geringer and Kitzhaber most 
particularly have launched working groups in three areas: 
timber, oil and gas, and grazing. But as the committee knows, 
NEPA applies to every major Federal action, so there is much 
more to be done.
    We can use NEPA better to integrate environmental concerns, 
and we know for sure that NEPA is the tool through which we can 
provide much more access to citizens and State and local 
government. I would like to launch a multistakeholder process 
to get this done. I would like to bring in our universities and 
our best scientists and academic talent. It is indeed my top 
priority, but, Mr. Chairman, I do need additional resources to 
get the job done. I look forward to working with the committee 
to that end.
    Thank you.
    Senator Bond. Thank you very much, Ms. McGinty. Your full 
statement, of course, will be made a part of the record. We 
appreciate your summaries.

                           ELIMINATION OF CEQ

    Ms. McGinty, the first year President Clinton was in office 
he proposed eliminating CEQ as part of a streamlining effort, 
and later reversed his decision and decided to support CEQ, but 
to keep staffing at a modest level. I would note that CEQ is 
not at the lowest historical staffing level, which was 13, from 
1984 to 1989. In fact, the average staffing level, as opposed 
to the authorized level for the past 16 years, has been just 
below 19 FTE's. Can you provide us any specific examples from 
last year which would illustrate where your staffing level fell 
short?
    Ms. McGinty. Throughout the course of the last several 
years, Mr. Chairman, our staffing level has fluctuated. As you 
noted, in the beginning of the administration the proposal was 
to establish a new office in the White House to handle these 
matters. That office would have been staffed at 10 FTE's.
    Over the course of the last several years, CEQ has been 
built back up from 10 to the current level of 19 FTE's, so we 
have been on average in that range of staff, from 10 to now we 
have built back up to 19.
    Senator Bond. What work was not getting done?
    Ms. McGinty. I am sorry. For example, on the lesser levels 
of staffing we are about to present to the committee a combined 
CEQ annual report. As the committee is aware, Senator Mikulski 
has often looked to this report for the data, very important 
data, it contains.
    CEQ fell behind in preparing that report. But now we are 
finally on the verge of catching up, and we have done that by 
combining 2 years' worth of analysis into one single report.
    In addition to that, we also have just recently finished 
the NEPA effectiveness study, but that, too, was delayed by 
1\1/2\ years because of reduced funding levels.
    Senator Bond. How much of your time do you spend on putting 
out these reports? Senator Mikulski has suggested making it 
biannual. Is there that much new information every year that 
you have to come up with a new report? How much time and effort 
do you put in on that?
    Ms. McGinty. It is a significant investment of time and 
effort. What we have found, however, and we found it when we 
were lapsed 1 year in providing the report, is that 
particularly in academia and many scientists really rely on 
that annual series of data. They use it for their own studies, 
their own reports, and again, we found that out as we fell 
behind in producing that volume of data.
    It is a significant investment for us. We do take it very 
seriously, and what we have found is that there are many people 
who rely on it.

                               PROJECT XL

    Senator Bond. You mentioned project XL in your written 
testimony, and you say it is the centerpiece of the 
administration's effort to reinvent environmental regulation, 
and the President has indicated his strong support, saying it 
marks the end of one size fits all Government regulations. When 
we look at the reality as opposed to the rhetoric, we are a 
little concerned about it.
    You testified 2 years ago the administration would be 
launching 50 initiatives in 1995. Yet today, as I understand 
it, there have only been three project approvals, and, in fact, 
of the eight original pilot XL projects announced in November 
1995, only one has been given final approval, and only three 
additional projects are in negotiation. Three of the original 
project participants have withdrawn completely, and industry 
executives have told us that EPA is too enforcement oriented 
for a voluntary program to succeed. The senior director for 
environmental affairs for Annheuser Bush, one of the eight 
pilot projects which later withdrew, said, ``we could not seem 
to get the out of the box thinking we wanted to get out of 
them.''
    What lessons have you learned over the past 2 years from 
project XL? Why have there been so many problems, so little 
progress, and specifically, what are you doing to see the 
President's commitment for alternative compliance approaches is 
carried out?
    Ms. McGinty. Senator, the project XL, as you indicate, has 
been a comprehensive effort to really try to produce a whole 
new way of achieving environmental excellence. Now, in setting 
that ambitious of a target for ourselves, we also have run into 
some significant difficulties in getting the job done. I think 
the difficulties speak really to the newness and the magnitude 
of what we are trying to take on.
    What we have done to continue to work through the program 
is to reconvene a series of meetings with various stakeholders 
to really understand the issues that they are encountering with 
the program. And they seem to boil down to two. The program 
requires that there be stakeholder participation in 
implementing the environmental performance plan. The program 
also requires that in ``throwing away the rule book,'' that a 
company be willing to achieve superior environmental 
performance.
    Both of those phrases--stakeholder participation and 
superior environmental performance, have not been well enough 
understood so that as each project has moved forward there has 
been confusion with regard to those elements of the program.
    Recently, a Federal Register notice was issued to help 
flush those conflicts out, and a stakeholder process convened 
to comment on the new suggestions that have been made. Now, 
over the next several weeks what we will do is reissue that 
Federal Register notice, taking in the comments now of 
participants in the program and try to help provide some 
clarity with regard to those two concepts that do seem to have 
proven to be difficult.
    Senator Bond. I will come back to that, because I have a 
couple of more questions on that. But let me turn now to 
Senator Mikulski.
    Senator Mikulski. Thank you, Mr. Chairman.
    Ms. McGinty, the NEPA effectiveness study identified 
certain areas, in which there was poor interagency 
coordination, conflicting regulations, inadequate public 
participation, too much paperwork, and so on. And having 
identified those, which can be true of almost any organization 
in America, your report had no navigational chart or no series 
of recommendations on how to address those individual issues. 
Do you have a specific list that you want accomplished and 
defined timetables that you want? In other words, some of these 
are more pressing than others. Would you outline your tasks and 
timetables on addressing the effectiveness study, because 
resources and staff should define mission and purpose, and 
mission and purpose is dealt with in these issues. Do you want 
to comment?
    Ms. McGinty. Yes; thank you. Starting from the 
effectiveness study and the five or six themes that came out of 
that that you just articulated, we have moved from those themes 
to try to apply them now in the first phase of this reinvention 
effort to three specific areas. The first one is timber, the 
second is oil and gas production, and the third is grazing. And 
what that means is that we want to look in those three sectors 
to see what the experience is of whether there are conflicting 
regulations, whether the public is not sufficiently involved. 
Yes?
    Senator Mikulski. Just to continue a conversational 
approach here, so rather than saying I am going to address too 
much paperwork, what you are doing, then, is taking a topic 
that actually affects a private sector, like grazing and 
timber--of which our colleagues here have intense interest in, 
and then take these four problem areas and look at a topic that 
affects private sector environmental concerns and does direct 
impact on the local community. I think that is an excellent way 
to go about it, rather than something called--not good 
coordination.
    Ms. McGinty. Instead of just generalities, we really wanted 
to get very specific, and one specific thing, for example, that 
we would like to do, and the timing and the paperwork problems 
that you mentioned, we want to give people who are seeking 
Federal leases the opportunity, the right, to come in and 
negotiate a timeframe, so that they know that the permitting 
process will take x amount of time. But they have the right to 
come in and be given that certainty. They do not have that now.
    Senator Mikulski. Let us just take the grazing issue. I 
know Senator Burns will probably have followup questions in 
this, but that is what I hope we can do, a more conversational 
approach.
    Grazing is one of your tasks to be dealt with. Do you have 
a timetable where you say at the end of this period we then 
hope we will have resolved our internal management processes to 
have dealt with creating procedures. Not necessarily to make 
everybody happy with the decisions, but at least our internals 
and our mechanisms will be in place.
    Ms. McGinty. Yes; we hope, actually, over the next several 
months, in a short timeframe, to be able to produce several 
very concrete recommendations, in the grazing sector for 
example. We will take those recommendations, and then open the 
process up. I visited extensively with Governors Geringer and 
Kitzhaber about this. The University of Wyoming and the 
University of Montana will be engaged in providing a forum for 
us to have our recommendations aired by the folks who are most 
affected.
    Senator Mikulski. Is it reasonable to expect that those 
three topics could have been dealt with by the beginning of the 
fiscal year, October 1?
    Ms. McGinty. Oh, I believe so, yes. In terms of very 
specific concrete recommendations, yes.
    Senator Mikulski. Well, I'd like to ask, Ms. McGinty, that 
when we are actually at our markup stage we would like to have 
a progress report, and then what you need to do that, because 
then, one, we will see if you have made progress, with all due 
respect, and then second, what it took to make the progress.
    Ms. McGinty. OK.
    Senator Mikulski. The second thing is FEMA. You know we are 
a FEMA-obsessed committee here because that is where all the 
natural disasters come in. FEMA, as you know, has raised 
concerns and yellow flashing lights that often environmental 
mandates, particularly emergency rehabilitation, often impede 
their efforts. We are not talking about long-range restoration. 
I wonder if you could talk about your coordination with FEMA, 
not that we waive or cavalier or swashbuckle over these regs, 
but when they are out there and we have got floods on the 
Missouri or like what we faced in Western Maryland, the 
Potomac, et cetera, you have got to make decisions and you 
cannot go through a lot of complicated environmental stuff.
    Ms. McGinty. Yes; absolutely, especially in the context of 
emergency response. We very recently were faced with this, 
especially in the wake of the flooding in California. I was 
contacted by Senator Feinstein and Congressman Fazio, who laid 
out to me that they thought their constituents were very 
concerned and confused about this, not certain that they could 
take emergency actions to respond to the flood.
    We called the relevant agencies together--FEMA, the Fish 
and Wildlife Service, the National Marine Fishery Service, EPA, 
all of them--and quickly got an analysis done that yes, in 
fact, there are emergency provisions in each one of these 
statutes, and that the conditions in California warranted the 
invocation of those emergency procedures. Within 36 hours we 
put out statements in California and the Pacific Northwest to 
make clear that the environmental statutes in no way slowed 
down or would impede emergency actions to respond to the flood.
    Senator Mikulski. I am going to offer two suggestions to 
you, and I know my time is up. It would be wonderful to spend 
the whole morning talking about this. But two things: First of 
all, hats off on the California response. But this is going to 
happen everywhere. And I am going to suggest two things. One, 
that you might want to think about SWAT teams from these 
agencies to work with FEMA exactly on that, at a significant 
senior level where decisions will have validity.
    The other is that when FEMA does its maneuvers, and they do 
them in States, and they do them in special situations, the 
earthquake maneuver and so on, their simulations, that you be 
part of that simulation. And, I think, it would be very 
innovative, so that when they simulate how to respond to save 
lives, then you are there to talk about what you would do to 
follow up to save communities. And think about that, talk to 
James Lee Witt, and, I think, it could be very innovative, and, 
I think, it would be very energizing for your staff.
    Ms. McGinty. That is an excellent suggestion. I will do 
that.
    Senator Mikulski. To have SWAT teams and maneuvers.
    Ms. McGinty. Sounds exhilarating.
    Senator Lautenberg. It sounds like they will be out there 
with flack jackets. [Laughter.]
    Senator Mikulski. I have seen several environmental issues 
in Maryland where we have had horrendous national disaster 
years, as has Senator Bond. Senator Lautenberg has very serious 
issues in New Jersey relating to chemicals.
    Anyway, enough said.
    Ms. McGinty. Thank you.
    Senator Bond. Thank you, Senator Mikulski. I feel like we 
are almost in the Defense Appropriations Subcommittee.
    Senator Mikulski. Senator Stevens is having a profound 
impact on my psyche.
    Senator Bond. That is a good idea, and you will want to go 
to Alaska, like the rest of us do this year. It is not 
required, but it is not a bad idea.
    Now let me turn to Senator Burns.

                   PREPARED STATEMENT OF CONRAD BURNS

    Senator Burns. I have a statement that I want to put in the 
record, Mr. Chairman.
    Senator Bond. Without objection, it will be so ordered.
    [The statement follows:]

                  PREPARED STATEMENT OF SENATOR BURNS

    Thank you, Mr. Chairman. Good morning, ladies and gentlemen. Mr. 
Chairman, I would like to take this opportunity to commend you on your 
prompt attention to appropriation matters this Congress. We have a lot 
of work to accomplish this year and, considering our present fiscal 
situation, it might not be easy to choose which projects to fund. 
Therefore, it is important that we begin our work quickly with close 
attention not only to the needs of Federal agencies individually, but 
to the needs of the Nation.
    For example, Mr. Chairman, I have noticed that some agencies are 
requesting more than double the amount they requested in fiscal year 
1997. Mr. Chairman, with the economy in the shape that it is, each 
Federal agency should be trying to limit their expenses, not increase 
them, because if we increase the funds for one agency, it means that 
another agency will have to accept higher cuts than it would have 
normally expected.
    And, unfortunately, Mr. Chairman, we will have to determine if each 
Federal agency is really a needed organization in today's economy. We 
must do all that we can to ensure that we do not have two or three 
agencies performing the same tasks--this only leads to confusion and/or 
double billing the Federal Government for essentially the same work. It 
is our job to ensure to the American people that we are spending their 
hard earned tax payer funds with due diligence.
    Again, thank you, Mr. Chairman, for the opportunity to comment on 
these proceedings and for your timely attention to these vital matters 
to our Nation.

    Senator Burns. Ms. McGinty, I was going to have you give me 
10 reasons why you should be funded at all. Now, I want you to 
give me 19 reasons why you should be funded at all.
    Ms. McGinty. OK. I guess I can try. One, I think that we 
need better coordination among our agencies on environmental 
matters, and that is CEQ's role.
    Two, I think we need to streamline and cut paperwork, and 
that also is CEQ's role.
    Three, I think that in many different Federal decisions 
environmental impact should be taken into account, and that, 
again, is CEQ's role.
    Four, NEPA is the statute that provides for State and local 
government participation in Federal decisionmaking.
    Senator Burns. Let us stop right there now. I will let you 
make 15 of them in writing to me.
    It just seems to me if we have, and EPA, they do not want 
to visit with any other agency, you do not want to visit with 
any other agency, no other agency wants to visit with you, I 
just feel like, because you all went to Montana and made a 
little deal, and that ain't going to fly, is it?
    Ms. McGinty. I believe we are on track with that, although 
I am very respectful of your views on this subject.
    Senator Burns. Well, you tell me how it is going to fly, 
because I will tell you what, Plum Creek has pulled out.
    Ms. McGinty. Yes; that is right. The Governor, as you might 
know, is still very much engaged, and has been working with us 
closely on it. The company is still very much engaged, and has 
worked in good faith from the beginning of this process, and 
continues today. The agencies, I think, are producing a lot of 
good work on this front.
    Senator Burns. But your groups--in other words, your 
environmental groups in Montana--are not going to allow this 
thing to move forward, and I think I said at the git-go that 
this was a pie in the sky, that it just jerks people around, 
that their lives are in the balance locally. This is policy 
that was made on a feel-good methodology, and then to come in 
here and ask for more money and more people to do more crazy 
things, it is absolutely--I do not see how you can justify it, 
Katie. And I will tell you what, and I love your smile and I 
think you are a bright young woman, but I will tell you what, 
as far as any value to the American people or to the community 
of Montana or Wyoming or Idaho, and Utah will love you, you 
tell me what value--and you go out there and you say things to 
the press that sound good, but it is just not like that. And 
you made this deal, and then you ask for more money. Boy, I 
will tell you one thing. I thought I was pretty brazen as an 
auctioneer, but I am not near as brazen as this.
    Ms. McGinty. Well, Senator, I certainly respect your 
opinion, and I certainly understand, and you have made very 
clear, and have been clear to us from the beginning with regard 
to the New World Mine proposal about your views on that. But I 
do believe that CEQ has performed a very valuable role, and 
continues to, on issues that, I believe, are also very 
important to your constituents.
    Senator Mikulski and I were just discussing what we have 
done, already, to help streamline things like grazing 
practices, and to make it easier to provide----
    Senator Burns. How many people do you have there in that 
CEQ that knows one thing about grazing? Do you have anybody 
down there from the Society of Range Management?
    Ms. McGinty. No; I do not.
    Senator Burns. That is right. You do not have one soul down 
there that can tell us diddly doo about what a cow will eat and 
what they will not, what a sheep will do and what they will 
not. Now, you might have some people down there who know the 
difference between clean water and bad water, but that is about 
all. And this is what I am saying. We have got an Agriculture 
Department. In other words, all of this is redundant.
    I am going to be right honest with you. I am going to vote 
to defund this whole thing, because you have not been honest 
with people, and I am just to the point of frustration like you 
cannot believe. People's lives are in the balance. And that is 
what I am saying. We have got people that are making policy 
that do not know diddly doo about nothing. And I am probably 
one of them.
    Ms. McGinty. Senator, it is true that CEQ is not an 
institution that has specific substantive expertise in the 
various areas. What CEQ works to do, though, it is the statute 
that says that people with expertise have to be brought into 
the decisionmaking process. NEPA is the statute that says you 
have to open the doors, you have to let the public in, you have 
to disclose what your intentions are.
    I would not presume to second-guess the technical judgment 
of a particular agency. But when you have two agencies with 
clashing technical judgment, or when you have an agency that 
does not want to let State or local government or private 
citizens participate, that is when we get involved, to try to 
help repair where there are differences or to ensure that 
people have an opportunity to participate.
    But you are exactly right. It is not an institution with a 
cadre of scientists or a cadre of economists in specific 
disciplines.
    Senator Burns. But you put a lot of weight on NEPA. Yet you 
went out there and interjected your own decision before the 
NEPA process was allowed to be completed. You do not even have 
faith in your own law in NEPA. You made that decision on the 
New World Mine before the NEPA process was completed.
    Ms. McGinty. That is absolutely true, Senator.
    Senator Burns. Well, then why?
    Ms. McGinty. Because the NEPA process is invoked when a 
Federal Government agency is going to undertake an action and/
or when a citizen requests that a Federal Government agency 
takes an action.
    Senator Burns. But the process was in progress. Let it be 
completed.
    Ms. McGinty. The requesting company in this instance asked 
that that action cease and desist because they wanted to pursue 
an alternative course.
    Senator Burns. They are just as wrong as you are.
    Ms. McGinty. Well, the action was undertaken at their 
instance.
    Senator Burns. Well, but I am saying that they are just as 
guilty as you are.
    Senator Bond. Thank you very much, Senator Burns.
    Senator Burns. I will go upstairs and jump on Babbitt. He 
is upstairs. I will vote to pull all of your funds on this.
    Senator Lautenberg. Mr. Chairman, may I?
    Senator Bond. Senator Lautenberg.
    Senator Burns. I have no use for it.
    Senator Lautenberg. Thank you very much, Mr. Chairman.
    Ms. McGinty, when did you write the NEPA law?
    Ms. McGinty. Senator, it was written in 1969, and signed 
into law by President Nixon.
    Senator Lautenberg. Oh, so you did not write it.
    Ms. McGinty. No; I did not, sir.
    Senator Lautenberg. So, are you here defending what you 
think is a legitimate process?
    Ms. McGinty. Senator, I have come to see it as invaluable.
    Senator Lautenberg. I do not think you are so brazen. I 
think you have got to do it. You are the lawyer in this case. 
You are defending an agency in which you have deep belief. So 
stick with it.
    Now, I would like to know how many of those who made 
decisions here--perhaps you can help me--make decisions about 
defense who have never seen war. I would like to know how many 
scientists have been up in the ozone hole who are making 
decisions here? What the devil do they know about ozone holes? 
They have not been there.
    Ms. McGinty, stick to your guns. You have an important 
function to maintain there. We have agencies all over the place 
who are involved in environmental decisions. And Lord knows 
that we will save more lives and make lives more pleasant for 
millions of people if you and the others who are involved in 
environmental questions here can solve the problems that we 
have.
    I do not want my grandchildren drinking toxic or 
contaminated water or breathing toxic air. Neither do I want my 
aunt or my uncle, elderly people, breathing toxic air. You have 
got to do what you have to do. You are on the side of right. 
You are saving lives, and you have got to stick with it.
    Do you know the TRI process and the TRI program?
    Ms. McGinty. Yes; I do.
    Senator Lautenberg. You know I have some involvement with 
it. Are you aware that the toxic release inventory, on a 
voluntary basis, has saved, in the period from 1989 to present 
day or last year, 44 percent--reduced by 44 percent--toxic 
emissions in the air. It is a voluntary program.
    I can tell you in my State, which Senator Mikulski 
acknowledged, we have very serious environmental problems, 
because we are a crowded State. We have a proud industrial 
past. Unfortunately, that past has caught up with us in the 
wrong way, and as a consequence we are flooded with Superfund 
sites and toxic air problems. Our neighbors to the west are 
very generous. They deposit their contaminants all over our 
soil with no charge, by the way, I might add. The fact of the 
matter is that companies in New Jersey sprung to the idea of 
participating in this voluntary program.
    The success was enormous. Some companies save 90 percent--
reduced by 90 percent--the toxic emissions that they were 
putting previously into the air, and many of them found that 
they had a recoverable asset going out of those smokestacks, 
and they brought them back into the shop and used them to make 
paints and other solvents and things of that nature. And they 
found out not only did they contribute to the neighborhood and 
the community, but they also contributed to their bottom line. 
So then, why should not an XL program work, if we can enlist 
the support of the private sector?
    Ms. McGinty. Senator, I have every confidence that it will, 
and, in fact, it has. There are three agreements that have been 
reached under project XL already, and some of them are huge. 
One of them in particular is the difference between the 
economic cutting edge competitiveness of an industry and 
falling behind, and that is the one with Intel. The Intel 
Corp., as you know, is involved in the development of 
semiconductors. And with computer technology constantly 
changing, the competitiveness of that industry depends on being 
able to change their production processes very rapidly. They 
can do that under XL. If it were not for XL, they would face a 
very serious competitiveness challenge.
    Now, the chairman does point to some of the challenges we 
are having in broadening the program, but I really do believe 
that is because it is a very ambitious program, and it is going 
to be tough.
    Senator Lautenberg. I want to say, for the chairman of this 
subcommittee, who has many times mentioned his interest in 
securing a budget that balances and making certain that we 
reduce our expenses wherever we can, but Mr. Chairman, I have 
got to compliment you, because you have stuck with some of the 
programs that I know you had some questions about because you 
were persuaded by the evidence that these were decent programs, 
and I commend your objectivity even as you focus on the budget 
reductions that you obviously advocate.
    Ms. McGinty, I close by just saying that I hope you 
continue doing what you do. I think you have to make the case a 
little more clearly. I think it does look redundant. We have 
EPA, and people are not quite sure in the outside world--I am 
not even sure if we on the inside world are certain about it, 
but what are the functions. But when you lay it out, and you 
say yes, there is defense, and yes, there is energy, and yes, 
there is agriculture, all these departments performing what I 
think are fundamentally excellent and required services. Can 
they do them cheaper? Perhaps. Can they do them better? 
Certainly. But I think coordination of all of these departments 
is essential, and I hope that CEQ can achieve the mark that it 
was originally designed for.
    Thank you.
    Ms. McGinty. Thank you.
    Senator Bond. Thank you, Senator Lautenberg. I appreciate 
your kind comments. I believe that we must work toward a 
balanced budget. I think there is bipartisan agreement there. I 
happen to think, as I have stated on many occasions, that this 
subcommittee has taken more than its share of cuts. We have 
some very, very important priorities with costs that are 
continuing to escalate. The housing area is one that we will be 
discussing later.
    Senator Mikulski. That is going to be a big balloon.
    Senator Bond. Is that a big enchilada?
    Senator Mikulski. The section 80 spiraling contracts.
    Senator Lautenberg. I was stuck in traffic that day.
    Senator Bond. We all may be stuck in traffic. [Laughter.]

                          SPENDING PRIORITIES

    Senator Bond. But there are some difficult problems. I 
raised the question about the budget in the beginning because I 
am not sufficiently optimistic to think that we will get a 
602(b) allocation which would accommodate all of the spending 
priorities the President recommended.
    Ms. McGinty, I want to come back to project XL. I believe 
in the concept of project XL. I do have some problems with how 
it is being implemented, and I noted in your testimony you 
seemed to think that the problem was primarily with 
understanding by the other non-Federal Government agencies that 
they just did not get it as to how XL would work. And I note 
that when 3M withdrew from project XL, the Minnesota Pollution 
Control Agency said--we were all there, it was clearly stated--
there were elements at EPA who had not weighed in, powerful 
elements. Intel, itself, you cited as one of the examples. The 
Governors affairs manager said there were too many EPA offices, 
too many levels of regulators, they were negotiating with 
people who were not making the decisions.
    I wonder, are you listening to the people who are getting 
out of the program, the States and the private sector? Because 
frankly, there has not been a lot of progress, and there have 
been a lot more dropping out than are staying in the program. 
So there is a problem. Are you listening to the people?
    Ms. McGinty. Yes; and I think fair enough, Mr. Chairman, in 
terms of pointing not only to those who might participate in 
the program not understanding the elements of it, but the 
agency itself trying on a new suit here, and one that does not 
necessarily fit exactly right the first time around. That is 
certainly involved here, too.
    One of the things that we have seen in the program, again 
listening to participants, is that it is uneven. Some regions 
of EPA have taken this issue up and have implemented it much 
more smoothly than other regions. There seems to be some 
regions who kind of get the idea more quickly than others. So 
there are internal difficulties.
    Senator Bond. Let me ask this, and I apologize that we are 
short on time, the global environmental management initiative 
received a draft report which said that both CSI and project XL 
suffered from a lack of clear ground rules, raising serious 
questions about the viability of the programs without 
fundamental statutory reforms. The President's Council, 
Presidential Congressional Commission on Risk Assessment and 
Risk Management, says EPA needs the legal authority to provide 
flexibility. The President's Council on Sustainable Development 
says that it needs a new regulatory system with greater 
flexibility and alternative compliance legislation. In the past 
we have raised this question. It has been the position of the 
administration we get the job done without new statutory 
authority.
    It looks like the evidence is beginning to come in that 
there does need to be some statutory changes. Are you ready to 
support any such changes in alternative compliance legislation? 
Where do we stand on those issues?
    Ms. McGinty. Well, we did feel, Mr. Chairman, that it was 
important to road test some of these issues, and that is what 
we have been doing over the last year.
    I think we will get further evidence in as this work that I 
mentioned before continues, to try to elucidate, as you just 
pointed to, what are the ground rules. Frankly, it has been a 
little surprising to us that in trying to eliminate some of the 
rules, to allow people to choose their own way and get there as 
efficiently as they can, they have come back and said but we 
need at least a few more ground rules.
    So we do have some experience now, and I would look forward 
to working with you and your staff and talking about that and 
see what we might do now with this information that we have in 
hand.

                 SMALL BUSINESS REGULATORY ENFORCEMENT

    Senator Bond. Would you please let us know about the people 
who want more ground rules? I had not heard that. I would be 
interested to see that. But I really think we have gotten to 
the point where we need legislation, Amoco, Yorktown, and 
others.
    Let me ask you about the ozone fine particles. You know 
that this has raised a great deal of concern. Senator Chafee, 
chairman of the EPW Committee has even suggested EPA should 
delay the fine particle standard. We passed a little measure 
last year that I played a role in called the Small Business 
Regulatory Enforcement Fairness Act, which requires the 
participation by small business in the process, plus other 
standards to take care of the concerns of small business.
    No. 1, I am concerned about the process. Have you looked 
at, from the administration's standpoint, whether EPA's rule is 
subject to the Small Business Regulatory Enforcement Fairness 
Act? And No. 2, do you see a need for further scientific 
evidence on the benefits of the proposed standards? Everybody 
recognizes there is a scientific concern about the health 
risks. The second part of the question is from a substantive 
standpoint and an impact standpoint, do you see need for the 
delay that Senator Chafee has suggested?
    Ms. McGinty. Mr. Chairman, let me step back for a second 
and describe CEQ's role in the context of this pending 
rulemaking. What we have worked to do and will continue now as 
the comment period is still continuing but will come to a close 
in the middle-end of March, is to work with the other offices 
in the White House, and particularly OMB and the National 
Economic Council, to ensure that as comments are coming in that 
they are made available in real time to the other agencies that 
have an interest in this and that have technical expertise 
themselves to be able to review and comment.
    The second thing we will do is to provide a forum, whether 
it is State or local governments or various interested parties, 
to be able to come in and comment personally on the proposed 
rules.
    Separate and aside from that process, we will ensure that 
there is adequate time for review of the rule before it goes 
final. But at this point in time, while we are still in the 
comment period, I do not have a separate substantive judgment. 
I can assure the committee that I will be engaged as those 
reviews and judgments come in, but the rule is still pending 
and the comment period is still open on it. And so we are 
awaiting those comments coming in.
    Senator Bond. I did not catch your answer to the question 
about small business.
    Ms. McGinty. On the small business SBREFA, in terms of the 
applicability of SBREFA to a particular standard--first of all, 
let me say that SBREFA is a statute the administration 
wholeheartedly supports, and we very much welcome your 
willingness in letting us work with you last year and your 
staff working with us to put that together. So we are very much 
supportive of it.
    In terms of the applicability of the statute to a 
particular standard, to a particular proposed standard or rule, 
that is a determination that is economically involved, legally 
and technically involved. It would be on this issue as on other 
issues that are a matter of such technical expertise, I would 
not normally form a separate opinion of it. I would look to the 
agency that has expertise in that area. In this instance it 
would be a combination of EPA and the office in the White House 
that is charged specifically with these kinds of matters, which 
is the Office of Information and Regulatory Affairs. And I know 
that they have reviewed that question, and I know that they 
have come up with a determination about it. I have not 
undertaken to make a separate determination of it myself.
    Senator Bond. Senator Mikulski.
    Senator Mikulski. Ms. McGinty, again, there are many topics 
that we could cover in our conversation with you. But I think 
what is arising here is first of all there is a lack of clarity 
about what CEQ does. This is no-fault with you. Please do not 
misunderstand me. And, therefore, what are the models? Are you 
the EPA czar? Are you the equivalent of McCaffrey on the 
environment? Are you supposed to be the EPA czar? That is a 
different function.
    Are you to be more like the Office of Science and 
Technology Policy, which coordinates on certain topics like 
ozone or science education, and an advisor to the President, 
but you are not the science czar for America?
    I think we need a clarification on this, because I think it 
is more the latter model. You were not meant to be the 
environmental czar, therefore, not be held accountable for 
every environmental perceived screw-up, whether it is Interior 
or EPA or agencies within Interior or Agriculture or whatever.
    The second point here is that I recall when I first chaired 
the subcommittee, all the work with CEQ was spent producing 
this report, and often they were late, and that is what they 
did. That is all they did. And more often than not, they did 
not do it that well or in a timely fashion. And that is when 
there began doubts on what the function of CEQ was.
    Now, I believe your predecessor under Mr. Bush laid new 
groundwork and things began to move more smoothly, and now this 
is what you are doing. I think as we move forward here we need, 
and I think it is appropriate, that you articulate what your 
role is.
    If we look at the models, first of all we love czar. We 
think that somehow or another that is going to accomplish it. 
If czars worked so well we would not have had revolutions. 
[Laughter.]
    Ms. McGinty. Senator, in terms of those models, the more 
apt one, and a very apt one, is the Office of Science and 
Technology Policy. The role is to coordinate the various 
agencies, and every agency has some environmental mandate or 
mission.
    To take the Superfund Program, for example, I do not 
implement it. I do not enforce specific remedies at specific 
sites. However, I have to be concerned with the fact that we 
have got a Department of Energy and a Department of Defense 
that are themselves responsible for Superfund cleanups.
    Senator Mikulski. But Dr. Gibbons, and we will talk to Dr. 
Gibbons, neither proposes new legislation or new regulatory 
frameworks, but essentially just more efficiently coordinates 
the resources, particularly topical when they go across agency 
lines.
    Ms. McGinty. Yes; exactly. Exactly right. That is exactly 
the model.
    On Superfund, again, the reforms that we have seen to take 
land use into account when planning a cleanup, that is the kind 
of thing that comes out of a process that CEQ chairs, and we 
hear from a DOE and a DOD to share their experience under the 
Superfund Program, and we get insights. So we have ideas as to 
how to reform the programs.
    Senator Mikulski. Well, I think this is what we need to 
talk about in terms of your funding and expectations of you, 
and not hold you accountable for every faulty decision or 
perceived faulty decision in these particular areas. And I am 
afraid this is where we are drifting to, because as I 
understand, the Office of Science and Technology proposed no 
new legislation, no new regulatory framework, it did not solve 
the science problems. Dr. Gibbons is not out there finding a 
cure for cancer, for prostate cancer, but essentially advising 
the President and the Vice President on how we should organize 
our resources on life sciences, am I right?
    Ms. McGinty. Exactly right, yes. That is the model.
    Senator Mikulski. Thank you, Mr. Chairman.
    Senator Bond. Thank you, Senator Mikulski.
    Senator Bennett.
    Senator Bennett. Thank you, Mr. Chairman. I appreciate your 
willingness to let me visit a subcommittee that I very much 
enjoyed. I am sorry I had to leave because of other priorities.
    Senator Bond. Well, we miss you, and we are delighted to 
have you as a member emeritus.
    Senator Bennett. All right.
    Ms. McGinty, you and I have had some exchanges, both in 
hearings and in writing, and I appreciate the chairman's 
willingness to let me use this forum to pursue some of those 
exchanges.
    It will come as no surprise to you that I want to talk 
about the monument in southern Utah, and to lay the predicate 
again for this record. The decision to create this monument was 
made without any consultation whatsoever with any elected 
official in the State of Utah. The Governor was kept out of any 
considerations. Senator Hatch and I were both kept out of any 
consideration. Congressman Orton, in whose district it was, was 
kept out.
    I asked you in a hearing before the Energy and Natural 
Resources Committee if you would provide us, and provide me 
specifically, with all of the written background relating to 
this decision, because, as I rehearsed there, while we had the 
conversations prior to the designation of the monument, people 
from your office kept insisting this was being handled by the 
Interior Department. My conversations with the Secretary and 
people in the Interior Department show they insist that this 
was being handled by the White House and no one would admit to 
having been the lead agency or the lead staff group to advise 
the President.
    So I asked you to give me all of the background that was 
used in the decisionmaking process. And on Valentines Day I 
sent you a letter that was not necessarily a valentine saying 
that almost 6 months had gone by and I had heard nothing. And I 
received back from Shelly Fidler, Chief of Staff, a letter 
saying you were traveling but they wanted to be responsive 
immediately and apologizing for the delay, and this is what I 
got as the substance of what went into the President's decision 
to create 1.7 million acres of a national monument in Utah 
without any consultation from any elected official in Utah:
    A manual entitled ``The Ecosystem Approach, Healthy 
Ecosystems and Sustainable Economies,'' dated June 1995; a 
legal description of the Antiquities Act and what you could do 
under it; a speech given by Ray Clark, Council of Economic 
Quality of the United States, in Quebec City, dated June 16, 
1994; and then written answers to questions from other Members 
of Congress--James Hansen, that was useful, he is from Utah; 
here is a letter signed by Bruce Babbitt written to Carol 
Browner dated May 29, 1996; and questions for the record for 
Ms. McGinty from Senator Thomas and other members of the 
committee, and your response to Senator Thomas.
    Frankly, I do not consider that responsive to my letter, 
and I wanted to come here and raise this with you.
    Second, I will tell you if you do not know that a number of 
publications in Utah have submitted freedom of information 
requests for the same information and have been denied. They 
are anxious about that. They are pursuing their rights under 
the Freedom of Information Act, and feel that they have a right 
to more information about the process that was followed in the 
creation of this.
    Further, people in the press--and we all learn what we 
learn about the press, have reported names of people who were 
involved, who were consulted, who were part of the 
decisionmaking process, including people from the Southern Utah 
Wilderness Alliance and other environmental groups, the Sierra 
Club, et cetera, who were allowed access to information that 
was denied elected officials. That is, they were part of the 
process of drawing maps and making decisions concerning land 
use in this monument.
    I am not going to attack anybody. I am not going to send 
somebody to break their knees or knock out their windshields or 
scratch up their cars or do anything. I simply want to know to 
whom the President turned, or you as the President's agent, to 
whom did you turn for information on this?
    This is a very, very significant issue. It affects a very 
large number of my constituents. It is a major environmental 
effort on behalf of all of the people of the United States, 
creating one of the largest, if not the largest, national 
monument in the country, and we have no official idea who did 
it. And yet we are faced with a 3-year management plan to try, 
in the words of Leon Panetta when he called me to tell me about 
it, to pick up the pieces after the fact. It will be much 
easier for us to pick up the pieces after the fact if we have 
some understanding of the pattern, the thoughts, the 
motivations, that went into the creation of this thing in this 
particular fashion.
    So I am here to ask you once again if you will review my 
letter of February 14 where I get very specific in the things 
that I ask for, and do your best to be responsive to those 
specific requests, and however well-meaning your staff was to 
try to get you off the hook and get me something in a hurry, I 
am not really interested in copies of speeches that were 2 
years old prior to the decision the President made.
    Ms. McGinty. Thank you, Senator. There are three or four 
points I think you made. I will do my best to respond to them.
    First, in terms of the materials that were sent to you 
after your February 14 letter, they were the exact and complete 
set of materials that we sent to the committee immediately 
after the hearing, which was September 26, including in the 
hearing record, because your request was part of the hearing 
record to have those materials submitted, we submitted that 
stack of papers that is specific to the monument that you 
pointed to. That outlines the analysis. That is the complete 
analysis that was done supporting the designation of the 
monument. I tried to deliver that immediately. It was part of 
the hearing record.
    We were told at that time that the committee separately 
would make it available to each member. I suppose that did not 
happen, and so what my staff did 1 week ago was to resubmit 
those materials to your office directly. And so what you have 
there is both the materials that were directly responsive to 
your question, but just in order to not leave anything out you 
have the entire set of materials that were offered to close the 
hearing record.
    Senator Bennett. If I may, I do not consider this 
responsive to my question. I can understand why the committee 
did not circulate all of the materials to me.
    I want to know the specific analysis that went into this 
monument. I do not want general statements about the 
Antiquities Act, I do not want general statements about 
ecosystems, this was a very significant act taken by the 
President of the United States deliberately keeping a number of 
people in the dark with respect to what was going on. It 
obviously did not burst full blown from the head of Zeus. There 
was obviously a great deal of staff work that went into it.
    I want to know the names of the people who participated in 
those sessions, and I want to see the memos they created. And 
as I said to you, and will repeat again, as far as the press is 
concerned, they are now quoting people outside of the 
administration as saying they were part of the process, and I 
want either confirmation or denial of that, and the only way I 
can get that is to get a list of the names of the people who 
really were involved.
    Again, I am not going to put out a contract on somebody who 
was involved. Nobody has anything to fear. I just want to know 
the process that was followed and the people that were 
involved. This is clearly not responsive to that request.
    Ms. McGinty. Fair enough. Let me mention two things, if I 
might. One is the materials that you have there are not just 
generalities about the Antiquities Act. That package of 
materials includes the complete itemization of all of the 
archeological, geological, and cultural factors that were 
identified in the monument area, and as you know, that is 
required to be identified pursuant to the Antiquities Act. So 
the materials are very specific in terms of where those 
archeological sites are and what they are.
    Senator Bennett. I do not disagree, but they are very 
incomplete.
    I am sorry I have taken so much time, Mr. Chairman.
    Senator Bond. Senator, I apologize. We have two very 
important panels to follow. Let me just say that I think that 
Senator Bennett has made a reasonable request. To the extent 
that you and CEQ have knowledge and participated, I will be 
interested personally in reviewing your response to his 
question to, the extent that CEQ was there, who did what, and 
when. I am sure that Senator Bennett will enjoy reading about 
the Antiquities Act. I believe he wants to know who did what, 
and that will be of interest to us.
    Senator Mikulski, any further questions to Ms. McGinty?

                     ADDITIONAL COMMITTEE QUESTIONS

    Senator Mikulski. No; and I will look forward to hearing 
the followup on this conversation, and particularly the FEMA 
part, which I think offers a great opportunity for saving lives 
and saving communities.
    Ms. McGinty. Yes; thank you.
    Senator Bond. Thank you very much.
    Ms. McGinty. Thank you, Mr. Chairman.
    [The following questions were not asked at the hearing, but 
were submitted to the Council for response subsequent to the 
hearing:]
                  Questions Submitted by Senator Bond
    Question. NEPA Effectiveness Study. Recently CEQ released its 
``NEPA Effectiveness Study.'' CEQ found that while the NEPA process 
overall is sound, at times its implementation fell short of goals. For 
example, ``interagency coordination is hampered because agencies often 
have different timetables, requirements, and modes of public 
participation;'' and ``citizens sometimes feel frustrated that they are 
being treated as adversaries rather than welcome participants in the 
NEPA process.''
    While deficiencies with the NEPA process were identified, the 
report contains no specific recommendations for change. Why?
    Answer. On the occasion of the 25th anniversary of the National 
Environmental Policy Act (NEPA), CEQ initiated a study to examine the 
effectiveness of NEPA and prospects for improvements in the NEPA 
process. In January 1997, CEQ released the findings of this study, 
``The National Environmental Policy Act: A Study of its Effectiveness 
After 25 Years'' (hereinafter referred to as the NEPA Effectiveness 
Study).
    To summarize briefly the findings of the Study; first, NEPA works. 
Agencies must now take a ``hard look'' at the environmental 
consequences of proposed actions before they make a final decision. 
They must consult with other federal agencies and tell the public what 
they are proposing to do, invite public views on their proposals, and 
respond to those views. NEPA also calls for agencies to tell state, 
local, and tribal governments of their plans, and provides agencies 
with a mechanism to coordinate overlapping jurisdictional 
responsibilities. In large part due to NEPA, federal agencies today are 
better informed about the consequences of their actions on communities 
and are more likely to take community views into consideration. Used 
well, agency implementation of NEPA reduces conflict and saves scarce 
resources.
    Despite these successes, however, as you noted, NEPA's 
implementation at times has fallen short of its goals. In some cases, 
the NEPA process takes too long and costs too much. Agencies produce 
documents that are overly long and sometimes too technical for most 
people to use. Training for agency officials, particularly senior 
officials, is at times inadequate. Some agencies confuse the purpose of 
NEPA, acting as if the detailed statement called for in the statute is 
an end in itself, rather than a tool to enhance and improve decision 
making.
    The purpose of the NEPA Effectiveness Study was not to provide a 
detailed blueprint for change, but to give an overall assessment of the 
statute and to provide a starting point for our reinvention efforts. 
Instead detailed recommendations will be forthcoming as part of our 
NEPA Reinvention effort.
    CEQ believes that many of the deficiencies identified in the 
application of NEPA can be corrected through improvements in agency's 
NEPA processes. The first phase of the our Reinvention effort focuses 
on the grazing, timber, and oil and gas sectors to determine what types 
of process changes can be effected to increase the efficiency of NEPA. 
If we find barriers that require regulatory change, we will pursue such 
changes.
    Question. Will it be up to the individual agencies to devise 
improvements to the way they carry out the NEPA process? What guidance 
will CEQ provide to the agencies to streamline and improve the process, 
and what exactly will CEQ's role be in improving NEPA's effectiveness?
    Answer. Inasmuch as each agency has different missions and 
different planning processes, it is unlikely that a ``one-size-fits-
all'' approach from CEQ would be productive. It is more likely to be 
successful if agencies understand the opportunities for improvement and 
make those improvements within the context of their own mission.
    Agencies are currently responsible for their NEPA compliance and 
their management of the NEPA process. Improvements will necessarily 
come from within. Reforms can be institutionalized in each agency's 
NEPA procedures, and CEQ is encouraging all the agencies to review 
their procedures with an eye toward streamlining. CEQ will consult with 
each agency as they review their NEPA procedures.
    Question. Two years ago, you testified that one of your priorities 
was reinvention of the NEPA process, including cutting processing time 
and consultation time. What specific improvements--such as the numbers 
of duplicative or inconsistent regulations which have been eliminated--
have been made in the last two years?
    Answer. One of the most important steps in this regard was the 
elimination of duplication between the processes for complying with 
NEPA and the Endangered Species Act for Habitat Conservation Plans 
(HCP's). These are plans that permit landowners to conduct certain 
activities over a long period of time, with the certainty and stability 
of a site-specific tailored agreement. Previously, applicants were 
going through two separate processes to comply with the two statutes. 
This resulted in duplicative analyses and public hearings for the same 
actions. This duplication has now been eliminated, significantly 
reducing permit processing time for private applicants. In fact, even 
the most complex HCP can now be completed in under ten months.
    CEQ has also expended considerable effort in working with the Food 
and Drug Administration (FDA) over the past two years to streamline 
their NEPA process and reduce unnecessary submissions. According to the 
FDA, the changes being made as a result of that effort will result in 
an annual cost savings to industry of approximately $15.7 million, as 
well as improve FDA efficiency by eliminating unnecessary agency review 
costs of approximate $1 million. Equally important is that the 
regulations do not compromise the FDA's efforts to promote NEPA's 
policies and goals for better, more informed decision making.
    Similarly, CEQ worked with the Department of Energy (DOE) as they 
developed proposed revisions to their NEPA regulations. DOE's final 
rule includes several streamlining features such as: establishing new 
categorical exclusions; expanding existing categorical exclusions; and 
eliminating the preparation of extensive documentation prior to 
preparation of an environmental impact statement (EIS). In consultation 
with CEQ, DOE simplified public notification requirements and 
streamlined the requirements for the content of Findings of No 
Significant Impact. These changes, and others like them, focus 
available resources on significant environmental issues, and reduce 
costs and staff time while ensuring the environmental assessment 
process is useful to decisionmakers and the public.
    CEQ is currently working with the Air Force to find streamlining 
opportunities. One clear opportunity to save time and money is to 
eliminate the necessity to have public hearings instead of informal 
public meetings. We have pointed out to the Air Force that public 
hearings are more expensive and not required by CEQ regulations. We are 
also reviewing additional categorical exclusions which will reduce the 
amount of documentation associated with Air Force NEPA compliance. We 
are also jointly exploring opportunities for integrating analytical 
requirements, eliminating duplication of effort. We expect that these 
revised regulations will be final this summer.
    As you may recall, CEQ and the Federal Highway Administration 
(FHWA) cosponsored a conference in 1995 which focused on methods to 
streamline the NEPA process used in the development of highway 
projects. As a result of this very productive conference, the 
Department of Transportation (DOT) is developing a proposed rulemaking 
that will link NEPA and its principles to DOT's decision making 
process. The proposed rules will affect the Federal Highway 
Administration (FHWA), the Federal Railroad Administration (FRA), the 
Federal Transit Administration (FTA) and the Coast Guard. The objective 
of these DOT agencies is to develop a single NEPA regulation that will 
reduce paperwork, streamline and expedite transportation planning and 
decision making, and lead to one overall public interest decision that 
integrates social, economic and environmental effects and 
considerations, including economic development, health and 
environmental protection and community and neighborhood sustainability.
    CEQ is also working with other agencies as they amend their NEPA 
procedures, including the Department of Housing and Urban Development 
and the U.S. Army. I want to reiterate that CEQ will continue to take 
advantage of these reinvention opportunities but we hope to institute 
even more sweeping changes through our NEPA Reinvention initiative.
    Question. What specifically do you anticipate to be accomplished 
this year through the new NEPA reinvention initiative?
    Answer. We have already begun a process to examine current NEPA 
practices with regard to grazing, timber and oil and gas. Federal 
agencies that have responsibilities for NEPA issues in these three 
sectors are working cooperatively to suggest areas where improvements 
can be made.
    As you may know, the lead CEQ staff member on NEPA Reinvention is 
currently on maternity leave. As I mentioned to your staff, CEQ has 
brought on Robert Cunningham to lead our NEPA Reinvention Team. We also 
expect Ms. Mesa to return to resume her work after her leave is 
completed.
    The University of Wyoming will host a conference this week to help 
us identify additional activities we can cooperatively engage in to 
broaden the dialogue and to help us make additional progress. The 
University of Montana, as well, has offered to help us contact 
stakeholders and to use the University as a resource in our project. 
The Western Governors' Association and the Western States' Foundation, 
as well, have expressed interest in working with us to accomplish NEPA 
Reinvention.
    In addition, we are shortly to begin meetings with stakeholders to 
review the product of the initial interagency discussions and to 
solicit stakeholder input. Within several months, we also hope to begin 
discussions with the leadership of the federal agencies with 
responsibilities in our three sectors to educate them about the 
opportunities for reform that we have identified.
    Needless to say we will bring the products of all of these 
discussions with interested Senators and House Members and their 
staffs.
    By the end of this fiscal year we expect to have specific 
recommendations for some significant changes to current NEPA practices 
in the three sectors we have identified as our targets of opportunity--
grazing, timber and oil and gas. The kind of improvements we would 
consider a success would reduce the time necessary to make decisions; 
result in more cooperation between federal agencies; reduce costs; make 
processes more transparent for the user communities; improve public 
participation; as well as other efficiency improvements that are 
identified through the examination of options.
    Question. FEMA has told my staff of their frustration of meeting 
NEPA requirements in projects resulting from Presidentially-declared 
disasters. Staff who administer disaster programs often have limited 
expertise or time to evaluate effectively and document environmental 
considerations. NEPA is often seen as significantly slowing the funding 
and construction of these very critical repair, renovation, rebuilding 
and mitigation projects following disasters. FEMA tells my staff that 
the most important support CEQ can provide to FEMA is guidance on 
measures FEMA can undertake to expedite the NEPA process. What are you 
doing to help FEMA in this regard, and will you report back to the 
Subcommittee on progress made?
    Answer. FEMA recently consulted with CEQ and we provided guidance 
to clarify that a project that has already been categorically excluded 
from NEPA documentation under FEMA's NEPA procedures can proceed 
without further documentation. We are consulting with FEMA regarding 
procedures related to several particular projects, including the Rodeo 
Channel Stabilization in Hesperia, California, the Rolling Hills storm 
drain and slope restoration in Yorba Linda, California, and certain 
projects in Hawaii. In addition, we are reviewing FEMA's NEPA program 
related to disasters generally, so as to identify possible 
opportunities for streamlining. We will be happy to report back to the 
Subcommittee on our progress later this spring.


                       DEPARTMENT OF THE TREASURY

              Community Development Financial Institutions

STATEMENTS OF:
        JOHN H. HAWKE, JR., UNDER SECRETARY OF TREASURY FOR DOMESTIC 
            AFFAIRS
        KIRSTEN MOY, DIRECTOR

                            opening remarks

    Senator Bond. The second panel consists of Mr. John Hawke, 
the Under Secretary for Domestic Finance with the Department of 
Treasury; and Ms. Kirsten Moy, Director, Community Development 
Financial Institutions Fund Program. The administration's 
budget request for CDFI asks for an increase of $75 million, 
from the $50 million for fiscal year 1997 to $125 million to 
fiscal year 1998, and the President has indicated the intent to 
include increases for a 5-year total to $1 billion.
    This fund was established in the Community Development 
Regulatory Improvement Act in 1994, and to provide equity 
investment grants and loans, and the purpose is to enhance the 
capacity of these institutions to finance economic development 
housing and community development.
    I am concerned about the amount of funding in the CDFI 
request as we have to prioritize and deal with the other 
competing needs I am also concerned that CDFI does not have 
much of a track record. I need to understand to what degree 
leverage investment is being drained from other activities 
serving distressed communities, and how and whether CDFI is 
discouraging traditional financial institutions from opening 
branches and lending in distressed communities.
    I look forward to hearing your testimony.
    Mr. Hawke, I guess if you would begin.

                    STATEMENT OF JOHN H. HAWKE, JR.

    Mr. Hawke. Mr. Chairman, thank you very much for affording 
me the opportunity to make a brief statement in support of the 
community development financial institutions fund. CDFI has 
been a high priority of the President since the time he took 
office. It is a program with great potential for bringing the 
residents of our inner cities into the economic mainstream, an 
effort that I believe is vitally important to all of us.
    The fund's aim is to expand access to credit and financial 
services in poor urban, native American and rural communities, 
areas in which one of the biggest obstacles to economic 
development is a lack of access to private sector capital. 
Access to financial institutions is fundamental to the efforts 
of residents of these economically distressed areas to lift 
themselves out of poverty.
    When CDFI was assigned to the Treasury Department, it was 
established as an independent office reporting to the Under 
Secretary for Domestic Finance. In October 1965, Kirsten Moy 
was brought on board as Director of the fund.
    She brought to the fund a wealth of experience from her 
work as senior vice president of the real estate subsidiary of 
the Equitable Life Assurance Society of the United States, and 
portfolio manager of Equitable's Community Mortgage Fund, a 
pension fund vehicle for investments in affordable housing and 
economic development. I believe that everyone who has observed 
the great skill that she has brought to bear on this task would 
agree that we are extremely fortunate to have her in this 
position.
    In January 1996, CDFI received 268 applications for CDFI 
awards, with requests for funding 10 times the amount 
available. After a rigorous review by the fund, 32 CDFI's were 
selected to receive nearly $37 million in financial and 
technical assistance. The CDFI Fund also received 50 
applications under the Bank Enterprise Award Program, and 38 
banks and thrifts were selected to receive bank enterprise 
awards.
    Last month, the President announced the winners of the 
Presidential Award for Excellence in Microenterprise 
Development to highlight the accomplishment of entrepreneurs in 
this area. The fund has effectively promoted partnerships 
between community-based financial institutions, banks, and 
other private sector sources, leveraging scarce Federal 
resources to attract private dollars into credit-starved 
communities. That, in turn, fosters cooperation and synergy in 
efforts to revive economically distressed areas.
    For example, Senator Bond, in your State, Douglass 
Bankcorp, the oldest African-American owned bank west of the 
Mississippi is receiving $1.9 million in equity and technical 
assistance from the fund to support its expansion to serve 
Kansas City. In partnership with Kansas City Neighborhood 
Alliance, they are developing a comprehensive plan to promote 
affordable housing and small business development to foster 
market activity in low-income neighborhoods.
    In addition, Senator Mikulski, in Maryland the Bank 
Enterprise Award Program helped trigger a $10 million 
investment by NationsBank in the employment opportunities fund, 
which invests in small businesses located in or employing 
residents of the Baltimore empowerment zone.
    In this era of scarce budgetary resources, we must choose 
our priorities carefully and focus on those that have long-term 
payoffs for our economy and our society. The fund is a top 
priority of the President precisely for that reason. It uses a 
very modest amount of Federal funding as a base for attracting 
private capital, and its payoff is in the long-term health of 
our national economy by helping break the cycle of poverty, 
make our Nation more productive, and fostering higher economic 
growth.
    We have been and continue to work diligently to make the 
CDFI and the BEA programs a success.

                           PREPARED STATEMENT

    Mr. Chairman, I appreciate this opportunity to speak to 
you, and Mrs. Moy will now discuss the program in greater 
detail.
    [The statement follows:]

                PREPARED STATEMENT OF JOHN D. HAWKE, JR.

    Mr. Chairman, distinguished members of this Subcommittee, I thank 
you for the opportunity to testify this morning on the President's 
fiscal year 1998 budget request for the Community Development Financial 
Institutions Fund.
    CDFI has been a high priority of the President since taking office. 
It is a program with great potential for bringing the residents of our 
inner cities into the economic mainstream, an effort that I believe is 
vitally important to all of us--no matter where we live or what our 
incomes may be.
    The Fund's aim is to expand access to credit and financial services 
in poor urban, rural and Native American communities, areas in which 
one of the biggest obstacles to economic development is a lack of 
access to private sector capital. Access to financial institutions is 
fundamental to the efforts of residents of these economically 
distressed areas to lift themselves out of poverty.
    When CDFI was assigned to the Treasury Department, it was 
established as an independent office reporting to the Under Secretary 
for Domestic Finance. In October 1995, Kirsten Moy was brought on board 
as Director of the Fund. She brought to the Fund a wealth of experience 
from her work as Senior Vice President of the real estate subsidiary of 
the Equitable Life Assurance Society of the United States and Portfolio 
Manager of Equitable's Community Mortgage Fund, a pension fund vehicle 
for investments in affordable housing and economic development. I 
believe that everyone who has observed the great skill she has brought 
to bear on this task would agree that we are extremely fortunate to 
have her in this position.
    Since it began operating in October 1995, the Fund has already made 
a significant contribution to increasing access to private sector 
capital, by catalyzing interest in this program. In January of 1996, 
CDFI received 268 applications for CDFI awards, with requests for 
funding ten times the amount available. After a rigorous review by the 
Fund, 32 CDFI's were selected to receive nearly $37 million in 
financial and technical assistance. CDFI also received 50 applications 
under the Bank Enterprise Award program, and 38 banks and thrifts were 
selected to receive Bank Enterprise Awards. Last month, the President 
announced the winners of the Presidential Awards for Excellence in 
Microenterprise Development to highlight the accomplishments of 
entrepreneurs in this area.
    The Fund has effectively promoted partnerships between community 
based financial institutions, banks and other private sector sources, 
leveraging scarce Federal resources to attract private dollars into 
credit starved communities. That in turn, fosters cooperation and 
synergy in efforts to revive economically distressed areas. For 
example, Douglass Bancorp, the oldest African-American owned bank west 
of the Mississippi, is receiving an investment from the Fund to support 
its expansion to serve Kansas City, Missouri. In partnership with 
Kansas City Neighborhood Alliance, they are developing a comprehensive 
plan to promote affordable housing and small business development to 
foster market activity in low income neighborhoods. In addition, the 
Bank Enterprise Award program helped trigger a $10 million investment 
by NationsBank in the Employment Opportunities Fund, which invests in 
small businesses located in, or employing residents of the Baltimore 
Empowerment Zone.
    In this era of scarce budgetary resources, we must choose our 
priorities carefully, and focus on those that have long term payoffs 
for our economy and our society. The Fund is a top priority of the 
President precisely for that reason: It uses a very modest amount of 
Federal funding as a base for attracting private capital, and its 
payoff is in the long-term health of our national economy, by helping 
break the cycle of poverty, making our nation more productive and 
fostering higher economic growth. We have been and continue to work 
diligently to make the CDFI and the BEA programs a success.
    Mr. Chairman, members of the Subcommittee, I appreciate this 
opportunity to speak to you today. Ms. Moy will now discuss the program 
in greater detail.

                        STATEMENT OF KIRSTEN MOY

    Senator Bond. Ms. Moy.
    Ms. Moy. Chairman Bond, Senator Mikulski, distinguished 
members of the subcommittee, this is my first opportunity to 
testify before you, and I appreciate it very much.
    The CDFI fund, as you mentioned, was authorized by the 
Riegle Community Development and Regulatory Improvement Act of 
1994, and its purpose was to address the critical problems of 
capital access in urban, rural, and native American 
communities.
    To this committee, the problems of access to capital are 
surely no stranger. Access to capital is an essential 
ingredient for creating and retaining jobs, developing 
affordable housing, revitalizing neighborhoods, and building 
local economies.
    The fund runs two programs. The first of these, the CDFI 
Program, stimulates the creation and expansion of a diverse set 
of private community-based for-profit and not-for-profit 
financial institutions. These CDFI's, as they are known, 
complement the role of traditional financial institutions by 
filling market niches which such institutions are not well 
positioned to serve.
    The CDFI's themselves include a broad range of 
institutions. They include community development banks, 
community development credit unions, loan funds, 
microenterprise funds, community development venture capital 
groups, and these CDFI's provide a wide range of financial 
products and services to distressed urban and rural communities 
and underserved populations. They do not only housing or 
consumer loans, but commercial loans, loans for small business, 
loans for community facilities, and many other things.
    The Bank Enterprise Awards Program, which is designed to 
work hand-in-hand with the CDFI Program, recognizes the key 
role that traditional financial institutions, banks, and 
thrifts, have played in community development lending. They 
complement the CDFI Program by strongly encouraging these 
institutions to support CDFI's, and they also incentivize 
increased lending in distressed communities by these 
organizations.
    Of the institutions recognized in the first round of the 
Bank Enterprise Award Program nearly two-thirds supported 
CDFI's, with a total of nearly $66 million in support. For many 
of these organizations, it was their first effort to support a 
community development financial institution.
    The Treasury Department, we believe, is uniquely situated 
to carry out the CDFI initiative. As the executive branch's 
leading agency in setting financial institutions' policy, the 
Treasury Department is strongly committed to increasing access 
to capital and investment in distressed communities.
    The Department does this through the efforts of the CDFI 
fund, but also through its commitment and the commitment of the 
Office of the Comptroller of the Currency, and the Office of 
Thrift Supervision, to a strong and effective Community 
Reinvestment Act.
    The Treasury Department is also strong in its support of 
Federal tax policy for such efforts as the low income housing 
tax credit.
    During the first year, as Under Secretary Hawke mentioned, 
we received and reviewed 268 applications, undertook a rigorous 
and comprehensive look at all of them, announced the selection 
of 32 CDFI's to receive approximately $37 million in awards, 
and announced the selection of 38 banks and thrifts to receive 
approximately $13 million in bank enterprise awards.
    Just last month in January, President Clinton announced the 
award winners for the Presidential Awards for Excellence in 
Microenterprise Development, a nonmonetary award program 
implemented by the fund which is designed to recognize the best 
in the business of microentrepreneurship, a growing phenomenon 
in the United States.
    I would like to remind the committee that in the midst of 
all these activities, the fund, as a startup organization, also 
managed the challenge of developing almost from the ground up 
internal controls, financial management systems, monitoring and 
evaluation functions, and a host of other organizational 
development issues. These systems we feel are critical to 
ensure the effective use of scarce public resources.
    Though the fund is young, its impact can already be seen. I 
believe that the fund has been proven particularly effective in 
six areas: Leveraging of private resources, forging linkages 
with the financial services industry, creating viable self-
sustaining institutions that will not need to be assisted or 
subsidized forever, expanding access to the economic 
mainstream, restoring healthy marketing activity, and 
catalyzing new community development activity.
    You have already heard Under Secretary Hawke talk about 
initiatives in Kansas City and in Baltimore to forge 
partnerships and restore healthy market activity. Let me 
mention a few more examples.
    The fund's ability to leverage private sector funds in 
distressed communities is truly dramatic. The fund first of all 
requires, at a minimum, that every dollar awarded under the 
CDFI Program be matched by at least $1 of non-Federal moneys. 
But it does not stop there. In the near term over the next 2 to 
3 years, the $37 million awarded to CDFI's will, in our 
conservative estimate, leverage three to four times the amount 
of the original awards.
    Over the long term, the fund's investments are expected to 
support lending and investment in these communities of 10 to 20 
times the amount awarded.
    The CDFI fund is very focused on creating viable, self-
sustaining institutions. The Vermont Community Loan Fund, for 
example, which is a relatively small organization at $2.5 
million of assets, finances housing, small business, and 
community facilities.
    Very importantly, the Vermont Community Loan Fund, through 
its good business practices and track record, has achieved 
notable success in attracting investments from a diverse array 
of private sector players, including individuals, religious 
institutions, foundations, and corporations. The fund's 
investment in Vermont will help the loan fund build on its 
record to expand its services to communities across the State.
    The CDFI fund is also focused on catalyzing new activity, 
we seek to use our scarce resources to jump-start new 
initiatives, not permanently subsidize them. For example, the 
fund's investment of a $1 million loan in Tlingit-Haida 
Regional Housing in Alaska will begin home mortgage lending in 
Alaska's three urban areas. These will be among the first 
sources of mortgage loans that are available and affordable to 
lower-income Alaska Natives.
    I see my time is up.

                           PREPARED STATEMENT

    Senator Bond. Ms. Moy, we will be delighted to make your 
full statement a part of the record, and we apologize if we 
have run longer than we intended.
    [The statement follows:]

                  PREPARED STATEMENT OF KIRSTEN S. MOY

    Chairman Bond, Senator Mikulski, and distinguished members of the 
Subcommittee, I would like to thank you for the opportunity to testify 
this morning on the President's fiscal year 1998 budget request for the 
Community Development Financial Institutions (CDFI) Fund which is 
within the U.S. Department of the Treasury. The President's budget 
requests $1 billion over the course of the next five years for the CDFI 
Fund. In fiscal year 1998, the request proposes $125 million to support 
the Fund's initiatives.
    The CDFI Fund, which was authorized by the Riegle Community 
Development and Regulatory Improvement Act of 1994, was created to 
address the critical problems of urban, rural and Native-American 
communities that lack access to capital. Access to capital is an 
essential ingredient for creating and retaining jobs, developing 
affordable housing, revitalizing neighborhoods, and building local 
economies. Over the past decade, much evidence has been presented that 
there are significant capital gaps in distressed communities. Given the 
unique character of the credit market in low-income communities, this 
market niche is often not recognized or well understood--making it 
difficult for conventional market players to meet the needs of this 
market without local partners. Thus, in many communities, needed 
financial products and services may be entirely lacking or may not be 
available or offered at prices that low-income people can afford.
    The CDFI Fund represents a new direction for community development 
initiatives. It leverages limited public resources to invest in and 
build the capacity of private sector institutions to finance community 
development needs in distressed communities. The Fund's efforts are 
designed to help turn dysfunctional markets in distressed communities 
into well functioning local economies--thereby stemming the tide of 
disinvestment and creating economic opportunity for residents. The Fund 
accomplishes its mission by working with community based financial 
institutions and conventional banks and thrifts. The partnerships 
formed by these players will play a key role in helping to restore the 
functioning of distressed markets, enhance capital access for these 
communities, and enable them to join the economic mainstream. The 
Fund's investments are targeted to organizations that emphasize market 
discipline and performance as a strategy for restoring markets.
    The Treasury Department is uniquely situated to carry out this 
initiative. As the Executive Branch's lead agency in setting financial 
institutions policy, the Treasury Department is strongly committed to 
increasing access to capital and investment in distressed communities. 
The Department does this through the efforts of the CDFI Fund, its 
commitment and the commitment of the Office of the Comptroller of the 
Currency and Office of Thrift Supervision to a strong and effective 
Community Reinvestment Act, and Federal tax policy including strong 
support for the Low Income Housing Tax Credit. Nearly seventy-percent 
of the Fund's awardees under the CDFI and Bank Enterprise Award 
Programs are credit unions, banks, thrifts, or bank holding companies. 
The commitment of the Department to integrate distressed communities 
into the greater financial services industry and the economic 
mainstream is key to future viability of neglected and disinvested 
neighborhoods.

                       FIRST YEAR ACCOMPLISHMENTS

    Calendar year 1996, the first full year of the Fund's operations, 
was a very exciting and significant year:
  --In January, the Fund received 268 applications for the CDFI Program 
        and more than 50 applications for the Bank Enterprise Award 
        Program in response to its interim regulations and Notices of 
        Funds Availability issued in October 1995.
  --The Fund undertook a rigorous review process of the CDFI Program 
        applicants including a thorough analysis of an applicant's 
        financial and programmatic track record, financial strength and 
        stability, management capacity, business development strategy, 
        matching funds, and projected community development impact.
  --Secretary Rubin announced the CDFI Fund's selection of 32 CDFI's to 
        receive nearly $37 million in financial and technical 
        assistance.
  --Secretary Rubin announced the CDFI Fund's selection of 38 banks and 
        thrifts to receive $13 million in Bank Enterprise Awards.
  --In January 1997, President Clinton announced the award winners for 
        the Presidential Awards for Excellence in Microenterprise 
        Development, a non-monetary award program implemented by the 
        Fund which is designed to recognize the best in the business of 
        entrepreneurship.
  --In the midst of these activities, the Fund also managed the 
        challenges of starting up a new organization including 
        developing financial systems, internal controls, monitoring and 
        evaluation functions, and other organization development 
        issues. As a new organization, the Fund has built many of its 
        management systems virtually from the ground up, or has been in 
        the process of converting transitional, temporary systems to 
        permanent ones, and creating and refining needed control 
        systems. These systems are critical to ensure effective use of 
        scarce public resources.

                            NEED AND IMPACT

    The capital needs of urban, rural and Native-American communities 
are indeed great--but very difficult to quantify. I believe that the 
dramatic response of the private sector to the initiatives of the Fund 
provide a clear illustration of the vast unmet capital needs. In its 
first funding round, the Fund received 268 applications for the CDFI 
Program from community based organizations in need of investment 
capital and technical assistance. The requests for funding exceeded 
$300 million--approximately 10 times the amount of resources initially 
made available for the first funding round. It should be noted that 
applicants that submitted requests represent only a portion of the 
universe of organizations that are likely to be eligible for the 
program and represent only those communities that are fortunate enough 
to have a community based financial institution. The Fund also received 
applications from over 50 banks and thrifts--an excellent start for a 
program relatively unknown among the banking industry.
    Although the Fund is young, its impact can already be seen. The 
Fund has proven effective in leveraging resources, forging linkages 
with the financial services industry, creating viable self sustaining 
institutions, expanding access to the economic mainstream, restoring 
healthy market activity, and catalyzing new community development 
activity.

Leveraging Private Resources

    The Fund's ability to leverage private sector funds into distressed 
communities is dramatic. The Fund requires, at a minimum, that every 
dollar awarded through the CDFI Program be matched by at least one 
dollar of non-Federal monies. In the near term--over the next two-to-
three years--the $37 million in equity and debt capital awarded to 
CDFI's will conservatively leverage three-to-four times the original 
awards. Over the long term, the Fund's investments are expected to 
support lending and investment of 10-to-20 times the amount awarded.
    Self-Help of North Carolina is a national leader in community 
development finance. Yesterday, the Fund executed a $3 million grant to 
Self-Help. Over the next five years, it is conservatively projected 
that the CDFI Fund's grant and matching funds will enable Self-Help to 
provide more than $100 million to finance affordable housing and small 
business loans over and above what they could have done without the 
Fund's assistance.

Forging Linkages with the Financial Services Industry

    In a short period of time, the Fund has been successful in forging 
key partnerships between banks, thrifts and CDFI's through the Bank 
Enterprise Awards Program. The $13.1 million in Bank Enterprise Awards 
generated nearly $66 million in equity investments and other financial 
support to CDFI's. In addition, the program generated $60 million in 
direct lending and financial services in some of the nation's most 
distressed neighborhoods. For example, the Bank Enterprise Award 
Program helped catalyze a $10 million investment by NationsBank in the 
Employment Opportunities Fund which invests in small businesses located 
in or that employ residents of the Baltimore Empowerment Zone.
Creating Viable Self-Sustaining Institutions
    The Fund is distinctive from many other Federal initiatives because 
it focuses on the development of viable, self-sustaining institutions 
to carry out the work of financing community development. The Vermont 
Community Loan Fund, a small organization that finances housing, small 
businesses and community facilities, has achieved notable success in 
attracting investments from a diverse array of individuals, religious 
institutions, foundations, and corporations. The Fund's investment will 
help the Vermont loan fund build on its highly successful track record, 
expand its services to communities across the state, and provide new 
investment in Burlington's Old North End Enterprise Community where 
over thirty-percent of its residents live in poverty.

Expanding Access to the Economic Mainstream

    The activities of the First American Credit Union illustrates how 
the Fund's resources will help bring under served communities into the 
economic mainstream. The credit union, which serves Native-American 
reservations throughout Arizona, New Mexico and Utah, provides basic 
financial services. These basic financial services include checking and 
savings accounts and consumer and home improvement loans--for people 
that otherwise would have no access to these services. The Fund's 
assistance will be used to expand lending and introduce ATM services to 
rural, sparsely-settled low-income communities.
Restoring Healthy Market Activity
    Douglass Bancorporation, the oldest African-American owned bank 
west of the Mississippi, will receive an investment from the Fund to 
support its expansion to serve Kansas City, Missouri. Douglass, in 
partnership with the Kansas City Neighborhood Alliance, has developed a 
comprehensive plan to restore healthy market activity to low-income 
neighborhoods by promoting affordable housing and small business 
development.

Catalyzing New Activity

    The Fund's philosophy is to use its scarce resources to catalyze 
and jump start new initiatives--rather than permanently subsidize them. 
For example, with the Fund's investment of a $1 million loan, Tlingit-
Haida Regional Housing will begin home mortgage lending in Alaska's 
three urban areas. This will be among the first sources of mortgage 
loans that are affordable to low-income Alaska Natives in these 
markets.
                    SUMMARY OF FIRST FUNDING ROUNDS

    The CDFI's selected to receive investment from the Fund represent a 
broad array of institutional types--both non-profit and for-profit--and 
provide a broad range of financial products and services including 
consumer loans, affordable housing loans and investments, small 
business development, and community facilities such as day care and 
health care facilities. The group of selected CDFI's serve communities 
in 46 states and the District of Columbia. Approximately half of these 
initiatives serve predominantly urban areas, 25-percent serve 
predominantly rural areas, and the balance serve a combination of both. 
Twenty-four of the 32 awardees serve an Empowerment Zone or Enterprise 
Community.
    Through the Bank Enterprise Award Program, the Fund has made awards 
to 38 banks and thrifts located in 18 states and the District of 
Columbia that ranged in asset size from a small community bank of $21 
million to a major money-center bank of $320 billion. The awardees 
include national banks, Federal savings banks or thrifts, state-
chartered commercial banks, and one state chartered mutual saving bank.
            the president's fiscal year 1998 budget request
    The President and Secretary Rubin strongly support the increased 
funding for the CDFI Fund. The $125 million requested for fiscal year 
1998 is proposed to be allocated as follows: $80 million to be invested 
to support CDFI's; $40 million for the Bank Enterprise Awards Program; 
and $5 million for administrative related costs. Most of the $80 
million to be used to support CDFI's will be invested directly in such 
institutions in the form of equity investment, loans, capital grants, 
and deposits. As part of its provision of assistance to CDFI's, the 
CDFI Fund intends to launch an important training initiative which will 
significantly enhance the capacity of private sector organizations to 
provide a full range of training and technical assistance services to 
CDFI's at affordable prices. In addition, a new secondary market 
initiative that the Fund will implement has the potential to leverage 
substantial new sources of private capital to support CDFI's.

                             CDFI PROJECTS

    Senator Bond. I am going to turn to Senator Mikulski for 
questions after asking just one question to begin. We have 
heard all of these glowing reports. It is no surprise to me 
that everybody is anxious and making applications for funds, 
but--maybe my staff is not up to date--I do not find any 
evidence that a single dollar of the $32 million in CDFI funds 
has actually been obligated or leveraged on a single project. 
Has anything happened yet on this?
    Ms. Moy. Indeed it has, Senator. First of all, the money 
has all been obligated.
    Senator Bond. I mean, has any money gone out to a project? 
Has it been spent?
    Ms. Moy. Yes.
    Senator Bond. Is something happening?
    Ms. Moy. First of all, we run two programs, Senator, so 
that in the Bank Enterprise Award Program, which is a very 
important program, 75 percent of our moneys have actually been 
disbursed in that program to the participating banks, who have 
already completed their activities and who have already showed 
the impact of what they have done.
    Under the CDFI Program, we have closed one transaction to 
Self-Help in North Carolina for $3 million. We have spent the 
first year putting the systems and procedures in place to make 
sure that as we disburse this money we can monitor the impact 
and trace the actual use of the moneys.
    We now have in place our infrastructure to disburse these 
moneys. For instance, we have all the appropriate legal 
documents. In the next 4 to 6 weeks we expect to disburse all 
of the money that we can to organizations that are ready to 
receive them, which is approximately one-half of the 
organizations.
    Senator Bond. So you are saying no money under CDFI has 
actually gone out.
    Senator Mikulski.
    Senator Mikulski. Mr. Hawke, good morning. Ms. Moy, first a 
cordial welcome to you from the committee.
    I would like to just say, looking at your background, that 
we are very fortunate to have someone of such strong private 
sector experience managing the CDFI fund. I know that the whole 
issue of access to credit for low-income communities has been 
part of my life for more than 30 years, and yet, at the same 
time, I had enormous skepticism about creating the CDFI fund.
    Just very quickly, when I was a young social worker in 
Baltimore I helped start a credit union in an African-American 
community. Of course, all they had was the opportunity to 
borrow money from, really, street-corner or store-front usury 
programs. Then, working as a city councilwoman and then a 
Congresswoman, I dealt with the red-lining provisions, and then 
came the famous Community Reinvestment Act.
    When the CDFI fund was proposed, my question was, why do we 
need this? Why don't we just push the big banks to do community 
reinvestment, that was the big concern, rather than create new 
Government entities where we played banker, instead of letting 
the banks who know how to be banks be banks in communities.
    Do you follow all that?
    Ms. Moy. Yes; I think so.
    Senator Mikulski. Now, you present this really excellent 
testimony, and I have been looking at the WEB Program, the 
Women Entrepreneur Program in Baltimore, as well as the 
NationsBank effort to work with the Baltimore empowerment zone.
    Could you just tell me very briefly, because we must move 
ahead. Your testimony essentially answers many of the fears and 
concerns that I had. But if you could: These issues of linkage, 
leverage, and availability to people, like $6,000 level loans 
for women, could you tell me how this actually worked in 
Baltimore? Maybe take one of those projects on linkage and 
leverage, and tell me why the Community Reinvestment Act would 
not have met that need, or are we playing bank when maybe we 
should pursue other options?
    Ms. Moy. Those are excellent questions, and they are truly 
intertwined. The whole concept of CDFI's is that they are 
specialized, private institutions that fill niches that 
traditional financial institutions cannot fill.
    Why can't these banks fill these niches? It would be too 
easy to say that they simply do not want to do it, though in 
some cases that is true.
    Capital gaps often arise not because of risk or return, and 
not even perception. They arise for very nitty-gritty reasons 
and for very unglamorous reasons. For instance, the size of a 
transaction--you mentioned the $6,000 loan. It is not economic 
for most traditional financial institutions to make investments 
in that size because of their infrastructure and because of 
their overhead.
    Size is a common problem. Volume is a common problem. 
Financial institutions look to cookie-cutter their investments 
in order to do large volumes, which improves their profit 
margins. This is not possible with many types of community 
development loans, I have found. I have not been at it as long 
as you, Senator, but I am older than I look, and I have been at 
it for some 20 years.
    Senator Mikulski. I am not. [Laughter.]
    Ms. Moy. In the 20 years that I have been doing this in the 
private sector, I have been able repeatedly to build products 
for my company that capitalized precisely on those capital 
gaps, areas they could not serve well.
    I think the real way to make an impact is to push banks to 
do as much as they possibly can, and to work in partnership 
with CDFI's to cover the areas that they cannot.
    In virtually every instance, our CDFI's are working with 
traditional banks, and with the Bank Enterprise Award Program, 
many of them are beginning to get more support from these banks 
than they ever have.
    Senator Mikulski. So you are not in lieu of the bank?
    Ms. Moy. Oh, absolutely not. I think the private sector 
works because people specialize. People do what they do best, 
and that is what they should be doing in the private market 
system. Our CDFI's in many cases are second to none in 
delivering certain types of credit.
    In many cases, they develop an innovative product, show the 
private sector how to do it. And there are actually banks that 
are beginning to do small amounts of microenterprise lending, 
based on some of the models that have been pioneered by the 
CDFI's. The fund made a $450,000 grant to FINCA, which is a 
microenterprise organization working in Washington, DC, and in 
Baltimore. FINCA works with different local community-based 
organizations, one of them being WEB, and they have pioneered 
the peer lending----
    Senator Mikulski. Which is the Women Entrepreneurs Program.
    Ms. Moy. In Baltimore, exactly, with a peer lending model, 
and they are adapting that international model, which has had 
so much success overseas, to the domestic market, and WEB is 
one of the first groups they are working with.
    Senator Mikulski. What do they do?
    Ms. Moy. In this country, microenterprise groups do not do 
just lending. They provide significant amounts of technical 
assistance. They do a lot of handholding. They train people in 
sound business practices. They help them actually startup their 
businesses. They provide peer and other group support to small 
organizations, which inevitably run into challenges during 
their first year, and they are there to provide additional 
capital as these organizations grow.
    Mr. Hawke. If I could add just one comment, Senator 
Mikulski, the CDFI fund also functions to leverage private 
capital from sources other than ordinary banking institutions, 
so it does tap into a broader range of leveraging.
    Senator Mikulski. Like what?
    Ms. Moy. Individuals, religious organizations, 
corporations, foundations.
    Senator Mikulski. Well, thank you. I look forward to 
learning more about this. I know that my time has expired. You 
have answered many of my questions. I mean, my questions first 
of all about the CDFI fund. This is why these hearings are so 
important.
    I knew WEB was important, and I knew NationsBank was coming 
into Baltimore, but they needed a trade group, a channel, a 
fiscal channel to get the resources down to the right level. 
The reason WEB is working is not only because of the money, but 
the technical assistance. A local credit union in a church 
might be able to give microloans, but they would not have done 
the technical assistance for someone who might be opening a 
home-based business like sewing and alterations.
    Ms. Moy. Yes; many of them are in home-based businesses, 
actually.
    Senator Mikulski. I really look forward to learning more 
about it. I have a great passion for microenterprise, I've seen 
how it has worked around the world. It really fortifies me to 
hear that it is now working in Baltimore and other communities. 
I think we need to closely monitor this with lessons learned, 
but I think the fact that it is beyond the Community 
Reinvestment Act, which was kind of a mandate, this is really 
helping them fulfill a social responsibility, but in a way that 
is most effective at the street corner or neighborhood level, 
is that right?
    Ms. Moy. That is correct.
    Senator Mikulski. Well, thank you very much.
    Ms. Moy. Thank you, Senator.
    Senator Bond. Thank you, Senator Mikulski.
    I have been very much impressed by the testimony, as 
Senator Mikulski was, but I am very much concerned about the 
performance. As we put out the first $3 million, we will be 
waiting to see if it works.

                         PERFORMANCE STANDARDS

    I am going to have a series of questions about your 
standards, about how we know if it is going to work. You 
present a great vision for something that might work, and 
before we go down the path of building this $50 million to $125 
million to $1 billion, you have got to show me that this thing 
works.
    I mean, nobody can argue with the glowing testimony. It 
sounds great. But there is an awful lot I want to see about how 
this works, what the standards are. I will submit that for the 
record.
    Let me ask you here one nasty little question. How are you 
regulating CDFI to ensure that the funds are being used 
appropriately, that these entities will pose no financial risk 
to the taxpayer, and what happens to a financially troubled 
CDFI?
    Ms. Moy. Senator, I do not regard that as a nasty question. 
I think it is a fundamental question that is a very important 
one.
    The time that we have spent putting systems in place is 
precisely for this reason. I do not think anyone wants another 
program that does not work or has a troubled record. Our 
statute requires us to negotiate with each CDFI a set of 
performance goals that go right into the legal document that 
becomes the legal vehicle by which we award them moneys. They 
are required to report to us quarterly and annually on these 
goals, and we can take sanctions if they do not satisfy them.
    Among the performance goals that are negotiated are 
financial and programmatic goals, and financial covenants of 
various sorts.
    In doing so, the fund is cognizant of the individual needs 
of each organization and how it is different. At the same time, 
we require performance from everyone. The organizations that we 
selected we selected because of their impressive financial 
situation, condition, stability, management capacity and so 
forth.
    Senator Bond. Will you be doing examinations of them?
    Ms. Moy. Absolutely.
    Senator Bond. And Treasury is responsible for that? When it 
goes bad, who do we hang, you? [Laughter.]
    Mr. Hawke. Senator, I am confident that we will be 
insisting on systems being in place to achieve the objectives 
you have right from the beginning of this program.
    Senator Bond. But who do we hang out to dry?
    Mr. Hawke. This is an operation of the Treasury Department, 
Senator Bond.
    Senator Bond. So you are volunteering? You are the one? You 
are the belly button we point at?
    Mr. Hawke. Yes, sir; this is one of our bureaus. We do not 
interfere with the independence of the decisionmaking of the 
CDFI fund, but the one thing that Director Moy and I have 
talked about again and again from the very beginning of this 
program was the need not only to have systems in place to 
assure that the process of making grants was transparent and 
had integrity to it, but that the followup process was 
demanding.
    Senator Bond. You are responsible for what happens if one 
of them gets troubled. What do you do with it?
    Ms. Moy. It depends on why they are in trouble. I mean, it 
is possible for people to get into trouble through no fault of 
their own. When you constantly monitor an organization and look 
at their financials on a quarterly basis, you are generally not 
surprised by things that happen. You see trends.
    The best answer, actually, the best solution is to 
intervene before you have a problem. We certainly do not want 
to be surprised by a problem.
    Senator Bond. I just realized--do you take it over? I tell 
you what. Let me ask that you send me those answers, because we 
do have a series of questions that we would like to find out 
about, the goals, the standards, the performance objectives, 
and I am going to ask our staff, both sides of the staff to 
monitor what is actually happening, and I thank you very much 
for your testimony.
    You present a great vision of what might happen, and we 
want to see that it does.
    Senator Mikulski. And as you can see, there is both support 
and skepticism here. The skepticism is not harsh. We want to 
know what are we getting into, what our obligations are, and 
make sure it is not another hollow opportunity.
    Perhaps in following up with our staffs, you could do it in 
a case example tracing through microenterprise, what happens if 
an individual defaults, what happens if the organization is in 
trouble, et cetera, et cetera. But also, how do you work in the 
first place: The anatomy of the good news, and then what would 
happen if there is bad news. This is asked in a no-fault way, 
but we need to get to know each other.
    Ms. Moy. We would be happy to do that. Thank you, Senator.
    [The information follows:]

                               OBJECT CLASSIFICATION SCHEDULE--DIRECT OBLIGATIONS                               
                                             [Dollars in thousands]                                             
----------------------------------------------------------------------------------------------------------------
                                                                                  Fiscal year                   
                                                              --------------------------------------------------
                    Object classification                                        1997 proposed     1998 budget  
                                                                 1996 actual    operating level      estimate   
----------------------------------------------------------------------------------------------------------------
Personnel compensation: Permanent positions..................             590            1,500            2,700 
                                                              --------------------------------------------------
      Total personnel compensation...........................             590            1,500            2,700 
                                                              ==================================================
Civilian personnel benefits..................................             137              375              725 
Travel and transportation of persons.........................              97              100              200 
Transportation of things.....................................               8               25                5 
Rent, communications and utilities:                                                                             
    Rental payments to GSA...................................  ...............             340              45O 
    Rental payments to other agencies........................             163              100   ...............
    Communications, utilities and miscellaneous charges......  ...............              80               60 
Printing and reproduction....................................              71               80              100 
Other services...............................................           1,336              975              900 
Supplies.....................................................              48               75               80 
Equipment....................................................             346              350              280 
Grants, subsidies and contributions..........................          46,701           71,000          119,500 
                                                              --------------------------------------------------
      Total obligations......................................          49,497           75,000          125,000 
                                                              ==================================================
Unobligated balance available, SOY...........................         (49,878)         (45,000)         (20,000)
Unobligated balance available, EOY...........................          45,000           20,000           20,000 
Unobligated balance expiring.................................             381   ...............  ...............
                                                              --------------------------------------------------
      Total enacted appropriations and budget estimate.......          45,000           50,000          125,000 
----------------------------------------------------------------------------------------------------------------


             ANALYSIS OF FISCAL YEAR 1997 APPROPRIATED LEVEL            
                         [Dollars in thousands]                         
------------------------------------------------------------------------
                                                FTE           Amount    
------------------------------------------------------------------------
Fiscal year 1997 Proposed Operating                                     
 Level..................................              23         $75,000
Fiscal year 1998 Estimate...............              35         125,000
------------------------------------------------------------------------


                             DIGEST OF FISCAL YEAR 1998 BUDGET ESTIMATES BY ACTIVITY                            
                                             [Dollars in thousands]                                             
----------------------------------------------------------------------------------------------------------------
                                                                 Fiscal year      Fiscal year      Fiscal year  
                                                                 1996 actual     1997 proposed     1998 budget  
                       Budget activity                        ----------------- operating level      estimate   
                                                                               ---------------------------------
                                                               FTE    Amount    FTE    Amount    FTE    Amount  
----------------------------------------------------------------------------------------------------------------
Management and administration:                                                                                  
    Administrative services..................................  ...     $2,760   ...     $3,650   ...     $4,500 
    Administrative expenses for Direct Loan Program \1\......  ...         35   ...        350   ...      1,000 
                                                              --------------------------------------------------
        Total management and administrative expenses.........  ...      2,795   ...      4,000   ...      5,500 
Assistance to CDFI's (other than direct loans)...............  ...     30,560   ...     43,150   ...     59,500 
Direct loan subsidy..........................................  ...      3,003   ...     12,850   ...     20,000 
Incentives for depository institutions.......................  ...     13,139   ...     15,000   ...     40,000 
                                                              --------------------------------------------------
      Subtotal, operating level..............................  ...     49,497   ...     75,000   ...    125,000 
Unobligated balance available, SOY...........................  ...    (49,878)  ...    (45,000)  ...    (20,000)
Unobligated balance available, EOY...........................  ...     45,000   ...     20,000   ...     20,000 
Unobligated balance expiring.................................  ...        381   ...  ..........  ...  ..........
                                                              ==================================================
      Total enacted appropriations and  budget estimate......   10     45,000    23     50,000    35    125,000 
----------------------------------------------------------------------------------------------------------------
\1\ The amount for fiscal year 1998 is a ``not to exceed'' amount that may be used for administrative expenses  
  for the Direct Loan Program.                                                                                  

                                 ______
                                 
           COMMUNITY DEVELOPMENT FINANCIAL INSTITUTIONS FUND
       Summary Justification of Fiscal Year 1998 Budget Estimates

                           GENERAL STATEMENT

    The CDFI Fund represents a new direction for community development 
initiatives, by using limited public resources to invest in and build 
the capacity of the private sector to address the community development 
financing needs of distressed urban and rural communities. The CDFI 
Fund's initiatives are designed to unleash large amounts of private 
capital, emphasize private sector market discipline, and take full 
advantage of private sector human talent, energy and creativity. 
Decisions about which specific projects and businesses to finance are 
left to the private sector. The effect of these efforts will be to 
address market inefficiencies which exist in distressed communities, 
restore healthy private market activity, promote entrepreneurship, 
revitalize neighborhoods, generate tax revenues, and empower local 
residents.
    Through the CDFI Program, the CDFI Fund stimulates the creation and 
expansion of a diverse set of specialized, private, for profit and 
nonprofit financial institutions known as community development 
financial institutions (CDFI's). These specialized institutions 
complement the role of traditional financial institutions by filling 
niches in the market which traditional financial institutions are not 
well positioned to serve. CDFI's cover a broad range of institution 
types, such as community development banks, community development 
credit unions, community development loan funds, community development 
venture capital funds, and microenterprise loan funds. They provide a 
wide range of financial products and services to distressed urban and 
rural communities and to low income populations, such as commercial 
loans and investments to start or expand small businesses, loans for 
first time home buyers, loans to rehabilitate rental housing, and loans 
for community facilities. The CDFI Fund will: (1) invest directly in 
CDFI's that satisfy high quality standards and raise private matching 
funds; (2) provide training and technical assistance to improve the 
capacity of CDFI's; and (3) implement secondary market initiatives 
which draw in new sources of private institutional capital to support 
the activities of CDFI's.
    In its first round under the CDFI Program, the CDFI Fund selected 
32 organizations to receive a total of $37.2 million in equity 
investments, loans, capital grants and technical assistance. But this 
barely scratches the surface of what needs to be done to achieve the 
full potential of CDFI's.
    Interest and demand for the CDFI program has dramatically exceeded 
expectations, with requests for assistance last year exceeding $300 
million. The interest demonstrated by the initial pool of applicants, 
plus continued growth and interest in new CDFI formation, indicate the 
dramatic potential for future investment for the CDFI Fund to stimulate 
expansion of the diverse CDFI industry.
    In addition to making increased direct investments in CDFI's, the 
CDFI Fund is planning to take full advantage of the potential of the 
diverse and growing CDFI field by implementing new initiatives to 
expand the Fund's tools for assisting CDFI's, and keeping the Fund on 
the cutting edge of innovation. An important new training initiative 
will significantly enhance the capacity of private sector organizations 
to provide a full range of training and technical assistance services 
to CDFI's at affordable prices. This initiative will emphasize quality 
and market discipline in the training and technical assistance services 
delivered by private sector providers. By using its resources to 
enhance capacity in this way, the CDFI Fund will build on the existing 
marketplace for these services, which will be a much more effective 
approach than if the Fund were to provide these services directly. In 
the long term, this initiative will also help ensure the maximum 
effectiveness of the CDFI Fund's future investments in an increasing 
number of CDFI's.
    While supporting the creation and expansion of new types of 
specialized private financial institutions, the CDFI Fund's programs 
also recognize the key role being played by traditional financial 
institutions--banks and thrifts--in community development lending and 
investing. In recent years, many such traditional financial 
institutions have increased their efforts to lend and invest in 
distressed communities. By offering incentives to such traditional 
financial institutions through its Bank Enterprise Awards (BEA) 
Program, the CDFI Fund builds on these trends and assists traditional 
financial institutions in enhancing their direct community development 
lending, as well as in investing in CDFI's.
    In the first round of the BEA Program, the CDFI Fund made a total 
of $13.1 million in incentive awards to 38 insured depository 
institutions. These awards supported more than $120 million in total 
community development investments by banks and thrifts. By making 
improvements in the program and by engaging in increased outreach to 
the banking and thrift industries, use of the program can be 
dramatically enhanced.
    As a new organization, in addition to refining its programs and 
developing new initiatives, the CDFI Fund is working to develop a full 
set of performance goals, measures and numerical targets in time for 
the fiscal year 1999 budget presentation. Included in this year's 
presentation is some initial thinking on possible performance measures.
                                 ______
                                 
               activity: 1. management and administration
    Functions: Provides management, staff and other services which 
enable the Fund to develop and implement policies and programs, monitor 
investments, and provide support functions for these activities.
    Mission Statement: Management and Administration is intended to 
develop and implement the initiatives of the CDFI Fund with the highest 
possible quality and professionalism to maximize the capacity of the 
Fund to achieve its objectives.

                        [In thousands of dollars]                       
------------------------------------------------------------------------
                                                  Fiscal year           
                                     -----------------------------------
                                         1996        1997        1998   
                                        actual     estimate    estimate 
------------------------------------------------------------------------
Budget Authority \1\................       2,795       4,000       5,500
------------------------------------------------------------------------
\1\ These amounts include administrative expenses for the Direct Loan   
  Program.                                                              

    Performance Goal: To build a strong staff with skills and 
experience appropriate to the fund's unique activities.

----------------------------------------------------------------------------------------------------------------
             Objective                            Performance measure (indicator)                Type of measure
----------------------------------------------------------------------------------------------------------------
Emphasize quality, relevant          Number of staff hired to fill targeted positions that      Output.         
 experience and record of             have the desired skills and professional experience.                      
 achievement in hiring.                                                                                         
                                     Contribution of staff in meeting overall performance       Outcome.        
                                      goals of CDFI Fund through meeting of goals in                            
                                      individual performance plans.                                             
Build a staff reflecting             Number of staff sorted by diversity characteristics......  Output.         
 appropriate diversity that can                                                                                 
 serve as a model for other                                                                                     
 organizations.                                                                                                 
Ongoing training and skills          Number of CDFI Fund staff members that attend training     Output.         
 development of existing staff.       sessions or other educational and developmental                           
                                      opportunities.                                                            
Design and implement system to       Implement internal data collection and retrieval system    Output.         
 evaluate impact of Funds' programs.  on participating CDFI's.                                                  
                                     Design CDFI performance evaluation process and complete    Output.         
                                      paper setting forth approach to long term impact                          
                                      evaluation.                                                               
----------------------------------------------------------------------------------------------------------------

   activities: 2 and 3. assistance to cdfi's (including direct loans)
    Functions: The Fund makes investments in quality CDFI's, by 
providing assistance in the form of equity investments, loans, capital 
grants, and deposits or shares. The form of financial assistance 
depends on the individualized needs of a CDFI as reflected in a 
realistic business plan, consistent with its ability to raise private 
matching funds in a comparable form. The Fund will also assist CDFI's 
through training and technical assistance initiatives, and by providing 
assistance to organizations that enhance the liquidity of CDFI's.
    Mission Statement: Assistance to CDFI's is intended to spur the 
creation and expansion of these specialized private financial 
institutions and to enhance both immediate private sector capacity to 
address community development financing needs in distressed 
communities, as well as to strengthen the long term capacity of these 
institutions to serve such needs and help restore healthy private 
market activity in distressed communities.

                                             [Dollars in thousands]                                             
----------------------------------------------------------------------------------------------------------------
                                                                                    Fiscal year                 
                                                                 -----------------------------------------------
                                                                    1996 actual    1997 estimate   1998 estimate
----------------------------------------------------------------------------------------------------------------
Budget Authority (Other than Direct Loans)......................         $30,560         $43,150         $59,500
Budget Authority (Direct Loan Subsidy) \1\......................          $3,003         $12,850         $20,000
Direct Loan Level \2\...........................................          $6,660         $33,316         $52,521
Direct Loan Subsidy Rates \3\ (Percentage)......................           45.09           38.57           38.08
----------------------------------------------------------------------------------------------------------------
\1\ For fiscal year 1997 and fiscal year 1998 these are upper limits. The actual mix between loans and other    
  forms of financial assistance will depend on the individualized needs of CDFI's as reflected in realistic     
  business plans, consistent with their ability to raise private matching funds in a comparable form.           
\2\ For fiscal year 1997 and fiscal year 1998 these are upper limits, based on the assumed direct loan subsidy  
  rate.                                                                                                         
\3\ The 45.5 percent subsidy rate for fiscal year 1996 that appears in the President's fiscal year 1998 Budget  
  should actually be 45.09 percent.                                                                             

    Performance Goal: To strengthen and expand the network of private 
financial institutions to address the community development financing 
needs of distressed urban and rural communities and underserved 
populations.

----------------------------------------------------------------------------------------------------------------
             Objective                           Performance measure (indicator)                Type of measure 
----------------------------------------------------------------------------------------------------------------
To increase the cumulative number   Number of CDFI's which receive financial assistance from  Output.           
 of CDFI's to which the Fund         the CDFI Fund which have not previously received such                      
 provides financial assistance       assistance.                                                                
 while maintaining high quality                                                                                 
 standards and promoting diversity.                                                                             
                                    Cumulative number and percent of participating CDFI's by  Output.           
                                     geographic region, institution type, urban v. rural                        
                                     focus.                                                                     
To implement a secondary market     Issuance of regulations and Notification of Funding       Output.           
 initiative to bring increased       Availability (NOFA).                                                       
 liquidity for CDFI's.                                                                                          
To implement effective training     Number of participants in training and technical          Output.           
 and technical assistance            assistance programs.                                                       
 initiatives which enhance the                                                                                  
 capacity of CDFI's now and in the                                                                              
 future.                                                                                                        
                                    Number of CDFI's which report improved capacity as a      Output and        
                                     result of participating in training and technical         outcome.         
                                     assistance programs.                                                       
----------------------------------------------------------------------------------------------------------------

          activity: 4. incentives for depository institutions
    Functions: Through the Bank Enterprise Awards (BEA) Program, the 
Fund makes cash awards to banks and thrifts that increase their 
community development lending, investment, and provision of financial 
services. The Fund will use up to one-third of program funds for BEA. 
All insured banks and thrifts are eligible to participate.
    Mission Statement: The BEA Program is intended to provide 
incentives and rewards which assist traditional financial institutions 
in prudently enhancing their activities in distressed urban and rural 
communities, by direct lending and investing and also by investing in 
CDFI's.

                                            [In thousands of dollars]                                           
----------------------------------------------------------------------------------------------------------------
                                                                                    Fiscal year                 
                                                                 -----------------------------------------------
                                                                    1996 actual    1997 estimate   1998 estimate
----------------------------------------------------------------------------------------------------------------
Budget Authority................................................          13,139          15,000          40,000
----------------------------------------------------------------------------------------------------------------

    Performance Goal: To increase the general effectiveness and 
community development impact of the Bank Enterprise Award (BEA) 
Program.

----------------------------------------------------------------------------------------------------------------
             Objective                            Performance measure (indicator)                Type of measure
----------------------------------------------------------------------------------------------------------------
Simplify and reform regulation to    Incremental and cumulative number of awards..............  Output.         
 improve program participation.                                                                                 
                                     Reforms proposed.........................................  Output.         
                                     Incremental and cumulative dollars awarded...............  Output.         
Develop and propose legislative      Legislative improvements proposed........................  Output.         
 improvements to the program.                                                                                   
Expand the awareness of the BEA      Implementation of effective outreach program to            Outcome.        
 program by working with the          appropriate regulatory entities, trade associations and                   
 appropriate regulators and trade     others as appropriate.                                                    
 associations.                                                                                                  
                                     Number of applicants in program..........................  Output.         
----------------------------------------------------------------------------------------------------------------

                       DEPARTMENT OF THE TREASURY
       Community Development Financial Institutions Fund Programs
                             federal funds
    General and Special Funds:
    For grants, loans and technical assistance to qualifying community 
development lenders, and administrative expenses of the Fund, 
$125,000,000, to remain available until September 30, 1999, of which 
$20,000,000 may be used for the cost of direct loans, and up to 
$1,000,000 may be used for administrative expenses to carry out the 
direct loan program: Provided, That the cost of direct loans, including 
the cost of modifying such loans, shall be defined as in section 502 of 
the Congressional Budget Act of 1974: Provided further, That these 
funds are available to subsidize gross obligations for the principal 
amount of direct loans not to exceed $53,000,000: Provided further, 
That not more than $40,000,000 of the funds made available under this 
heading may be used for programs and activities authorized in section 
114 of the Community Development Banking and Financial Institutions Act 
of 1994.

                     Additional committee questions

    Senator Bond. Thank you very much, Ms. Moy and Mr. Hawke.
    [The following questions were not asked at the hearing, but 
were submitted to the Institutions for response subsequent to 
the hearing:]
                  Questions Submitted by Senator Bond
                no track record and rushing the product
    Question. The President's Budget is requesting a substantial 
increase (150 percent in the funding for the CDFI Fund including the 
CDFI program and the Bank Enterprise Act) from $50 million in fiscal 
year 1997 to $125 million in fiscal year 1998, with an overall target 
of $1 billion by fiscal year 2002. This is a substantial increase for a 
new program, especially a new program without a proven track record or 
any experience. How do you justify this large increase?
    Answer. The requested increase in funding is justified by the great 
demand and need for the types of assistance provided by the CDFI Fund. 
The dramatic response to the CDFI Program during its first funding 
round provides an illustration--and good proxy--of the demand and unmet 
needs for the Fund's products. The Fund received 268 applications for 
the CDFI Program from organizations in need of investment capital and 
technical assistance. The requests for funding exceeded $300 million--
approximately 10 times the amount of resources initially made 
available. The applicants that submitted requests represented only a 
portion of the universe that are likely to be eligible for assistance. 
Moreover, the Fund has received inquiries from a substantial number of 
groups expressing interest in the formation of new CDFI's. Finally, it 
should be noted that because of limited resources available to the 
Fund, those applicants that received funding received, on average, only 
60 percent of the amount requested.

                      CURRENTLY AVAILABLE FUNDING

    Question. I understand that the CDFI Fund actually obligated 
approximately $37.2 million for the CDFI program and approximately 
$13.1 million for the Bank Enterprise Act (BEA) program. How much 
additional funding does the CDFI Fund currently have available for 
funding new awards during fiscal year 1997 and when does the CDFI Fund 
plan to make this funding available?
    Answer. For funding new awards during fiscal year 1997, the Fund 
currently has available $95 million in appropriated funds. The Fund 
recently published notices in the Federal Register for its second 
funding rounds of the CDFI Program and the BEA Program (see Attachments 
1a and 1b). The CDFI Program notices indicate that the Fund intends to 
make available up to $40 million for this program which is expected to 
be fully obligated by September 30, 1997.
    By the summer, the Fund plans to issue funds availability notices 
for funding rounds for training (authorized pursuant to Section 103 of 
the Riegle Community Development and Regulatory Improvement Act of 1994 
(Public Law 103-325)) and for a secondary market initiative (authorized 
pursuant to Section 119 of the Riegle Community Development and 
Regulatory Improvement Act of 1994) totaling approximately $20 million. 
The Fund anticipates obligating the funds for these two new initiatives 
by the end of calendar year 1997.
    As required by the Fund's authorizing statute, one-third of all 
appropriated program monies must be made available under the BEA 
Program. Thus, the Fund must make available $30 million for the BEA 
Program. On March 7, 1997, the Fund published a notice in the Federal 
Register announcing the availability of $16.25 million for the second 
funding round of the BEA Program. However, if requests exceed $16.25 
million during the second funding round, the Fund intends to obligate 
as much of the $30 million as possible by September 30, 1997. The 
balance of the unobligated BEA monies will be rolled over into next 
funding round which is expected to be announced in the Federal Register 
in October 1997.
    Question. In addition, the testimony seems clear that not a single 
dollar of the $37.2 million in CDFI program funds have actually been 
obligated or leveraged on a single project or activity. If this is 
true, how do you measure the success of the CDFI program for which 
there is not data?
    Answer. The Fund has obligated $37.2 million in equity investments, 
grants and loans under the CDFI Program and disbursed or initiated 
disbursements of $13.6 million--or 37 percent--of such obligated funds. 
The Fund expects to disburse nearly all of its fiscal year 1995 monies 
by September 30, 1997. The Fund is working diligently to disburse the 
remaining awards as expeditiously as possible after the Fund and each 
awardee enters into a formal agreement that requires the institution to 
comply with performance goals that are rigorous and tailored to the 
unique elements of the institutions and the needs of the communities 
they serve and abide by other terms and conditions pertinent to the 
award. The requirements for the formal agreement are set forth in 
Section 108(f)(2) of the Riegle Community Development and Regulatory 
Improvement Act of 1994. As discussed the Fund recently published 
notices in the Federal Register for the CDFI Program and the BEA 
Program announcing the availability of funding rounds for fiscal year 
1996 and fiscal year 1997 appropriated dollars most of which it expects 
to obligate by September 30, 1997.
    Some data currently exists that allows the Fund to measure the 
success of the CDFI Program. For example, the CDFI Program has already 
demonstrated a significant ability to leverage funds from non-Federal 
sources. More than $50 million of such matching money has already been 
raised and received by the 32 organizations selected for funding in the 
first funding round of the Program. This money has, in turn, leveraged 
additional funds and resulted in a total of over $100 million raised 
and made available to finance community development activities. In 
several cases, actual development transactions have already occurred. 
For example, one of our awardees reports that the Fund's $3 million 
grant has already enabled it to effectuate $24 million in home mortgage 
and commercial lending transactions. Over the next two to three years, 
the $37.2 million in CDFI Program awards are expected to leverage three 
to four times that amount in total capital raised for these 
institutions.
    Question. In addition, how many grant agreements have actually been 
signed or entered into under the CDFI program? Please provide a list 
that describes each grant, each grant agreement, and the date on which 
the grant agreement was signed or executed, and the date and amount of 
the disbursement of any funds. Please list each BEA award by award, 
date of award and by activity.
    Answer. The Fund enters into an Assistance Agreement with each 
awardee prior to providing any assistance to such awardee. The Fund may 
provide assistance in the form of an equity investment, deposit, loan, 
grant, technical assistance, or some combination of these instruments. 
To date, the Fund has entered into ten Assistance Agreements with 
awardees under the CDFI Program. Under the BEA Program, the Fund must 
enter into an Award Agreement with each awardee prior to providing an 
award to such awardee. All awards are in the form of a grant under the 
BEA Program. To date, the Fund has entered into Award Agreements with 
all of the 38 institutions selected to receive assistance under the BEA 
Program. Please see Attachments 2a and 2b which describe each form of 
assistance provided under the CDFI Program, the date on which each 
Assistance Agreement was executed, the amount of disbursement of each 
CDFI Program award and each Bank Enterprise Award, the date on which 
each Bank Enterprise Awardee Agreement was executed, the amount of 
disbursement of each Bank Enterprise Award, and the activities for 
which such award was granted.

                 SUCCESS OR FAILURE OF THE CDFI PROGRAM

    Question. When will there be enough data and program experience to 
analyze the strengths and weaknesses and the successes and failures of 
the CDFI program? What benchmarks have you established for analyzing 
the use of CDFI program funds? What steps have you taken for program 
integrity to prevent fraud and abuse by CDFI program grantees? Has the 
CDFI Fund established post-award audit review requirements for each 
CDFI grant? If not, why not?
    Answer. The Fund will collect financial and performance data from 
CDFI Program awardees on a quarterly and annual basis. This information 
will be compiled and reported to Congress as part of the Fund's annual 
report. The Fund is taking great care to design and implement the 
systems and procedures necessary to effectively monitor and evaluate 
the use of its assistance, impact of its investments, and the financial 
and managerial soundness of the organizations it funds. To this end, 
the Fund requires awardees to report at least annually on the manner in 
which Fund assistance has been used. The Fund negotiates with each 
award winner specific performance goals and financial soundness 
covenants for non-regulated financial institutions. In this manner, the 
Fund attempts to ensure program integrity and prevent fraud and abuse 
by awardees.
    In addition, the Fund has worked closely with the Treasury 
Department's Office of Inspector General and has sought the assistance 
of consultants in developing its internal quality control systems and 
procedures.
    The Fund's Assistance Agreements with each unregulated CDFI awardee 
requires such awardees to submit audited financial statements to the 
Fund each year. In the case of regulated institutions, the Fund 
requirements seek to conform, to the greatest extent possible, with the 
financial reporting requirements of each awardee's Federal regulatory 
agency.
                          LEVERAGING OF FUNDS

    Question. What are the yardsticks used to determine whether a CDFI 
grant applicant can leverage other funds successfully? What do you look 
for in a CDFI grant applicant in assessing the ability of the grant 
applicant to meet the needs of a distressed community successfully 
(i.e. Do you look for roots in a community? Do you look for a track 
record of community development experience? Do you look for a firm 
commitment of funds?)
    Answer. CDFI Program awardees are required to raise a one-to-one 
match for each dollar of funds requested. Applicants must submit 
evidence of their ability to leverage such matching monies as part of 
their application for assistance. Firm commitments are the best 
evidence of such ability, but other factors such as strength of the 
applicant's fund raising strategy and track record are also considered. 
However, the Fund will not disburse any assistance until the requisite 
matching funds are raised. The selection criteria provide that the Fund 
give additional consideration to applicants that have firm commitments. 
The CDFI Program Regulations, at 12 C.F.R. Sec. 1805.902, state that 
``at a minimum, a firm commitment must consist of a binding written 
agreement between an Awardee and the source of the matching funds that 
is conditioned only upon availability of the Fund's assistance and 
other such conditions as the Fund, in its sole discretion, may deem 
appropriate. Such agreement must provide for disbursal of the matching 
funds prior to, or simultaneous with, receipt by the Awardee of the 
Federal funds.''
    The matching funds represent only the initial leverage resulting 
from a CDFI Program award. Applications are evaluated, in part, by 
evaluating the potential for ongoing sources of funds that will be 
leveraged by the Fund investment. Potential sources of leverage include 
any excess match over the minimum required match, leverage of net worth 
infusion through borrowing and recycling of loan funds, and attraction 
of additional investment into specific deals to be financed by the 
CDFI.
    The Program's evaluation criteria are designed to ensure that 
Federal resources are invested prudently and in a manner that maximizes 
the potential of investing in organizations with long-term viability 
that will serve their communities on a long-term self-sustaining basis. 
CDFI awardees are selected based on track record, management capacity, 
skills and experience, quality of the business plan, ability to raise 
matching funds, and community development impact.

                      REVIEW PROCESS AND REVIEWERS

    Question. What is the review process for applications for CDFI 
program funding? What is the specific criteria used for assessing 
applications? Describe the scoring/ranking system used for reviewing 
the applications. Was the criteria applied consistently and uniformly 
for all applications?
    What was the review process for the CDFI program applications?
    Answer. The review process used to select CDFI award recipients in 
the first funding round was described in the regulations and applicable 
notice of funds availability notice (see Attachment 3), published in 
the Federal Register on October 19, 1995. The regulations and notice 
did not prescribe a scoring/ranking system for evaluating applications; 
instead those documents set forth a process similar to an investment 
analysis methodology utilized by private sector investors. CDFI award 
recipients were chosen on the basis of a wide range of factors 
including track record, management capacity, skills and experience, 
quality of the business plan, ability to raise matching funds, and 
community development impact. These criteria were applied fairly and 
consistently to all applicants.
    Winners were chosen as a result of a tiered review process. In an 
effort to conduct the review in an efficient manner, the Fund conducted 
different ``tiers'' of the process simultaneously. Tier 1 of the review 
process was intended to ensure that each applicant met the eligibility 
requirements and submitted complete application materials. Tier 2 of 
the review process was intended to ensure that each applicant meeting 
the Tier 1 requirements possessed the financial and organizational 
capacity to be a successful CDFI. The Fund actually performed each Tier 
2 review as part of a Tier 3 review since each factor under Tier 2 was 
thoroughly examined under Tier 3. Tier 3 of the review process 
considered additional factors and ultimately resulted in the selection 
of award winners.
    The selection criteria listed in the regulations were also 
reflected on the guidance sheet given to contractors and Fund staff 
that performed the qualitative reviews of applications (see Attachment 
4). The evaluation process and criteria aimed to ensure that the Fund 
invested prudently in a manner that maximized the potential of 
investing in organizations that could continue to provide capital in 
their communities on a long-term self-sustaining basis. As part of the 
Tier 3 review, 59 organizations were determined to be sufficiently 
competitive to be invited by the Fund for an interview with the final 
review panel. Of those interviewed, 32 were selected to receive an 
award. In conducting the reviews, the Fund used permanent staff, as 
well as outside experts, to supplement and complement internal staff.
    On April 4, 1997, the Fund published revisions to its interim 
regulations in the Federal Register that made modest changes to the 
review process (see Attachment 5). Sections 1805.800 through 1805.802 
of those regulations outline the evaluation and selection process. 
Without eliminating any of the evaluation factors, the revised interim 
rule restructures the process of evaluating applications described to 
expedite the process and improve efficiency.
    The current revised interim rule consolidates what had been Tier 2 
(financial and organizational capacity) and Tier 3 (other qualitative 
criteria) reviews into one set of substantive review criteria. However, 
the selection criteria originally set forth on October 19, 1995, are 
retained. The current regulations clarify that the criteria to be 
considered include the quality of the applicant's business plan and the 
extent and nature of the applicant's potential community development 
impact that will be catalyzed relative to the amount of assistance to 
be provided by the Fund. While ensuring fairness and consistency, the 
Fund will seek to implement the evaluation and selection process in a 
manner that takes into consideration the unique characteristics of 
applicants that vary by organizational type, total asset size, and 
stage of organizational development.

                        UNBIASED AWARD STRUCTURE

    Question. What safeguards have the CDFI Fund implemented to ensure 
an unbiased grant award system? For example, have any of the reviewers 
or panel reviewers for the CDFI program ever been employed by any of 
the applicant organizations or their affiliates or ever sought or 
maintained client relationships with such organizations? If yes, please 
provide details including the names of individuals, organizations and 
the dates of the affiliation or the employment.
    Answer. The CDFI Fund established a selection process with respect 
to all CDFI Program applications that was unbiased, fair, thorough and 
rigorous and included safeguards to ensure that no one person possessed 
a dispositive influence over which entities were chosen as winners. All 
Awardees under the CDFI Program were chosen by a unanimous decision of 
a panel composed of five people. The CDFI Fund evaluated factors 
including track record and financial strength; capacity, skills and 
experience of the management team; quality of the applicant's business 
plan; ability to raise non-federal matching funds; and community 
development impact.
    The CDFI Fund staff and outside contractors were used in the 
initial review stage, with each contractor reviewing one or two groups 
of applications, with groups defined on the basis of type of 
organization (and in some cases, further defined by region of the 
country). The tasks for these reviewers during the initial review stage 
was to review each application carefully in order to make 
recommendations about those applications that were potentially 
competitive and therefore should be given further consideration by the 
second-stage review panel.
    The second-stage review panel reached all of its decisions 
unanimously. This review panel made evaluations, performed due 
diligence, and unanimously determined which applicants would receive 
assistance. The decisions of the second-stage review panel were subject 
to the approval of the CDFI Fund Director.
    The Fund's Deputy Director, Steve Rohde, was an employee of the 
Local Initiatives Support Corporation (LISC), an award recipient, prior 
to joining the Fund. Mr. Rohde has not had any financial interest in 
LISC since leaving his position with the organization. Like all other 
CDFI Program winners, LISC was chosen as a result of a rigorous 
selection process in which no one person had dispositive influence. The 
review panel that ultimately selected LISC as a winner made a unanimous 
decision with respect to LISC and all other winners.
    Prior to joining the CDFI Fund, the CDFI Fund Director Kirsten Moy 
served as a member of an advisory committee in connection with the New 
York activities of the Low Income Housing Fund, a CDFI Program winner. 
As a volunteer advisor, Ms. Moy was not compensated for her service on 
the committee.
    The Deputy Director of the CDFI Fund, in consultation with 
individual reviewers, identified actual and potential conflicts of 
interest that reviewers had with respect to any applications, and the 
Deputy Director made the determination that a particular set of facts 
could lead to a conflict and, therefore, prevented an expert from 
reviewing a particular application, as follows:
    (a) Dan Lopez was a member of the Board of Directors of the Low 
Income Housing Fund and was not assigned that application.
    (b) James Paquet was on a detail from the State of Michigan to the 
CDFI Fund under the Intergovernmental Personnel Act. Mr. Paquet was not 
assigned any applications from Michigan. Instead, he was assigned a 
group of applications consisting of business loan funds in the 
Northeast region.
    (c) In the early to mid 1980's, Laura Henze Russell had been 
Executive Director of an organization now known as the Local Enterprise 
Assistance Fund, based in Boston. Ms. Russell was not assigned the 
application of Local Enterprise Assistance Fund. She was assigned a 
group of applications consisting of business loan funds from the 
Midwest and West regions.
    (d) Fredric Cooper formerly worked for The Enterprise Foundation, 
which had a relationship with the San Antonio Housing Trust Foundation, 
an applicant. Enterprise Foundation was not an applicant. Mr. Cooper 
was assigned a group of housing loan funds from the Northeast and 
Midwest.
    (e) Alan Okagaki had been an employee and subcontractor of 
Shorebank Advisory Services and a consultant to Southern Development 
Bancorporation. After an initial look at the Albina Community Bancorp 
application Mr. Okagaki informed the CDFI Fund that there was 
significant material in that application that Mr. Okagaki recognized as 
having been previously prepared by Shorebank Advisory Services. He was 
excluded from reviewing the applications of Shorebank Corporation, 
Douglass Bancorp, Louisville Development Bancorporation, Southern 
Development Bancorporation, and Albina because Shorebank Advisory 
Services had had a consulting relationship with these institutions.
    (f) In the second stage review panel, Paul Pryde, who did not 
participate in the initial stage review, recused himself from two 
applications, McAuley Institute and Community Bank of the Bay, because 
of an appearance of a conflict.

                             GRANT REVIEWS

    Question. Did the CDFI Fund accept revisions to applications from 
certain applicants? What rules did the CDFI Fund establish with regard 
to revisions to ensure a fair process for all CDFI applicants? If 
revisions were permitted for any grant application, please provide the 
details of each revision, including all dates and contacts between the 
CDFI fund and the applicant?
    Answer. The Fund does not accept revisions to applications from any 
applicants. The Fund's regulations, at 12 C.F.R. Sec. Sec. 1805.700 and 
1806.206, provide that the Fund ``may request clarifying or technical 
information'' with respect to any application submitted to the CDFI or 
BEA Program, respectively. Consequently, when the Fund determines that 
it is appropriate and necessary for its decision making, it requests 
clarifying or technical information from applicants.
    In addition, the Fund accepts from all applicants supplemental 
information that updates previous submitted material or otherwise 
informs the Fund of changes in information previously submitted.
    Question. Did any reviewer or panel reviewer provide assistance to 
any of the applicants or their representatives with respect to the 
preparation or revision of any part of an application or for 
supplemental information provided to or requested by the CDFI Fund? If 
yes, please provide the date and details of each occurrence.
    Answer. The Fund or its reviewers did not provide assistance to any 
of the applicants or their representatives with respect to the 
preparation or revision of any part of an application or for 
supplemental information provided to or requested by the Fund. Section 
105(c) of the Riegle Community Development and Regulatory Improvement 
Act of 1994 (Public Law 103-325) states that

        [t]he Fund shall provide an outreach program to identify and 
        provide information to potential applicants and may provide 
        technical assistance to potential applicants, but shall not 
        assist in the preparation of any application.

    Accordingly, the Fund provided an outreach program to applicants. 
Such outreach was accomplished through workshops, publications and 
other means and included general information about the Fund's programs 
and their requirements. The Fund provided outreach services to all 
interested parties on an equal basis.

                            FEDERAL REGISTER

    Question. On March 18, 1996, the CDFI Fund published in the Federal 
Register a waiver of the deadline for receipt of an application under 
the CDFI and BEA programs for certain applications. What was the nature 
and reason for this waiver? Please provide a detailed list describing 
all application materials and information which were received by the 
CDFI Fund between the original deadline of January 29, 1996 at 4:00 
p.m. and March 13, 1996.
    Answer. On March 18, 1996, the Fund published a waiver in the 
Federal Register of its January 29, 1996, 4 p.m., application deadline 
for the CDFI and BEA Programs. The Fund determined it would accept an 
application if: (1) the application was actually received by the Fund 
on January 29, 1996; (2) the application was mailed with a postmark 
date on or before January 29, 1996; or (3) the application was 
delivered to a professional courier service on or before January 29, 
1996. This waiver was based on the determination that such waiver 
promoted the achievement of the purposes of the CDFI Program and the 
BEA Program and their underlying statutes. Several factors contributed 
to the Fund's determination to grant this waiver. First, in the first 
year of implementation of these programs, it was determined to be in 
the Fund's interest to seek the broadest possible participation. 
Second, preparing an application required an extensive amount of work 
which, without the waiver, might have gone to waste merely because of a 
technical failure in the mail or delivery process. Third, given the 
fact that these programs are new, and some of the applicants had never 
previously applied to the Federal government for funding, there 
appeared to have been some confusion about the precise requirements for 
delivery of an application in a timely fashion. Finally, the effect of 
the requirement that the Fund be in receipt of an application by a 
specified time appeared to have had a disproportionate effect on 
applications from geographically remote places. Thus, strict 
enforcement of the deadline could have hindered the Fund in achieving 
its geographic diversity objectives. See Attachment 6 for a list of 
items accepted between January 29, 1996, 4 p.m., and March 13, 1996.

                             FUTURE FUNDING

    Question. When will the CDFI Fund announce the next round of 
funding? You appear to be 4 to 5 months behind the schedule of your 
first round.
    Answer. On March 7, 1997, the Fund published a Notice of Funds 
Availability for the second round of the BEA Program (see Attachment 
1b). On April 4, 1997, the Fund published Notices of Funds Availability 
in connection with the CDFI Program (see Attachments 1a).
              financial safety and soundness requirements
    Question. How will CDFI entities be regulated to ensure that CDFI 
funds are being used appropriately and that these entities will not 
pose a financial risk to the American taxpayer. What happens to a 
financially troubled CDFI?
    Answer. CDFI Program awardees are required to comply with numerous 
federal requirements and reporting mandates that are intended to 
protect the taxpayers' interest. In the event that an awardee does not 
comply with the aforementioned requirements, the CDFI Fund has a range 
of remedies that it may employ. These mandates or requirements include:
    (1) Compliance with government requirements including all Federal, 
state and local laws, regulations, ordinances, applicable Office of 
Management and Budget Circulars, and applicable Executive Orders;
    (2) Mandatory reporting to the U.S. Department of the Treasury 
Inspector General of the existence or apparent existence of fraud, 
waste or abuse of Federal assistance;
    (3) Provision of financial and activity reports, records, 
statements, and documents as may be requested to ensure compliance with 
the assistance agreement. An Awardee is required to provide full and 
free access to its officers and facilities and all books, documents, 
records, and financial statements relating to the use of assistance;
    (4) Compliance with all record retention requirements set forth on 
OMB Circular A-110 and, pursuant to such Circular, retention of all 
financial records, supporting documents, and statistical records 
pertinent to the assistance;
    (5) Maintenance of records necessary to disclose the manner in 
which assistance provided is used and demonstrate compliance with the 
requirements of the CDFI Program regulations and the assistance 
agreement;
    (6) Submission of quarterly reports after the end of each fiscal 
quarter in a form that is prescribed by the CDFI Fund in the assistance 
agreement;
    (7) Submission of an annual report that includes, among other 
things, information regarding the manner in which assistance or 
matching funds were used, financial condition and financial 
performance, activities and initiatives engaged in which enhance the 
awardee's ability to promote community development, the awardee's 
strategy for achieving its performance goals or enhancing its financial 
performance, and the ethnic, racial or gender composition of its 
borrowers or investees;
    (8) Compliance with the Equal Credit Opportunity Act, where 
applicable; and
    (9) Compliance with restrictions on certain insider activities.

                            DISPLACING BANKS

    Question. There has been some concern that CDFI's could indirectly 
discourage more traditional financial institutions may not feel welcome 
or may conclude that their presence is not needed. Couldn't this result 
in isolating distressed communities even more from access to mainstream 
financial resources and opportunities for economic revitalization? How 
are you monitoring this concern?
    Answer. The roles of CDFI's and traditional financial institutions 
are mutually reinforcing. CDFI's are not a substitute--and should not 
be considered a replacement--for traditional financial institutions. 
CDFI's complement the strong and active role that banks and thrifts 
should play in providing credit within distressed communities. CDFI's 
are specialized, private financial institutions that fill niches that 
traditional financial institutions cannot fill--or will not fill on 
their own. The credit needs in distressed communities are often unique 
and require innovative solutions. CDFI's are distinct from traditional 
financial institutions because they have developed specialized 
expertise in delivering certain types of credit--such as micro loans, 
financing day care or public health care facilities, or financing 
housing for people with AIDS or other special needs. In many 
communities, CDFI's have pioneered innovative new products that were 
later adopted by local banks or developed partnerships with banks to 
address unique local needs. For example, many microenterprise programs 
work with low income entrepreneurs that have credit problems or that 
don't meet standardized underwriting criteria. In these cases, the 
micro enterprise programs work with these individuals to build their 
business skills and history as credit-worthy business borrowers. After 
the borrowers have developed a track record, they are often 
``graduated'' to become borrowers of traditional financial 
institutions. Many traditional financial institutions see their 
partnerships with CDFI's as a vehicle to reach into markets that they 
could not otherwise reach. In fact, the CDFI Fund's Bank Enterprise 
Award Program recognizes the importance of these relationships and is 
designed to foster partnerships between CDFI's, as well as promote 
increasing lending and service provision within very distressed 
neighborhoods. (Attachment 7 describes the impact and activities 
generated by the BEA Program.) In summary, CDFI's help to integrate--
not isolate--distressed communities into the economic mainstream.
          draining of existing economic development resources
    Question. There is often a concern that there is only so many 
dollars in the private market available for economic development and 
affordable housing resource. Since there are such expectations for the 
CDFI program to leverage significant non-federal funds, has there been 
any review of where this capital is coming from, and whether it is 
likely to be drained from other funding sources traditionally used for 
community development and housing projects?
    Answer. The vast majority of matching funds received by assisted 
CDFI's are from private sector sources of capital. Of the 31 
organizations selected to receive CDFI assistance, 72 percent derived 
all of their matching funds from private sources (e.g. banks, 
corporations, foundations, individuals) and 19 percent derived between 
99 percent and 70 percent of their matching funds from private sources. 
Only three awardees raised less than 70 percent of their matching 
monies from private sources.

                          BANK ENTERPRISE ACT

    Question. The Bank Enterprise Act (BEA) has been implemented as a 
separate account under the CDFI Fund. Under BEA, traditional financial 
institutions are encouraged through BEA awards to invest, lend and 
provide other financial services in distressed communities. Isn't it 
better to encourage through the BEA the availability of traditional 
financial services and credit in distressed communities than to 
establish a new and separate banking system for these communities?
    Answer. CDFI's and traditional financial institutions both play 
complementary and important roles in serving the credit and financial 
service needs of distressed communities. In fact, the CDFI Program and 
BEA Program were crafted by Congress to work together. Specifically, 
the CDFI Program requires award recipients to obtain matching funds 
from non-Federal sources and permits monies committed by banks and 
thrifts under the BEA Program to assist in meeting that match. In 
addition, under the BEA Program, banks and thrifts that provide support 
to CDFI's are given priority consideration for BEA funding. Hence, the 
CDFI Program and the BEA Program are both critically important to 
improving access to credit and promoting revitalization and deserve 
support. Please also see answer to Question 12.

                             STAFFING NEEDS

    Question. Please describe your staffing needs for administering the 
CDFI program. Since there are so many types of entities and activities 
involved, how will you ensure program integrity?
    Answer. The CDFI Fund is in the process of adding staff in certain 
critical areas to ensure that key functions are and/or will be 
adequately covered. Among these critical areas are program operations, 
finance and administration, and awards management. The CDFI Fund is 
seeking to hire an individual to oversee these areas as its Deputy 
Director for Operations/Chief Financial Officer. In addition, the CDFI 
Fund plans to hire, among other professional and technical staff, the 
following in each of these areas: program operations--a program manager 
who will focus exclusively on the CDFI Program and possibly someone to 
manage the CDFI Fund's training and technical assistance initiatives; 
finance and administration--a comptroller as well as a staff 
accountant; awards management--an award administrator and possibly a 
portfolio analyst.

                 GOVERNMENT PERFORMANCE AND RESULTS ACT

    Question. What are you doing to comply with the Government 
Performance and Results Act? What is your timetable to develop your 
goals, strategic plan, performance measures and outcomes?
    Answer. In the implementation of GPRA, the CDFI Fund is ahead of 
schedule for compliance. Although the first annual performance plan is 
not due until fiscal year 1999, the CDFI Fund submitted its first plan 
as part of the fiscal year 1998 budget justification which included 
performance goals, measures and outcomes--a year ahead of schedule. It 
is the policy of the Department of the Treasury to integrate the annual 
performance plan with the annual budget justification.
    In regards to the 5-year strategic plan, the CDFI Fund intends to 
have a final draft of the 5-year strategic plan in the coming weeks and 
looks forward to consultations with Congress and other stakeholders in 
developing a final plan. The CDFI Fund plans to submit its 5-year 
strategic plan to the Department and OMB in the near future. The CDFI 
Fund looks forward to utilizing this important tool to measure the 
impact and effectiveness of its programs.

                     CRITERIA FOR SELECTING CDFI'S

    Question. The testimony indicates that a wide variety of CDFI's--
new, old, rural, urban--have been awarded assistance under this 
program. What were the most critical criteria used for selecting CDFI's 
for assistance? What is the most common weakness in an application for 
denying CDFI assistance?
    Answer. The key evaluation criteria used for selecting CDFI's for 
assistance include track record and financial strength; capacity, 
skills, and experience of the management team; quality of the 
applicant's business plan; ability to raise non-Federal matching funds; 
and community development impact. Attachment 8 discusses factors that 
tend to separate successful from unsuccessful applicants in the first 
funding round. Through the review process, the CDFI Fund found a wide 
variety of institutions working to serve the community development 
finance needs of their communities. These institutions are diverse in 
type (banks, credit unions, non-profit loan funds, microenterprise loan 
funds, venture capital organizations, lending consortia, and others), 
the types of communities they serve (urban, rural, Native American), 
the types of products and services they provide (small business loans 
and equity investments, housing loans, community facility loans, 
training and technical assistance, and others), and, finally, their 
strategies for promoting economic opportunity and revitalization.
    What these organizations have in common, however, is a deep 
commitment to serve their communities by building stronger local 
markets and catalyzing new economic activity; leveraging resources of 
private, public and non-profit sectors; building linkages with the 
financial services industry; and developing viable, self-sustaining 
financial institutions.
    Common problems shared by these institutions include: (1) 
difficulties in raising investment capital to support their activities 
because, in part, their returns may not be as high as some other 
private sector investment opportunities; and (2) the need to develop 
further their institutional capacity to expand their activities within 
the needy communities they serve. In evaluating applicants that were 
best poised to make the greatest community impact, the CDFI Fund 
observed several critical factors, including good management; the 
importance of strategic assessment and planning in charting an 
institution's activities; having sufficient net worth and a capital 
structure appropriate to the nature of the activities the institution 
is engaged in; the existence of well-functioning internal financial 
systems; and a solid portfolio review system for managing risk.
                                 ______

                                 
                              Attachment 7
 profiles of the first round awardees under the bank enterprise award 
                                program
         community impact of the bank enterprise award program
    The Bank Enterprise Award Program (the ``BEA Program'') was 
designed to provide incentives to insured depository institutions 
(banks and thrifts) to invest in community development financial 
institutions (CDFI's) and to increase their lending and provision of 
financial services in economically distressed communities throughout 
the nation.
    Awards are determined based on the increase of eligible activities 
between two designated six-month evaluation periods. To ensure 
appropriate use of limited Federal resources, awards are disbursed only 
after the activities proposed by the institutions have been completed. 
Collectively, the bank and thrift awardees have provided nearly $66 
million in support to CDFI's and $60 million in new lending and 
financial services in economically distressed communities. The 
activities for which each of the institutions received an award are 
described in the following profiles.
    There are no statutory or regulatory restrictions or requirements 
on institutions with respect to the use of their BEA award dollars 
after the completion of proposed activities. The CDFI Fund is happy to 
report that the vast majority of the institutions receiving awards in 
the first round have indicated that they plan to use their awards to 
expand their existing community development work. These activities 
would enhance the impact of the BEA Program and are described in the 
profiles.
Bank of America Community Development Bank, Walnut Creek, California
    Award: $1,585,510
    Rewarded activities.--Bank of America Community Development Bank 
was awarded $1,585,510 for increasing its commercial real estate, 
multi-family housing, and business lending in distressed communities 
across California. The bank made nearly $25 million in loans in 
targeted neighborhoods. Bank of America Community Development Bank 
projects that its activities will generate more than 185 units of 
affordable housing and 300 jobs.
    Post award activity.--Bank of America Community Development Bank, 
together with Bank of America, F.S.B., has pledged to invest its entire 
combined award back into the community. $1.1 million of their award 
money has been used to establish the Bank of America Leadership 
Academy, a nine-month program that provides training for senior 
management of community development organizations. The Leadership 
Academy is funded jointly by Bank of America Community Development 
Bank, Bank of America, F.S.B., and the Local Initiatives Support 
Corporation (a certified CDFI and a 1996 CDFI Program awardee); it is 
conducted by the Development Training Institute. The Academy is 
expected to run for three years and train 105 leaders of community 
organizations across the nation. An additional 20 percent of the 
combined awards will go to the Low Income Housing Fund, a certified 
CDFI and a 1996 CDFI Program awardee which provides loans for very low-
income housing development across the country. Bank of America 
Community Development Bank is currently considering the designation of 
the balance of its award.
Bank of America, F.S.B. Portland, Oregon
    Award: $521,735
    Rewarded activities.--Bank of America, F.S.B. was awarded $521,735 
for increasing its commercial real estate and business lending in 
targeted neighborhoods in Denver, Las Vegas, and San Antonio. The Bank 
made nearly $6.2 million in loans in needy communities. Bank of 
America, F.S.B. projects that this activity will create or retain more 
than 150 jobs.
    Post award activity.--Bank of America, F.S.B., together with Bank 
of America Community Development Bank, has pledged to invest its entire 
combined award back into the community. $1.1 million of their award 
money has been used to establish the Bank of America Leadership 
Academy, a nine-month program that provides training for senior 
management of community development organizations. The Leadership 
Academy is funded jointly by Bank of America Community Development 
Bank, Bank of America, F.S.B., and the Local Initiatives Support 
Corporation, a certified CDFI and a 1996 CDFI Program awardee; it is 
conducted by the Development Training Institute. The Academy is 
expected to run for three years and train 105 leaders of community 
organizations across the nation. An additional 20 percent of the 
combined awards will go to the Low Income Housing Fund, a certified 
CDFI and a 1996 CDFI Program awardee which provides loans for very low-
income housing development across the country. Bank of America, F.S.B. 
is currently considering the designation of the balance of its award.
Bank of America, Illinois, Chicago, Illinois
    Award: $514,815
    Rewarded activities.--Bank of America, Illinois was awarded 
$514,815 for increasing its affordable housing and small business 
lending activity in distressed communities on the near north, west and 
south sides of Chicago. The bank also made loans of nearly $3.7 million 
to Neighborhood Housing Services (NHS) of Chicago, Community Investment 
Corporation (CIC), and the Illinois Facilities Fund (IFF), all 
certified CDFI's. The bank's loan to NHS will be used to finance home 
improvement loans to low- and moderate-income homeowners in distressed 
neighborhoods. The loan to CIC will be used to finance multi-family 
apartment buildings in low- to moderate-income communities. The bank's 
loan to IFF will be used to support mortgages to non-profit social 
service agencies.
    Post award activity.--Bank of America, Illinois is using $150,000 
of its award to make grants to low- and moderate-income home-buyers for 
downpayment assistance. In addition, the bank made $155,000 in grants 
to NHS, CIC, and IFF, and the Southland Community Development 
Corporation, a new loan fund in the Chicago area. The bank has also 
made available a total of $75,000 in grants to smaller community 
organizations--in particular, those focused on affordable housing, 
economic development, and education of disadvantaged youth. The bank 
will also make available grants up to $500 to community organizations 
nominated by bank employees.
Bank of Louisville, Louisville, Kentucky
    Award: $15,000
    Rewarded activities.--Bank of Louisville was awarded $15,000 for 
making an equity investment of $100,000 in the Louisville Development 
Bancorp. The Louisville Development Bancorp is a newly-established 
community development bank corporation and a certified CDFI that seeks 
to revitalize the Louisville Enterprise Community and surrounding 
neighborhoods.
    Post award activity.--Bank of Louisville plans to use its award to 
benefit the Louisville Development Bancorp in the form of a grant to 
its non-profit subsidiary.
Central Bank of Kansas City, Kansas City, Missouri
    Award: $99,869
    Rewarded activities.--Central Bank of Kansas City was awarded 
$99,869 for increasing its deposit-taking activities and consumer and 
commercial real estate, housing, and business loans in distressed 
neighborhoods. During the first six months of 1996, this bank provided 
more than $8.3 million in loans and services. In addition to 
facilitating neighborhood redevelopment through its single- and multi-
family housing activities, the bank made a significant loan to help a 
major manufacturer and employer remain in the community.
    Post award activity.--Central Bank of Kansas City is using its 
award to finance revitalization efforts in its neighborhood, which 
includes the distressed community designated in its BEA application. 
These efforts are focused on home improvement and rehabilitation 
lending. The award is, in part, being used to finance the 
rehabilitation of a former drug house in the neighborhood. The bank's 
$70,000 loan to a non-profit group at a concessionary interest rate 
accounts for 70 percent of the financing for this project. The bank 
expects to use the returns from this loan for other community 
development activities.
The Chase Manhattan Bank, New York, New York
    Award: $2,699,625
    Rewarded activities.--The Chase Manhattan Bank was awarded 
$2,699,625 for making nearly $18 million in investments in 14 
organizations that finance community development. The organizations 
receiving assistance are Low-lncome Housing Fund, Greater Jamaica Local 
Development Company, Community Loan Fund of New Jersey, Capital 
District Community Loan Fund, Nonprofit Facilities Fund, Leviticus 
25:23 Alternative Fund, Bethex Federal Credit Union, Lower East Side 
People's Federal Credit Union, New Community Federal Credit Union, 
Homesteaders Federal Credit Union, BHA Residents Community Development 
Federal Credit Union, Central Brooklyn Federal Credit Union, Parodneck 
Foundation, and Enterprise Social Investment Corporation.
    Post award activity.--The Chase Manhattan Bank is using its award 
to make grants to CDFI's in its service area through its CDFI Support 
Program. These grants can be used for capital and operating expenses 
and to serve as matching funds for CDFI's applying to the CDFI Program.
Citibank F.S.B. California Marketplace, San Francisco, California
    Award: $412,270
    Rewarded activities.--Citibank F.S.B. California Marketplace was 
awarded $412,270 for increasing its multi-family housing lending in a 
distressed neighborhood by more than $5.1 million. Citibank's efforts 
focused on financing two multi-family projects in Los Angeles developed 
by FAME Housing Development Corporation, a non-profit affiliate of the 
First African Methodist Church. Citibank also provided technical 
assistance to FAME Housing in structuring these transactions.
    Post award activity.--Citibank F.S.B. has established a loan pool 
with its award. This pool will loan funds at concessionary terms to 
community organizations for initiatives such as affordable housing and 
childcare centers in low-income communities.
Citibank N.A., New York, New York
    Award: $227,250
    Rewarded activities.--Citibank N.A. was awarded $227,250 for 
providing investments totaling $1,515,000 to 13 organizations serving 
distressed communities throughout the United States. The organizations 
receiving investments are ACCION New York, ACCION Texas, Chicago 
Community Loan Fund, FINCA, Florida Community Loan Fund, Illinois 
Facilities Fund, Institute for Community Economics, Leviticus 25:23 
Alternative Fund, Low-Income Housing Fund, McAuley Institute, New 
Jersey Community Loan Fund, Nonprofit Facilities Fund, Northern 
California Community Loan Fund, Washington Area Community Investment 
Fund, and the National Federation of Community Development Credit 
Unions.
    Post award activity.--Citibank N.A. is using its award for 
activities that help build the capacity and skills of CDFI's. Among 
these activities is a grant to the National Association of Community 
Development Loan Funds to launch a series of courses for CDFI staff and 
board members.
City National Bank of New Jersey, Newark, New Jersey
    Award: $162,065
    Rewarded activities.--City National Bank of New Jersey was awarded 
$162,065 for increasing its lending commitments in distressed 
neighborhoods by nearly $2 million. In the first six months of 1996, 
the bank committed loans totaling $3,367,000 to consumers and for 
commercial real estate, single-family housing, multi-family housing, 
and small businesses. City National Bank of New Jersey is a minority-
owned national bank.
    Post award activity.--City National Bank of New Jersey has not yet 
determined the use of its award. Currently, City National Bank of New 
Jersey is applying in the second round of the BEA Program for its 
increased loans for the purchase and renovation of one- to four-family 
homes.
Coast Federal Bank, West Hills, California
    Award: $149,709
    Rewarded activities.--Coast Federal Bank was awarded $149,709 for 
providing loans, grants, and technical assistance to the Clearinghouse 
CDFI and Los Angeles Neighborhood Housing Services. These CDFI's both 
promote the development of affordable housing in distressed 
neighborhoods throughout Southern California.
    Post award activity.--Coast Federal Bank is using its award as a 
reserve fund for affordable housing loans and is further supporting 
affordable housing in Southern California through its close 
relationships with the Clearinghouse CDFI and Los Angeles Neighborhood 
Housing Services. Bank officials serve on the governing board of each 
of the CDFI's; the bank has helped in fundraising and has made 
operating grants and in-kind contributions to each. Additionally, the 
bank is encouraging other financial institutions to support CDFI's by 
disseminating information about the BEA Program.
Cole Taylor Bank, Wheeling, Illinois
    Award: $115,500
    Rewarded activities.--Cole Taylor Bank was awarded $115,500 for 
making $1,050,000 in loans to the Illinois Facilities Fund (IFF) and 
Chicago Community Loan Fund (CCLF), both certified CDFI's. IFF makes 
real estate loans to non-profit social service agencies. The proceeds 
from Cole Taylor Bank's loan to IFF will be used to finance projects in 
Chicago's near west and lower west sides and Humbolt Park. CCLF 
finances affordable housing and economic development projects.
    Post award activity.--Cole Taylor Bank's award has acted as an 
encouragement of further community development activities. The bank is 
currently contributing toward Neighborhood Housing Services of 
Chicago's goal of opening 20 new offices in the city. Specifically, 
Cole Taylor Bank is supporting the office in the Back of the Yards 
neighborhood by providing operational support, participating in a 
revolving loan fund for flexible and low-cost home improvement 
financing, and developing a new affordable homes construction project.
Community Capital Bank, Brooklyn, New York
    Award: $215,461
    Rewarded activities.--Community Capital Bank provides business, 
housing, and commercial loans to projects in distressed communities 
throughout New York City. In the first six months of 1996, Community 
Capital Bank provided nearly $2.6 million in loans for small business 
development and affordable housing construction and support for 
entrepreneurial development initiatives among public housing residents. 
Community Capital Bank was awarded $215,461 for increasing its lending 
activities during this period.
    Post award activity.--Community Capital Bank, a certified CDFI, is 
using its award to increase its capacity to make loans in distressed 
communities. Activities toward this end include increasing loan staff 
and improving accounting controls with the assistance of an outside 
consultant. In addition, the award has helped the bank maintain its 
preferential interest rates on loans made to non-profit organizations.
First National Bank of Chicago, Chicago, Illinois
    Award: $322,230
    Rewarded activities.--First National Bank of Chicago was awarded 
$322,230 for making a $1,998,200 investment in The Shorebank 
Corporation (Shorebank) and a $150,000 capital grant to Neighborhood 
Housing Services (NHS) of Chicago, both certified CDFI's. Shorebank, 
based in Chicago's south side, is a bank holding company that serves 
numerous distressed communities. First National's investment enabled 
Shorebank to acquire Indecorp and expand its service area to nine new 
neighborhoods in the south and mid-south sides of Chicago. The grant to 
NHS of Chicago will serve as a capital infusion for its revolving loan 
fund to support home improvement and rehabilitation loans and loans to 
people unable to obtain traditional mortgage financing.
    Post award activity.--First National Bank of Chicago will use 
$150,000 of its award to make ``equity-equivalent'' investments in the 
Chicago Community Loan Fund and the Chicago Association of Neighborhood 
Development Organizations' Self-Employment Loan Fund, both certified 
CDFI's. The bank expects that these investments will leverage an 
additional $300,000 for the community groups.
First Union National Bank of D.C., Washington, District of Columbia
    Award: $274,550
    Rewarded activities.--First Union National Bank of D.C. (First 
Union) was awarded $274,550 for increasing its multi-family housing 
lending in several distressed neighborhoods. In partnership with local 
community development corporations, the bank made loans totaling more 
than $5.6 million, including financing a 177-unit apartment building.
    Post award activity.--First Union plans to use a portion of its 
award to make a loan to a local CDFI. This loan will be unusual for 
First Union but, because of the availability of the BEA award, will be 
feasible at an interest rate favorable to the CDFI. Through the CDFI, 
loan funds will be made available to other community groups for 
predevelopment costs.
Fullerton Savings and Loan Association, Fullerton, California
    Award: $39,600
    Rewarded activities.--Fullerton Savings and Loan Association 
(Fullerton) was awarded $39,600 for increasing its single-family and 
multi-family housing lending in three distressed communities. Fullerton 
made a total of $520,000 in loans to neighborhoods located in Santa Ana 
and elsewhere in Orange County.
    Post award activity.--Fullerton used its award to make a grant to a 
local housing development non-profit organization. The grant will be 
used for the operating costs of developing affordable single-family 
infill housing in Anaheim. It will also be used, if needed, to provide 
second mortgages for the new housing.
Gateway National Bank of St. Louis, St. Louis, Missouri
    Award: $26,038
    Rewarded activities.--Gateway National Bank, the only minority-
owned bank to be incorporated and operated in the state of Missouri, 
was awarded $78,116 for increasing its deposit-taking and lending 
activities during the first six months of 1996. Gateway National Bank 
is located and serves neighborhoods in the northern portion of St. 
Louis.
    Post award activity.--Gateway National Bank has used its award to 
expand its capital base to meet community needs, including business and 
housing lending.
Great Financial Bank, Louisville, Kentucky
    Award: $22,500
    Rewarded activities.--Great Financial Bank was awarded $22,500 for 
making an equity investment of $150,000 in the Louisville Development 
Bancorp. The Louisville Development Bancorp is a newly established 
community development bank corporation that seeks to revitalize the 
Louisville Enterprise Community and surrounding neighborhoods.
    Post award activity.--Great Financial Bank has used its award to 
benefit the Louisville Development Bancorp in the form of a grant to 
its non-profit subsidiary.
Hibernia National Bank, New Orleans, Louisiana
    Award: $5,875
    Rewarded activities.--In late 1995, Hibernia National Bank 
(Hibernia) adopted two neighborhoods as part of the City of New 
Orleans' Impact Neighborhood Program. Hibernia was awarded $5,875 for 
increasing its small business lending, loans to non-profit 
organizations engaging in affordable housing activities, and technical 
assistance activities in these neighborhoods during the first six 
months of 1996. As part of this effort, Hibernia provided financial 
support to three non-profit organizations that conduct home-buyer 
training programs for residents of these targeted neighborhoods.
    Post award activity.--Hibernia has made its award available to five 
community development corporations to use as matching funds for a grant 
program sponsored by the Federal Home Loan Bank of Dallas. The $500 to 
$2,200 grants made by Hibernia will be leveraged up to a total of 
$29,900 for non-profit organizations in Baton Rouge, New Orleans, and 
Shreveport focused on affordable housing and homebuyer training.
Household Bank, f.s.b., Wood Dale, Illinois
    Award: $88,090
    Rewarded activities.--Household Bank, f.s.b. was awarded $88,090 
for making a $588,000 investment in Sable Bancshares, a certified CDFI. 
The investment enabled Sable Bancshares to acquire the Community Bank 
of Lawndale, an African American-owned bank which serves distressed 
neighborhoods in Chicago, for the purpose of converting it into a 
community development bank. Sable Bancshares has also established a 
subsidiary, REG Community Development Corporation, to promote housing 
and business development.
    Post award activity.--Household Bank, f.s.b. plans to use its award 
for community development purposes. The use of the award is currently 
being determined through a strategic planning process.
Key Bank of Maine, Portland, Maine
    Award: $37,500
    Rewarded activities.--Key Bank of Maine (Key Bank) was awarded 
$37,500 for making a $250,000 investment in Coastal Ventures Limited 
Partnership (CVLP), a subsidiary of Coastal Enterprises, Inc., a 
certified CDFI. The bank's investment will create jobs by providing 
venture capital to small businesses for start-up and expansion.
    Post award activity.--Key Bank plans to use its entire award for 
community development purposes. Part of the award is being used to 
support a Small Business Information Center in Lewiston, Maine in 
partnership with the U.S. Small Business Administration. An additional 
part is being used to capitalize an affordable housing loan pool in 
conjunction with other lenders.
National City Bank of Columbus, Columbus, Ohio
    Award: $275,000
    Rewarded activities.--National City Bank of Columbus (National 
City) was awarded $275,000 for providing a $2.5 million line of credit 
to the Columbus Growth Fund, a certified CDFI, to be used to provide 
gap financing for businesses. This financing will enable businesses to 
expand and create jobs for residents of targeted neighborhoods. 
National City was the lead bank in a partnership with four other 
financial institutions to establish the Columbus Growth Fund. The City 
of Columbus is also supporting the effort by capitalizing a loan loss 
reserve for the Columbus Growth Fund.
    Post award activity.--National City has used its award to make a 
grant to the Columbus Growth Fund. The grant serves as additional 
equity for the Columbus Growth Fund, allowing it to leverage additional 
funds in the form of bank loans.
National City Bank of Kentucky, Louisville, Kentucky
    Award: $37,500
    Rewarded activities.--National City Bank of Kentucky was awarded 
$37,500 for making an equity investment of $250,000 in the Louisville 
Development Bancorp, a certified CDFI. The Louisville Development 
Bancorp is a newly established community development bank corporation 
that seeks to revitalize the Louisville Enterprise Community and 
surrounding neighborhoods.
    Post award activity.--National City Bank of Kentucky has used its 
award to benefit the Louisville Development Bancorp in the form of a 
grant to its non-profit subsidiary.
Nationsbank, N.A., Charlotte, North Carolina
    Award: $1,614,690
    Rewarded activities.--Nationsbank, N.A. was awarded $1,614,690 for 
making nearly $10.5 million in investments in the National Community 
Investment Fund (NCIF) and the Enterprise Social Investment Corporation 
(ESIC) and a $420,000 loan to the Low-income Housing Fund (LIHF). NCIF 
will use its support to invest in community development banks. The ESIC 
investment will expand and improve employment opportunities by 
encouraging investments in businesses that employ residents of the 
Baltimore Empowerment Zone. LIHF, a certified CDFI funded in the first 
round of the CDFI Program, will use its loan proceeds to finance non-
profit sponsors of affordable housing.
    Post award activity.--Nationsbank, N.A. is using its award to 
expand its existing community development programs throughout the 
franchise in 16 states and the District of Columbia. These activities 
include using funds to purchase and demolish a low-rise apartment 
building in Atlanta's Martin Luther King Historic District so that 
affordable, single-family homes can be constructed to complete the 
revitalization of the block. It will also be used to establish 
community development activities in new markets including St. Louis, 
Missouri and Tampa/St. Petersburg, Florida and to subsidize below-
market rate lending to CDFI's.
Nationsbank, N.A. (South), Atlanta, Georgia
    Award: $1,199,275
    Rewarded activities.--Nationsbank, N.A. (South) was awarded 
$1,199,275 for making $7.8 million in investments in the National 
Community Investment Fund (NCIF) and the Enterprise Social Investment 
Corporation (ESIC) and a $312,000 loan to the Low-Income Housing Fund 
(LIHF). NCIF will use its support to invest in community development 
banks. The ESIC investment will expand and improve employment 
opportunities through encouraging investments in businesses that employ 
residents of the Baltimore Empowerment Zone. LIHF, a certified CDFI 
funded in the first round of the CDFI Program, will use its loan 
proceeds to finance non-profit sponsors of affordable housing.
    Post award activity.--Nationsbank, N.A. (South) is using its award 
to expand its existing community development programs throughout the 
franchise in 16 states and the District of Columbia. These activities 
include using funds to purchase and demolish a low-rise apartment 
building in Atlanta's Martin Luther King Historic District so that 
affordable, single-family homes can be constructed to complete the 
revitalization of the block. It will also be used to establish 
community development activities in new markets including St. Louis, 
Missouri and Tampa/St. Petersburg, Florida and to subsidize below-
market rate lending to CDFI's.
Nationsbank of Texas, N.A., Dallas, Texas
    Award: $1,036,035
    Rewarded activities.--Nationsbank of Texas, N.A. was awarded 
$1,036,035 for making $6.7 million in investments to the National 
Community Investment Fund (NCIF) and the Enterprise Social Investment 
Corporation (ESIC) and a $270,000 loan to the Low-Income Housing Fund 
(LIHF). NCIF will use its support to invest in community development 
banks. The ESIC investment will expand and improve employment 
opportunities through encouraging investments in businesses that employ 
residents of the Baltimore Empowerment Zone. LIHF, a certified CDFI 
funded in the first round of the CDFI Program, will use its loan 
proceeds to finance non-profit sponsors of affordable housing.
    Post award activity.--Nationsbank of Texas, N.A. is using its award 
to expand its existing community development programs throughout the 
franchise in 16 states and the District of Columbia. These activities 
include using funds to purchase and demolish a low-rise apartment 
building in Atlanta's Martin Luther King Historic District so that 
affordable, single-family homes can be constructed to complete the 
revitalization of the block. It will also be used to establish 
community development activities in new markets including St. Louis, 
Missouri and Tampa/St. Petersburg, Florida and to subsidize below-
market rate lending to CDFI's.
North Shore Bank, Brookfield, Wisconsin
    Award: $6,036
    Rewarded activities.--North Shore Bank was awarded $6,036 for 
increasing its single-family housing acquisition and rehabilitation 
loans in distressed neighborhoods in central Milwaukee. During the 
first six months of 1996, the bank made a total of $373,000 in loans 
for activities undertaken as part of the Milwaukee Affordable Housing 
Initiative.
    Post award activity.--North Shore Bank plans to use its award to 
assist low-income first-time home-buyers in its distressed community. 
It will do this through grants to help with downpayments and closing 
costs or by helping new homeowners purchase needed equipment to 
maintain their homes. Additionally, the bank has continued its support 
of the Milwaukee Affordable Housing Initiative and has shown further 
commitment to the central city through the completion of a new, full-
service office on King Drive.
Northern Trust Company, Chicago, Illinois
    Award: $88,090
    Rewarded activities.--Northern Trust Company was awarded $93,713 
for making a $624,750 investment in Sable Bancshares. The investment by 
Northern Trust Company enabled Sable Bancshares to acquire the 
Community Bank of Lawndale, an African American-owned bank which serves 
distressed neighborhoods in Chicago, for the purpose of converting it 
into a community development bank. Sable Bancshares has also 
established a subsidiary, REG Community Development Corporation, to 
promote housing and business development.
    Post award activity.--Northern Trust Company has committed its 
award as part of a package of support to Neighborhood Housing Services 
of Chicago, a certified CDFI, to open a new office in the Auburn-
Gresham neighborhood. Northern Trust Company's support includes a $3.5 
million loan, $1.5 million in subordinated debt, and a three-year 
$150,000 grant to help meet the operating costs of the office. The new 
office will focus on renovating single-family homes in this 
neighborhood in transition.
Northwest Bank, Oklahoma City, Oklahoma
    Award: $3,918
    Rewarded activities.--Northwest Bank was awarded $3,918 for 
providing operating grants totaling $35,618 to Neighborhood Housing 
Services (NHS) of Oklahoma City. NHS of Oklahoma City, a certified 
CDFI, promotes homeownership in targeted neighborhoods through 
assistance with downpayments, closing costs, and other administrative 
expenses.
    Post award activity.--Northwest Bank is using its award to fund 
community development activities through its Near Northwest Community 
Development Corporation. The bank participates in community development 
activities in Oklahoma City through partnerships with the city and 
local organizations. The bank is also lending in the Paseo area, a 
historic district with a large number of small multi-family housing 
units.
Norwest Bank, New Mexico, Albuquerque, New Mexico
    Award: $5,750
    Rewarded activities.--Norwest Bank, New Mexico was awarded $5,750 
for making a $50,000 loan and a $5,000 capital grant to the New Mexico 
Community Development Loan Fund (NMCDLF). Through its partnership with 
the bank, NMCDLF will make loans to small businesses and 
microentrepreneurs.
    Post award activity.--Norwest Bank has provided its award dollars 
as a grant to NMCDLF for small and micro-business lending.
PNC Bank, Kentucky, Inc., Louisville, Kentucky
    Award: $75,000
    Rewarded activities.--PNC Bank, Kentucky, Inc. was awarded $75,000 
for making an equity investment of $500,000 in the Louisville 
Development Bancorp. The Louisville Development Bancorp, a certified 
CDFI, is a newly established community development bank corporation 
that seeks to revitalize the Louisville Enterprise Community and 
surrounding neighborhoods.
    Post award activity.--PNC Bank, Kentucky, Inc. donated its award to 
the LCDB Enterprise Group, a non-profit affiliate of the Louisville 
Community Development Bancorp. The grant will help fund a business 
center to assist new and emerging small businesses in western 
Louisville.
Regency Savings Bank, F.S.B., Naperville, Illinois
    Award: $77,250
    Rewarded activities.--Regency Savings Bank, F.S.B. was awarded 
$77,250 for making a $515,000 equity investment in The Shorebank 
Corporation (Shorebank). Shorebank is a bank holding company, a 
certified CDFI, that serves numerous distressed communities and is 
based on the south side of Chicago. The bank's investment enabled 
Shorebank to acquire Indecorp and expand its service area to nine new 
neighborhoods in the south and mid-south sides of Chicago.
    Post award activity.--Regency Savings Bank, F.S.B. has used its 
award to partially offset its equity investment in Shorebank.
Republic National Bank of New York, New York, New York
    Award: $519,659
    Rewarded activities.--Republic National Bank of New York (Republic) 
was awarded $519,659 for providing loans and operating grants totaling 
$5,196,592 to 21 community development organizations. The institutions 
assisted include Bethex Federal Credit Union, Central Brooklyn Federal 
Credit Union, Corporation for Supportive Housing, Greater Jamaica Local 
Development Company, Homesteaders Federal Credit Union, Leviticus 25:23 
Alternative Fund, Local Initiatives Support Corporation, Lower East 
Side Peoples Federal Credit Union, Nonprofit Facilities Fund, Parodneck 
Foundation, Union Settlement Federal Credit Union, Washington Heights 
Inwood Development Corporation, Enterprise Foundation, and Upper 
Manhattan Community Development Credit Union.
    Post award activity.--Republic will use its award to leverage an 
additional $5 million in economic development and small business 
lending in low- and moderate-income communities. In this way, its BEA 
award will be leveraged nearly 10 times over in the form of new 
lending. The award dollars will be used to provide below market rates 
or act as a loan loss reserve for loans Republic will make to non-
profit economic development organizations over the next few years.
St. Francis Bank, F.S.B., Milwaukee, Wisconsin
    Award: $11,498
    Rewarded activities.--St. Francis Bank, F.S.B. was awarded $11,498 
for increasing its single-family housing acquisition and rehabilitation 
loans in distressed neighborhoods of central city Milwaukee. During the 
first six months of 1996, the bank made a total of $675,000 in loans 
for activities undertaken as part of the Milwaukee Affordable Housing 
Initiative.
    Post award activity.--St. Francis Bank, F.S.B. has used its award 
to expand its community lending efforts, including outreach to the 
Milwaukee area's Spanish-speaking residents. These efforts include 
developing new programs, marketing, and offering home-buyer seminars.
Stock Yards Bank & Trust Company, Louisville, Kentucky
    Award: $3,750
    Rewarded activities.--Stock Yards Bank & Trust Company was awarded 
$3,750 for making an equity investment of $25,000 in the Louisville 
Development Bancorp. The Louisville Development Bancorp is a newly 
established community development bank corporation, a certified CDFI, 
that seeks to revitalize the Louisville Enterprise Community and 
surrounding neighborhoods.
    Post award activity.--Stock Yards Bank & Trust Company donated its 
award to the LCDB Enterprise Group, the non-profit affiliate of the 
Louisville Community Development Bancorp. The grant will help fund a 
business center to assist new and emerging small businesses in western 
Louisville.
Troy Savings Bank, Troy, New York
    Award: $389,859
    Rewarded activities.--The Troy Savings Bank was awarded $389,859 
for increasing its lending within distressed neighborhoods of Troy, 
Albany, and Schenectady by $4.8 million. In the first six months of 
1996, the bank made over $8 million in loans for housing, small 
businesses, and consumer products. The bank's efforts also included 
grants and technical assistance to support first-time home-buyers in 
the region.
    Post award activity.--Troy Savings Bank has created a Small 
Business Investment Company (SBIC), whose license is currently pending 
with the U.S. Small Business Administration, to foster the growth of 
small businesses in the capital region. Through the SBIC, the bank will 
set aside $500,000, capitalized in part with its BEA award, for 
investment in businesses that agree to locate in the distressed 
communities designated in the bank's BEA application. Additionally, the 
bank is active in promoting affordable housing in its service area; it 
is one of the first institutions to participate in the Federal Home 
Loan Bank of New York's First Home Club Program, which provides funds 
to match the savings of low-income prospective home-buyers.
Vine Street Trust Company, Lexington, Kentucky
    Award: $55,000
    Rewarded activities.--Vine Street Trust Company was awarded $55,000 
for making a $500,000 loan to Community Ventures Corporation (CVC) to 
serve Lexington's highest poverty area. Vine Street Trust Company and 
CVC will serve this area by focusing on helping low-income people 
access financing for affordable housing.
    Post award activity.--Vine Street Trust Company has decided to pass 
the award on to CVC to serve as a loan loss reserve and to cover a 
portion of CVC's operating overhead expenses.
Wells Fargo Bank of Texas, N.A. (formerly First Interstate Bank of 
        Texas), Houston, Texas
    Award: $97,500
    Rewarded activities.--Wells Fargo Bank of Texas, N.A. was awarded 
$97,500 for making investments totaling $650,000 in the Southern Dallas 
Development Corporation and the Greater Houston Small Business Equity 
Fund, Inc. Both of these certified CDFI's provide financing and 
technical assistance to small and minority-owned businesses.
    Post award activity.--Wells Fargo Bank of Texas, N.A. has not yet 
determined how it will use its award. The bank's community development 
activities include support to organizations in communities in which 
they do business, including Alliance Capital of Houston, Austin 
Community Development Corporation, Dallas Inner City Development 
Corporation, and Fort Worth Community Development Corporation. The bank 
has also supported the Local Initiatives Support Corporation's National 
Equity Fund.
                                 ______
                                 


                              Attachment 8
 first round experience--issues that often separated competitive from 
                      non-competitive applications
Track Record, Financial Strength and Current Operations
    Is there a pattern of positive net operating income?
    Is net worth as percentage of assets reasonable in context of 
institution's activities?
    Are delinquency rates under control, in the context of type of 
lending?
    Are loss rates under control, in the context of type of lending?
    What is the fund raising track record?
    Does the organization have a good process for strategic assessment 
and planning?
    Is there a periodic portfolio review, with risk rating?
    Does organization consistently generate monthly internal 
financials?
    Are audit opinions clean, or are they qualified?
    Is there demonstrable track record of development impacts?
    Is there a track record of innovation in the marketplace?
Capacity, Skills and Experience of Management Team
    What is the track record of accomplishment of individual management 
team members?
    What is the relationship of skills and experience to tasks of 
business plan?
    Is appropriate staff identified for new activities?
    Is there an appropriate mix of skills?
    How well do management team members work with each other?
    Is staff adequate or is it stretched too thin?
    Is there an appropriate compensation structure for attracting and 
retaining needed staff?
    What is the level of personal commitments of management team 
members?
    What is the contribution of Board?
    Are relationships between staff end Board effective?
    What is the track record and capacity of management team members to 
adapt to change?
Quality of Business plan
    Is the business plan clear, well developed and internally 
consistent?
    What is the quality of market analysis?
    Is there clarity about future products and services?
    Is development strategy well thought out?
    Are there appropriate links between products/services, market 
analysis, and development strategy?
    Are future staffing plans adequate, with respect to number and 
skill level?
    Is there appropriate meshing between lending and technical 
assistance?
    Is pricing strategy well thought out?
    Is process and criteria for evaluating deals appropriate?
    Is risk appropriately included in evaluation?
    Is there a reasonable balance between financial and social 
objectives?
    Are projections reasonable or too aggressive?
    Are assumptions for projections clearly delineated?
    Are loss assumptions reasonable?
    Are future staffing needs appropriately reflected in projections?
    Do financial projections reconcile?
    Are projections consistent with business plan narrative?
    Do realistic projections show ongoing viability?
    Is plan viable if performance varies from projections?
    Is proposed capital structure appropriate?
    If consultant is used, is use appropriate?
Matching Funds
    Are commitments in hand, or if not, is there a viable fund raising 
strategy?
    Are matching funds comparable in form and value to financial 
assistance requested?
    Is business plan dependent on unrealistic match?
    Does prior fund raising track record provide confidence about 
prospects for securing match?
Community Development Impact as Return on CDFI Fund Investment
    Are community development objectives well defined and clearly 
focused?
    Is there clarity on how CDFI Fund can enhance impact?
    Is there a realistic plan to sustain impact of CDFI Fund 
investment?
    What is the prospective leverage of other resources?
    What is the scale of activity?
    What are prospects for innovation?
    What is the level of distress of target market, and are products 
suitable to address needs?
    Is institution well connected to community?
    What does track record, management, business plan quality suggest 
about development impact?
    What is the ``bang for the buck?''


                  NATIONAL CREDIT UNION ADMINISTRATION

STATEMENTS OF NORMAN E. D'AMOURS, CHAIRMAN

                 NEIGHBORHOOD REINVESTMENT CORPORATION

STATEMENT OF GEORGE KNIGHT, EXECUTIVE DIRECTOR
ACCOMPANIED BY MARY LEE WIDENER, PRESIDENT, NEIGHBORHOOD HOUSING 
            SERVICES OF AMERICA, INC.

                            OPENING REMARKS

    Senator Bond. Our third panel, Mr. Norm D'Amours, Chairman 
of the National Credit Union Administration, and Mr. George 
Knight, Executive Director of the Neighborhood Reinvestment 
Corporation. As we all know, NCUA is responsible for chartering 
and regulating Federal credit unions, itself funded through an 
operating fee. Second, Mr. Knight will testify on the 
administration's budget request for Neighborhood Reinvestment 
Corporation for a flat funding of $50 million, these funding 
not-for-profits known as NeighborWorks' Network. 
They have a long track record and have become a good model of 
how the Federal Government can spend a small amount of money 
and reap tremendous benefits. As the written testimony so well 
demonstrates, $38.7 million in fiscal year 1996 allowed the 
Neighborhood Reinvestment and NeighborWorks' to 
leverage $420 million in affordable housing investments.
    I look forward to the testimony. Mr. D'Amours.

                    STATEMENT OF NORMAN E. D'AMOURS

    Mr. D'Amours. Thank you, Chairman Bond and Senator 
Mikulski. Thanks for the opportunity to present our request 
today for funding limits on the NCUA's central liquidity 
facility, called the CLF, at current levels. As you know, the 
CLF is a liquidity source for credit unions. It is funded by 
its members, and can borrow from the Federal financing bank, 
even though no such borrowing has occurred in the last year.
    For fiscal year 1998 we request a $600 million limit on new 
loans, and a $203,000 limit on administrative expenditures. The 
requested loan limit has remained constant for 17 years. It 
should be noted that NCUA is not requesting an appropriation 
for the CLF, merely a limit on its borrowings.
    I am pleased to report to the subcommittee that we continue 
to streamline the CLF. The result is cost savings for Federal 
credit unions.
    Our expenses in fiscal year 1996 of $346,000 were 
significantly less than our budget limitation of $546,000. The 
fiscal year 1996 expenses are more than 50 percent below the 
CLF expenses of $767,000 for fiscal year 1993. All of CLF's net 
income in 1996 was returned to member credit unions in the form 
of capital stock dividends.
    In our estimation, the $600 million loan limit we are 
requesting is adequate to address unexpected liquidity needs in 
what is a very healthy and viable credit union system today. 
The request is less than 3.55 percent of the limit set by 
statute, which is 12 times paid in oncall capital or an amount 
of approximately $17 billion. The borrowing authority is not 
used to build up loan volumes, because by statute the proceeds 
from CLF cannot be used to expand credit union loan portfolios. 
Rather, these funds are advanced strictly to support the 
purposes stated in the Federal Credit Union Act, and in 
response to circumstances dictated by market events.
    Loan demand over the years has resulted in wide variances 
in the amount of outstanding CLF loan balances and individual 
advances. The relatively low utilization of our total authority 
can be viewed as a positive sign of credit unions' present 
financial condition. By the end of 1996, all loans were repaid 
and no direct loans were outstanding. However, because of a 
liquidity shortage involving one of the corporate credit 
unions, the CLF became an active liquidity center from December 
1994 through February 1995. In that time, we made 601 loans 
totaling $389 million. The majority, 509 of them, were 
overnight loans.
    As intended by Congress, the CLF acted successfully to 
provide liquidity and to maintain financial stability during a 
temporary liquidity shortage.
    Mr. Chairman, Senator Mikulski, we respectfully request 
that you support our authorization request in order to continue 
the NCUA's and CLF's ability to respond to such adverse 
liquidity situations. And that completes my oral statement. I 
would ask that my full statement be included in the record.
    Senator Bond. Without objection, it will be made part of 
the record.
    [The statement follows:]

                Prepared Statement of Norman E. D'Amours

    Mr. Chairman and Subcommittee Members. I want to thank you for the 
opportunity to present our request for funding limits on the NCUA 
Central Liquidity Facility (CLF) at current levels. Appearing with me 
today are Herbert S. Yolles, President, Central Liquidity Facility; 
Robert M. Fenner, General Counsel; David Marquis, Director of our 
Office of Examination and Insurance; and William C. Poling, our Budget 
Officer. Mr. Chairman, as you know, the CLF is a liquidity source for 
credit unions. It is funded by its members and can borrow from the 
Federal Financing Bank, even though no such borrowing has occurred in 
the past year.
    For fiscal year 1998, we request a $600 million limit on new loans 
and a $203,000 limit on administrative expenditures. The requested loan 
limit has remained constant for the last 17 years. It should be noted 
that NCUA is not requesting an appropriation for the CLF, merely 
limits.
    I am pleased to report to the subcommittee that we continue to 
streamline the CLF. The result is cost savings for credit unions. Our 
expenses in fiscal year 1996 of $346,000 were significantly less than 
our budget limitation of $546,000. The fiscal year 1996 expenses are 
more than 50 percent below the CLF expenses of $767,000 for fiscal year 
1993. All of CLF's net income in 1996 was returned to member credit 
unions in the form of capital stock dividends.
    In our estimation, the $600 million loan limit is adequate to 
address unexpected liquidity needs in credit unions. The request is 
less than 3.55 percent of the limit set by statute--12 times paid-in 
and on-call capital or $17 billion. The borrowing authority is not used 
to build up loan volumes because by statute the proceeds from CLF loans 
cannot be used to expand credit union loan portfolios. Rather, the 
funds are advanced strictly to support the purposes stated in the 
Federal Credit Union Act and in response to circumstances dictated by 
market events.
    Loan demand over the years has resulted in wide variances in the 
amount of outstanding CLF loan balances and individual advances. The 
relatively low utilization of our total authority can be viewed as a 
positive sign of credit unions' present financial condition. By the end 
of 1996, all loans were repaid and no direct loans were outstanding. 
However, because of a liquidity shortage involving one of the corporate 
credit unions, the CLF became an active liquidity lender from December 
1994 through February 1995. The CLF made 601 loans totaling $389.8 
million; the majority (509) were overnight loans.
    As intended by Congress, the CLF acted successfully to provide 
liquidity and maintain financial stability during a temporary liquidity 
shortage. Mr. Chairman, we respectively request that you support our 
authorization request in order to continue the NCUA's and CLF's ability 
to respond to such adverse liquidity situations.
    Mr. Chairman and members of the subcommittee, the credit union 
movement continues to focus on its mission of involving more people in 
America's free enterprise economy. By instilling habits of thrift and 
teaching the value and workings of financial discipline, credit unions 
are still fulfilling the mandate Congress gave them over 60 years ago. 
At NCUA, our strong commitment to the future of credit unions serving 
people of limited means remains as resolute as when I last reported to 
the subcommittee.
    For fiscal year 1997, the subcommittee approved a $1 million 
appropriation to be utilized by the Community Development Revolving 
Loan Program (CDRLP), which NCUA has administered since 1987. By any 
objective standard, the CDRLP has been an overwhelming success and 
deserving of continued Congressional support. A $2 million 
authorization, the last of a four year $10 million authorization 
(Public Law 103-325), remains for fiscal year 1998.
    Since NCUA began making loans from an original $6 million 
appropriation (now a $7 million total), we have revolved $14.4 million 
in 113 separate loans to 79 low-income credit unions. In 1996 alone we 
approved $2.9 million in loans and currently we have 6 loan 
applications for $1.4 million in funding.
    The credit unions use these loans for a variety of different 
purposes from housing rehabilitation and consumer loans to micro-
enterprise lending. We expect loan demand to increase smartly as the 
year proceeds. We have had one loss in the Revolving Loan Program for 
$35,000.
    At mid-year 1996 we recognized 298 low-income credit unions, which 
translated to a 27 percent annualized growth rate. I am proud to say 
that 13 newly state and federally chartered credit unions in 1996 
gained the low-income designation. Total assets in these financial 
cooperatives are $1.8 billion at mid-year 1996 and loan growth was 13.2 
percent. The capital ratio is a strong 11.1 percent and loan 
delinquencies (loans 60 days and more overdue) are within reasonable 
bounds at 2 percent.
    In May 1994, the NCUA adopted a new chartering and field of 
membership manual for credit unions replacing our previous version. 
These changes are set forth in Interpretive Ruling and Policy Statement 
(IRPS) 94-1 that became effective in July 1994. Changes contained in 
IRPS 94-1 allow greater flexibility for credit unions wishing to expand 
into low-income areas and make it easier for low-income credit unions 
(LICU's) to expand their fields of membership and associate themselves 
with other credit unions.
    This initiative has been one of the more important actions taken by 
the Board to encourage larger, healthy credit unions to directly reach 
out into low-income communities to give residents a non-profit 
alternative to pawn shops, check cashing outlets and the like. In this 
way people are brought into the mainstream of the U.S. economy in a 
self empowering and responsible manner.
    From July 1994 until October 1996 NCUA had granted 73 federal 
credit unions permission to open branches in these distressed 
neighborhoods and make their services available to a potential of 1.4 
million low-income residents. However, following a decision from the 
U.S. Court of Appeals for the District of Columbia and then an 
injunction from the District Court, NCUA has had to halt this 
innovative approach for providing low cost financial services to those 
who need it the most.
    The ability of credit unions to add low-income groups to their 
field of membership arises from an interpretation of the Federal Credit 
Union Act NCUA made in 1982 to allow more than one group with each 
group having a common bond be part of a credit union. The banks have 
successfully challenged this interpretation of the Act and we are 
currently waiting to see if the Supreme Court will take up an appeal.
    As I will testify before the Financial Institutions Subcommittee of 
the House Banking Committee tomorrow, NCUA believes Congress should not 
wait for the Supreme Court to rule, but change the Federal Credit Union 
Act to allow initiatives, like the one described above, to move 
forward. In doing so, Congress will also codify two essential purposes, 
or rather benefits, of the 1982 policy change: (1) by permitting 
diversity within the membership of federal credit unions, the policy 
provides a strong measure of protection against difficult economic 
conditions that affect particular groups, industries or the reality of 
military downsizing with the abatement of the cold war; and (2) it 
makes credit union service available to individuals who otherwise do 
not have access to it, such as members of groups too small to run and 
support a viable credit union on their own.
    The NCUA Board continues to explore ways to bolster low-income 
credit unions. Early last year, the Board voted unanimously to adopt a 
new interim rule permitting LICU's to immediately accept secondary 
capital funds from institutional investors. The additional capital will 
be used to support increased lending and services and provide 
additional ``matching funds'' for credit unions applying for assistance 
from the Community Development Financial Institutions Fund (Public Law 
103-325).
    The rule includes safety and soundness measures to ensure that 
depositors and participating credit unions are aware of the nature and 
risk associated with these accounts. For instance, the secondary 
capital is not insured by the federal government and this fact must be 
disclosed to investors.
    In September 1996, the NCUA Board adopted a change to our Rules and 
Regulations that removed the current cap of $120,000 for technical 
assistance, which is drawn from the earnings of the Revolving Loan Fund 
to aid LICU's. The Board believes that technical assistance is a vital 
component of the Revolving Loan Program and since 1992 we have 
disbursed 216 technical assistance grants totaling some $500,000.
    I am particularly proud of the credit union movement coming 
together for a conference held last August in Chicago. The gathering, 
known among credit unions as the ``Serving the Underserved'' 
conference, was dedicated to bringing together credit unions of all 
sizes to learn how to break down the barriers keeping people from 
becoming a part of the American, free enterprise system. The conference 
was a tremendous success.
    Mr. Chairman, I want to briefly update you on the overall condition 
of our nation's credit unions and their federal insurance fund. 
Overall, the credit union industry continues to be in excellent health.
    The National Credit Union Share Insurance Fund (NCUSIF) had its 
best operating year in its 26-year history during 1996. For the second 
consecutive year (and the third year in its history), the Fund paid 
credit unions a dividend on their 1 percent deposit into the Fund. The 
equity level at October 1996 exceeded the statutory ceiling of 1.3 
percent or $1.30 per $100 in insured shares (deposits), so NCUA 
returned a dividend totaling $102.8 million to federally insured credit 
unions. We returned a $103.9 million dividend during 1995.
    Meanwhile, the number of problem credit unions (CAMEL supervisory 
rating 4 or 5) has continued to decline each year from 1,022 in 1988 to 
a record low 286 at yearend 1996. Deposits in these problem credit 
unions represented just 0.67 percent of total insured deposits in 1996, 
compared to 6 percent of the total in 1988.
    The number of credit union failures during 1996 fell to a record 
low for the third consecutive year, dropping to 19, and requiring the 
Fund to payout $2.3 million, also a record low. The previous lows were 
22 failures in 1995, requiring $11 million in member payouts.
    Since Congress established federal share insurance for credit 
unions, the insurance fund has never had a losing year. Moreover, since 
credit unions voluntarily recapitalized their insurance fund in 1985, 
its equity level has ranged between 1.25 to 1.30 percent. The current 
level is 1.28 percent, and we are projecting that it will again climb 
to 1.30 percent by yearend 1997.
    During 1996, federally insured credit unions performed admirably by 
all objective standards. The yearend 1996 call report data have just 
arrived at the agency and the preliminary data show that total industry 
assets at the 11,429 federally insured credit unions rose 6.9 percent 
to $327 billion. Capital accumulated at the rate of 11.1 percent during 
1996, the tenth consecutive year of strong capital growth. The ratio of 
capital to assets of federally-insured credit unions, now averaging 
11.4 percent of assets, is at a record-high level; net capital is 10.8 
percent--the former minus allowance for loan losses.
    Loan delinquency and net charge-offs remain very low, actually at 
or near historic lows. The delinquency rate is 1 percent of total 
loans, while net charge-offs are 0.5 percent. Profitability, as 
evaluated by the return on average assets ratio, was a healthy 1.1 
percent for last year. This gauge of profitability has remained 
unchanged over the last year; and the loan-to-share ratio now stands at 
74.6 percent compared to 71.1 percent at yearend 1995.
    In general, corporate credit unions (which act as bankers' banks to 
the 12,000 natural-person credit unions) are also in good health. The 
risk in their investment portfolios that concerned us two years ago 
when I last appeared before this panel has been reduced significantly. 
Between September 30, 1994, and September 30, 1996, corporate credit 
unions' total holdings of Collateralized Mortgage Obligations declined 
from $10.2 billion to $4.7 billion.
    There are currently 41 corporate credit unions, of which 36 are 
federally insured. While capital in corporate credit unions remains low 
compared to that in natural person credit unions, there has been an 
increasing trend toward capital accumulation, perhaps in anticipation 
of new proposed standards the NCUA Board plans to finalize in the near 
future. The ratio of reserves and undivided earnings to assets grew 
from 2.1 percent as of December 31, 1994, to 2.65 percent as of 
December 31, 1996. During that same period, total capital to assets 
rose from 4.9 percent to 7.38 percent.
    Meanwhile, our ``conflict of interest'' regulation took effect in 
January 1996. This rule eliminated any real or perceived 
inappropriateness in the relationship between the boards of directors 
at corporate credit unions and their state and national trade 
associations. I believe that significant progress has been made in the 
condition of corporate credit unions, and that proposed revisions to 
the corporate credit union regulation will provide additional 
improvements.
    Mr. Chairman, thank you again, for the opportunity to appear before 
this subcommittee and present our requests for the Central Liquidity 
Facility. I would be pleased to answer any questions.

                       STATEMENT OF GEORGE KNIGHT

    Senator Bond. We thank you for the good news request, the 
success and the no need for appropriations.
    Let me turn to another good news story: Mr. Knight.
    Mr. Knight. Thank you.
    Mr. Chairman and members of the committee, I want to 
especially thank you for last year's appropriation. As you 
noted in 1996, the $38.7 million that you appropriated was 
leveraged, in part, into $420 million, directly impacting the 
lives of 16,000 families. Of those, 4,400 were new homeowners, 
having the opportunity to start an equity stake not only in 
their homes, but also in their families' lives, their 
neighborhoods, and their cities.
    In the past I have talked a great deal about the 
neighborhood revitalization work of the 
NeighborWorks' network. During the past year we have 
focused on looking at who else benefits, and we looked 
particularly beyond the resident-borrower to the block on which 
they live, the lender, the insurer, and the city government, 
with a real focus on the local tax base impact. I am pleased to 
report we also found that the city treasurer benefits as well. 
As property values rise, the tax base strengthens, and so do 
tax revenues.

                            LESSONS LEARNED

    Looking at what we have learned in the past 20 years, I 
wanted to summarize it for you in several quick points. First, 
raising the amounts of social investment capital currently 
needed by our secondary market, Neighborhood Housing Services 
of America--and I am delighted to have Mary Lee Widener, the 
president of that unique institution here with me--is 
challenging. We are now operating at volumes of $20 million to 
$30 million a year. We need social investments that are low-
market rate, but perceived as high risk--even though we have 
never missed a payment in 20 years. The effort to raise that 
capital is indeed prodigious.
    Second, after only 4 years of the NeighborWorks' 
Campaign for Home Ownership we have reached the 5-year goal of 
10,000 new homeowners. But I think more importantly, we have 
shown that lower-income families not only can, but want to be 
homeowners. While the portfolio is still early on those first 
8,300 owners for which we have delinquency records, the 
delinquency reports are coming in looking quite normal, if you 
will.
    Third, NeighborWorks' organizations do extend 
credit. It is an essential strategy in revitalizing a 
neighborhood. But they also are involved in a wide ranging 
number of social-service activities. And those activities are 
equally important to revitalizing a neighborhood.
    Fourth, training is terribly important, and the demand is 
tremendous. In 1993, the total of participants at the four 
neighborhood reinvestment training institutes totaled 
approximately 1,300 participants. In 1996, we had almost 2,600 
participants. Last week in Atlanta we had 750 participants 
alone.

                          EFFICIENCY MEASURES

    Fifth and finally, my board, Neighborhood Reinvestment's 
board, recently asked if we were being efficient with the 
Federal resources we are given. We looked at three issues. The 
first was were we continuing to meet the mission between 1990 
and 1996? We could have become more efficient by serving higher 
income people. However, we held the income level of the people 
served by NeighborWorks' organizations about the 
same. So we met the mission test.
    Senator Mikulski. What is that income level?
    Mr. Knight. It ranged from around 56 percent to 66 percent 
of median family income. That translates into the low $20,000 
for a family. Since many of the families we serve are single 
heads of household, that really represents a very considerable 
strain if you have a poor educational background to make 
$20,000 to $22,000 a year. That requires a $10 or $11 or $12 
an-hour job.
    Second, we looked at the leverage of the appropriation over 
the past 6 years, and indeed the private dollars leveraged have 
increased. I am pleased to report it has almost doubled from 
1990 to 1996.
    Third, we inquired into the secondary market: Were they 
able to handle and manage more aggregate assets for each dollar 
that we gave them in 1996 than in 1990? And again, the answer 
was yes, and I think a great deal of credit goes to Mary Lee, 
and to her marvelous board of trustees and the day-to-day 
operating board for that achievement.
    With that, I look forward to your questions.
    [The statement follows:]

                  Prepared Statement of George Knight

    Mr. Chairman and Members of the Committee, thank you for the 
support you have given the NeighborWorks' network and the 
Neighborhood Reinvestment Corporation. I am pleased to present the 
Corporation's request for fiscal year 1998 for $50 million. We are 
especially grateful for the fiscal year 1997 appropriation of $49.9 
million.
    In fiscal year 1996, the $38.7 million you granted Neighborhood 
Reinvestment and the NeighborWorks' network leveraged $420 
million in investment. This is a 17 percent increase over the previous 
year. The network produced almost 16,000 total units of housing, in 
addition to owning 11,000 units of affordable Mutual and rental 
housing. Of the 16,000 families, more than 4,400 families became new 
homeowners, earning an equity stake in their neighborhoods. The 
security of owning a well-insured home and the pride in paying back the 
loan creates a sense of ownership and control over the quality of the 
community. This frequently leads to action in solving the ``front-
door'' issues of crime, cleanup, education and other quality-of-life 
concerns.
    A national system for community revitalization that focuses on 
addressing the disinvestment and decline in the nation's urban, 
suburban and rural communities has been built over the last 20 years. 
Currently, we are serving more than 420 communities. The heart of this 
system is the 172 local partnerships of residents, members of the 
private sector, and public officials that constitute the 
NeighborWorks' network.
    These NeighborWorks' organizations utilize the full 
range of community development tools to positively engage the social, 
economic and real-estate dynamics of their communities. Their mission 
is focused on turning communities once shunned into neighborhoods of 
choice for the benefit of current residents. This isn't about 
demographic change; this is about engaging lower-income families in the 
mainstream economy and engaging the mainstream financial mechanisms--of 
lenders, insurance firms and Wall Street--in lower-income communities.
    NeighborWorks' organizations serve communities 
characterized by low household income--61 percent of median for African 
Americans, 66 percent for Hispanics. NeighborWorks' 
communities are also characterized by low rates of home ownership--only 
44 percent compared to the national rate of 67 percent.
    Who else beyond families and lenders and insurance firms benefit 
from this reinvestment activity? Local taxpayers benefit as 
neighborhood real-estate markets and, thus, tax bases strengthen. In 
Savannah, Georgia's Dixon Park neighborhood, the 
NeighborWorks' organization tackled a block with 23 
properties, seven of which were severely dilapidated and unoccupied. 
After purchase, rehabilitation and sale to new homeowners, the 16 
occupied properties now show tax assessment increases of over 65 
percent. Needless to say, the seven previously dilapidated properties 
show a dramatically higher increase, with tax assessment increases 
averaging 337 percent. As a whole, tax assessments for all 23 
properties on the block increased by 109 percent--from $777,000 to $1.6 
million. Everyone benefitted. More dramatically, in declining markets 
such as New Haven, Connecticut, the NeighborWorks' 
neighborhood held its own in property values between 1990 and 1995, 
even as the city's fell 25 percent.
    Beyond the resident owner, the city treasurer and lenders, the next 
generation of families in NeighborWorks' communities also 
benefits. The assets built by lower-income families who invest in home 
ownership are a key ingredient for their future success. Children who 
grow up with a stable place to live have improved educational 
achievement,\1\ and when the time comes for college, the inter-
generational asset transfer mechanism of a home equity loan is 
available for tuition.
---------------------------------------------------------------------------
    \1\ Richard Green and Michael White, Measuring the Benefits of 
Homeowning: Effects on Children, cited in ``Housing Policy Debate,'' 
Volume 7, 1996.
---------------------------------------------------------------------------
    Does this always happen? No. It can easily be derailed by local 
organizational failure, local economic collapse and a host of other 
external macro reasons. Our experience, however, is that a difference 
can be made and measured.
    How do we sustain and increase this? Neighborhood Reinvestment's 
role is four-fold:
    (1) To work with organizations that meet basic programmatic and 
financial health thresholds to expand their capacity;
    (2) To offer intense nuts-and-bolts training to the housing and 
community development field;
    (3) To support Neighborhood Housing Services of America, Inc. 
(NHSA) with low-cost capital so that it remains a strong financial 
backstop to the NeighborWorks' system. This enables every 
responsible homeowner or would-be homeowner--no matter how poor--to 
borrow the necessary resources to maintain or secure a safe home; and,
    (4) To monitor each local NeighborWorks' organization 
for continued responsible financial and programmatic results.
    What hampers vastly greater impact?
    For local NeighborWorks' organizations, the main 
impediment is insufficient amounts of: (1) Flexible, low-cost, equity 
capital; and, (2) Funds to put loan counselors, rehab specialists and 
community intervention specialists on the streets.
    For Neighborhood Housing Services of America, the ongoing struggle 
is to create and extend multi-year social-investor incentives and 
mechanisms that will assure vastly greater sums of low-market-priced 
capital.
    What have we learned?
    (1) First, that raising social-investment capital for NHSA--
especially in the volumes now needed--is difficult. The low market 
financial return combined with a perceived high risk, even though NHSA 
has never missed a payment, results in laborious capital-raising 
strategies. I'd be remiss to not thank the Trustee and Board leadership 
of NHSA for their incredible success in raising more than $250 million 
in investment funds.
    (2) Lower-income families want to be homeowners--and can be. Four 
years ago I informed you that a group of NeighborWorks' 
organizations were setting out to create 10,000 new homeowners, 
resulting in investment of $650 million in the subsequent five years. 
But when the tally is finalized at the end of four years, the five-year 
goal already will have been met: 10,100 new homeowners backed by at 
least $625 million invested in their homes and neighborhoods. More 
importantly, the 30-60-90 day delinquency rate is 4.70 percent, 
compared to about 3 percent for the conventional markets and 6-to-7 
percent for government loans.
    (3) Social service activities--reducing crime, providing 
alternative recreation and learning opportunities, cleaning up streets 
and vacant lots, enforcing building and health codes--all help to 
create confidence in the neighborhood as a place of choice. These 
``front-door'' issues, when addressed, lead to spontaneous sociability 
so that the ill neighbor is cared for and not ignored, so that doors 
are knocked on for block celebrations, so that the local school is 
supported.
    (4) Training works and is in tremendous demand. Three years ago the 
four Training Institutes attracted 1,268 participants for 31,696 
contact hours. In fiscal year 1996 that had increased approximately 105 
percent for participants (2,595) and 85 percent for contact hours 
(58,606).
    (5) Financially and most importantly, this work is being done 
efficiently with federal resources. Our board of directors requested a 
report on multi-year efficiency. Balancing many factors, three measures 
were utilized (charts follow):
  --The first is the mission test: Over five years, has the 
        NeighborWorks' system continued to serve lower-
        income families? The answer is yes: median incomes were 58 
        percent in 1990 and rose slightly to 66 percent by 1996, 
        primarily because of an increased emphasis on recruiting new 
        homeowners into these distressed communities.
  --The second efficiency test measured the total investments by 
        NeighborWorks' organizations against the 
        Congressional appropriation. That grew from a 5:1 ratio in 1990 
        to a 9:1 ratio in 1995. And the investment ratio measures only 
        the real-estate-related parts of a NeighborWorks' 
        organization's efforts: it ignores local social-service 
        activities and does not directly capture our training efforts. 
        Overall, the amount of private-sector investment leveraged by 
        public-sector investment has increased steadily since 1993.
  --The third efficiency test looked at NHSA in terms of total assets 
        managed compared to operating costs. That also nearly doubled 
        from 1990 to 1995.
    We are grateful for your support and energetically look forward to 
a successful completion of 1997 and continued opportunities in 1998. I 
look forward to your questions.

  NHSA's Total Assets vs. Neighborhood Reinvestments's Administrative 
                              Grant to NHSA

                                                           Dollars:Ratio
1990..............................................................27.7:1
1991..............................................................26.4:1
1992..............................................................29.9:1
1993..............................................................35.8:1
1994..............................................................33.3:1
1995..............................................................45.9:1
1996..............................................................48.6:1

NeighborWorks Organizations Total Investment vs. Neighborhood 
                      Reinvestment's Appropriation

                                                           Dollars:Ratio
1990.............................................................. 5.3:1
1991.............................................................. 5.8:1
1992.............................................................. 6.4:1
1993.............................................................. 7.4:1
1994.............................................................. 8.5:1
1995.............................................................. 9.2:1
1996..............................................................10.8:1
                    ========================================================
                      __________________________________________________


                    [GRAPHIC] [TIFF OMITTED] T05FE25.000


                    
  NHSA's Clients Median Household Income--As a Percentage of National 
                         Median Household Income

                     [1996 National Median=$35,200]

                                                              Percentage
1990..............................................................    58
1991..............................................................    59
1992..............................................................    60
1993..............................................................    62
1994..............................................................    61
1995..............................................................    65
1996..............................................................    66

    Senator Bond. Thank you very much, Mr. Knight.
    I will turn to my ranking member, Senator Mikulski, for her 
questions.
    Senator Mikulski. Senator Bond is being very generous to 
let me go first. I have to leave for a leadership meeting, and 
I really will have some written questions for you, Mr. 
D'Amours, and again, welcome. We were colleagues on merchant 
marine and fisheries and oceanography in another life.
    Mr. D'Amours. Thank you, Senator. It is good to see you.
    Senator Mikulski. I would like to go directly to the 
Neighborhood Reinvestment Corporation. Mr. Knight and your 
staff, you know I have been a big fan of Neighborhood 
Reinvestment, and in my stewardship worked to see it move 
ahead. As it moved ahead, I became concerned about a couple of 
things. One, could your institution keep its entrepreneurial 
approach in place to meet the needs of communities, and then 
second, could you avoid becoming a comfort or complacency zone 
because you were successful.
    Now, what I would like to do is use southeast Baltimore as 
an example. Tell me how Neighborhood Reinvestment continues to 
follow the same mission, of entrepreneurship in working with 
local community leaders? Could you tell me what are the three 
goals for your involvement in the southeast Baltimore project? 
What measures are you using to determine whether you are 
successful or not?

                      GOALS FOR SOUTHERN BALTIMORE

    Mr. Knight. Our three goals are somewhat simpler to state 
than they are to achieve in a short period of time. The first 
is to strengthen home ownership; that is, to increase the 
percentage of home ownership in southeast Baltimore. We can 
look at two kinds of measures, process and absolute change. We 
can look at the process measures of how many new homeowners, 
such as the 50 new homeowners since last June, as well as what 
kind of funds we have available. USAA has put forward funds, in 
addition to many, many local institutions in Baltimore at a 
rate of about 6.5 percent. The long-term measurement, however, 
will come over time, and we have a database in place to start 
tracking the absolute change in ownership.
    Second, stabilize the community. This includes a wide range 
of activities to increase the confidence of individuals in the 
neighborhood. Among the actions to date has been to create a 
large coalition of organizations tackling a wide range of 
things. For example, encouraging local institutions to help 
finance their employees to purchase homes in the neighborhood, 
rewarding homeowners for purchasing in a neighborhood by 
providing scholarships to the local school, working with 
realtors to promote the neighborhoods and to cleanup and fix-up 
kinds of things. Again, the measurement over time will be the 
absolute change in market value.
    Third, to decrease, significantly decrease, the number of 
specific eyesore properties. At this point there are almost 100 
properties individually identified. We have, through one of our 
partners there, begun to prioritize legal action. A number of 
individual buildings have been purchased and are under 
construction. We are seeking funds to purchase more buildings. 
The absolute measurement will be the decrease in the number of 
eyesores.
    I think on all three measures, frankly, from my perspective 
we will know first from the residents whether they think it is 
going well or not.

                          HOPE VI IN BALTIMORE

    Senator Mikulski. Well, Mr. Knight, I am interested in what 
was the Neighborhood Reinvestment Corporation or the 
Neighborhood Housing Services of Baltimore's intervention. Just 
for the committee, southeast Baltimore is a wonderful 
community. I represented it as a city councilwoman, and it 
faced two converging influences, one by problems created by 
sheer demography, meaning a population aging in place, and also 
undergoing both an economic and ethnic change. But, second, it 
was steadily and gradually moving from primarily a European 
ethnic community to a multiethnic, multiracial community, and 
very nicely.
    Then, along came a HOPE VI project in Baltimore called 
Lafayette, and when the public housing came down, the Public 
Housing Authority did not stand sentry. They simply dumped 
everybody from public housing into this area with no screening 
for section 8 assistance, and, therefore, the very role of 
Government became a significant and forceful aspect of 
destabilization. Section 8, because of its inappropriate use, 
was also a tool for destabilization. And you had neighborhood 
organizations going through heartbreak, and also deinvesting 
and also leaving the community.
    Am I right in summarizing that?
    Mr. Knight. Absolutely correct.
    Senator Mikulski. And the city took no action to correct 
itself, yet the community organizations were being quite 
gallant in trying to fortify the neighborhood.
    Now, it was our suggestion that Neighborhood Reinvestment 
Corporation come in to deal with this. Could you just very 
briefly say how you have stopped the destabilization? What 
organizations from Neighborhood Reinvestment stopped the 
destabilization, and what community organizations have you 
worked with, and what were your methods?
    This was a very melancholy situation in Baltimore, Mr. 
Chairman, when the very program that I helped create called 
HOPE VI had become a destabilizing tool for one of the 
neighborhoods that I had represented--a neighborhood that had 
moved very gracefully and effectively toward racial 
integration.
    Mr. Knight. The organizations including the 
NeighborWorks' organization, the Baltimore 
Neighborhood Housing Services, to the Able Foundation, Johns 
Hopkins, a series of community based CDC's, such as east 
Fayette, SDI, a whole series of smaller property-owning or 
would-be property-owning organizations, have formed a loose 
coalition in which each continues their activity but becomes 
identified under a unifying visual umbrella, if you will, 
called Southeast Partners at Work. Working together has really 
helped to focus broader attention on this southeast 
revitalization initiative.
    Senator Mikulski. Did you create that?
    Mr. Knight. It certainly was an idea that came up in the 
meetings in southeast Baltimore that we convened, yes. We 
really see our role as the catalyst to get those kinds of 
activities moving forward.
    Mary Lee has managed to raise several million dollars in 
low-market rate interest money that has enabled a number of 
stalled construction projects to plunge forward with rapidity. 
We have also succeeded in raising some first mortgage money, 
again through the secondary market, at a rate of 6.5 percent, 
that is enabling a very attractive incentive, if you will, to 
those who would move into the neighborhood as homeowners.
    Senator Mikulski. Well, I know my time is up.
    I also understand you have been working with local realtors 
in the private sector. But as I understand it, then the major 
force from Neighborhood Reinvestment to pull together different 
groups and help these groups empower themselves by being a 
loose federation or coalition, was Neighborhood Housing 
Services. Is that not the major tool?
    Mr. Knight. Neighborhood Housing Services of Baltimore, 
yes, is the major point, around which local organizations were 
convened to take the action. Neighborhood Reinvestment staff's 
role is to convene groups, just as we did on the Navajo 
Reservation to start a new organization on the Navajo Nation.
    Senator Mikulski. Well, we could elaborate. I want you to 
know I continue to be a great supporter of Neighborhood 
Reinvestment Corporation. Going through this hopefully was 
informative for the chair, because it really shows how 
Government itself is both a tool and also a problem. And 
Neighborhood Reinvestment Corporation came in and worked with 
what was already there, and organized it in a way that began to 
stabilize it. There are lots of interesting stories, including 
men organizing midnight barbecues. You know, we had drug 
dealers, so instead of midnight basketball, the men of the 
community just would go out on weekends and barbecue. They 
would have friendship and fellowship and push those drug 
dealers off the streets.
    Mr. Knight. Thank you for your support.
    Senator Bond. Thank you, Madam Chair. I would be far more 
interested in a midnight barbecue than midnight basketball. I 
have gotten past the age when basketball is that appealing to 
me.

                            THE HOME PROGRAM

    Senator Bond. Mr. Knight, would you not say that your model 
really is one that should be a model for every community in 
administering the HOME Program? Is this not a test case for 
what we would hope that local governments would be doing with 
the flexibility we are giving them. It seems to me you are 
bringing it all together.
    Mr. Knight. We would hope so, and that is why we spend so 
much effort training others to share these techniques, with 
people from a wide variety of backgrounds. Our training events 
bring together representatives of the public sector, private 
sector, community based groups, and church groups to learn from 
each other. We think this approach is far more effective than 
vastly larger sums of money that would be spent.
    Senator Bond. Do not worry about the vastly larger sums of 
money. To the extent that we get any money, it has already been 
claimed.
    Have you worked with communities? Are there people from 
local housing authorities or appropriate community development 
people from areas which do not have a NeighborWorks' 
Program coming in to see what you are doing?
    Mr. Knight. Yes; absolutely.
    Senator Bond. Are you able to train these people and show 
them what you are doing works?

                     NAVAJO PARTNERSHIP FOR HOUSING

    Mr. Knight. Yes; we have just completed a little more than 
\1/2\ year's work with the Navajo Nation, creating the Navajo 
Partnership for Housing. It will, we hope, over the next 
several years lead to the production of 10,000 units of 
moderate housing on tribal lands, which is desperately needed. 
It is a partnership composed of many local financial 
institutions, several national institutions, including Fannie 
Mae Federal Home Loan Bank of Seattle, Zion National Bank, 
Northwest, and many local institutions and the nation, itself. 
Residents of several of their subgroupings--chapters, as they 
refer to it inside the nation--created an environment in which 
people could talk, work, and come to local solutions 
themselves.

                         rural housing concerns

    Senator Bond. Outside of the native American Nation, I am 
very much concerned about some of the problems we have in rural 
areas, and Missouri has a lot of these. I do not know if you 
have the same problems in Maryland.
    Senator Mikulski. Yes.
    Senator Bond. But rural housing needs are very challenging 
in many parts of Missouri. What is Neighborhood Reinvestment's 
experience in rural areas? Do you see the problems and the 
solutions differing, and any special approaches for addressing 
unique needs of affordable housing and community development? 
The chicken and egg problem, do you need the jobs first or the 
housing? Can you get the jobs without the housing, can you get 
the housing without the jobs? That is something that community 
and the town I live in is facing, and it has been a tough one.
    Mr. Knight. Sometimes it's a chicken and egg problem--and 
some of our responsibility, I believe--is to step forward and 
take the risk. In Colorado, in the intermountain area, we are 
affiliated with an organization called Colorado Rural Housing 
Development Corp., that works in smaller towns to basically 
create subdivisions.
    Now, that may be a glorified term for a group of 10 houses 
that are built, but someone has to assemble the land, get the 
infrastructure in, and at that point, with either local or 
statewide is financial backing, a contractor will come in and 
build those 10 homes, particularly if that organization is 
working with individuals who will purchase the homes. Once this 
process starts it gives confidence to smaller industries and/or 
employers to say now that there is housing, we will invest in 
this community.
    I just returned from Dimmit County, TX, which is about as 
rural as one can get. It is one of the poorest counties in the 
Nation, and they are doing exactly this and meeting with great 
success. Frankly, it may help one of their last private 
employers there, because now they will be able to purchase--
this is not a giveaway--purchase a home that would meet the 
contemporary living standards of Eagle Pass, the next nearest 
town.
    Senator Bond. We will be interested to find out about that 
experience.

                                  CDFI

    I will address a question to you and Mr. D'Amours. Just 
before you testified, we heard about a new idea, the CDFI, and 
based on your experience, what kind of direction, guidance 
would you give to CDFI? What kind of pitfalls do you think they 
ought to be aware of?
    Mr. Knight. Our experience is in working with 
NeighborWorks' organizations which make basically 
the nonconventional, uneconomic loan. Our tandem lending 
approach and small rehabilitation loans allow the private-
sector loan to work. The NeighborWorks' loan gets 
paid back, but its small size and low return makes it not 
feasible for a financial institution.
    We think there is a great need for these niche kinds of 
lending efforts. There is really at this point insufficient 
capital to do them. We do as much as we can.
    I think the ability of a secondary market like NHSA is 
frankly part of the genius in helping a local rural area. Rural 
organizations may be able to raise a pot of money once, but it 
is awfully hard the second time. If they can make loans and 
sell those loans, then they have funds to keep lending and 
reselling. Frankly, the innovation of the secondary market, has 
made a great deal of our success possible.
    Senator Bond. Thank you, Mr. Knight.
    Mr. D'Amours, I know that the NCUA administers a $7 million 
community development revolving loan program not unlike the 
CDFI. I wonder if you have any words of wisdom or suggestions 
on how the CDFI can be achieved, and how is the program working 
in your area?
    Mr. D'Amours. Thank you, Senator. As a matter of fact, the 
community development revolving loan program was passed in 
1979. I was on the House Banking Committee when we approved 
that.
    The CDFI bill, or the Riegle bill, so-called at the time, 
when he was chair of the Senate Banking Committee----
    Senator Bond. And that is a good way to get your name on a 
bill.
    Mr. D'Amours [continuing]. Passed in 1994. Right. That is a 
good way to become internalized.
    The recommendations I would have, frankly, without having 
any real authority to make them, but since you have asked, 
would be to simplify the application procedure. We know, for 
instance, out of the 268, I believe Mr. Hawke testified, 
transactions last year, 50 of them were credit unions and only 
a small handful received anything.
    At NCUA, we operate the community development revolving 
loan program very simply. The application is simple. It is only 
available to the low-income credit unions. These are credit 
unions 60 percent of which are below $10 million, a near 
majority of which are below $2 million.
    Our administrative costs at NCUA are nil. We administer 
this program as an agency program. We absorb whatever 
administrative costs, which are not very high, are connected 
with it. In the credit union situation the money gets right 
down to the people who need it most. It is done as a loan, not 
as a grant. Money of the CDFI programs are grants for credit 
unions rather than loans. Our money is repaid. We use the 
interest of that money for technical assistance aid to credit 
unions.
    I think probably in my experience, I know that a lot of the 
credit unions which could really make use, small, low-income 
credit unions which are in the inner city or in that isolated 
rural area that you are concerned about, Senator, are not 
applying for CDFI moneys because the application process is a 
little too complex, a little too complicated for their very, 
very limited resources.

                SUPREME COURT DECISION ON CREDIT UNIONS

    Senator Bond. I appreciate your views on that.
    As I indicated, we congratulate you on the situation you 
find yourself in, that the insurance fund had its best 
operating year in its 26-year history, and the number of 
problem credit unions has continued to decline, and they show 
strong capital growth.
    As we noted, the Supreme Court granted certiorari yesterday 
on the U.S. Court of Appeals decision. What do you see the 
impact on credit unions being should the Supreme Court uphold 
the court of appeals decision?
    Mr. D'Amours. The impact over the long term would be very, 
very serious, if not devastating, depending upon how the 
district court ultimately would implement the court's decision.
    There is a partial stay in existence as to the district 
courts, Judge Jackson's injunction, which allows credit unions 
to continue serving those members they now have even though 
those members may share a single common bond.
    That injunction could conceivably and logically under the 
original court decision of the U.S. Circuit Court of Appeals be 
expanded so that they cannot serve even extant members. That 
would be absolutely devastating.
    But even if that does not occur, Senator, over the long 
period of time, what I think most people forget when they look 
at credit unions is that whatever their size, whatever their 
location, there are people in that credit union serving 
disconnected groups, perhaps, in terms of common bond, each of 
these groups being unable on their own to form sufficient mass 
to operate a separate and distinct credit union.
    These can be very low-income people, minimum-wage people, 
janitors, secretaries, part-time workers and the like, who 
would be deprived of credit union services, which are the only 
alternative these people have to the loan shark, the pawn shop, 
the rent-to-own store, and in some cases check-cashing 
operations.
    So we are very hopeful that we will prevail in the Supreme 
Court, and if we do not, or even while we are in that process, 
that both the House and Senate would look very seriously at the 
financial empowerment that credit unions provide that will be 
lost unless this challenge to the credit union common bond 
system is handled properly.
    Senator Bond. So you are saying the justification is that 
this is a necessary service that can be provided, this ability 
to go beyond what has traditionally been called a common 
association. I am a little sensitive of the term, common bond. 
[Laughter.]
    But a common association is for low-income, disadvantaged 
individuals. This is a strong justification for that.
    Mr. D'Amours. Absolutely. Common bond is nothing endemic to 
the definition of credit unions. It is something that happened 
topsy-ish as credit unions developed. It is not a part of the 
credit union definition. It is not necessary to achieve their 
purposes.
    It is being used by some, trying to be used by some as a 
limiting factor. It was never intended in our view to be a 
limiting factor, and if this effort succeeds, the effort of 
credit unions and their ability to bring people into the 
American economic free enterprise system would be lost, because 
the banks are not going to do it unless they are required to 
under CRA, and only to the extent they are required to under 
CRA.
    It would be shameful. It would be sad for America if this 
ability of the credit union financial system to reach out and 
empower people in isolated rural areas or in the inner city 
were lost.

                  MODERNIZATION OF FINANCIAL SERVICES

    Senator Bond. As Congress and the banking leaders work 
toward a modernization of financial services, and they are 
going to address the Glass-Stiegle fire walls that is going to 
be in for revision, what do you see as the future role of 
credit unions?
    Mr. D'Amours. I do not think the two are related 
whatsoever.
    Senator Bond. There will not be any impact on the members 
you serve?
    Mr. D'Amours. No, sir.
    Senator Bond. If there are broadening and consolidating 
financial services through permitting securities firms to own 
banks and banks to own securities firms, if that comes about, 
there will not be any area in which the credit unions would 
wish to participate?
    Mr. D'Amours. No, sir; credit unions are prohibited from 
investment in these kinds of areas from commercial investments, 
for the most part, from securities investments. Credit unions 
operate in an investment perspective within a narrow niche. 
Their job is to make loans, and we have been stressing that at 
NCUA.
    Senator Bond. So you would not, from a credit union 
standpoint, if a larger financial institution wanted to set up 
a credit union to serve a target area of need, you would not 
see any justification for expanding existing authority to make 
that service available?
    Mr. D'Amours. We would not want credit unions to start to 
get into the banking business, if that is what the question 
implies. Absolutely. Credit unions have their niche. They have 
filled that niche. They have been doing the job they were 
supposed to do very, very well. We do not want to be banks.
    We would welcome banks if they wanted a credit union 
charter to do what credit unions do, but we have no ambition to 
take over their work.

                     Additional committee questions

    Senator Bond. Thank you very much, Mr. D'Amours.
    Mr. Knight, we appreciate your testimony. We will leave the 
record open in case there are additional questions that members 
of the committee want to ask. Your full statements will be made 
a matter of record.
    [The following questions were not asked at the hearing, but 
were submitted to the Administration for response subsequent to 
the hearing:]
                Questions Submitted by Senator Mikulski
    Question. What is the status of the Baltimore Progressive Federal 
Credit Union situation?
    Answer. Baltimore Progressive Federal Credit Union was liquidated 
on January 30, 1997. Its members are now eligible to receive services 
from Citadel Federal Credit Union, which offers services less than one 
mile from Baltimore Progressive's location.
    Question. What is the National Credit Union Administration doing in 
low income communities today?
    Answer. I enclose our 1996 Yearend Report on Low-Income Credit 
Unions, which describes our efforts to expand financial services to 
low-income Americans, and respectfully request its inclusion in the 
hearing record.
    Question.What is the potential impact of the pending case between 
the NCUA and the banking industry?
    Answer. As you know, the Supreme Court is hearing arguments on 
October 6, 1997, on the case challenging NCUA's interpretation of the 
Federal Credit Union Act's field of membership provision. After the 
banks suffered a number of losses at various U.S. District Courts, the 
U.S. Court of Appeals for the District of Columbia, in July, 1996, 
reversed the District Court and determined that all members of an 
occupational credit union must share a single common bond. The Appeals 
Court remanded the case for implementation to the District Court. That 
Court enjoined NCUA and all federally chartered credit unions in the 
U.S. from enrolling new groups and new members from existing groups 
that did not share a common bond with the credit union's core 
(original) membership.
    In December, the Appeals Court stayed an important part of the 
District Court's injunction. Federal credit unions, for now, can 
continue enrolling new members from existing membership groups with 
differing common bonds so long as those groups were affiliated prior to 
the District Court's October 25, 1996, injunction. However, federal 
credit unions remain barred from adding to their charters any new 
groups which do not share a common bond with their core group.
    This (in our opinion) erroneous interpretation of the common bond 
provisions of the Federal Credit Union Act could severely limit the 
viability of a federal credit union whose membership includes the 
employees of one sponsor organization, if that organization downsizes, 
relocates or goes out of business. The limitation places these credit 
unions at an unnecessary risk occasioned by a downturn in a single 
industry or sector of the economy. The NCUA Board believes that 
Congress should act now to clarify the Federal Credit Union Act on the 
question of common bond and to obviate the negative safety and 
soundness implications of court actions crippling the ability of credit 
unions to serve different groups that each have a common bond.
    Should the courts ultimately decide to force a complete roll-back 
of our 1982 policy by ordering credit unions to divest existing members 
from unrelated groups, the potential for substantial losses would be 
significant and immediate for some 3,586 federally insured credit 
unions serving 157,000 groups.
    Many of these groups have fewer than the 500 potential members 
needed, as a minimum, to organize and maintain a viable credit union. 
Thus, millions of Americans would lose or be deprived of the financial 
services they have chosen or desire, financial services Congress has 
for 63 years directed NCUA and its predecessors to make available to 
them.
    There are limited regulatory steps NCUA may be able to take in 
order to alleviate the problem for some credit unions. However, if the 
court's decision stands, only Congress can completely fix the problem.
    Since small businesses, which are usually defined as having fewer 
than 500 employees (the critical mass needed for credit union 
viability), represent the largest and fastest growing segment of the 
United States economy, a significant portion of the workforce could be 
denied access to credit union services if the Court of Appeals decision 
is not reversed. Prohibiting small business employees from joining 
existing credit unions would hamper credit unions' efforts to meet 
their statutory mandate to provide financial services to low- and 
moderate-income workers.
    According to Commerce Department data, the 6.18 million businesses 
in 1990 employed 93.48 million people. Of these 6.18 million 
businesses, 99 percent employed fewer than 500 employees (a total of 75 
million people).
    As we enter the 21st century, the changing nature of our national 
and world economies make it reasonable to expect continuous 
downsizings, mergers, and the complete elimination of companies and 
whole industries. Occupational credit unions remain extremely 
susceptible to these economic changes.
    Federal credit unions have remained healthy and have grown because 
they invested substantial capital in achieving economic strength and 
diversity through the addition of select groups. Deprived of this 
option, even without the draconian order to divest existing groups, 
many credit unions over time will suffer unbearable losses and their 
members will lose needed services. Their liquidation or merger would 
significantly affect the federal insurance fund and the health of the 
entire industry.
    The assets, shares and loans of the 3,586 multiple-group federal 
credit unions at year-end 1995 comprised a substantial portion of the 
industry's total:
    Assets.--$150 billion (approximately 78 percent of $190 billion in 
total assets held by federal credit unions.)
    Loans.--$94.6 billion (approximately 78 percent of $120.5 billion 
in total loans held by federal credit unions.)
    Shares.--$132.8 billion (approximately 79 percent of $170.3 billion 
in total shares held by federal credit unions.)
    These statistics illustrate the potentially devastating impact of 
preventing federal credit unions from continuing to add new groups or 
new members from existing select groups. As the remaining employees of 
existing select groups become older, they borrow less and save more. 
Therefore, the inability of a credit union to add sufficient numbers of 
new members will dry up the pool of younger members who tend to borrow. 
The higher rates of income generated from loans will be reduced, making 
it difficult to maintain existing rates paid on savings. The result is 
an ultimately fatal asset-liability mismatch.
    Moreover, in reliance on NCUA's 15-year multi-group field of 
membership policy, many federal credit unions have invested substantial 
sums to create an infrastructure to support select group expansion. 
Credit unions have spent millions of dollars on branch offices, data 
processing, personnel and other enhancements allowing credit unions to 
service the additional members of these groups. As people change jobs, 
move away, retire and die, and the credit union is prevented from 
adding additional members or groups, it will lose its ability to 
sustain the cost of these enhancements, adding yet more costs to an 
already deteriorating income stream.
    We expect to win the Supreme Court case, but if the case comes out 
against us, we will continue to work for a legislative solution.

                          SUBCOMMITTEE RECESS

    Senator Bond. We appreciate your patience in waiting for 
us, and with that the hearing is recessed. Thank you.
    [Whereupon, at 11:50 a.m., Thursday, February 25, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                              ----------                              


                         TUESDAY, MARCH 4, 1997

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:37 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Burns, Stevens, Shelby, Campbell, 
Mikulski, and Boxer.

             CORPORATION FOR NATIONAL AND COMMUNITY SERVICE

STATEMENT OF HARRIS WOFFORD, CHIEF EXECUTIVE OFFICER
ACCOMPANIED BY DONNA CUNNINGHAME, CHIEF FINANCIAL OFFICER

                OPENING STATEMENT OF CHRISTOPHER S. BOND

    Senator Bond. Good morning. The VA, HUD, and Independent 
Agencies Subcommittee will come to order. This is the 
subcommittee's second hearing on the fiscal year 1998 budget 
and I welcome our witnesses and guests this morning. The 
Appropriations Committee and the VA-HUD Appropriations 
Subcommittee in particular will face another year of very, very 
difficult budget decisions as Congress continues to refocus its 
priorities and seeks to balance the budget of the Federal 
Government by the year 2002.
    I emphasize our continuing need to stay focused on 
balancing the Federal budget, including the need to continue to 
be proactive in consolidating and reforming our many Federal 
programs, including many under this subcommittee's 
jurisdiction. We have done much over the last several years, 
but there is still much to be done.
    The President's fiscal year 1998 budget in my view has not 
yet set forth a blueprint for fiscal responsibility, and 
without meaningful policy changes now the deficit will 
skyrocket by the year 2010, when many of the baby boomers begin 
to retire.
    As it applies to the current year, the President's budget 
optimistically proposes some $92 billion in budget authority 
for the departments and agencies in the VA, HUD, and 
Independent Agencies Subcommittee, of which $72 billion is 
discretionary spending. The amount proposed represents an 
increase of approximately $8 billion over the current year's 
level, and certainly we could spend all of that and more. There 
is no question that many of the activities that we have in this 
subcommittee are under great pressure.
    I would love to have available the kinds of funds the 
President proposes. But given the very real problems elsewhere 
in the budget, the significant problems faced in the defense 
budget with the costs of our ongoing activities and Bosnia, 
Kuwait, and elsewhere, the fact that the deficit in the 
President's request actually goes up for the coming year, the 
fact that our FEMA moneys are proposed to be off budget when we 
fought so hard in the past couple of years to be responsible 
and include the emergency spending authority and outlays in the 
budget and account for them, I would say that it is very, very 
optimistic to think that we would have anything like the budget 
authority that the President has proposed under the 
congressional resolution.
    I would say, therefore, absent some compelling reasons, it 
is going to be very difficult for this subcommittee as a 
practical matter to provide any increases over our 1997 budget 
levels. We will work to obtain as much authority as we can 
find, but I would have to say that this does not appear 
optimistic and does not appear promising at this point.
    This morning we take testimony from five of the independent 
agencies under the subcommittee's jurisdiction: The Corporation 
for National and Community Service, the Court of Veterans 
Appeals, the American Battle Monuments Commission, the 
cemeterial expenses for the Army, and the Selective Service 
System. These are important programs and activities and I look 
forward to their testimony.
    We will call as our first witness Mr. Harris Wofford, our 
former colleague, now Chief Executive Officer of the 
Corporation for National and Community Service. The 
administration's budget request for the Corporation for fiscal 
year 1998 totals some $546.5 million, an increase of $146 
million or 36 percent from the Corporation's enacted 
appropriation for fiscal year 1997 of $400 million.
    As we all know, the Corporation was established by the 
National and Community Service Trust Act of 1993 to provide 
opportunities for national and community service and to provide 
national service education awards. The Corporation makes grants 
by formula, competitive, and national direct, to States, 
institutions of higher education, public and private nonprofits 
and others to create service opportunities for a wide variety 
of individuals, such as students, out of school youth, and 
adults, through a variety of full time and part time national 
and community service programs.
    National service participants may receive educational 
payment awards for higher education, vocational education, job 
training, or school to work programs.
    The Corporation has many laudable and important goals, and 
certainly no one has been a stronger champion of these goals 
than my colleague, friend, and ranking member, the 
distinguished Senator from Maryland, Senator Mikulski. 
Nevertheless, there remain significant issues concerning the 
implementation of the program and the financial management of 
the controls that are being exercised.
    First, funding of what is essentially still a new and 
unproven program at $546 plus million in fiscal year 1998 is 
problematic, especially when the Congress, as I said, is 
confronting the budget deficit, especially when the 
subcommittee may be short of adequate funds for a number of 
longstanding funding priorities, such as veterans medical care 
and the renewal of section 8 contracts for low-income families, 
including the elderly and the disabled.
    In addition, there are some significant financial and 
management issues facing the Corporation. For example, the 
Corporation has submitted only one annual report, including one 
financial statement, and that report covered activities for 
fiscal year 1994. Moreover, as I understand it, the Corporation 
is currently unable to reconcile its financial accounts for 
fiscal years 1994, 1995, and 1996, to the degree that as of 
December 1996 some $38 million in AmeriCorps funding could not 
be accounted for.
    If I am wrong in that supposition, I would be pleased to be 
corrected.
    Finally, I have concerns about the mission of the 
Corporation and how it is being carried out. While the 
AmeriCorps Program has been touted as a program designed to 
help young people who perform public service pay for college, 
the program continues to have problems with the dropout rate in 
the program, the educational usage, and, most important, the 
final cost to the taxpayer of an educational award under the 
AmeriCorps Program.
    For example, a recent February 1997 GAO study on the role 
of State commissions in implementing the AmeriCorps Program has 
raised several significant concerns for me. First, the overall 
rate for the programs reviewed under the GAO study indicates 
that the median dropout rate for the program participants was 
39 percent. In other words, almost two out of every five 
participants in the program did not complete the program.
    In addition, the GAO report identified a number of concerns 
in each of the individual programs reviewed. For example, in 
the Casa Verde Builders Program in Texas, at a cost of $2.5 
million, 38 of the 64 participants, or 59 percent, ended the 
program early, with less than one-third of the participants 
earning an award and only 4 participants using an award. This 
means the program paid over $600,000 per education award.
    Using these funds for Pell grants or some other kind of 
education assistance obviously could serve a far greater number 
of families and young people in paying for education. Moreover, 
in the Casa Verde Builders Program, even if all eligible 
participants used their educational award, it would still cost 
over $106,000 per person plus $4,725 for the educational award, 
for a total cost of over $110,000. This means, excluding 
private sector contributions, the taxpayer still would end up 
paying approximately $102,000 per educational award.
    The bottom line is I am very much concerned the AmeriCorps 
Program is turning into another expensive jobs program, in 
which we are not getting any bang for our buck.
    Finally, I know that the Corporation can tell some 
impressive success stories, heartwarming stories that are 
obviously worthwhile and show laudable achievements. 
Nevertheless, there are open issues and concerns that need to 
be addressed, and unfortunately the Corporation does not have 
the tracking or accounting systems to demonstrate the successes 
and the failures of the Corporation.
    Without these systems in place to assure the controls and 
to assure that there will be successes and that there will be 
accountability for taxpayers' dollars, I would find it 
difficult to support the increase in the investment requested.
    I look forward to hearing the testimony of Mr. Wofford and 
I am optimistic that he can allay our concerns in many areas as 
we begin to address these questions.
    Now it is my pleasure to turn to my ranking member for her 
comments. Senator Mikulski.

                     STATEMENT OF BARBARA MIKULSKI

    Senator Mikulski. Thank you very much, Mr. Chairman. Good 
morning to both you and also to two members of this 
subcommittee, dear colleagues from the House, Senator Ben 
Nighthorse Campbell and Senator Barbara Boxer. We welcome them 
and their participation.
    I want to extend my welcome to our former colleague Senator 
Wofford, the Chief Executive of the Corporation for National 
Service, and welcome the other witnesses who will be testifying 
today.
    I know this morning we are going to have three panels to 
deal with five agencies, and I will address the agencies 
related to the Department of Defense later during their 
questioning. But we do want to give a most cordial welcome to 
General Herrling of the Battle Monuments Commission, Steve Dola 
representing DOD and the cemetery issues, and Gil Coronado, the 
Director of Selective Service, and, of course, the Chief Judge 
of the Court of Veterans Appeals.
    I would like to begin my opening statement, very briefly, 
to talk about our first panel. I believe that the chairman has 
outlined some yellow flashing lights about national service, 
but I would hope that it would not be a red light to the 
program. Yellow flashing lights are a metaphor that I use where 
we say we have to pause, proceed with caution, and analyze the 
risk as we look over the intersection and where we find 
ourselves.
    I think that national service, like any new program that 
focuses primarily in a decentralized approach, State and local, 
will have a lot of bumps on the road in terms of management. 
What we want to talk about is get back to the mission of the 
program, which was to deal with two issues: one, to rekindle a 
sense of the civic virtues that we needed around duty, 
obligation, and sense of community. But the other was to deal 
with the fact that for many young people the American dream was 
no longer available and that there was not a real opportunity 
ladder to afford higher education.
    For those of us who helped create national service, we did 
not want another program; we really wanted to launch a social 
movement. We did not want another giveaway, but we wanted to 
say for every opportunity there was an obligation. We did not 
want to talk about an entitlement society; we wanted to talk 
and function on an empowerment society.
    The whole role of national service is that by performing 
community service you earn a voucher to reduce your student 
debt, a voucher to pay for higher education. So it was based on 
essentially opportunity and obligation linked.
    The work that the volunteers do is not glamorous. It does 
involve cleanup and it focuses on public safety, the 
environment, helping with education, and focusing on many 
areas. I know that not only are heartwarming stories told, but 
that there are other issues around it.
    What I want to be sure is that we have a national service 
program. The President has talked about stimulating 
voluntarism, and later on in April there will be a bipartisan 
and I hope a nonpartisan summit on voluntarism in Philadelphia. 
Who will be there? Not only President Clinton, but President 
George Bush, who founded the Points of Light concept that our 
subcommittee under both stewardships have funded. It will have 
Colin Powell, who certainly knows what duty, obligation, a call 
to service meant, and how we can translate that into civilian 
society.
    But I believe we need to have a mechanism to operationalize 
good intentions and where there is a Federal role, but not a 
federally restrictive set of mandates. So we look forward to 
that summit and how we can continue to stimulate voluntarism, 
not only through this program but through others.
    The GAO report does raise some issues and concerns, but 
what they talk about is, though the State commissions vary, 
they are meant to vary. What we wanted to have is that each 
Governor could decide how to run this program according to 
local need. It was to be Federal resources and a State and 
locally run program, tailored to local community needs and not 
a cookie cutter approach.
    So I think that we have gotten off to an uneven start, and 
we thank Senator Wofford for ironing out a lot of the wrinkles 
that we had: No. 1, acknowledging the validity of the concerns 
that the Congress had; No. 2, taking corrective action; No. 3, 
to try to put this program on track where it is not a program 
only for today, but a program for tomorrow, that the values 
learned by participating in the program carry on long after 
someone leaves the program.
    Last, but not at all least, when we talk about the 
attrition rate we are talking about two things. One, that you 
have to be fit for duty to stay in this program, and we wanted 
the restrictions to be tough, so that if anyone had reasons for 
cause to be dismissed for, say, drug abuse, then so be it.
    The other is that we are recruiting not only yuppie college 
kids to pay off their student debt--a very worthwhile endeavor, 
I might add--by creating a sense of obligation, but we were 
also recruiting among the poor. In many instances, deep 
compelling personal reasons meant that people had to leave the 
program. So, therefore, the attrition rate is in many ways to 
be expected.
    Well, I sound like I am giving the testimony that maybe 
Senator Wofford is going to give, but I do think we really need 
to, and through this appropriations cycle, to look at where 
national service has been and correct the problem and look at 
where national service could go, and really in a bipartisan, 
nonpartisan way focusing on some clear objectives and strong 
management controls.
    So with that, I will conclude my statement.
    Senator Bond. Thank you very much, Senator Mikulski.
    Senator Campbell.

                  STATEMENT OF BEN NIGHTHORSE CAMPBELL

    Senator Campbell. Thank you, Mr. Chairman.
    I am pleased to see our former Senate colleague, Senator 
Wofford, here, the Chief Executive Officer of the Corporation 
for National Service.
    In my home State of Colorado I visited the location at our 
former Lowry AFB on a couple of occasions and I believe it has 
a great deal of potential. I know that there has been some 
growing pains with it and I know it has come into some 
criticism, but generally this group in our State has helped 
low-income communities. It has tutored at-risk youth, for 
instance, and it has monitored students, helped with antigang 
initiatives, and a number of things. Similarly, I think it has 
helped homeless veterans on many occasions and I certainly 
support that.
    I guess that I have got some concerns that some of the 
other committee people have, too, that I guess could be best 
described as Senator Mikulski has. There are some yellow lights 
going off about how the budget is being handled. But I think 
generally it is a new program and generally doing very good.
    I just wanted to tell our former Senator that I am 
certainly supportive of it and hope we can iron out those 
problems and get on with it.
    Senator Bond. Thank you very much, Senator Campbell.
    Senator Boxer.

                       STATEMENT OF BARBARA BOXER

    Senator Boxer. Thank you so much, Mr. Chairman. It is 
certainly a pleasure for me to be here today. As a new member 
of this committee and this subcommittee, I am very honored.
    I wanted to mention, if I have to get up and leave in the 
middle of something, I have got a conflicting hearing on 
Superfund sites going on elsewhere in the building. So forgive 
me.
    But I really wanted to come by to extend a special welcome 
to Harris Wofford, our former colleague, who is now CEO of the 
Corporation of National Service. He is a hero of mine and his 
interest in this goes way back. I remember when I was a junior 
at college President Kennedy urged our Nation's young people to 
ask not what your country can do for you, but what you can do 
for your country, and I remember that resonating with me, and 
here we are so many years later with those same words having 
tremendous meaning.
    Once again, this challenge has been made to our Nation's 
young people through this program, and once again I am happy as 
well to see young people responding. I hope that we will not 
take away this opportunity. I believe that we can get to the 
bottom of whatever the problems are and have some strong 
bipartisan support for it.
    The Corporation for National Service plays a key role in 
helping our country and our communities address unmet needs, 
while ushering in a renewed commitment to civic responsibility. 
In my State we have over 2,300 AmeriCorps members in 48 
different sites. Members tutor children K through 12, they 
mentor teens at risk of dropping out or becoming teen parents, 
they assist local community organizations in reducing juvenile 
crime. They support local residents in identifying and 
addressing the most critical needs.
    Like Senator Campbell, I have had the privilege of visiting 
some of these programs and seeing our young people at work. 
They have become heroes in many communities, and it is just a 
joy to see that. Then they get the opportunity to go to 
college.
    So I think it is a program that has a vision, and if we are 
careful and if we do it right I think it should meet everyone's 
expectations.
    As a former local elected official, I appreciate the fact 
that there is not a cookie cutter approach to this program, 
because every community has different needs, and that is what I 
like about this program.
    So I am pleased to be here today and I look forward to 
hearing about the future plans.
    Thank you very much, Mr. Chairman, for this time.
    Senator Bond. Thank you very much, Senator Boxer.
    Senator Burns.

                       STATEMENT OF CONRAD BURNS

    Senator Burns. Move on.
    Senator Bond. Thank you very much, Senator Burns. That is 
one of your best statements yet. [Laughter.]
    Senator Burns. Coming from you, I will accept that as a 
compliment.
    Senator Bond. That is how it was meant, Senator.
    Senator Wofford, we are delighted to have you with us 
today. As you will understand, we will make your full statement 
a part of the record and would welcome your highlighting those 
items which you think ought to be called to special attention 
for this subcommittee.
    Please begin.

                      statement of harris wofford

    Mr. Wofford. Mr. Chairman, Senator Bond, Senator Mikulski, 
Senator Boxer, Senator Campbell, Senator Shelby, Senator Burns: 
I look forward to reading Senator Shelby's remarks and anything 
Senator Burns has to say now or in the future.
    I appreciate this opportunity to discuss the progress and 
the plans of the Corporation for the coming year. Our budget 
request is for $548 million for the programs authorized under 
the National and Community Service Trust Act, and these funds 
would support approximately 29,500 AmeriCorps members through 
the grant program and 1,600 members in the National Civilian 
Community Corps.
    The request includes $53 million to support the Learn and 
Service America, K through 12, and higher education programs, 
and $6 million for the Points of Light Foundation initiated by 
President Bush, which has become a special partner of ours both 
in the summit and in many other ways.
    By the way, Senator Mikulski, I am delighted to introduce 
Marilyn Smith of Maryland, who is just taking over as the 
director of the Learn and Serve America Program.
    Senator Mikulski. I was going to introduce her when I do my 
questions.
    Mr. Wofford. She was executive director of the State 
Commission in Maryland and a pioneer in service learning.
    Now, my testimony does not address the VISTA section of 
AmeriCorps or the Senior Corps programs funded under the 
Domestic Volunteers Service Act. Mr. Chairman, I appreciate 
very much your support over the years for VISTA and its 30-year 
track record as the first domestic Peace Corps, of helping 
people and communities help themselves.
    By the way, I hope the VISTA approach is, in fact, going to 
be a larger proportion of the overall AmeriCorps scheme.
    I want to make three points: First, that national service 
works. It is a proven way to leverage volunteers and help to 
solve community problems; especially the critical problems of 
children and youth.
    Second, that we are committed to achieving the highest 
levels of integrity and efficiency. We have already taken 
important steps to cut costs, increase efficiency, and develop 
a sound financial management system.
    Third, I want to outline briefly three initiatives--America 
Reads, National Service Scholars, and the Presidents' 
Philadelphia Summit, Presidents plural, as Senator Mikulski 
pointed out, to be chaired by Gen. Colin Powell. Those 
initiatives can help unleash a new wave of voluntary citizen 
action aimed at solving some of our country's most serious 
problems in a decentralized, nonbureaucratic way.
    There are very few programs that have received the same 
level of scrutiny as AmeriCorps. The conclusion of the 
evaluations and reports and the experience of communities 
across America, reflected in so many Governors' support for 
Corporation programs, is that national service works, helping 
to solve the toughest problems of education, crime, drugs, 
illiteracy, homelessness, environmental problems.
    As I detail in my written testimony, Aguirre International, 
an evaluation firm headed by President Ford's Education 
Commissioner, found significant accomplishments in every area 
in which AmeriCorps members serve. Nowhere is AmeriCorps having 
a more profound effect than in education. More than one-half of 
all AmeriCorps members work with children and youth. They 
teach, tutor, run after school programs, do drug prevention 
work, create safe havens and safe corridors, and organize 
secondary, middle school, and university students themselves to 
serve.
    Thousands of AmeriCorps members serve as mentors or are 
recruiting mentors to work one on one to help children do 
better in school. AmeriCorps members are also in the front 
lines in the fight against crime. They organize crime watch 
groups, work to reduce gang violence and help crime victims. 
Their efforts have won extraordinary praise from police chiefs 
and sheriffs around the country.
    A key to understanding AmeriCorps is the degree to which it 
leverages unpaid volunteers. Originally there was some concern, 
and there is still in some people's minds, that there is a 
contradiction between full-time service with living allowances 
and traditional unpaid volunteering, when exactly the opposite 
is the case.
    Very often, in most cases you cannot use large numbers of 
unpaid volunteers without a cadre of full-time people to make 
it possible. Right now today there are two teams of the NCCC, 
National Civilian Community Corps, who have gone right away on 
the call of FEMA, as they also do on the call of the Red Cross, 
to the disaster area in Arkansas. They help organize unpaid 
volunteers. They come quickly. They work night and day. They 
stay until the job is over.
    Because members serve full time every day, they help the 
nonprofits in which they serve to multiply the number and 
effectiveness of unpaid volunteers. Habitat for Humanity is a 
case in point. At the Habitat site in Miami, 2 dozen AmeriCorps 
members helped recruit, and worked alongside, thousands of 
community volunteers to build 50 new homes.
    Aguirre International found that each AmeriCorps member 
recruited, trained, and supervised an average of 12 unpaid 
volunteers. The hundred projects in our Learn and Serve America 
Higher Education Program have generated the service of an 
additional 27,000 volunteers. These numbers will continue to 
grow as we put extra emphasis on volunteer generation.
    National service is cost effective. Three separate 
independent evaluations have examined the costs and benefits 
and have concluded that it is a wise investment that returns 
from $1.54 to $3.90 for every dollar invested. That is one 
reason Massachusetts Gov. Bill Weld has said it is the wisest 
investment of taxpayers' money he could think of.
    On another front, AmeriCorps is living up to its GI bill 
promise of expanding educational opportunity for those who 
serve, especially those from America's hardworking middle 
class. Last year 55 percent of AmeriCorps members came from 
households with incomes of from $10,000 to $50,000. Another 21 
percent come from homes with less than $10,000 income. The 
National Service Trust has already made more than 26,000 
payments totaling $44 million to over 6,000 education and loan-
holding entities.
    The Corporation is a lean, decentralized, and responsive 
public-private partnership that is locally based. Grants go to 
local nonprofit groups--schools, colleges, universities, faith-
based groups--more than 430 such through AmeriCorps alone. 
These groups decide what service will be performed and they 
select and enroll the members.
    Two-thirds of these grants are made by Governor-appointed 
State commissions. The other one-third go to national 
nonprofits, such as Habitat, the Red Cross, and the Boys and 
Girls Clubs.
    National service is competitive. States compete for 
Corporation resources and local programs compete for AmeriCorps 
members. Programs that do not perform get eliminated. Since 
AmeriCorps started, 70 programs have not been renewed for 
additional funding.
    National service uses rigorous evaluation to improve 
quality. Right now 14 separate studies related to AmeriCorps 
are being conducted or planned, most by outside evaluators. In 
addition, we require every AmeriCorps program to design annual 
objectives based on measurable outcomes--reading scores raised, 
children immunized--and check their progress through the year. 
This is a cutting edge initiative in the nonprofit sector.
    All the programs of the Corporation are nonpartisan in 
spirit and in construction. By law, State commissions are 
comprised of a balance of Democrats and Republicans. 
Commissions are appointed by Governors, three-fifths of whom 
are Republican. Bipartisanship is built in.
    Perhaps no other issue has generated so much confusion and 
misinformation as the issue of costs. AmeriCorps members who 
serve their community full time for a year receive a living 
allowance that averages about $150 per week or $7,800 per year, 
going up under cost-of-living formulas to a little over $8,000 
in the coming year--not $18,000, not $27,000, not $50,000, as 
some critics have stated.
    After the corpsmember completes a year of full-time 
service, he or she earns an educational award of $4,725 to be 
used at some point over the next 7 years. There is an 
additional allotment for health care. The total base support 
for the AmeriCorps member amounts to about $13,000 in living 
allowance, health insurance, and education award.
    The total average cost from the Corporation's 
appropriations per AmeriCorps member has been a little over 
$18,000 and it is going down. The steps we have taken to cut 
costs include eliminating grants to Federal agencies, planning 
grants, and member relocation costs. We have raised the local 
match from 25 percent to 33 percent, requiring grantees with 
above-average costs to cut costs by 10 percent this last year 
and expanding the number of education awards only--a good idea 
that Senator Grassley has strongly pressed for.
    In this program, the Corporation provides education awards 
to nonprofits, religious organizations, colleges, and others 
who agree to provide the AmeriCorps member's living allowance. 
We have already approved 2,000 of these assignments, including 
a new partnership with the Boys and Girls Clubs of America to 
support 800 AmeriCorps members. The National Council of 
Churches will sponsor more than that number.
    Furthermore, last May I announced an ambitious plan for 
reducing AmeriCorps costs. We are reducing the average cost per 
member to $17,000 in program year 1997--that is including 
education award and everything--to $16,000 in 1998 and to 
$15,000 in 1999.
    This includes all of the items that I have listed above 
including recruitment, training, and all our program support.
    Senator Bond. Mr. Wofford, we turned off the light and let 
you go a little longer than the 5 minutes we had forecast. We 
do have four others to do. It has been about 15 minutes and I 
hate to do this, but we have a heavy schedule today. If you 
could wrap up.
    Mr. Wofford. I will try to wrap up fast. Thank you, Mr. 
Chairman.
    The handling of the Corporation's financial management 
problems demonstrates our commitment to change and reform. My 
top priority, shared actively by our Corporation's Board of 
Directors, is getting our financial house in order. Under the 
leadership of our new chief financial officer, Donna 
Cunninghame, we are making steady progress toward producing 
auditable books and correcting deficiencies. Our goal is to 
build a sound financial management system and make the 
preparation of auditable financial statements a routine 
operation.
    The $38 million, Mr. Chairman, that you mentioned a little 
earlier, in fact, is money that Ms. Cunninghame, tells me has 
been brought down to the neighborhood of $28 million. With some 
further adjustments it will come down more.
    Last, the three initiatives. The America Reads campaign 
launched by President Clinton, endorsed by so many Governors 
and mayors, is----
    Senator Mikulski. Senator Wofford, just to help you out 
here and move along with the chairman, and not to interrupt 
your testimony, but I have two questions related to America 
Reads and also to the Presidents', the multiple Presidents' 
summit, the Colin Powell, and perhaps we could come to those 
two issues in my question.
    Mr. Wofford. Very good.
    Senator Mikulski. And you could brief us on that and 
through that question.
    Mr. Wofford. I will await your question. That help is 
welcome, Senator Mikulski.
    I might say that the one other initiative other than the 
American Reads and the Presidents' summit is the National 
Service Scholars Program for which we are asking $10 million. 
In his commencement speech at Penn State, the President called 
for service to become part of the ethic of every school in 
America. To help make this happen in every high school, he 
announced the National Service Scholars Program, which will 
reward high school juniors and seniors who do outstanding 
service with a $1,000 college scholarship, $500 of which will 
come from the Corporation and $500 from local sponsors.
    The Corporation has contracted with a private foundation to 
administer this program, which will begin making its awards 
this spring.

                           PREPARED STATEMENT

    I will conclude by saying that national service fits the 
era in which big Government is over because the era of big 
citizens is beginning. The other side of reinventing Government 
is reinventing and reinvigorating citizenship. National service 
reduces our reliance on Government by mobilizing citizen 
action. It helps communities solve problems in their own 
ingenious ways. It strengthens the building blocks of civil 
society. It is a smart and wise investment and there are 
compelling reasons why it should be continued, not despite 
tight budget times but because of them.
    Thank you, Mr. Chairman.
    [The statement follows:]
                  Prepared Statement of Harris Wofford
    Mr. Chairman and members of the Subcommittee, I appreciate the 
opportunity to appear before you today to review the Corporation's 
progress over the last year and to report about our plans for the 
future.
    The total fiscal year 1998 budget request from this Subcommittee 
for programs authorized under the National and Community Service Trust 
Act is $546,500,000. In addition to this amount, we are seeking a 
separate appropriation of $2,500,000 from this Subcommittee for the 
Office of the Inspector General.
    These funds will provide for approximately 29,500 AmeriCorps 
members through grant programs and approximately 1,600 AmeriCorps 
members through the National Civilian Community Corps (NCCC) program. 
(Participants in the AmeriCorps*VISTA program, funded through the 
Subcommittee on Labor, HHS, Education, and Related Agencies, will bring 
the total to 35,000 AmeriCorps members.)
    The amounts requested represent an increase of $146,500,000, or 36 
percent over the fiscal year 1997 funds appropriated by this 
Subcommittee for national service. The increase is targeted to the 
America Reads initiative, the challenge to Americans to help all 
children read well and independently by the end of the third grade. 
National service's role will be specifically outlined in legislation to 
be presented to the Congress later this month.
    The budget request will cover the costs of making the current 
District of Columbia NCCC deployment site a permanent campus, expanding 
other campuses, and establishing a new campus in a region of the 
country not currently served by the NCCC. In addition, these funds 
provide an increase in support to service-learning initiatives in K-12 
schools, community organizations, and institutions of higher education 
through the Learn and Serve America program.
    For three years, national service has had proven, positive results 
in improving America's communities. National service programs have been 
``getting things done'' and expanding educational opportunities, 
improving the environment, enhancing public safety and meeting other 
human needs. Outside experts have found that representative programs 
have achieved positive cost-benefit ratios that merit and justify your 
continued support.

                          GETTING THINGS DONE

    In the three years since the program was created, 70,000 AmeriCorps 
members have served in over 1,800 non-profit operating sites.
    A 1996 independent evaluation of AmeriCorps programs by Aguirre 
International--headed by President Ford's Commissioner of Education--
examined the activities of one out of every ten AmeriCorps members then 
serving. Aguirre found that this small-but-representative sample of 
individuals:
  --Taught, tutored, or mentored almost 64,000 students.
  --Collected, organized, and distributed 974,000 pounds of food.
  --Helped 2,550 homeless people find shelter.
  --Developed and distributed 38,500 sets of information about drug 
        abuse, HIV/AIDS, street safety, health care, and other issues.
  --Ran violence-prevention after school programs for 50,000 youth.
  --Performed energy audits for more than 18 million square feet of 
        buildings.
  --Planted more than 210,000 trees.
    AmeriCorps members have similar achievements in every state over 
the last year.
    The 78 AmeriCorps sponsored by the Montana Conservation Corps 
repair the homes of elderly and low-income residents, restore and 
protect natural resources, improve the habitat of wildlife, and 
increase the public's access to natural sites. The AmeriCorps members 
also mentor at-risk youth while engaging them in service.
    The Fort Belknap Community Council's New Vision Youth Serve is a 
program supported by a Learn and Serve America K-12 grant, run by and 
for this Montana tribe. The Fort Belknap Tribal Education Department, 
College Safe Future Program, Housing Authority, Youth Council, and 
Tribal Health Department are developing a network of community service 
centers on the tribe's reservation to address public safety, human and 
environmental needs.
    The Blue Hills AmeriCorps program engages 18 AmeriCorps members in 
partnership with the Kansas City, Missouri Police Department to help 
close drug houses, reduce crime by reporting drug activity, establish 
safety corridors, and train youth and adults in conflict resolution. 
This year, Blue Hills AmeriCorps members recruited and trained 734 
volunteers to serve as school bus stop guards at 62 school bus stops. 
Over the last three years, more than 50 drug houses were closed down, 
some of which have been taken over by the city and are being 
rehabilitated as affordable single-family housing for low income 
families.
    In Birmingham, Mobile, and Montgomery, Alabama and 17 other cities 
in nine southern states--the Alliance for Catholic Education (ACE) 
provides teachers and other resources for under-resourced parochial 
school systems through a Learn and Serve America: Higher Education 
grant. ACE and the University of Notre Dame are matching every 
Corporation dollar with 13 dollars for the 1996-97 program year. ACE 
Learn and Serve members are graduates of several top college 
institutions of higher education, including Notre Dame, Duke, 
Georgetown, and Boston College.
    The 28 AmeriCorps members sponsored by the American Youth 
Foundation's St. Louis Partners for Service Education tutor and assist 
teachers in developing projects related to literacy, the environment, 
first aid, and substance abuse prevention. The AmeriCorps members have 
recruited more than 100 parents to assist in classrooms and other 
educational support activities.
    Twenty AmeriCorps members sponsored by the Notre Dame Mission 
Volunteer Program and the Sisters of Notre Dame are serving at eight 
schools, community centers, and soup kitchens across Baltimore, 
Maryland. Sharonne Henderson, a Notre Dame--AmeriCorps member who 
tutors children at City Springs Elementary School, recognized that one 
of her students had significant trouble seeing. The child was tested, 
diagnosed as having a cataract, and fitted with glasses. Ms. 
Henderson's presence, attention, and concern led to the early detection 
and treatment of this very serious condition. The Notre Dame Mission 
Volunteer program also sponsors 48 other AmeriCorps members who serve 
in Boston, Massachusetts, Cincinnati, Ohio, and Apopka, Florida.
    The 173 AmeriCorps members of the United Youth Corps of Maryland 
maintain and restore 15 state forests, parks, and wildlife management 
areas. Members rehabilitate abandoned houses and construct community 
parks in low-income Baltimore neighborhoods, tutor students with 
special needs, and serve as teachers' aids.
    In Alaska, AmeriCorps members serve in more than 30 communities to 
improve environmental education, recycling, sanitary waste management, 
early childhood education and tutoring. Members serve in rural areas 
such as Hooper Bay and Nulato.
    Students at the Cape May County (New Jersey) Technical High School 
in New Jersey are working with Habitat for Humanity in a program 
sponsored by Learn and Serve America K-12. The students build houses on 
the school property which are then transferred to lots throughout the 
area. The program was recently named a Best Practice/Star School in the 
category of Public Engagement by the New Jersey Department of 
Education--the only one of 1,000 programs under consideration to win 
that distinction.
    Twenty-four AmeriCorps members sponsored by Vermont's Northeast 
Kingdom Initiative Program are serving youth, unemployed or under-
employed adults, and the elderly in a three-county area--one of the 
poorest and most rural areas in the nation.
    Twenty-two Kern County School District AmeriCorps members in 
California's Central Valley are tutoring 600 students in the 1996-97 
school year. Over half of the students tutored are now reading at or 
above the standard for their grade levels.
    Twenty-two AmeriCorps members in the Idaho TRIO AmeriCorps program 
have leveraged the assistance of 369 volunteers to tutor 1,997 at-risk 
K-12 students. Seventy percent of the students tutored showed 
improvement of their school performance by at least one grade. The 
AmeriCorps members have also advised 863 students regarding career 
choices and assisted 338 Idaho teachers through in-class and other 
support. AmeriCorps members were able to encourage AmeriCorps host 
agencies to contribute more than 2,169 hours to support the service of 
members. One student said of the program, ``I can feel good about 
myself. I'm proud of myself. I feel even better about my dream to go to 
college.''
    Now in its third year of operation, twenty AmeriCorps members in 
the Iowa Coalition Against Domestic Violence Program, a statewide 
AmeriCorps program, have made 12,464 contacts with victims of domestic 
abuse (250 percent of their goal), assisted over 1,000 women in 
obtaining pro se protective orders (133 percent of their goal), and 
provided 371 educational programs for Iowans ranging from elementary 
school children to senior citizens (77 percent of their goal). This 
program has been very effective in engaging another 400 non-AmeriCorps 
volunteers to provide 160,000 hours of additional services to victims 
of domestic violence. AmeriCorps members serve in similarly effective 
programs across the country, including the New Hampshire Coalition 
Against Domestic and Sexual Violence's AmeriCorps Victim Assistance 
Program. This program, and others, in New Hampshire prompted former 
Governor Stephen Merrill to state that ``the national service program 
has been a great success in the state of New Hampshire and I anticipate 
it will continue to be in the future * * *. These motivated individuals 
make AmeriCorps work for New Hampshire and I am pleased to be a partner 
in this process.''
    In addition to environmental and disaster relief work across the 
region, AmeriCorps National Civilian Community Corps (NCCC) members 
based at Colorado's Lowry Air Force Base have achieved significant 
results in Denver schools. Over the last year, the 14 corpsmembers who 
served at Denver's Capitol Hill Children's Center helped kindergarten 
students improve their language-skills test scores by an average of two 
years. Thirteen other corpsmembers served as mentors to the first-
through fifth grade students at the Smith Renaissance Academy. 
Together, the students and corpsmembers produced a school newspaper, 
which allowed the students to develop reading, writing, and research 
skills while preparing stories about their community. An additional 14 
AmeriCorps*NCCC members served at the Columbine Elementary School, 
where they helped set up a new school building designed to house a 
program focusing on the first- and second-grade students' literacy 
skills. These NCCC members tutored students who needed special 
assistance and designed an after-school program for primary students 
and their parents.
    These examples quantify the immediate effects of national service. 
While we can measure the value of the bridge AmeriCorps members helped 
repair or estimate the cost to society had AmeriCorps members not 
tutored children in need, some benefits of the Corporation's programs 
are not immediately measurable. By instilling a sense of pride in a 
community, by establishing community volunteer programs, and helping 
prepare children for their first days of school, AmeriCorps members 
help to crack the atom of civic indifference creating a chain reaction 
whose effects transcend quantification and are felt in a myriad of 
ways.

                              DEMOGRAPHICS

    The strongest links in this chain are the AmeriCorps members. 
AmeriCorps members mirror the diversity of the communities in which 
they serve and look like a cross-section of 21st century American 
cities. Preliminary demographic information on current participants in 
AmeriCorps grants programs and the NCCC are similar to those of the 
first and second years of the program. Approximately one in two 
AmeriCorps members are white, slightly less than one in three is 
African American, and one in six is Hispanic. Initial data shows 
approximately four percent of these current AmeriCorps members are of 
Native American, Asian or Pacific Islander heritage.
    Data about the levels of education already achieved by AmeriCorps 
members suggests an important trend: in each of the three years of 
AmeriCorps, the percentage of participants who already earned their 
bachelor's degree, spent some time in graduate school, or earned a 
graduate degree has increased. In the 1994-95 program year, these three 
categories comprised 29 percent of AmeriCorps members. The sum grew to 
35 percent in 1995-96, and preliminary data for the 1996-97 program 
year indicates another increase, to 36 percent.
    AmeriCorps expands opportunity in exchange for responsibility for 
the broad middle class. In the 1995-96 program year, 56 percent of the 
AmeriCorps members came from households with annual incomes of less 
than $30,000. (The Corporation receives no information about the 
household family income of AmeriCorps members until the end of the 
program year.)
    The Subcommittee should note that for the current, 1996-97 program 
year, all of these figures may reflect a shift in the balance between 
urban and rural communities because the Corporation has eliminated 
AmeriCorps grants to other federal agencies. Some rural programs that 
utilized AmeriCorps members and worked with local offices of the United 
States Department of Agriculture or other agencies no longer exist. The 
Corporation is making a concerted effort to restore and increase rural 
representation in the AmeriCorps program.

                          EXPANDED OPPORTUNITY

    Over the last three years, AmeriCorps has enabled 70,000 Americans 
to serve their communities in exchange for expanded opportunity. 
Approximately 45,000 of these individuals were participants over the 
first two years of AmeriCorps, and are eligible to earn national 
service education awards. The remaining 25,000--who are currently in 
the midst of their year as AmeriCorps members--will earn education 
awards when they complete their terms of service. Those who have 
completed their terms of service have seven years within which to use 
their education awards.
    The National Service Trust has already made over 26,000 payments 
totaling approximately $44 million to over 6,000 education and loan-
holding entities. Currently, the Trust is averaging over $600,000 in 
payments weekly. This number will increase as more and more members 
avail themselves of their education award.

                             COST--BENEFIT

    Independent evaluators have repeatedly proven that national service 
yields a positive return on investment. The authors of each study have 
cautioned that their findings probably underestimate the benefits of 
national service significantly, because the full value of safer 
streets, stronger schools, cleaner rivers, and the like are difficult 
to quantify and not seen immediately.
  --In the ``Cost-and-Benefit Study of Two AmeriCorps Projects in the 
        State of Washington,'' the Northwest Regional Educational 
        Laboratory concluded that every dollar invested in these 
        Washington State projects yielded a return up to $2.40 in 
        addition to less-easily measured benefits.
  --To analyze their significant investments as AmeriCorps private 
        sponsors, the Charles A. Dana, IBM International, and James 
        Irvine Foundations commissioned a team of noted conservative 
        ``Chicago School'' economists to examine more than 70 
        AmeriCorps sites in Austin, Texas; Columbus, Ohio; Atlanta, 
        Georgia; Charlotte, North Carolina; New York City; and northern 
        California. In their report called ``The Benefits and Costs of 
        National Service,'' Kormendi/Gardner Partners predict that for 
        every dollar AmeriCorps invests, the public will realize up to 
        $2.60 or more in direct, measurable benefits.
  --The University of Minnesota, in the ``Youthworks-AmeriCorps 
        Evaluation First Year Report'' on projects across Minnesota, 
        found benefits up to $3.90 for each dollar invested in these 
        programs.
    A study of the Learn and Serve America: K-12 completed by Brandeis 
University and Abt Associates concluded that ``on average, the programs 
in the intensive study sites produced about $3 in direct community 
benefits for every dollar in program costs.''
    When Massachusetts Governor Bill Weld swore in his State's 
AmeriCorps members this fall, he explained how ``every taxpayers' 
dollar we spend on AmeriCorps comes back threefold, when we add up the 
value of your innovative ideas, your physical labor, and all of the 
skills you'll bring to the workforce when you finish your education.'' 
That's why he calls AmeriCorps ``one of the most intelligent uses of 
taxpayer dollars ever.''

                             AMERICA READS

    These demonstrated successes led President Clinton to give national 
service a major role in the America Reads Challenge. The America Reads 
Challenge is a national campaign to ensure that every child can read 
well and independently by the end of the third grade. The President has 
proposed that money from the Corporation's budget be used so members of 
AmeriCorps may play a key role in recruiting, training, and organizing 
the new army of 1,000,000 volunteers who will tutor young children.
    The increasing complexity of today's jobs and society amplifies the 
importance of literacy. Research shows that if students cannot read 
well by the end of third grade, their chances for later success are 
significantly diminished--including a greater likelihood of dropping 
out of school and other delinquent behavior.
    Poor literacy skills are one of our nation's most serious problems. 
Recent testing by National Assessment of Educational Progress found 
that 43 percent of America's fourth grade students in public schools 
scored below the basic reading level. Education outside the classroom 
is essential to improving reading skills. A U.S. Department of 
Education study, ``Reading Literacy in the United States'', found that 
fourth-grade average reading scores were 46 points below the national 
average where principals judged parental involvement to be low, but 28 
points above the national average where parental involvement was high--
a difference of 74 points. Reading is a skill that is developed not 
only in the classroom, but also outside of school in the home. To this 
end, America's Reading Corps will mobilize tutors to work with reading 
teachers, principals, libraries and community-based organizations to 
provide individualized after-school, weekend and summer reading 
tutoring for more than 3 million K-3 students and their parents.
    There are several parts to the America Reads Challenge, including: 
the Reading Corps, which will tutor children in grades K-3 who need 
extra help; the Parents as First Teachers program, which will assist 
parents in helping their children; expansion of Head Start programs; 
and a challenge to the private sector to work with schools as they have 
with the Department of Education's Partnership for Family Involvement 
in Education and the READ*WRITE*NOW! initiative. The Reading Corps is, 
the heart of the program that is proposed to be funded at almost $2.5 
billion over 5 years, will provide reading specialists and tutor 
coordinators to train and supervise the tutors.
    The President has asked for national service's participation 
because we are well equipped to handle this challenge. Many of our 
programs have strong track records helping children improve their 
reading skills and assist parents in becoming an essential part of 
their children's education.
    For example, the Home Instruction Program for Preschool Youngsters 
(HIPPY) has had a remarkable record of preparing children for success 
in school before their first day of kindergarten. AmeriCorps Members in 
16 States and 43 HIPPY Sites serve as resources for parents, especially 
single mothers on welfare. They make home visits every two weeks to 
help young mothers improve their basic parenting skills and provide 
their children with an enriched preschool experience. In doing so, 
AmeriCorps Members often instill in parents an interest in their 
children's education, and this interest spurs them to be more effective 
partners with their children's classroom teachers. Programs like HIPPY 
that ensure children have basic learning skills before entering the 
classroom make it more likely that the children will be able to read 
well by the end of third grade.
    In another program, Parents and Children Together in Learning 
(PACT), Learn and Serve America members through Harcum College, in Bryn 
Mawr, Pennsylvania bring parents back to school to teach them how to 
help their child read. Working with School District of Philadelphia, 
PACT trains inner-city parents to be volunteer tutors in their 
children's classrooms. PACT enrolls parents who participate in the 
program in Bryn Mawr classes for two weeks to teach them how to be a 
tutor. As a result, nearly 450 parents have improved their own skills 
while tutoring more than 4,000 children. The parents earn college 
credit for participating in the program.
    In Simpson County, Kentucky, 25 AmeriCorps members work directly 
with elementary school students to boost reading comprehension and 
nurture a love of books. The program is called SLICE (``Service 
Learning Impacting Children's Education'') and it gets results. By the 
end of the first year of the program more than 100 of the 122 tutored 
students in the county had improved their reading scores by at least 
two grade levels.
    The SLICE program exemplifies some less obvious benefits of 
AmeriCorps literacy programs. The program has been successful in 
improving the reading ability of students, and has helped develop 
community involvement in the process. Small business owners, local 
members of the American Association of Retired People (AARP), a retired 
teachers group, and even the entire staff of the local city hall have 
pitched in on the reading effort. Each SLICE AmeriCorps member recruits 
an average of 16 unpaid volunteers.
    By fostering community support, SLICE has achieved what we strive 
for in every national service program--a sustainability that is not 
dependent on any one individual or even a core group of original 
volunteers. This is how service can take root and grow to become a 
natural part of the life of a community.

                   NATIONAL SERVICE SCHOLARS PROGRAM

    The President announced the National Service Scholars Program in 
his June, 1996 commencement address at Pennsylvania State University. 
To qualify for the National Service Scholars Program, students must be 
juniors or seniors in high school who have performed community service 
for at least a year and who have been nominated by their principals. 
Recipients will receive a check for at least $1,000 for college costs, 
of which $500 will come from the National Service Trust and at least 
$500 will come from local scholarship sponsors.
    The Administration's 1998 suggested appropriations language sets 
aside $10 million for the National Service Scholars program. This is 
consistent with the mission of the National Service Trust, which was 
established as a repository for education awards for participants in 
national service programs.
    In accord with our commitment to reinventing government, a private 
501(c)(3) foundation, the Citizens' Scholarship Foundation of America, 
will administer the National Service Scholars Program. A competitive 
announcement was made in the Federal Register for this cooperative 
agreement, and the Citizens' Scholarship Foundation of America was 
chosen from a pool of seven highly qualified applicants. The Foundation 
has a 35-year history of encouraging and rewarding community service by 
youth through its Dollars for Scholars and other programs. Last year, 
the Citizens' Scholarship Foundation of America distributed close to 
$40 million in scholarships. The Corporation for National Service is 
pleased to rely on the talents of the Citizens' Scholarship Foundation 
of America to administer the National Service Scholars program.

              THE PRESIDENTS' SUMMIT FOR AMERICA'S FUTURE

    The Presidents' Summit for America's Future will, with the 
sponsorship of private foundations, bring together people from all over 
the nation who are committed to stimulating service and community 
volunteerism to ensure our youth have access to the resources that will 
help them lead healthy, fulfilling, and productive lives. It is a 
bipartisan endeavor convened by President Clinton and former President 
Bush as honorary Co-Chairmen, retired General Colin Powell as Chairman, 
and former Secretary of Housing and Urban Development Henry Cisneros as 
Vice Chairman.
    Summit sponsors include the Robert Wood Johnson Foundation, the 
Ewing Marion Kauffman Foundation, the W.K. Kellogg Foundation, the 
David and Lucille Packard Foundation, and the Pew Charitable Trusts.
    Community delegations from more than 100 cities and rural 
communities, state delegations led by the nation's governors, and 
leading citizens from the public and private sectors will come to this 
summit with concrete commitments to increase young people's access to 
one or more of five critical resources: An ongoing relationship with a 
caring adult: mentor, tutor, or coach; safe places and structured 
activities during non-school hours to learn and grow; a healthy start; 
a marketable skill through effective education; and an opportunity to 
give back through community service.
    Commitments that have already been made include:
  --Big Brothers/Big Sisters has committed to doubling their mentoring 
        relationships, reaching 200,000 matches through the year 2000. 
        More important, service will become an integral part of the 
        mentoring relationship and a key activity for current and 
        future ``Bigs and Littles.''
  --LensCrafters will provide one million needy people, especially 
        children, with free vision care by the year 2003.
  --AT&T has committed $150 million to connect the country's 110,000 
        public and private elementary and secondary schools on the 
        Information Superhighway by the year 2000.
  --The United States Army is taking the lead in encouraging a joint 
        effort among the military services to expand opportunities for 
        active-duty, reserve, and retired military personnel to 
        volunteer their time as mentors and tutors in their local 
        communities.
  --The National Association For Equal Opportunity in Higher Education 
        (NAFEO) has promised that half of the approximately 140,000 
        students enrolled in 117 Historically and Predominantly Black 
        Colleges and Universities will volunteer as tutors and mentors.
  --The presidents of 21 colleges and universities, including San 
        Francisco State University, the Vermont State Colleges System, 
        the University of Montana, the University of Maryland College 
        Park, the Community College of Denver, and the California State 
        University System have committed half or more of their 
        increases in work-study funds to community service initiatives 
        focusing on youth literacy.
    The Corporation for National Service is working alongside the 
Points of Light Foundation in initiating and planning the Summit to 
promote the goals of the National and Community Service Trust Act, the 
mission of the Corporation, and the vision set forth in the 
Corporation's Strategic Plan.
    The Presidents' Summit for America's Future has already created a 
surge of interest from the media, community service organizations, and 
corporate sponsors nationwide. We are looking forward to working 
alongside those who will participate in the efforts coordinated at this 
Summit to increase youth's access to fundamental resources and real 
opportunity.

                          MANAGEMENT CONCERNS

    As Chief Executive Officer, my top priority--shared by the 
Corporation's Board of Directors--is putting our financial house in 
order. We are making steady progress in doing so. Our new Chief 
Financial Officer, Donna Cunninghame, and her staff are in the process 
of improving business processes and implementing appropriate management 
controls.
    Ms. Cunninghame is a Certified Public Accountant. She and her staff 
have experience in both public and private sector accounting. Ms. 
Cunninghame served as the first full-time Chief Financial Officer of 
the Resolution Trust Corporation, and achieved three clean financial 
audits from the United States General Accounting Office (GAO) during 
that time. As Chief Financial Officer of the University of Maryland 
System, Ms. Cunninghame was directly responsible for all of its 
treasury, accounting, and financial operations. Ms. Cunninghame's staff 
also has expertise developing and implementing the type of corrective 
action necessary to resolve the Corporation's problems.
    The Corporation's Inspector General, based on the work done by two 
independent auditing firms, found our fiscal year 1994 financial 
statements to be inauditable. The difficulty stemmed from the unusual 
creation of the Corporation, which merged existing service programs 
with the new service initiatives. The Corporation inherited 
organizations that had never before been required to present their 
financial data in the manner now required under the Government 
Corporation Control Act. The difficulties we had are common to most 
federal entities required to produce auditable financial statements in 
a corporate style. Though initial inauditability may be common, it is 
unacceptable. We are aggressively working to produce auditable books.
    Arthur Andersen, hired by the Corporation's Inspector General, 
produced an audibility report which identified 99 problems. Arthur 
Andersen reviewed our efforts to implement their recommendations--they 
looked at our progress on 62 issues and found 28 to be completed.
    By the time the written report of the review was issued in December 
of 1996, Ms. Cunninghame, based on her experience producing clean audit 
reports, determined that 57 items were then corrected or in the process 
of implementation. The remaining 5 of the 62 reviewed items were 
related to activities that require substantial time and effort to 
complete. We are working on correcting those problems.
    By March 1, 1997 we expect to have corrected or be in the process 
of implementing an additional 31 of the 99 items. Ms. Cunninghame has 
expressed to me her expectation that by May 1 of this year, all but two 
of the 99 problems will be corrected or in the process of 
implementation. One of those two corrections is the implementation of 
the new financial management system which we are preparing to do in 
1998. The second is a minor item that is difficult to correct now but 
will be easy to correct when the new system is in place: a process by 
which the budget obligation to pay for a purchase is entered into the 
system before a purchase order is entered. When implemented, this will 
be an automatic part of the process.
    I can report that the Corporation is making steady progress in 
establishing financial order. We are eschewing ``quick fixes'' in favor 
of systematically cleaning up data integrity problems while 
implementing appropriate managerial controls. By the time we install 
our new financial management system in 1998, the goal is that the 
underlying data will be scrubbed and reliable, business practices will 
be improved and effectively controlled, and fully auditable statements 
reflecting the Corporation's financial status should become routine.

                    CUTTING COSTS AND OTHER CHANGES

    When I spoke with you last year, I outlined an early version of the 
Corporation's agreement with Senator Grassley to reduce costs and 
address other issues of concern to our critics. Working together, we 
improved AmeriCorps by reducing expenditures and expanding the number 
of individuals who will benefit from the opportunity to serve. The 
Corporation has committed itself to lowering its cost-per-member in the 
AmeriCorps grants programs by $1,000 in each of the next three years, 
starting with the programs set to begin this fall. The AmeriCorps 
budgeted average cost for programs supported with fiscal year 1998 
funds will be $16,000, including the education award. By the fall of 
1999, the cost will be down to $15,000 per member.
    This figure includes all Corporation costs, including the 
Corporation's share of members' living allowance and benefits, the 
grant for program support, and the administration directly attributable 
to AmeriCorps grants by the Corporation and our support of the 
Governors' Commissions on National Service. (These numbers are indexed 
for inflation and assume that there will be funds appropriated to 
support no fewer than 25,000 AmeriCorps members each year.)
    Over the last year, the Corporation has made many other changes to 
improve our efficiency. We have made improvements in our grant review 
process and increased the control the Governors' Commissions on 
National Service have over program decisions.
    The Corporation has also increased our collaborations with national 
non-profit organizations, particularly by expanding the AmeriCorps 
``education-award-only'' program.
    In this program, the Corporation provides education awards to 
individuals who are serving in traditional non-profits and whose 
service qualifies them for education awards. These non-profits include 
religious organizations, colleges and universities, and other 
institutions which have applied to the Corporation and shown they are 
able to provide living allowances and other resources for these 
AmeriCorps members.
    For example, the Boys and Girls Clubs of America are now supporting 
800 AmeriCorps members in this way, using them to engage the youth in 
Boys and Girls Clubs in community service. Currently, 2,000 AmeriCorps 
members are sponsored through this program, and the Corporation plans 
to announce agreements with non-profits which will sponsor up to 3,000 
more AmeriCorps members in coming weeks.

                      THE CAP ON NATIONAL DIRECTS

    Currently, 43 national non-profits sponsor 2,500 AmeriCorps members 
through National Direct grants. Millard Fuller, founder and President 
of Habitat for Humanity International, explained that ``as AmeriCorps 
members gain in construction skill, our Affiliates are able to expand 
the number of occasional volunteers through increased capacity to 
supervise and manage volunteers.'' Fuller later announced at a 
Washington, DC press conference that ``I want you to know that we at 
Habitat for Humanity feel privileged and honored to have the AmeriCorps 
people with us, and we want more of them, as time goes on. We love to 
be partners with you in this work, and I salute all the AmeriCorps 
people.''
    Under the Corporation's authorizing statute, one third of the 
AmeriCorps grants funds are directed to National Direct programs. In 
fiscal year 1997, this corresponds to $71.7 million; for the proposed 
fiscal year 1998 budget, this corresponds to $98.7 million. If the 
fiscal year 1997 $40 million cap on national directs is not removed, 
the shortfall of funds will prevent as many as 13 of these non-profits 
from sponsoring AmeriCorps members this fall. All current national 
direct programs--including Habitat for Humanity, the U.S. Catholic 
Conference, the National Council on Aging, the I Have a Dream 
Foundation, the Enterprise Foundation, and City Year--will have to 
compete against each other for the remaining funds. No new AmeriCorps 
national direct grants to national non-profits--such as Big Brothers/
Big Sisters--will be possible.
    We are requesting that the fiscal year 1997 cap be eliminated and 
that no cap be put in place for fiscal year 1998.

                            REAUTHORIZATION

    The Corporation for National Service's authorization expired on 
September 30, 1996. We are now operating under the authority of the 
General Education Provisions Act (GEPA) that will expire at the end of 
September, 1997. I have met with Chairman Goodling and representatives 
of the House Committee on Education and the Workforce to begin the 
formal reauthorization process, and am scheduled to meet with Chairman 
Jeffords and members of the Senate Committee on Labor and Human 
Resources in coming weeks.
    Though it is too early to outline specific details about 
reauthorization, I expect that any plan to improve national service 
through this process will build on the key principles of the current 
national service network: flexibility, including the ability to 
redirect resources to meet new needs using proven techniques; stream-
lining, including the importance of constantly improving efficiency; 
coordination, including maximizing cooperation among programs in a 
community; and devolution, including significant state-and local-
control.
    I look forward to working with the Congress through both 
appropriations and reauthorization to make national service a program 
in which all Americans can take pride.
    I will be happy to answer your questions.


           AMERICORPS MEMBERS BY RACE/ETHNICITY, 1994-1997 \1\          
                          [Percent of members]                          
------------------------------------------------------------------------
                                                   Fiscal years         
             Race/Ethnicity             --------------------------------
                                          1994-95    1995-96    1996-97 
------------------------------------------------------------------------
African-American.......................         32         27         29
American Indian........................          2          2          1
Asian/Pacific islander.................          3          3          3
Hispanic...............................         15         18         16
White..................................         49         48         42
Other..................................  .........          2          9
------------------------------------------------------------------------
\1\ 1996-97 enrollment is still underway, therefore, those data are     
  incomplete.                                                           


       EDUCATIONAL ATTAINMENT BY AMERICORPS MEMBERS 1994-1997 \1\       
                          [Percent of members]                          
------------------------------------------------------------------------
                                                   Fiscal years         
            Education level             --------------------------------
                                          1994-95    1995-96    1996-97 
------------------------------------------------------------------------
Less than high school..................          9          5          8
High school diploma....................         21         22         20
AA degree/some college.................         41         39         36
Bachelor's degree/some grad school.....         26         30         28
Graduate degree........................          3          5          8
------------------------------------------------------------------------
\1\ 1996-97 enrollment is still underway, therefore, those data are     
  incomplete.                                                           


        HOUSEHOLD FAMILY INCOME OF AMERICORPS MEMBERS, 1994-1996        
                          [Percent of members]                          
------------------------------------------------------------------------
                                                        Fiscal years    
                   Income range                    ---------------------
                                                     1994-95    1995-96 
------------------------------------------------------------------------
$5,000 or less....................................          8          6
$5,001 to $10,000.................................         12         15
$10,001 to $20,000................................         16         19
$20,001 to $30,000................................         18         16
$30,001 to $40,000................................         12         13
$40,001 to $50,000................................         11          7
$50,001 to $60,000................................          7          6
$60,001 to $70,000................................          5          5
Over $70,000......................................         11         12
------------------------------------------------------------------------


               AMERICORPS MEMBERS BY GENDER, 1994-1997 \1\              
                          [Percent of members]                          
------------------------------------------------------------------------
                                                   Fiscal years         
                 Gender                 --------------------------------
                                          1994-95    1995-96    1996-97 
------------------------------------------------------------------------
Female.................................         61         65         68
Male...................................         39         35         32
------------------------------------------------------------------------
\1\ 1996-97 enrollment is still underway, therefore, those data are     
  incomplete.                                                           


                AMERICORPS MEMBERS BY AGE, 1994-1997 \1\                
                          [Percent of members]                          
------------------------------------------------------------------------
                                                   Fiscal years         
                  Age                   --------------------------------
                                          1994-95    1995-96    1996-97 
------------------------------------------------------------------------
Under 21...............................         38         27         26
22-29..................................         42         47         53
30-37..................................          9         10         10
38-45..................................          7          9          6
Over 45................................          4          6          5
------------------------------------------------------------------------
\1\ 1996-97 enrollment is still underway, therefore, those data are     
  incomplete.                                                           


           FULL- AND PART-TIME TERMS OF SERVICE, 1994-1997 \1\          
                          [Percent of members]                          
------------------------------------------------------------------------
                                                   Fiscal years         
                                        --------------------------------
                                          1994-95    1995-96    1996-97 
------------------------------------------------------------------------
Full time..............................         70         78         78
Part time..............................         30         23         23
------------------------------------------------------------------------
\1\ 1996-97 enrollment is still underway, therefore, those data are     
  incomplete.                                                           

                        Chief Financial Officer

    Senator Bond. Mr. Wofford, in last year's budget hearings, 
you stated you expected to shortly bring on a Chief Financial 
Officer and, in fact, you only recently filled the position. 
More recently, Arthur Andersen issued a report on December 9, 
1996, which raised serious concerns regarding your 
Corporation's progress in correcting deficiencies in financial 
systems and management controls. The report concluded, better 
than 8 months after our hearing last year, that the 
Corporation's internal controls were not adequate--I quote from 
the report:

    The Corporation's internal controls were not adequate for 
an independent auditor to perform an effective and efficient 
financial statement audit in accordance with generally accepted 
auditing standards for fiscal year 1995,

    and that

    an audit of the Corporation's fiscal year 1996 financial 
statements may not be possible because many significant 
deficiencies remain uncorrected throughout the year.

    At what point do you expect the Corporation to have 
established adequate internal controls for the independent 
auditor to perform an effective and efficient financial 
statement audit of the Corporation's financial statement, and 
when do you anticipate having auditable financial statements 
for 1995 and 1996?
    Mr. Wofford. Ms. Cunninghame came aboard as a consultant in 
October.
    Ms. Cunninghame. I came on board as a consultant August 5.
    Mr. Wofford. And in October you received a----
    Ms. Cunninghame. Recess appointment.
    Mr. Wofford [continuing]. Recess appointment, because her 
nomination did not get through in time, though the Senate 
worked hard to try to get her nomination through. She received 
a recess appointment in October and has been aggressively 
pursuing all 99 items in the Arthur Andersen auditability study 
since then.
    Her nomination is before the Senate Labor Committee this 
very week and we hope very much she will be confirmed very 
promptly.
    By May 1 we expect to have 97 of the 99 items completed or 
in the process of implementation. We expect to have the 
remaining two items completed in 1998. One relates to the 
implementation of a new financial management system and the 
other is an improvement in the procurement process which can 
occur simultaneously with the financial management system 
implementation.
    The inspector general and the Chief Financial Officer have 
discussed having an audit performed for the 1997 financial 
statements. Statements are going to be prepared for 1996 in 
order to provide beginning balances for 1997 and the auditors 
will be asked to perform a review of these balances in 
connection with their audit.
    I am very pleased that the inspector general of our agency 
and the Chief Financial Officer have established a professional 
working relationship which allows them to work together to 
strengthen the Corporation's management controls. I would be 
happy to give you a further detailed report.

                          FINANCIAL STATEMENTS

    Senator Bond. My question was when do you anticipate having 
auditable financial statements for fiscal year 1995 and 1996. 
Given the answer, I gather that you are not expecting one. Do 
you have a date when you are expecting to be able to give us 
financial statements for those 2 years?
    Mr. Wofford. We are hoping to have beginning balances for 
1997 that will permit an auditable statement for the 1997 year.
    Senator Bond. So you are not going to have one for 1995 and 
1996?
    Mr. Wofford. We are going to at some point have to have an 
agreement on the beginning balance that will permit an 
auditable statement.
    Senator Bond. Thank you.
    Mr. Wofford. We think it will be for 1997.
    The problems related to this in our Corporation were like 
those of many other Government agencies. They are compounded by 
the fact that one of the agencies, the ACTION agency, goes back 
over many years. Until very recently, as you know, Government 
agencies were not asked to produce auditable financial 
statements under the generally accepted accounting principles.
    Senator Bond. Mr. Wofford, all I asked was about the 1995 
and 1996 statements.
    I will submit the rest of my questions for the record.
    Senator Mikulski.
    Senator Mikulski. Thank you very much here.
    Mr. Wofford, could your Chief Financial Officer join you at 
the table for a moment, please?
    Mr. Wofford. Yes; indeed. Donna Cunninghame.
    Senator Mikulski. Ms. Cunninghame, good morning and we 
welcome you. We know very much that the Corporation needs a 
Chief Financial Officer. What I am going to request is not a 
detailed description of the problems that we find ourselves in, 
but I think we owe it to the committee and to the taxpayers, 
essentially a description of why we have this situation, No. 1; 
and No. 2, what is your kind of workout or work plan to resolve 
this situation, really, and presenting it to us the way an 
accountant would present it.
    We know you come from the Resolution Trust. Senator Bond 
has had extensive experience in that and we all recall with 
great melancholy what a fiasco it was and how much that cost 
the taxpayer because the financial institutions, who were 
supposed to be financial institutions, were not standing 
sentry. So it is a little intense to place the same kind of 
criterion on this nonprofit.
    Could you then essentially give us a description, not an 
excuse, an explanation, a no-fault one, about why this 
situation existed? But then, having said that, what is your 
work-through or workout plan? Is that possible for you to do?
    Ms. Cunninghame. Yes; Senator, it is. And I appreciate 
having an opportunity to share it with the committee. The 
Corporation, of course, was started October 1----
    Senator Mikulski. Remember, I have 5 minutes, so I really 
need to move on.
    Ms. Cunninghame. The basic problem is taking together a 
group of existing companies who had different accounting 
records. Whatever financial management systems they had varied.
    Senator Mikulski. Ms. Cunninghame, I am not asking you to 
describe your plan today. I am asking you to submit your plan 
in writing to the committee. I think there was a slight 
miscommunication.
    Ms. Cunninghame. I am sorry. I misunderstood that. I would 
be happy to.
    [The information follows:]
          Work Plan To Address Auditable Financial Statements
    Many concurrent efforts comprise the Corporation for National 
Service's plan for producing auditable financial statements. A brief 
review of these efforts follows.
    1. The auditability survey resulted in 99 recommendations dealing 
with five broad categories of concerns: the management control 
environment, integrity of financial data, data security, segregation of 
duties, and budgetary controls. An aggressive and sustained effort has 
been underway at the Corporation to respond to recommendations and to 
implement necessary changes that improve the Corporation's 
auditability. Arthur Anderson is conducting reviews of the Corporations 
efforts. A major phase of that review effort is just being initiated, 
and we expect to have positive responses from the auditors.
    2. A Management Control Committee has been established at the 
Corporation and the first draft of a Management Control Manual has been 
prepared and distributed to the Board of Directors for review. Training 
has begun for staff including all staff of the CFO's department, and 
exposure to the issue of management control is now part of the new 
employee orientation program.
    3. Cash reconciliation, updated above, proceeds as an important 
process for achieving the goal of auditable statements.
    4. A recommendation codifying the Corporation's approach to grants 
accounting, including issues of advances, expense recording, grant 
closeout, and grant liability calculations is being prepared for CFO 
review. This work includes a review paper by Price Waterhouse which 
offered advice on many of the issues.
    5. Information system changes have played a major part in our plan 
for auditable statements. With the current efforts to implement a grant 
review and award system within the Corporation, we are implementing a 
movement away from two separate systems for grant activity. Part of 
this effort will be the movement of all Corporation grants to the HHS 
Payment Management System (PMS) with which we are also implementing an 
electronic interface to our general ledger (GL). This all should 
greatly improve the consistency and accuracy of information in the GL 
and reduce the reconciliation burdens. At the same time, we have 
implemented an electronic interface to the GL for all payment 
transactions from the National Trust. We also are improving the process 
and the supporting documentation for the calculation of liability in 
the National Trust and the subsequent recording of that liability on 
the GL.
    6. We postponed the effort to implement a new financial management 
system, originally intended for implementation with the start of fiscal 
year 1998, by one year in order to ensure that we have an opportunity 
to improve the underlying business processes which provide a foundation 
for what is recorded in the system and because we did not feel the 
schedule could be met with the competing demands on the organization's 
resources, many of which relate to other issues of auditability and 
related system development efforts. In Conference Report H. Report 104-
537 which accompanied H.R. 3019 making appropriations for fiscal year 
1996, Congress approved report language suggested by the Senate 
committee which ``urges the Corporation to submit a reprogramming 
proposal for up to $3,000,000 to carry out financial management system 
reforms if the Chief Financial Officer determines such additional 
resources are needed.'' We have formally requested the reprogramming of 
these funds, and we are planning the implementation of a new financial 
system during 1998.
    7. We have put a significant effort into improvements of the 
process for cost share arrangements that underlie a number of our VISTA 
programs. Weaknesses in this area had resulted in understated 
receivables in the past. We believe that this will result in 
improvement to this important area of the financial statements.

    Senator Mikulski. When do you think it would be a 
reasonable expectation for you to be able to present this 
background brief and work-through plan to the committee?
    Ms. Cunninghame. I could do that within 1 week easily, 
depending on the necessary requirements.
    Senator Mikulski. Well, I think it would be very useful if 
we had that as quickly as you could produce it with efficiency 
and accuracy for both the chairman and myself, so we can see 
this, because part of what is being discussed is not only to 
continue the existing program and expand it, but some pretty 
new programs. I think the committee will feel that before it 
can undertake anything new there has to be confidence on these 
workout issues. We thank you for that.
    Also, for the record we would need a description also about 
why the attrition rate. Again, we are not looking for excuses, 
but we are looking for crisp, clear explanations so that we 
could have this, because as appropriators we really need to 
know is our money being well spent and are we getting the 
outcome for which the program was created.
    I think if we had those two reports we could among 
ourselves discuss next steps. So we thank you and we look 
forward to that.
    [The information follows:]

                        Attrition in AmeriCorps

Program Years One, Two, and Three

    The rate at which Members complete their term of service, or 
conversely, the rate at which they fail to do so, can be a valuable 
indicator of program health. The Corporation for National Service is 
well aware of the value of attrition rates and systematically analyzes 
program attrition and its causes. Low attrition can be indicative of 
high Member satisfaction, which in turn, suggests careful recruitment, 
good training, meaningful service projects and adequate supervision, 
among other strengths. While a high attrition rate does not point to a 
specific problem, it may be a symptom of underlying factors that 
deserve consideration.
    That said, in some cases, Members leave their service program early 
for reasons that are not indicative of programmatic problems. In the 
data provided here we provide attrition rates adjusted rates to exclude 
early exits that are not reflective of program quality.
    AmeriCorps programs, at the discretion of the program director, are 
permitted to make the determination that a Member is departing early 
because he or she faces compelling personal circumstances that make 
completing the program an unreasonable hardship.
    In addition, some Members leave their program early to take 
advantage of significant opportunities for personal development or 
growth, for example, educational or professional advancement. Although 
AmeriCorps is not a jobs program, persons who leave their service 
program to enter school, obtain employment or join the military 
constitute a positive outcome for the nation as well as for themselves. 
Because individuals in the circumstances described above do not reflect 
upon the effectiveness of their programs, we believe it appropriate to 
exclude them in determining a meaningful attrition rate.
Overall Attrition in AmeriCorps*State/National
    Attrition in Year One (1994-1995).--Attrition in Year One was 20 
percent. This rate compares favorably with attrition rates for college 
freshmen, the Peace Corps, youth Corps and HUD Youth Apprenticeship 
programs.
    Attrition in Year Two (1995-1996).--Year Two attrition is currently 
about 18 percent, adjusted as described above. Enough Members remain 
``on the books'' for 1995-1996 that we cannot yet provide a final 
accounting. As the attached chart suggests, the overall pattern of 
attrition has remained constant.
    Attrition in Year Three (1996-1997).--Year Three attrition is 
difficult to estimate because most programs are still in their fourth 
quarter and some are in their third. At present, nearly 90 percent of 
those who enrolled in Year Three are still serving.
Additional Attrition Issues
    The socio-demographic patterns reported last year in our attrition 
data remain visible, as demonstrated by the two-year attrition rates by 
educational attainment. Beginning in Year Two, we began collecting 
Member income data by sample only and cannot make direct comparisons to 
the attrition x income data provided last year. However, data from our 
sample survey, which included Members who had left early, suggests 
strongly that their remains a strong relationship between family income 
and attrition, with Members from lower income backgrounds being more 
likely to leave early.

   ATTRITION RATE BY EDUCATIONAL ATTAINMENT--PROGRAM YEARS ONE AND TWO  
                          [Percent of members]                          
------------------------------------------------------------------------
                                                        Fiscal years    
                Education attained                 ---------------------
                                                     1994-95    1995-96 
------------------------------------------------------------------------
Less than high school.............................         34         36
GED...............................................         31         32
Technical school..................................         21         19
HS graduate.......................................         18         20
Some college......................................         18         19
Associate degree..................................         16         15
College graduate..................................          9          8
Graduate study....................................         12         10
Graduate degree...................................         17         12
------------------------------------------------------------------------


    Senator Mikulski. Which then takes me, Senator Wofford, to 
the America Reads Program and the national summit. Could you 
tell me what is the purpose of the national summit and what you 
think, what will be the outcomes and what is the purpose and 
what role this committee or national service will play in it?
    Mr. Wofford. The President's summit was proposed originally 
by George Romney as a way to take the idea of national 
service--both large scale volunteering and national service of 
the AmeriCorps variety--out of the political football field and 
move it into a true nonpartisan structure.
    The summit is assembling delegations from some 130 
communities, cities and rural areas as well as delegations from 
all 50 States chosen by their Governors.
    Senator Mikulski. What will it do?
    Mr. Wofford. The summit is starting a 3-year campaign to 
achieve five goals for children and youth in this country that 
every parent and every grandparent wants for their children: 
one, that there be a caring adult in the life of every child 
that needs one, a tutor, a mentor, a coach, including the 1 
million tutors needed for the America Reads campaign; two, 
structured activities in safe places for every child and young 
person in this country in the nonschool hours; third, a healthy 
start--immunization and access to health care and incentives 
for healthy behaviors; four, effective education, including the 
ability to read and marketable skills acquired through school 
to work experience; and fifth, that every young person gets 
asked and has the opportunities themselves to serve.
    The process of the summit is commitments by major 
organizations of all the sectors of society and by individuals 
and communities for new action--quantum leaps and value added--
toward those five goals.
    Senator Mikulski. That is what they are going to do?
    Mr. Wofford. Yes.
    Senator Mikulski. And then after the summit is over, who 
will be in charge or overseeing that all of this happens in 
some organized way, so we do not have just volunteer chaos?
    Mr. Wofford. We expect the Presidents to continue to work 
together. General Powell will be a very active chairman.
    Senator Mikulski. What will be the mechanism to 
operationalize----
    Mr. Wofford. The mechanism will be an organization that 
General Powell will lead, with the continuing support, we 
trust, of the Presidents. It is an organization that will both 
seek to develop large scale resources to apply to local 
organizations around the country.
    Senator Mikulski. Senator Wofford, will that be an 
organization not created by Government?
    Mr. Wofford. It will not be created by Government. I am 
personally not taking any part in the organization of that 
organization.
    It will be a new national organization created to be 
essentially an umbrella organization to coordinate those 
volunteer organizations, and the private sector entities that 
are making a substantial commitment.
    It will be a campaign based in the private sector, led by 
General Powell not trying to compete in offering service but 
trying to assemble resources from commitments from corporations 
and organizations for local groups. The community delegations 
at Philadelphia are coming with a commitment to go back to 
their communities to organize local summits to coordinate those 
campaigns locally.
    Senator Mikulski. Let me just go back to what I was trying 
to ask, Mr. Wofford, which is, I have been through good 
intention rallies before and we have some of the finest 
participants leading this, and so we just do not want it to be 
a rally where, I am going to make sure that I deliver 2,000 
meals on wheels to the elderly homebound. All of these are good 
intentions, and then if we are going to have that, like the 
commitment of a Motorola, an IBM, local corporations, scouts, 
Boy Scouts, then all I was asking was how that will be followed 
up so it is just not a photo op, it is just not a pep rally, 
and so on, and that we have a sustained saturation effecting 
communities.
    So what you are saying is that there will be an 
organization created that a very distinguished American, 
General Powell, will chair, and this will be an entirely new 
entity not created by Government or funded by Government, is 
that right?
    Mr. Wofford. He is saying that, and he is going to do that. 
It requires that same spirit----
    Senator Mikulski. But are you not the President's person on 
that?
    Mr. Wofford [continuing]. Senator Mikulski, that----
    Senator Mikulski. Are you not the President's point person 
in organizing the summit?
    Mr. Wofford. The two organizations that jointly carried the 
ball with George Romney's idea are ours, the Corporation and 
myself actively, and the Points of Light Foundation.
    Senator Mikulski. Excellent.
    Mr. Wofford. And the two of us have worked together. Ray 
Chambers, founder of the One to One Partnership, is chairman of 
our joint board steering committee for this. But General Powell 
will be carrying the ball from the summit on.
    Senator Mikulski. General Powell is saying that. Are we all 
saying that before we go to the summit?
    Mr. Wofford. General Powell said it very strongly when he 
accepted the chairmanship at the White House. In fact, he now 
says it is at least a 5-year campaign, that he will throw a 
good part of his life into seeing that we follow through.
    Senator Mikulski. And that is his commitment?
    Mr. Wofford. That is his commitment.
    Senator Mikulski. It is an extraordinary commitment.
    Mr. Wofford. And he is driving the commitment process. He 
has what he calls the sweat test. When a corporation or 
organization makes the commitment required to come to 
Philadelphia, he notches it up until he sees sweat on the 
forehead of the CEO who has offered for example to adopt 100 
schools. He says, well, what about 1,000? And until there is a 
little sweat on the forehead of the person, he has not reached 
the right notching-up point.
    Senator Mikulski. Well, that sounds great. Of course, we 
are sweating here about how we are going to fund all the 
agencies, and, therefore, we want to then be clear on what is 
the role of national service, how we can be a facilitator in 
this. I think we are looking forward to this and what will be 
the followup.
    I see that my time has expired and we will look forward to 
other conversation on the America Reads Program. Thank you very 
much and this sounds like a very, very exciting opportunity.
    Mr. Wofford. Thank you, Senator.
    Senator Bond. Thank you, Senator Mikulski.
    Senator Boxer.
    Senator Boxer. Mr. Chairman, I simply want to highlight 
something that Senator Wofford did not get a chance to go into 
in detail. As one of the authors of the Violence Against Women 
Act, I note that in Iowa 20 AmeriCorps members in the Iowa 
Coalition Against Domestic Violence have made 12,464 contacts 
with victims of domestic abuse, assisted over 1,000 women in 
obtaining protective orders, and provided 371 educational 
programs for Iowans ranging from elementary school children to 
senior citizens.
    I wanted to point out something that Steve Merrill said, 
the Governor of New Hampshire, where you took that basic idea 
and instituted it there. He said:

    The national service program has been a great success in 
the State of New Hampshire and I anticipate it will continue to 
be in the future. These motivated individuals make AmeriCorps 
work for New Hampshire and I am pleased to be a partner in the 
process.

    I think there are certain issues that just cry out for 
attention in our Nation, and with a friend helping you get 
through it it means a great deal, because when a woman is 
feeling that there is no one to help her through--and it is 
usually a woman; sometimes it is a man who is on the other end 
of violence, but about 98 percent of the time it is a woman--
and the children are impacted and so on, you do need that 
helping hand.
    So it sounds to me like you have come up with some idea 
here. I was wondering if you had any plans to extend that 
program to other States as well.
    Mr. Wofford. You can view the whole of national service, 
Senator Boxer, as the Corporation's work as a kind of R&D--
research and development program--in which programs are being 
tried in all 50 States. One of our jobs is to find what works 
and what does not work; to try to spread what works and to 
share the state of the art. When there is a pilot program that 
really works, such as the 11th and 12th grade kids in 
Philadelphia schools being taught to tutor 2d graders three 
afternoons a week a couple of hours one on one and it works to 
raise the reading level of the second graders and it works to 
raise their own reading level, the 11th, 12th graders----
    Senator Boxer. Talking about domestic violence, I was just 
asking you on that one because my State----
    Mr. Wofford. I am with you.
    Senator Boxer. There are so many calls from California from 
our cities to the hotline, and it seems to me we could really 
use this type of program.
    Mr. Wofford. New Hampshire is one of the very best 
programs. We convened the State executive directors of the 
State commissions. We convened, we are about to convene, the 
chairmen of those commissions.
    We try to spread the programs that work through 
publications, E-mail, etc., so that pilots perform the function 
of a pilot and you ignite the furnace. The New Hampshire 
Program is one of them we would like to spread around the 
country.
    Senator Boxer. So in our State, so if our State wants to 
have this program then they could initiate it?
    Mr. Wofford. Indeed. The executive director of your 
commission in California, Linda Forsyth, is very aware of that 
program. I am sure she has thought about it. She is in town 
right today. I know she is very interested in that subject. 
California has one of the most inventive and aggressive 
commissions, and they are the source of many of the best pilot 
programs that we are trying to spread to other parts of the 
country.
    Senator Boxer. Good, because a couple of our cities had the 
most calls to the domestic hot line.
    Thank you very much.
    Mr. Wofford. It is a major issue, and if we could 
contribute more to it, that is good.
    Senator Boxer. Thank you, Mr. Chairman.
    Senator Bond. Thank you very much, Senator Boxer. Thank you 
very much, Senator Wofford.


                     U.S. COURT OF VETERANS APPEALS

STATEMENT OF HON. FRANK NEBEKER, CHIEF JUDGE

                opening statement of christopher s. bond

    Senator Bond. Next, panel No. 2. I would like to welcome 
the Hon. Frank Q. Nebeker, Chief Judge of the U.S. Court of 
Veterans Appeals. Chief Judge Nebeker will be testifying on the 
administration's fiscal year 1998 budget request for the Court 
of Veterans Appeals, which totals $9.4 million, of which 
$850,000 is for the pro bono program to provide legal 
representation to veterans without counsel.
    The overall increase of $150,000 from fiscal year 1997 is 
attributable entirely to the pro bono program. The operational 
costs of the court would be held at the fiscal year 1997 level 
by cutting costs in such areas as travel and security and 
maintenance contracts.
    I am most interested in hearing the court's assessment of 
actions being taken at the VA to address the backlog of 
benefits claims and the court's appraisal of the pro bono 
program.
    Again, Judge, as I said before, we would appreciate your 
submitting a full statement for the record. Unfortunately, we 
are growing short of time in a busy day and would welcome your 
summary and your comments.
    Judge Nebeker. I will be very brief.
    Senator Bond. Thank you very much, Judge.
    Judge Nebeker. You have obviously summarized this budget 
situation for the court and the pro bono program and I will not 
repeat it.

                              CASE BACKLOG

    Your question was, I think, with respect to the delay or 
the backlog caused in the court's processing of cases, and 
indeed the problem has surfaced. The delay is in the area of 
getting the record on appeal together and in filing the 
Secretary's brief after the appellant has filed his or her 
brief.
    Group VII of the General Counsel's Office is the one that 
represents the Secretary before the court. They have been 
decimated by vacancies. They have been troubled by other 
personnel problems and their morale is low. They have got to 
have help. The resources were not given to them by the general 
counsel, but that matter has been brought to her attention and 
I am assured that the situation will be remedied as rapidly as 
is possible.
    Senator Bond. Thank you, sir.

                             BUDGET SUMMARY

    Judge Nebeker. As I observed in my written statement, the 
court's budget is flat this year, the same as it was last year. 
We have to maintain--though we are cutting back on the FTE's, 
we have to maintain good service for the many pro se appellants 
who appear before the court. That is somewhat of a labor 
intensive, if you will, undertaking.
    The only other point I would like to make this morning is, 
that again we ask that in your minds as you make the 
appropriations decision, keep the court's operating budget 
separate and apart from the pro bono program, until such time 
as the pro bono program, can be authorized and made 
independent.
    We understand that must be done before the appropriation 
process does not run through the court. But the court can act 
as a conduit, provided there is not a conflict in its operating 
budget over what the program needs.
    I will not address the merits of the pro bono program, as 
they are capable of doing that themselves.
    That would conclude my comments.
    [The statement follows:]

                 Prepared Statement of Frank Q. Nebeker
    Mister Chairman and distinguished members of the committee: On 
behalf of the Court, I appreciate the opportunity to present for your 
consideration the fiscal year 1998 budget of $9,379,804 for the United 
States Court of Veterans Appeals.
    The Court's total fiscal year 1998 budget request contains the same 
dollar amount for personnel and operations as in the Court's fiscal 
year 1997 appropriation. It also includes $850,804 requested by the Pro 
Bono Representation Program (Program), which is 121.5 percent of the 
$700,000 appropriated for fiscal year 1997. The Program has provided 
its own supporting statement for its budget request.
    Last year I urged that the Pro Bono Representation Program be 
authorized and funded outside the Court's appropriation. I outlined the 
reasons for the Court's concerns with the continued inclusion of the 
Program's funding in the Court's appropriation. The Court continues to 
be of the view that such a funding method impermissibly links the Court 
to one class of litigants, and thereby exposes the Court to an 
appearance of partiality and a consequent erosion in the public's trust 
and confidence in the judicial review of veterans' claims. I ask again 
that the funding for the Program be separated from the Court's 
appropriation, not only in the budget deliberations in Congress, but in 
the actual budget enactment. To that end, I urge the authorization of 
the Program and legislation permitting its independent budget.
    Notwithstanding these reservations, and consistent with Congress' 
direction, the Court is forwarding the Program's fiscal year 1998 
request for $850,804 as an appendix to the Court's submission and, 
consistent with that direction, is including that amount in the Court's 
total fiscal year 1998 budget request. The Legal Services Corporation 
administers the grants for the Program and, according to its 
evaluations, the Program is working the way it should. The Program has 
provided its own supporting statement for its budget request, which, as 
noted, represents a 21.5 percent increase over the $700,000 
appropriated for fiscal year 1997.
    The Court has kept a flat budget by continuing a number of cost-
saving measures, including a 25 percent reduction in the budget 
allotted for travel, with no funding requested for Court hearings 
outside Washington. Also, as I stated in my testimony last year, the 
Court now is holding its judicial conference every other year, rather 
than annually. This event focuses on continuing education for the 
Court's practitioners and is held locally. Of even more significance, 
the Court is requesting funding for only 79 full-time equivalent (FTE) 
positions in fiscal year 1998 which is a voluntary reduction of 2 FTE 
positions from the fiscal year 1997 authorized FTE level, and matches 
the fiscal year 1998 FTE target level recommended by the Office of 
Management and Budget in its implementation of the National Performance 
Review. The requested 79 FTE positions are required to maintain high-
quality service to litigants seeking judicial review, particularly 
those who come to the Court unrepresented.
    As the Court's budget statement illustrates, in a chart the Clerk 
has compiled, after a drop in the number of appeals in fiscal year 
1994, the numbers have continued to climb in fiscal year 1995 and 
fiscal year 1996, and the upward trend seems to be continuing. The 
number of denials by the Board of Veterans' Appeals, from whose 
decisions the Court's appeals derive, increased from 6,400 appeals in 
fiscal year 1995 to 10,455 appeals in fiscal year 1996. Furthermore, as 
noted in the Court's budget submission, the statistics kept by the 
Board of Veterans' Appeals (Board) on ``denials'' do not include Board 
decisions that deny some, but not all, of the benefits sought. The 
denials in such cases are also appealable to the Court. Thus, the 
number of pending cases may continue to increase at an even greater 
rate than is predictable as a set percentage of the number of full 
Board ``denials.'' The percentage of unrepresented appeals has fallen 
from 80 percent in fiscal year 1995 to 72 percent in fiscal year 1996. 
However, this rate remains much higher than the 46 percent 
unrepresented civil appeal rate in U.S. courts of appeals. While the 
Court has, voluntarily, kept pace with the recommendations of the 
National Performance Review, which propose an 11.5 percent FTE 
reduction over six years, further reductions in staff may need to be 
re-evaluated based on the likelihood of an increased caseload and a 
percentage of pro se appellants that continues to be relatively high.
    It is my understanding that the Independent Budget Veterans Service 
Organizations (IBVSO's) have reached similar conclusions as to 
increasing caseload in the chapter on the U.S. Court of Veterans 
Appeals in their Independent Budget for Fiscal Year 1998. The IBVSO's 
document a presently rising caseload and oppose downsizing of the Court 
for that reason.
    On another matter, I am appending to this testimony a copy of my 
letter to Chairman Specter emphasizing the importance of passing Title 
II of the legislative proposal submitted last year to make the Court's 
retirement/survivor program comparable to the systems of other Article 
I Courts. As I point out in my letter, the legislative proposal was 
initially submitted in response to Congressional inquiries regarding 
the Court's caseload relative to the requisite number of judges on the 
Court and regarding the comparability of the Court's judicial 
retirement/survivor program.
    Following last year's transmittal, there was an increase in the 
number of notices of appeal filed with the Court, and a consequent 
increase in the number of pending cases. Some veterans service 
organizations have either opposed enactment of Title I or, more 
cautiously, favored a ``wait and see'' approach to it. Based on the 
increase in notices of appeal, the ``wait and see'' approach has been 
shown to be the wiser course as to Title I, and the Court recognizes 
its merit. Accordingly, the Court does not press consideration of Title 
I by the Committee.
    I am aware of no negative comments with regard to the provisions of 
Title II. I ask for your active support in obtaining enactment of Title 
II to make the Court's retirement/survivor program more comparable with 
other Article I Court programs. Because of Judge Hart Mankin's death in 
May 1996, his widow, Ruth Mankin, is now a survivor under the Court's 
survivor annuity program. Survivors under the Court's annuity program 
are at a considerable disadvantage, over time, in comparison to the 
survivors of other deceased Article I judges covered by the Survivors' 
Annuity Systems enacted to provide such benefits to them. I ask that 
you take expeditious action to enact Title II, which is estimated to 
have an actuarially insignificant cost impact.
    In conclusion, I appreciate this opportunity to present the Court's 
budget request for fiscal year 1998. On behalf of the judges and staff, 
I thank you for your past support and request your continued assistance 
and favorable report to the Appropriations Committee on our budget 
request.
                                 ______
                                 
                The Veterans Consortium Pro Bono Program
                    revised fiscal year 1998 budget
    The Veterans Consortium Advisory Committee has revised the proposed 
fiscal year 1998 budget, to reflect the fact that we have found 
ourselves able to fill, through personnel donated by one of the 
Consortium's constituent veterans service organizations, a position 
that we had expected to have to fund out of fiscal year 1998 grant 
funds. We have also adjusted the Program budget to reflect the 
additional cost of $5,000 for an audit in compliance with OMB Circular 
A-133, required for the first time next year by LSC. The result of 
these adjustments is that the overall budgeted expenditures for fiscal 
year 1998, set in the original budget at $850,804, are reduced by 
$57,487, to a total of $793,317.
    A spreadsheet setting out the revised budget in detail is attached 
hereto as Exhibit A; a summary of significant statistical information 
regarding the Program is attached as Exhibit B. This memorandum will 
first provide an overview of the budget as revised, and then address in 
some detail the increases contemplated over the current fiscal year 
1997 budget and the changes from the fiscal year 1998 budget as 
originally proposed.

                                OVERVIEW

    The revised budgeted expenditures of $793,317 represent an increase 
of 13.3 percent over the $700,000 appropriation for fiscal year 1997; 
but only a 6.65 percent increase over the budget on which the Program 
is currently operating, which calls for expenditures of $743,838. That 
budget figure was the amount of the appropriation we sought for fiscal 
year 1997; and although the appropriation was for a lesser amount, we 
have been able to operate on the basis of the original budget because 
there were unexpended funds from the previous fiscal year, largely the 
result of curtailed operations in fiscal year 1996 resulting from 
uncertainties as to whether the Program would be able to continue to 
operate at all.
    It is pertinent to note that the level of expenditures contemplated 
by the revised fiscal year 1998 budget happens to correspond quite 
closely to the amount of the appropriations for the Program in fiscal 
year 1994 and fiscal year 1995, namely, $790,000--and without any 
adjustment for inflation for the four-year interval from fiscal year 
1994 to fiscal year 1998. Indeed, that figure was the amount that the 
Court of Veterans Appeals contemplated would also be provided for the 
Program for fiscal year 1996: the Court requested an appropriation for 
the Program for that fiscal year of $678,000, but that lesser figure 
took into account $112,000 that had been conserved by the Program in 
prior years, and that remained available for Program expenditures in 
fiscal year 1996. The Court observed, in submitting the fiscal year 
1996 request, that ``this is a nonrecurring reduction [in the requested 
appropriation] that could not be maintained in future years without 
programmatic changes that the Court does not now anticipate would be 
desirable.''
    By reason of the overall budget reductions in fiscal year 1996, 
however, the Program wound up operating on a revised budget, covering 
both the ``A'' and ``B'' grants, of $633,931. This revised budget was 
$34,278 less than the amount actually expended in the previous fiscal 
year, $44,069 less than the $678,000 in new appropriations for the 
Program that had been in the Court's budget submission, and $156,069 
less than the $790,000 contemplated by the Court's fiscal year 1996 
budget submission. As we pointed out in our fiscal year 1997 budget 
submission, the amount on which we were operating in fiscal year 1996 
was insufficient for the Program to operate as originally envisioned, 
and we needed to make up for that year's shortfall if the Program was 
to resume operating at full steam. Mindful of budgetary exigencies, 
however, we did not then ask that the Program be restored to its full 
prior level of appropriated funding. That is, however, what we are 
asking now.
      detailed explanation of the revised fiscal year 1998 budget
    The proposed increase in expenditures from the fiscal year 1997 
budget reflects both the need to deal with the backlog of cases in the 
Case Evaluation and Placement Component, resulting from a period when 
that component was understaffed, and an anticipated continuing increase 
in the number of BVA decisions and consequent appeals to the Court and 
a corresponding increase in the Program's caseload. Thus, in the first 
six months of fiscal year 1997 we received 294 PRF's (Participation 
Request Forms), compared to 217 in the comparable period in fiscal year 
1996, and placed 120 cases with volunteer lawyers as compared to 93: 
increases of 35 percent and 29 percent, respectively.
    Since personnel costs--the salary and benefits of some of the 
individuals performing services for the Program that are reimbursed out 
of grant funds--account for the major part of the Program budget (they 
were 70.2 percent in fiscal year 1997, and are 74.5 percent in the 
revised fiscal year 1998 budget), they account for most of the increase 
as well. These personnel costs relate to a portion of the time of the 
personnel who staff the Outreach and the Education Components, and the 
entirety of the time of most of the personnel who staff the Case 
Evaluation and Placement Component (the services of the other staff 
being provided free of charge to the Program). In all instances the 
staff are actually employees of one or the other of two of the 
Consortium's four constituent organizations--National Veterans Legal 
Services Program (NVLSP) or Paralyzed Veterans of American (PVA)--which 
are reimbursed from grant funds for the appropriate portion of their 
salary and benefits. Table A shows in summary form the number of 
persons providing services for each component, and the number of Full-
Time Equivalent (FTE) positions to be paid out of grant funds in fiscal 
year 1997 and fiscal year 1998.

                            TABLE A.--PRO BONO PROGRAM PERSONNEL AND FTE DISTRIBUTION                           
----------------------------------------------------------------------------------------------------------------
                                                             Total No. of                                       
                                                               personnel        Total FTE       Total FTE to be 
                         Component                          providing some    reimbursed by      reimbursed by  
                                                            service to the    grant, fiscal      grant, fiscal  
                                                                program         year 1997          year 1998    
----------------------------------------------------------------------------------------------------------------
Outreach..................................................               6               0.17               0.21
Education.................................................              10               0.96               1.05
Case evaluation and placement.............................              10               7.5                8.0 
                                                           -----------------------------------------------------
      Total...............................................              26               8.63               9.26
----------------------------------------------------------------------------------------------------------------

    A fuller breakdown by component follows.
I. Case Evaluation and Placement Component--$575,383
    The revised fiscal year 1998 budget contemplates an increase of 
$39,262 over the fiscal year 1997 budget for the Case Evaluation and 
Placement Component (referred to in the budget spreadsheet as the 
``Screening'' component). This is in place of the $99,249 increase 
reflected in the original fiscal year 1998 budget.
    A. Personnel.--There are three categories of personnel staffing 
this Component: lawyers, non-lawyer veterans law specialists, and 
support staff.
    Two lawyers, the Director and the Deputy Director, function full 
time as such in the Case Evaluation and Placement Component, and the 
entirety of their personnel cost is reimbursed by the Program--in one 
instance to PVA and the other to NVLSP. Thus, the lawyer FTE for this 
Component reimbursed from grant funds, in both fiscal year 1997 and 
fiscal year 1998, is 2.0.
    Veterans law specialists review the VA claims file and BVA decision 
to determine whether or not each case contains an issue that warrants 
referral to a lawyer. Veterans law specialists come from the 
constituent Veterans Service Organizations and are among the most 
experienced non-lawyer service officers these organizations have to 
offer.
    It was originally contemplated that there would be four full-time 
veterans law specialists, plus part-time help equivalent to half the 
time of a fifth, in the Case Evaluation and Placement Component in 
fiscal year 1997--two of the full time specialists being supplied, on a 
reimbursable basis, by PVA, and the other two donated by Disabled 
American Veterans (DAV) and The American Legion, respectively. However, 
in late fiscal year 1996, The American Legion recalled its specialist 
to the organization's national office and could not furnish a 
replacement until midway through the fiscal year. As a result of this 
and other personnel difficulties, the Component operated with only 3 
FTE veterans law specialists for the first five months of the year. 
This fact, combined with increased filings, had created a backlog of 
some 141 cases as of May, 1997. At the time the fiscal year 1998 budget 
was prepared, this Component had a total of 3.5 FTE veterans law 
specialists, 2.5 of them reimbursed by the Program and the other 
donated by DAV. The original fiscal year 1998 budget contemplated an 
increase of 1.5 FTE, to bring the total number of specialists 
(including one donated specialist) to five. Since the restoration of 
the American Legion's donated specialist, however, the need for one 
additional reimbursed specialist has been eliminated, and the budget 
has been reduced accordingly.
    There are three full-time administrative support staff in the Case 
Evaluation and Placement Component, all employees of NVLSP, and all 
reimbursed out of Program funds.
    The levels of salaries and benefits paid to the personnel who staff 
the Program are of necessity governed by the general personnel policies 
of the constituent organizations of which they are employees--i.e., PVA 
and NVLSP--and to which they may return in the event of termination of 
the Program or rotation of personnel by the organizations involved. 
Both of those organizations expect to increase their staff salaries 
generally by 5 percent, of which 3 percent will be an across-the-board 
cost of living increase and 2 percent will be allocated for merit 
raises. The increases are reflected in the personnel costs of all three 
Components of the Program in the fiscal year 1998 budget.
    B. Travel/Continuing Legal Education.--The revised fiscal year 1998 
budget, like the original one, includes an increased allocation of 
$1,500 for travel/CLE (to $2,500) to be used for continuing legal 
education for lawyer staff of this Component. This is largely offset by 
a reduction of $1,000 in the amount allocated for travel/CLE for the 
Education Component.
    C. Audit.--Audit costs have been increased by an additional $2,500 
in the revised fiscal year 1998 budget to reflect the Component's share 
of the increased cost of the annual audit by reason of the new LSC 
requirement, mentioned above.
    D. Property Acquisition and Contract Services.--These will decrease 
by $10,000 from the amount budgeted for fiscal year 1997. Major 
improvements to the databases will be completed in fiscal year 1997.
II. Outreach Component--$25,157
    The revised fiscal year 1998 budget calls for a $6,537 increase 
over the fiscal year 1997 budget for the Outreach Component: $500 more 
than the original fiscal year 1998 budget. As indicated below, all but 
$1,776 of the increase is in personnel costs.
    A. Personnel.--These costs are budgeted to increase by $5,349 
because we anticipate a continued increase in recruiting needs. We 
assume a greater need for volunteer lawyers in fiscal year 1998 because 
of the known and anticipated increase in the number of BVA decisions; 
the budget also assumes that we will continue outreach efforts outside 
the Metropolitan Washington area. Personnel costs include an increase 
of 5 percent, as discussed previously under Case Evaluation and 
Placement.
    Three NVLSP lawyers devote a portion of their time to the Outreach 
Component; and that portion of their personnel cost is reimbursed by 
the Program. The aggregate lawyer FTE for the Outreach Component 
reimbursed from grant funds in fiscal year 1997 is 0.07; the FTE 
contemplated for fiscal year 1998 remains at 0.07.
    Three NVLSP non-lawyers also function for part of their time in the 
Outreach Component; and that portion of their personnel cost is 
reimbursed by the Program. The aggregate non-lawyer FTE for the 
Outreach Component reimbursed from grant funds in fiscal year 1997 is 
0.10; the FTE contemplated by the fiscal year 1998 budget is 0.14.
    B. Other.--The only change from the original fiscal year 1998 
budget to the revised one is an increase of $500 in the audit line to 
reflect the Outreach Component's share of the increased cost of the 
annual audit. The remainder of the $1,776 difference in non-personnel 
expenses between fiscal year 1997 and fiscal year 1998 reflects line 
item adjustments based on past experience.
III. Education Component--$126,545
    The revised fiscal year 1998 budget calls for an increase of 
$12,998 over the fiscal year 1997 budget: $2,000 more than the original 
fiscal year 1998 budget.
    A. Personnel.--Personnel costs are budgeted to increase by $8,934.
    A total of 6 NVLSP lawyers function in the Education Component, and 
a portion of their personnel cost is reimbursed by the Program. We 
anticipate an increase in mentoring duties, due to the cumulative 
effect from previously assigned but still pending cases. We plan to 
contain this cost, however, by assigning more mentoring duties to 
personnel with lower personnel costs. The aggregate lawyer FTE for the 
Education Component reimbursed from grant funds in fiscal year 1997 is 
0.51; the FTE contemplated for fiscal year 1998 is 0.54.
    Four NVLSP non-lawyers function in the Education Component, and all 
four of them have a portion of their personnel cost reimbursed by the 
Program. The cost of grant administration has been increased to 25 
percent of the time of both the Grant Administrator and the 
Administrative Assistant, based on past experience and an anticipated 
increase in the Grant Administrator's time required for audit 
preparation and contract reporting. The aggregate non-lawyer FTE for 
the Education Component reimbursed from grant funds in fiscal year 1997 
is 0.45; for fiscal year 1998 it will be 0.51.
    B. Other.--As with the Outreach Component, the only change with 
respect to the Education Component, from the original fiscal year 1998 
budget, is an increase in the audit costs, by $2,000, to reflect the 
Education Component's share of the increased cost of the annual audit 
pursuant to the new LSC requirement. The remainder of the difference 
from the fiscal year 1997 budget reflects various adjustments based on 
past experience.
IV. ``B'' Grant--$44,232
    This line assumes a total of 24 cases at a cost of $1,843 per case. 
This represents a 3 percent per case increase over the fiscal year 1997 
budget figure of $1,785 per case; it also reflects a reduction from the 
total number of budgeted cases (30) in both fiscal year 1996 and fiscal 
year 1997, as we continue to fine-tune this requirement.
V. LSC Oversight--$20,000

                            DONATED SERVICES

    The vast majority of services rendered to the Pro Bono Program are 
donated.
    The most impressive contribution is the value of the legal services 
provided by volunteer lawyers recruited by the Program. For fiscal year 
1996, for example, the value of the pro bono representation provided by 
volunteer attorneys under the Program was estimated to be $2,255,618--
providing, when combined with the contributions of the participating 
organizations, a return of some 3 to 1 on the appropriated federal 
funds.
    The American Legion and the DAV receive no reimbursement for the 
salary or related expenses for the full-time veterans law specialists 
they provide to the Program. Those two organizations have not reported 
the cost of providing these specialists, but it is obviously comparable 
to that of the two specialists whose costs are reimbursed from grant 
funds.
    Neither DAV nor PVA receives any reimbursement for the time spent 
by its lawyers in providing mentoring services for the Education 
Component. Together, these contributions can be conservatively 
estimated at $20,000 annually.
    None of the participating organizations receives any reimbursement 
for time spent by their representatives in connection with the 
activities of the Consortium's Advisory Committee. (The fiscal year 
1996 estimated value of that time was $101,524.)
    The total value of contributions by the participating organizations 
(with the exception of the unreported value of the contributions by the 
American Legion and DAV, mentioned above) in fiscal year 1996 was 
estimated at $202,580.

             CONTRIBUTIONS OF EAJA FEE AWARDS BY LAW FIRMS

    As previously reported, the Program has on seven occasions since 
late 1995 received unsolicited donations from law firms (four of the 
donations being from one firm), in each case representing part or all 
of an Equal Access to Justice (EAJA) fee award recovered by the 
donating firm in a case taken under the Program. (We have also received 
a $20 contribution from a grateful veteran.) All four of the 
contributing firms are large firms; among such firms it is quite 
commonly firm policy to give away to one or another pro bono cause fee 
awards recovered in pro bono cases--generally to the organization at 
whose behest the matter was taken on. The total of such donations 
(including the $20 one) to date is $45,054.08.
    The Advisory Committee has established a special account to which 
all such contributions will be earmarked, to be used for Program 
activities for which grant funds have not hitherto been sought or 
applied. It is the Committee's view that the uses made of such donated 
funds must be ones that the donating firms would deem appropriate, and 
that would tend to elicit other donations by participating firms: thus, 
it would be counterproductive to treat the donated funds as an offset 
for appropriated funds. The Committee has decided that initially the 
earmarked funds will be used for three purposes: to fund outreach 
activities in other jurisdictions; to fund presentation of the lawyer 
training program in other jurisdictions; and, in selected cases, to pay 
expenses incurred by solo practitioners who wish to take cases under 
the Program and who would find it more feasible to participate if 
certain essential costs are defrayed by the Program.

                               Exhibit A

[GRAPHIC] [TIFF OMITTED] T05MA04.002

                               Exhibit B

                             PRO BONO PROGRAM AT THE U.S. COURT OF VETERANS APPEALS                             
----------------------------------------------------------------------------------------------------------------
                                                                             Fiscal years                       
                                                              ------------------------------------------        
                                                                1993    1994    1995    1996   1997 \1\  Program
                                                                (9/1/  (10/1/  (10/1/  (10/1/  (10/1/96-  total 
                                                                92-9/   93-9/   94-9/   95-9/  9/30/97)         
                                                               30/93)  30/94)  30/95)  30/96)                   
----------------------------------------------------------------------------------------------------------------
Total appeals filed at CVA \2\...............................   1,265   1,148   1,204   1,561      798     5,976
Appeals filed Pro Se \2\.....................................   1,044     918     957   1,141      547     4,607
Pro Bono Program application forms sent......................     853     648     812     936      565     3,812
Veterans who filed applications for program consideration....     580     450     609     493      295     2,427
Veterans who received free attorney..........................     231     187     201     181      120       920
Veterans who received some form of legal assistance (but no                                                     
 representation due to program ineligibility)................     343     262     327     287      186     1,405
Percent of program eligible veterans who received                                                               
 representation (percent)....................................     100     100     100     100      100       100
Program cases completed during fiscal year \3\...............      52     147     199     156       88       642
Program cases in which VA error found \3\....................      45     112     158     125       64       504
Percent of cases in which veteran prevailed in litigation                                                       
 through program efforts (percent)...........................    86.5    76.2    79.4    80.1     72.7      78.5
                                                                                                                
Recruited attorneys who have received training \4\...........     236     100     121     160       93       710
----------------------------------------------------------------------------------------------------------------
\1\ Figures through 2nd quarter fiscal year 1997 only.                                                          
\2\ Figures supplied by the Court (through 2/28/97 only).                                                       
\3\ Figures do not include cases where representation was declined by the appellant, nor cases where the        
  appellant died during pendency of appeal.                                                                     
\4\ Does not include 43 attorneys for whom training was waived.                                                 
                                                                                                                
Note: Figures subject to minor revision.                                                                        

                                 ______
                                 
                      Letter From Frank Q. Nebeker
                            U.S. Court of Veterans Appeals,
                                  Washington, DC, February 4, 1997.
Hon. Arlen Specter,
Chairman, Committee on Veterans' Affairs,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: On June 10, 1996, I transmitted to the Chairmen 
and Ranking Minority Members of the Senate and House Committees on 
Veterans' Affairs a proposal to downsize the number of the Court's 
associate judges (Title I of the proposal) and to make the Court's 
retirement/survivor program comparable to the systems of other Article 
I Courts (Title II of the proposal). The proposal, a duplicate of which 
I again transmit with this letter, was submitted in response to 
Congressional inquiries regarding the Court's caseload relative to the 
requisite number of judges on the Court and regarding the comparability 
of the Court's judicial retirement/survivor program. The 104th Congress 
took no action on either Title I or Title II.
    With respect to Title I, I indicated in my transmittal letter that 
case filings during the fiscal year 1990-92 period had averaged 1,942 
per year but had dropped in the fiscal year 1993-95 period to an annual 
average of 1,224. At the time of my transmittal, case filings for the 
first 6 months of fiscal year 1996 were estimated to be 595 which 
suggested that fiscal year 1996 filings would be less than average 
annual filings for fiscal year 1993-95. During the last 6 months of 
fiscal year 1996, filings rose so that total fiscal year 1996 filings 
reached 1,620. For the first quarter of fiscal year 1997 the Court 
received 457 filings. I further indicated in my transmittal letter that 
cases pending at the end of each year of the fiscal year 1990-92 period 
had averaged 1,865 but had dropped to an average of 1,182 at the end of 
each year of the fiscal year 1993-95 period. At the time of my 
transmittal, it is estimated that 1,438 cases were pending. At the end 
of the first quarter of fiscal year 1997, 1,707 cases were pending. It 
should be further noted that the Board of Veterans Appeals, from which 
the Court's appeals derive, denied 6,400 appeals in fiscal year 1995 
and 10,455 appeals in fiscal year 1996.
    Several veterans service organizations either opposed enactment of 
Title I or, more cautiously, favored ``a wait and see'' approach to it. 
Enactment of Title I would result in estimated net annual savings of 
$660,900.
    With respect to Title II, my June 10, 1996, transmittal letter 
stated:

          In the matter of the retirement/survivor program, I have 
        received several letters from past chairmen of the Senate 
        Veteran's Affairs Committee regarding the comparability of the 
        Court's program with those established for other federal courts 
        and have twice responded to the invitation to provide comments 
        on a Congressional Research Service Report (Dennis W. Snook & 
        Jennifer A. Neisner, ``Congressional Research Service Report 
        for Congress, Income Protection for Judges of Selected Federal 
        Courts,'' dated December 29, 1993) (CRS report), that was 
        prepared on that subject. The Court was asked to continue to 
        review the matter and to advise the Committee of its findings. 
        Enclosed also is a copy of the CRS report, annotated so that it 
        may be used in conjunction with a memorandum dated November 14, 
        1994 (Memorandum), also enclosed, prepared by the Court's 
        Committee on Legislative Matters, which addresses certain minor 
        deficiencies in the CRS report. The Court's review has revealed 
        that each judicial retirement/survivor program has unique 
        features and also that the retirement programs of other Article 
        I federal courts have generally been enhanced over the last 7 
        years, whereas this Court's program has generally remained 
        static since its creation in 1989. The Court believes that 
        certain aspects of this resulting disparity should be addressed 
        in corrective legislation to make the Court's program more 
        comparable with other Article I federal court retirement 
        programs. Accordingly, the Proposal also provides for systemic 
        reforms in the Court's retirement/survivor system that are 
        designed to put the Court on a more equal footing with the 
        systems provided for other Article I courts.

    I ask for your active support as Chairman in obtaining enactment of 
Title II to make the Court's retirement/survivor program more 
comparable with other Article I court programs. Because of the death of 
Judge Hart Mankin, on May 28, 1996, his widow, Ruth Mankin, is now a 
survivor under the Court's survivor annuity program. Over time, she 
will be at considerable disadvantage in comparison to widows of 
deceased Article I judges covered by the Joint Survivors' Annuity 
System. In this regard, I am hopeful that you will respond with 
expeditious action to enact Section 204 of Title II which is estimated 
to be without actuarially significant cost impact and without any 
appropriations impact. Enactment of all sections of Title II other than 
Section 204 is estimated to be without cost or appropriations impact.
    I would also ask that you consider enacting legislation that would 
change the Court's name to the United States Court of Appeals for 
Veterans Claims. Many veterans and attorneys believe that the Court is 
an administrative tribunal of the Department of Veterans Affairs rather 
than an independent judicial entity. The present name of the Court 
appears to add to that belief especially in view of the fact that the 
name, ``United States Court of Veterans Appeals'', is often reduced to 
the acronym ``CVA'', which is not readily distinguishable from ``BVA,'' 
the acronym for the Board of Veterans Appeals which is an 
administrative tribunal of the Department, or ``DVA,'' the common 
acronym for the Department. It is important that the Court be perceived 
as both judicial and independent. Adoption of the name ``United States 
Court of Appeals for Veterans Claims'' should promote that perception. 
Such a change would also be consistent with action in recent years with 
respect to the names of other Article I Courts. The United States Court 
of Claims became the United States Court of Federal Claims in 1992. The 
United States Court of Military Appeals became the United States Court 
of Appeals for the Armed Forces in 1994.
    Finally, I bring to your attention one additional matter. The Court 
was created in 1988 without any antecedent structure and with no judges 
in place (Veterans' Judicial Review Act, Public Law No. 100-687, Div. 
A., 102 Stat. 4105 (Nov. 18, 1988)). All 6 of the Court's original 
associate judges assumed office within a period of approximately 1 year 
of each other. Assuming that Title I of the proposal is not enacted, 
the 15-year terms of the Court's remaining 5 original associate judges 
will expire within a period of approximately 1 year of each other. As a 
consequence, and again assuming no downsizing, I recommend that 
consideration be given to attempting to eliminate the undesirable 
dislocating effect of such a rapid turnover by permitting early 
retirement of remaining original associate judges who meet certain age 
and service requirements which, in turn, could space the sequencing of 
retirements so as to assure continuity of experience in the Court's 
judicial component. Implementation may be achievable, pursuant to 38 
U.S.C. Sec. 7298(2)(A), within existing appropriations. It should be 
noted that several Article I Courts have early retirement programs 
applicable to all their judges.
    Thank you for your consideration. I am sending the same letter and 
enclosures to Chairman Stump, and Ranking Minority Members Rockefeller 
and Evans.
            Sincerely,
                                          Frank Q. Nebeker,
                                                       Chief Judge.

                          va decision process

    Senator Bond. Thank you, Judge.
    Senator Mikulski will be rejoining us shortly.
    The committee has been concerned for a long time with the 
whole process of adjudicating claims at the Department of 
Veterans Affairs, both in terms of the time it takes and the 
quality of decisions. The VA has undertaken some initiatives to 
make improvements, such as business process reengineering.
    First, do you see any evidence that the quality of 
decisionmaking is improving at the VA?
    Judge Nebeker. Not in the cases that come before the court. 
The error rate is still approximately 50 percent. That is, 50 
percent of the cases that come to issue and are decided by the 
judges are remanded because of prejudicial error in the 
decision somewhere.
    Senator Bond. Well, 2 years ago you said the rate was in 
excess of 60 percent, so while 50 percent is not great, I guess 
there is progress, going from 60 percent to 50 percent.
    What needs to be done?
    Judge Nebeker. Well, I wish I knew. Obviously, more 
resources at the Board level, but they have got the resources. 
They have been augmented tremendously in an austere budget 
period. They have cut back to one member panel, that is, single 
member decisions, and they are putting out more decisions. As a 
matter of fact, the denial rate before the Board has gone from 
6,000 last year to 10,000 this year. We can expect that 
reverberation to affect the case load of the court in the next 
year, 6 months to 1 year.
    Senator Bond. In October 1994 at the court's third judicial 
conference, you called upon Secretary Brown to make unequivocal 
use of the powers invested in his office to ensure that 
precedent opinions are followed and the judgments in specific 
cases are met with full and prompt compliance.
    Has there been any action on that recommendation?
    Judge Nebeker. There have been a number of committees 
studying it.
    Senator Bond. Studying it?
    Judge Nebeker. Yes, sir.
    Senator Bond. Thanks.
    In addition, a commission authorized by Congress, the so-
called Melidosian Commission, recently finalized its report on 
improving claims processing. It said the claims adjudication 
system was created by the VA to process the benefits legislated 
by Congress, but that layer upon layer of changes have been 
added to the benefits and, therefore, to the processing system 
and that there has never been a wholesale revision to bring all 
changes into a harmonious whole. Therefore, the nature of the 
product's benefits have helped lead to a system which is 
perceived as inefficient, untimely, and inaccurate.
    Do you believe Congress needs to legislate an overhaul to 
the claims processing system as contemplated, or could it be 
achieved by regulation? What is your view on the needed 
reforms?
    Judge Nebeker. Mr. Chairman, I am not in a position to 
offer an opinion respecting the operations of an executive 
branch Department, particularly one of the size of the 
Department of Veterans Affairs. I note that that Melidosian 
report pretty well echoed what I suggested 2 years ago at the 
judicial conference, which you just mentioned.
    But insofar as a court entering into the political arena of 
what ought to be done to make a particular executive branch 
program work, I am totally unqualified to do that.

                    PRO BONO REPRESENTATION PROGRAM

    Senator Bond. With respect to the proposed reprogramming of 
$950,000 to initiate the pro bono representation program, your 
testimony says:

    The court's judges continue to believe that this funding 
method links the court to one class of litigants and exposes it 
to charges of lacking impartiality, thereby degrading the 
public's trust and confidence in the judicial review of 
veterans' claims.

    The court has altered its position on the pro bono 
representation program last year after supporting its inclusion 
in the budget for several years. Would you explain what the 
status is and where this program stands and what the trust and 
confidence level may be in the judicial system?
    Judge Nebeker. Well, the program is a successful program. 
It not only--well, its major purpose is to help the pro se 
veterans. To the extent that it thereby helps the court, that 
is a windfall and a desirable windfall. We are a conduit for 
their funding and as long as we can be assured and the public 
can be assured that the court is not funding the program out of 
its own operating budget, then I think there is no real 
concern.
    But if the idea is that the court is funding a particular 
side of the litigation that appears before it, it is not unlike 
the court funding a public defender service or a prosecutor's 
office to the exclusion of the other side. It is that problem 
that we think needs to be solved, because there is an 
appearance that the court is in a position of being compromised 
where it should not be.

                                CLOSING

    Senator Bond. Thank you very much, Judge.
    Let me see if Senator Mikulski wants to ask any questions. 
In the interest of time, I will submit the remainder of the 
questions I have for the record. I think you have covered very 
well the things we have discussed and I appreciate your 
responsiveness to the questions, as well as to the concerns 
that we have expressed.
    Senator Mikulski has said that she will submit her 
questions for the record. I appreciate very much your 
testimony.
    Judge Nebeker. Thank you very much, Mr. Chairman. I do try 
to be responsive to questions when they are asked.
    Senator Bond. It is a very pleasant trait. I certainly 
enjoy it.
                  AMERICAN BATTLE MONUMENTS COMMISSION

STATEMENT OF GEN. JOHN P. HERRLING, U.S. ARMY 
            (RETIRED), SECRETARY
    Senator Bond. I welcome our final panel: Gen. John P. 
Herrling, Secretary of the American Battle Monuments 
Commission, will be testifying on the administration's budget 
request for fiscal year 1998 for the ABMC of $23.9 million, an 
increase of $1.6 million over fiscal year 1997's appropriation 
of $22.3 million. Mr. Steve Dola, the Deputy Assistant 
Secretary for Management and Budget for the Department of the 
Army, Cemeterial Expenses, will be testifying on the 
administration's budget request for fiscal year 1998 of $11.8 
million, a $200,000 increase over to $11.6 million appropriated 
for fiscal year 1997. This funding would cover the maintenance, 
operation, and improvement of Arlington National Cemetery and 
the Soldiers and Airmen's Home National Cemetery. Finally, Mr. 
Gil Coronado, Director of the Selective Service System, will 
testify on the administration's budget request for fiscal year 
1998 of $23.9 million for the Selective Service, an increase of 
$1 million over the $22 million appropriated for fiscal year 
1997 for the Selective Service.
    With that, General Herrling.
    General Herrling. Thank you, Mr. Chairman. On behalf of the 
Commissioners of the American Battle Monuments Commission, I am 
pleased to appear before you today. Let me begin by thanking 
you and the members of this committee for the support that you 
have provided our Commission over the years.
    The special nature of the American Battle Monuments 
Commission places it in a unique and highly responsible 
position with the American people. The manner in which we care 
for our honored war dead is and should remain a reflection of 
the high regard in which we as a Nation memorialize their 
service and sacrifices.
    As you know, the American Battle Monuments Commission was 
established by Congress in 1923. It is a small, one-of-a-kind 
organization responsible for commemorating the services of the 
Armed Forces where they have served since April 6, 1917. We do 
this through the construction and maintenance of memorial 
shrines, monuments, and military burial grounds on foreign 
soil.
    The American Battle Monuments Commission operates and 
maintains 24 permanent memorial cemeteries and 28 monuments, 
memorials, and markers in 15 countries around the world. We 
have 8 World War I and 14 World War II cemeteries located in 
Europe, the Mediterranean, North Africa, and the Philippines. 
All of these cemeteries are closed to burials. In addition, we 
are responsible for the American cemeteries in Mexico City and 
Panama.
    Interred in these cemeteries are approximately 31,000 World 
War I dead, 93,000 from World War II, and 750 from the Mexican 
war, for a total of 125,000. Also we have approximately 5,000 
American veterans and others buried in the cemetery in Panama. 
In addition, we have honored another 94,000 service members on 
the Walls of the Missing, dedicated to those missing in action 
or those lost or buried at sea.
    The care of these cemeteries and memorials requires a 
significant annual program of maintenance and repair of 
facilities, equipment, and grounds. The care and maintenance of 
these facilities is labor intensive. Therefore, personnel costs 
amount to 72 percent of our budget for fiscal year 1998. The 
remaining 28 percent is required to fund our operations which 
include engineering maintenance, utilities, horticultural 
supplies, equipment, and administrative costs.
    Also, because of the permanent nature of our operations, we 
do not have the option of closing or consolidating cemeteries 
or memorials. In light of this, we have increased our efforts 
to achieve greater efficiency and effectiveness through 
automation in the operational and financial management areas.
    In addition to our overseas mission, we have been mandated 
by the Congress to construct two memorials in Washington, DC.
    On July 27, 1995, President Clinton and President Kim Young 
Sam of the Republic of Korea dedicated the Korean War Veterans 
Memorial. Last month, on February 6, we opened the Korean War 
Veterans Memorial information kiosk. This kiosk houses the 
Korean war veterans honor role, which allows friends and 
relatives to query a data base containing the names and 
information about those who died during the Korean war. With 
the opening of the kiosk, the Korean War Veterans Memorial is 
now complete.
    In May 1993, Congress authorized the Commission to build a 
national World War II memorial. The Rainbow Pool site on The 
Mall was dedicated on November 11, 1995, by President Clinton. 
Since that time a national design competition for the memorial 
was held, with over 400 entries submitted. Six finalists were 
selected for the final stage of the competition. On January 17 
of this year, President Clinton announced the winner of the 
design competition.
    As directed by the Congress, the project will be funded 
through private contributions. The American Battle Monuments 
Commission is currently working with a presidentially appointed 
World War II Memorial advisory board to raise the funds for the 
memorial.
    Our greatest challenge, Mr. Chairman, for fiscal year 1998 
will be in dealing with aging facilities and equipment. Our 
memorial cemeteries range in age from approximately 50 to 80 
years, with the Mexico City cemetery being over 140 years old. 
The permanent structures and plantings which make our 
facilities among the most beautiful memorials in the world are 
aging and require prioritized funding to maintain them at 
current standards. Therefore, we are requesting $250,000 more 
in fiscal year 1998 for maintenance and minor construction.
    In addition, much of our equipment is aging and rapidly 
reaching the end of its useful life. In order to resolve this 
problem, we are requesting an additional $200,000 to fund our 
equipment repair and replacement program. We also have small 
increases of $200,000 for supplies, $300,000 to integrate our 
financial system in compliance with OMB, GAO, and recent 
congressional directions, and $214,000 for rental of office 
space previously provided at no cost.
    In summary, since 1923 the American Battle Monuments 
Commission's cemeteries and memorials have been held to a high 
standard in order to reflect America's continuing commitment to 
its honored war dead, their families, and the U.S. national 
interest.
    The Commission intends to continue to fulfill this sacred 
trust. Our appropriation request for fiscal year 1998 is 
$23,897,000.

                           PREPARED STATEMENT

    Mr. Chairman, this concludes my statement. I will be 
pleased to respond to your questions.
    [The statement follows:]
              Prepared Statement of Gen. John P. Herrling
    Mr. Chairman and Members of the Committee: Thank you for the 
opportunity to testify on our fiscal year 1998 Appropriation Request. 
The special nature of the American Battle Monuments Commission places 
it in a unique and highly responsible position with the American 
people. The manner in which we care for our Honored War Dead is, and 
should remain, a reflection of the high regard in which we, as a 
nation, honor their service and sacrifices.
    As you know, the American Battle Monuments Commission is a small, 
one-of-a-kind organization, that is responsible for commemorating the 
services of American Armed Forces where they have served since April 6, 
1917 (the date of U.S. entry into World War I) through the erection of 
suitable memorial shrines; for designing, constructing, operating, and 
maintaining permanent American military burial grounds in foreign 
countries; for controlling the design and construction of U.S. military 
monuments and markers in foreign countries by other U.S. citizens and 
organizations, both public and private; and for encouraging the 
maintenance of such monuments and markers by their sponsors. In 
performing these functions, the American Battle Monuments Commission 
administers, operates, and maintains twenty-four permanent memorial 
cemeteries and twenty-eight monuments, memorials, and markers in 
fifteen countries around the world.
    We have eight World War I and 14 World War II cemeteries located in 
Europe, the Mediterranean, North Africa, and the Philippines. All of 
these cemeteries are closed to burials except for the remains of the 
War Dead who may occasionally be discovered in World War I or World War 
II Battlefield areas. In addition, we are responsible for the American 
cemeteries in Mexico, established after the Mexican War, and Panama.
    Presently 124,914 U.S. War Dead are interred in these cemeteries--
30,921 of World War I, 93,243 of World War II and 750 of the Mexican 
War. Additionally, 5,857 American veterans and others are interred in 
the Mexico City and Corozal (Panama) American Cemeteries. Commemorated 
individually by name on stone tablets at the World War I and II 
cemeteries and three memorials on U.S. soil are the 94,120 U.S. service 
men and women who were Missing in Action, or lost or buried at sea in 
their general regions during the World Wars and the Korean and Vietnam 
Wars.
    We continue to provide services and information to the public, 
friends, and relatives of those interred in, or memorialized, at ABMC 
cemeteries and memorials. This includes information about grave and 
memorialization sites as well as location, suggested routes, and modes 
of travel to the cemeteries or memorials. Immediate family members are 
provided letters authorizing fee-free passports for overseas travel to 
specifically visit a loved one's grave or memorial site. Photographs of 
headstones and sections of the Tablets of the Missing on which the 
service person's name is engraved are also available. These photographs 
are mounted on large color lithographs of the cemeteries or memorials. 
In addition we assist those who wish to purchase floral decorations for 
placement at grave or memorial sites in our cemeteries. A photograph of 
the in-place floral arrangement is provided to the donor.
    The care of these shrines to our War Dead requires a formidable 
annual program of maintenance and repair of facilities, equipment, and 
grounds. This care includes upkeep of 131,000 graves and headstones; 73 
memorial structures; 41 quarters, utilities, and maintenance 
facilities; 67 miles of roads and paths; 911 acres of flowering plants, 
fine lawns and meadows; nearly 3,000,000 square feet of shrubs and 
hedges and over 11,000 ornamental trees. Care and maintenance of these 
resources is exceptionally labor intensive, therefore, personnel costs 
account for 72 percent of our budget for fiscal year 1998. The 
remaining 28 percent is required to fund our operations, including 
unprogramed requirements resulting from natural disasters or foreign 
currency fluctuations. We do not have the option of closing or 
consolidating cemeteries. In light of this, we have increased our 
efforts to achieve greater efficiency and effectiveness, through 
automation and contracting, in the operational and financial management 
areas, where we do have control.
    This Commission fully recognizes and supports the efforts of the 
President and the Congress to improve efficiency, focus on results, and 
streamline the government overall. During fiscal year 1996, we 
completed the upgrade to our automation system and offset telephone, 
fax, and mail costs while increasing productivity. We have contracted 
with the Department of Treasury's Financial Management Services Center 
to study our accounting system, provide alternatives and 
recommendations, and design a new system, if findings warrant. We 
anticipate these recommendations will be implemented during fiscal year 
1998. In addition, we have begun development of our Strategic and 
Annual Performance Plans in accordance with the Government Performance 
and Results Act. We believe, when finalized, our plans will provide a 
comprehensive roadmap for accomplishing our mission.
    On July 27, 1995, President Clinton and President Kim Young Sam 
dedicated the Korean War Veterans Memorial. On February 6, 1997, we 
opened the Korean War Memorial Kiosk. This Kiosk houses the Korean War 
Veterans Memorial Honor Roll. This Honor Roll allows friends and 
relatives to query a data base containing the names and information 
about those who died during the Korean War. With the opening of the 
Kiosk we are pleased to be able to report to you that the Korean War 
Veterans Memorial is now complete.
    Our focus for fiscal year 1998 and for the next several years will 
be the World War II Memorial. As you know, on May 25, 1993, President 
Clinton signed Public Law 103-32 directing the ABMC to build a World 
War II Memorial. The World War II Memorial Site at the Rainbow Pool was 
dedicated by President Clinton on November 11, 1995. Since that time, a 
national design competition was held with over 400 preliminary designs 
submitted for evaluation. Six finalists were selected and announced on 
August 21, 1996. Final designs were submitted to a design jury on 
October 25. Criteria included concept, past performance, specialized 
experience and technical competence, professional qualifications and 
the capacity to accomplish the work in the required time. The jury 
interviewed the finalists and made its recommendation to the Commission 
on October 31. The World War II Advisory Board met and provided its 
advice to the ABMC on November 18. ABMC Commissioners considered the 
advice and recommendations and selected the winning design team/concept 
on November 20. On January 17, 1997, at a White House Ceremony, 
President Clinton unveiled the winning design by Friedrich St. Florian, 
former Dean of the Rhode Island School of Design, and a current 
professor at the school. Teaming up with Professor St. Florian are 
George E. Hartman, Hartman-Cox Architects, and Oehme van Sweden & 
Associates, Inc., both of Washington D.C. Leo Daly will be the 
architect--engineer of record.
    As directed by the Congress, the $100 Million memorial will be 
funded through private donations after expending the $4.7 Million that 
Congress authorized from the surcharge proceeds of World War II 
Commemorative Coin sales and the $5 Million transferred from Department 
of Defense. The American Battle Monuments Commission is working closely 
with the World War II Memorial Advisory Board to raise the funds to 
meet the planned dedication on Veterans' Day in the year 2000.
    While our attention has been focused on management improvements and 
the design and construction of the World War II Memorial, we have not 
ignored our primary mission of operating and maintaining twenty-four 
memorial cemeteries and twenty-eight monuments. The Congress has been 
instrumental in our success in maintaining its high standard of 
excellence by providing the funds required to accomplish our 
objectives, and for that we thank you.
    Fiscal year 1998 will present new challenges. For the first time in 
nine years we have repriced our foreign currency budget rates. This 
repricing, with OMB support, conforms with the Department of Defense's 
budget rates for foreign currency. With this repricing, we estimate 
that we will require $2,097,000 to satisfy foreign currency fluctuation 
requirements. This amount has been included in our budget request. In 
addition the fiscal year 1998 request provides for cost of living 
increases for our U.S. and foreign national personnel, rental expenses 
for space previously provided at no cost, funding to integrate ABMC 
financial systems in accordance with OMB, GAO, and recent Congressional 
directions, and small increases for maintenance and equipment.
    Perhaps our greatest challenge will be in dealing with aging 
facilities and equipment. Our cemetery memorials range in age from 50 
to 80 years old with Mexico City being over 100 years old. The 
permanent structures and plantings which make our facilities among the 
most beautiful memorials in the world are aging and require increased 
funding to maintain them at the current standards. Our maintenance and 
engineering budget is stretched to the limit. Accordingly, we are 
prioritizing this spending carefully. In addition, much of our 
equipment is aging and rapidly reaching the end of its useful life. We 
have requested additional funding for equipment replacement this fiscal 
year and will be implementing phased replacement in order to take 
advantage of new labor saving technology.
    Since 1923, the American Battle Monuments Commission's memorials 
and cemeteries have been held to a high standard in order to reflect 
America's continuing commitment to its Honored War Dead, their 
families, and the U.S. national image. The Commission intends to 
continue to fulfill this sacred trust.
    The American Battle Monuments Commission appropriation request for 
fiscal year 1998 is $23,897,000.
    This concludes my prepared statement. I will be pleased to respond 
to your questions.

                     Additional committee questions

    Senator Bond. Thank you very much, General.
    [The following questions were not asked at the hearing, but 
were submitted to the Commission for response subsequent to the 
hearing:]
                 Question Submitted by Senator Stevens
             abmc special events and services to the public
    Question. Provide to each Committee Chairman a schedule of planned 
Memorial Day activities and other special events as well as information 
on public services provided by American Battle Monuments Commission 
(ABMC).
    Answer. As of 26 March 1976, ABMC provided the Chairman of each 
Senate and House Committee a listing of ABMC Special Events planned for 
1997 and a Fact Sheet on ABMC's mission and services which are provided 
to the public. These two documents are as follows:
  1997 memorial day and other events at abmc cemeteries and memorials
    The following is a list of Memorial Day, Veterans Day, D-Day 
Ceremonies, and other activities that are planned for 1997.
    Memorial Day.--Memorial Day programs are held at each ABMC 
Cemetery. Each grave site is decorated with the flag of the United 
States and that of the host country. Programs, usually including 
participation by the U.S. Ambassador to the host country, includes 
reading of the President's Memorial Day Proclamation, speakers, the 
presentation of the National Colors, wreath laying ceremonies, and 
military bands and units. The 1997 Memorial Day schedule for our 
cemeteries in Europe, Tunisia, Mexico City, Panama and Philippines, is 
as follows:

------------------------------------------------------------------------
             Cemetery                       Date               Time     
------------------------------------------------------------------------
AISNE-MARNE (France) \1\..........  SUNDAY 25 MAY.......        10:15 AM
ARDENNES (Belgium) \2\............  SATURDAY 24 MAY.....        10:00 AM
BRITTANY (France) \2\.............  SUNDAY 25 MAY.......         4:30 PM
BROOKWOOD (England) \1\...........  SUNDAY 18 MAY.......         3:00 PM
CAMBRIDGE (England) \2\...........  MONDAY 26 MAY.......        11:30 AM
COROZAL (Panama)..................  MONDAY 26 MAY.......         9:00 AM
EPINAL (France) \2\...............  SUNDAY 25 MAY.......         3:00 PM
FLANDERS FIELD (Belgium) \1\......  SUNDAY 25 MAY.......         3:00 PM
FLORENCE (Italy) \2\..............  MONDAY 26 MAY.......        11:00 AM
HENRI-CHAPELLE (Belgium) \2\......  SATURDAY 24 MAY.....         4:00 PM
LORRAINE (France) \2\.............  SUNDAY 25 MAY.......        11:00 AM
LUXEMBOURG (Luxembourg) \2\.......  To Be Announced.....  ..............
MANILA (Philippines) \2\..........  MONDAY 26 MAY.......         4:00 PM
MEXICO CITY (Mexico)..............  FRlDAY 30 MAY.......        12:00 PM
MEUSE-ARGONNE (France) \1\........  SUNDAY 25 MAY.......         3:00 PM
NETHERLANDS (The Netherlands) \2\.  SUNDAY 25 MAY.......         3:00 PM
NORMANDY (France) \2\.............  SUNDAY 25 MAY.......        10:30 AM
NORTH AFRICA (Tunisia) \2\........  SATURDAY 24 MAY.....        10:00 AM
OISE-AISNE (France) \1\...........  SUNDAY 25 MAY.......         4:00 PM
RHONE (France) \2\................  SUNDAY 25 MAY.......        10:00 AM
ST. MIHIEL (France) \1\...........  SUNDAY 25 MAY.......         4:00 PM
SICILY-ROME (Italy) \2\...........  MONDAY 26 MAY.......        11:00 AM
SOMME (France) \1\................  SUNDAY 25 MAY.......         3:00 PM
SURESNES (France) \1\.............  SUNDAY 25 MAY.......        2:30 PM 
------------------------------------------------------------------------
\1\ World War I American Cemeteries and Memorials.                      
\2\ World War II American Cemeteries and Memorials.                     

    D-Day Landing Ceremonies--6 June 1997.--A commemorative program is 
held each year at a site along the Landing Beaches. The program site is 
rotated between the British, French, and American Sectors. The 1997 
program will be held in the American Sector of operations on 6 June at 
the following locations:

                                                                        
                                                                        
                                                                        
Bayeux....................................  9:30 AM Liberation Monument--
                                             Wreath Laying.             
Omaha Beach...............................  10:15 AM American cemetery--
                                             Religious Service.         
                                            11:00 AM D-Day Monument--   
                                             Wreath Laying.             
                                            11:15 AM National Guard     
                                             Monument--Wreath Laying.   
Point Du Hoc..............................  11:30 AM Wreath Laying.     
Saint-Mere-Eglise.........................  12:15 PM Wreath Laying.     
                                            12:45 PM Official Banquet.  
Utah Beach................................  3:00 PM Leclerc Monument--  
                                             Wreath Laying.             
                                            3:30 PM Monument of 4th     
                                             Division Wreath Laying.    
                                             National Ceremony-American 
                                             Federal Monument: Raising 8
                                             National Colors; Official  
                                             Speeches; Wreath Laying    
                                             Ceremony; Military Parade. 
                                                                        

    Veterans Day.--Annual ceremonies are held at some of the cemeteries 
on Veterans Day, which coincides with the French holiday commemorating 
the end of World War I. Local community programs frequently include 
commemorative events at some of our cemeteries. The location and 
magnitude of the programs vary in location and size. We will provide 
dates and times for Veterans Day celebrations at a later date.
    Other Ceremonial Occasions.--Members of Congress, officials of the 
Executive Branch, high ranking diplomatic and senior representatives of 
the respective host nations and allied powers, personnel from NATO/
SHAPE, as well as, veterans' remembrance, educational and even local 
patriotic groups frequently visit our cemeteries and memorials. These 
visits include small wreath laying ceremonies and community sponsored 
receptions to honor those Americans who fought in and liberated a 
particular town or region.
    Special Events.--Our Cemetery Superintendents serve as ambassadors 
of goodwill in the country where they are stationed. They frequently 
represent the United States at ceremonies and other community based 
programs. These include ceremonies commemorating the liberation of 
towns and villages by U.S. troops, events that honor the survivors of 
Nazi concentration camps and visits by American veterans' remembrance 
groups.

                  AMERICAN BATTLE MONUMENTS COMMISSION

Mission
    The American Battle Monuments Commission (ABMC) is a small 
independent agency of the Executive Branch established by Congress on 
March 4, 1923 (36 U.S.C. 121-128c).
    The principal mission of the agency is to commemorate the 
sacrifices and achievements of the United States Armed Forces, where 
they have served, since April 6, 1917, the date of U.S. entry into 
World War I. This is accomplished by:
    Designing, constructing, administrating, and maintaining cemetery 
and memorial structures outside the United States. ABMC currently has 
responsibilities for 24 permanent United States memorial cemeteries, 
and 27 memorial monuments and markers.
    Controlling the design and construction of U.S. Military memorials, 
monuments, and markers on foreign soil which are sponsored by U.S. 
citizens or U.S. public or private organizations, and encouraging these 
organizations to adequately maintain them.
    Establishing memorials in the United States, when legislated by the 
Congress, and outside the United States, where U.S. forces have served, 
as the Commission determines.
  --Congress directed ABMC to establish the Korean War Veterans 
        Memorial on the Mall in Washington, DC. This Memorial was 
        completed and dedicated in July 1995 and is now administered by 
        the National Park Service.
  --Public Law 103-94, signed by President Clinton on May 25, 1993, 
        authorizes ABMC to design, erect and conduct fund raising for 
        the national World War II Memorial that is to be sited on the 
        Mall in Washington, DC. This national monument will memorialize 
        the generation of Americans whose spirit, sacrifice, and unity 
        reflect the values that have made our nation strong. This 
        Memorial will also pay tribute to the many Americans who served 
        in the Armed Forces and to all those who joined the war effort 
        on the home front. The Commission's goal is to dedicate the 
        Memorial on Veterans Day 2000. Former Senator Robert Dole, a 
        World War II veteran, is now serving as Co-Chairman of the 
        World War II Memorial fund raising effort.
Services Available to the Public
    General information concerning name and location of cemetery and 
memorial sites.
    Specific information on grave and memorialization sites of War 
Dead.
    General information about travel to the military shrines 
administered by the Commission, including best routes, modes of travel, 
available accommodations, and information about historical events which 
took place in the battlefield areas in the region of the cemetery 
memorials.
    Authorization to immediate family members for issuance of fee free 
U.S. passports when visiting burial or memorialization sites of loved 
ones.
    Escort of family members to appropriate grave and memorialization 
sites when visiting cemetery memorials.
    Photographs of grave and memorialization sites, along with large 
color lithographs of the cemetery memorials.
    Assistance in placing floral decorations at grave and 
memorialization sites using funds provided by the donor.
    Maintenance of the Honor Roll database of the Korean War Veterans 
Memorial on the National Mall in Washington, DC. The Honor Roll 
commemorates those members of the United States military who died 
world-wide during the Korean War. Honor Roll Certificates may be 
obtained at the kiosk located at the Memorial or from ABMC's Washington 
office.
                                 ______
                                 
                 Question Submitted by Senator Mikulski
    Question. Provide a plan to work through the current backlog of 
engineering projects and identify a schedule which might allow American 
Battle Monuments Commission to ``buy out'' of this backlog dilemma.
    Answer. A copy of the current Master Priority Listing for all 
identified engineering projects follows below.
    There are 550 projects with a total estimated cost of slightly over 
$10 million. With considerable attention to detail, this master list 
has been carefully reviewed, revised, updated, and prioritized over the 
course of the past nine months. Accordingly, our fiscal year 1997, 
fiscal year 1998, and outyear engineering plans and programs are now 
based on this newly developed master priority list.
    Presently, ABMC hopes to apply $2M to engineering projects in 
fiscal year 1997. At this time, our President's Budget Request has 
$2.2M programmed for engineer projects in fiscal year 1998. If we do 
not experience unanticipated foreign currency fluctuations, any 
significant natural disasters, or unexpected utility or plant failures, 
we project our backlog will be reduced to $6M by the end of fiscal year 
1998. Additionally, we estimate that $700,000 in new projects must be 
added to the master list each year. Consequently, if we are able to 
continue to apply $2M annually toward engineer projects every year, it 
could still take an additional five years (fiscal year 1999 through 
fiscal year 2003) to eliminate the backlog. In order to support the 
current high standards of maintenance and repair of our facilities, 
plus improve our position with respect to energy conservation, 
productivity, and efficiency, the Commission could effectively apply up 
to an additional $1M per year above the President's Budget, for 
engineer project backlog reductions. This would allow ABMC to make a 
major reduction prior to fiscal year 2001.

           ABMC ENGINEERING BACKLOG AT START FISCAL YEAR 1997           
------------------------------------------------------------------------
                                                     Object   Estimated 
            Cemetery                   Project        class      cost   
------------------------------------------------------------------------
Meuse Argonne..................  Anchor Loose            25       $2,000
                                  Stones at Church                      
                                  Ruins at                              
                                  Montfaucon.                           
North Africa...................  Repair of Interior      32       30,000
                                  Court Cornice.                        
Aisne Marne....................  Install Automatic       25        1,000
                                  Chlorinator for                       
                                  Potable Water.                        
Rhone..........................  Install electrical/     32        3,000
                                  heating System,                       
                                  Visitor Center.                       
Aisne Marne....................  Drill New Deep          25      250,000
                                  Well.                                 
Manila.........................  Repair Hemicycle        32      100,000
                                  Roof.                                 
Rhone..........................  Replacement of          25        5,800
                                  Fuel Tank                             
                                  Visitors/Office                       
                                  Building.                             
Aisne Marne....................  Install Water           25        1,500
                                  Softener.                             
Sicily-Rome....................  Drill New Well 30       32        6,800
                                  mt. Install                           
                                  Pumping System.                       
Meuse Argonne..................  Replace 3 ea Fuel       25       50,000
                                  Tanks, and 1 ea                       
                                  gas tank.                             
Sicily-Rome....................  Raise and expand        25        2,018
                                  irrigation parts                      
                                  store room.                           
Normandy.......................  Replace 1 ea gas        25       11,000
                                  tank.                                 
Manila.........................  Repair Water            32       30,000
                                  Purification                          
                                  System (Potable).                     
Sicily-Rome....................  Improve Drainage        32        3,000
                                  to Soutwest                           
                                  corner of center                      
                                  mall.                                 
Netherlands....................  Replace One             25        8,000
                                  Gasoline Tank.                        
North Africa...................  Replace curbstones      25        3,000
                                  along Burial area.                    
Ardennes.......................  Install Heavy           25          750
                                  Security Door on                      
                                  Side of Garage.                       
Florence.......................  Gradual                 25        4,000
                                  replacement of                        
                                  boundary hedges                       
                                  (North ent).                          
Oise-Aisne.....................  Construct Weir on       25        1,000
                                  Stream.                               
Mexico City....................  Replace Water           25        1,000
                                  Tanks.                                
Florence.......................  Replace fire thorn      25        4,000
                                  hedge both                            
                                  entrance drives.                      
Flanders Field.................  Renovate Oudenarde      25        8,000
                                  Monument.                             
North Africa...................  Replacement of          25        5,750
                                  Thuya Hedges.                         
Ardennes.......................  Sandblast, Repair       25        5,000
                                  and Repaint                           
                                  Compost Shed.                         
Florence.......................  Replace old Tar         25        3,000
                                  Paper, Reservoir                      
                                  Roof.                                 
Cambridge......................  Repair Stone Steps      25       15,000
                                  at Flag Pole Base.                    
Corozal........................  Improve Drainage        32       47,000
                                  System.                               
Florence.......................  Install water pump      25        3,000
                                  to increase                           
                                  pressure.                             
Oise-Aisne.....................  Replace Gutters on      25        8,000
                                  Garage/Storage                        
                                  Bldg in Service.                      
Florence.......................  Replace 50 old          25        4,500
                                  Model Sprinklers,                     
                                  Burial Area.                          
Epinal.........................  Install Lightning       25        1,000
                                  Protection for                        
                                  Sprinkler System.                     
Sicily-Rome....................  Replace 50 old          25        4,500
                                  Model Sprinklers,                     
                                  Burial Area.                          
Epinal.........................  Improve Security        25        2,000
                                  Measures of                           
                                  Service Area.                         
Mexico City....................  Replace Four Doors      25        2,000
North Africa...................  Maintenance of          25        1,000
                                  Flagpole,                             
                                  Travertine                            
                                  Drainage Grill.                       
Cambridge......................  Repoint Steps           25        1,000
                                  around Flagpole.                      
Florence.......................  Install water           25        3,800
                                  filter in both                        
                                  quarters.                             
Aisne Marne....................  Repaint Exterior        25          500
                                  Dormer Window                         
                                  Frame, Visitors                       
                                  Bldg.                                 
Manila.........................  Repair Asst             25        5,700
                                  Superintendent's                      
                                  Roof.                                 
Henri Chapelle.................  Repair Leak Around      25          500
                                  Dormer in Supt's                      
                                  Qtrs.                                 
Florence.......................  Replace walkpaths       25        3,500
                                  cotto tiles, of                       
                                  both quarters.                        
Lorraine.......................  Refurbish               25       25,000
                                  Biological Filter.                    
Cambridge......................  Install handrail        25        2,000
                                  on steps plots E-                     
                                  F.                                    
Sicily-Rome....................  Resurfacing of          25        2,000
                                  Spillway Canal,                       
                                  Tinozzi Ditch.                        
Somme..........................  Repair Hinges on        25        5,000
                                  Chapel Doors.                         
Manila.........................  Caulk Joints of         32       15,000
                                  Western Hemicycle.                    
Brookwood......................  Replace Gutters on      25        1,600
                                  Superintendent's                      
                                  Quarters.                             
North Africa...................  Replace Deep Well       25        3,000
                                  Pump.                                 
Meuse Argonne..................  Relocate Compost        25       30,000
                                  Shed.                                 
Ardennes.......................  Replace Ladder in       25        1,000
                                  Reservoir.                            
Sicily-Rome....................  Maintain Facings,       25        2,100
                                  roofs of all svc                      
                                  area buildings.                       
Meuse Argonne..................  Build External          32       50,000
                                  Water Reservoir                       
                                  (Lake).                               
Garches........................  Construct               25          534
                                  Insulating                            
                                  Skylight.                             
Lorraine.......................  Replace Sewage          25        1,000
                                  Pump Asst Supt                        
                                  Qtrs.                                 
Lorraine.......................  Replace                 25          444
                                  Circulation Pump,                     
                                  New Service Bldg.                     
Netherlands....................  Repair Roof of          25        1,633
                                  Transformer Bldg.                     
Normandy.......................  Replace Water           25          899
                                  Heater, Supt's                        
                                  Qtrs.                                 
Ardennes.......................  Replace Drainage        25          285
                                  Pipe Asst Supt                        
                                  Qtrs.                                 
Meuse Argonne..................  Replace Sprinkler       32      350,000
                                  System.                               
Netherlands....................  Construct Oil-          25       20,000
                                  Water Separator                       
                                  at Wash Point.                        
North Africa...................  Replacement of          32       25,000
                                  Border Stone                          
                                  Terrace.                              
Normandy.......................  Modify Low Voltage      25        6,000
                                  Electrical Panel                      
                                  in Pump House.                        
Luxembourg.....................  Repair Asst Supt's      25       10,000
                                  Driveway.                             
Florence.......................  Renovation of           32       25,000
                                  Memorial Toilets                      
                                  W/Handicapped Fct.                    
Brittany.......................  Paint Flag Poles..      25        3,000
Manila.........................  Replace 3               32       47,000
                                  Transformers and                      
                                  Upgrade Sub-                          
                                  station.                              
Flanders Field.................  Repoint Base of         25        5,000
                                  Chapel Memorial.                      
Rhone..........................  Enclose section of      32        8,000
                                  Compost Shed.                         
Brookwood......................  Repair Chapel           25       15,000
                                  Decorative Grills.                    
Meuse Argonne..................  Renovate Water          25       40,000
                                  Reservoir.                            
Rhone..........................  Replace heating         32        8,000
                                  system in                             
                                  Government                            
                                  quarters.                             
Aisne Marne....................  Install all             32       30,000
                                  Utilities at                          
                                  Chateau Thierry                       
                                  Monument.                             
Manila.........................  Upgrade Electrical      32       30,300
                                  Panel (Pumphouse).                    
Cambridge......................  Repair Cracks in        25        5,000
                                  Supt's Qtrs.                          
Sicily-Rome....................  Renovation of           32       24,000
                                  Visitors Toilets                      
                                  to include                            
                                  handicap.                             
Normandy.......................  Construct Path Way      25        2,100
                                  to Debris                             
                                  Disposal Area.                        
Brookwood......................  Improve Drainage        25        5,000
                                  Around Chapel.                        
North Africa...................  Install Kitchen         25        1,000
                                  Stovetop Exhaust                      
                                  Vents, Both Qtrs.                     
Brittany.......................  Renovate Public         25       10,000
                                  Toilets.                              
Manila.........................  Install Automatic       32       75,000
                                  Sprinkler System                      
                                  (Phase I).                            
Somme..........................  Repair                  25        5,000
                                  Inscriptions at                       
                                  Bellicourt                            
                                  Monument.                             
Florence.......................  Closing of Compost      32        6,000
                                  Pit For Needed                        
                                  Storage Area.                         
Flanders Field.................  Replace Flagpole        25        7,000
                                  Terrace.                              
Florence.......................  Replace 50 old          25        5,000
                                  Model Sprinklers,                     
                                  Burial Area.                          
Luxembourg.....................  Construct Ramp          25        1,750
                                  Between Memorial                      
                                  & Plots.                              
Corozal........................  Secure Fence Line.      25        3,600
Aisne Marne....................  Neutralize/Repair       25        7,500
                                  Exposed Rebar at                      
                                  Chateau Thierry.                      
Sicily-Rome....................  Closing of Compost      32        6,000
                                  Pit for Needed                        
                                  Storage Area.                         
Flanders Field.................  Check Lightning         25        1,500
                                  Protection System                     
                                  on Chapel.                            
Henri Chapelle.................  Renovate & Clean        25       10,000
                                  Colonnades                            
                                  Ceiling.                              
Sicily-Rome....................  Replace 50 old          25        5,000
                                  Model Sprinklers,                     
                                  Burial Area.                          
Lorraine.......................  Reconstruct             25      120,000
                                  Memorial Stairway.                    
Corozal........................  Replace Roof,           25        5,000
                                  Superintendent's                      
                                  Qtrs.                                 
Aisne Marne....................  Install Oil-Water       25        2,000
                                  Separator at Svc                      
                                  Area Washrack.                        
North Africa...................  Renovation of           32       10,000
                                  Visitors Toilets                      
                                  to include                            
                                  handicap.                             
Cambridge......................  Treatment of Wood       25        2,500
                                  and Stone Work in                     
                                  Chapel.                               
Henri Chapelle.................  Clean and Repair        25       60,000
                                  Mosaic Stars in                       
                                  Colonnade Ceiling.                    
Rhone..........................  Handicapped toilet      32       35,000
                                  building (unisex                      
                                  facility).                            
Brittany.......................  Improve lightning       25        5,000
                                  arrestors at                          
                                  Brest Monument.                       
Mexico City....................  Replace Roof on         25        1,500
                                  Service Building.                     
Somme..........................  Improve                 25          500
                                  Ventilation in                        
                                  Garage Work Shop.                     
Florence.......................  Renovate Toilets,       32        8,000
                                  Visitors/Office                       
                                  Building.                             
Oise-Aisne.....................  Paint Exterior of       25        3,000
                                  Garage/Storage                        
                                  Bldg in Svc Area.                     
Flanders Field.................  Install Electric        25        1,500
                                  Heater in Chapel.                     
Rhone..........................  New Road Signs          32       19,000
                                  Installation.                         
Oise-Aisne.....................  Paint Exterior of       25        5,000
                                  Visitors/Quarters                     
                                  Building.                             
Corozal........................  Install Deep Well       32       60,000
                                  & Reservoir.                          
Aisne Marne....................  Rebuild entrance        25       50,000
                                  area and Walkways                     
                                  to Bldgs.                             
Sicily-Rome....................  Refurbish               25        8,900
                                  Ligustrum hedges,                     
                                  Bare Spots, w/New                     
                                  Plan.                                 
Cambridge......................  Replace Damaged         25        2,000
                                  Stones on Court                       
                                  of Honor.                             
Brittany.......................  Install Filters         25        1,500
                                  for Tours                             
                                  Monument.                             
Sicily-Rome....................  Renovation              25        8,700
                                  Pittosporum                           
                                  Hedgerow                              
                                  Surrounding                           
                                  Center.                               
Oise-Aisne.....................  Replace Gutters on      25        5,500
                                  Visitors/Quarters                     
                                  Building.                             
Mexico City....................  Replace Roof            25        1,000
                                  Garage Area.                          
Brittany.......................  Install                 25        5,000
                                  information panel                     
                                  at Tours Monument.                    
Rhone..........................  Remodelling of          25        4,000
                                  Service Bldg                          
                                  Shower/Toilet                         
                                  Facility.                             
Meuse Argonne..................  Replace Roofs on        25       90,000
                                  Garage Buildings.                     
Brittany.......................  Install                 25        5,000
                                  Information Panel                     
                                  at Brest Monument.                    
North Africa...................  Repair sinking          25        5,000
                                  curbstone in                          
                                  front of Office                       
                                  area.                                 
Brookwood......................  Relevel Walkways &      25       50,000
                                  Headstone beams.                      
Manila.........................  Upgrade Asst            25        5,000
                                  Superintendent's                      
                                  Master Bath.                          
Flanders Field.................  Repair Walkway at       25        1,000
                                  Oudenarde                             
                                  Monument at Plane                     
                                  Tree.                                 
Sicily-Rome....................  Replacement of          25        2,000
                                  office/visitors                       
                                  building doors.                       
Garches........................  Replace Carpeting       25        4,000
                                  in Reception Area.                    
Lorraine.......................  Build Handicap          32       15,000
                                  Toilet Facilities.                    
Sicily-Rome....................  Replace Rain            25        2,500
                                  Gutters & Down                        
                                  Spouts Garage/Svc                     
                                  Area.                                 
Lorraine.......................  Install New             25      200,000
                                  Filtration System.                    
Manila.........................  Paint Motor Pool        25        4,000
                                  Buildings.                            
Meuse Argonne..................  Replace Lion's          25        1,500
                                  Head at Pool.                         
Florence.......................  Replace Rain            25        2,000
                                  Gutters & Down                        
                                  Spouts Garage/Svc                     
                                  Area.                                 
Netherlands....................  Connect Qtrs to         25       20,000
                                  City Sewer.                           
Garches........................  Re-waterproof           25       10,000
                                  Director's Office                     
                                  Roof.                                 
Lorraine.......................  Refurbish Memorial      25       35,000
                                  Bronze Window                         
                                  Frame.                                
Meuse Argonne..................  Repaint Flagpoles.      25        4,000
Lorraine.......................  Clean and Treat         25      100,000
                                  (Water-resistant)                     
                                  Memorial.                             
Netherlands....................  Replace Sprinkler       32      300,000
                                  System and                            
                                  Renovate Pump                         
                                  Room.                                 
Florence.......................  Drilling of a new       32       40,000
                                  artesian deep                         
                                  well.                                 
Luxembourg.....................  Replace sprinkler,      32      220,000
                                  renovate pumproom.                    
Luxembourg.....................  Install Security        25        8,300
                                  Doors on Compost                      
                                  Shed.                                 
Somme..........................  Replace sprinkler,      32      180,000
                                  renovate pumproom.                    
Somme..........................  Repair Water            25        1,000
                                  Softener.                             
Ardennes.......................  Replace Sprinkler       32      200,000
                                  System, renovate                      
                                  pumproom.                             
Normandy.......................  Install                 32        5,000
                                  Information Panel                     
                                  at Pointe du Hoc.                     
Saint Mihiel...................  Replace sprinkler,      32      200,000
                                  renovate pumproom.                    
Rhone..........................  Install Drainage        25        8,000
                                  line in Lower                         
                                  Grave Plots area.                     
Henri Chapelle.................  Replace Sprinkler       32      230,000
                                  System and                            
                                  Renovate Pump                         
                                  Room.                                 
Henri Chapelle.................  Replace Kitchen         25       23,000
                                  Cabinets, Both                        
                                  Quarters.                             
Meuse Argonne..................  Construct an Oil-       25        2,000
                                  Water Separator                       
                                  at Wash Rack.                         
Oise Aisne.....................  Replace Storage         25       40,000
                                  Bldg & Apron.                         
Manila.........................  Water Purification      32      170,000
                                  System                                
                                  (Irrigation).                         
Aisne Marne....................  Replace Roof on         25       15,000
                                  Compost Shed.                         
Aisne Marne....................  Treat Wood Frame        25        5,000
                                  of Compost Shed.                      
Henri Chapelle.................  Repair Roof of          25        1,000
                                  Transformer Bldg.                     
North Africa...................  Renovation of           32       10,000
                                  Visitors Toilets                      
                                  to include                            
                                  handicap.                             
Meuse Argonne..................  Reset Coping            25        3,000
                                  Stones on                             
                                  Memorial                              
                                  Retaining Wall.                       
Aisne Marne....................  Repaint Flagpoles.      25        3,000
Luxembourg.....................  Replace Rusted          25        2,500
                                  Stained Glass                         
                                  Window Hinges,                        
                                  Chapel.                               
Sicily-Rome....................  Replace Bedroom/        25        6,000
                                  living room                           
                                  ceiling Supt's                        
                                  Qtrs.                                 
Lorraine.......................  Repaint Memorial        25        3,000
                                  Ceiling.                              
Somme..........................  Repair Dry Rotted       25        7,000
                                  Doors, Mechanical                     
                                  Shop & Garage.                        
Saint Mihiel...................  Inspect deep well       25       10,000
                                  (100 meters                           
                                  depth).                               
Manila.........................  Refinish Pea            25        6,000
                                  Gravel Base                           
                                  Overlay--Cabanatu                     
                                  an.                                   
Henri Chapelle.................  Renovate water          25       70,000
                                  reservoir.                            
Ardennes.......................  Construct Public        32       15,000
                                  Handicapped                           
                                  Toilet.                               
Cambridge......................  Install Handicap        32       10,000
                                  Toilets.                              
North Africa...................  Extension of            32       11,500
                                  Sprinkling System                     
                                  To Semi-Circular                      
                                  Dr.                                   
Henri Chapelle.................  Reconstruct Public      25       45,000
                                  Toilets/install                       
                                  handicap facil.                       
Aisne Marne....................  Build Public            25       30,000
                                  Toilets (include                      
                                  handicap toilets).                    
Luxembourg.....................  Replace Furnace,        25        8,000
                                  Garage Bldg.                          
Rhone..........................  Repaint Exterior        25        8,000
                                  of Service Area                       
                                  Bldg & Qtrs.                          
Luxembourg.....................  Replace 2 ea fuel       25       12,000
                                  tanks (both Qtrs).                    
Oise Aisne.....................  Replace 1 ea fuel       25       25,000
                                  tank (VB/Qtrs), 1                     
                                  ea Gasoline Ta.                       
Saint Mihiel...................  Replace 2 ea Fuel       25       20,000
                                  tanks, 1 ea Gas                       
                                  Tank.                                 
Manila.........................  Construct an Oil        32        4,000
                                  Storage Building.                     
Aisne Marne....................  Replace 2 ea            25       15,000
                                  (Visitors Bldg/                       
                                  Qtrs) fuel tanks.                     
Henri Chapelle.................  Replace 4 ea Fuel       25       30,000
                                  Tanks.                                
Ardennes.......................  Replace 4 ea Fuel       25       36,000
                                  Tanks & 1 ea Gas                      
                                  Tank.                                 
Sicily-Rome....................  Renovation and          32        3,500
                                  modification of                       
                                  Pump House roof.                      
Brittany.......................  Replace 4 ea Fuel       25       36,000
                                  Tanks & 1 ea Gas                      
                                  Tank.                                 
Flanders Field.................  Replace heating         25        4,000
                                  system--nursery.                      
Henri Chapelle.................  Rewire Buildings        25       30,000
                                  vic Collonades.                       
Sicily-Rome....................  Install auto            32        2,000
                                  irrigation system                     
                                  front of                              
                                  res'vation.                           
Aisne Marne....................  Check Lightning         25          500
                                  Arrestor System                       
                                  at Memorial.                          
Flanders Field.................  Insulate Qtrs           25          500
                                  Attic.                                
Cambridge......................  Renovate Toilets        25        5,000
                                  in Visitors Bldg.                     
Corozal........................  Upgrade Sprinkler       32        3,000
                                  System.                               
Epinal.........................  Install Road Signs      25        1,000
Normandy.......................  Extend Sprinkler        25        2,000
                                  System to Nursery                     
                                  Area.                                 
Saint Mihiel...................  Remove electric         25        1,000
                                  cable and fuel                        
                                  tank pipes at                         
                                  Qtrs.                                 
Florence.......................  Rent platform to        25        3,000
                                  paint Flagpole &                      
                                  clean Pylon.                          
Aisne Marne....................  Replace Heating in      25       15,000
                                  Garage &                              
                                  Refectory (Svc                        
                                  Area).                                
Flanders Field.................  Restructure             32      110,000
                                  Service Area.                         
Oise Aisne.....................  Repaint Entrance        25          500
                                  Gates.                                
Sicily-Rome....................  Extension of            32        2,500
                                  boiler room                           
                                  entrance Asst                         
                                  Supt Qtrs.                            
Suresnes.......................  Repair Perimeter        25       12,000
                                  Fence (5th and                        
                                  6th phases).                          
Somme..........................  Reset Stone on          25        1,500
                                  South-West Chapel                     
                                  Gate.                                 
Henri Chapelle.................  Replace High Volt.      25       20,000
                                  Transformer and                       
                                  Change Amperage.                      
Corozal........................  Replace Roof,           25        5,000
                                  Chapel.                               
Somme..........................  Paint the               25        1,000
                                  Lettering on                          
                                  Entrance Wall &                       
                                  Chapel.                               
Flanders Field.................  Replace 3 ea Fuel       25       20,000
                                  Tanks.                                
Henri Chapelle.................  Inspect deep well       25       10,000
                                  (100 meters                           
                                  depth).                               
Sicily-Rome....................  Install Security        25        5,650
                                  Grilles, Supt's                       
                                  Qtrs.                                 
Suresnes.......................  Repaint iron work       25        6,000
                                  on Fence (5th and                     
                                  6th phases).                          
Epinal.........................  Replace Roof Tiles      25       45,000
                                  on All Service                        
                                  Bldgs.                                
Saint Mihiel...................  Repoint Stairs and      25        2,000
                                  Walls at Montsec                      
                                  Monument.                             
Sicily-Rome....................  Replace entrance        32        5,000
                                  doors both                            
                                  residences.                           
Henri Chapelle.................  Construct               32      100,000
                                  Visitor's Room                        
                                  and Office.                           
Ardennes.......................  Replace Window          25          500
                                  (Insulating) in                       
                                  Workers Refectory.                    
Netherlands....................  Engrave MIA name        25        6,750
                                  (J. Howell) on                        
                                  Wall of Missing.                      
Manila.........................  Upgrade Canteen         25        5,000
                                  (Replace Roof &                       
                                  Ceiling).                             
Meuse Argonne..................  Improve Crew            25        2,000
                                  Latrines/                             
                                  Lunchroom in                          
                                  Service Area.                         
Epinal.........................  Improve Heating in      25        5,000
                                  Service Area.                         
Luxembourg.....................  Restructure Staff       25        4,000
                                  Area in Service                       
                                  Area.                                 
Sicily-Rome....................  Install Security        25        5,000
                                  Grilles, Asst.                        
                                  Supt's Qtrs.                          
Somme..........................  Install                 25          500
                                  Thermostatic                          
                                  Valves on Pump                        
                                  Room Radiators.                       
Meuse Argonne..................  Install Chemical        25       10,000
                                  Toilets at                            
                                  Sommepy Mounument.                    
Netherlands....................  Replace Calcified       25        6,000
                                  Water Lines in                        
                                  Qtrs.                                 
Sicily-Rome....................  Extension of the        32       12,000
                                  Cemetery Office,                      
                                  renovation of WC.                     
Meuse Argonne..................  Install all             32       50,000
                                  utilities at                          
                                  Sommepy Monument.                     
Somme..........................  Repaint Map at          25          500
                                  Bellicourt                            
                                  Monument.                             
Epinal.........................  Resurface Roof of       25       15,000
                                  Pump House.                           
Manila.........................  Upgrade                 25        5,000
                                  Superintendent's                      
                                  Guest Bath.                           
Brittany.......................  Clean Tours             25          250
                                  Monument.                             
Brittany.......................  Reset Stones at         25       50,000
                                  Entrance Gate.                        
Brookwood......................  Construct Toilet        32       40,000
                                  Facilities/                           
                                  Enlarge Office &                      
                                  Break.                                
Sicily-Rome....................  Convert two doors       25        1,700
                                  into windows,                         
                                  Asst Supt Qtrs.                       
Ardennes.......................  Replace Furnace in      25        5,000
                                  Service Bldg.                         
Ardennes.......................  Modify Fire             25       10,000
                                  Hydrant System/                       
                                  Sep From                              
                                  Sprinkler Sys.                        
Normandy.......................  Install Heating         32        9,000
                                  System in #2 Work                     
                                  Shop.                                 
Rhone..........................  Enclosing of            32        1,000
                                  Garage Annex.                         
Suresnes.......................  Extend Office.....      32       75,000
Suresnes.......................  Install Curtain         32        3,000
                                  Rods & Curtains                       
                                  in Qtrs.                              
Suresnes.......................  Replace Curtains        32        2,000
                                  and Drapes in                         
                                  Visitors Bldg.                        
Manila.........................  Repave Roads            32      120,000
                                  (Phase I).                            
Suresnes.......................  Repair/Repaint          25       50,000
                                  West Perimeter                        
                                  Fence (Behind                         
                                  Cem.).                                
Normandy.......................  Replace Expansion       25        1,000
                                  Joints in                             
                                  Reflecting Pool.                      
Saint Mihiel...................  Replace Roof of         25        1,500
                                  Green House.                          
Florence.......................  Replace Roses,          25        4,000
                                  Office/Visitors                       
                                  Bldg/Flagpole                         
                                  Area.                                 
Cambridge......................  Insulate Attic in       25        3,000
                                  Both Quarters.                        
Aisne Marne....................  Repaint Reservoir       25          500
                                  Roof.                                 
Flanders Field.................  Replace Zinc            25          500
                                  Flashing on Edge                      
                                  Visitor's Bldg                        
                                  Roof.                                 
North Africa...................  Replace Air             25        6,000
                                  Conditioner                           
                                  Units, Dual                           
                                  System (7 ea).                        
Aisne Marne....................  Repair Leaks in         25        5,000
                                  Structure                             
                                  Drainage System,                      
                                  Chapel.                               
Lorraine.......................  Repair Gutters on       25        1,000
                                  Compost Shed.                         
Henri Chapelle.................  Replace roof tiles      25        3,000
                                  on Service                            
                                  Building.                             
Corozal........................  Replace Roof,           25        4,000
                                  Public Rest Rooms.                    
Lorraine.......................  Replace Gutters,        25       15,000
                                  Downspouts and                        
                                  Zinc Flashing.                        
Oise Aisne.....................  Install Wall            25          500
                                  Insulation In                         
                                  Attic Next to                         
                                  Master BR.                            
Oise Aisne.....................  Refinish Entrance       25          500
                                  Floors in                             
                                  Quarters.                             
Rhone..........................  Replace of Five         32        3,000
                                  Window Shutters,                      
                                  Supt's Qtrs.                          
Epinal.........................  Repaint Interior        25        1,500
                                  of Supt's Qtrs.                       
Brittany.......................  Install Burglar         25        5,000
                                  Alarms in Both                        
                                  Qtrs.                                 
Somme..........................  Install Security        25        1,500
                                  Railing in Qtrs                       
                                  Attic.                                
Florence.......................  Replace Cemetery        25        1,600
                                  Wooden Benches.                       
Meuse Argonne..................  Modify Lightning        25        9,000
                                  Arrestors at                          
                                  Sommepy Monument.                     
Henri Chapelle.................  Repaint Reservoir       25        2,000
                                  Domes.                                
Ardennes.......................  Install Security        32        8,000
                                  Alarms.                               
Corozal........................  Replace Electrical      25       15,000
                                  System, Chapel.                       
Ardennes.......................  Water Proof Pump        32        2,000
                                  House Ceiling.                        
Normandy.......................  Install Security        32        6,500
                                  System in Service                     
                                  Area.                                 
Oise-Aisne.....................  Repair Memorial         25        5,000
                                  Roof to Stop                          
                                  Water                                 
                                  Infiltration.                         
Sicily-Rome....................  Put Aggregate           32       11,000
                                  Stone Tiles North                     
                                  Garden.                               
Normandy.......................  Install Window          25        2,000
                                  Security Bars in                      
                                  Service Area.                         
Normandy.......................  Replace                 25        8,000
                                  Orientation Table                     
                                  Security Railing.                     
Brittany.......................  Install Rolling         25       11,000
                                  Shutters and                          
                                  Screens at Both                       
                                  Qtrs.                                 
Florence.......................  Lower, & Level          25       37,000
                                  Turf Below Height                     
                                  of Cross 1st Pha.                     
Aisne Marne....................  Renovate                25        2,800
                                  Electrical Wiring                     
                                  in Compost Shed.                      
Henri Chapelle.................  Insulate Storage        25        7,000
                                  Room/Install                          
                                  Radiator (Svc.                        
                                  Area).                                
Ardennes.......................  Replace Two             25       15,000
                                  Rolling Doors and                     
                                  Enclose Staircase.                    
Manila.........................  Replace Handrails       32       12,300
                                  to Memorial                           
                                  Public Restrooms.                     
Suresnes.......................  Replace Service         25          500
                                  Building Locking                      
                                  System.                               
Cambridge......................  Transform Long-         25       15,000
                                  Step Stairway.                        
Saint Mihiel...................  Replace Heating         25        1,500
                                  Pipes in Boiler                       
                                  Room.                                 
Sicily-Rome....................  Place Aggregate         32        2,000
                                  Stone Tiles                           
                                  Memorial Toilet.                      
Normandy.......................  Reforest                32       10,000
                                  Peripheral Areas                      
                                  (Replace Black                        
                                  Pines).                               
Brittany.......................  Construct Handicap      32       15,000
                                  Access Ramp for                       
                                  Chapel.                               
Oise-Aisne.....................  Construct               32       15,000
                                  Handicapped                           
                                  Facilities                            
                                  (Modify Toilet).                      
Florence.......................  Motorize 3 Roll-up      25        4,000
                                  Doors, Service                        
                                  Group Area.                           
Epinal.........................  Replace Fuel            25          500
                                  Gauges (3 ea).                        
Epinal.........................  Replace 110v            25          500
                                  Transformer &                         
                                  Distribution Box.                     
Suresnes.......................  Relocate Gasoline       25       10,000
                                  Pump/Storage Tank                     
                                  to Svc. Area.                         
Manila.........................  Replace                 32       20,000
                                  Underground Fuel                      
                                  Storage Tanks.                        
Suresnes.......................  Upgrade Electrical      25       10,000
                                  Power in North                        
                                  Service Area.                         
Garches........................  Construct Handicap      25        2,000
                                  Access Ramp.                          
Garches........................  Modify Toilet for       25        2,000
                                  Handicapped                           
                                  Access.                               
Sicily-Rome....................  Renovation and          32        5,000
                                  modification of                       
                                  Generator Room.                       
Meuse Argonne..................  Install Water           25        2,000
                                  Softener in                           
                                  Visitors Building.                    
Netherlands....................  Replace Stone           25        2,000
                                  Steps Around                          
                                  Flagpole.                             
Netherlands....................  Replace Venetian        25        4,000
                                  Blinds in                             
                                  Visitors Bldg                         
                                  Office.                               
Sicily-Rome....................  Build Concrete Bed      25        3,000
                                  for Canal Running                     
                                  into Reservoi.                        
Netherlands....................  Replace Roll-up         25        3,500
                                  Door in Mower                         
                                  Bldg.                                 
Netherlands....................  Paint Floor in          25        1,000
                                  Service Area.                         
Flanders Field.................  Sand/Seal Wooden        25        1,000
                                  Floor in                              
                                  Visitor's Bldg.                       
Manila.........................  Renovate Guard          25        5,000
                                  House.                                
Meuse Argonne..................  Rebronze Doors of       25        1,500
                                  Montfaucon                            
                                  Monument.                             
Oise Aisne.....................  Repoint Rear Wall       25          500
                                  of Memorial (3rd                      
                                  phase/3.                              
Aisne Marne....................  Clean and treat         25        1,000
                                  chimneys &                            
                                  windows                               
                                  (limestone).                          
Florence.......................  Replace Pebble          32       36,000
                                  Mall Paths with                       
                                  Pebble Tiles.                         
Aisne Marne....................  Repair Cracked          25        1,000
                                  Stones on                             
                                  Flagpole Base.                        
Aisne Marne....................  Repair South-Side       25       10,000
                                  Bronze Door Frame.                    
Saint Mihiel...................  Repair and Paint        25        1,000
                                  Perimeter Fence.                      
Sicily-Rome....................  Renovation of           25        8,000
                                  Lathhouse                             
                                  Building.                             
Somme..........................  Repaint Perimeter       25        1,000
                                  Fence at Cantigny                     
                                  Monument.                             
Somme..........................  Reset or Grind          25        1,000
                                  Stone in Flagpole                     
                                  Base.                                 
Suresnes.......................  Clean the Cornice       25       10,000
                                  of Memorial.                          
Manila.........................  Install Automatic       32       45,000
                                  Sprinklers (Phase                     
                                  II).                                  
Suresnes.......................  Replace                 25        1,000
                                  information board.                    
Ardennes.......................  Replace Damaged         25       10,000
                                  Bricks, Exterior                      
                                  Wall of Vis. Ctr.                     
Henri Chapelle.................  Replace 3 stones        25        2,000
                                  in Wall of                            
                                  Missing.                              
Florence.......................  Build Retaining         32       90,000
                                  Wall in Front of                      
                                  Dam.                                  
Lorraine.......................  Repair Path to          25        2,000
                                  Overlook.                             
Henri Chapelle.................  Repaint Pump Room.      25        2,500
Saint Mihiel...................  Repaint exterior        25        3,000
                                  walls of Qtrs.                        
Florence.......................  Install Alarm           25        2,400
                                  System On                             
                                  Entrance Cemetery                     
                                  Bridge.                               
Somme..........................  Repair stone            25        4,500
                                  damage in                             
                                  Perimeter Wall.                       
Aisne Marne....................  Repair and Paint        25        6,000
                                  Perimeter Fence.                      
Netherlands....................  Retile Floor in         25        2,000
                                  Visitors Bldg                         
                                  Office.                               
Manila.........................  Drill New Well....      32       90,000
Lorraine.......................  Repair and Paint        25       15,000
                                  Chain-link                            
                                  Perimeter Fence.                      
Epinal.........................  Repair Perimeter        25        1,000
                                  Fence.                                
Somme..........................  Repaint                 25          750
                                  Transformer                           
                                  Building.                             
Florence.......................  Install Floor           32        1,500
                                  Tiles Service                         
                                  Group Building.                       
Aisne Marne....................  Repair Retaining        25        1,500
                                  Wall of Memorial.                     
Ardennes.......................  Repair Concrete         25        2,000
                                  Pavement Next to                      
                                  Compost Shed.                         
Flanders Field.................  Repoint Perimeter       25        2,000
                                  Wall.                                 
Sicily-Rome....................  Replace Capstone        25        2,000
                                  on Boundary Walls.                    
Meuse Argonne..................  Repair and Repoint      25        2,000
                                  Perimeter Wall.                       
Oise Aisne.....................  Repoint and Repair      25        2,000
                                  Perimeter Wall.                       
Saint Mihiel...................  Repoint and Repair      25        7,000
                                  Perimeter Wall.                       
Manila.........................  Repave Roads            32      125,000
                                  (Phase II).                           
Suresnes.......................  Relevel Headstone       25       45,000
                                  Beams.                                
Saint Mihiel...................  Install                 32        5,000
                                  information panel                     
                                  at Montsec                            
                                  Monument.                             
Meuse Argonne..................  Construct garage        32       10,000
                                  at Asst Supt Qtrs.                    
Rhone..........................  Resurface               32       40,000
                                  Visitors' Parking                     
                                  Lot.                                  
Aisne Marne....................  Repair/Repaint          25        4,000
                                  Basement Windows,                     
                                  Chateau Thierry.                      
Henri Chapelle.................  Repair Stone Wall       25        3,000
                                  and Gate Near                         
                                  North Parking                         
                                  Area.                                 
Brookwood......................  Spread Additional       25        5,000
                                  Gravel on                             
                                  Walkways.                             
Manila.........................  Install Automatic       32        4,000
                                  Gate Opener (Main                     
                                  Entrance).                            
Meuse Argonne..................  Relevel 2 steps at      25          500
                                  Montfaucon                            
                                  Monument.                             
Netherlands....................  Clean Copper            25          500
                                  Sulfate Stains                        
                                  from Statue Stone                     
                                  Base.                                 
Flanders Field.................  Regild Door of          25        1,000
                                  Chapel.                               
Rhone..........................  Resurface of            32       16,000
                                  Service Road.                         
Epinal.........................  Repair Cemetery         25       10,000
                                  Roads.                                
Henri Chapelle.................  Repair Roads and        25        3,000
                                  Walkways.                             
Meuse Argonne..................  Repair Chapel           25       20,000
                                  Service Road.                         
Manila.........................  Replace/Install         32       30,000
                                  Electric Aluminum                     
                                  Garage Bay Door.                      
Netherlands....................  Resurface               25       35,000
                                  Perimeter Road.                       
Suresnes.......................  Reconstruct             25      100,000
                                  Memorial Terrace/                     
                                  cracked retain.                       
                                  wall.                                 
Somme..........................  Install Stone Road      25          500
                                  Sign at                               
                                  Bellicourt                            
                                  Monument.                             
Rhone..........................  Replacement of          32        7,500
                                  Fence from NE to                      
                                  SW Side of                            
                                  Cemeter.                              
Somme..........................  Install Stone Road      25          500
                                  Sign at Cantigny                      
                                  Monument.                             
Meuse Argonne..................  Resurface Roads         32       60,000
                                  and Walkways with                     
                                  Asphalt.                              
Henri Chapelle.................  Replace Remaining       25        1,000
                                  Single-Pane                           
                                  Window in Attic.                      
Manila.........................  Construct               32       25,000
                                  Perimeter Road.                       
Luxembourg.....................  Replace rug in          25          500
                                  Visitors Bldg.                        
Brittany.......................  Replace Wooden          25       10,000
                                  Gates w/Aluminum.                     
Meuse Argonne..................  Resurface               25       15,000
                                  Esplanade at                          
                                  Montfaucon                            
                                  Monument.                             
Manila.........................  Construct Road to       32       25,000
                                  Compost Area.                         
Somme..........................  Resurface all           25       70,000
                                  Walkways.                             
Somme..........................  Resurface Parking       25      100,000
                                  Area at                               
                                  Bellicourt                            
                                  Monument.                             
Lorraine.......................  Resurface Roads         25       75,000
                                  and Walkways.                         
Luxembourg.....................  Resurface Cemetery      25       90,000
                                  Walkways.                             
Aisne Marne....................  Rebuild other           25       40,000
                                  roads (Water                          
                                  Res'v'r & Compost                     
                                  Shed).                                
Epinal.........................  Resurface Cemetery      32      150,000
                                  Walkways.                             
Meuse Argonne..................  Extend Roof of          32       25,000
                                  Memorial to                           
                                  Eliminate Water                       
                                  Seepage.                              
Aisne Marne....................  Resurface Parking       25       50,000
                                  Area/Walkways at                      
                                  Chateau Thierry.                      
Aisne Marne....................  Rebuild road in         25       60,000
                                  Belleau Wood.                         
Netherlands....................  Replace Curtains/       25        5,000
                                  Reupholster                           
                                  Furniture in Vis                      
                                  Ctr.                                  
Aisne Marne....................  Repair Drainage         25        5,000
                                  Problem and                           
                                  Repoint Memorial                      
                                  Steps.                                
Somme..........................  Refinish Floor in       25        2,000
                                  Visitors Center                       
                                  (Entrance Foyer).                     
Saint Mihiel...................  Clean Montsec           25      150,000
                                  Monument.                             
Meuse Argonne..................  Repair Terrace in       25       30,000
                                  Front of                              
                                  Montfaucon                            
                                  Monument.                             
Epinal.........................  Replace Gravel in       25          500
                                  Front of Chaumont                     
                                  Tablet.                               
Epinal.........................  Reasphalt Entrance      25       75,000
                                  Road.                                 
Brittany.......................  Replace Asphalt         25        6,000
                                  Pavement at Tours                     
                                  Monument.                             
Brittany.......................  Replace Sidewalk        25        2,000
                                  to Public Toilets.                    
Oise-Aisne.....................  Reasphalt Interior      25       40,000
                                  Walkways.                             
Ardennes.......................  Repoint Memorial        25       40,000
                                  Podium and Steps.                     
Oise-Aisne.....................  Replace Outside         25        1,000
                                  Entrance Lights--                     
                                  VB & Qtrs.                            
Netherlands....................  Renovate Pump           25        8,000
                                  System for                            
                                  Reflecting Pool.                      
Ardennes.......................  Repair and              25       20,000
                                  Maintain Asphalt                      
                                  Service Roads.                        
Ardennes.......................  Repair Back Wall        25        5,000
                                  of Compost Shed.                      
Ardennes.......................  Rebuild Wash Rack       25        5,000
                                  w/Oil-Water                           
                                  Separator.                            
Normandy.......................  Resurface 4             25       60,000
                                  Cemetery Walkways.                    
Normandy.......................  Repair Beach Path.      25       25,000
Normandy.......................  Replace Cubicle         25       10,000
                                  Partitions in                         
                                  Public Toilets.                       
Normandy.......................  Engrave 2 Stone         32        1,500
                                  Pillars at Garden                     
                                  of the Missing.                       
Normandy.......................  Repair Employee         25        2,000
                                  Parking Lot                           
                                  (Service Area).                       
Normandy.......................  Repair Cemetery         25       12,000
                                  Access Road                           
                                  Surface.                              
Normandy.......................  Repair 300m of          25        1,000
                                  Access Road's                         
                                  Shoulders.                            
Normandy.......................  Replace 2 Water         25        6,000
                                  Softeners.                            
Normandy.......................  Repair Roads/           25       14,000
                                  Parking Lot/                          
                                  Walkways at Pt du                     
                                  Hoc.                                  
Netherlands....................  Replace Museum          25        5,000
                                  Glass Shields                         
                                  with Safety Glass.                    
Cambridge......................  Replace Curb            25        2,000
                                  Stones at Parking                     
                                  Lot.                                  
Oise-Aisne.....................  Resurface East-         25       10,000
                                  West Axis                             
                                  Walkways.                             
Oise-Aisne.....................  Repaint Basement        25        1,500
                                  of Visitor's/Qtrs                     
                                  Bldg.                                 
Oise-Aisne.....................  Paint Interior of       25        1,000
                                  Visitors                              
                                  Reception Room.                       
Oise-Aisne.....................  Renovate Toilets        25        1,500
                                  of Visitors Bldg.                     
Oise-Aisne.....................  Repair Service          25        3,000
                                  Access Road.                          
Oise-Aisne.....................  Install Cabinets        32        2,000
                                  and Sink in                           
                                  Refectory.                            
Suresnes.......................  Refurbish Bronze        25        1,500
                                  Base of Flagpoles.                    
Meuse Argonne..................  Paint Interior of       25        1,000
                                  Service Area                          
                                  Garage.                               
Meuse Argonne..................  Replace Water           25          750
                                  Softener in                           
                                  Supt's Qtrs.                          
Normandy.......................  Resurface Gravel        25        1,000
                                  Walkways, Garden                      
                                  of the Missing.                       
Cambridge......................  Resurface Cemetery      25       30,000
                                  Roads.                                
Brittany.......................  Paint Exterior of       25       16,000
                                  Five Buildings.                       
Brittany.......................  Install False           25        3,500
                                  Ceiling and                           
                                  Radiators in                          
                                  Garage Bay.                           
Brittany.......................  Replace Toilets in      25        6,500
                                  Visitors Bldg.                        
Brookwood......................  Replace Driveway        25        5,000
                                  at Qtrs.                              
Cambridge......................  Resurface Parking       25       10,000
                                  Lot Road Near                         
                                  Visitors Bldg.                        
Luxembourg.....................  Refinish Pews and       25        1,000
                                  Kneelers in                           
                                  Chapel.                               
Garches........................  Replace Worn            25        5,000
                                  Carpeting (Phase                      
                                  2).                                   
Aisne Marne....................  Clean & treat           25        2,000
                                  Stone on Qtrs and                     
                                  Visitors Bldg.                        
Normandy.......................  Repair Perimeter        25        3,000
                                  Fence.                                
Luxembourg.....................  Replace Visitors        25        8,000
                                  Building Furnace.                     
Saint Mihiel...................  Improve water           25       40,000
                                  supply, clean                         
                                  deep well.                            
Somme..........................  Improve Water           25      300,000
                                  Supply (Drill New                     
                                  Well).                                
Aisne Marne....................  Replace Gutters on      25          500
                                  Compost Shed.                         
Ardennes.......................  Replace Gutters on      25        1,000
                                  Compost Shed.                         
Lorraine.......................  Repaint Roof of         25          750
                                  Public Toilet                         
                                  Facility.                             
Henri Chapelle.................  Replace gutters of      25        1,000
                                  Service Building.                     
Lorraine.......................  Repaint Roof of         25        1,000
                                  Visitors Building.                    
Saint Mihiel...................  Seal Asphalt            25        4,000
                                  Parking Area at                       
                                  Montsec Monument.                     
Ardennes.......................  Replace Memorial        25       50,000
                                  Furnace.                              
Lorraine.......................  Seal Parking Lot        25        1,000
                                  in Service Area.                      
Netherlands....................  Repair Rain Water       25        2,000
                                  Drains.                               
Netherlands....................  Inspect and Repair      25        8,000
                                  Service Area                          
                                  Roofs.                                
Normandy.......................  Replace Roofs Both      25       25,000
                                  Quarters.                             
Normandy.......................  Replace Annex           25        1,000
                                  Building Roof                         
                                  Gutters.                              
Lorraine.......................  Replace Gutters on      25       10,000
                                  Visitors Bldg and                     
                                  Public Toilet.                        
Suresnes.......................  Treat Chapel            25       12,000
                                  Ceiling with                          
                                  Preservative.                         
Cambridge......................  Improve                 25        2,000
                                  Maintenance Shop                      
                                  in Service Area.                      
Suresnes.......................  Install urinal and      25        2,000
                                  sink in Service                       
                                  Area.                                 
Aisne Marne....................  Replace gas tank        25       20,000
                                  and pump, Service                     
                                  Area.                                 
Oise Aisne.....................  Extend Roof of          25        3,000
                                  Garage to Create                      
                                  a Lean-to Storage.                    
Henri Chapelle.................  Improve water           25       40,000
                                  supply, clean                         
                                  deep well.                            
Saint Mihiel...................  Install Paving          25        2,000
                                  Stones at                             
                                  Memorial.                             
Somme..........................  Renovate Perimeter      25        2,000
                                  Fence w/ Post                         
                                  Lead Anchors.                         
Netherlands....................  Enclose Compost         32       10,000
                                  Shed.                                 
Cambridge......................  Enclose Compost         32       10,000
                                  Shed.                                 
Epinal.........................  Construct Interior      32        5,000
                                  Dividing Walls in                     
                                  Compost Shed.                         
Epinal.........................  Install                 32       15,000
                                  Recirculation                         
                                  System for Both                       
                                  Pools.                                
Normandy.......................  Install curbstones      32       45,000
                                  access road.                          
Oise Aisne.....................  Install heating in      32          250
                                  Visitors Bldg                         
                                  Attic.                                
Epinal.........................  Construct staff         32       50,000
                                  facility area.                        
Ardennes.......................  Paint Mechanic          25          500
                                  Workshop in                           
                                  Service Bldg.                         
Epinal.........................  Paint Floor in          25        1,000
                                  Workshop.                             
Normandy.......................  Improve Shed            25       15,000
                                  Service Area #2.                      
Aisne Marne....................  Install New             25       50,000
                                  Service Building.                     
Cambridge......................  Resurface Walkways      32      150,000
                                  to Eliminate                          
                                  Gravel.                               
Aisne Marne....................  Emplace Concrete        32        2,000
                                  Borders Around                        
                                  Traffic Island.                       
Somme..........................  Install Fence           32       30,000
                                  Around Grassy                         
                                  Area at                               
                                  Bellicourt Mon.                       
Ardennes.......................  Install Thermostat      25        2,000
                                  Valves in Qtrs.                       
Lorraine.......................  Install Hand            32        1,000
                                  Dryers in                             
                                  Visitor's Toilets.                    
Aisne Marne....................  Renovate Basement       25       35,000
                                  Rooms for                             
                                  Caretaker's                           
                                  Office.                               
Normandy.......................  Improve toilets         32      100,000
                                  facilities,                           
                                  Pointe du Hoc.                        
Suresnes.......................  Widen and               25       60,000
                                  Resurface                             
                                  Cemetery Walkways.                    
Lorraine.......................  Repair, Resurface       25       55,000
                                  Memorial Area                         
                                  Walkways.                             
Normandy.......................  Repair & Install        32       15,000
                                  Automatic Gate                        
                                  Main Entrance.                        
Garches........................  Enlarge Parking         25        1,000
                                  Area.                                 
Aisne Marne....................  Relocate Offices        25        3,000
                                  in Visitors                           
                                  Building.                             
Saint Mihiel...................  Relocate Entrance       25        1,000
                                  Gate at Qtrs.                         
Saint Mihiel...................  Install Gate on         25        3,000
                                  Access Road to                        
                                  Montsec Monument.                     
Lorraine.......................  Replace Ceiling in      32        1,500
                                  Supt's Office in                      
                                  Visitors Bldg.                        
Lorraine.......................  Install Sprinkler       32       10,000
                                  System for Meadow                     
                                  Area.                                 
Epinal.........................  Construct Heated        32        5,000
                                  Chemical Storage                      
                                  Shed.                                 
Normandy.......................  Construct               32       50,000
                                  Replacement                           
                                  Storage Building.                     
Netherlands....................  Construct               32       30,000
                                  Permanent Stone                       
                                  Handicapped Ramps.                    
Ardennes.......................  Install 1.5m Chain      32       30,000
                                  Link Fence Around                     
                                  Perimeter.                            
Ardennes.......................  Construct Truck         32        5,000
                                  Loading Ramp in                       
                                  Compost Area.                         
Ardennes.......................  Construct               32       10,000
                                  Retaining Wall in                     
                                  Compost Area.                         
Normandy.......................  Tile Wood Working       32        3,000
                                  and Mechanic Shop                     
                                  Floors.                               
Normandy.......................  Install 4 Metal         32        5,000
                                  Gates in Overflow                     
                                  Parking Area.                         
Suresnes.......................  Install Air-            32        3,000
                                  compressor in                         
                                  North Service                         
                                  Area.                                 
Ardennes.......................  Relocate Youth          25       10,000
                                  Statue.                               
Meuse Argonne..................  Replace Perimeter       25        5,000
                                  Fence.                                
Netherlands....................  Install Upstairs        25        1,000
                                  Toilet in Supt's                      
                                  Qtrs.                                 
Epinal.........................  Install second          32        2,500
                                  toilet in Both                        
                                  Qtrs.                                 
Epinal.........................  Renovate Kitchens       25       15,000
                                  in Qtrs.                              
Netherlands....................  Paint Garage            25          500
                                  Floors in Both                        
                                  Qtrs.                                 
Normandy.......................  Paint Basement          25          500
                                  Walls and Floor                       
                                  of Memorial.                          
Aisne Marne....................  Repaint Basement        25        1,000
                                  and Garage Floor,                     
                                  Visitors Bldg.                        
Ardennes.......................  Replace Sidewalk        25        5,000
                                  in Front of Supt                      
                                  Qtrs.                                 
Saint Mihiel...................  Repaint basement        25        1,000
                                  in Qtrs.                              
Normandy.......................  Replace kitchen         25       20,000
                                  cabinets, both                        
                                  Quarters.                             
Meuse Argonne..................  Install 2 Bedrooms      32       10,000
                                  in Asst Supt Qtrs.                    
Henri Chapelle.................  Construct Veranda       32       50,000
                                  both Qrts.                            
Cambridge......................  Install a Veranda       32       13,000
                                  at Supt's Qtrs.                       
Brookwood......................  Enlarge and             32       50,000
                                  improve Supt's                        
                                  Qtrs.                                 
Netherlands....................  Install Rolling         32        1,250
                                  Shutter in Supt                       
                                  Qtrs vic Veranda.                     
Epinal.........................  Install Two Hand        25          500
                                  Dryers in                             
                                  Visitors Bldg.                        
Netherlands....................  Install Hand            25          750
                                  Dryers in Public                      
                                  Toilets.                              
Henri Chapelle.................  Install Hand            25          500
                                  Dryers in Public                      
                                  Toilets.                              
Cambridge......................  Replace carpeting       25        2,000
                                  in Asst Supt Qtrs.                    
Aisne Marne....................  Sand and Varnish        25        5,000
                                  Floors in Qtrs.                       
Ardennes.......................  Replace Wall to         25        5,000
                                  Wall Carpeting in                     
                                  Both Qtrs.                            
Ardennes.......................  Renovate bathroom       25        1,000
                                  in Supt Qtrs.                         
Netherlands....................  Install New             25        3,000
                                  Carpeting in                          
                                  Asst. Supt's Qtrs.                    
Brittany.......................  Renovate bathrooms      25        5,000
                                  in Qtrs (Bathtub                      
                                  & Sink).                              
Netherlands....................  Renovate upstairs       25        1,500
                                  bathroom in                           
                                  Supt's Qtrs.                          
Normandy.......................  Renovate bathroom       25        1,000
                                  in Asst Supt's                        
                                  Qtrs.                                 
Aisne Marne....................  Renovate Kitchen        25        2,000
                                  in Qtrs (Tile &                       
                                  Paint).                               
Epinal.........................  Renovate Bathrooms      25       10,000
                                  in Both Qtrs.                         
Normandy.......................  Install Dormer          25       10,000
                                  Windows, Asst                         
                                  Supt's Qtrs.                          
Epinal.........................  Construct Veranda       32       50,000
                                  in both Qtrs.                         
Epinal.........................  Construct Front         32        5,000
                                  Porch Overhang                        
                                  for Supt's Qtrs.                      
Ardennes.......................  Construct Veranda       32       50,000
                                  Both Qtrs.                            
Ardennes.......................  Renovate Attic in       32       35,000
                                  Asst Qtrs &                           
                                  Construct                             
                                  Staircase.                            
Ardennes.......................  Tile Basement           32        5,000
                                  Floor in Both                         
                                  Qtrs.                                 
Ardennes.......................  Replace Kitchen         25        1,000
                                  Floor Tiles in                        
                                  Asst Supt's Qtrs.                     
Normandy.......................  Renovate Attic in       32       15,000
                                  Asst Supt Qtrs.                       
Normandy.......................  Construct Garage        32       15,000
                                  in Supt Qtrs.                         
Normandy.......................  Tile Storage Area       32        3,000
                                  Floors Both Qtrs.                     
Normandy.......................  Extend Garage--         32        5,000
                                  Asst Supt Qtrs.                       
Oise-Aisne.....................  Renovate Bathrooms      25        4,000
                                  in Supt's Qtrs.                       
Ardennes.......................  Repaint Interior        25        2,000
                                  of Asst Supt Qtrs.                    
Suresnes.......................  Renovate Supt's         25        5,000
                                  Qtrs Bathroom.                        
Brookwood......................  Construct               32       20,000
                                  Extension of                          
                                  Entrance to                           
                                  Supt's Qtrs.                          
Cambridge......................  Sandblast Chimney       25          152
                                  on Visitors                           
                                  Building.                             
Lorraine.......................  Repair Furnace in       25          306
                                  Service Area.                         
Garches........................  Construct Fire          25        2,500
                                  Escape.                               
Aisne Marne....................  Resurface Road,         25      100,000
                                  Belleau Wood                          
                                  Towards Lucy (1.1                     
                                  km).                                  
Aisne Marne....................  Construct               25        5,000
                                  Handicapped Ramp                      
                                  to Visitors Bldg.                     
Flanders Field.................  Replace Well Head       25        1,500
                                  Hatch.                                
Flanders Field.................  Renovate Oudenarde      25        1,000
                                  Monument Bunker.                      
Flanders Field.................  Improve Drainage        25        2,000
                                  vic Visitors Bldg                     
                                  Walkway.                              
Netherlands....................  Replace Damaged         25       12,000
                                  Stones Around                         
                                  Memorial.                             
Netherlands....................  Replace Sidewalk        25        1,500
                                  at Supt's Qtrs.                       
Netherlands....................  Improve Attic           25        3,000
                                  Insulation Both                       
                                  Qtrs.                                 
Normandy.......................  Install Handrail        32        3,000
                                  Utah Beach Fed                        
                                  Monument                              
                                  Staircase.                            
Oise Aisne.....................  Sand & Varnish          25        1,500
                                  Hardwood Floors                       
                                  in Visitors Bldg.                     
Oise Aisne.....................  Paint Small Metal       25        2,000
                                  Storage Bldg,                         
                                  Pump Rm,                              
                                  Reservoir.                            
Somme..........................  Construct Water         32       50,000
                                  Reservoir & Pump                      
                                  House.                                
Suresnes.......................  Repaint Boulevard       25        3,000
                                  Fence Near Qtrs.                      
Suresnes.......................  Improve Drainage        25       15,000
                                  System (4 Blocked                     
                                  Drains).                              
Brittany.......................  Install New             25       10,000
                                  Drainage Field                        
                                  Asst Supt Qtrs.                       
Normandy.......................  Replace Electric        25        1,000
                                  Hand Dryers in                        
                                  Public Toilets.                       
Netherlands....................  Clean Back Side of      25        9,000
                                  Wall of Missing.                      
Brookwood......................  Replace Gas             25        2,500
                                  Furnace, Supt                         
                                  Qtrs.                                 
Normandy.......................  Paint Garage Floor      25        2,000
                                  in Service Bldg.                      
                                ----------------------------------------
      Grand Total..............  ..................  ......   10,191,671
------------------------------------------------------------------------

                      DEPARTMENT OF DEFENSE--CIVIL

                       Cemeterial Expenses, Army

STATEMENT OF STEVEN DOLA, DEPUTY ASSISTANT SECRETARY 
            FOR MANAGEMENT AND BUDGET, OFFICE OF THE 
            ASSISTANT SECRETARY OF THE ARMY FOR CIVIL 
            WORKS
    Senator Bond. We will now go to Mr. Steve Dola.
    Mr. Dola. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to appear before the subcommittee today and 
testify, as you pointed out, in support of the fiscal year 1998 
Cemeterial Expenses, Department of the Army budget request.
    Senator Bond. Let me say we have a letter from Secretary 
Lancaster, a good friend, who points out that we have managed 
to schedule a conflict for him, and we appreciate the fact that 
you are able to attend and sorry that we conflicted with a 
hearing on the House side. So thank you very much for being 
here.
    Mr. Dola. Mr. Chairman, Secretary Lancaster very much 
wanted to be here in person. As you know, he is defending the 
water resources program over in the House this morning.
    As you indicated, our budget request is $11,815,000 and it 
will finance operations at both Arlington and Soldiers' and 
Airmen's Home National Cemeteries. The full-time permanent 
positions in 1998 will be 117, down from a total of 121 in 1997 
and 128 authorized in 1996. We have three programs: operation 
and maintenance, administration, and construction.
    The operation and maintenance program, $8,779,000, will 
provide for the cost of daily operations necessary to support 
an average of 20 services daily and for maintenance of 
approximately 630 acres. This program supports 111 of the 117 
full-time permanent positions in 1998. We plan to perform the 
same amount of work contractually that previously was performed 
by civil servants and direct the contractors to take on 
additional tasks that need to be accomplished. Grounds 
maintenance, tree and shrub maintenance, custodial services, 
guide service, and information receptionists and headstone 
setting, realignment and cleaning are major functions performed 
by contract personnel.
    The administration program, $599,000, provides for 
essential management and administrative functions, to include 
staff supervision of Arlington and Soldiers' and Airmen's Home 
National Cemetery.
    The construction program funded--requested at $2,437,000, 
provides $1,175,000 to replace the Custis Walk, $810,000 to 
construct Columbarium access roads, and $350,000 to continue 
the graveliner program and other minor items.
    Finally, with regard to the Columbarium, the 11,286 niche 
capacity of Columbarium phase 3, currently under construction, 
will bring the total niches in the Columbarium complex to 
31,286. Phase 1, completed in 1984, phase 2, completed in 1991, 
each provided 10,000 niches. The North Court will be completed 
in October 1997 and the South Court will be completed in June 
1998.
    At this time there remain only about 2,000 niches in phase 
2, so we are right on time with the additional capacity.
    For that, Mr. Chairman, and for the subcommittee's support 
of past appropriations for the Columbarium, Arlington National 
Cemetery and the Army are very grateful. We have a sound budget 
request for 1998 and we again ask for your support and 
approval.

                           PREPARED STATEMENT

    That completes my summary, Mr. Chairman.
    Senator Bond. Thank you very much Mr. Dola.
    [The statement follows:]


                   Prepared Statement of Steven Dola

                              INTRODUCTION

    Mr. Chairman and members of the subcommittee: I appreciate the 
opportunity to appear before the subcommittee in support of the fiscal 
year 1998 appropriation request for Cemeterial Expenses, Department of 
the Army. With me today are Mr. John C. Metzler, Jr., Superintendent of 
Arlington National Cemetery, and Mr. Rory D. Smith, Budget Officer, 
also from Arlington National Cemetery. We are appearing on behalf of 
the Secretary of the Army, who is responsible for the operation and 
maintenance of Arlington and Soldiers' and Airmen's Home National 
Cemeteries.

                    FISCAL YEAR 1998 BUDGET OVERVIEW

    The request for fiscal year 1998 is $11,815,000; $215,000 more than 
the fiscal year 1997 appropriation. The funds requested are sufficient 
to support the work force, to assure adequate maintenance of the 
buildings, to acquire necessary supplies and equipment, and to provide 
maintenance standards expected at Arlington and Soldiers' and Airmen's 
Home National Cemeteries and include:
  --$1,175,000 for replacement of the historic Custis Walk;
  --$810,000 for construction of access roads associated with 
        Columbarium Phase III; and
  --$200,000 to further expand contracts for enhancing the appearance 
        of the cemetery while implementing government-wide streamlining 
        plans.
    The first item is a significant commitment to complete a capital 
improvement project, which, when completed, will eliminate the heaving 
and cracks which affect 75 percent of the walkway.
    The second item will allow the cemetery to make full utilization of 
Columbarium Phase III.
    The third item continues the initiative begun in fiscal year 1996. 
In fiscal year 1996 these contractual services were increased by 
$230,000, in fiscal year 1997 they were increased by an additional 
$165,000, and in fiscal year 1998 they will be increased by $200,000. 
Additional work will be performed by these contractors that was not 
done before and total personnel are being reduced from 128, to 121 and 
117, respectively.
    The funds requested are divided into three programs, Operation and 
Maintenance, Administration, and Construction. The principal items in 
each program are as follows:
    The Operation and Maintenance Program, $8,779,000, will provide for 
the cost of daily operations necessary to support an average of 20 
interments and inurnments daily and for maintenance of approximately 
630 acres. This program supports 111 of the cemetery's total 117 FTE's. 
Contractual services, including estimated costs associated with the 
million dollar grounds maintenance contract, the $775,000 information 
and guide service contract, $410,000 of contract tree and shrub 
maintenance, and a $210,000 custodial contract, are estimated to cost 
$2,947,000.
    The Administration Program, $599,000, provides for essential 
management and administrative functions to include staff supervision of 
Arlington and Soldiers' and Airmen's Home National Cemeteries. Funds 
requested will provide for personnel compensation, benefits and the 
reimbursable administrative support costs of the cemeteries.
    The Construction Program, $2,437,000, provides funds as follows: 
$1,175,000 to replace the historic Custis Walk, $810,000 to construct 
roads that originally were included as part of Phase III of the 
Columbarium, $50,000 of minor road repair, $350,000 for the graveliner 
program, and $45,000 to prepare the final design for the Wash Stand/
Fuel Island project.

                                FUNERALS

    In fiscal year 1996, there were 3,325 interments and 1,733 
inurnments; 3,500 interments and 1,900 inurnments are estimated in 
fiscal year 1997; and 3,500 interments and 1,900 inurnments are 
estimated in fiscal year 1998.

                               CEREMONIES

    Arlington National Cemetery is this Nation's principal shrine to 
honor the men and women who served in the Armed Forces. It is a visible 
reflection of America's appreciation for those who have made the 
ultimate sacrifice to maintain our freedom. In addition to the 
thousands of funerals, with military honors, held there each year, 
hundreds of other ceremonies are conducted to honor those who rest in 
the cemetery. Thousands of visitors, both foreign and American, visit 
Arlington to participate in these events. During fiscal year 1996, 
about 2,700 ceremonies were conducted and the President of the United 
States attended the ceremony on Veterans Day and Memorial Day.
    During fiscal year 1996, Arlington National Cemetery accommodated 
approximately 4 million visitors, making Arlington one of the most 
visited historic sites in the National Capital Region. This budget 
includes $35,000 for a study to develop an estimating procedure and 
reliable estimates of the kinds of visitors that Arlington National 
Cemetery serves. This increased orientation to our ``customers'' is 
consistent with the Government and Performance Results Act and the 
National Performance Review.

                         CONSTRUCTION PROJECTS

New projects in fiscal year 1998
    Custis Walk.--The Custis Walkway was constructed in 1879 and is 
2,500 feet long. Approximately 75 percent of the walkway is affected by 
heaving and cracks, requiring visitors to exercise additional care 
while using the walkway. The design for restoration/replacement has now 
been completed using fiscal year 1995 appropriations in the amount of 
$250,000. Construction funding of $1,175,000 is included in the fiscal 
year 1998 budget submission.
    Columbarium.--Columbarium roads associated with the Phase III 
increment are planned in fiscal year 1998 costing an estimated 
$810,000.

Construction project underway

    Columbarium Phase III.--On July 1, 1996, construction of one of two 
courts comprising Phase III of the Columbarium began, the contract for 
construction of the second court was awarded on February 7, 1997, and 
the construction cost is estimated to be $3,227,100. Construction funds 
were appropriated in fiscal year 1996 and 1997, respectively. The 
11,286 niche combined capacity of the Phase III increment will bring 
the total niches in the Columbarium Complex to 31,286. Phase I, 
completed in 1984, and Phase II, completed in 1991, each provided 
10,000 niches. The additional 1,286 niche capacity of Phase III was 
achieved by increasing the square footage or ``foot print'' of each of 
the Phase III courts by 10 percent. In addition to providing more 
niches, the larger ``foot print'' permits inclusion of a needed rest 
room and mechanical/storage area into the North court of Phase III, and 
makes more efficient use of the site.

                RECENTLY COMPLETED CONSTRUCTION PROJECTS

    Amphitheater.--The repair of damage done by rainwater leaks at the 
Amphitheater and restoration of deteriorated marble there which were 
begun in July 1994 are now complete. The work included replacing 
waterproofing membranes; cleaning, patching and repointing stonework; 
replacing deteriorated marble and balusters; replacing benches, 
railings, drinking fountains, trash receptacles, signage and flagstone 
paving. The Memorial Amphitheater Restoration Project now provides a 
fitting place for ceremonies where public honor and recognition are 
accorded national heros.
    Facility Maintenance Complex.--A new facility maintenance complex 
was constructed to replace buildings constructed in the 1930's. The 
facility maintenance complex consists of work and storage areas for 
three divisions (Facility Maintenance, Horticulture, and Field 
Operations), in three separate buildings. There is another building for 
warehouse operations and a building for the administrative functions 
associated with all of these operations.
    McClellan Gate.--The work associated with restoration of the 
McClellan Gate has been recently completed. Work included removal and 
resetting of stone including some stone replacement, structural 
repairs, repointing, patching and cleaning of the entire arch, a new 
concrete ring foundation, new copper roofing and flashing, repair and 
painting of the iron gate, and new granite cobblestone paving around 
the arch.

                         CLAIMS AND SETTLEMENTS

    The status and disposition of claims associated with projects and 
contracts at Arlington National Cemetery is summarized in the following 
paragraphs.
    In our letter of December 5, 1996, we informed the Subcommittee of 
our plan to make final payment to the construction contractor on the 
Facility Maintenance Complex under the terms of a settlement agreement 
reached with the contractor and final payment to the contractor was 
made on January 14, 1997.
    Last year, we reported that a claim for differing site conditions, 
submitted by the construction contractor for the demolition of the old 
temporary Visitors Center and development of that land (Sections 54 and 
55) into gravesites, was formally denied. The contractor appealed the 
decision to the U.S. Court of Federal Claims on December 19, 1996.
    Two claims from a previous grounds maintenance contractor have been 
received. Settlement of a claim related to a defective contract option 
in a previous grounds maintenance contract was reached in the amount of 
$98,000. A claim alleging defective specifications in an interim 
grounds maintenance contract is expected to be litigated in June or 
July 1997.

                              MASTER PLAN

    The new Master Plan, which currently is undergoing review within 
the Army Secretariat, will identify projects and policies to respond to 
the challenges confronting Arlington National Cemetery. These 
challenges include an aging infrastructure, declining availability of 
space for initial interment, and the need to preserve the dignity of 
the cemetery while accommodating substantial public visitation. The 
future projects envisioned in the Master Plan will not begin to be 
implemented until we are into the next century. Projects and policies 
must be measured against funding to be made available in the budget and 
appropriations processes. Detailed planning and engineering studies 
necessary to establish the cost, feasibility, and responsiveness of 
individual capital projects to the Master Plan challenges would be 
programmed and proposed to Congress, after review and consideration by 
the Administration, at the appropriate times.

                     ARMY--INTERIOR LAND TRANSFERS

    Public Law 104-201, the National Defense Authorization Act for 
Fiscal Year 1997 (``1997 Authorization Act''), which was enacted on 
September 23, 1996, includes two land transfer provisions in Section 
2821 relating to Arlington National Cemetery.
    Section 29 Land Transfer.--The first part of Section 2821 of the 
1997 Authorization Act instructs the Secretary of the Interior to 
transfer to the Secretary of the Army certain lands found in Section 29 
of Arlington National Cemetery. The land found in Section 29 is 
currently divided into two zones: the 12 acre Arlington National 
Cemetery Interment Zone and 12.5 acre Robert E. Lee Memorial 
Preservation Zone. The transfer encompasses the Arlington National 
Cemetery Interment Zone and the portions of the Robert E. Lee Memorial 
Preservation Zone that do not have historical significance and are not 
needed for the maintenance of nearby lands and facilities.
    The Secretary of the Interior is to base his or her determination 
of which portion of the Preservation Zone will be transferred primarily 
on a cultural resources study that will consider whether archeological 
resources are likely to be located on the land, whether portions of the 
property are eligible for inclusion in the National Register of 
Historic Places, and whether property has forest cover that contributes 
to the setting of the Preservation Zone. The cost of the study, 
estimated at $85,000, will be split evenly between the Department of 
Interior and Department of the Army. In addition, the Secretary of the 
Interior will provide the Committee on Armed Services of the Senate and 
the Committee on National Security of the House of Representatives with 
environmental and cultural resource information and analysis.
    The transfer, which is to be carried out under the Interagency 
Agreement Between the Department of the Interior, the National Park 
Service, and the Department of the Army, dated February 22, 1995, is to 
occur not sooner than 60 days after the Secretary of the Interior has 
submitted the information and analysis to the Committees. The Secretary 
of the Interior must provide the information and analysis to the 
Committees no later than October 31, 1997.
    Visitors Center/Old Administration Building.--The second part of 
Section 2821 of the 1997 Authorization Act instructs the Secretary of 
the Interior to transfer to the Secretary of the Army 2.43 acres of 
land and the Visitors Center, which is constructed on the land. In 
return, the Secretary of the Army will transfer to the Secretary of the 
Interior .17 acres of land and the Old Administration Building, which 
is constructed on the site. Section 2821 provides the authority by 
which this agreed-upon exchange of lands may take place.

                               CONCLUSION

    The funds included in the fiscal year 1998 budget are necessary to 
permit the Department of the Army to continue the high standards of 
maintenance Arlington National Cemetery deserves. I urge the 
Subcommittee to approve this request.
    Mr. Chairman, this concludes my remarks. We will be pleased to 
respond to questions from the Subcommittee.

                        SELECTIVE SERVICE SYSTEM

STATEMENT OF GIL CORONADO, DIRECTOR
    Senator Bond. Mr. Coronado, we know you had some conflicts 
in your schedule today, we congratulate you on your sense of 
timing. It reminds me of the trapeze artist who lets go without 
seeing the other bar and it arrives right on time. That 
demonstrates excellent planning, and we are delighted to 
welcome you today.
    Mr. Coronado. Thank you, Mr. Chairman.
    Senator Bond. Please proceed.

                            OPENING REMARKS

    Mr. Coronado. Mr. Chairman, I am delighted to appear before 
you and the other distinguished members of this subcommittee. I 
have a written statement that I would like to submit for the 
record.
    Senator Bond. We will accept the statement in full, it will 
go into the record, and we would invite you to summarize what 
you think are the most important parts.
    Mr. Coronado. Yes, sir; we are grateful to the subcommittee 
and the Congress for continuing to provide us with the funds 
necessary to carry out our mission. As you know, in November 
1994 the Department of Defense revised its mobilization 
timetables and we are now in the process of adjusting to that. 
At the same time, we are moving forward with modernization of 
our data processing capabilities and we are trying to enhance 
service in every area.

                     SERVICE TO AMERICA INITIATIVE

    As you consider our fiscal year 1998 appropriation, I know 
that to function in an era of Government downsizing, the 
Selective Service System cannot merely dwell on its proud past, 
nor depend exclusively on the threat of future crisis. This 
agency must demonstrate that America benefits from its work 
each and every day. So in the spirit of the national 
performance review, we are broadening our agency's direction. 
We have enthusiastically embarked upon a new initiative that we 
call Service to America, while continuing to meet our statutory 
responsibilities.
    We have reached out in close cooperation with the 
Department of Defense and the Corporation for National Service. 
We are informing young men about service opportunities today in 
the Armed Forces and in our Nation's communities. With Service 
to America, we proudly continue our time-honored purpose in a 
new way.
    We want to fully implement Service to America, and our 
fiscal year 1998 request of $23.9 million is a slight increase 
for the very first time in 4 years. Slightly over one-half of 
the increase is for the printing, mailing, processing, and 
staffing of the Service to America initiative, and the balance 
is, of course, to offset pay raise costs.
    Service to America, Mr. Chairman, is a solid example of 
Federal agencies working together to achieve common goals and 
provide better, more efficient service to the public. It is 
also relevant to our Nation's new bipartisan emphasis on 
voluntarism. We have been in touch with Gen. Colin Powell as he 
spearheads with former President Bush the Presidents' Summit 
for America's Future. We have suggested ways that our agency's 
capabilities can be adapted to support programs and initiatives 
sparked by the upcoming Philadelphia summit.
    The General responded recently. He was happy to receive our 
suggestions and his staff is now considering our proposals.
    I strongly urge that you fund this innovative, modest 
adjustment to our acknowledgment program, a program that was 
born from an original concept in 1993, suggested by Senator 
Mikulski. With your support and this 4-percent increase in our 
agency's budget, we can move forward with an endeavor that has 
great benefits for America and coincides with our Nation's new 
bipartisan emphasis on voluntarism.
    Mr. Chairman, members of this committee, I am proud of what 
Selective Service does for America. I hope you share in this 
pride as I answer your questions about our fiscal year 1998 
budget request.
    Thank you.
    [The statement follows:]
                   Prepared Statement of Gil Coronado
    I am delighted to appear before you and the other distinguished 
members of this Subcommittee, and to update you on the good things 
happening at the Selective Service System (SSS).
    The President's Budget requests this Agency be funded at a level of 
$23.9 million in fiscal year 1998. This amount represents a slight 
increase in Selective Service funding for the first time in four years. 
Why the increase? In part, it is related directly to the 
Administration's support of our new ``Service to America'' initiative, 
an endeavor I hope the members of this Subcommittee will support.

                 SELECTIVE SERVICE SYSTEM FISCAL HISTORY                
                        [In millions of dollars]                        
------------------------------------------------------------------------
                                                      Obligations/year  
                                                   ---------------------
                    Fiscal year                        1982      Actual 
                                                     dollars    dollars 
------------------------------------------------------------------------
1982..............................................       19.6       19.6
1983..............................................       22.0       22.8
1984..............................................       23.0       24.8
1985..............................................       24.5       27.4
1986..............................................       22.7       26.0
1987..............................................       22.2       26.1
1988..............................................       21.0       25.4
1989..............................................       20.9       26.2
1990..............................................       19.6       25.6
1991..............................................       19.5       26.6
1992..............................................       19.3       27.4
1993..............................................       19.4       28.5
1994..............................................       16.6       24.8
1995..............................................       14.9       22.8
1996..............................................       14.4       22.9
Estimated:                                                              
    1997..........................................       13.7       22.9
    1998..........................................       13.9       23.9
------------------------------------------------------------------------

    In the past year, more than a million-and-a-half men followed the 
example of young Jerry Lewis, Jr., of Rankin, Texas. In February 1996, 
Jerry was the 35 millionth man to register with Selective Service since 
the requirement was reinstated in 1980. As America's young men comply 
with the law, they demonstrate to the men and women who serve in the 
all-volunteer military that the U.S. population stands behind them, 
committed to serve, should the preservation of our national security so 
require.

                    AGENCY CONTINUES TO BE EXAMINED

    Much Congressional and media interest has focused on the SSS since 
the early 1990's because of: (1) the end of the Cold War; (2) 
Department of Defense (DOD) analyses that addressed many intangible 
elements associated with maintaining a standby system of conscription; 
(3) the Administration's reviews and policy decisions by the President; 
and, (4) a 1994 change in DOD's forecast for manpower requirements. DOD 
now anticipates that the first draftees will be needed six months after 
a crisis begins. In light of this, the SSS adjusted its programs and 
streamlined its staffing. The resulting changes enable SSS to work 
better and more efficiently, and conform with Administration guidelines 
promulgated by the National Performance Review. Simultaneously, the SSS 
has had several examinations of its mission and structure. Currently 
(since January 1997), the General Accounting Office (GAO) is studying 
possible alternative methods of registration at the request of three 
Members of Congress who believe that personal registration is no longer 
necessary. GAO's review will summarize the merits of the current 
program and present the pros and cons of alternatives.

                   IMPACT OF NEW INDUCTION TIMETABLES

    In February 1995, the President forwarded to Congress the 
Administration's position emphasizing the need to maintain the SSS and 
peacetime registration. It also reaffirmed the Department of Defense's 
position to keep the SSS in its present configuration. The DOD revised 
its mobilization timetables to reflect post-Cold War scenarios, with 
first inductees now required 193 days after mobilization for a national 
emergency. We had anticipated the new timetables, and began right-
sizing a few years ago. We reduced several programs and streamlined the 
organization. On the other hand, the shift to new mobilization 
timetables for inductees increased our operational workload by adding 
new planning and training requirements. To conduct a more deliberate 
build-up to a draft during a future national emergency, extensive new 
plans are being developed and training on them must be accomplished. 
Additionally, we must revise our procedures, regulations, and 
documentation to reflect a new, graduated or ``time-phased response'' 
to deliver preexamined draftees for induction 193 days after 
Mobilization Day. This work is progressing smoothly.

                   PLANNING AND PERFORMANCE MEASURES

    Working closely with the Office of Management and Budget and 
following National Performance Review mandates, the SSS has tailored 
its goals and objectives to produce result-oriented performance 
measures and improve service to America. This is described in our six-
year draft Strategic Plan.
    For example, we continue in our commitment to reinvent the SSS to 
improve operations, enhance customer service, and increase efficiency. 
Our measures of performance effectiveness are: qualitative improvements 
within specific time frames, more accurate and faster turnaround of 
data, solid levels of personnel staffing, and total customer 
satisfaction. Each of these issues is also outlined in our draft fiscal 
year 1997-2002 Strategic Plan, which represents our road map to the 
21st Century. Part of the Agency's strategy is to form partnerships 
with other Federal government agencies, to work together to achieve 
common goals and provide better, more efficient service to the public. 
Selective Service provides essential administrative support services, 
such as computer matching and automation, especially where there is a 
requirement to have access to a data base of more than 36 million young 
men. Currently we provide automation services to the Department of 
Defense, the Department of Health and Human Services, the Census 
Bureau, the Department of Justice, and the Corporation for National 
Service. Similarly, at SSS, we obtain some administrative services from 
other agencies. As an example, we out source for accounting, employee 
assistance, health, payroll and personnel support programs as a means 
to enhance internal productivity and limit costs.
    In sum, we are committed to reshaping SSS to meet the demands of 
the 21st Century. We are actively embracing other creative alternatives 
to accomplish our statutory missions, and we continue to investigate 
new and better ways to do business.

                        REGISTRATION IMPROVEMENT

    Since public awareness of the requirement that men register 
influences registration, and because a high rate of compliance fosters 
fairness and equity in any future draft, the SSS has initiated several 
programs:
  --Radio and television public service announcements (PSA's) in 
        English and Spanish were developed and distributed to stations 
        nationally. These high-quality PSA's have received laudatory 
        comments from viewers around the country.
  --Many governors and local officials issued proclamations supporting 
        SSS registration. Eighteen states have laws which parallel 
        Federal laws and require men to register with SSS as a 
        prerequisite for receiving state loans, educational assistance, 
        or employment. Several other states have similar legislation 
        pending.

             HEALTH CARE PERSONNEL DELIVERY SYSTEM (HCPDS)

    HCPDS is the Agency's standby system to conscript health care 
personnel during a national emergency. The plans and procedures for the 
registration and classification of health care personnel are complete 
and have been placed on the shelf as Congress directed. Conscription of 
health care personnel can be implemented, should the Congress 
authorize, and the President so direct. In 1994, the Department of 
Defense extended the time-line for delivery of health care personnel by 
six months. Development of plans to comply with this extension will be 
complete this fiscal year.

              AUTOMATED DATA PROCESSING (ADP) INITIATIVES

    Increasing demands for speedy services dictate the need to improve 
productivity through advanced ADP technologies. A number of initiatives 
were started last year and are making a difference in fiscal year 1997. 
A new I-CASE Tools software package, which automates computer program 
development, is aiding us in our business process improvement work. 
Also, we are making good use of enhanced scanning equipment and an 
Intelligent Character Recognition System, which have enabled the Agency 
to file registration data faster and without loss of accuracy. In 
addition to improving business processes and registration compliance 
statistics, the Agency is moving to a more modern computer technology, 
new reengineering projects, and revised methods of registrations. For 
example, SSS will be looking at shifting from mainframe technology to 
small computer technology to reduce operating and maintenance costs. 
After an internal cost-benefit analysis, we will validate findings with 
the General Service Administration, and work with a contractor to 
implement the necessary changes.

                     SERVICE TO AMERICA INITIATIVE

    While continuing to meet our statutory responsibilities, and with 
strong Administration support, we have enthusiastically embarked on a 
new initiative which we call ``Service to America.'' President Clinton 
recently acknowledged it as ``a noble and worthwhile effort sure to 
increase civic mindedness and opportunities in our country.'' The idea 
is simple. With your support, the SSS registration process will serve 
dual functions in American society. In our routine communication with 
all new registrants in America, we encourage them to serve America 
today. In close cooperation with the Department of Defense and the 
Corporation for National Service, we are informing young men about 
opportunities today in the U.S. Armed Forces and about community 
service through the Corporation for National Service. On the 
acknowledgment card they receive from us in the mail, we encourage them 
to explore options for voluntary service to the Nation.
    This ancillary service is meaningful, appropriate, reinvigorating 
and exciting. With ``Service to America,'' this Agency proudly 
continues to fulfill its time-honored purpose in a creative way. We 
historically focused the attention of America's young men on meeting 
national wartime needs, and now we also remind them to volunteer for 
other civic opportunities in peacetime. Thus, the Selective Service 
System is and will remain ready for tomorrow's national emergency, as 
it serves America's needs today.
    We want to implement fully the ``Service to America'' initiative. 
Our fiscal year 1998 budget submission requests $23.9 million. This is 
a slight increase for the first time since fiscal year 1993. About half 
of this $1 million increase would fund five additional full-time 
equivalents and offset the increased costs of printing, mailing, and 
processing a larger acknowledgment card. It would also allow a portion 
of the new card to be a detachable mail-back postcard. On it, new 
registrants would indicate their interest in military or community 
service. In turn, we would process the returning information into 
timely, accurate, high quality recruiter leads for the U.S. Armed 
Forces and the Corporation for National Service. The balance of the 
funding increase would offset 1998 pay raise costs.
    The ``Service to America'' initiative is another good example of 
interagency cooperation that benefits the public. It is also relevant 
to our Nation's new bipartisan emphasis on volunteerism. We have been 
in touch with General Colin Powell as he spearheads, with former 
President Bush, the President's Summit for America's Future.'' We 
suggested ways that this Agency's capabilities can be adapted to 
support programs and initiatives sparked by the upcoming Philadelphia 
Summit. The General responded recently. He was happy to receive our 
suggestions and his staff is now considering our proposals.
    The four percent budget increase for Selective Service, requested 
by the President for fiscal year 1998, demonstrates the Administration 
is in agreement with the ``Service to America'' initiative. I strongly 
urge that you fund this innovative and modest adjustment to our 
acknowledgment program. With your support, we can move forward with 
this endeavor that has great benefits for America, and parallels our 
Nation's new, bipartisan emphasis on volunteerism.
    Mr. Chairman and members of the Subcommittee, I am proud of what 
Selective Service does for America. I hope you share in this pride.

                          ABMC INFRASTRUCTURE

    Senator Bond. Thank you very much, Mr. Coronado.
    Let me start with General Herrling. What do you estimate 
the future infrastructure needs and costs to be for the AMBC?
    General Herrling. Sir, today I estimate our infrastructure 
costs as far as repair and maintenance and the backlog thereof 
to be in the area of about $10 million. If we do not receive 
some help to try to defray some of that cost, I can only see 
that growing in future years.
    Senator Bond. So this is a one-time cost, or what is the 
annual cost? Are we talking about a one-time cost?
    General Herrling. Sir, it would average somewhere around 
$2.0 million a year for construction, repair and maintenance. 
We have tried to make inroads into the backlog. In fact, in 
fiscal year 1993 and 1994 Senator Mikulski added $1 million and 
$250,000 to our budget and we were able to make serious inroads 
into that backlog.
    Now, over the last 4 or 5 years it has built up again.
    Senator Bond. I know that one of the problems we face in 
dealing with overseas responsibilities is the fluctuation in 
foreign currency. What is the best approach for meeting the 
foreign currency market fluctuations? What are you doing to 
deal with that?
    General Herrling. Sir, in this, the fiscal year 1998 
appropriation, we have asked for $2.1 million to cover foreign 
currency fluctuation costs. That seems consistent with the 
past. The 1 year that it was not provided for in the budget, in 
1996, we got into a deficit position, and were short $700,000. 
So I had to go into my operational account to make up the 
difference for the foreign currency fluctuation.
    We have used our best judgment on what current fluctuation 
needs will be for both this year and in 1998.

                            RESPONSIBILITIES

    Senator Bond. Thank you, sir.
    Turning to Mr. Dola, what are your primary responsibilities 
with regard to the Arlington National Cemetery and the 
Soldiers' and Airmen's Home National Cemetery?
    Mr. Dola. As Secretary Lancaster's Deputy, my primary 
responsibilities with regard to Arlington and Soldiers' and 
Airmen's Home National Cemeteries are program formulation and 
budget oversight. The budget request is to operate and maintain 
both of those cemeteries, the entire works: scheduling, 
orchestrating and supporting, the funerals there, operating and 
maintaining the grounds, and providing for infrastructure needs 
that may occur, such as the Columbarium, the restoration of the 
Memorial Amphitheater, and other projects that are coming down 
the road.
    Senator Bond. The Columbarium. What are the other 
infrastructure needs with respect to those? What kind of 
funding do you expect to be requiring in the future?
    Mr. Dola. As you know from our budget, Mr. Chairman, we are 
asking for $2.4 million for construction, and in the next 5 
years we would be expecting on the order of $2.5 million per 
year. The larger issue will occur after that period, where we 
would anticipate that the construction needs could perhaps 
double that amount on an annual basis to take care of things 
that we see in our master plan down the road.

                 COSTS OF SERVICE TO AMERICA INITIATIVE

    Senator Bond. Mr. Coronado, what costs are you envisioning 
in the Selective Service on the Service to America initiative?
    Mr. Coronado. For Service to America, Mr. Chairman, it is 
$506,000.

                      FUTURE OF SELECTIVE SERVICE

    Senator Bond. There are questions being addressed by the 
GAO on the need to maintain the Selective Service in view of 
the success of the Volunteer Army. What do you see as the 
future of Selective Service, and if you had to forecast the 
outcome of this review what would you forecast? What do you 
think it should be?
    Mr. Coronado. It is my understanding that the GAO is at our 
agency, according to them, at the request of three Members of 
Congress to look at alternative methods of registration. So I 
do not believe the future of this agency is in jeopardy. I 
believe that this has been discussed and rediscussed by the 
Congress, studied by the National Security Council, the 
Department of Defense, and the administration. The majority of 
the people involved in these studies and discussions have 
decided SSS must remain ready and voted for maintaining a 
strong third tier of our Nation's defense. I am optimistic 
about the future of this agency inasmuch as it represents 
something very important to all of us.
    Senator Bond. Thank you very much, Mr. Coronado.
    Let me turn to Senator Mikulski for her questions.
    Senator Mikulski. Thank you.
    Gentlemen, each one of you plays a very important role, one 
in registering young people should we need to mobilize; and 
then after service a way to pay tribute to that. General 
Herrling--I am going to have a question for each one. First of 
all, we have been very blessed that the head of the American 
Battle Monuments Commission has always been a very 
distinguished American, and we thank you for taking on that 
responsibility.

                    ABMC INFRASTRUCTURE AND BACKLOG

    I just want to follow upon what Senator Bond raised, which 
is I am very concerned about the backlog in terms of 
maintenance, and I think we would welcome either a plan or kind 
of a work-through schedule. I do not want to call it a workout, 
but a work-through schedule, where in an organized and 
systematic way, dealing with those that are most at risk, then 
through, and how we could bring ourselves up to date so that we 
actually are not only funding current operating expenses, but 
essentially really having an organized, systematic way of 
working this down.
    Do you think that is a possibility, to be able to give that 
to us?
    General Herrling. Yes; I do, Senator. In fact, I am 
prepared to provide for the record a priority list of our 
maintenance, which includes some 550 projects at this point. As 
I mentioned earlier, it totals about $10 million.
    Now, through this fiscal year and hopefully if funded at 
the requested level for 1998, I will be able to work that 
backlog down somewhere in the range of $6 million. We will use 
our priority list, which includes some 550 projects, and start 
working down it. As you know, each year other projects are 
added to it.
    But I think with a modest increase each year, over maybe 
the next 5 years, I could whittle that down to something that 
is very manageable.
    Senator Mikulski. Well, this Senator is certainly not going 
to suggest a management plan to a U.S. Army General. But we 
might want to go to those that are most severely distressed, 
like a barbell approach, and then those that are beginning to 
be telltale, frayed and tattered, so that by beginning to 
intervene now they are not on that cascading slope. Some of 
those expenditures are quite low.
    So we look forward to working with you on this, and thank 
you.
    A question then for Mr. Coronado. You spoke about the 
Service to America and what I had asked. Do you want to just 
very quickly say what that is?
    Mr. Coronado. Absolutely. Senator, I want to thank you 
personally for having brought this up in 1993. The 
opportunities to interface with other agencies. How can we do 
something to better serve the American public? Very basically, 
we are in contact with 1.9 million young men each year. What we 
have done is to redesign the registration acknowledgment card 
and are asking men to serve America today as volunteers, either 
through the Armed Forces--or through AmeriCorps--and the card 
shows 1-800 numbers--for DOD and AmeriCorps. We are promoting 
Service to America in close cooperation with these agencies, 
who have voiced a very, very strong and very positive reception 
to this adjunct effort. We communicate this simple message to 
America's youth, at no additional cost, Mr. Chairman.
    However, for fiscal year 1998, we are asking for a slight 
increase in funding to redesign the whole process.
    Senator Mikulski. So what you are saying is that Selective 
Service does three things: one, it registers young men for the 
draft should they need to be mobilized; but simultaneously, you 
alert them to two opportunities for service now. One, if they 
are ready to sign up for the U.S. military, here is the number 
to call and go for it. The other is if you choose to begin to 
manifest a patriotic feeling, you can also do it in your local 
community by being a scout leader or big brother, and then that 
is the other 800 number that you call.
    But it is a way of reaching out to young men to say, we do 
have an obligation, but you also have a great opportunity for 
immediate service, either in the military or by being a good 
citizen in your neighborhood.
    Is that what we are talking about?
    Mr. Coronado. That is exactly correct, Senator Mikulski. In 
my travels throughout the country, we find that there is a lack 
of communication with our young people. This is one effort to 
get them to think about service to America, either in the 
military or in their local communities.

                RESULTS OF SERVICE TO AMERICA INITIATIVE

    Senator Mikulski. I know my time has expired, but can you 
tell, have there been any concrete results that you can talk 
about that, because of this methodology, x number of young men 
have said military, x number have said local volunteerism?
    Mr. Coronado. This new methodology was implemented 2 days 
ago, so we have no direct results yet. And, it is doubtful that 
with a 1-800 number we would really be able to measure it. It 
is our hope, it is our desire, that we will get the additional 
funds for fiscal year 1998, and then we could include the 
business reply card that would come back to us. It would give 
us an accurate listing of the men who volunteered for the 
military versus the ones who want to serve in the local 
community. At a later date we would be very, very happy to 
share that with you.
    Senator Mikulski. OK.
    Well, Mr. Chairman, I know my time has expired. I want to 
thank Mr. Dola. Four million people visit Arlington. Four 
million people come to Arlington to, of course, visit the 
Kennedy grave and pay our respects to America's heros. I think 
that is an extraordinary, just an extraordinary number of 
visitors. We do not want to call it tourism. They are not 
coming to tour. They are coming to express a feeling, and that 
is an exceptional feeling.
    We look forward to running this place because, in addition 
to providing proper interment and burial services, you have 
this other management responsibility which I think is 
significant. You probably are visited--and please do not 
confuse my vocabulary in any way with demeaning the special 
nature, but you are visited more than a national park, many of 
the national parks.
    I would just hope that we really provide some type of 
understanding of the support that you need, so that you do that 
and at the same time meet the mission, the very honorable and 
sacred mission for which you were established.
    Mr. Dola. Senator Mikulski, we appreciate the understanding 
of this subcommittee for the sacred trust that we try so very 
hard to discharge in a way the subcommittee and Congress and 
the American people will be proud of. We thank you for the 
support that we have had in the past and hope that we will 
merit it in the future.
    Senator Mikulski. Thank you, Mr. Chairman.
    Senator Bond. Thank you very much, Senator Mikulski.
    We are very pleased to be joined by the chairman of the 
full committee, Senator Stevens.

                        STATEMENT OF TED STEVENS

    Senator Stevens. Thank you. I just dropped by to say hello, 
to see what was occurring in terms of this area of your 
jurisdiction, Mr. Chairman.

                      ABMC INFORMATIONAL SERVICES

    I am concerned about the Battle Monuments Commission 
activities. What kind of really informational services do you 
have to let people know where these monuments and memorials and 
cemeteries are overseas?
    General Herrling. Senator Stevens, we have quite an 
extensive program to keep next of kin, friends, and interested 
people informed on just those subjects. Anybody can call or 
write to our office and we will provide them with a letter that 
gives them information concerning their request. We will also 
provide them with general information pamphlets on the 
cemetery. We will tell them how to get there from an airport or 
railroad station. We will have the superintendent, in some 
cases, go to the railroad station or airport to pick up and 
bring the next-of-kin to the cemetery.
    So we provide all that information through correspondence 
daily. We receive probably hundreds of letters every week on 
just that sort of request.

                 ABMC MEMORIAL DAY AND OTHER CEREMONIES

    Senator Stevens. And what do you do to organize the various 
ceremonies on our national days, like Memorial Day or Veterans 
Day, over there?
    General Herrling. Sir, each one of our cemeteries has a 
ceremony on Memorial Day and also on Veterans' Day. It will 
usually involve the U.S. Ambassador to that country as well as 
distinguished military and civilians who live and work in that 
country. They are formal ceremonies. The military, who are 
still stationed throughout Europe, will provide the color 
guards, firing squads, the buglers, to make it truly a 
remembrance type of a ceremony.
    I believe we do this very well and we pretty much mirror 
what is done here in the States for those national holidays.
    Senator Stevens. Many of us travel abroad about that time. 
I remember I was asked to speak in The Netherlands at 
Margraten.
    General Herrling. Margraten.
    Senator Stevens. But I do not remember ever--I have been 
here quite a while, but I do not remember ever anyone sending 
me a notice of where there would be events. I want to ask that 
you undertake the task of sending, at least to the chairman of 
the committees of both the House and the Senate, notice of what 
type of ceremony is going to take place at the monuments and 
memorials under your jurisdiction during the year. I think we 
ought to have a little more attention to paying our respects at 
those areas when we do go overseas.
    I am not asking you for it any more than just once a year, 
to say these are the events that will take place and to offer 
opportunity to our people to visit these sites. I find them 
very rewarding when I visit them, but I do not know how many 
people do that.
    Would you do that for us?
    General Herrling. Senator, we would be delighted. We would 
be delighted to provide that information to members of 
Congress.
    Senator Stevens. Good. Thank you very much. I appreciate 
it.
    Senator Bond. Thank you very much, Senator Stevens.
    Thank you, gentlemen, for joining us today. We will keep 
the record open for questions that other members of the 
committee may have. We do appreciate the opportunity to work 
with you. Our staff will be in contact with you on any further 
questions that may arise and we urge you, as always, to feel 
free to contact the staff. John Kamarck is our new head of the 
staff for this committee and I hope that you will feel free to 
call on him and other members of the staff if you have 
additional views or comments that may be necessary.

                          SUBCOMMITTEE RECESS

    Thank you, and the hearing is recessed.
    [Whereupon, at 11:15 a.m., Tuesday, March 4, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                              ----------                              


                        TUESDAY, MARCH 11, 1997

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:38 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond and Mikulski.

                   CONSUMER PRODUCT SAFETY COMMISSION

STATEMENT OF ANN BROWN, CHAIRMAN
ACCOMPANIED BY:
        MARY SHEILA GALL, COMMISSIONER
        THOMAS H. MOORE, VICE CHAIRMAN

                OPENING STATEMENT OF CHRISTOPHER S. BOND

    Senator Bond. The subcommittee will come to order.
    This morning we are very pleased to be able to take 
testimony from three agencies with responsibilities to the 
American consumer, including protecting citizens from injury 
and death associated with consumer products and providing them 
with important information on subjects as diverse as preparing 
a will and eating healthfully.
    The Consumer Product Safety Commission, represented by 
Chairman Ann Brown, is requesting an appropriation of $45 
million, an increase of $2.5 million over the current year. The 
Consumer Information Center, represented by Director Teresa 
Nasif, is requesting $2.1 million. And the Office of Consumer 
Affairs, represented by Director Leslie Byrne, is requesting 
$1.8 million.
    For the most part, these budget requests would fund current 
services without major enhancements in agency operations. 
However, even funding marginal increases necessary for normal 
inflationary adjustments will be tough in the budgetary 
environment in which we are operating.
    If you have had representatives at previous hearings, you 
will know that this committee is blessed with some very 
difficult problems, particularly with respect to the costs of 
HUD and the section 8 contracts.
    Moreover, it will come as no surprise to some of you that I 
continue to have very strong concerns about the redundant role 
of the Office of Consumer Affairs and question why the office 
should be continued. We tried, unsuccessfully, to fulfill the 
President's commitment to streamlining Government activities 
and reducing duplication in the last two appropriations cycles 
by eliminating the Office of Consumer Affairs. And, while I 
received no calls or letters from constituents or consumer 
groups in opposition, the administration insisted on funding 
the organization in fiscal years 1995 and 1996. This was 
disappointing to me.
    In my view, OCA's role has become obsolete as most Federal 
agencies have consumer affairs officers or individuals 
responsible for consumer issues.
    In addition, I have been concerned that in attempting to 
create a role for itself in the last 2 years, OCA has succeeded 
in creating yet another duplicative activity through the 
consumer HelpLine.
    OCA was without a director for several years. Ms. Byrne, 
you are the newly installed director and you will be given the 
opportunity to defend your agency. I have worked with you in 
the past and have great respect for your abilities. It is the 
agency, not the people, that I am concerned about. I will 
require a lot of convincing.
    Now let me turn to my ranking member, Senator Mikulski.
    Good morning, Senator.

                    STATEMENT OF BARBARA A. MIKULSKI

    Senator Mikulski. Thank you, Mr. Chairman and good morning 
to you and to all members of the panel.
    Each and every one of you have worked closely with me in a 
variety of capacities, of course, with both Ms. Brown and Ms. 
Nasif in the committee and with Ms. Byrne when she was a 
Congresswoman, a cousin from the other side of the Potomac who 
knows about the bridges.

                           PREPARED STATEMENT

    Mr. Chairman, in the interest of moving ahead and hearing 
the witnesses, I ask unanimous consent that my statement be 
placed in the record and I look forward to hearing the 
testimony and their answers to our questions.
    Senator Bond. Without objection. Thank you.
    [The statement follows:]

             Prepared Statement of Senator Barbara Mikulski

    Thank you, Mr. Chairman. I know that we have a lot to go through 
this morning so I will be brief.
    We will be hearing testimony from six of the independent agencies 
within the jurisdiction of the VA-HUD Subcommittee: The American Battle 
Monuments Commission, Cemeterial Expenses of the Army, the Consumer 
Information Center, the Consumer Product Safety Commission, the Office 
of Consumer Affairs, and the U.S. Court of Veterans Appeals.
    Collectively, these agencies are requesting $92,091,000 for fiscal 
year 1996 which is an increase of $3.7 million or 4.2 percent above the 
fiscal year 1995 enacted level. The fiscal year 1996 budget request for 
these agencies represents a mere fraction of the $91.2 billion in total 
funding requested by the President for all agencies within this 
Subcommittee's jurisdiction. The relative size of their budget 
requests, however, should in no way diminish the importance of the 
services that these agencies perform.
    The witnesses before us are responsible for commemorating the 
achievements and sacrifices of United States Armed Forces, operating 
and maintaining that sacred area that is Arlington Cemetery, protecting 
and informing America's consumers, and helping to ensure that veterans' 
benefit claims are appropriately and adequately reviewed. This is 
important work, Mr. Chairman.
    My time here this morning is limited, so I will not be able to hear 
all of the witnesses. Let me welcome all of you before the Subcommittee 
as we begin our review of the President's fiscal year 1996 budget 
request. Let me also echo what Senator Bond has said regarding our 
budgetary situation. A freeze at current levels is probably the best 
this Subcommittee can hope for.
    One final thought before we turn to the witnesses. You know, Mr. 
Chairman, the new majority in Congress seems determined to visit some 
version of regulatory reform upon the American people. You are directly 
involved in this effort as the co-Chairman of the regulatory Reform 
Task Force appointed by the Majority Leader here in the Senate.
    I hope that you and many of our colleagues will pay close attention 
to the leadership that Ann Brown has brought to the Consumer Product 
Safety Commission. As Chairman of the CPSC, Ann Brown has streamlined 
and revitalized what had become a dormant agency under previous 
administrations. She has made consumer protection more effective--not 
by making the Federal government more invasive--but instead, working 
cooperatively with consumers and businesses to minimize the risk of 
death and injury from consumer products. Under Ann Brown's leadership, 
the CPSC seeks voluntary compliance if it is at all possible and takes 
mandatory action only when necessary.
    As we consider the issue of regulatory reform here in the Congress, 
Mr. Chairman, we should be looking to the CPSC to see just how the 
Federal government can be made more effective at protecting our 
citizens by ensuring that they are better informed and encouraging 
businesses to pay more attention to safety in their products.
    Thank you, Mr. Chairman. And now, let's here from the witnesses.

                         STATEMENT OF ANN BROWN

    Senator Bond. Now we will turn to the chairman, Ann Brown.
    Ms. Brown. Thank you. Mr. Chairman and members of the 
subcommittee, I am Ann Brown, Chairman of the Consumer Product 
Safety Commission, known as CPSC.
    With me today are Commissioner Mary Sheila Gall and Vice 
Chairman Thomas H. Moore and members of the commission staff.
    I am pleased to have this opportunity to testify in support 
of our fiscal year 1998 appropriation request.
    For the information of any new members, I want to explain 
very briefly who we are and what we do. The Commission was 
established in 1973 by Congress as a five, now a three member 
independent agency with the mission to protect the public 
against unreasonable risks, injury and death from consumer 
products.
    We enforce five Federal statues--the Consumer Product 
Safety Act, the Flammable Fabrics Act, the Poison Prevention 
Packaging Act, the Hazardous Substances Act, and the 
Refrigerator Safety Act. All told, we have jurisdiction over 
15,000 different kinds of consumer products which are found in 
and around the home.
    These products are involved in more than 21,000 deaths and 
over 29 million injuries with a total cost in excess of $200 
billion annually to the Nation.
    At the outset, I want to express our appreciation for our 
fiscal year 1997 appropriation of $42.5 million, the full 
amount requested in the President's budget. These funds are 
being used effectively to protect the American people against 
unreasonable risk of injury or death from dangerous or 
defective consumer products.
    I am especially proud of our Baby Safety Shower Program and 
I want to show a very short tape about it.
    [A videotape was shown.]
    Senator Mikulski. Ms. Brown, how long is this tape?
    Ms. Brown. It goes on for 1 more minute.
    Senator Mikulski. This is a busy day and we do have three 
witnesses.
    Senator Bond. That's all right. It came out of her time. 
[Laughter.]
    Ms. Brown. Then please let me continue.
    In fiscal year 1998, we are requesting an appropriation 
increase to $45 million, an increase of $2.5 million to 
continue and expand our vital work. In preparing our budget, we 
carefully reviewed the needs and contributions of all our three 
operating divisions.
    As a result, we are proposing important investments above 
current service levels in most of these areas. These 
investments total $1.1 million. They include funding of a 
larger number of product incident investigations, support for 
hazard reduction initiatives, including a major effort on fire 
hazards, an innovative compliance investigation program, and 
certain information technology efforts critical to efficient 
agency operations.
    These modest programs requested for 1998 are more than 
justified by our record of accomplishment.

                          PREPARED STATEMENTS

    CPSC has made vital contributions to the 20-percent decline 
in annual deaths and injuries. Past agency work in 
electrocutions, children's poisonings, children's cribs, power 
mowers, and fire safety helps save the Nation almost $7 billion 
annually in health care, property damage, and other societal 
costs--more than 100 times CPSC's annual budget, or about $155 
million in savings for each $1 million of the agency's 1998 
request.
    [The statements follow:]

                    Prepared Statement of Ann Brown

    Mr. Chairman, and members of the Subcommittee, I am Ann Brown, 
Chairman of the Consumer Product Safety Commission (CPSC). With me 
today are Commissioner Mary Sheila Gall, Vice Chairman Thomas H. Moore 
and members of the Commission staff.
    I am pleased to have this opportunity to testify in support of our 
fiscal year 1998 appropriation request.
    For the information of the new members of the Subcommittee, I want 
to explain briefly who we are and what we do. The Commission was 
established in 1973, by Congress as a five, now three, member 
independent agency with a mission to protect the public against 
unreasonable risk of injury or death from consumer products. We enforce 
five federal statutes, the Consumer Product Safety Act, the Flammable 
Fabrics Act, the Poison Prevention Packaging Act, the Hazardous 
Substances Act and the Refrigerator Safety Act. All told, we have 
jurisdiction over 15,000 different kinds of consumer products which are 
found in and around the home. These products are involved in more than 
21,000 deaths, and over 29 million injuries with a total cost in excess 
of $200 billion annually to the nation.

                         RECENT ACCOMPLISHMENTS

    At the outset, I want to express our appreciation for our fiscal 
year 1997 appropriation of $42.5 million, the full amount requested in 
the President's budget. These funds are being used effectively to 
protect the American people against unreasonable risk of injury or 
death from dangerous or defective consumer products.
    I want to tell you just a few of the ways in which we have used the 
taxpayers' hard earned dollars to safeguard their health and safety.
  --In fiscal year 1997 we have negotiated 106 voluntary corrective 
        actions involving 17.2 million consumer product units that 
        violated mandatory safety standards or presented a substantial 
        risk of injury to the public.
  --Also in fiscal year 1997, in partnership with the Customs Service, 
        we stopped 2.8 million dangerous product units from reaching 
        store shelves.
  --We recently issued a rule to alleviate the tip-over hazard of 
        large, multiple tube fireworks. Spectators have been killed 
        when these devices fell over and fired horizontally. The new 
        rule becomes effective this month, well before the fireworks 
        season.
  --In fiscal year 1996 we tested several brands of imported, non-
        glossy vinyl miniblinds and found they contained amounts of 
        lead which would be harmful to young children. When we 
        presented these results to the miniblind industry, the 
        manufacturers voluntarily agreed to change the composition of 
        these products to eliminate the lead.
  --In cooperation with the Gerber Products Company, we continued our 
        campaign this year to promote baby safety events across the 
        country. To demonstrate this program I want to show you a brief 
        excerpt from the CBS Morning News, which broadcast a segment on 
        the kickoff of our program.
    Mr. Chairman, these are just a few of the ways we have used our 
resources to advance consumer product safety in fiscal year 1996 and 
97.
                       FISCAL YEAR 1998 PROGRAMS

    In fiscal year 1998, we are requesting an appropriation increase to 
$45 million, an increase of $2.5 million, to continue and expand our 
vital work. In preparing our budget, we carefully reviewed the needs 
and contributions of our three operating divisions, hazard 
identification and reduction, compliance, and information and 
education. As a result we are proposing important investments above 
current service levels in most of these areas to enhance our ability to 
prevent and reduce the deaths and injuries related to consumer 
products.
    These investments total $1.1 million. They include funding of a 
larger number of product incident investigations, support for hazard 
reduction initiatives (including a major effort on fire hazards), an 
innovative compliance investigation program, increased consumer 
information outreach, and certain information technology efforts 
critical to efficient agency operations.
    In the hazard assessment and reduction area, funding would increase 
by $443,000, with one-third required to maintain current hazard 
reduction activities. The remainder of the increase, $325,000, funds 
critical enhancements in two areas: a partial update of the agency's 
child anthropometric measurements (measurements of children's physical 
dimensions, which are critical to analysis of their injuries); and 
several initiatives to address the nation's high fire death rate. 
Nationally, there were 470,000 residential structure fires in 1993. 
Fire is a leading cause of accidental home deaths among children 
younger than five years old.
    Even though efforts by the agency and the nation's fire prevention 
community have resulted in a steady decline in residential fires, this 
nation's fire death rate remains one of the highest among 
industrialized nations. Past CPSC actions in this area involving, for 
example, cigarette-resistant mattresses and upholstered furniture, 
heating equipment, flame resistant children's sleepwear, and smoke 
detectors have contributed to the general decline in fires and fire 
deaths, and show that the agency can be effective in reducing fire 
hazards.
    The fire-related hazards project continues our 1997 work on 
upholstered furniture, mattresses and bedding, revisions to the apparel 
flammability standard, and fire/gas codes and standards. New activities 
will be undertaken to evaluate the effectiveness of the Commission's 
safety standard on cigarette lighters and to address an emerging 
hazard, fires started by children using multi-purpose lighters. Fire 
investigation training for certain CPSC staff in our field offices is 
also recommended.
    In the Compliance program, we are requesting an increase of about 
$600,000 to enhance the Special Investigations Unit initiative. This 
recently established unit serves to identify and remedy previously 
unidentified and/or technically complex hazards. We believe that much 
of the agency's future work and effectiveness will involve addressing 
more technically complex hazards. The requested funds begin to develop 
the necessary tools to address such hazards. This includes a critically 
important effort to link and integrate agency and non-agency databases 
and the application of rapid product testing and evaluation techniques. 
Advances in this effort will benefit safety work throughout the agency.
    For fiscal year 1998, the information and education program's 
dollars increase by $196,000, with most of the funds necessary to 
maintain the current consumer information efforts in support of agency 
hazard reduction and compliance efforts. An increase of $22,000 will 
allow greater use of cost-effective video news releases to reach the 
public with product recall and other safety information.
    We know the Subcommittee has been especially concerned about the 
level of management expense at the CPSC. Accordingly, I want to inform 
you about a change I instituted in all CPSC programs. I have made it a 
policy that managers must be working supervisors, sharing the 
substantive work with our staff. Recognizing the Subcommittee's desire 
to reduce administrative expenses, we have worked to do so, and have 
achieved a 21 percent decrease since 1989. Only 19 percent of our 
fiscal year 1998 budget funds administrative needs, down from 24 
percent in 1989.
    The modest program increases requested for fiscal year 1998 are 
more than justified by our record of accomplishment. CPSC has made 
vital contributions to the 20 percent decline in annual deaths and 
injuries related to consumer products that occurred between 1980 and 
1993. Past agency work in electrocutions, children's poisonings, 
children's cribs, power mowers, and fire safety helps save the nation 
almost $7 billion annually in health care, property damage, and other 
societal costs--more than 100 times CPSC's annual budget or about $155 
million in savings for each $1 million of the agency's 1998 request. 
The agency expects its 1993 standard to make cigarette lighters child 
resistant to save over $400 million in societal costs and prevent up to 
100 deaths annually. Similarly, the agency expects its work in curbing 
carbon monoxide (CO) poisoning to reduce societal costs by one billion 
dollars annually. CPSC removal of dangerous fireworks from the 
marketplace prevents about 14,000 injuries each year.
    As you know, Mr. Chairman, I stress a cooperative, non-adversarial 
approach to business whenever possible. My first priority is to achieve 
voluntary compliance with our laws and rules. For this reason, I am 
particularly proud of our record of working cooperatively with 
industry. Since I became Chairman in 1994, the CPSC has developed 27 
voluntary standards with manufacturers, while issuing only 10 mandatory 
regulations, a ratio of almost 3-1 voluntary to mandatory standards.
    I have also emphasized my belief in the product safety triangle, 
where business, consumers and government each have an equal role to 
play. The Commission should not become overly invasive. We cannot and 
should not attempt to protect consumers from every possible risk of 
injury from consumer products. There are limits to what government can 
achieve.
    In this connection, Mr. Chairman, I want to tell you what we have 
done to implement your bill, S. 942 (Public Law 104-121), the Small 
Business Regulatory Enforcement Fairness Act.
    First, on October 9, 1996, the Commission adopted a regulation 
establishing a CPSC Small Business Ombudsman and a Small Business 
Enforcement Policy. The Ombudsman, Clarence Bishop, who is also Deputy 
Executive Director, has answered more than 700 calls on a special toll-
free hotline from small businesses seeking product safety information. 
Over 80 percent of the callers received a personal response to their 
inquiry from our staff within 3 business days. This service helps small 
businesses get important information quickly, and, at the same time, 
furthers public safety.
    Second, we have scrupulously followed the Congressional review 
procedures set forth in the law. We have issued four rules since the 
Act's effective date--none of which were ``major'' rules. In each 
instance, we submitted the required reports to Congress and the General 
Accounting Office on a timely basis.
    Third, we are near completion of a compliance guide for our 
February, 1997, revisions to the fireworks fuse burn time regulation, 
which were unanimously supported by industry and safety groups. Our 
Economics staff concluded in its regulatory flexibility analysis that 
these changes will benefit small businesses by making it easier for 
them to comply with the fuse burn time standard.
    Finally, consistent with the purpose of your legislation, in June 
1996, we co-sponsored a Small Business Conference with the 
International Consumer Product Health and Safety Organization. More 
than 130 representatives of small businesses participated in panels 
designed to assist them in complying with our laws and regulations.
               reduced funding limits commission programs
    As you know, in a concurrent submission to this Subcommittee and 
the OMB in September 1996, the Commission requested a budget of $49.7 
million for fiscal year 1998. The OMB reduced our budget request to $45 
million. Although this reduction of $4.7 million seems small, it will 
have a negative impact on our efforts to protect the health and safety 
of American children and families.
    For example, we proposed to invest $800,000 to update the 
Commission's 20 year old child anthropometry data. This information is 
essential for effectively addressing product hazards to children. Due 
to the rejection of this request, our effort in this area will have to 
be spread over several years, thereby hampering our efforts to protect 
one of our most vulnerable populations, children.
    Earlier in my testimony I mentioned our program to reduce deaths 
and injuries from household fires. We requested $500,000 for this 
project, but due to the budget reduction, we will be able to invest 
only half that amount in fiscal year 1998. The continuing high cost of 
fires justifies a greater investment and more innovative activities. 
The increased funds would have provided a mix of research and action 
items to address the many complex aspects of the fire problem. These 
items could include a cost-benefit evaluation of fire suppression 
devices, research to refine our knowledge of the causes of fire deaths 
to help identify appropriate prevention strategies, and the 
investigation of new product-specific hazards. These efforts would have 
provided a broader, more inclusive attack on the nation's fire 
problems. Since we were denied these funds, we will not be able to 
protect the public as well as we could from death and injury due to 
fire hazards.
             investment in information technology is needed
    In the past, agency funds invested in information technology have 
saved many thousands of hours of staff time for the Commission, 
improving our effectiveness and efficiency enormously. We have used 
these funds to develop discrete databases, to network the agency's 
computer system, and to move our data systems from a mainframe computer 
located at another federal agency to our own local network. 
Unfortunately, our fiscal year 1998 budget request would barely 
maintain our capabilities in this area. The proposed funding level 
leaves no resources to implement further technological advances, and 
only permits minimal investment to meet the new requirements of the 
recent Freedom of Information Act amendments (which require that most 
requested material be in electronic format and available over the 
Internet).
    An additional investment of $1,000,000 would allow us to respond 
faster and better to product hazards, saving more lives and preventing 
more injuries, and would help us implement the new FOIA law. As you 
know, CPSC is a data-driven agency that carries out its mission with a 
sense of urgency, since quick action by the agency saves lives. To 
provide even greater benefits to American consumers, we would like to 
establish an integrated information system at the agency that would 
give staff access to a much larger universe of product safety data and 
would improve the speed with which staff could gain access to that 
data.
    This system would integrate the agency's databases, and other data 
and documents not included in our current databases, allowing CPSC 
employees to get all the information the agency has on a particular 
product hazard using one quick and easy information request. Currently, 
gathering all such information can take weeks.
    Let me give you an example. Last year, CPSC's Compliance Office 
became aware of the suffocation death of a toddler who had been trapped 
in a cedar chest. To discover whether similar incidents had occurred in 
the past, the compliance officer searched each database in the agency 
individually, which took approximately two hours of staff time. Without 
recent improvements in information technology, she would have conducted 
these searches manually, which could have taken days, if not weeks.
    However, our system only allowed her to search for information that 
was available in certain discrete databases, which includes less than 
50 percent of all the information that has been developed by the agency 
since its establishment. If we had an integrated database, this same 
search could have been conducted in a matter of minutes, instead of 
hours, and would have represented a complete review of all information 
developed by the Commission, not just what is in currently available 
databases.
    In this particular case, the compliance officer did identify 
additional deaths of children who had become entrapped in a cedar chest 
manufactured by the same company. This data enabled us to reach 
agreement with the company to repair 12 million cedar chests currently 
in the hands of consumers. However, if it had been necessary for the 
staff to obtain more information before action could be taken, such as 
staff reports on toy chest entrapments or product safety assessments 
conducted by staff years ago on similar products, it would have taken 
weeks or months to locate the information through a manual search of 
Commission files and archives. Meanwhile, unrepaired chests would 
remain with consumers, threatening the safety of millions of children.
    This demonstrates that the benefits of an additional investment in 
CPSC information technology will far outweigh the slight increase in 
our appropriation.

                               CONCLUSION

    In conclusion, Mr. Chairman, the CPSC is a great value to the 
American people. By every rational cost-benefit measure we save the 
taxpayer many times our budget in deaths, injuries and property damage 
prevented. Accordingly, we urge you to appropriate not only the full 
amount requested, we also hope you can find an additional $1 million, 
within the Subcommittee's budget allocation, and within the framework 
of the President's balanced budget for necessary enhancement of our 
information technology.
                                 ______
                                 

                 Prepared Statement of Mary Sheila Gall

    I support the request of the Commission for $45 million for fiscal 
year 1998. Since my vote was against the original request to the Office 
of Management and Budget and Congress, I want to explain to the 
Subcommittee why I now support the budget request.
    In July 1996 I opposed the staff-proposed fiscal year 1998 budget 
of $49.9 million. I did so with reluctance, since many of the proposals 
to increase funding lay in areas such as additional laboratory 
equipment and other infrastructure expenditures that I have 
traditionally supported. My opposition to this budget proposal stemmed 
mainly from the fact that it proposed to spend 17 percent more in 
fiscal year 1998 than the request made by the Commission for fiscal 
year 1997. I recognize the importance of the mission and the operations 
of the Commission, but that importance must be balanced by the 
necessity to keep planning for future expenditures closer to probable 
increases.
    I supported certain portions of the staff-proposed budget. Current 
services needed to be funded and the cuts of fiscal year 1996 had to be 
restored. The Commission's accounting system needs modernizing and 
additional money for training is essential. But I did not agree that 
all of the proposed expenditures were as worthy as others. For example, 
I support increased expenditures to reduce fire deaths and injuries, 
but did not believe that several of the projects contained in the staff 
proposal represented a wise use of Commission resources. Similarly, the 
$40,000 proposed project to evaluate recall effectiveness struck me as 
less than crucial. Finally, many of the staff-proposed spending 
increases could be deferred to subsequent fiscal years.
    I am pleased to support the Commission's budget request contained 
within the President's budget request. This Commission performs a 
valuable public service by seeking to prevent injuries and death 
associated with the use of consumer products. I think that this 
Committee should note that, while many agencies within its jurisdiction 
seek benefits that will accrue in the distant future, the Commission's 
activities prevent deaths and injuries in the near term. This 
observation does not mean that the activities of those agencies are 
unimportant, but the immediacy of the benefits that this Commission's 
activities confer upon the American public ought to be a factor when 
this Subcommittee considers the appropriation request of this 
Commission along with the appropriations requests made by other 
agencies.
    The details of the Commission's fiscal year 1998 Budget Request 
have been set forth in the Chairman's Statement and I have nothing to 
add to that portion of her Statement.

                     Additional committee questions

    Senator Bond. Thank you very much, Chairman Brown.
    [The following questions were not asked at the hearing, but 
were submitted to the Agency for response subsequent to the 
hearing:]

                  Questions Submitted by Senator Bond

                               cpsc fte's
    Question. CPSC currently has on-board approximately 455 staff; your 
FTE ceiling is 487 FTE, and your fiscal year 1998 request would fund 
480 FTE. How much could we save if you did no hiring, and maintained 
staff at the current level of 455?
    Answer. First, the agency is no longer at the 455 employee level. 
Current employment is 460 and climbing. We have announcements 
outstanding to bring us up to 480 employees very shortly. We are 
aggressively hiring new employees because our product safety work has 
been hurt by staff vacancies caused by 1996 budget uncertainties and 
funding delays. Staff has been doing a tremendous job of covering for 
the vacant positions but productivity will soon suffer without 
additional staff support.
    Second, CPSC is already about half the size it was in 1980, and we 
have worked very hard to keep productivity up despite reduced staff 
resources. Since our specialized and highly skilled workforce is our 
chief asset (comprising 75 percent of our entire budget), cutting staff 
time further would reduce our product safety work now and for many 
years to come. While an FTE cut of 5 percent to 455 would reduce salary 
costs by about $1 million, this savings would be more than offset by a 
significant erosion in our life-saving safety work. Past work by the 
agency shows savings to society of at least $155 million each year for 
every $1 million spent on the agency.
    Finally, CPSC has already cut down on agency administrative support 
as much as we can. Since 1994, due to budget and FTE reductions, we cut 
support staff and contracted out such administrative functions as 
copier, mail and library services. Any further reductions in 
administrative staff would not be prudent given the size of our agency 
and our management needs. Therefore, most additional staff cuts would 
come from our programmatic work. In short, staff reductions would 
translate into fewer investigations, fewer product recalls, and fewer 
interceptions of hazardous products entering the country.

                            1998 PRIORITIES

    Question. What would you list as your top three priorities for 
fiscal year 1998?
    Answer. All of CPSC's efforts make a vital contribution to reducing 
the nation's $200 billion annual cost associated with product hazards. 
Our top priorities for 1998 are:
    1. Maintaining our current safety program in 1998. This requires 
funding of approximately $2 million ($1.2 million for salary and space 
costs, $300,000 for a Year 2000 compliant accounting system, $300,000 
for increased retirement costs and $200,000 to implement new FOIA 
requirements).
    2. Pursuing new safety initiatives to reduce fires, update the 
nation's child measurement database, and expand the Special 
Investigations Unit initiative. These initiatives are critical to our 
efforts to further reduce the nation's high fire death rate, increase 
protections for children from product hazards, and improve our ability 
to identify and remedy technically-complex product hazards. These 
programs require funding of approximately $1 million.
    3. Information technology investment. The agency has increased its 
product safety productivity in part by using information technology. 
Without further investment, aging information systems jeopardize our 
ability to pursue current activities and dim the possibilities of 
future gains in productivity. We would need about $1 million to 
properly upgrade and improve current systems to meet future workload 
and to make greater reductions in deaths and injuries.

                         MULTI-PURPOSE LIGHTERS

    Question. Your budget request proposes several new program 
initiatives, including $283,000 to address the nation's high death and 
injury rate from fire. Your budget justification indicates in 1998 CPSC 
will undertake activities to address fires started by children using 
multi-purpose lighters. How did this particular issue emerge as a top 
priority for fiscal year 1998? What specifically do you propose to do 
with the requested funds, and what particular activities do you 
anticipate in fiscal year 1998 to address the issue (such as 
regulations or working with industry on a voluntary basis)?
    Answer. Multi-purpose lighters are lighters with long nozzles that 
are most commonly used to light charcoal or gas grills, fireplaces and 
pilot lights on gas appliances. In 1997, the Commission considered a 
petition requesting that multi-purpose lighters be child-resistant. The 
Commission granted that petition and initiated a new rulemaking 
activity by issuing an Advance Notice of Proposed Rulemaking to require 
these lighters to be child-resistant. The Commission noted that a 
standard may be needed to reduce the fire hazard to children under 5 
years of age starting fires while playing with this product.
    The Commission is aware of 67 incidents since 1988 involving fires 
started by children under age 5 using multi-purpose lighters. These 
fires resulted in 10 deaths and 26 injuries. Children under age 5 
typically are incapable of dealing with a fire once started. This puts 
them and their families at special risk of injury. Almost all of the 10 
fatalities were the children who started the fires. For example, a 4-
year-old girl died last September when she set her day bed on fire 
while playing with a multi-purpose lighter.
    Multi-purpose lighters are relatively new products which were 
introduced to the U.S. market in 1985. Since then sales have increased 
steadily. One million units were sold in 1985; in 1996, 20 million 
units were sold. With increasing sales and the attractiveness of these 
lighters to young children, the Commission is acting to address the 
fire hazard before the deaths and injuries increase.
    In 1998, the Commission will continue working with a contractor to 
build surrogate lighters and to test several different multi-purpose 
lighters to determine how child-resistant they are for children under 
age 5. These results will be used to prepare a cost/benefit analysis 
for the proposed regulation.
    The Commission will decide whether to issue a proposed standard in 
1998 and will participate in the development of a voluntary standard if 
the industry decides to initiate action to address this problem 
voluntarily.

                CIGARETTE LIGHTERS/COST BENEFIT ANALYSIS

    Question. I'd like to understand better how the agency does cost-
benefit analyses. In your statement, you say that CPSC's 1993 standard 
to make cigarette lighters child resistant saves over $400 million in 
societal costs. Please explain the basis for this estimate, and more 
generally the process for conducting cost-benefit studies.
    Answer.

Cigarette Lighter Standard

    Prior to this standard, fires started by children under 5 years of 
age playing with cigarette lighters resulted in 150 deaths, 1,200 
injuries, and $70 million in property damage annually, for a total 
societal cost of about $900 million (about $750 million in fatality 
costs, over $60 million in injury costs, and about $70 million in 
property damage).
    The child resistant features of lighters are expected to reduce 
incidents by up to 70 percent, resulting in $500 million dollars of 
benefits. Taking into account the estimated $90 million in added costs 
to comply with the standard, the estimated net benefits to society are 
about $400 million per year.

Cost-Benefit Analysis at CPSC

    Under several of the Acts enforced by CPSC, prior to promulgation 
of a new regulation, the Commission must find that the benefits 
expected from a rule bear a reasonable relationship to the costs. In 
developing a safety regulation, CPSC examines the benefits and costs of 
alternative ways of addressing consumer product hazards. The process 
involves identifying the extent to which specific remedies will reduce 
product-related injuries and deaths. It also includes identification 
and estimation of the full range of costs to society of each potential 
remedial action.
    The benefits of a regulation include preventing injuries, deaths, 
and (sometimes) property damage from hazardous products. CPSC's Injury 
Cost Model estimates direct costs (e.g., medical, foregone earnings) 
and indirect costs (e.g., pain and suffering) of injuries reported 
through the National Electronic Injury Surveillance System and other 
injury data sources.
    The costs to society of addressing a product hazard include the 
cost of modifying a product design to make it safer or sometimes simply 
modifying the product labeling or packaging. Also the Agency takes into 
account estimated effects of increased consumer prices and product 
utility. In developing a rule, the estimated benefits are compared to 
the estimated costs; other economic factors that are not readily 
quantifiable are also considered (e.g., small business effects, effects 
on competition).


                    GENERAL SERVICES ADMINISTRATION

                      Consumer Information Center

STATEMENT OF TERESA NASIF, DIRECTOR
    Senator Bond. Now we will hear from Director Nasif.
    I apologize if I have mispronounced your name. If you 
would, tell us the proper pronunciation and present your 
testimony. Thank you.
    Ms. Nasif. It's Nasif, yes, as you said it.
    Mr. Chairman and members of the subcommittee, thank you for 
the opportunity to present the fiscal year 1998 budget request 
for the Consumer Information Center.
    With me today is Bill Early, Director of Budget of the 
General Services Administration.
    Established more than a quarter century ago, CIC continues 
to successfully carry out its vital mission mandate of helping 
Federal departments and agencies inform the public about health 
and safety issues, developments in Federal programs, and the 
impact and effects of Federal research and regulatory actions.
    Today, many elements of the CIC program remain the same: an 
essential mission mandate; a commitment to serve the American 
public; and the firm support of the administration and this 
committee.
    However, the CIC Program is going through a time of change 
that reflects a new environment in Government and in customer 
behavior. Overall, Federal agencies have reduced the scope of 
their publishing activities due to budget constraints, and the 
American public is placing fewer orders for merchandise, 
including information, by mail.
    CIC is meeting these challenges in two ways. First, we have 
redoubled efforts to identify private sector partners who share 
Federal information goals and can provide resources to stretch 
limited Federal dollars. Second, CIC has set up telephone 
ordering systems for both the consumer information catalog and 
its listed publications.
    CIC has implemented a toll free number--1-888-8PUEBLO--for 
citizens to call to receive a copy of the catalog. Also, I am 
pleased to report that, beginning with the spring 1997 edition, 
all copies of the catalog will include a telephone number for 
placing publication orders at the Pueblo facility.
    Citizens pay for these calls, thereby sharing in the 
expense of the program. Making access easier and quicker will 
encourage more Americans to take advantage of the wealth of 
information available from the Federal Government.
    CIC remains in the forefront of Federal electronic 
dissemination. The public will access the CIC Internet web site 
more than 3 million times in fiscal year 1997. This is a 
threefold increase since its inception in fiscal year 1995.
    While Americans can now access CIC either electronically or 
by phone, our address, Pueblo, CO, 81009, remains one of the 
best known addresses in the country where Americans order 
millions of publications published by more than 40 Federal 
departments and agencies.
    The Government Printing Office facility in Pueblo provides 
order fulfillment services for tens of thousands of orders 
received weekly as a result of the promotion that we do. During 
fiscal year 1996, consumers ordered 7 million publications from 
CIC, and in the years ahead we will continue our efforts to 
make helpful information available to all citizens, whether 
they are seeking it by computer or by mail.
    We are very committed to maintaining a vigorous publication 
distribution program in recognition of the fact that most 
Americans still continue to receive their information primarily 
through traditional print channels.
    Our ongoing efforts to identify and obtain valuable Federal 
information, our media and marketing programs, our centralized 
distribution system, and our widely acclaimed electronic 
information activities all combine to make CIC an essential 
source for citizens needing vital consumer information from 
their Federal Government.
    Mr. Chairman, we trust that the committee will agree that 
CIC is a valuable Federal program and that you will look 
favorably upon our request.
    Thank you.
    Senator Bond. Thank you very much, Director Nasif.
    [The statement follows:]

                   Prepared Statement of Teresa Nasif

    Mr. Chairman and Members of the Subcommittee, thank you for the 
opportunity to present the fiscal year 1998 budget request of the 
Consumer Information Center (CIC).
    Established more than a quarter of a century ago, the Consumer 
Information Center continues to successfully carry out its vital 
mission mandate: Help federal departments and agencies inform the 
public about health and safety issues, developments in federal 
programs, and the impact and effects of federal research and regulatory 
actions. To ensure that the public is made aware of and has easy access 
to this information, CIC promotes the information through a dynamic 
media and marketing program and disseminates it through print and 
electronic outlets.
    Today, many elements of the CIC program remain the same: An 
essential mission mandate; a commitment to serve the American public; 
and the firm support of the Administration and this Committee. However, 
the CIC program is going through a time of change that reflects a new 
environment in government and in customer behavior. Overall, federal 
agencies have reduced the scope of their publishing activities due to 
budget constraints. And the American public is placing fewer and fewer 
orders for merchandise, including information, by mail.
    CIC is meeting these challenges in two ways: First, we have 
redoubled efforts to identify private sector partners who share federal 
information goals and can provide resources to stretch limited federal 
dollars. For example, CIC has forged an alliance with the Metropolitan 
Life Insurance Company's Consumer Education Center to help educate 
consumers by developing publications on such diverse topics as starting 
a business, planning for college, making a will, and doing your taxes. 
And second, CIC has set up telephone ordering systems for both the 
Consumer Information Catalog and its listed publications. In 
partnership with GSA's Federal Information Center Program, CIC has 
implemented a toll-free number (1-888-8 PUEBLO) for citizens to call to 
receive a copy of the Catalog. IRS will place the number in a message 
on the back of one million tax refund check envelopes and CIC will use 
the number in our new television public service ads to be released in 
May 1997.
    Also, I am pleased to report that, beginning with the spring 1997 
edition, all copies of the Catalog will include instructions for 
placing publication orders by telephoning the Pueblo facility at 719-
948-4000. Citizens pay for these toll calls, thereby sharing in the 
expense of the program. Making access easier and quicker will encourage 
more Americans to take advantage of the wealth of information available 
from the federal government.
    And CIC remains in the forefront of federal electronic 
dissemination as more and more schools, libraries, and families are 
accessing information through the Internet. The public will access the 
CIC website more than 3 million times in fiscal year 1998, a threefold 
increase since its inception in fiscal year 1995. In recognition of the 
value of CIC's website, plans are underway to display CIC's Home Page 
address at the top of the newly revised ``Blue Pages'' listing of 
government agencies that will be in thousands of local telephone 
directories nationwide. This is part of the Administration's effort to 
make government more easily accessible to citizens.
    While Americans can now access CIC information electronically and 
order publications by phone, ``Pueblo, Colorado 81009'' remains one of 
the best known addresses in the country where Americans order millions 
of publications published by more than 40 federal departments and 
agencies. The Government Printing Office facility in Pueblo provides 
warehousing and order fulfillment services for tens of thousands of 
orders received weekly as a result of the Catalog, media mentions, and 
marketing promotions done by CIC. During fiscal year 1996, consumers 
ordered seven million copies of federal publications from CIC. In the 
years ahead, CIC will continue its efforts to ensure delivery of 
services to all citizens and to make helpful information available to 
all citizens whether they are seeking information by computer or mail. 
We are very committed to maintaining a vigorous publication 
distribution program in recognition of the fact that most Americans 
still continue to receive their information through traditional print 
channels.
    CIC's ongoing efforts to identify and obtain valuable federal 
information, its media and marketing programs, its centralized 
distribution system based in Pueblo, Colorado, and its widely acclaimed 
electronic information activities--all complement each other and 
combine to make CIC an essential source for citizens desiring unbiased 
and vital consumer information from their federal government. CIC 
remains uniquely positioned among federal agencies to perform the 
services it has so effectively delivered to the American public since 
1970.
    Mr. Chairman, again I thank you for the privilege of being here 
today on behalf of the Consumer Information Center to present its 
budget request for fiscal year 1998. We trust that the Committee will 
agree that CIC is a valuable federal program and that it will look 
favorably upon our request. At this time, I would be pleased to answer 
any questions you may have.


                DEPARTMENT OF HEALTH AND HUMAN SERVICES

                       Office of Consumer Affairs

STATEMENT OF LESLIE L. BYRNE, DIRECTOR AND SPECIAL 
            ASSISTANT TO THE PRESIDENT
    Senator Bond. Now we will hear from Director Byrne.
    Ms. Byrne. Thank you, Chairman Bond and Senator Mikulski. 
Thank you for giving us this opportunity. We have submitted our 
formal statement for the record, but I would like to make some 
brief comments.
    Senator Bond. Thank you. All of your statements will be 
made a part of the record in full. I should have mentioned that 
earlier.
    Ms. Byrne. Thank you, Mr. Chairman.
    Because we have received a generous offer from a group who 
purport to be Nigerian Government officials, we will not need 
an appropriation for fiscal year 1998 and we will turn money 
back to the Treasury. [Laughter.]
    They say they find themselves with a somewhat embarrassing 
surplus of 28.6 million U.S. dollars as a result of an 
intentionally overinvoiced contract. They have graciously 
offered us 30 percent if we will bank the entire sum for them 
in the United States and supply them with several items of 
personal information, including our bank account numbers.
    Their letter closes with, ``Let honesty and trust be our 
watchwords,'' so it must be legitimate. [Laughter.]
    Although this scam is almost laughably transparent, Mr. 
Chairman, it is a prime example of the type of fraud based on 
illegal use of personal information that we have focused much 
of our consumer education, policy development, and coordination 
efforts on at OCA in the last year.
    We are the only agency with White House responsibility to 
coordinate and monitor Federal consumer programs, identify 
consumer needs, and educate and advocate for consumers.
    Because we are nonregulatory, we have no mixed mission or 
restrictions on our role to represent consumers.
    Mr. Chairman, you have our budget request before you. It 
shows that we understood what this committee was saying last 
year about cutting the cost of Government, reducing its size 
and making it more efficient. We are reorganizing, using 
technology to make us more productive, helping consumers in a 
faster, cheaper, and better way, including our HelpLine with 
the new database that allows us to track consumer complaints 
and developing web links with the Federal Trade Commission and 
other agencies.
    Our emphasis is on providing consumers the tools to help 
themselves because it is far cheaper and more efficient than 
fixing problems after the fact.
    For every one of these Nigerian frauds or other frauds like 
them, even if the authorities can catch the perpetrators, the 
likelihood is that they will only retrieve 10 cents on every 
dollar lost. So education and information are the key to 
protecting consumers and they are the ones who can protect 
themselves the best.
    Because of the shift in our economy, we are looking at a 
White House conference on consumer issues. We have gone from an 
industrial based economy to a service and information economy. 
Our consumer laws really are there for tangible things, for 
products. We have yet to wrestle with the greater questions of 
how to protect somebody from a European travel scam as opposed 
to a product that is faulty.
    So we want a national focus on this new paradigm through 
this White House conference.
    Our long-term goals are very simple--to create a fair shake 
marketplace through disclosure of information, choice, access, 
and redress. These are the principles of good consumerism.
    We plan to recognize organizations that adopt these 
principles.
    Finally, Mr. Chairman, we plan to continue working with 
members of Congress, this committee, and other agencies on 
specific consumer information and education issues, in town 
meetings, in joint seminar formats on topics such as privacy, 
fraud, financial management--a growing concern--and a new 
concern, military families, with these being targeted for 
fraudulent efforts.
    Thank you, Mr. Chairman for your attention.
    [The statement follows:]

                 Prepared Statement of Leslie L. Byrne

    Mr. Chairman and distinguished members of the Subcommittee, I am 
pleased to come before you today to present our fiscal year 1998 
budget, to review the progress USOCA has made toward addressing the 
concerns expressed by this committee, and to share our plans for the 
coming year.
    Our fiscal year 1998 budget request is for $1,800,000 and 13 Full-
Time Equivalent staff positions.
    Our Agency's Mission remains unique. Our charge is to be the 
consumer advocate within the Executive Branch, both domestically and in 
the international marketplace. Because USOCA is non-regulatory, it is 
our singular conviction that we can better protect consumers by giving 
them the tools they need to protect themselves, through education and 
information. This becomes an even more important concept in an era of 
deregulation.
    This Committee has rightly expressed its concern about government's 
role, outdated and costly regulations, duplication of efforts, and the 
need for a smaller but more effective government. We at USOCA have 
heard your message loud and clear. In listening to the concerns of the 
American people, we have also heard loud and clear that they want 
consumer education and protection that must be strengthened, not 
endangered.
    To meet this committee's and the public's concerns, we continue to 
re-tool USOCA's organizational structure. I am in the process of 
reorganizing staff and functions to be more responsive. We are 
currently developing our performance measurement standards and 
indicators to meet GPRA's September 1997 deadline. Through these 
initiatives, we are becoming a more results oriented agency whose 
progress towards the goal of consumer education and information will be 
accurately measured. To further fulfill our mission, USOCA is 
reenergizing the Consumer Affairs Council (as mandated by Executive 
Orders 11583 and 12160). This will allow government agencies to reduce 
duplication and avoid redundancies in consumer policy.

                               PRIORITIES

    USOCA continues to focus its efforts in three primary areas of 
consumer concern: privacy; fraud; and the integrity of the marketplace. 
We addressed these areas through information and education with special 
emphasis on underserved populations. We are also working to improve 
responsiveness by both government and industry to consumer complaints 
and inquires. Based on these three areas, real accomplishments were 
gained during fiscal year 1997 and specific initiatives are identified 
for fiscal year 1998.

                           PRIVACY PROTECTION

    The public's desire for protection from intrusiveness grows and 
touches every institution. Government agencies, multimillion-dollar 
corporations, ``mom and pop'' operations, are being more vigorously 
challenged in their information gathering. Consumers want to be told, 
in language they can understand, why information is being collected, 
what will be done with it, and who will have access to it. People want 
to be sure the information they give is pertinent to transactions, and 
will not be used or sold for other purposes without their prior 
approval. All of us want to be able to see what is being collected 
about us and to have an uncomplicated way to correct errors and/or 
include explanations.
    Because of increased data collection and technology, we are seeing 
a national increase in identity theft. USOCA continues its cyber-fraud 
prevention efforts by informing the public on ways to protect 
themselves from identity theft and securing personal information on the 
Internet. Using traditional media such as print articles, press 
releases, T.V., speeches, brochures, etc., we have reached hundreds of 
thousands of Americans with information they can use to protect their 
personal information. We want to expand these efforts in fiscal year 
1998 by establishing and maintaining a web-site with this information.
    On the international front, the absence of a U.S. privacy policy is 
at odds with our European trading partners stance on the issue of 
privacy. American companies may face self-imposed trade barriers if 
USOCA cannot continue its work in harmonizing global marketplace 
privacy protection guidelines.
    A major illustration of USOCA's work in this area was as a catalyst 
in alerting the nation to the fact that personal information about 
consumers was being gathered and often used for purposes other than 
those for which the information was volunteered. Our work with industry 
improved communication between providers and consumers on this issue. 
We have persuaded many corporations to give the public a choice about 
how their personal information is used--by permitting consumers to 
determine whether or not the information they give a company will be 
shared with other companies, (for example, information on credit 
applications). At the same time, USOCA organized a working group of 
Federal agency representatives to examine the issues and privacy policy 
options. During our National Consumers Week Kickoff Conference in 
October 1995 at the White House, this group, called the Privacy Task 
Force, released the Federal Privacy Principles--guidance for industry, 
government, and individuals about how to protect personal privacy.
    In 1997-98, USOCA and the Privacy Task Force will continue working 
with government agencies and the private sector (both domestic and 
international) to refine and adapt the Privacy Principles, for 
implementation, particularly by users of the information superhighway. 
Increasingly, the World Wide Web and other electronic tools are being 
used for consumer purchases of products and services and interactions 
with government. The success of electronic commerce and the Internet 
depends on consumers belief in the security and integrity of this new 
medium. To achieve the full potential of the electronic marketplace, 
consumers want to be protected from a loss of control of personal 
information and, in the worst case, fraud. With personal, financial, 
health and other sensitive information going directly into computer 
data bases for storage, retrieval and manipulation, the need for 
consumer confidence in the security and control of that information is 
critical.
    It is USOCA's belief that the need for information by government 
and industry can be balanced with consumers' desire to preserve their 
privacy and control the use of personal data. Our goal is to protect 
consumers while encouraging growth and innovation in the use of 
telecommunications and information management technology. We find that 
industry shares our belief that a balance can be struck without 
unnecessary and burdensome regulation.
    We will continue to work with industry, government and consumers to 
achieve this goal. To lead by example we are developing a program to 
publicly recognize those who contribute to the protection of consumer 
privacy. This honor would be an award presented annually to various 
business, non-profit, government, and consumer organizations for 
outstanding efforts in privacy protection, particularly in areas where 
technological advancements encroach on personal privacy.

                       CONSUMER FRAUD PREVENTION

    USOCA continues its efforts to raise consumer awareness about 
fraud. Scams and fraud cost consumers over $100 billion annually in 
America. A new and growing target of fraud is military families. USOCA 
is working with the military personnel and their spouses to reduce the 
number of families harmed by these scams.
    Additionally, the growing use of credit and debit cards, of 
telephone and of Internet for purchasing goods and services, multiplies 
opportunities for fraud and increases the need for consumer education. 
USOCA is working closely with major credit card companies, media, trade 
associations, and consumer organizations to promote extensive consumer 
education campaigns. In addition, USOCA will continue to work with the 
Department of Treasury and other agencies overseeing electronic 
commerce to ensure that consumers know how to protect themselves from 
fraud. Again our proposed web site will allow the public to 
electronically access USOCA publications and information directly. 
Because the problems of consumer fraud require constant attention, we 
will publish an updated version of our popular pamphlet, ``Too Good To 
Be True.'' This newest edition of the publication will be the 
centerpiece of an anti-fraud campaign in 1998.

               TELECOMMUNICATIONS AND TELEMARKETING FRAUD

    Currently, USOCA's policy development efforts focus primarily on 
the profound changes that technological advances in telecommunications 
and information management have wrought in the marketplace. These 
changes acutely affect consumers, with potential for both good and ill, 
and create a need for government and industry to find means to balance 
the consumer/provider interests and promote probity and fairness in the 
marketplace.
    For example, as a result of consumer complaints to USOCA's toll-
free National Consumer HelpLine, our office, in cooperation with the 
Federal Trade Commission (FTC) and the Federal Communications 
Commission (FCC), convened a series of industry/consumer/government 
meeting on abuses in the telephone information services industry. The 
initial meeting, held early in fiscal year 1996, alerted the industry 
and Federal regulatory agencies to significant problems with ``pay-per-
call'' information services, despite recent legislation. Subsequently, 
a second USOCA-convened meeting was held to develop proposals for 
voluntary action on these problems. A third meeting produced major 
changes in the industries ethical guidelines. With the passage of The 
Communications Act of 1996 and the proposed legislation, 
``Telemarketing Fraud Punishment and Prevention Act of 1996'', Congress 
may further authorize regulatory action that will resolve some of the 
problems consumers are experiencing. Prevention still remains the best 
antidote to fraud.
            outreach and serving the underserved populations
    Outreach is a critical element in the success of USOCA's mission, 
especially to consumers who have traditionally been underserved: the 
disabled, frail, elderly, geographically isolated, ethnically diverse. 
Through consumer dialogues we have worked with neighborhood leaders to 
discuss the concerns and problems of consumers in their communities. 
Most importantly, community leaders have given us their recommendations 
on how government and the private sector can improve the delivery of 
consumer information to diverse communities.
    USOCA is successfully recruiting leaders from ethnic communities to 
advise this office on consumer issues that affect diverse communities. 
Our goal is to build an ``early warning system'' with these groups to 
keep consumer problems from becoming larger, which leads to regulations 
or legislation that could be avoided if people can find redress early 
on.
    USOCA has provided consumer education materials and conducted 
workshops at a variety of conferences and seminars sponsored by 
organizations representing the elderly and citizens with disabilities. 
In the first quarter of fiscal year 1997, USOCA developed a working 
group to discuss and formulate an agenda regarding consumer issues of 
particular concerns to the 49 million Americans with disabilities. 
USOCA is committed to encouraging marketers and employers to recognize 
consumers with disabilities as deserving of consumer rights as fully 
abled people.
    Town meetings and seminars are being planned around the theme, 
``Real People--Real Challenges.'' The aim of these fora is to provide 
an opportunity for traditionally underserved communities to discuss 
their consumer concerns. USOCA also plans to convene consumer education 
opportunities for youth in major cities throughout the country .
    Outreach to youth will include educational programs and projects to 
raise public awareness and to generate support for personal financial 
literacy for our children and young adults. By working with 
organizations such as the JumpStart Coalition for Personal Financial 
Literacy, which includes the National Institute for Consumer Education 
of Eastern Michigan University and the American Financial Services 
Association, USOCA will expand its mission by encouraging ``responsible 
use of credit'' and ``planning for savings, spending and investing to 
meet current and future needs'' among America's consumers under the age 
of 18.
    National Consumers Week (NCW) observed annually during the last 
week in October, is a signature event of the United States Office of 
Consumer Affairs and the nation. It is a major promotional event that 
highlights consumer education by informing consumers about their rights 
and responsibilities in the marketplace.
    Representatives from business, all levels of government, 
educational institutions, consumer organizations and media use this 
unique opportunity to encourage dialogue with consumers about a variety 
of important issues. With coast-to-coast involvement, planning and 
execution of NCW activities is a year-round undertaking. Recruitment of 
NCW public/private partnerships, follow-up activities, coordination 
with the Executive Branch and the White House, preparation of written 
materials and the development of various reports and documents are 
crucial to the success of NCW. This year's NCW theme is `` A Fair Shake 
Marketplace.''
    A White House Conference on Consumer Issues is being planned for 
October 1998. Our economy has changed from industrial based to service 
and information based. The nation's response to the new challenges this 
creates for consumers, has been slow. USOCA is proposing a new look at 
consumerism brought about by this profound shift in the economy. The 
consumer rights associated with tangible products are more difficult to 
ascribe to non-tangibles like services and information. We are using 
our resources for a national focus on this new paradigm.
    Communications.--USOCA has maintained a moderate communications 
operation. Due to the current budget shortfall USOCA has ceased to 
publish its newsletter. The newsletter circulation included hundreds of 
consumer groups, professional associations and media outlets. Within 
the fiscal year 1998 request, we plan to restore the newsletter to 
semi-annual publication.
    Another trademark event for USOCA has been the Constituent Resource 
Exposition (EXPO). Traditionally held for each new Congress, EXPO has 
served as an educational event for congressional staff where they meet 
representatives of Federal Agencies, discuss agency programs, and 
obtain pertinent information which enabled them to better respond to 
constituent requests in the Member's districts. This event helped 
eliminate Federal waste and red tape caused by misdirection of 
constituent complaints and queries.
    Again because of budget issues, USOCA has decided to take a 
different approach to reaching congressional staff members to 
disseminate information--a method which may prove to be more efficient 
and cost-effective. USOCA is working to conduct workshops in 
partnership with the Congressional Research Service (CRS) for Senators, 
Members of Congress and their staffs. At these workshops, USOCA's much 
requested publication, the Congressional Liaison Handbook (CLH) will be 
distributed. The CLH directs staff to appropriate agency consumer and 
congressional liaison officials.
    The primary tool with which USOCA has traditionally used to reach a 
broad cross-section of the population is the Consumer's Resource 
Handbook. This award winning resource is one of the most popular 
publications produced by the Federal government. It is filled with 
valuable information and ``Buying Smart'' tips for consumers to assist 
them in making informed choices and avoiding pitfalls such as fraud in 
the marketplace. Just as important are its listings of both private and 
public sector resources for consumer information and problem 
resolution. Keeping this information relevant to consumer problems in 
the marketplace, as well as complete and accurate requires more than 
checking addresses and telephone numbers.
    USOCA has in place the staff, expertise, knowledge, skills and 
interaction with industry, government agencies, consumer organizations 
and individual consumers needed to produce this Handbook. Any other 
agency handling this would assume research, training, and production 
costs well above the costs incurred by this office.
    There is a significant amount of work that could be done in 1997 on 
the 1998 edition of the Handbook. For example, the inclusion of E-mail 
addresses and web sites available for complaint handling. Currently, we 
are working with the FTC on a single Web-link to Federal web sites, at 
the address, consumer.gov, for which the Handbook's index would serve 
to guide consumers through the maze of Federal, state and local 
agencies with jurisdiction over consumer problems. To do this 
effectively there is considerable work to do to make the index more 
user-friendly in the Internet environment.
    Funding for the Handbook, as well as other consumer education 
publications have been accomplished through public and private 
contributions. Gift acceptance authority is extremely important to 
ensure that adequate numbers of these publication are updated and 
available to consumers. In addition to the Handbook, four significant 
publications/studies scheduled for fiscal year 1998, such as, 
``Protecting Your Privacy,'' ``Too Good To Be True 2000--A Consumer 
Guide to Avoiding Fraud in the New Century,'' and ``Improving Customer 
Service'' will require research, editing, design, printing, and 
distribution.

                 RAPID RESPONSE FOR CONSUMER COMPLAINTS

    The National Consumer HelpLine is a toll free number available in 
every state and U.S. territory offering a rapid response to consumer 
complaints through referrals and consumer information. It is staffed 
four hours a day by USOCA's professional staff, including its director, 
who refer or answer questions on the spot. We call back anyone who 
leaves a message during non-staffed hours. HelpLine is serving as the 
central federal clearinghouse for consumer complaint handling. Through 
the HelpLine, we make our decades of experience with consumer issues 
available to all Americans.
    Calls are logged into a database to help USOCA keep abreast of new 
trends such as fraudulent schemes in telemarketing, sweepstakes, and 
pay-per-call and long distance telephone billing. It tracks consumer 
complaints on automobile repair, home maintenance, warranties, stock 
fraud and returned merchandise. Other areas generating frequent calls 
are credit reporting and credit harassment, direct marketing and mail 
order complaints, insurance, mobile homes, Social Security and 
Medicare, student loans, and airlines.
    It provides a window on the public's reaction to developments in 
the marketplace long before the media or researchers can identify them. 
Dialogues with companies, trade associations, consumers and regulatory 
agencies have followed. In some cases, due to the industry being made 
aware of consumer problems, action has been taken to eliminate the need 
for new regulations. This is in keeping with the President's initiative 
to eliminate unnecessary regulations.

                            DOMESTIC POLICY

    USOCA has no regulatory authority but it directly impacts proposed 
legislation and regulations being considered by Congress and the 
Administration. USOCA is regularly solicited for input or comments on 
proposed legislation, regulations and reports. While the demand for 
USOCA review has increased over the last decade the number of employees 
has dramatically decreased. USOCA has been involved with such complex 
issues as privacy, emerging technology, the global marketplace, anti-
terrorism, debt and credit, and fraud.
    USOCA is the sounding board on consumer issues for buyers, sellers, 
all levels of government, neighborhood groups, and consumer 
organizations. We are the consumer's voice in the decisions of 
government and the impact of proposed legislation and regulations on 
their lives.

                          INTERNATIONAL POLICY

    Representing the interests of U.S. consumers in international 
forums, USOCA provides support to the President's consumer advisor as 
head of the U.S. delegation to the Committee on Consumer Policy of the 
Organization for Economic Cooperation and Development (OECD). The U.S. 
has taken a leading role in the areas of product safety, lowering 
tariff barriers for services and consumer redress in the international 
marketplace. The U.S. has encouraged OECD to adopt the use of new 
technology on global warning systems for product safety and consumer 
fraud.
    The world stands at the doorstep of a great expansion of cross-
border consumer transactions. Interest in the changing global 
marketplace and how it affects consumers is widespread among 
businesses, consumer advocacy groups, educators and world leaders. As 
consumer policy issues are increasingly internationalized, the need for 
effective mechanisms for the exchange of critically important consumer 
information, product safety, and efforts to counteract fraud and 
deception in the marketplace becomes more urgent.
    USOCA's role is vital as head of the U.S. Delegation to the 
Committee on Consumer Policy of OECD in order to fully represent 
America's consumer interests. It is viewed by our OECD partners as a 
beacon of leadership particularly for countries just becoming free 
market economies. Newly emerging nations from the former Soviet 
Republics want to study our governmental and nongovernmental structures 
as they seek to develop national consumer policy in a free market 
setting. USOCA also assists visiting delegations from other nations 
that wish to study our consumer protection system and our unique 
network of citizen run consumer organizations.

                        interagency coordination

    USOCA chairs and coordinates the Consumer Affairs Council and 
provides staffing. The Consumer Affairs Council was established as a 
body of senior consumer policy officials designated by the heads of 
Federal departments and agencies to provide leadership, coordination 
and effective management to consumer protection and policy initiatives. 
It has been used effectively in recent years to coordinate cross-
cutting initiatives, such as National Consumers Week, The Constituent 
Resource Exposition (EXPO), and the Consumer Resource Handbook 
publications and distribution. We intend to also use the Council as a 
means to raise standards of customer service and achieve greater 
consistency in consumer policy implementation government-wide.

                               CONCLUSION

    Mr. Chairman, this is a conservative budget. With the support of 
this committee, USOCA can fulfill its mission to empower every American 
to make the best choices in the marketplace. With our emphasis on 
education and information we arm the public with the tools they need to 
avoid the frauds, scams, charlatans and con-artists. We can give them 
the peace of mind and security to enter into new marketplaces, whether 
cross borders or in cyberspace and most importantly assure families 
redress if things go wrong. The subcommittee's choice is clear: help 
us, help your constituents or rely on after-the-fact remedies like more 
laws, more regulation, and more police trying to catch the crooks. Even 
when law enforcement is successful, it only recoups a small fraction of 
the money lost to our citizens and honest and ethical businesses. Mr. 
Chairman, we can do better.
    I would like to thank the Subcommittee for allowing me to express 
these views and I would be glad to answer any questions you have for 
me.

      SMALL BUSINESS REGULATORY ENFORCEMENT FAIRNESS ACT [SBREFA]

    Senator Bond. Thank you very much, Director Byrne.
    Let me turn to some questions. Let me begin, Chairman 
Brown, with a question that is near and dear to my heart as 
author of the Small Business Red Tape Relief Act, also known by 
the mind-numbing, eye-glazing acronym of SBREFA. I appreciate 
your attention to that legislation. The law requires agencies 
to establish a policy or program to provide for penalty 
reductions or waivers where appropriate to accommodate the good 
faith efforts of small businesses to comply with agency 
regulations.
    What steps has your agency taken toward instituting such a 
program? When do you see it up and running?
    Ms. Brown. We have it up and running now because we have 
long been sensitive to the needs of small business. In fact, in 
June 1996, the agency sponsored, with the Small Business 
Administration, a very well attended conference on small 
business and consumer product safety. At that conference, we 
announced the designation of a CPSC small business ombudsman, 
who will help direct calls from small business operators and 
insure appropriate followup.
    So far, through direct contact with CPSC staff, we have 
helped more than 700 small business persons comply more easily 
with our product safety guidelines. We, therefore, helped them 
to manufacture safe products.
    Requests to our ombudsman for assistance average about 90 
calls per month and represent 35 States and foreign countries. 
Our goal is to provide expert assistance to every small 
business within 48 to 72 hours of when they call CPSC for help. 
To date we have been about 80 percent successful in meeting our 
goal.
    Senator Bond. I appreciate that good work.
    Is there a waiver program in place? Do you impose fines for 
violations of your regulations?
    Ms. Brown. Yes; Clarence Bishop is the small business 
ombudsman and perhaps you would like him to answer that.
    Mr. Bishop. Good morning, Mr. Chairman.
    Senator Bond. Good morning.
    Mr. Bishop. Good morning, Senator Mikulski.
    Senator Mikulski. Good morning.
    Mr. Bishop. Yes, sir; we do have a waiver program in place 
through our compliance department, although we have not had to 
use it to date.
    Senator Bond. What would be the normal range of fines that 
you would impose?
    Ms. Brown. We are going to pass your question one more 
time. This will be David Schmeltzer, head of our Department of 
Compliance.
    Mr. Schmeltzer. Good morning.
    Our statute provides for civil penalties of up to $1.5 
million. We are directed to consider the size of the business 
when levying the fines, and we always do. We have about 15 
fines per year, and when we deal with small businesses, first 
we try to explain to them how to meet the regulations. If there 
are violations, then we take into consideration the size of the 
company and the appropriate figure. All of these cases are 
resolved through settlement procedures.
    Senator Bond. Rather than carry on the discussion further, 
we would appreciate having a report on the fines, what you are 
doing and how, and particularly if there are small businesses 
involved.
    Thank you very much.
    [The information follows:]

                     Penalties for Small Businesses
    The Commission staff has authority to pursue civil penalties 
against firms who fail to report a product hazard to the Commission 
under section 15(b) of the CPSA, 15 U.S.C. Sec. 2064(b). Since 1990, it 
may also pursue penalties against firms who knowingly violate the 
safety standards of the FHSA, FFA and PPPA.
    The Commission has always placed an emphasis on seeking voluntary 
compliance with our laws first. When product hazards exist, our first 
effort is to obtain corrective action. Some of these violations are 
committed out of ignorance, others because the firms choose not to put 
time and money into complying with the law. Civil penalties are used 
sparingly and generally only pursued against repeat violators.
    The purposes of a civil penalty are to deter the firm from future 
violations of our safety standards and to deter others from such 
violations. Under our laws, the Commission must consider a number of 
factors in deciding whether to pursue civil penalties. In determining 
whether a civil penalty is appropriate and the amount of the penalty, 
the Commission's laws require the agency to consider the risk of injury 
presented by the product and ``the size of the business of the person 
charged'' along with other factors. (See, section 20(b) of the CPSA, 15 
U.S.C. 2069(b)). The staff also examines the level of sophistication 
and knowledge of the firm involved and the gravity of the violation.
Reporting Violations
    The staff received 239 section 15(b) reports in fiscal year 1996 
and investigated many other products. The staff's primary focus was on 
corrective action and the vast majority of the cases were resolved by 
voluntary corrective action plans with no penalty. In fiscal year 1996, 
the agency obtained penalties from 5 firms who failed to report under 
section 15(b) of the CPSA. None of these 5 firms were small businesses. 
In addition, an agreement was reached with one firm which did not 
result in a civil penalty.
Regulated Products
    In fiscal year 1996, the staff discovered hundreds of violations of 
the Commission's safety standards. When the staff learned of a 
violation of a regulation, it advised the firm of the violation, 
addressed the hazard, and sought to bring the firm's products into 
conformance by working with that firm.
    Out of the hundreds of violations found, the staff obtained only 4 
(3 were small businesses) penalties and initiated two federal court 
actions for penalties against firms for regulated product violations in 
fiscal year 1996. (The Commission reduced one of those penalties to 
$5,000 from a negotiated penalty of $10,000 because of the small size 
of the firm involved.)
    The two Federal Court actions initiated in fiscal year 1996 were 
against a fireworks importer and a children's products importer. Each 
had more than ten violations and had not taken reasonable steps to 
correct the violations. U.S. v. Big Save International Corp. (C.D. 
Cal., No. 96-5318), and U.S. v. Shelton Fireworks, (W.D. Mo., No. 96-
6131-CV-SJ-1) (23 violations). Both firms are small businesses.
    During the last several years, the staff has worked with many small 
businesses who are repeat violators to bring them into future 
compliance without civil penalties. Toward that end, the staff has used 
meetings, inspections, and compliance agreements. It has also put civil 
penalty cases ``into abeyance.'' (This means the firm is informed that 
we could seek penalties, but do not plan to do so if the firm does not 
commit future violations.)
Ability to Pay
    Although the Commission's laws refer to the size of the business 
charged, as the factor to consider, the staff also takes into account 
the firm's ability to pay in determining the appropriate amount of any 
civil penalty and the payment terms. In three cases involving smaller 
firms, the staff has structured the payment of penalties so the penalty 
amount will send a strong message, but the payments are spread over 
time to allow the firm to continue as a viable concern.

                          Civil Penalty Report

                             [Final orders]

                                                        Fiscal Year 1996
Burlington Coat Factory (FFA)...........................        $250,000
Cosco, Inc. (Sec. 15(b), CPSA)..........................     \1\ 725,000
JBI, Inc. (Sec. 15(b), CPSA)............................         225,000
National Media (Sec. 15(b), CPSA).......................         150,000
Premier \2\ (FHSA)......................................      \1\ 75,000
Shrdlu, d.b.a.\2\ (FFA).................................           5,000
Singer Sewing Co. (Sec. 15(b), CPSA)....................         120,000
SKR Resources, Inc.\2\ (FHSA)...........................      \1\ 40,000
Taito America Corp. (Sec. 15(b), CPSA)..................          50,000
                    --------------------------------------------------------
                    ____________________________________________________
      Total.............................................       1,640,000
                    ========================================================
                    ____________________________________________________
Other remedies: McDonalds, Inc. Sec. 15(b), CPSA........   \3\ 5,000,000
Referred to Department of Justice:
    Big Save International Corporation \2\
    Shelton Fireworks \2\

\1\ Structured Payment Schedule.
\2\ Small Business--CPSC follows 15 U.S.C. 632 which states that the 
business must meet the criteria of being independently owned and 
operated and not dominant in its field of operation. In addition, the 
Small Business Administration sets size standards for various industries 
which are published in 13 CFR Part 121. Industries are identified by 
their Standard Industrial Classification (SIC) Code and their maximum 
size to be considered small is determined by either annual receipts or 
number of employees. If the industry is not listed in the CFR, the 
default size standard is $5 million in annual receipts.
\3\ Program.
---------------------------------------------------------------------------

                              CPSC BUDGET

    Senator Bond. Chairman Brown, you have indicated that the 
budget request is modest. But even a 6-percent increase, to $45 
million, over the current year when overall funding is likely 
to be held flat is difficult. What lower priority items would 
you eliminate or reduce if we had to hold you at a level 
funding.
    Ms. Brown. Level funding meaning the $42.5 million?
    Senator Bond. Yes.
    Ms. Brown. That would be extremely difficult for us, of 
course, because there would be a reduced level of safety, I 
think, to the American people. We would have a problem even in 
holding level. That does not mean that we would be holding 
level. Many of our information technologies, which is very 
important, much of that would not be able to be done.
    Senator Bond. In the budget process, sometimes you have to 
make hard choices. Rather than strangling every program, 
sometimes it is better to cut the lower priority program.
    Is there a lower priority program?
    Ms. Brown. At this point, I will have to get back to you 
and think about that because we are on such a bare bones budget 
now, as we are, that I just cannot think of any. We have 
already reduced. We have put our two laboratories together. I 
am thinking that there are so many things we have done. We have 
cut down on training of our personnel.
    I am not trying to be evasive, Mr. Chairman.
    Senator Bond. I understand, but that is something we would 
like for you to think about in case the worst happens.
    [The information follows:]


                      Effect of Budget Request Cut
    Any cuts to CPSC's budget would simply not be cost-beneficial. CPSC 
delivers more than $155 million in savings to the American public for 
every $1 million invested in the agency. Furthermore, the work of the 
agency has been a major factor in the 20 percent decline in annual 
deaths and injuries related to consumer products that occurred between 
1980 and 1993. Any cuts to CPSC's budget at this point would reduce 
this tremendous return on investment for consumers and would place more 
families at risk from dangerous products.
    Limiting CPSC's 1998 funding to the 1997 level of $42.5 million is 
approximately equivalent to a $2 million budget cut.\1\ But CPSC is 
already half the size it was in 1980, while our mission has grown 
substantially.\2\ To accommodate these reductions, we cut staff and 
trimmed away spending. We are now a lean and efficient operation. 
Therefore, any further budget reduction would cut directly into our 
safety programs.
---------------------------------------------------------------------------
    \1\ The agency needs a minimum of $2 million over 1997 funding if 
it is to fund non-discretionary cost increases occurring in 1998. This 
includes $1.2 million for increased salary and space costs, $300,000 to 
make its accounting system Year 2000 compliant, and $500,000 to fund 
proposed increased retirement contributions and carrying out of Freedom 
of Information Act amendments.
    \2\ CPSC's budget has fared worse than most other health and safety 
agencies. For example, from 1981 to 1996, EPA's budget increased 25 
percent and FDA's budget increased 56 percent while CPSC's budget 
decreased 45 percent.
---------------------------------------------------------------------------
    A $2 million budget reduction would force cutbacks in new safety 
initiatives planned for 1998 and in current safety work. The very 
difficult decisions of exactly which life-saving initiatives to 
sacrifice if this were necessary can not be made until we are much 
closer to new fiscal year.
    We believe that any cut in CPSC's budget at this time would rob the 
American public of essential safety benefits. Injuries from consumer 
products presently cost this country $200 billion each year. Past 
successes by the agency show that we can reduce deaths and injuries 
without expensive and intrusive interventions. The additional funds 
requested for 1998, $2.5 million, are small. Judging by recent 
accomplishments, this modest investment will deliver almost $400 
million in benefits to U.S. consumers. This small investment will keep 
one of the country's best working assets in good working order and 
build a better future for American families.
    When the subcommittee receives its budget allocation, if cuts are 
indeed necessary, we will certainly work with the subcommittee staff to 
identify those that would result in the least damage to our mission.

    Senator Bond. Senator Mikulski.
    Senator Mikulski. Thank you very much, Mr. Chairman.
    I have no questions for Ms. Nasif. But I do want to thank 
you for the excellent and continued work that you have done.
    We have had these conversations now for many years, and I 
must say that all of the literature that comes out of your shop 
is really I think remarkably received by the taxpayer. Often 
they wonder if they give us $1, we're going to spend $2 and at 
the end of the day have nothing to show for it that means 
anything in their day to day lives.
    The practical information that you disseminate, whether it 
is on how to buy a car or how to buy long-term care insurance 
is wonderful. I have looked at all of those. The very excellent 
check lists were helpful.
    I, myself, used your guide in looking for long-term care 
insurance because I was ready for purchasing that product. Like 
any other consumer, I wanted to know what specifically I could 
turn to.
    I could go over many issues like that. So I thank you.
    I know you face many financial challenges because you must 
be ready for the electronic world. But most people still will 
get their information through a printed form. So we look 
forward to working with you.
    Ms. Nasif. Thank you, Senator.

                   FRAUD PERPETRATED AGAINST ELDERLY

    Senator Mikulski. Congresswoman Byrne, I have a question 
about HHS consumer affairs.
    What does your organization do to protect people against 
fraud in those areas that are vulnerable in HHS service 
delivery areas? I am thinking about Medicare scams, for 
instance. You know, there are so many scams going on now among 
senior citizens, whether it is in products, though not the 
dangerous ones that Ms. Brown so effectively oversees--that 
privacy of information is absolutely important and I understand 
that.
    But there are a lot of scams going on in the area of 
Medicare and health care, et cetera. Are you involved in that?
    Ms. Byrne. What we try to do is go out to the communities 
of seniors and make them aware of these scams. One of the 
things we find is that we hear about them after the fact, after 
the widow has been deprived of $70,000, not once over a scam 
but once she gets on a sucker list it's again and again and 
again. She has been proven vulnerable in one instance. There 
are actual lists that are published, shared among the scam 
artists that allow them to go back to her.
    So what we are trying to do with education and information 
is get information out into the hands of seniors.
    Senator Mikulski. And how do you do that?
    Ms. Byrne. We do it through AARP and all of the other 
organizations. We work very closely with senior organizations, 
such as the Senior Citizens Council, the AARP, in educating 
their members. We do media campaigns in senior citizen areas 
that are heavily populated. We send out alerts when we find out 
a particular scam is in a neighborhood, for example. That is 
all to that effort of getting information to the consumer.
    The other, the back end to that is through our HelpLine and 
this kind of first alert that we have, we are able to notify 
law enforcement agencies when there is a scam going on directed 
toward senior citizens or anyone else. So when they call us, we 
go after them.
    Senator Mikulski. Thank you. I think everybody wonders what 
is--not really your personal job--what is the job of your 
agency.
    Ms. Byrne. Right.
    Senator Mikulski. I really think that where there is need 
there is greed, and where there is greed there is scam; and 
where there is scam, there is scum.
    Ms. Byrne. That's right.
    Senator Mikulski. That's the way I see it.
    Ms. Byrne. You got it.
    Senator Bond. Let me jot that down.
    Senator Mikulski. It's need/greed, scam/scum.
    I would hope that, instead of looking with a broad brush 
across agencies, really that agency, particularly with the 
senior population that is so vulnerable, is so helpful.
    Ms. Brown, regarding your agency, you are now talking about 
a new fire prevention, death prevention initiative. Could you 
tell us--and I know my time is short----
    Senator Bond. Take your time.

                            CPSC INITIATIVES

    Senator Mikulski [continuing]. Where did that come from? 
Where did that idea come from? That then takes me to a second 
question, which is are you moving the Consumer Product Safety 
Commission to what I call a risk based strategy focus. I mean, 
in other words, looking at those consumer vulnerabilities that 
are most likely to affect most of the American people.
    Ms. Brown. The way that we figured out the fire initiative 
is because that is where the major deaths, injuries, and 
property damage occur. So we are always a data driven agency. 
We have a fine data system, a hospital emergency room system. 
We are driven by the fact that we must prioritize. We must 
prioritize in this era of limited resources and that must be 
done based on where the greatest injuries and deaths occur.
    We have three new initiatives, to reduce fire deaths and 
injuries, consideration of a multipurpose lighter standard, 
evaluation of our child resistant cigarette lighter standard, 
and investigator training for CPSC investigators. All of those 
were arrived at because that is where we see the largest number 
of injuries and deaths.
    Senator Mikulski. And what are the other top two?
    Ms. Brown. The other top two apart from fire?
    Senator Mikulski. Uh-huh.
    Ms. Brown. Those would be children's injuries and deaths, 
which are, of course, always important to us, and sports 
injuries. All of those were arrived at when we looked at our 
data and we saw where is the greatest need.
    Senator Mikulski. Let me say just one word about fire. I 
know that it is one of the terrible problems in my communities 
in Maryland. Once again we just suffered the death of three 
children, and we would hope that you are also going to be 
coordinating with FEMA and the national association. FEMA has 
the firefighters. I will get back to floods in a minute. We 
hope you do work across agency lines in this area.
    What we hope and what we tried to get FEMA to do and EPA--
this committee has been around management--is not to go after 
individual boutique issues that capture the headlines--and I'm 
not saying you do, but we all know how that goes--but to focus 
on where most people are at risk, whether it is to scams and 
being defrauded, such as buying the hearing aid that is going 
to solve all of your problems, all those sorts of things. That 
is important.
    It is very important to me that we coordinate with other 
agencies. The issue of firefighting and fire prevention is an 
intensely local, block by block issue. How will you be 
coordinating there?

                      WORKING WITH OTHER AGENCIES

    Ms. Brown. We are already working with the Fire 
Administration on many of our fire efforts and other efforts as 
well. They are funding some work that we are doing on stoves 
and burners.
    We work very closely with FEMA, as well, as we have during 
this flood. They are giving out all of our material about how 
people will reenter a house and the dangers that lurk when 
people reenter a house that has been flooded.
    I have a list of the agencies with which we cooperatively 
work. I would be delighted to submit that for the record so 
that you can see that one of our major goals is to work 
cooperatively across Government, both in Government and outside 
of Government with industries and other organizations. It 
really is a way to aggrandize your resources. I would like to 
submit that for you.
    Senator Mikulski. Thank you.
    [The information follows:]


             Working with Other Agencies and Organizations

    CPSC works with many Federal agencies and private organizations in 
many ways to advance safety programs and to maximize the effect of CPSC 
safety efforts. These relationships have proven very productive to the 
agency and the American public because they provide greatly expanded 
resources to the problem of hazard reduction at little cost. We are 
always careful not to duplicate services of other organizations, but to 
complement and augment one another. CPSC offers other agencies unique 
abilities to identify hazards and analyze hazards, and at times, 
suggest practical ways to reduce hazards. For example, CPSC has the 
best system in the world for collecting information about hospital 
emergency room visits--The National Electronic Injury Surveillance 
System (NEISS). Many agencies purchase services from NEISS to obtain 
data about injuries within their jurisdiction. In one example of such 
an arrangement, NEISS is providing children's injury data to the 
Department of Transportation for its work on children and airbags.
    The reduction of fire hazards provides an excellent example of how 
CPSC works with other organizations. CPSC has a long and productive 
relationship with local and State fire organizations. CPSC depends on 
fire data, collected by local fire departments and coordinated at the 
State level through the National Fire Incident Reporting System, to 
provide essential support for our regulatory mission. In addition, 
special in-depth field investigation projects regarding fire incidents 
almost always rely on close coordination with local fire departments. 
Examples of such projects include cigarette lighters, upholstered 
furniture open-flame fires, smoke detectors, and range fires.
    CPSC has also worked with local fire departments and community 
groups to develop community-based smoke detector programs. Recently, 
under a program organized by CPSC, 5,000 smoke detectors were 
distributed and installed by firefighters or trained volunteers in 10 
cities, targeted to vulnerable populations.
    CPSC also works with many national organizations to address fire 
hazards:
    The U.S. Fire Administration (USFA) collects and provides essential 
data on residential fires to CPSC, stimulates new technology, and 
conducts public education campaigns relating to fire. USFA has provided 
supporting funds for CPSC projects on Range Fires, Smoke Detectors, and 
Home Electrical Wiring Systems.
    The National Institute of Standards and Technology (NIST) performs 
basic and applied research in the fire sciences, provides their 
facilities for CPSC special fire testing, and serves as a comprehensive 
resource for standards information. NIST is providing fire test 
facility support for our current project on Fire Safety Devices.
    The Centers for Disease Control and Prevention (CDC) provide 
programs and grants to expand community awareness in the field. CPSC 
staff participates in the CDC Healthy People 2000 Work Group on Fire 
Prevention, and CPSC has provided funding in support of their fire 
prevention initiative.
    The Congressional Fire Services Institute (CFSI) was a member of 
the Steering Committee of our National Smoke Detector Project.
    CPSC communicates with other agencies that have regulatory 
authority and conduct research in areas beyond CPSC jurisdiction such 
as the Federal Aviation Administration (aircraft), the Occupational 
Safety and Health Administration (workplace), the National Highway 
Traffic Safety Administration (automotive), and the Department of 
Housing and Urban Development (manufactured housing).
    The private sector organization, the National Fire Protection 
Association (NFPA), also collects and provides CPSC residential fire 
data in addition to developing and publishing this country's national 
fire codes and voluntary standards, investigating major fires, and 
conducting public information and education programs.
    In October of 1996, the Commission signed a Memorandum of 
Understanding with the International Association of Arson Investigators 
(IAAI) through the Commission's Special Investigations Unit (SIU). The 
IAAI is a non-profit technical and educational organization comprised 
of volunteers through various government organizations, such as ATF, 
insurance investigators and certified fire investigators. This 
cooperative effort allows both organizations to work together toward 
the common goals of improving public fire safety, sharing technical 
information and training fire investigators. In addition, the IAAI 
publishes bi-monthly Commission recalls to notify IAAI members of fire 
hazards associated with potentially defective consumer products.
    CPSC works cooperatively with many other public and private 
organizations on a variety of product safety efforts. Federal agencies 
we have worked with include:
  --Centers for Disease Control (data collection on a wide-range of 
        injuries)
  --Customs Service (import surveillance to prevent entry of unsafe 
        products)
  --Department of the Army (share information and expertise on injury 
        prevention, baby safety events, lead in playground equipment)
  --Consumer Information Center (distribution of CPSC safety 
        publications)
  --Department of Energy (chemical emissions from consumer products)
  --Department of Housing and Urban Development (injury prevention in 
        housing)
  --Department of Health and Human Services (injury prevention, data 
        collection)
  --Department of Interior (playground safety in National Parks)
  --Department of Justice (data collection)
  --Environmental Protection Agency (indoor air, lead poisoning, 
        chemicals)
  --Federal Emergency Management Agency (injury prevention in disaster 
        situations)
  --Federal Trade Commission (data sharing on consumer protection legal 
        actions)
  --Food and Drug Administration (poison prevention)
  --Fire Administration (fire safety and fire education programs)
  --Indian Health Service (injury prevention, fire safety)
  --National Highway Traffic Safety Administration (bicycle safety)
  --National Institutes of Health (toxins and carcinogens in consumer 
        products)
  --National Institutes of Standards and Technology (product safety 
        testing)
  --Office of Consumer Affairs (coordination of numerous safety 
        matters)
  --Occupational Safety and Health Administration (data collection)
  --Small Business Administration (small business concerns, 
        implementation of CPSC Small Business Ombudsman program)
    We work cooperatively with a large number of non-Federal groups to 
disseminate injury prevention information, gather injury data, develop 
safety standards, and ensure compliance with safety regulations, 
corrective actions, and recalls. These groups include:
  --American Academy of Pediatrics
  --American Association of Retired Persons
  --American Nurses Association
  --American Red Cross
  --Association of Food and Drug Officials
  --Better Business Bureau
  --Businesses (such as Gerber Foods who is co-sponsoring the Baby 
        Safety Shower effort)
  --Coalition for Consumer Health and Safety
  --Consumer Federation of America
  --Dana Alliance for Brain Initiatives
  --Danny Foundation
  --Defense Research Institute (Defense attorneys)
  --D.C. Bar Association
  --International Association of Chiefs of Police
  --National Association of Consumer Agency Administrators
  --National Consumers League
  --National Safety Council
  --National Safe Kids Campaign
  --National 4-H Council
  --Salvation Army
  --Snell Foundation (Bicycle Helmets)
  --Society of Academic Emergency Medicine
  --State Attorneys Generals
  --State and local coroners, medical examiners, health departments, 
        and consumer protection offices
  --Trade Associations (Outdoor Power Equipment Institute; Coalition 
        for Automatic Garage Door Openers, Gas Water Heater 
        Association, Toy Manufacturers of America, etc.)
  --Voluntary product standard setting organizations (ASTM; the 
        American National Standards Association; Underwriters 
        Laboratories; National Electrical Code and Building Code 
        groups)

    Senator Bond. I have to step out very briefly to meet with 
some constituents. I am going to ask that Senator Mikulski 
continue this hearing.
    Senator Mikulski. And if I am done?
    Senator Bond. I will be back shortly. I have some more 
questions. This will be very brief.
    If you will forgive me, I will turn the gavel over to you.
    Senator Mikulski [presiding]. Ms. Brown, have you had any 
involvement in the air bag controversy?
    Ms. Brown. No, we have not.
    Senator Mikulski. Has anyone called you--let's wait for the 
bells to finish ringing.
    [Pause.]

                             AIR BAG SAFETY

    Senator Mikulski. Has the Department of Transportation 
contacted you on the air bag issue?
    Ms. Brown. We have had some directives from them about what 
they are doing, just information.
    Senator Mikulski. Well, you see, nobody knows what they are 
doing. This is a very prickly situation. There is a great deal 
of concern about the safety of air bags. You have just 
indicated the concern about the special risks to children in 
the home. But there is a special risk in that home on wheels, 
called an automobile. Given commuters and day care every day, 
our little kids spend a lot of time in cars. We are finding 
that they are at risk, either from their child seats, et 
cetera, and now the air bags. There is the air bags controversy 
not only for what it means to children but what it means to, 
essentially, people my size, and where that air bag releases, 
hits you, and so on.
    There is a great deal of confusion, uncertainty, and 
apprehension about what the Department of Transportation is 
doing. I am not blaming this on you, of course.
    Ms. Brown. It is not in our jurisdiction.
    Senator Mikulski. But you are the Consumer Product Safety 
Commission with incredible expertise and really significant 
data. Your database I think should not be minimized because it 
contains risk based information and lots of ideas even for the 
private sector to improve itself.
    My question is this. Given that, do you know anything about 
this? Does your agency have any data on the air bag 
controversy? Do we know where the risks are?
    It would seem to me that you, you meaning your agency, 
would play a significant role. First of all, you probably know 
more about what happens to children other than pediatricians 
and parents. Am I right in that?
    Ms. Brown. Absolutely. You are.
    Senator Mikulski. We had that marvelous conversation on 
playground equipment.
    Ms. Brown. It is both my area of expertise, coming into the 
agency as a child safety expert, and, of course, what our 
agency has concentrated on.
    The problem with air bags or with anything in cars is it is 
not legally within our jurisdiction. However, our very 
excellent data, the NEISS system, which gets reports of 
hospital emergency room injuries every day, has done work for 
the National Highway Traffic Safety Administration on motor 
vehicle injuries. So they do use our data.
    But we are not involved in the air bag controversy per se. 
Many people call me, Senator Mikulski, because I, too, am 
small, and they ask me what are you doing in your own car.
    I, therefore, did my own personal, little survey and told 
people that you have to be at least 10 inches away from your 
air bag in your steering wheel. I also had found out some 
information on how to get extenders on pedals. That I just did 
as something personal to help my other short friends.
    But this is an area that is very serious and I do know that 
there is a lot of concern out in the Nation. We specifically do 
collect air bag data specifically for NHTSA.

                       CPSC SHOULD WORK WITH DOT

    Senator Mikulski. Ms. Brown, I am going to ask you because 
of the confidence I have in your agency and in your 
considerable database, to reach out to Secretary Slater. We 
have to really deal with this air bag controversy.
    I am glad people know that they can call you. I go to 
senior citizen meetings and they ask me the same question, 
partly because I have the same personal geography, so to speak, 
as they do. But it shouldn't be member-to-constituency groups 
of 30 people only. I am absolutely convinced that the 
Department of Transportation has not brought in the total 
expertise that is available within its own Government.
    I know that Secretary Slater, I hope, will be moving on 
this.
    I am going to really recommend that you call Secretary 
Slater and that you have a list of all the agencies that have 
been involved in the subject of children--and there are also 
parallels to frail elderly or the short elderly--that could be 
used here, and that you recommend whatever task force they have 
that they use the best information. Let's get out there with 
this information. It could be a new line of commercial 
products, exactly as you said. People may laugh about a pedal 
extender, but if you are 5 foot 2 inches and automobiles are 
built for people structured like Clint Eastwood, it gets to be 
very difficult for us.
    I don't want to turn this into an air bag hearing, but I am 
deeply concerned about the sluggish way we are moving toward a 
relationship with the private sector and the consumers on this 
very significant issue, and perhaps even about talking about 
additional consumer products that would enable people to be 
more safe. Let me include here also the information on where do 
you put your baby's car seat--all of those kinds of things. 
Right now, if we have a driving grannie, then maybe grannie 
needs to be in the back seat.
    I could go on and on here.
    Ms. Brown. Senator, I did want to mention also that we have 
asked for funds to do some anthropometric work. That sounds 
exotic. But what it really is is the measurement of children. 
More work to upgrade this would be very helpful to NHTSA in 
moving forward to do some greater calculations on car seats. 
Education is fine, but I think you've hit it on the head. In 
every field of products, it is very important to have as much 
as possible safety built into the product.
    Senator Mikulski. From what I understand from the private 
sector, particularly those involved in the automobile industry, 
they are waiting for the Department of Transportation to give 
them some guidance on the direction in which they want to go.
    I will tell you what I fear--the wholesale dismantling of, 
in particular, passenger air bags out of fear rather than out 
of science and out of technology. I truly believe the genius of 
the American private sector for both liability reasons as well 
as good citizenship, and ultimately profit, to be able to come 
up with solutions. But right now they need the guidance of DOT. 
Knowing what you all know about children, I think it would be 
enormously important for there to be a task force. It is 
disturbing to me that with DOT there is not a relationship on 
this issue.
    Ms. Brown. I'll call Secretary Slater this afternoon.
    Senator Mikulski. Thank you very much and good luck with 
that.
    Again, many, many thanks.

                      CONSUMER'S RESOURCE HANDBOOK

    Senator Bond [presiding]. Thank you, Senator Mikulski.
    Director Nasif, in 1997, the Congress gave the CIC the 
responsibility for producing the Consumer's Resource Handbook. 
Can you give us an estimate of the resources you might require 
to produce the report in fiscal year 1998 if Congress should 
decide to maintain responsibility for the handbook at CIC?
    Ms. Nasif. The President's budget does provide for the 
transferring back to the Office of Consumer Affairs 
responsibility for the Consumer's Resource Handbook for fiscal 
year 1998. It is my understanding that the resources required, 
whether by OCA or by the Consumer Information Center, would be 
in the neighborhood of about $1.50 per publication. I believe 
the estimate for printing would be under $1. The estimated cost 
for CIC distribution is about $.54. So if 250,000 were produced 
and distributed, it would be about $400,000 for the total cost.
    In the past, OCA has been very successful in leveraging the 
support of the consumer community and other Federal agencies as 
well as the private sector in helping to cover the costs of the 
Consumer's Resource Handbook. Traditionally, what is done is 
that the committee provides a foundation of funding for the 
Consumer's Resource Handbook and then the Director of the 
Office of Consumer Affairs invites other Federal agencies, as 
well as corporate and other private sector organizations, to 
contribute resources to cover the costs of the publication.
    So it really is a very joint effort in coming up with the 
funds to successfully print and distribute the handbook.

                DISSEMINATING INFORMATION ELECTRONICALLY

    Senator Bond. Can consumers order publications from the CIC 
web site? Do you see a demand for this? Do you see a day when 
you would move to distributing all of CIC's publications 
electronically?
    Ms. Nasif. Currently we are working toward consumers being 
able to order right off our web site, and we are actually 
working with the Government Printing Office to make it a 
reality. About 50 percent of the publications in the CIC system 
are actually GPO sales documents. So it is not something that 
CIC can proceed ahead with on our own. But we are working with 
them.
    GPO is putting into place an interactive system so that the 
public can order from their web site. As soon as they have 
perfected and debugged that system, we will work to have it 
applied to CIC in the Pueblo facility.
    Of course, the main concern of all of us interested in 
electronic commerce is maintaining the privacy and the 
confidentiality of credit card information, which must go 
through the Internet web site.
    We are fortunate that we are part of the General Services 
Administration because the agency is a leader in the emerging 
technologies that do safeguard that kind of personal 
information. So we will be working within GSA as well.
    As far as whether the day will come when all consumers will 
be ordering from the web site as opposed to writing to Pueblo, 
I don't think so. Given the explosive growth of the Internet 
and especially the World Wide Web, it seems that certainly this 
country is going down that path. However, we are totally 
committed to maintaining our print program because we know that 
the majority of Americans depend on printed publications to get 
their information.
    So we are looking forward to maintaining a dual track and 
keeping both programs going.
    Senator Bond. Well, as long as this consumer is still 
around, there will be demand for the printed material.
    Senator Mikulski. And with big print. [Laughter.]
    Senator Bond. Yes; maybe the next generation will be all 
electronic, but not me.
    Ms. Nasif. The day will come we are told.
    Senator Bond. I don't believe that.
    Ms. Nasif. I know I am not ready for it. I am holding on to 
those publications as best I can.
    Senator Bond. Thank you very much, Director Nasif.

                        USOCA HELPLINE DATABASE

    Director Byrne, one of the things, obviously, where I have 
already indicated my concern is for the duplication of effort. 
I previously served as a consumer affairs counsel in the 
attorney general's office. It seems that every State has at 
least one, if not several, entities that are providing consumer 
information and warning. I happen to know of a man who was one 
of the unfortunate ones who managed to get burned twice by the 
Nigerian scam, a man who had some money that he no longer has, 
but he had enough that he was still hit with it, indeed hit 
twice.
    Obviously we cannot stop all scams. We have not gotten the 
message out. To what extent do you work with States and others 
who have the same responsibility you do?
    Ms. Byrne. Mr. Chairman, last March Money magazine did a 
compendium of all the State and local government efforts in 
consumer protection and found that there had been, over the 
last several years, a 60-percent cut in State and local offices 
in their efforts.
    One of our jobs is in just taking up the slack. What we 
find in the calls that we are getting is that people don't know 
where to turn. Their local offices have sometimes been closed 
down. Their 800 numbers have been disconnected. We often tell 
them to call their attorney general because they don't know 
where to turn.
    Oftentimes with these 1-800 numbers and the other agencies 
that are available, the consumer finds himself in Dante's third 
ring of hell. They push from voice-mail to voice-mail without 
ever getting a real person on the line. All they needed was a 
simple question answered.
    We hope that we provide that kind of answer, that kind of 
help to consumers because what we are finding is that we are 
not getting the kind of coverage that we would hope in State 
and local governments.
    Senator Bond. I think some of us in Congress are getting 
those calls as well.

                     MEASURING OCA'S EFFECTIVENESS

    Is there any measurement or any impact that you can 
identify that your agency has that others do not have? When you 
are providing information, I know it is difficult to determine 
what impact you are having. But have you developed any means of 
measuring the impact of your agency?
    Ms. Byrne. One of the things we have implemented with the 
HelpLine is a database that we can track people and how they 
are getting responded to. If we refer them to another agency, 
what was the response from that other agency?
    As the Special Assistant to the President, besides being 
the Director of the Office of Consumer Affairs, I head up the 
Consumer Affairs Council for all the Federal agencies and all 
their consumer components. I feed that information back to them 
so that they'll know if their agency has been doing a good job.
    We can measure now the outcomes which we were not able to 
do prior to my arrival, the outcomes of these calls that are 
being made. How many people actually got their money back? How 
many people actually got their question answered? How many 
people actually avoided a scam because that is the data that we 
are now keeping that we were not keeping 3 months ago.
    Senator Bond. We would be interested to see that 
information.
    But isn't the HelpLine duplicative of the GSA's Federal 
Information Center?
    Ms. Byrne. Mr. Chairman, when I served in Congress, I 
thought that they were the same thing. I really was not clear 
in my own mind what each did. But what I find right now is that 
the Federal Information Center is referring calls to us because 
they don't know what to do with them.
    Congressional offices are calling us because they don't 
know where else to turn. Also consumers are calling us because 
they don't know where else to turn.
    It is different to be a vocal yellow pages, if you will, 
for Federal agencies than it is to give help. It is my 
understanding that the Federal Information Service is a 
vocalized yellow pages for Federal agencies. If you know where 
you are going, you can get the right number.
    But most people, when they call for help, don't know who to 
call. They are swimming through the alphabet soup of Government 
agencies.
    Senator Bond. The FIC I understand has a staff of over 100 
personnel who are supposed to assist citizens with consumer 
problems utilizing the Consumer Resource Handbook. Are they not 
doing the job?
    Ms. Byrne. We have in our agency, in the Office of Consumer 
Affairs, over 25 to 30 years experience in every imaginable 
consumer issue you can think of. To have that kind of expertise 
willing to talk to consumers is much different than just trying 
to give somebody a phone number.
    I don't think the Federal Information Center is as 
equipped, just through lack of experience, to deal with these 
consumer inquiries. We have a very specific task.
    [The information follows:]

    U.S. General Services Administration Federal Information Center

         PROVIDING SERVICE TO CITIZENS AND GOVERNMENT AGENCIES
                              INTRODUCTION

    Established in 1966, the Federal Information Center (FIC) is a 
single point of contact for people who have questions about Federal 
agencies, programs, and services. The FIC currently responds to about 2 
million calls per year via its nationwide, toll-free number: 800-688-
9889 (800-326-2996 for TTY users). The FIC is open for public inquiries 
from 9 a.m. to 8 p.m., eastern time, Monday through Friday, except 
Federal holidays.
    The FIC program is operated by a contractor that maintains the call 
center in Cumberland, Maryland, and uses about 80 staff-years to 
accomplish its tasks. The program's annual budget is about $3.2 
million, or approximately $1.50 per call: This includes all contractor 
expenses, payments to FTS2000 for the `800' service, and Government 
support and oversight.

                          SERVICE TO CITIZENS

    The information specialists either answer directly, refer the 
caller to the correct office, or research the inquiry to provide a 
suitable response.
    The most frequent public inquiries have to do with workplace issues 
(safety, discrimination, wages, etc.), State-government matters, 
immigration and naturalization, Federal taxes, Federal employment, 
savings bonds, Government publications, housing-related concerns, FCC 
matters, and disaster assistance. Many other inquiries relate to such 
consumer matters as product safety and reliability, advertising, food 
products, banking, and motor vehicles.
    The metropolitan areas from which the largest number of telephone 
calls come are Los Angeles, New York, Miami, Chicago, Atlanta, Dallas/
Fort Worth, Houston, San Francisco, San Diego, and Tampa/St. 
Petersburg.
    The staff responds to 2-3 inquiries a day from Congressional 
offices who call for their constituents.
    Citizens may discuss their inquiries with senior staff members who 
have a combined total of decades of consumer contact and research 
ability. Citizens usually start their inquiries by talking to junior 
staff members who have been trained to differentiate between calls they 
should refer to the senior staff members and those they should answer 
themselves.
           a sampling of specific services to other agencies
    Copyright Office, Library of Congress.--Since about 1975, have 
distributed copyright forms to individuals and answered basic questions 
about copyrights. In fact, the FIC distributes more forms to 
individuals than the Copyright Office itself.
    Bureau of Land Management, Department of the Interior.--Since about 
1980, have assisted in the dissemination of information about the wild 
horse and burro program.
    U.S. Marshals Service, Department of Justice.--Started partnership 
in July 1995 to inform the public about acquiring property seized by 
law enforcement agencies. In December 1996, expanded partnership by 
including GSA's Consumer Information Center.
    Passport Office, Department of State.--In 1995 and 1996, expanded 
existing level of expertise on passport matters and responded to 
passport inquiries referred from the New York, Miami, and Seattle 
passport offices.
    Authentication Office, Department of State.--Beginning in November 
1996, expanded the assistance available to persons wanting information 
on certifying documents.
    Consumer Information Center, General Services Administration.--Have 
assisted in the distribution of the Consumer Information Catalog since 
1970. Beginning in January 1997, received requests for the Catalog on a 
separate toll-free telephone number.
    Travel and Transportation Policy, General Services 
Administration.--Starting in November 1996, have served as the main 
source for print or electronic copies of the per diem rates issued by 
GSA.
    U.S. Forest Service, Department of Agriculture.--In late summer of 
1995, removed excess workload from their campground reservation line by 
answering callers who were requesting information instead of wanting to 
make reservations.
                 reference materials in use at the fic
    Principal reference tool is the FIC's own electronic data base, 
which lists more than 100,000 points of contact (telephone numbers, 
addresses, electronic access) by agency and subject. The data base also 
includes the Catalog of Federal Domestic Assistance and many agency 
fact sheets. GSA and the FIC contractor are working with the Government 
Printing Office to place the FIC's data base on CD-ROM, sell it to the 
public, and distribute it to all Government Depository Libraries.
    Printed periodicals such as the Federal Register and the Code of 
Federal Regulations.
    Printed agency materials such as the Consumer's Resource Handbook, 
the Budget of the United States Government, and agency telephone 
directories.
    Printed materials from private sources such as the Encyclopedia of 
Associations; directories of key officials in Federal, State, and local 
governments; and directories that list foreign travel information.
    Regular and frequent use of government and private information 
accessed through the World Wide Web.

    Senator Bond. But you have had this HelpLine for how long, 
2 years?
    Ms. Byrne. Yes, sir.

                       CONSUMER RESOURCE HANDBOOK

    Senator Bond. You are proposing to expand substantially the 
1998 edition of the Consumer Resource Handbook. Why are you 
doing that? What precisely do you have in mind? What is the 
precise cost and who will pay the additional mailing costs?
    Ms. Byrne. We have proposed that we increase the number of 
printings for the Consumer Handbook, that we focus more on how 
people can get their questions answered through e-mail, through 
web sites. We have a whole, new, growing area of complaints, 
which is hardware. People's printers, people's computers don't 
work right. The help lines that are put up by these companies 
are not responsive.
    So we need to focus in on what is happening in the 
marketplace. That is our job. So we are going to expand those 
sections.
    Also there is consumer debt, how to avoid bankruptcy, the 
difference between a debit card and a credit card--this last is 
causing a great deal of confusion in the marketplace right now. 
These are areas that we want to highlight and expand in the 
handbook.
    We do it by asking other agencies who have interests here 
to help us with this. We have asked the Securities and Exchange 
Commission, through their efforts on decreasing consumer debt, 
to help us with those sections.
    This is a cooperative effort. But because we have been in 
the business for so long we know where to go to get the help 
within the Government. We also have a lot of support within 
industry and the marketplace in this product.
    So they are willing to help with the costs.
    Senator Bond. Do you accept corporate contributions for 
this?
    Ms. Byrne. We have a gift fund, as you know, ordinarily, 
and we would accept corporate help in producing and printing 
the book.

                 USOCA TRAVEL FUND FOR FISCAL YEAR 1998

    Senator Bond. Your testimony refers to the OCA's role in 
representing U.S. consumers in international fora. What 
international travel is planned for fiscal year 1997 and fiscal 
year 1998 and at what cost?
    Ms. Byrne. We have domestic travel to do seminars and town 
meetings at the cost of about $10,000 for the entire year. We 
have two international fora in which we participate, which is 
OECD. Right now we are working on international parameters for 
electronic commerce, so that when people step into this brave, 
new world of the Internet that we all think is coming, they 
will have a sense of security, trust, and safety about it.
    Right now, on the world marketplace that is not true. So we 
are looking at what we can do through these various mechanisms 
to enhance consumer safety in electronic commerce.
    Senator Bond. So what would be the cost of that?
    Ms. Byrne. That is $10,000 also. We are looking at like 
$20,000 in travel.
    Senator Bond. OK. Thank you.
    Senator Mikulski, have you any further questions?
    Senator Mikulski. No, Mr. Chairman. I look forward to 
working with our witnesses.
    Senator Bond. All right. Thank you very much.

                     Additional committee questions

    Our thanks to each of you for presenting your testimony. We 
appreciate it and we look forward to working with you all in 
the months to come.
    [The following questions were not asked at the hearing, but 
were submitted to the Office for response subsequent to the 
hearing:]

                  Questions Submitted by Senator Bond

    Question. How much are you spending on the HelpLine? Are the costs 
of the calls being paid for by the White House, or OCA?
    Answer. Calls to the National Consumer HelpLine through the White 
House telephone grid average $1,100 per month or a cost of $0.08 per 
minute based on the rate which was negotiated for all national 800 
number lines serviced under the carrier Sprint. The HelpLine is 
currently staffed four hours daily by full-time staffers on a rotating 
basis, for an average total of 2.5 FTE's. All costs associated with the 
HelpLine are paid with funds appropriated to USOCA.
    Question. OCA plans to expand substantially the 1998 edition of the 
Consumer Resource Handbook, Why is an expansion necessary, who has 
suggested you do so, what precisely do you have in mind, and what is 
the proposed cost? What will be the additional mailing cost? Do you 
have plans to reduce mailing costs, for example by using newspaper-
weight paper?
    Answer. The next edition of the Consumer Resource Handbook produced 
by USOCA will expand its Consumer Tips section to include information 
on dealing with child care as a consumer issue, more specific 
information on car leasing, home based businesses, investing and 
pension protection. Additional directory listings for computer and 
computer software companies will be included. E-mail addresses will be 
added to all listings when available. We will delete out-of-date-
information. The new listings are the suggestions from consumers, 
government agencies, and businesses. We do not anticipate a substantial 
increase in weight, therefore, the printing and mailing costs will be 
virtually the same as they have been for the last three fiscal years. 
Our mailing costs are controlled by CIC, but we continue to ``shop'' 
for the lowest price. The use of newspaper-weight paper had been tried 
in the past. USOCA received negative responses from the public because 
the Handbook is used as reference and needs to stand up to continued 
use.
    Question. Last year, we learned that OCA discontinued using the 
Consumer Information Center to mail out the Consumer Resource Handbook, 
at a cost of $2.52 per copy more than what it would cost using CIC. In 
fiscal year 1998, do you intend to use CIC to mail out the Handbook 
should the Congress agree that OCA retain responsibility for producing 
the Handbook?
    Answer. USOCA does plan to continue to use the Consumer Information 
Center in fiscal year 1998, as long as they can provide us with the 
lowest audited mailing prices.
    USOCA mails a few thousand copies at the first class rate in 
response to requests from Congress, Governors and Lt. Governors, 
Attorneys General, district offices of Congressmen and Senators and 
other officials, and corporate and community offices when they request 
rush delivery. This special service has been provided since Mrs. 
Virginia Knauer was the USOCA Director under president Reagan.
    Question. OCA has the authority to accept corporate contributions 
for the Consumer Resource Handbook. How much do you plan to receive in 
corporate contributions in fiscal year 1998? What did the contributions 
total in fiscal year 1996?
    Answer. Last September Congress eliminated USOCA's gift acceptance 
authority in the Omnibus Appropriations Bill. Currently, USOCA is in 
the process of regaining its gift acceptance authority through the 
President's Supplemental Appropriations Bill. When USOCA receives its 
gift acceptance authority USOCA anticipates approximately $100,000 from 
private sources.
    USOCA received $2,000 from private sources for the Consumer 
Resource Handbook in fiscal year 1996, before the gift acceptance 
authority expired. These monies cannot be spent until the gift 
authority is restored. Non-public funds were used to sponsor National 
Consumer's Week events around the country totaling approximately 
$25,000. USOCA utilizes in-kind contributions from various consumer 
organizations and private sources in partnership for consumer education 
events and conferences.
    Question. Your budget indicated you plan to revive the Consumer 
Newsletter. How much will this cost, and why is reviving this 
necessary?
    Answer. USOCA has over 10,000 names and addresses of grassroots 
consumer groups; national, state and local consumer organizations; 
businesses; government; and interested parties in its newsletter 
database. The Consumer Newsletter fulfills USOCA's mission by 
informing, educating and warning interested parties about issues and 
events they need to be aware of. In addition, consumers often want to 
know how USOCA views an issue, what other Federal agencies are doing 
about a particular issue and what's new on the consumer horizon. The 
Consumer Newsletter serves this purpose and helps reduce duplication of 
effort by other agencies. The estimated cost for a quarterly newsletter 
is approximately $30,000 per year.
    Should you require additional information please let us know. We 
will be more than happy to assist you.

                          SUBCOMMITTEE RECESS

    Senator Bond. This hearing is recessed.
    [Whereupon, at 10:30 a.m., Tuesday, March 11, the 
subcommittee was recessed, to reconvene subject to the call of 
the Chair.]


 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                              ----------                              


                        TUESDAY, MARCH 18, 1997

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:34 a.m., in room SD-562, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Campbell, Mikulski, and Boxer.

                  FEDERAL EMERGENCY MANAGEMENT AGENCY

STATEMENT OF JAMES L. WITT, DIRECTOR
ACCOMPANIED BY:
        GARY D. JOHNSON, CHIEF FINANCIAL OFFICER
        GEORGE OPFER, INSPECTOR GENERAL

                 OPENING STATEMENT OF CHRISTOPHER BOND

    Senator Bond. Good morning. The subcommittee hearing will 
come to order.
    The subcommittee meets today to review the budget request 
of the Federal Emergency Management Agency, and we are pleased 
to welcome the Director, James Lee Witt, and his team. Welcome, 
Mr. Witt. We appreciate all the work that FEMA has done to 
respond quickly to the most recent spate of disasters. As we 
all know, there were devastating tornadoes, flooding along the 
Ohio River, something we know too well just west of the 
Mississippi, and in the Northwest. I know that you personally 
have visited a number of the disaster areas. Our hearts and our 
thoughts go out to the victims of these disasters and we pray 
for the speedy recovery of their communities.
    FEMA is requesting a 1998 budget of $3.2 billion, of which 
$374 million would fund the operating programs, $100 million 
would fund the emergency food and shelter program, and $2.7 
billion would fund the disaster relief account. The amount 
requested for the operating programs represents a slight 
reduction below the current year, while the disaster program 
would increase $1.4 billion more than the current year 
appropriation.
    While FEMA's responsiveness is commendable, I do not think 
it has been balanced with fiscal responsibility. I continue to 
be very troubled by the management of FEMA's multibillion 
dollar disaster relief fund, which has never been audited, and 
I am very concerned about the request that is pending before 
the committee. Currently FEMA has more than 500 open disasters 
on the books dating back to 1989 with costs totaling $22 
billion. More than $4.5 billion remain to be obligated for 
these open disasters and this does not include the costs of the 
most recent Ohio flooding disasters and the tornadoes. This is 
a very significant amount of expenditures.
    The number of major disaster declarations in the 1992-96 
period has increased 54 percent above the preceding 5-year 
period and FEMA's calculation of 5-year historical average cost 
of disaster relief for fiscal year 1998, excluding the 
Northridge earthquake, is $2.3 billion, an increase of 28 
percent over last year's 5-year average of $1.8 billion.
    Now, FEMA has acknowledged that the escalation in cost is 
due not only to the increase in large-scale disasters, but also 
because ``The scope of Federal disaster assistance has 
expanded, the Federal role and response has expanded 
considerably, and State and local governments are increasingly 
turning to the Federal Government for assistance.''
    It seemed to me that FEMA has significant mission creep. It 
is no longer simply to come in when States and local 
governments are overwhelmed, which was the intent of the 
Stafford Act. Indeed, FEMA itself has said, ``The current 
system of disaster relief tends to discourage States and local 
governments from assuming primary responsibility for initiating 
appropriate mitigation, preparedness, response, and recovery 
measures before a disaster strikes.''
    And FEMA's role seems to be forever expanding, illustrated 
by the spate of disaster declarations for snow removal in the 
last 5 years. There have been no snow disasters declared from 
1979 to 1993, some 14 years, and there have been calls for FEMA 
to reimburse the State of New York for costs related to the TWA 
disaster.
    To my knowledge, the disaster relief program is the only 
program in the Federal Government that does not have to 
consider fiscal constraints whatsoever. FEMA's other programs 
do not compete with this program for funding, so there is no 
incentive within the agency to exercise prudent stewardship of 
this fund.
    When disaster relief funds have fallen short, Congress has 
responded quickly time and again to FEMA's request for 
additional funds in an effort to meet the needs of disaster 
victims expeditiously, and to provide this aid we have slashed 
low income housing and other programs to offset the costs. We 
have cut other VA-HUD programs totaling $8 billion under my 
chairmanship to pay for disaster assistance in the past 2 
years. Yet, we have learned that some of these funds have gone 
to such questionable projects as golf courses and the planting 
of shrubbery.
    Recently FEMA was, as we learned from the news media, 
considering expending $500,000 to replace a bottle village, 
which some have named folk art and others have called an 
eyesore, damaged in the Northridge earthquake and eligible for 
FEMA funding since it happened to be placed on the Register of 
Historic Places. I was glad to learn that Friday you made the 
right decision and decided against funding this project.
    Following the Northridge earthquake, about $400 million has 
gone to one university, UCLA, clearly an institution with 
strong revenue generating capabilities. We need to review 
whether we can continue to make such expenditures in this era 
of belt tightening.
    We have learned about some of these expenditures through 
inspector general's reports and press accounts since FEMA 
budgets do not provide documentation beyond very broad 
categories of the specific projects being funded. In fact, FEMA 
centrally has no information on the numbers, costs, or status 
of the public assistance projects currently underway. There are 
literally thousands of such projects underway.
    The Agency's responsiveness to disasters is truly laudable, 
and I join with others who commend you, Mr. Witt, and the 
Agency for moving quickly. But suggestions and even directives 
from Congress to submit proposals to reform this program to be 
fiscally responsible have gone unheeded or have apparently been 
treated someplace in the administration as low priority at 
best.
    In September 1993, the administration's ``National 
Performance Review'' report called for, by March 1995, a 
comprehensive plan, including proposed executive orders and 
legislation to develop objective disaster declaration criteria 
and comprehensive Federal policies to reduce the Federal costs 
of disaster assistance. To my knowledge, this commitment has 
been ignored.
    A series of GAO and inspector general reports have been 
issued over the past 2 years at the request of this committee. 
They have outlined a number of options for reducing disaster 
relief costs, including establishing more explicit and 
stringent criteria for providing Federal disaster assistance, 
eliminating public assistance grants for revenue producing 
private nonprofits, shortening the appeals process from three 
levels to one, making marinas, golf courses, trees, and shrubs, 
except in parks, ineligible, and clarifying the criteria 
related to the standards to which damaged facilities should be 
restored. For the most part, these recommendations have not 
been acted upon.
    Our efforts time and again to get this Agency to propose 
plans for implementing those recommendations and reducing 
excessive costs have been stonewalled. We discussed these 
issues in the hearings for the past 2 years. We have been 
through this before. This is not new. This is not a surprise. 
We included a requirement in the fiscal year 1997 committee 
report for a proposal for reform, including a request for 
necessary legislation, if that is required, and we included a 
statutory requirement in the fiscal year 1997 VA-HUD bill. To 
date, these directives have not been fully met.
    Now, we received a draft report on March 12 which was a 
about 45 days late in response to the statutory requirement in 
the fiscal year 1997 VA-HUD bill for a plan to reduce disaster 
expenditure. The report is still in draft form. It falls short 
of the mark and it outlines options. That is not what we had in 
mind. You knew and we knew what the options were. We do not 
need to be told what the options are again. We want specific 
suggestions and recommendations.
    In response to questions submitted at last year's hearing, 
you said:

    FEMA is committed to implementing all the inspector 
general's recommendations in principle. We believe that our 
disaster criteria initiative, which will contain disaster 
payment thresholds, as well as declaration thresholds, will 
comprise the major portion of reforms called for by both the 
GAO and the FEMA inspector general and lay the foundation for 
substantial long-term Federal cost share reductions.

    Now, the draft report is completely silent on the issue of 
disaster criteria. It does not propose an implementation plan 
for the inspector general's recommendations. It only repeats 
some of the options that the inspector general and the GAO have 
proposed in the past.
    The report does not address the issue of State cost shares. 
While States are required to cost share in the disaster relief 
program, I understand FEMA does not enforce its own regulations 
and require cost shares to be put forth at the beginning of a 
project. Apparently the State of California has not 
appropriated one dime--one dime--to match the $5 billion in 
FEMA-funded projects. Because the cost share is not required up 
front, the State has little incentive to control and reduce 
costs.
    In addition, last year we received testimony from the GAO 
that:

    FEMA's criteria for determining the extent of permanent 
restoration for public facilities and for determining the 
eligibility of certain private nonprofit facilities are 
ambiguous. FEMA relies on States to ensure that expenditures 
are limited to eligible items.

    Regrettably, I have seen absolutely no evidence that these 
massive loopholes have been closed.
    While some management improvements have been made in such 
areas as centralizing processing, reconciling the disaster 
relief fund so it can be audited for the first time in fiscal 
year 1998, and other administrative reforms which have reduced 
costs marginally, the commitments that have been made to us and 
that we have directed you to fulfill to address the disaster 
criteria have not been met, and the really hard choices have 
not been made.
    Let me be quite clear. I am a strong supporter of FEMA 
getting to a disaster site quickly and dispensing aid to needy 
individuals as soon as possible. I am a supporter of helping 
communities rebuild so they can get on with their lives. But I 
am not a supporter of using the disaster relief fund to gold-
plate revenue generating facilities and to finance golf courses 
in wealthy communities. And I cannot condone fiscal 
irresponsibility.
    Last year, at the suggestion and at the implied request of 
FEMA, we did go forward with some of the language that had been 
added in the Senate to limit disaster relief. Let me be quite 
clear, Mr. Witt. We expect you to come forth with a 
comprehensive plan. We want to know where it is, and if we do 
not have one in place by the time this bill comes out of 
committee, I will strongly consider working with my colleagues 
to implement our own system. Something has got to be done. You 
all have had a couple of years now since we started requesting 
and talking about this to come forward, and if you do not do it 
or at least suggest to us how it can be done, we may have to do 
it for you because the scope and the amount of these disaster 
requests is out of hand.
    Now, I am also very concerned about the supplemental 
request that we understand the administration will be 
submitting. It is my understanding that FEMA currently 
anticipates requirements totaling $2.9 billion in fiscal year 
1997. Yet, the administration will request about $1 billion, 
according to the latest rumors, of which some portion would be 
in a contingency fund. How we will pay for the supplemental and 
the additional requirements coming due in fiscal year 1998 
totaling some $5.9 billion will be an enormous challenge.
    There are also very serious problems with the 
administration's proposals for funding future disasters through 
a contingency fund. Mr. Witt, this is nothing but a gimmick. I 
could not take that to the floor with a straight face. My 
colleagues rightly would pound me about the head, and we expect 
better from OMB and from FEMA. This is a very irresponsible 
fiscal gimmick. The proposal to treat these funds off budget is 
just not going to work. The Congress has made its position very 
clear.
    The fiscal year 1998 5-year historical average annual cost 
to FEMA disaster relief is $2.3 billion. We know that close to 
this level of funds will be needed next year and these funds 
need to be budgeted.
    In addition, the contingency fund concept gives entirely 
too much discretion to the administration to distribute these 
funds with virtually no oversight of Congress. I have been in 
the executive branch, and I would love to have a honey pot to 
go around and hand out money. It makes you feel good. People 
love you. You come in town with free money, and it is great. 
Love to do that. Nothing is more fun. Unfortunately, that is 
not how Government should work. There should be explicit 
standards and criteria. We do not have those.
    We also have questions about the proposed $50 million 
predisaster mitigation fund you have requested. We have seen no 
details for this request or any proposal on how we would pay 
for it. Moreover, there is $1.4 billion in existing 
postdisaster hazard mitigation funds currently unobligated. So, 
there are significant questions about why States are not 
spending these funds and how the proposed new program would be 
more effective.
    There are a number of very important issues to be 
addressed, including the status of the flood insurance fund, 
the level of Treasury borrowing in that program, the future of 
chemical stockpile emergency preparedness programs, and FEMA's 
progress in developing performance measures for the States 
through performance partnership agreements and assessing 
States' capabilities in disaster response.
    In closing, Mr. Witt, you have earned well deserved 
accolades for the many improvements in FEMA's responsiveness in 
the last 4 years. You have done an excellent job personally and 
made great personal commitments to be there and to have your 
people on the ground, but the steps that we must take for 
fiscal responsibility are not there. They have got to be put in 
place, and I would hope that you would suggest to us and help 
us work out how they are put in place rather than have us do it 
a cappella because one way or the other, it is going to be 
done.
    I am now going to turn to my distinguished ranking member, 
Senator Mikulski.

                     STATEMENT OF BARBARA MIKULSKI

    Senator Mikulski. Thank you very much, Mr. Chairman.
    I want to welcome FEMA Director James Lee Witt. I want to 
applaud your work with streamlining FEMA and making it a more 
effective and efficient Agency.
    The chairman raises some very important fiscal questions, 
but I would like to go back to 5 years ago when FEMA itself was 
a disaster, when our readiness and our response was a national 
embarrassment. We were not ready in most States to respond to 
disaster. All 50 States were very uneven in their preparedness, 
and those often at most risk were the least prepared. We 
remember with great sadness what happened in Florida when the 
very nature of what occurred overwhelmed the capacity of even 
the Governor to estimate what damage that he had. Thanks to 
you, Mr. Witt, you then have made us fit for duty in readiness 
and response.
    But I recall that there were three R's to what we had 
talked about for FEMA. It was called readiness, response, and 
rehab. The rehab now is what is being discussed by the 
chairman, and I believe that those are very serious concerns.
    But I think we also need to note that it was under your 
leadership that many of the recommendations of the National 
Academy of Public Administration about how to improve FEMA in 
its work in saving lives and saving communities were followed. 
So, we thank you for implementation of the National Association 
of Public Administrators' recommendations about bringing down 
the artificial wall between the old cold war, civil defense 
approach and the new realities of a risk-based strategy.
    I believe that FEMA does do what it was supposed to do, 
which is save lives and save communities. Now we are called 
upon, because we have now done the first two R's and done them 
very well, to focus on the third R which is rehabilitation, or, 
in some instances, reengineering. In other words, in 
communities that are most at risk for flood or hurricane, what 
are the things that could be done beforehand that would prevent 
future disaster funds for request.
    I believe the chairman's concerns are valid and I think you 
would agree with them.
    But thank you for the first two R's, readiness and 
response, saving lives, saving communities. Now we will move to 
the issues related to rehabilitation and reengineering, if you 
will, of those disaster-prone areas, and we will come back and 
talk about that.
    I also want to talk about the issue of mission creep. I 
know that they are of concern to you, but I know that every 
time a disaster occurs, that FEMA is under tremendous pressure 
both from a Governor and its two Senators for you to show up, 
to be able to be there to provide disaster assistance. 
Everybody likes the photographs, the helicopters landing, going 
out there to show where people feel powerless, at least that 
our response is not.
    I believe that that is where that is coming when we talk 
about the lack of matching funds and so on. I believe there 
needs to be work done with the National Governors Association 
really on what are clear triggers that bring you in and also a 
real commitment on their cost sharing.
    The chairman's concerns are valid, but I believe you are 
placed under extraordinary pressure not only by the White House 
to respond with compassion and effectiveness, but by the 
Governor and the two Senators in those areas to really be able 
to do that. So, I believe that much work needs to be done, but 
I do not believe the work to be done is a one-sided effort.
    The other is this whole issue of what this committee has 
borne because FEMA is in it. We all recall after the tremendous 
problems in California, this subcommittee was called upon to 
fund the entire disaster relief and out of the HUD account. We 
never quite recovered from that in terms of our appropriations. 
Again, the chairman's concerns are quite valid, but I think we 
need to talk about not a honey pot, but really a specific way 
of having the resources that, therefore, are not charged 
against this committee.
    I like the chairman am very reluctant to put big ticket 
items off budget. I would agree that it should not, but I am 
not quite sure what is the best thinking because we cannot 
appropriate for every disaster that might affect the United 
States of America.
    I know Senator Glenn, when he chaired Government Ops, was 
looking at this. I would hope Government Ops would give us some 
recommendations as well as ours.
    I believe Senator Bond is quite serious when he says if you 
do not come up with the recommendations, we will. I would 
prefer we could do it together and that we could do it not only 
with OMB but with the Governors because I think now is the time 
to say thank you for response, thank you for readiness. Let us 
now go on to the rehabilitation aspects, and most of all, the 
other R which is called fiscally responsible. I think then we 
will really have had a holistic approach to this.
    Thank you and I look forward to talking with you about the 
national issues as well as some in Maryland.

         GETTING GOVERNORS INVOLVED IN DISASTER PROGRAM CHANGES

    Senator Bond. Thank you very much, Senator Mikulski.
    I would agree with you that the Director and the Agency 
come under great pressure not only from the White House but 
from Governors and Senators. There is nothing like having a 
solid wall behind you to stiffen your back and help you say no 
if we can get Congress to act, in cooperation with the 
administration and the Governors, on specific criteria. It 
takes some of the pressure off of Mr. Witt and the Agency.
    Senator Mikulski. That is right. Mr. Chairman, you were a 
Governor and by all accounts, a very excellent Governor. That 
is one of the reasons the people of Missouri sent you for your 
first term, and an excellent Senator why they sent you for your 
second term.
    I really do think the Governors have to come in on this, 
and maybe you and I could actually meet with them as well.
    Senator Bond. We will make a decision here that you and I 
will request of the National Governors Association their views 
on this. I will ask our staff to prepare that.
    Senator Mikulski. I think that will be excellent.
    Senator Bond. We will start with something, but we are 
really awaiting the word from the administration because you 
are the people who do it and you know how it works or does not 
work.
    So, with that, forgive me for taking up some time. Let me 
turn to Senator Boxer. Good morning, Senator Boxer.

                       STATEMENT OF BARBARA BOXER

    Senator Boxer. Good morning, Mr. Chairman. Good morning, 
Senator Mikulski, and good morning, James Lee Witt.
    I want to say that I have come to know James Lee Witt 
almost too well and his wonderful staff. It seems that we pick 
ourselves up from one disaster and we have got another one in 
my magnificent State, having gone through so many of these, 
both as a Member of Congress where I had one terrible 
earthquake in San Francisco where we are still picking up, if 
you will, the pieces because FEMA at that time simply did not 
have the ability to respond.
    I remember very well that when I came here, Mr. Chairman, 
the faith and trust in FEMA was almost nonexistent, and I have 
to say to James Lee Witt--and I know that not every single 
Senator is going to agree with you on every decision you make. 
No two people could agree on everything, and you and I have not 
agreed on everything either, of course, as I fight for my 
State. This is the natural course of events.
    What you have done for your country is just fantastic 
because you have taken an Agency that was in the depths and you 
have brought it up and you have made people understand that we 
can respond with a sense of fairness and a sense of urgency and 
a sense of efficiency.
    Mr. Chairman, I do not have a statement for you, but what I 
would like to do is respond to some of the issues that were 
raised, I understand, by you before I came in.
    I want to say something about earthquakes in general, Mr. 
Chairman. You and I have experienced floods in our States and I 
have had that awful experience. Earthquakes are very different 
than any other disaster because the damage is not readily seen 
at first, and that is the reason why we have moving estimates. 
That is the reason why Governor Wilson has not yet made the 
match because we still do not have the final answer on the 
number. So, these things happen and they look strange, but I 
would urge you to realize that it is a very, very different 
thing.
    If you look at the California Seismic Safety Commission, 
what they said about Northridge--and I will quote--``Much of 
the damage was hidden under fireproofing and finishes.'' So, 
you do not find out. You see a little crack. It does not look 
like anything and then you get in there and you realize the 
incredible damage.
    Also, on UCLA, it is, in fact, a public supported 
university and it is a major medical center, so it is a public 
institution.
    I would agree with you, Mr. Chairman. I voted for the 
McCain amendment to end the practice of funding golf courses 
and so on. I think we really need reform and I will join with 
you in doing that. You and I have gone through enough disasters 
to understand that we know who really needs the help and we 
want to be able to provide it.
    First of all, I am so privileged to be with both of you. 
You are such leaders in this area, and I hope that as a result 
of my experience I can help you and I can work with you in 
making the reforms we need and still be able to respond to 
people in need.
    With that, I want to say to you that what is very 
interesting in California now, people are talking in the flood-
prone areas about ways that they cannot rebuild in flood-prone 
areas. I think it is happening in California. People are 
realizing you just cannot keep going back and making people 
whole. We have to have policies here that recognize there are 
certain areas that you are never going to be able to secure 
from flooding and so on.
    So, I am very pleased and privileged to be on this 
subcommittee. I want to work with all of you and James Lee Witt 
the best that I can. I want to thank you very much for this 
opportunity.
    Senator Bond. Thank you very much, Senator Boxer. Certainly 
you have had the experience with disasters that exceeds that 
which we have had in our State, but we have had quite a bit of 
experience with it too. That is why we think the Agency is so 
important.
    Now we will turn to the leader of that Agency with all the 
attention. Mr. Witt, welcome.

                       STATEMENT OF JAMES L. WITT

    Mr. Witt. Mr. Chairman, members of the committee, thank you 
very much. I am pleased to be here with you this morning to 
discuss FEMA's appropriations. Also with me this morning is 
Gary Johnson, our Chief Financial Officer. I hope that together 
we can be responsive to your questions. We have a capable team 
behind us who can respond to any specific questions.
    Each year it seems like we start out at appropriation 
hearings discussing where we have been and what we have been 
doing. Mr. Chairman, you briefly laid out what we have faced 
over the last few weeks. I do not think I have ever seen a 
January like the one we had this year. We had floods in the 
West, in the States of California, Washington, Oregon, Idaho, 
and Nevada. At the same period, we had blizzards in the 
Midwest, tornadoes in Alabama and Georgia, preceding the floods 
in Ohio, Indiana, West Virginia, Kentucky, and Tennessee, and 
tornadoes in Arkansas. We had 59 fatalities in this last round 
of disasters.
    I will be brief so that we have time to answer your 
questions.
    I think, Mr. Chairman, that you and the members of this 
committee have seen the difference that mitigation makes in a 
community that has been hit by a disaster. The reason that FEMA 
is requesting $50 million for the predisaster mitigation 
program is to try to bring the insurance industry and local and 
State governments into the fold to help us to eliminate and 
high-risk areas. The fact that every $1 we spend in the area of 
predisaster mitigation can save $2 in future taxpayer dollars 
is well documented. I think that we need to change the 
direction we are going as far as dealing with disaster costs.
    I totally agree with your view that the costs of disasters 
have escalated and need to be controlled. We need to redefine 
what we fund and what we do not fund. We should target our 
funding to address the health and safety of individuals and 
communities. We will work with you and this committee, Mr. 
Chairman, to develop language for legislation in that area.
    The idea of reducing risk is very prevalent. I have talked 
to many Governors, including Governor Voinovich of Ohio, just 
this past week, Governor Underwood of West Virginia, the 
Governor of Tennessee, other Governors at press conferences and 
those with whom we toured communities. They all support 
preventive measures to keep from repeating disaster costs in 
communities where we can mitigate that particular risk. I think 
that is the direction that we need to head in.
    Disaster costs have escalated despite the fact that over 
the past 4 years, we have declared only 24 more disasters than 
during the previous administration. We have also denied 56 
requests for disaster declarations during that time period.
    Therefore, it is important that we look at the 
implementation of the disaster program and how we work with the 
States and local communities on predisaster programs. All of 
the staff and I recognize the need for a new direction, and we 
are working very diligently to make it happen.

                           PREPARED STATEMENT

    I am very proud of what we have accomplished to date, 
including the cost-cutting measures that we have taken. We have 
been very, very busy, and I do not apologize for what we have 
not been able to do. We are making a difference in communities 
as they rebuild and in people's lives. I am very proud that we 
have been able to cut costs related to the application process. 
I am proud of FEMA and I am proud of the employees. They are 
very dedicated and they work very hard, Mr. Chairman.
    [The statement follows:]

                  Prepared Statement of James L. Witt

    Good morning Mr. Chairman, members of the subcommittee. I'm pleased 
to be with you this morning to discuss the appropriation needs of the 
Federal Emergency Management Agency (FEMA) for fiscal year 1998.
    I am joined today by Gary Johnson, our Chief Financial Officer, and 
together I hope we can be responsive to any questions you might have 
regarding our request. Also with me are the rest of our executive 
management team who can help me in responding to specific questions, if 
needed.
    It seems that each year we are talking about incredible events that 
we could never forecast. In the past it has been historic flooding in 
the Midwest, a huge earthquake in southern California, a tragic bombing 
in Oklahoma City, or any number of hurricanes that have devastated 
parts of our east coast with troubling frequency.
    I mention all these events as ones we could not forecast. But just 
because we can't see an event coming doesn't mean we can't lessen its 
impact. We can make a difference. And it's my hope that in fiscal year 
1997 and fiscal year 1998, we at FEMA will begin to suggest a new path 
we can take.
    We need to do more, much more, from this day forward, to reduce the 
risks facing our communities. We can't stop an earthquake or a 
hurricane, but we can build better and stronger. We have to get this 
message across. We have to break this cycle.
    Disasters are no longer unusual or singular events. Their 
frequency, and their degree of devastation, demand that we raise our 
own expectations about what we can do. We need to set higher standards 
in building our communities. We have to make our mission of protecting 
public health and safety a shared goal. We can do better. And we know 
that.
    Yes, we do a great deal in the area of mitigation right now. 
Section 404 of the Stafford Act has been a great success in towns like 
Arnold, Missouri, Memphis, Tennessee and Miami, Florida. All of these 
places have suffered from devastating natural disasters and have 
undertaken mitigation measures to reduce the future risk to their 
communities. Actions including moving structures out of the floodplain, 
seismic retrofit of critical facilities and floodproofing of 
residences.
    But we shouldn't have to wait for problems to happen. While some 
FEMA programs already have made significant strides in mitigation 
ranging from our work on building codes to the U.S. Fire 
Administration's leadership on the use of sprinkler systems, much of 
our most significant work in reducing risks can only be triggered by a 
disaster. Foresight, planning, intelligent preparedness work, cannot be 
rewarded under our current disaster assistance program--nature has to 
force our hand.
    The strong message of what communities can do to strengthen codes, 
to make schools and public facilities safer, to lessen the impact of 
these events, has to be heard outside of this committee room, outside 
of the walls of FEMA, outside of the emergency management community, 
and insurance roundtables.
    The idea of reducing the risks has to enter the mainstream. No one 
knows better than the members of the appropriations subcommittees in 
each chamber, that the losses from recent disasters are neither small 
nor rare.
    That is why we are seeking $50 million in pre-disaster mitigation 
funding to begin a program of forging coalitions to create disaster-
resistant communities. And we do mean coalitions where everyone plays 
an important part.
    If pre-disaster mitigation is considered ``a FEMA program'', then 
it's a failure. This has to be a program that leverages the resources 
and energy of other Federal agencies, States and local governments, and 
especially the private sector, and brings them in as partners. They 
have to recognize their stake in this; they too have to provide the 
leadership.
    We believe many State and local governments are ready and willing 
to join us. The business community and the voluntary community are 
ready to join in. We think this program will demonstrate their 
commitment and resolve. It's my belief that this is the ultimate route 
for reducing disaster costs.
    We must continue to be good stewards of the funds you provide for 
disaster response and recovery. We must continue to re-invent the ways 
we deliver assistance that help to save resources and provide better 
customer service.
    But we also believe that pre-disaster mitigation, along with the 
enormous amount of post-disaster mitigation work we accomplish, is the 
path to increased safety and reduced costs. I hope you'll provide us 
the opportunity to continue these efforts.
    The resources you have already provided have allowed us to begin to 
provide important tools to State and local governments to assess their 
risks and to begin to establish a framework for building, and 
retrofitting, smarter and safer:
  --Just this month we have completed the initial development of the 
        first nationally-applicable tool to estimate losses from a 
        natural hazard (at this point, earthquakes, but we hope to make 
        this an all-hazard system) and to demonstrate the impact of 
        mitigation actions.
  --This year we will complete and issue nationally-applicable 
        technical guidelines for the seismic rehabilitation of existing 
        buildings--this is critical. For example, the replacement cost 
        for bridges averages about $135 per square foot, while the 
        retrofitting for seismic strengthening averages about $38 per 
        square foot.
  --This year, in partnership with the U.S. Geological Survey (USGS), 
        we will be issuing the 1997 update of the NEHRP (national 
        earthquake hazard reduction program) recommended provisions for 
        seismic regulations for new buildings. This update is 
        incorporating information based on new USGS spectral response 
        maps.
  --And this year we will continue our partnership work in developing a 
        proposed international building code. My visit to Kobe, Japan 
        following that devastating earthquake in 1995 impressed upon me 
        the need for international standards. We have much to share and 
        we also have much to learn.
    I have gone on at some length on the matter of mitigation, or risk 
reduction, because we at FEMA are not satisfied to pride ourselves on 
fast response or long-term recovery programs. We want to do less of 
that response and recovery business--and I hope every member of the 
committee will take this message back to your States and districts.
    You can provide the kind of leadership that will put risk reduction 
into the mainstream, to make it a fundamental part of community 
development and community life.
    This year we are asking for $2.4 billion for the disaster relief 
fund (DRF) to ``clean up'' all of our disaster requirements as we move 
into fiscal year 1998. That's a large sum, but it represents our 
estimate of the remaining costs of years of disaster activity. Such an 
appropriation would allow us to meet our commitments to hundreds of 
communities who are still recovering and rebuilding from the 
devastating impacts of disasters.
    Congress has been generous in providing assistance for disaster 
relief. But we all realize that being locked in a culture of 
supplemental spending is not a prudent approach for any of us who work 
in this arena. For this reason the President's budget proposes that 
Congress appropriate $5.8 billion as a contingency fund for the 
emergency requirements for disasters and designate that amount as an 
emergency funding requirement.
    These funds would be available only to the extent that the 
President designates them as emergency funding requirements and only 15 
days after notifying Congress that the funds have been so designated. 
This approach is similar to that taken by Congress and the President in 
the Emergency Supplemental Appropriations Act of 1994, Public Law 103-
211.
    This proposal is designed to avoid the numerous emergency 
supplemental appropriations that historically occur each year and would 
support the six agencies, including FEMA, involved with significant 
disaster responsibilities.
    I also want to report to you on the progress we have made in 
improving our disaster response and recovery programs. Since we met 
last year we have worked to implement the commitments we made to the 
committees. And we have taken actions on suggestions the committees 
have recommended.
    One significant area of improvement has been our ability to manage 
more closely disasters from previous years. These are the disaster 
events that initially persisted due to their scope and complexity, but 
then remained open far too long. You may remember I told the committees 
that disaster close-out was a top priority for me because of the 
potential cost savings.
    This effort is beginning to pay off. During the last year, FEMA 
closed out 16 disasters. Since February of 1994, we closed out 415 
human services programs, resulting in a reconciliation of more than 
$1.8 billion to the disaster relief fund from disasters declared as 
long ago as fiscal year 1975. Of the $1.8 billion reconciled, over $400 
million were returned to the disaster relief fund. This reduced the 
Federal Government's interest obligation accordingly.
    Our use of our 1-800 Teleregistration System has greatly reduced 
our costs to take an application for assistance. Where our on-site 
costs used to average close to $60 per application, teleregistration 
has brought that down to $19 per application.
    Along with, and as a result of our careful auditing practices, we 
have also been pursuing an aggressive debt collection process. Up to 
this point, we've collected close to $4 million in debts.
    We have taken all of these steps because we are aware of the 
obligations that come with the large appropriations that have been 
entrusted to FEMA. And the cost savings in these areas are an important 
part of the Government-wide effort to achieve the President's goal of a 
balanced budget.
    The recent draft report we sent to the committees on FEMA's 
improvements in financial management details the efforts we have made 
in grants management, non-specific disaster spending and additional 
steps we have taken to prudently manage disaster funds.
    We are streamlining our disaster relief procedures by proposing the 
elimination of one appeal level for the public assistance program. We 
are also making other procedural adjustments that will reduce costs now 
and in the out years.
    In fact, this year we are undertaking a complete reengineering of 
our infrastructure system. We are looking at it from start to finish to 
determine what parts of our program make sense and what parts need to 
be changed. This comprehensive approach will result in further 
improvements and savings.
    One of our logistics management initiatives has been the disaster 
information systems clearinghouse (DISC). The DISC deploys standard 
equipment packs to disaster field offices within 24 hours, recaptures 
the equipment after it is used at the disaster site, refurbishes and 
repacks it as necessary, and returns it to the inventory for the next 
disaster.
    Since August of 1995 through January of this year, the DISC process 
has filled orders for more than 4,400 personal computers, 900 printers, 
250 fax machines, and 2,800 cellular phones from disaster field 
offices. If this equipment had been bought new off the shelf the cost 
of just these four items, considered to be staples of the modern 
workplace, would have exceeded $10 million.
    Concurrent with that work, and in response to the appropriations 
conference report, I convened an Agency-wide task force which has been 
reviewing all aspects of our work and exploring areas where we can cut 
costs. Because of the significance of this project, I wanted to have 
our partners at the State and local level play a role in developing 
this report.
    But we can give you a few examples of some of the options we are 
considering with our State and local partners both in terms of 
regulatory changes at FEMA and legislative changes to the Stafford Act. 
Some of the regulatory options would propose to:
  --Eliminate eligibility of publicly owned facilities which are rented 
        out to private enterprise for revenue generation, including 
        sports arenas, commercial space, or industrial parks.
  --Eliminate funding for tree and shrub replacement. FEMA currently 
        has an interim policy that prohibits funding replacement of 
        trees and shrubs on otherwise eligible public properties. A 
        formal policy will be circulated to the States for review.
  --Eliminate building contents or cultural objects. Eliminate 
        assistance for cultural and decorative objects such as 
        paintings, statues, antique airplanes or trains or fire trucks, 
        etc.
    The legislative options discussed in our report would:
  --Abolish or restructure the community disaster loan (CDL) program. 
        Although used infrequently, the CDL often becomes a grant 
        rather than a loan because of the forgiveness feature. In fact, 
        $4 has been forgiven for every $1 collected.
  --Eliminate funding for revenue-producing publicly owned recreational 
        facilities such as yacht harbors, golf courses, and stadiums.
  --Require that all private non-profit (PNP's) applicants go through 
        the Small Business Administration (SBA) loan program prior to 
        applying for public assistance. This would encourage PNP's to 
        mitigate potential disaster losses and equalize the treatment 
        of private and public utilities.
  --Eliminate funding for rural utilities service electrical and 
        utility cooperatives due to their commercial nature and the 
        availability of rural utilities service or Small Business 
        Administration loans. Since the cooperatives are eligible to 
        obtain loans, they should be required to do so first, rather 
        than automatically qualifying for a grant.
    These are all options that should contribute to an informed public 
dialogue on disaster costs. But it should be remembered that the report 
has one strong conclusion that harkens back to the mitigation message:

          If the only solutions implemented involve shifting the burden 
        within the society rather than a reduction of actual risk of 
        loss, everyone--taxpayers, insurance policy holders, municipal 
        bonds, etc. will lose.

    Moving from theory to the all too real world, it has, once again, 
been a very difficult year in natural disasters. The hurricane season 
was severe once again, with Hurricane Fran being especially widespread 
in its impact. And we also experienced more State-wide flooding in 
California and an extremely harsh winter in the Northwest that 
compounded problems from the flooding of the previous year.
    There are other commitments from last year that we have kept that I 
would like to review. As promised last year, we have published for 
comment a proposed rule addressing eligible costs for snow emergencies. 
Based on the comments we have received and the recent experiences in 
several States, we will likely publish a new proposed rule in the near 
future.
    Fortunately, this winter has not been as severe in the East as the 
last, but we have had important snow declarations in Minnesota and the 
Dakotas that have been, perhaps, even more extreme.
    In these snow declarations we have maintained our policy of only 
clearing primary routes to protect public health and safety. We have 
also worked to hold States more accountable for their work in disaster 
preparedness and response and recovery work. The steps they have taken 
in self-assessment of their programs is helping to establish a clear 
base-line of capabilities at the State level.
    Additionally, our new budget will, as in fiscal year 1997, continue 
to support State Hazard Mitigation Officers. Again, this consistency 
will help to bring the emphasis on risk reduction into the mainstream. 
And this work is taking place within the context of the Performance 
Partnership Agreement (PPA). The PPA has streamlined our assistance to 
States and has simplified our processes and encouraged State 
initiatives.
    I will also continue to work with EPA and DOT to have all of us 
work closer in the area of hazardous materials. The more we can mesh 
our efforts, perhaps even consolidating our funding streams, the better 
it will be for the States and the front line responders.
    My earlier discussion on building hazard-resistant communities 
should sound familiar in some respects, because it is building upon 
another Governmental success story: the National Flood Insurance 
Program.
    Both the compliance provisions of the Flood Reform Act of 1994, and 
our own ``Cover America'' marketing campaign have moved us up to nearly 
3.5 million policies in place.
    The coming year will bring forth more information, from studies 
that the reform act mandated, to tell us what we can do with rate 
structures, and what the impacts of any changes would be to communities 
and the program itself.
    But even in a time of higher borrowing by the flood fund, it is 
important to ask what the Nation's resistance to risks and disasters 
would look like without the NFIP? It would mean no flood maps, little 
mitigation, weaker codes, bad zoning, more Federal disaster spending, 
and more private and public losses of all kinds.
    The NFIP is, in microcosm, an example of risk reduction as a 
mainstream approach: policies that are sold by local agents, policies 
that are required by local lending institutions, and communities that 
enforce sound flood plain management in exchange for the availability 
of affordable flood insurance.
    This budget for fiscal year 1998 also contains a request for $100 
million for the Emergency Food and Shelter Program. At a time when 
great changes are affecting national social service programs it is 
vitally important that a supplemental program such as EFS, that assists 
the private non-profits ability to provide emergency help, be 
maintained at this level.
    As with our other efforts, the EFS program encourages coalitions 
within communities and leverages funds to help people in greatest need.
    I am also concerned with the health and safety of our employees 
nationwide and you will see line items that reflect this concern.
    Throughout these constant challenges of hard work and long hours 
under the most difficult conditions, FEMA employees performed with 
dedication and grace. One of the most pleasant parts of my job is 
reading the customer service surveys that disaster applicants fill out. 
Their level of satisfaction is extraordinarily high, but it's the 
personal touches that grab my attention.
    On many of these surveys, people take the time to tell us that not 
only was their service swift, but it was sympathetic and courteous. 
That people were treated with dignity. FEMA employees put a good and, I 
believe, true face on Government service. I'm very proud of that.
    In summary, this year's budget is not a wish list, but operates 
within budgetary constraints. It is a prudent and sensible spending 
plan that looks to the future rather than holding on to the past. It 
has one message:
    We can't go on as we have; from this day forward we have to start 
reducing the risks we face.
    During my tenure at FEMA the appropriations committees have not 
simply provided us the resources to do our job, but have offered the 
encouragement and support that have heightened our morale and 
contributed to our success. On behalf of all the employees at FEMA, I 
thank you for that support.
    I hope that in fiscal year 1998 we can continue that tradition.
    Thank you for your time and attention. I'd be pleased to answer any 
questions you might have.

                     STATUS OF DISASTER RELIEF FUND

    Senator Bond. Thank you very much, Mr. Witt.
    Let me turn to the status of the disaster relief fund 
first. What is the current balance in the disaster relief fund 
and when do you project the fund will be depleted?
    Mr. Johnson. Mr. Chairman, as of last Friday the 
unobligated balance in the disaster relief fund was $2.295 
billion. Without the assistance that is included in the 
supplemental request pending at the White House, we would 
project right now that we would be unable to meet obligations 
this year by about $442 million. Without the supplemental 
appropriation, we will be forced sometime this spring to 
revisit how we allocate our moneys for our public assistance 
type projects to ensure that we have dollars available to meet 
individual victims' needs.
    Senator Bond. With almost $2.3 billion you would run out 
this spring?
    Mr. Johnson. We estimate that by the end of the fiscal 
year, Mr. Chairman, we would be short $442 million to meet 
obligations against requirements. By spring, we would have to 
begin to adjust how we would allocate money to the open 
disasters to ensure that we have dollars available for 
immediate needs of victims.
    Senator Bond. Mr. Witt, why are the current projections 
exceeding the projections contained in the congressional budget 
justification which showed a yearend carryover of $100 million? 
Are the most recent spate of disasters the reason?
    Mr. Witt. I think so, yes, Mr. Chairman.
    Senator Bond. It's not Northridge?
    Mr. Witt. Yes, sir; partly.
    Senator Bond. How much has that Northridge estimate gone up 
this year?
    Mr. Johnson. Mr. Chairman since the budget submission was 
forwarded to you, the obligations and projections for 
Northridge went up about $200 million.
    Senator Bond. What is required to meet the cost of all open 
disasters and those projected for the balance of the year? In 
other words, to wipe the slate clean, what is your best 
estimate of the total amount needed? And will the 
administration request this amount in the supplemental?
    Mr. Witt. I believe, Mr. Chairman, it was $2.4 billion when 
the budget was submitted.
    Senator Bond. $2.4 billion?
    Mr. Witt. Yes, sir.
    Senator Bond. I had heard the current reestimate was $2.9 
billion.
    Mr. Johnson. That's correct, Mr. Chairman, based on more 
current forecasting that we have done since the budget request 
was prepared. It has escalated up to about $2.9 billion.
    Senator Bond. Since we have not gotten the supplemental 
request yet, can we expect that $2.9 billion will be in the 
supplemental request?
    Mr. Johnson. No, Mr. Chairman. I do not think you will see 
that. I think you will probably see a supplemental request on 
the order of $979 million. The rationale for that is that they 
are looking toward our budget request for fiscal year 1998 of 
$2.4 billion to address prior year requirements, along with the 
$320 million requested for 1998 requirements.
    Senator Bond. Well, there are going to be needs for 1998 
too. Why do we not go ahead? We know it is there. It does not 
make a lot of sense to me that we put off to another year--
where we are going to have tremendous budget pressures--the 
request for the things that you know you are going to need now. 
That just does not make any sense.
    Mr. Witt. I think OMB had intended that the central fund 
would help meet those requirements in 1998.

     estimates for recent ohio river flooding and tornado disasters

    Senator Bond. Oh, yes; that is the contingency fund? Take 
it off budget. Yes; that will work.
    What is the status of the most recent Ohio River flooding 
and the tornado disasters? Do you have any cost estimates on 
this?
    Mr. Witt. No, sir; the water has just now receded and we 
are following through with the preliminary damage estimates for 
public assistance. I do not have the total figure for the 
checks that were sent out for individual assistance programs 
yet, but we will provide it to you with the estimates on the 
public assistance.

                          COSTS FOR NORTHRIDGE

    Senator Bond. Can you give us some idea why the cost 
estimates for Northridge have increased from $6.1 billion a 
year ago to $7.8 billion? Senator Boxer touched on some of 
these. I would appreciate any expansion that you would like to 
make on that.
    Mr. Witt. The cost has increased because of the findings of 
the architectural and engineering studies completed for the 
rebuilding of large projects. It has become very evident that 
when we gave the early estimates on Northridge the extent of 
the damages was hidden. The actual cost of repairing those 
buildings that were condemned or red-tagged in California is 
much more than we had anticipated.
    For example, when I was at Cal State University, workers 
removed sheetrock from the wall and it revealed 6-inch steel 
torn in half in the foundation of the building. Of course, we 
could not know the extent of the damage until it was torn out 
and the foundation examined.
    Senator Bond. Thank you, Mr. Witt. We will come back later.
    I turn to Senator Mikulski.

                         FUNDING FOR DISASTERS

    Senator Mikulski. Thank you very much, Mr. Chairman. I have 
a set of questions I would like to ask, one of which, of 
course, goes to the Maryland situation.
    First, let us talk, though, about some national issues. How 
do you best think we need to fund disaster relief? This is not 
a general question for a general answer. You focused on this. 
You see how OMB is essentially pushing this over for a few 
years, but essentially how do you think we should do this? Or 
if you do not have a recommendation specifically today, what do 
you think you will be able to tell the committee on how we 
could be able to do that?
    Mr. Witt. In light of the data my staff has put together 
regarding historical averages faced over the past years, we 
have determined that the 5-year average cost, less Northridge, 
has been pretty consistent.
    I think it is very important that we not only have the 
funds to be able to respond and recover, but as the chairman 
said earlier and as we all agree we have to get control of the 
cost of disasters. We all need to sit down realistically and 
say ``This is what is going to be needed to address future 
disasters.''

                          DISASTER CLOSE-OUTS

    Senator Mikulski. But what is the process by which we are 
going to arrive at this? Are we going to have clear criteria 
for what we get into, specific cost sharing by the States, the 
issue related to rehabilitation? I understand there are 500 
open disasters currently on the books, some dating back to 
1989, some small, but they are not small if you have been hit 
by a tornado. Are they open because of the ongoing 
rehabilitation efforts?
    Mr. Witt. First of all, it has been a top priority of mine, 
of our Chief Financial Officer, and of the inspector general to 
close out the old disasters. Gary, what is the total to date 
for disaster close-outs?
    Mr. Johnson. $1.8 billion in human services programs with 
recoveries of over $400 million back into the fund.
    Senator Mikulski. I did not understand that answer, sir. I 
am sorry. The microphones are----
    Mr. Witt. We have closed out over 100 old disasters that 
were opened back in the 1970's during Hugo, and other 
disasters. We have also put a top priority on reconciling the 
disaster fund, and Gary has done a really great job on this.

               CRITERIA FOR REHABILITATION FROM DISASTERS

    Senator Mikulski. Let us then go to the whole issue of 
rehabilitation as compared to reengineering. This seems to be a 
subject of great dispute about what do you rehab to. Do you 
rehab to its former state? Do you say that if a hurricane hit 
your very expensive project but not a project necessarily to 
declare health, safety, economic viability of a community? What 
do you think should be the criteria for the rehabilitation 
expenditures, and have you been involved with HUD in this 
because I understand that is also one of the dynamics? What is 
HUD's criteria for that?
    Mr. Witt. FEMA's criteria is if a structure has suffered 
more than 50 percent damage, then we do a cost-benefit analysis 
to determine whether it is realistic to repair that structure 
or to rebuild that structure. In most cases, it has proved to 
be better to rebuild it rather than repair it, particularly if 
it is a high-risk facility such as one that has never been 
retrofitted against earthquakes, or one that is located in a 
floodplain.
    I have not worked with HUD regarding their criteria, but I 
will be happy to talk to Andrew and work with him on this 
issue.

                      FLOOD MITIGATION IN MARYLAND

    Senator Mikulski. Well, Mr. Director, I am very proud of 
what happened in Maryland after the disaster--first of all, 
during the disaster when we were hit by so much floods in which 
the Potomac overflooded, businesses were wiped out along the 
Potomac. There is one area in Cumberland that was so 
heartbreaking in which three automobile dealers that were lined 
up one after the other lost their entire business and 
inventory, and our readiness and response really did save 
lives. And we thank you for your response.
    Also, as you know, the Hagerstown water supply went out. We 
had to take in water by the National Guard to make sure that 
nursing homes, schools, and others at risk had fresh water.
    After the flood, at my request Governor Glendening 
established a flood mitigation task force, chaired by the 
Speaker of the House, cochaired by the Army Corps of Engineers, 
and Maryland Emergency Management to look at what could be done 
so that we would not be faced with such dire economic impact 
again on local communities. I believe that that is a model 
where local people, working with Federal resources, came up 
with a series of specific recommendations on how their home 
would not be flooded out, their business would not be flooded 
out, and the community would be safe.
    What I would like to know is then what is your response to 
even the procedure that we did? Do you think that is a national 
model?
    And then No. 2, based on that, what do you think you could 
do to respond to Maryland and what criteria you would be using 
to save lives, save communities, but then ultimately, so that 
if we ever have those terrible floods again, we do not have to 
turn to FEMA because of the homework and Federal investments we 
are making now.
    Mr. Witt. The flood task force that Governor Glendening put 
together and that we all worked on is a very good example of 
what needs to be done nationwide, not only to address floods 
but to address whatever risk a particular State is facing. The 
ideas works very well in conjunction with what FEMA wants to do 
with hazard mitigation in developing disaster-resistant 
communities. If we can identify high risks up front and start 
eliminating those risks before a disaster happens, then the 
cost of a disaster when it happens will be less. This is 
something that has been proven time and time again. So, it is 
important that we try to cut the cost by cutting the risk.
    I have had round table discussions with private industry, 
including mortgage lending institutes, and representatives from 
the insurance industry. They want to start investing in 
communities by helping to eliminate the risks faced by those 
communities. It is to their benefit as well as the economy of a 
community. We can do a lot working together on these task 
forces and I think it will make a significant difference in the 
long term.
    Senator Mikulski. Well, Mr. Witt, I have met with those 
families. I met with the business people and said we would do 
all we could not only to get them back on their feet but that 
they would not face these terrible risks again.
    I met with a mother whose family nearly lost their lives 
and promised that mother--and the little boy lost his catcher's 
mit, but happy that we did not lose his life--that we would 
take specific steps along the Potomac, whether it was related 
to the relocation of housing, whether it was also retrofitting 
a water plant.
    What do you see as your criteria for responding to that? In 
Maryland what projects do you think could be pursued to do this 
type of reengineering and rehabilitation?
    Mr. Witt. My staff met with Dave McMillion this week on the 
task force recommendations regarding mitigation activities for 
Maryland. The criteria for any mitigation project is whether it 
is cost effective to do this. Does the cost analysis support 
the activity?
    The criteria for establishing the disaster-resistant 
community concept is very similar to what we have in the flood 
insurance program. We have 18,000 communities that belong to 
the flood insurance program, but those communities that belong 
to the program have to comply with building standards for 
future building in that community. If you can get a community 
to build better and safer, complying with standards established 
to be a disaster-resistant community, this would make a 
difference.
    Senator Mikulski. So, we can look forward to help in those 
areas related to housing, the issues relating to waterproofing 
the wastewater treatment program, and issues like that?
    Mr. Witt. The projects that they presented to me in the 
report I read were very good projects, and they showed that it 
was cost effective to do those projects.
    Senator Mikulski. Thank you, Mr. Chairman.
    Senator Bond. Thank you very much, Senator Mikulski.
    Senator Boxer.

                           HAZARD MITIGATION

    Senator Boxer. Thank you, Mr. Chairman.
    Mr. Witt, I understand that the largest single cost to FEMA 
has been public building repairs from earthquakes, and we 
discussed that a little as to the fact that they're hidden at 
first and once you get behind the sheetrock, it's a nightmare.
    The President has proposed in your budget a $50 million 
program to work with State and local agencies--and this may 
dovetail on what Senator Mikulski was talking about--on steps 
to lessen the damage in future disasters--this mitigation idea. 
Has your experience with Northridge helped shape this program, 
and if so, in what way?
    Mr. Witt. Absolutely. If you remember, prior to Northridge, 
the State had a program that they were working on to retrofit 
the bridges in California for seismic resistance. Every single 
bridge that they had already retrofitted stood up to the 
earthquake. The bridges that had not been retrofitted 
collapsed. The cost of rebuilding those bridges--that 
infrastructure--was very, very expensive.
    Even the public buildings that had been retrofitted and the 
private buildings that had been retrofitted to the new 
California building code survived that earthquake with very 
minimal damage.
    Another good example is that house in Hollywood. Every 
house on the block had major damage or was almost destroyed 
except one. The owner spent $1,000 on that house, doing the 
work himself. He never even had a single pane of glass broken 
in his house. He did not even have to ask for any assistance. 
That is the type of thing that can make a difference.
    Senator Boxer. I hope also what we do through these 
programs is let the States know that we want them to pay 
attention to this and not leave the deadline wide open because 
the States have to work with us on this because as Senator 
Mikulski has talked about, we have these disasters that we do 
not close out. I just do not think it is a message we want to 
send. I think the States, even though it is hard, have to come 
with a match. Of course, it is small compared to what they are 
going to get out of it, but we have to have some reasonable 
expectation that by a date certain, they are going to apply for 
this program. Do you not agree?
    Mr. Witt. Absolutely. California is a good example. The 
State of California has not only been hit by earthquakes but 
fires and three floods. The State staff has been overwhelmed in 
California.
    But what we are doing now is important. Last year you 
appropriated $3 million to support State hazard mitigation 
officers to work on mitigation projects. We are also working 
with the States to put in place a statewide mitigation plan 
which will prioritize mitigation projects before a disaster 
ever happens. That will make a significant difference. Instead 
of a State having to establish a hazard mitigation team and 
then follow through trying to prioritize projects, we will be 
able to help a great deal.
    Senator Boxer. Good. One second.
    [Pause.]

                    DISASTER COST-CUTTING PROPOSALS

    Senator Boxer. I wanted to just make sure that I remembered 
this correctly. A couple of years ago we passed an amendment 
that I wrote in EPW that gave States permission to use their 
highway funds for retrofit prior to a disaster. So, we are 
trying to help. In other words, if we can get those highway 
funds on a regular basis used to retrofit highways and bridges, 
it is going to be a big help, and we are starting to see that 
happen in California.
    Well, I understand you will be presenting a number of cost-
cutting proposals as part of your recommended changes to 
disaster legislation. Senator Bond and I both serve on the 
Environment and Public Works Committee which has jurisdiction 
over this legislation. Without telling us all the different 
things that you are doing, at what point do you expect to have 
this legislation ready for us to take a look at?
    Mr. Witt. I am going to have it in the chairman's hands 
before this bill goes to the floor.
    Senator Boxer. So, you expect soon?
    Mr. Witt. Yes; I will see to it myself.

            DISASTER ASSISTANCE FOR RECREATIONAL FACILITIES

    Senator Boxer. OK.
    My last question had to do with the recreational 
facilities. As I mentioned in my opening remarks, I feel that 
Senator Bond has hit on a very important point. We have so many 
things we need to do and then we look at some of the more 
frivolous things that we perhaps do.
    However, I want to make a point that if something like the 
Los Angeles Coliseum which is a publicly owned facility is hit, 
that becomes a major economic loss to a community. So, I am 
just hoping that as you look at these areas where we can save 
funds, we just cannot say all recreation because in many cases 
these sports facilities are economic engines for communities 
and they are publicly owned. So, I hope that there would be 
some discernment when we look at the whole area of recreation.
    Mr. Witt. Authorization for types of spending from the 
disaster relief fund has changed over the years.
    I agree with the chairman that it is time to revisit this 
area. I think if it is a revenue-producing entity, such a 
publicly owned piece of property that is rented out to a group 
that is operating that facility, then that group needs to look 
at getting a low-interest SBA loan. I think we seriously should 
look at that.
    I think we should concentrate on the health and safety of a 
community and of individuals. I think that is absolutely 
essential and should come first.
    Senator Boxer. Thank you.

                            DISASTER APPEALS

    Senator Bond. Thank you very much, Senator Boxer.
    Mr. Witt, going back to your discussion with Senator 
Mikulski about the open cases, I gather a lot of these are kept 
open because there are three levels of appeals for disaster 
projects and for disasters. Apparently there is no disincentive 
to States to continue to appeal and appeal and appeal. No. 1, 
they have three levels. Why is any more than one needed? What 
percentage of appeals are sustained? What additional cost? 
There has got to be a way we can clean this mess up, is there 
not?
    Mr. Witt. Mr. Chairman, I totally agree with you and with 
the inspector general's report on this. We want to have one 
level of appeal. I was astounded to find, Mr. Chairman, that we 
pay for the appeals.
    Senator Bond. So, it is a free bite at the apple. You can 
keep coming back and going and going and going.
    Mr. Witt. There is no disincentive at all. If a State loses 
an appeal, it should pay for it.

                           SEISMIC ALGORITHM

    Senator Bond. Somewhere along the line, there is the 
beginning of some criteria on that.
    Let me jump back to one on this seismic algorithm. I am not 
sure I understand what a seismic algorithm is, but I gather it 
has cost us about $900 million because the program was designed 
to expedite disaster aid, and instead of just repairing the 
damage, you have said the funds can be used for an improved 
project involving construction of a new building on a different 
site.
    Under what authority did you implement the program? Do you 
think that FEMA can create without congressional authority the 
opportunity to launch a major new project like this? Does 
Congress not have a role to play in establishing a brand new 
program like this?
    Mr. Witt. Yes, sir; Mr. Chairman. I did not do it to 
circumvent anything that Congress had not approved. The 
algorithm is basically an outgrowth of what we have in place 
with the mitigation program. I did coordinate the concept with 
the inspector general and with our General Counsel to make sure 
that I did not violate any laws, and they assured me that I was 
not doing so.
    The algorithm was put in place to evaluate whether it was 
more cost effective to do an alternate project than it was to 
rebuild the existing project.

               DISASTER ASSISTANCE FOR SPORTS FACILITIES

    Senator Bond. Let me go to disaster criteria. My colleague 
from California mentioned possible damage to the Los Angeles 
Coliseum. If that were completely wiped out, I think it would 
cost less than what we put in to UCLA by about a factor of 
five.
    But we have some brand new sports facilities in St. Louis, 
marvelous facilities. We even imported a California quarterback 
to try to improve the performance there. [Laughter.]
    These are revenue-generating facilities, and we live along 
the New Madrid fault. You are well aware of the New Madrid 
fault.
    Before something happens to a sports facility anywhere, do 
you think it would be proper if we met with the Governors 
administration and said to those local organizations, 
governments owning sports facilities, you better have 
insurance, you better take some steps to cover them because in 
the future if one of these major revenue facilities comes 
tumbling down, we are not going to be able to provide the 
relief to the otherwise incapable of paying for it? Is this 
something that you would recommend?
    Mr. Witt. I totally support that, Mr. Chairman.

                    TIMETABLE FOR DISASTER CRITERIA

    Senator Bond. I have a list of all of our discussions. When 
we asked about formulating disaster criteria, you said we are 
pretty close to having something concrete. In last year's 
questions, you said we are--2 years ago, we are going to define 
objective criteria. In September 1996, you said that FEMA is in 
the process of developing a new approach. We intend to present 
options early in the 105th Congress.
    Having these things as we go to the floor may not be early 
enough. Where are they and will they include criteria to ensure 
that States use their own capabilities to handle disasters not 
declared by the President?
    Mr. Witt. Yes, sir; they will.
    Senator Bond. And when do you think we might see those?
    Mr. Witt. Mr. Chairman, if you want it before it goes to 
the floor, I will do my very best to get it to you.
    Senator Bond. We have been asking for this, and seriously, 
if we are going to work on this, we ought to work on this at 
the committee level. I do not want to write this. I do not want 
the committee to have to write this. We have been called on to 
do enough legislating, but if we are going to have to do it, I 
would like to have that before we go to markup so we can see 
your recommendations.
    Mr. Witt. OK.
    Senator Bond. Thank you, Mr. Witt.
    Senator Mikulski.

                       INSTITUTIONALIZING REFORM

    Senator Mikulski. Mr. Chairman, I have only a very few 
questions.
    What we are trying to get here is a momentum. I will tell 
you the objective that I see is, No. 1, I would like to be able 
to institutionalize the reforms that came under your 
administration. Because this committee is spread out over such 
a wide variety of authorizing committees, this might with some 
consensus be able to institutionalize those reforms.
    The second part of that is I believe is both the disaster 
contingency fund, which is a significant issue, and then the 
difference between rehabilitation, restoration, and 
reengineering for want of another word. After the flood waters 
go down, after the hurricane debris is picked up, after the 
earthquake and aftershocks are over, what do we do?
    I recall when we were dealing with the San Francisco 
earthquake, the whole idea of restoration of some historic 
buildings was so phenomenal that it would have been difficult 
to undertake. Therefore, that is different from rehabilitation 
to make sure that housing for ordinary people or small 
businesses are helped back in business. So, you see 
rehabilitation is an issue.
    The second is restoration and then the third is what are 
the steps that we could take during rehabilitation that really 
prevent some of the risk-prone aspects from--in other words, 
where we know there is risk, where we know that a facility is 
risk prone, either through engineering, relocation, all those 
techniques that the corps and others can tell us that we can 
take so in the process of rehabbing, three raindrops later we 
are not back in the flood business. I am not being cynical 
here.
    I think that last part takes a lot of clarification because 
what we face is where people want restoration. In many ways, 
that is just not fiscally possible.
    No. 2, even though some projects are desirable from a local 
community's standpoint, they might not be fiscally feasible 
from a Federal standpoint.
    I know during the last debate, Senator McCain showed great 
sensitivity to Maryland when we were talking about marinas. 
Some marinas are private yacht clubs, and I am sorry if anybody 
loses their yacht. But in Maryland those marinas were small 
business, primarily small boats or where watermen keep their 
boats and so on. So, you see, part of it is not to describe 
something like a marina, but it is: What is the impact on the 
local community? What is the real economic impact? If you take 
20 of those marinas and knock them out up and down the 3,000 
miles of the Chesapeake Bay, that is not a big ticket item, but 
that is 20 small businesses.
    Anyway, that is the kind of criteria that we are looking 
for. One, what brings you in? What do you pay for it once you 
do come in? And No. 3, once the emergency is over, what 
business is FEMA in? Rehab, restoration, reengineering, all of 
the above, none of the above, and so on. This is a great 
opportunity to institutionalize reform and lay the groundwork 
for others.
    I know that you have been out on the road. It has been an 
enormously trying time for you and a great sacrifice for your 
family too, to just have to be able to pick up and go. I just 
want to say thank you.
    Do you have any comments you want to make on what I have 
just said?
    Mr. Witt. I think it is very important to develop the 
disaster criteria and that is what we are trying to do. Mr. 
Chairman and members of the committee, I blame no one but 
myself for not having everything done on time. What Senator 
Mikulski is talking about is important, that legislation be put 
in place so that whether I am here at FEMA or someone else is 
here, that something is institutionalized. I wholeheartedly 
agree with you, Senator. We have to do this.
    Senator Mikulski. I think you really need to task a group 
within your organization to do this for whatever is your own 
management mechanism and to work with us, and then we will be 
consulting with the House. You have got three of us 
particularly with the chairman of the House committee, Mr. 
Bond, and myself are in risk areas because of flood or 
hurricane, earthquake, and so on.
    Mr. Chairman, I have no further questions, but I think we 
have got some momentum going here today.
    Senator Bond. I think so. How about July 4?
    Mr. Witt. Sounds good.
    Senator Bond. Let us do that by July 4. OK?
    Mr. Witt. Yes, sir.
    Senator Mikulski. Even if we do not have campaign finance 
reform by that date, maybe we could have FEMA finance reform.
    Senator Bond. These are going to be some unpopular 
decisions.
    Mr. Witt. Yes, sir.
    Senator Bond. How do you plan to deal with these? Is that 
going to make it difficult for you to come forward with the 
recommendations?
    Mr. Witt. It will probably be very difficult, but I think 
we can deal with this working with organizations such as the 
Governors Association, NEMA, and NCCEM. I think they 
understand, Mr. Chairman, that dollars are limited and that in 
the future, we are going to have to put those dollars to the 
best use that we possibly can. I think it is feasible and I 
think we can do it.

                    INSURANCE FOR PUBLIC FACILITIES

    Senator Bond. So long as FEMA is willing to cover a 
community's disaster losses, it seems to me there is not much 
of an incentive for the community to purchase insurance 
coverage for public facilities, and in some instances people 
say that FEMA is a lot more generous than the insurance company 
would be. Does it not make sense to get those priorities in 
line and make sure that we are not discouraging the purchase of 
private insurance?
    Mr. Witt. Yes, sir; it does.
    Senator Bond. Do you have any empirical data as to how 
insured versus FEMA-covered facilities fare?
    Mr. Witt. Public facilities?
    Senator Bond. Yes.
    Mr. Witt. I do not have the data now but we are looking at 
trying to get the States and local governments away from being 
self-insured and try to move them toward the direction of 
insuring public facilities.
    Senator Bond. That would be part of the proposal?
    Mr. Witt. Yes, sir.
    The important thing is, if we can work with them and give 
them some kind of an incentive such as a better cost share 
where they do insure public facilities, then it would help 
eliminate the long-term disaster cost.

                            STATE COST SHARE

    Senator Bond. I need to go back to this question of project 
cost share upfront. We heard earlier today that California has 
not come up with its cost share because they do not know what 
the total cost is, but if we have already paid out billions of 
dollars, they are getting some cost. Is not the failure to have 
this upfront cost a bit of a disincentive for States to control 
costs if they do not have to come up with the cash in advance?
    Mr. Witt. A lot of States--of course, you are very familiar 
with this--legislatures meet every 2 years instead of every 
year. So, it is difficult sometimes for States to come up with 
that upfront cost-share match. The percentage of the cost-share 
match they share in with the local subgrantee varies. Some 
States pick up the full cost share, while some States pick up 
12\1/2\ percent, and then the county or city will pick up the 
other 12\1/2\ percent. It varies across the whole country.
    A lot of States will hold their cost share until the final 
inspection is done and then finish paying the total amount of 
the project.

               ELIGIBILITY OF PRIVATE, NONPROFIT ENTITIES

    Senator Bond. I think that is something we might want to 
address.
    Last year the GAO issued a report called ``Improvements 
Needed in Determining Eligibility for Public Assistance.'' 
GAO's recommendations include clarifying the criteria for 
certain private, nonprofit facilities and in the September 20 
letter you told me that policy changes for revenue-generating 
private nonprofits were under consideration. Do you have any 
recommendations on that yet?
    Mr. Witt. Yes, sir, Mr. Chairman. We will include those 
recommendations in the report we are preparing for you. If it 
is a private entity that is revenue producing then it should 
apply for SBA loans instead of grants.

                           HAZARD MITIGATION

    Senator Bond. Let me turn to the hazard mitigation efforts. 
Your 404 hazard mitigation grant program is funded through the 
disaster relief program. States are entitled to receive funds 
equal to 15 percent of FEMA disaster relief assistance in the 
State. There is approximately, I understand, $1.4 billion 
unobligated.
    What is the problem with it and what do you propose to do 
about it? Are the funds not needed?
    Mr. Witt. Yes, sir; they are very much needed.
    We have been working with State directors on a hazard 
mitigation task force to identify how we can speed the process 
up, what we need to do to be more accountable, and to be less 
bureaucratic and get rid of the redtape.
    Most States go through an environmental review process 
which we then review. The process goes from the State to the 
region to FEMA headquarters. We have been pushing the 
responsibility to work directly with the State down to the 
regional level.
    We are also looking at HUD and other agencies to see how 
they do environmental assessments and reviews in order to put 
in place the best procedures.
    We have been working on the States' capability to 
prioritize these projects as well. Last year you graciously 
gave us money to support a person in each State to work 
strictly on these mitigation projects. We are working now with 
the States on the 409 mitigation statewide plans that are going 
to help a great deal, as will changes in the cost-effectiveness 
review process changes.
    When a State has a disaster--and they have had many--they 
are often bogged down in disaster recovery and response 
activities and they do not have time or staff to concentrate on 
mitigation at that point. We really need to emphasize 
mitigation as a community being rebuilt, not later.
    We are looking at the possibility of putting a sunset 
clause in the legislation that we are going to provide to you. 
If a State cannot obligate funds and get its projects done in 2 
years, then it would lose the money. We just cannot continue to 
drag projects out year after year.

            CRITERIA FOR PERFORMANCE PARTNERSHIP AGREEMENTS

    Senator Bond. All right. So, with $1.4 billion remaining 
unobligated--it struck me that we are asking for $50 million 
more when we have got a great big pot of money that has not 
been utilized. Well, I guess we will see your legislative 
proposals on that.
    FEMA's budget includes $147 million for State grants, the 
so-called performance partnership agreements. When you first 
proposed them 2 years ago, your Agency indicated there would be 
new criteria for awarding State grants. What are those 
criteria?
    Mr. Witt. Under the PPA, which has been in place for 2 
years, States have the flexibility to design programs with FEMA 
to meet the risks that they face in their State. We have been 
working with the States in developing a self-assessment process 
which will be used to establish a baseline of capability in 
those States.
    We are tying this baseline assessment into FEMA's GPRA 
developmental activities.

                         INCENTIVES FOR STATES

    Senator Bond. Are there specific performance measures so 
you know whether the State is getting the job done? How do you 
hold them accountable? Are there any rewards for States that do 
the good jobs or disincentives for the ones that do not get it 
done?
    Mr. Witt. One incentive to do a better job or to have a 
statewide disaster fund set up could be a favorable cost share 
should the State have a disaster that warrants a declaration. 
Also, if a State has a mitigation program in place with a 
mitigation fund established it could be used in State-declared 
disasters, not only in the federally declared disasters. Those 
are some incentives that we are trying to work into the changes 
that we are going to implement.
    Senator Bond. That would require statutory authorization to 
do that?
    Mr. Witt. Yes, sir.

                STATUS OF NATIONAL FLOOD INSURANCE FUND

    Senator Bond. Again, we would be anxious to see your 
recommendation on that because that certainly would seem to 
make some sense.
    What is the status of the flood insurance fund in light of 
the recent flooding? What is the current level of borrowing? Is 
there any danger you would exceed the $1.5 billion statutory 
limit on borrowing?
    Mr. Witt. Mr. Chairman, with the rash of floods that we 
have had recently, I am concerned that even with the additional 
$500 million in borrowing authority in 1997, the limit has not 
kept pace with changes over the years in the flood insurance 
program. We have $370 billion in coverage now compared to the 
$8 billion in coverage that we had back in 1974, but we will 
still only have a $1 billion borrowing authority in October. I 
think we are up to $800 million in borrowing now and we are now 
assessing how many policies and claims we have to pay in this 
recent rash of floods.
    Senator Bond. Are we looking at another overhaul of the 
flood insurance program? It sounds to me like it would take at 
least 2 years of normal operation just to get that back, would 
it not?
    Mr. Witt. Yes, sir; at least.

                      REQUIREMENTS FOR DAM SAFETY

    Senator Bond. Dam safety is something that is very 
important to Missouri and we worked hard to put that in the 
water resources development authorization bill last year. Why 
does FEMA not request any funds for the requirements of the new 
dam safety legislation? Are these a priority for you?
    Mr. Witt. Yes, sir; they are. We are planning to spend 
$432,000 for the dam safety program from the flood program. We 
are developing an implementation plan for a national dam safety 
program as well.
    Senator Bond. Will you be seeking reprogramming or anything 
more on that program? Do you have the money to carry it out?
    Mr. Witt. We have the $432,000 to get the implementation 
program in place and determine what other moneys we will need 
for the national dam safety program.

                       STATE AND LOCAL ASSISTANCE

    Senator Mikulski. Mr. Chairman, I just have two other 
things that I wanted to submit to the record. One is a letter 
from the Maryland Emergency Management Agency talking about our 
need to continue to focus our interest on the SLA, State and 
local assistance account, which, of course, is the one that 
really enhances our response and readiness.

       MARYLAND REPRESENTATION IN FALLEN FIREFIGHTERS FOUNDATION

    Another question goes to the fact that we are very proud of 
the Fire Academy in Maryland. The Maryland State Firemen's 
Association has played a major role in putting the Fallen 
Firefighter Memorial Program together which you know is so 
touching. We understand that this year you have turned over the 
Fallen Firefighters Foundation, and we are asking if you would 
ensure that the Maryland Firefighters Association has a seat at 
the table in the foundation.
    Mr. Witt. Yes, ma'am.
    Senator Mikulski. Because they really provide so much of 
the core support to the foundation.
    Mr. Witt. Yes, ma'am.
    Senator Mikulski. I thank you for that.
    Thank you very much, Mr. Chairman, and I look forward to 
working with you in advance on the solutions to the really 
significant issues we have raised today. Thank you.

                   INSPECTOR GENERAL RECOMMENDATIONS

    Senator Bond. Thank you, Senator Mikulski.
    Very briefly I understand Mr. George Opfer, the FEMA 
inspector general, is here and I would like to invite him 
forward since we have been referring to him all morning on the 
recommendations that he has made. I gather the FEMA inspector 
general requests a slight increase from about $4.67 million to 
$4.8 million.
    I will just ask you, Mr. Opfer, what problems face FEMA 
over the next few years and any recommendations you have for us 
that would improve program integrity at FEMA.
    Mr. Opfer. I think, Mr. Chairman, that we are working quite 
well with the Agency. Shortly after the Northridge earthquake, 
there was a change in the philosophy both within the inspector 
general's office and the Agency itself when Director Witt 
requested the inspector general's office to immediately respond 
to disasters.
    That was a change that really was not very common in the 
inspector general's community, not only in FEMA but in all the 
agencies--a change in the atmosphere where you have an 
inspector general's office trying to work with the management 
and going out to disasters on the scene so you can give upfront 
advice and try to become very proactive.
    The Agency itself, as you know, is relatively small in 
comparison to other Federal agencies as far as the amount of 
money that is passed through to States and what is given out in 
disasters. Also, the inspector general's office in itself is 
very small. So, we try to marshal our resources with the other 
Federal communities to establish a task force.
    We have been very successful in trying to weed out any sort 
of corruption in the disaster programs because we do not want 
the people to become victims twice--from the disaster and from 
people scheming to take Federal dollars.
    In the 2\1/2\ years that I have been in the Agency, I have 
seen quite a change as far as program managers and the Director 
requesting the inspector general's assistance in looking at 
programs. We are trying to provide service similar to a 
management consultant, where rather than doing a full audit or 
a full inspection, we can look at a program or look at issues 
which might be before the Director at the beginning stages, and 
provide recommendations that could possibly prevent any future 
problems in that area.
    Senator Bond. You mentioned fraud possibly perpetrated on 
the victims of disaster. Do you find any other general problems 
relating to fraud, abuse, or mismanagement?
    Mr. Opfer. We find a correlation between the larger 
disaster where more Federal money is put into a disaster area 
and the potential or increased, chance for different schemes or 
questionable activities.
    We have been working with the insurance industry to see 
what information we can get as they are responding to disasters 
and marshal our resources with them. We also work with the 
State and local officials, including the Attorneys General, to 
get information in areas such as consumer fraud where we do not 
have jurisdiction. We want to make sure that we are marshaling 
all the resources that are available both at the State and 
local level.
    Senator Bond. Well, thank you very much for your testimony 
and for your good work.
    Mr. Witt, any closing comments or thoughts you wish to 
share with us?
    Mr. Witt. Mr. Chairman, thank you for your support. We will 
work very hard with you, Mr. Chairman, and the committee to 
institutionalize those changes we discussed by July 4.

                     Additional committee questions

    Senator Bond. We will expect that by July 4 and look 
forward to working with you.
    [The following questions were not asked at the hearing, but 
were submitted to the Agency for response subsequent to the 
hearing:]

                  Questions Submitted by Senator Bond

                     status of disaster relief fund
    Question. What is the current balance in the Disaster Relief Fund, 
and when do you project the fund will be depleted?
    Answer. As of March 31, $2.1 billion remained unobligated in the 
Disaster Relief Fund. Absent a supplemental appropriation, it is 
projected that by late spring, as the unobligated balance nears $500 
million, FEMA will need to begin adjusting how we allocate money to the 
open disasters to ensure that we have dollars available for the 
immediate needs of victims and for emergency measures.
    Question. Please explain, and provide a break-out for, why your 
current projections for the Disaster Relief Fund in fiscal year 1997 
exceed the projections contained in the Congressional budget 
justification--which showed a year-end carryover of $100 million.
    Answer. When the President's budget was prepared in early January, 
the projected unobligated balance in the Disaster Relief Fund for the 
end of fiscal year 1997 was $107 million. By mid-March, this same 
balance showed a deficit of $442 million. During this time period, FEMA 
had undertaken a major effort to refine its projected costs and unmet 
requirements. The increase of $549 million in projected obligations can 
be attributed to the following:

                        [In millions of dollars]

Northridge:.......................................................   200
1996 declarations.................................................    74
Other prior year disasters........................................   268
1997 activity.....................................................     7

    Question. Why have the cost estimates for the Northridge Earthquake 
escalated from $6.1 billion one year ago to $7.8 billion today--an 
increase of $1.7 billion? Please describe precisely what accounts for 
this increase. To what extent does the increase in Northridge estimates 
account for the fund's shortfall in fiscal year 1997?
    Answer. The original cost estimate for the Northridge Earthquake 
was prepared prior to the development of the detailed cost estimates 
for the general acute care hospitals and other structures, the final 
estimates for the repair and retrofit of the historic Los Angeles City 
Hall, construction cost increases in the Los Angeles area, and the 
consequential increase in mitigation funding (which is calculated as a 
percentage of the estimated total program costs). These factors raised 
the estimated costs for the Northridge earthquake by $1.7 billion as 
summarized below:

                        [In millions of dollars]

Safeguarding hospitals (seismic algorithm)........................   940
Los Angeles City Hall.............................................   130
Safeguarding other structures.....................................   100
Rebuilding Hospitals to EERI standard.............................   250
Rise in LA construction costs since 1994..........................   105
Increased Section 404 Mitigation Ceiling..........................   230
Reduced Administrative Costs......................................   -50
                        -----------------------------------------------------------------
                        ________________________________________________
      Total....................................................... 1,705

    The higher estimated cost for the Northridge earthquake is one 
factor in FEMA's revised estimated shortfall for fiscal year 1997.
                           seismic algorithm
    Question. How much of the increase in the Northridge estimates is 
attributable to the ``seismic algorithm?'' Under what authority did 
FEMA implement this program? Do you think it is appropriate that FEMA 
has the authority to implement a program of this kind with such sizable 
resource implications, with virtually no formal approval process from 
the Congress? Do you plan to use this algorithm in other disasters? How 
are you measuring the success (or failure) of this pilot program?
    Answer. The Seismic Hazard Mitigation Program for Hospitals (SHMPH) 
was piloted and implemented under the authority of Sec. 406(c)(2).
    FEMA rebuilt the hospitals to a higher safety standard under the 
authority of Section 406(e)(1) of the Stafford Act, which defines 
eligible costs in rebuilding structures:
        ``(e) Net Eligible Cost. (1) General rule.--For purposes of 
        this section, the cost of repairing, restoring, reconstructing, 
        or replacing a public facility or private nonprofit facility on 
        the basis of the design of such facility as it existed 
        immediately prior to the major disaster and in conformity with 
        current applicable codes, specifications and standards 
        (including floodplain management and hazard mitigation criteria 
        required by the President or by the Coastal Barrier Resources 
        Act (16 U.S.C. 3501 et seq.)) shall, at a minimum, be treated 
        as the net eligible cost of such repair, restoration, 
        reconstruction, or replacement.'' Emphasis Added
    This higher rebuilding standard for the area hospitals serves two 
goals: it reduces the level of damage expected from future earthquakes, 
and it helps ensure that acute care hospitals can continue to function 
in the aftermath of a future disaster, especially to treat disaster 
victims.
    The cost increase attributed to the seismic mitigation program for 
hospitals was $940 million and included the repair and mitigation of 
all 20 affected hospitals. This increase is less than half of the $2 
billion requested by two of the hospitals alone.
    FEMA believes that mitigation should be integrated into the 
rebuilding from disasters. After an event occurs, communities tend to 
be more receptive to undertaking mitigation measures, and mitigation 
goals can more easily be attained by enhancing reconstruction 
standards.
    Congress has a vital role to play in implementing a program with 
major resource implications. For Northridge specifically, FEMA included 
the projected spending for these infrastructure projects in its two 
supplemental budget requests for Northridge, both of which were 
approved by Congress.
    FEMA took into careful consideration the Congress's opinion as 
stated in a March 21, 1996 letter to Director Witt signed by 
Congressmen Jerry Lewis and Bob Livingston and Senators Kit Bond and 
Mark Hatfield. This letter applauded the use of the algorithm and 
encouraged FEMA to use the Earthquake Engineering Research Institute 
(EERI) to further evaluate these projects.
    Because many hospitals were closed due to damage, the algorithm was 
specifically designed to address rebuilding after the Northridge 
earthquake. When the detailed estimates were first being developed, it 
became apparent that reaching closure on hospital repairs would be 
extraordinarily time consuming and contentious due to the complexity of 
the facilities and differences in professional judgment of architects, 
engineers and other technical specialists. To reach a timely solution 
at a reasonable cost, a consortium of professional experts developed 
the algorithm for calculating the costs of repairing damages and 
providing hazard mitigation measures. This algorithm produces a repair 
and retrofit program that is consistent with hazard mitigation goals.
    The success or failure of this seismic program will be measured by 
the ability of the hospitals to withstand a future earthquake (or other 
catastrophic event) and continue functioning.
    We discussed this program with Members of Congress and their 
staffs, particularly those Members chairing or ranking on the relevant 
Committees of the House or Senate and in the affected areas. We believe 
the SHMPH is a prudent expenditure from the Disaster Relief Fund (DRF) 
since it will avoid future DRF expenditures and, more importantly, 
provide public health and safety services after the next earthquake.
    A central concept of the algorithm, that is the arithmetical 
computation of disaster assistance in damaged critical facilities, is 
that it expedites recovery and diminishes confrontational exchanges 
between the Federal sector and disaster victims. Nevertheless, the 
SHMPH is not presently contemplated for use in other earthquake 
disasters.
    Since mitigation is frequently a long-term investment, declarations 
of success (or failure) would be premature at this point. Expenditures 
under the SHMPH, however, are being tracked so that avoided costs can 
be estimated after the next earthquake.
              report to congress on reducing expenditures
    Question. The fiscal year 1997 VA-HUD appropriations act required 
FEMA to propose a plan to reduce disaster relief expenditures. The 
Subcommittee recently received a draft report, about 45 days late and 
still not final. The draft report includes only some of the proposed 
recommendations of the GAO and the I.G. Why were the other 
recommendations--such as eliminating alternate projects, and changing 
the so-called 50 percent rule which triggers full-scale replacement of 
a damaged facility--taken off the table? Please explain which other 
options were considered and rejected, and why, and the cost-savings 
associated with the rejected options.
    Answer. In developing the Report to Congress on Reducing Disaster 
Relief Expenditures, a broad range of options were considered, 
including all of the recommendations of the General Accounting Office 
and the FEMA Inspector General. Some of the GAO and IG recommendations 
were determined not to be feasible at this time. For example, 
eliminating alternative projects may provide an incentive for State and 
local officials to rebuild facilities even if they no longer serve the 
public welfare, in order to receive the grant award. Elimination of the 
50 percent rule which triggers replacement would be inconsistent with 
the National Flood Insurance Program and may impact negatively on 
mitigation.
    Two other approaches recommended by the Inspector General--the 
disaster tax return system of assistance and block grants--will be 
studied for potential applicability in the future.
    Specific cost savings for these options have not been identified.
    Question. Some of the proposed changes undoubtedly will be 
unpopular with certain constituents. Will this impede your ability to 
proceed with the changes and how do you plan to deal with these 
impediments?
    Answer. We are currently in the process of consulting with our 
partners on potential policy changes. In general, they recognize that 
governmental resources at all levels are becoming more limited, and 
there is a need to reduce disaster relief expenditures.
    To the extent possible, we have tried to focus on prudent ways of 
reducing disaster costs without impeding service delivery. For example, 
streamlining the public assistance program will not only save dollars 
but will actually improve customer service. We are also trying to 
reduce total costs through a pre-disaster mitigation program, rather 
than simply shifting the costs to another level of government.
    We recognize that there may be some measures, particularly those 
which reduce eligibility, which may be unpopular with our constituents. 
In those cases, we will work with our constituents and Congress to 
develop appropriate legislative solutions.
                           disaster criteria
    Question. Two years after the initial commitment, FEMA has not made 
any changes to the disaster criteria. What changes--and when--will you 
be proposing to the declaration process?
    Answer. In the fall of 1996, FEMA established a Panel on Disaster 
Cost Savings to examine, among other things, the issue of declaration 
criteria. Upon analysis and consultation with our partners, we have 
concluded that the high costs in the disaster program are driven by the 
number of large major disasters and broad eligibility criteria, rather 
than the number of declarations.
    While we believe that the current declaration criteria continue to 
be appropriate, we can reduce costs by streamlining activities and 
targeting eligibility. However, factors used to judge severity, 
magnitude and impact are being updated to reflect current dollars, and 
procedures for conducting Preliminary Damage Assessment are being 
reengineered.
    Question. How will the new criteria ensure that states use their 
own capability to handle disasters that should not be declared by the 
President?
    Answer. The current criteria involve making a judgment on whether 
the severity, magnitude, and impact warrant Federal assistance to 
supplement the State's capability. FEMA provides grants to State and 
local governments through the Performance Partnership Agreement grants 
for the purpose of developing the capability to handle disasters.
    Question. The number of disaster declarations has increased 54 
percent in the last 5 years, compared to the previous 5-year period, 
partly due to FEMA's more liberal interpretation of the law. Don't you 
believe disaster declaration criteria would bring some much-needed 
discipline to this program?
    Answer. The increase in total number of declarations is greatly 
influenced by the number of fire suppression grants in recent years, as 
well as a documented increase in severe weather events. Over the years, 
the Congress has changed the statute to be more liberal in its eligible 
benefits. Restricting eligible costs would achieve long-term savings in 
the disaster program.
                              state-share
    Question. Why isn't FEMA enforcing its own regulation to require 
states to demonstrate they have their project cost-share upfront? Isn't 
your policy of not requiring this upfront commitment a disincentive for 
states to control costs? What is FEMA doing to ensure that recipients 
of disaster assistance are satisfying their cost-sharing requirements?
    Answer. Current disaster assistance regulations do not require a 
specific timing for the payment of the State's portion of the non-
Federal share. A FEMA/State Agreement, which is executed between the 
Governor and the FEMA Regional Director immediately following a major 
disaster declaration, specifies the portion of the non-Federal share 
that will be paid by the affected State. At the end of a disaster 
contract, States are required to certify that they have paid their 
share of a project's costs as agreed to in the FEMA/State Agreement.
    Consistent with the intent of the Robert T. Stafford Disaster 
Relief and Emergency Assistance Act (Public Law 93-288, as amended), 
current FEMA policy includes in the Agreement a provision for a 
Federal/State cost-share arrangement. FEMA believes that States have an 
incentive to control costs, because they are making a contribution to 
recovery efforts. FEMA only obligates and makes available to the State 
the Federal share of the estimated costs of a project (usually 75 
percent). Therefore, in order to complete a project, the remainder of 
the funds must come from either the grantee or the subgrantee. If a 
project is not completed, the Federal share will be deobligated and any 
Federal funds that were already disbursed must be repaid by the 
grantee.

                               INSURANCE

    Question. What measures is FEMA taking to see that public 
facilities are insured against the most probable perils they face? 
Should disaster assistance be reduced for public facilities in 
vulnerable communities that could have been insured but were not, as is 
currently done with flood insurance?
    Answer. As a condition for receiving Public Assistance grants, 
insurance must be purchased and maintained to cover future damages for 
any insurable hazard to any public facility for which FEMA funding is 
provided. If the facility is insured at the time of a disaster, FEMA 
will fund damages not already covered by insurance.
    Establishing the vulnerability of communities for hazards other 
than floods is a difficult task. While some areas of the country have 
established vulnerability to earthquakes, participation in earthquake 
insurance programs has been limited due to the expensive nature of the 
program. For example, in California, the State Insurance Commissioner 
has ruled that earthquake insurance is not reasonably available because 
it is not affordable. FEMA's regulations state that the Agency shall 
not require greater types and extent of insurance than are certified by 
the State Insurance Commissioner. Consequently, FEMA has been unable to 
require the purchase of earthquake insurance in California as a 
condition of Public Assistance grant funding.

                       SNOW DISASTER DECLARATIONS

    Question. In your draft report, FEMA said it would, ``publish 
revised regulations to ensure that FEMA is consistently only paying for 
those snow removal costs that are extraordinary and significantly 
beyond the states normal capability and resources.'' When will these 
regulations be revised? How do you define costs that are extraordinary 
and significantly beyond states normal capability and resources?
    Answer. In October 1996, FEMA published a proposed rule that 
specified the work and costs that would be eligible for assistance in 
the event of a major disaster declaration for a snowstorm. The proposed 
rule stated that eligible work would be the clearance of snow from one 
lane in each direction on ``snow emergency routes'' or their 
equivalent, and from routes to critical facilities. The rule did not 
address declaration criteria or the measurement of States' 
capabilities.
    Based on comments received on the proposed rule and FEMA's 
experiences in three snow declarations in January 1997, FEMA has 
decided to withdraw the October 1996 rule and publish a new proposed 
rule. This new proposed rule will establish declaration criteria and 
cost eligibility to ensure that assistance is only granted when the 
situation is truly beyond a State's capability and resources. As 
published in the Semi-annual Agenda of Rulemaking, the proposed rule 
for snow disasters will be published between April and November of 
1997.

                           COMMUNITY CENTERS

    Question. Last year, in response to questions for the record, you 
stated that FEMA would more precisely define community centers in order 
to clarify which of these facilities FEMA considers eligible. Has this 
been done? If not, when?
    Answer. FEMA has published draft Policy No. 4511.050A, ``Private 
Nonprofit Community Center Eligibility.'' The draft policy provides a 
more specific definition of community centers than the definition found 
at 44 CFR 206.221(e)(6), and includes examples of both eligible and 
ineligible community centers. In particular, the policy more 
specifically defines criteria such as: (1) open to the general public; 
and (2) established and primarily used as a gathering place for a 
variety of social, educational enrichment, and community service 
activities.
    This draft policy is currently in the internal approval process. 
Pending its final approval, FEMA considers and rules on eligibility 
applications in the Private Nonprofit Community Center category on a 
case-by-case basis.

                           GRANTS MANAGEMENT

    Question. When will FEMA have in place the new grants management 
system? Will it ensure that FEMA funds are spent effectively, 
efficiently, and according to law?
    Answer. The Office of Financial Management, assisted by the 
Logistics Management Institute (LMI), has recently completed a thorough 
assessment of the grants management process for all of the Agency's 
disaster and non-disaster grant programs. An Agency-wide Team, reviewed 
and documented the current processes, identified issues and made 
recommendations for improving the grants management processes used in 
each of FEMA's disaster grant programs. A report, summarizing the 
reengineering process and the Team's recommended solutions covering the 
full cycle of the grants management process will be finalized in the 
near future.
    In general, the Teams recommendations include instituting 
procedures that will enable FEMA to more effectively comply with 
federal regulations on grants administration and financial management; 
track grants from application through close-out, including timely 
financial reports and program performance monitoring. Once FEMA 
management formally accepts the recommendations of the Team, the Office 
of Financial Management (OFM) will secure a charter for managing the 
implementation of appropriate changes and developing an improved grants 
management system in the Agency. It is anticipated that the Agency will 
begin initiating some recommendations immediately and that a detailed 
action plan will be developed this summer. The development of this plan 
will include close coordination with other FEMA Directorates to assure 
that it is all inclusive and takes into consideration other disaster 
program initiatives. It should be noted, however, that it is expected 
that FEMA management will consider additional improvements and 
alternatives as the Agency begins implementing the recommended changes.
    FEMA will realize several benefits by implementing the Team's 
recommendations. The Agency can not only expect to more effectively 
comply with federal regulations governing grants administration and 
financial management, but also to improve the Agency's ability to 
provide oversight and manage the disaster grant programs. Including the 
other cross-cutting disaster program improvements, along with the need 
for external coordination and significant internal training must be 
accomplished prior to seeing long term results. Full implementation of 
the Agency's improved grants management system is expected to take 
between two-three years.

                          DISASTER CLOSE-OUTS

    Question. Why do you have disasters open that go back to 1989? Why 
can't you close-out disasters within two years or less? What is the 
average length of time to close out a disaster? What does FEMA believe 
is a reasonable time to close-out a disaster? Wouldn't a shorter period 
enhance fiscal responsibility and accountability? How long does the 
insurance industry take to close-out major projects, and why couldn't 
FEMA follow an insurance industry model? Couldn't FEMA deobligate 
significant amounts of disaster relief funds if it closed out disasters 
in a more timely manner?
    Answer. FEMA funding is made available to the disaster-affected 
State as a grantee and further transferred to the sub-grantee in 
accordance with the Office of Management and Budget's requirements for 
Grants management. Public Assistance grants are governed by FEMA's 
regulations, also known as the common rule. The intent of the rule is 
to allow the States more discretion in administering Federal programs 
in accordance with their own procedures. Because these grants are for 
reimbursable costs, the grantee must make an accounting to FEMA for all 
eligible costs on each approved large project. Final payments are made 
only after the approved work is completed and certified by the State.
    Large, complex projects that require extensive design and 
construction phases in addition to compliance with all codes, 
regulations, standards and local permitting procedures can be extremely 
time-consuming. As a result, disaster close-outs are often delayed by 
these large projects. However, FEMA has made significant progress in 
closing out disasters. For example: in fiscal year 1993, FEMA closed 
out seven (7) disasters; in fiscal year 1994, FEMA closed out 31 
disasters; in fiscal year 1995, FEMA closed out 42 disasters; and in 
fiscal year 1996, FEMA closed out 16 disasters.
    As part of our Business Process Reengineering effort, FEMA is 
considering several options--including looking at insurance industry 
methods--to determine if we can adopt a more rapid settlement approach, 
based on accurate cost and scope estimates, and additional means of 
providing incentives to complete work as quickly as possible.

                             FAST-TRACKING

    Question. Following the Northridge Earthquake, FEMA used a system 
referred to as ``Fast tracking'' to deliver assistance to individuals, 
which involved providing aid to applicants prior to inspecting homes. I 
understand a very high proportion of those receiving aid were deemed 
ineligible and FEMA is attempting to recover those ineligible costs. 
Will you be using this method again? Do you believe it is appropriate 
that FEMA has such discretion to dispense federal aid without following 
appropriate and prudent procedures? Are you using fast-tracking now?
    Answer. The extent of the damage and the densely populated 
geographic areas impacted by the Northridge Earthquake indicated that 
FEMA would receive an unprecedented number of applications for disaster 
assistance. In an effort to help the greatest number of disaster 
victims as quickly as possible, FEMA assisted applicants from areas 
where the damage was most pervasive on a expedited basis; prior to 
inspecting the applicant's home.
    To identify the most heavily damaged areas, FEMA used computer 
mapping of Modified Mercali Intensity (MMI) readings. ``Fast-track'' 
checks were then mailed to disaster assistance applicants only if: (1) 
the applicants resided in a zip code that corresponded with the four 
MMI zones of most intense seismic activity (67 zip codes were 
identified); and (2) the applicant indicated that they had experienced 
real property damage when they registered with FEMA. Recipients of 
``fast-track'' assistance were notified at the time of their 
application that a subsequent housing inspection would take place, and 
that if they were found to be ineligible for assistance, they would be 
required to return their assistance grant to FEMA.
    Each home was subsequently inspected, the degree of damage was 
assessed, and the determination of eligibility for housing assistance 
was evaluated. Recipients found to be ineligible for assistance were 
required to return their checks. The rate of confirmed eligibility for 
those households assisted before inspection was 90 percent.
    The fast-track method of expediting assistance helped thousands of 
severely impacted disaster victims significantly more quickly than 
standard procedures could accommodate. During the seven-week period the 
fast-track system was implemented (from January 21-March 9, 1994) FEMA 
issued 152,573 checks totaling $400,486,000 of assistance. 
Approximately one-third of these applicants, 48,302, were provided 
assistance via the fast-track system. It should be noted, however, that 
recipients of ``fast-track'' assistance represent only 7 percent of the 
total number of applicants who registered for assistance.
    Although the fast-track process resulted in some ineligible 
recipients, FEMA believes it was appropriate to implement the fast-
track system, given the unique circumstances of the Northridge 
earthquake. FEMA is not currently using the ``fast-track'' system, but 
would not rule out its use in the future under appropriate emergency 
conditions.
                          ADMINISTRATIVE COSTS

    Question. Last year, in response to questions submitted for the 
record, FEMA stated it would propose a rule requiring grantees to 
provide a full accounting of their administrative costs associated with 
public assistance grants. To date, FEMA has taken no action to clarify 
the rules governing administrative costs, or to ensure that grantees 
properly account for administrative costs. Why? Also, FEMA stated it is 
planning to promulgate a proposed rule that would require small project 
expenditures to be accounted for and excess funds returned to FEMA. Why 
hasn't this been done?
    Answer. Last year, in response to recommendations from the General 
Accounting Office (GAO) and the FEMA Inspector General (IG), FEMA 
proposed to develop a regulation that would require an accounting of 
grantee administrative costs. Prior to drafting such a rule, FEMA 
determined that the statutory administrative expenses were also 
intertwined with both State disaster management costs, and indirect 
costs that may be claimed in connection with Federal grants. Therefore, 
FEMA is conducting studies to determine the complete picture of the 
costs to States to manage a disaster recovery effort. The goal is to 
develop a single cost factor that will cover all administrative 
expenses, both direct and indirect.
    In response to further recommendations in the subject GAO and IG 
reports, FEMA began to examine the impacts of a regulation that would 
require refund of overpayments on ``small projects.'' Concurrently, 
FEMA embarked on a 12-month process to study existing Public Assistance 
procedures, develop new procedures, and implement the procedures in 
actual disasters. Because these changes may affect the concept of small 
projects as it was originally envisioned in 1988, we have delayed 
proposing a rule change.
            public assistance/business process reengineering
    Question. FEMA has underway a ``BPR'' effort to streamline the 
public assistance program. When will this be complete? What specific 
changes do you envision at this time? What sort of cost-savings might 
we expect?
    Answer. A draft report on the proposed reengineered process was 
issued on April 7, 1997, to FEMA regional offices, the National 
Emergency Management Association (NEMA), and various project 
participants for comment and feedback prior to issuing a final report. 
The final report on the Public Assistance Reengineering project is 
scheduled to be completed on April 30, 1997. The next phase of the 
project moves beyond redesign in concept and into actual 
implementation. This will include development of a pilot test 
implementation plan, a pilot set-up and pilot test and a pilot 
evaluation, prior to full-scale implementation. We anticipate 
conducting a pilot-test and evaluation within the next six months.
    Some of the changes envisioned in the proposed redesign include:
  --Pre-identify and pre-educate potential applicants;
  --Provide applicants with alternatives for accessing the Public 
        Assistance application process;
  --Use Preliminary Damage Assessment (PDA) data to make initial 
        obligations to the State for immediate emergency funding needs, 
        rather than relying on additional site inspections;
  --Establish deadline for State reconciliation of emergency work 
        costs;
  --Require a more detailed and deliberate application for permanent 
        restorative work to include a schedule of damaged sites, 
        location, damage description, preliminary cost estimate, and 
        insurance coverage;
  --Establish a FEMA single point of coordination for applicants and 
        States;
  --Capture damage information one time, at the source, and 
        electronically if possible;
  --Move decision-making and project review closer to the customer;
  --Empower the States to validate small projects (under $46,000) 
        without always requiring a Federal inspection;
  --Process large projects (over $46,000) or complex projects through 
        inspection and field review by certified FEMA/State inspection 
        teams;
  --Focus on organizing work around the applicant and developing 
        ``projects'' that best meet their recovery needs;
  --Institute a settlement approach (based on an accurate scope and 
        cost estimate) versus actual cost reimbursement to avoid 
        revisiting cases multiple times;
  --Provide incentives to complete permanent work as quickly as 
        possible and to submit documentation within a reasonable time-
        frame; and
  --Strictly adhere to and enforce time frames such as project 
        completion deadlines, deadlines for submittal of documentation, 
        appeal submittal deadlines, and appeal resolution deadlines.
    The expected benefits of the redesign include quantitative 
reductions in time and costs that will enhance and strengthen 
qualitative aspects of FEMA's relationship with the States and 
applicants. Benefits include: Reduced processing time; reduced 
administrative costs; more efficient allocation of resources; reduction 
in job redundancy; improved tracking; fewer de-obligations; and fewer 
appeals.

                    HAZARD MITIGATION GRANT PROGRAM

    Question. FEMA's Sec. 404 hazard mitigation grant program is funded 
through the disaster relief program. States are entitled to receive 
funds equal to 15 percent of FEMA disaster relief assistance in the 
state. Currently, more than $1.4 billion remains unobligated. Has there 
been an increase in section 404 mitigation activity since the federal 
cost share was raised and the formula was revised to increase the 
amount made available?
    Answer. There has been a significant increase in Section 404 hazard 
mitigation grant program activity since the Federal cost share was 
raised and the formula was changed to increase the amount of funding 
made available. The reasons for this have been two-fold: First, States 
and Territories receive an increased amount of total available dollars 
for mitigation. For example, in the Midwest Floods alone, total 
available HMGP funds increased by approximately five times. Secondly, 
changing the cost share from 50 percent federal to 75 percent federal 
funding has made grants more attainable for State and local 
participants.
    It is essential to note that nearly 67 percent of the remaining 
funds (approximately $776 million) stems from three unique disaster 
situations:
  --The State of California accounts for approximately $642 million of 
        this figure. In that State, numerous sizable disasters 
        (including multiple flood events, wildfires, and the most 
        costly disaster in U.S. history, the Northridge Earthquake) 
        have occurred in the last several years. This tremendous 
        workload has greatly strained the State's ability to identify, 
        review, and process available monies in a timely fashion to 
        meet mitigation, response and recovery needs.
  --Similarly, the Virgin Islands accounts for approximately $50 
        million of the outstanding HMGP balance, due in large part to 
        the fact that the islands were struck by two powerful 
        Hurricanes--Marilyn and Bertha--within a year.
  --Finally, Hurricane Fran, which caused Presidentially declared 
        disasters in seven States, accounts for another $84 million in 
        unobligated funds. The outstanding balance of HMGP funds for 
        these disasters is not unusual, in that the event occurred only 
        recently (last Fall).
    These three unique situations account for over $776 million of the 
unobligated HMGP funds. They are not due to recurring programmatic 
obstacles.
    It also should be noted that FEMA has taken substantial action in 
recent years to improve the management of the HMGP in order to speed 
the obligation of funds. For example, this fiscal year an additional $3 
million was made available to States to improve implementation of 
Hazard Mitigation Programs. To improve National Environmental Policy 
Act (NEPA) compliance reviews, FEMA published an expanded list of NEPA 
categorical exclusions which have significantly reduced the time 
required for environmental review for approximately 50 percent of the 
projects submitted by States for HMGP funding. FEMA has developed a new 
process to streamline project cost-effectiveness determinations which 
emphasizes quick determination of lower and upper bound estimates to 
allow State staff to focus resources on potentially eligible projects. 
In addition we have provided substantial new training sessions to both 
FEMA Regional staff and State Hazard Mitigation staff. All of these 
activities are expected to greatly speed the HMGP process in the 
future.
    Question. FEMA is proposing a new $50 million pre-disaster 
mitigation program. Why would this program be used more by the states 
than mitigation activities authorized under sec. 404?
    Answer. Section 404 funds are only available if a disaster has been 
declared; therefore, mitigation actions are generally limited to 
declared area(s).
    This means that States must absorb a cost-share associated with 
mitigation activities at the very same time that they must identify 
resources to pay for the tremendous costs of disaster response, which 
is often prohibitive. Through the Pre-Disaster Mitigation Program, 
however, communities will be able to thoughtfully plan and budget for 
their contribution to eligible risk reduction activities. They will 
also have the time to work with other elements of the community, 
including the private sector, to leverage additional funding and 
resources against their own. These advantages will help ensure that 
Pre-Disaster Mitigation Program funds are used effectively to reduce 
our nation's risk from natural hazards.
    Question. FEMA funds some mitigation work using public assistance 
funds (sec. 406) and sometimes in combination with sec. 404 funds. Is 
this appropriate and in accordance with the Stafford Act? What is FEMA 
doing to clarify whether mitigation should occur under sec. 406 versus 
sec. 404?
    Answer. When Congress amended Public Law 93-288, the Disaster 
Relief Act of 1974, in 1988 (upon enactment of Public Law 100-707) the 
legislation was amended to: (1) add new section 404, which authorized 
hazard mitigation funding; and (2) revise the authority of what is now 
Section 406 to add the reference at subsection 406(e)(1) that 
prescribed hazard mitigation criteria.
    The use of Section 406 alone or in combination with Section 404 is 
both appropriate and consistent with explicit Stafford Act authorities. 
Section 406(e)(1) allows for ``hazard mitigation criteria'' to be 
included in funding determinations for discrete public assistance 
projects. A Section 404 project may affect several Section 406 public 
assistance projects, as well as the community at large. If a Section 
404 project ties into and augments the mitigation elements of a Section 
406 project, it is neither an inconsistent nor an inappropriate use of 
Stafford Act funding. There is no indication in the Stafford Act that 
these two hazard mitigation authorities cannot be used in conjunction 
with each other, and FEMA believes that it has implemented these two 
hazard mitigation authorities consistent with the congressional intent 
behind their simultaneous enactment.
    To clarify the use of these two authorities, FEMA has issued 
policies that distinguish between the mitigation scenarios in which 
either Section 404 or 406 can be invoked. FEMA has also assembled a 
404/406 Mitigation Task Force, which will provide additional 
clarification as specific instances require.
    Question. When will you submit your legislative proposal for this 
new $50 million plan? How many projects do you anticipate will be 
funded, and what will be the criteria for participation? How will you 
maximize the use of this relatively modest sum for mitigation projects?
    Answer. The legislative proposal will be included in the package 
containing cost eligibility changes that we are planning to send to you 
in July of this year. We will try to fund as many projects as we can in 
order to achieve some balances among the geographic spread, the types 
of risks and hazards, and the categories of mitigation measures carried 
out. We will be testing criteria for participation with the pilot 
effort this fiscal year, and proposed criteria will be formalized 
through regulations authorized by the legislation being drafted. In 
addition to criteria that relates to risk reduction requirements, we 
will also be looking at leveraging non-Federal resources in order to 
maximize the modest amount of funds requested.
    Question. We understand that mitigation saves money, but we have 
seen no quantification of the extent to which mitigation reduces future 
disaster relief costs. Has an assessment been done to provide some 
baseline for cost-savings? If not, when will it be done?
    Answer. Over the last several years, the need for an assessment of 
mitigation cost savings has become apparent. At this time, we are in 
the process of planning a project to perform a macro-economic analysis 
of mitigation. We plan to initiate a study of the cost-effectiveness of 
a broad spectrum of mitigation measures (such as building codes and 
acquisition/relocation projects) before the end of fiscal year 1998. 
Because this analysis will take time to complete, we commissioned a 
smaller report on the cost-effectiveness of mitigation that is 
scheduled for release in the next two weeks. This report includes a 
brief explanation of many of the types of mitigation which have 
produced useful effects. It also includes 16 ``case studies,'' which 
were chosen to provide multi-hazard examples of a variety of mitigation 
techniques across a wide geographical distribution. A copy is attached 
for your reference.
                   performance partnership agreements
    Question. FEMA's budget includes $147 million for state grants 
through the so-called ``performance partnerships'' agreements. Two 
years ago, when FEMA first proposed performance partnerships, the 
agency indicated there would be new criteria for awarding state grants. 
Please explain what those criteria are.
    Answer. A driving force behind the Performance Partnership 
Agreement (PPA) is to make performance a consideration in the awarding 
of annual pre-disaster grants to the states. The PPA is a five-year 
agreement designed to implement the strategic planning concepts of 
GPRA. A June 1, 1998 deadline has been set for all state PPA's to be 
modified to reflect measurable performance indicators.
    FEMA Regions continue to consider annual performance as criteria 
for annual cooperative agreement grant funding. Risk, need and special 
projects also continue to be considerations in how funds are divided 
among the states.
    Question. What are the specific performance measures states are 
held to under these new performance partnership agreements, and how are 
states held accountable for meeting these measures? How are high-
performing states rewarded?
    Answer. Performance measures under the PPA are jointly developed by 
the State and FEMA. The measures vary depending on the unique 
circumstances of the state and objectives set as part of that states 
strategic planning. Eventually, states will be held accountable by 
making long-term PPA performance a criteria for annual CA funds. In 
addition, FEMA is exploring options for rewarding states for pre-
disaster performance in mitigation and increasing their disaster 
capability through post-disaster grants. Another option under 
consideration is a more favorable cost-share on public assistance 
disaster grants.
    Question. How are performance partnerships used to encourage states 
and local governments to undertake mitigation activities to reduce the 
risk of losses to public facilities?
    Answer. The PPA is developed around the four functions of emergency 
management: preparedness, mitigation, response and recovery. Each 
function has partnership and state objectives and strategies for 
accomplishing the objectives. Mitigation is a major focus of the PPA 
objectives and strategies and is an area FEMA is working to encourage 
through future incentives.
    Question. Other than reducing administrative burdens and providing 
a single funding stream, how are the performance partnerships any 
different from the old grant process under the comprehensive 
cooperative agreements?
    Answer. The PPA was developed to replace FEMA's comprehensive 
cooperative agreement (CCA) process. Under the PPA, states have more 
flexibility in the use of funds in exchange for accountability of 
performance; while the states, not FEMA, propose how the funds will be 
spent, annual activities must clearly reflect state priorities and 
needs and contribute to the achievement of long-term state objectives 
in the PPA. Under the old CCA, FEMA determined how the funds were to be 
spent and there were no established long-term objectives that annual 
CCA activities worked towards accomplishing.
    Question. What is the status of FEMA's ability to assess states' 
capacities to respond to disasters? What means do you use to make these 
assessments? Has the I.G. deemed whether your method is adequate and 
appropriate? How can you rely on states' self-assessments to make 
determinations on capabilities? In your opinion, how many states 
currently have a reliable assessment of their capability to respond to 
disasters?
    Answer. FEMA is currently developing the capability assessment 
process to assess the capabilities of State and local governments to 
effectively respond to catastrophic disasters. The Program Elements 
Guide (PEG) is the principal tool that FEMA is currently developing to 
accomplish this task. This tool categorizes emergency management 
activities into the following 13 components: (1) Laws and Authorities; 
(2) Hazard Identification and Risk Assessment; (3) Hazard Management; 
(4) Resource Management; (5) Planning; (6) Direction, Control and 
Coordination; (7) Communications and Warning; (8) Operations and 
Procedures; (9) Logistics and Facilities; (10) Training; (11) 
Exercises; (12) Public Education and Information; and (13) Finance and 
Administration. It was recently favorably reviewed by representatives 
from the National Emergency Management Association (NEMA), an 
organization of State Directors of Emergency Management. It is 
anticipated that the PEG will be finalized by April 21, 1997. The 
Inspector General's office has participated in the briefings on 
capability assessment and the implementation schedule.
    The capability assessments will be completed for all States during 
fiscal year 1997, and FEMA will submit a report to the Congress by 
October 1, 1997, on the status of State capabilities and the Emergency 
Management Partnership to respond to major disasters. FEMA will not be 
relying entirely on State self-assessments. It is our intention that 
there be substantial Federal involvement in as many of the State 
assessments as possible this year, given timing, staffing and funding 
restraints. Many of the States have conducted capability assessments 
over the course of time, but these have not been developed in a 
standardized format; therefore, it is difficult to draw substantive 
conclusions on these efforts. The goal of the FEMA capability 
assessment process is to create an assessment system that will be 
acceptable to all States and will result in a reliable and consistent 
national evaluation of the state of readiness in the nation.

                                  GPRA

    Question. Under the Government Performance and Results Act (GPRA), 
FEMA is required to develop a mission statement and strategic plans. 
I'm very concerned with mission creep at FEMA over the last several 
years. The mission creep is evident in the fact that there's been a 54 
percent increase in the number of major disaster declarations in the 5-
year period fiscal year 1992-96, compared to fiscal year 1987-91. Where 
FEMA used to confine itself to responding when state and local 
governments were overwhelmed, FEMA's new role seems to be about being 
all things to all people. What process are you using to develop your 
mission statement and strategic plan, and who are you consulting with 
to ensure it meets the intent of Congress?
    Answer. FEMA was one of the first federal agencies to develop a 
strategic plan back in December 1994. The strategic plan's mission 
statement and its goals were developed even earlier and served to guide 
the agency's 1993 reorganization. In its June 1996 report, entitled, 
``Executive Guide--Effectively Implementing the Government Performance 
and Results Act,'' Congress's General Accounting Office (GAO) 
highlighted FEMA's reorganization around its mission statement and 
strategic goals.
    In 1993, FEMA's new Director refocused the agency on meeting its 
mission and aligning its activities to better serve the public. As part 
of its first agency-wide strategic planning effort, FEMA 
comprehensively reviewed its programs and structures and initiated a 
major reorganization in November 1993. By more closely aligning its 
activities, processes, and resources with its mission, FEMA appears 
today to be better positioned to accomplish that mission.
    As a result of experience gained through the GPRA pilot phase FEMA 
realized that agency-wide training on the concept of GPRA and strategic 
planning would be necessary. To date, training has been conducted for 
over 400 managers and staff agency-wide. The training effort includes a 
two-day workshop in each of the 10 regions for our regional staff and 
our State partners.
    FEMA is in the process of updating its strategic plan, and making 
it more precise, measurable and consistent with GPRA requirements. FEMA 
established a GPRA Steering Committee, made-up of representatives from 
throughout the agency, to oversee the process. FEMA is not proposing 
any changes to its current mission statement (in fact, the 
Congressional Institute and National Academy of Public Administration 
which trained congressional staff on GPRA used FEMA's mission statement 
as a model). Our six strategic goals have been reduced to three draft 
goals which we believe represent FEMA's statutory mandates.
    A significant part of FEMA's mission is to lead and support the 
national emergency management system. Therefore, performance measures 
for FEMA's draft new strategic goals will reflect how well the national 
system is performing. We believe the information we need to measure our 
performance already exists in the public and private sector. We expect 
to have draft performance measures identified by May 1997.
    FEMA's primary stakeholders are the State governments and the State 
emergency managers and the National Emergency Management Association in 
particular. We have discussed the direction of our strategic planning 
efforts with the States and NEMA and shared draft documents. We will 
continue to consult with them throughout the process and ask for final 
comments before the plan is finalized. FEMA has also shared its draft 
strategic plan with Federal agencies such as EPA, Transportation, SBA, 
Army Corps of Engineers, etc., to ensure a complimentary approach to 
GPRA.
    FEMA has already briefed two congressional committees and will be 
making more consultations to discuss all aspects of proposed changes to 
the agency's strategic plan, including, options for performance 
measures.
    The Agency is on track to have the updated plan and new performance 
measures, as well as the GPRA required fiscal year 1999 Performance 
Plan completed this summer in advance of the September 30 deadline.

                                 CSEPP

    Question. In January, GAO presented preliminary findings of a 
review conducted on CSEPP, a joint Army/FEMA program to improve 
emergency response capabilities in the communities near the chemical 
weapons storage sites. GAO found that while $420 million has been 
appropriated to date, local communities still lack critical items 9 
years after the program's inception and there are long-standing 
management weaknesses at the federal level, including unclear roles and 
responsibilities.
    Why has so little progress been made with the $420 million spent to 
date? What is the status of negotiations with the Army over the future 
of the CSEPP program. What role does FEMA believe it ought to play in 
this program? Who should be held accountable for the lack of progress 
in this program?
    Answer. FEMA has discussed with GAO the validity of the draft 
report's finding that emergency preparedness capability has been unduly 
slow in the communities surrounding the eight chemical weapons storage 
sites. We anticipate that the final report may differ from the draft 
somewhat, since it is demonstrable that considerable progress has been 
made in CSEPP emergency preparedness. States are significantly better 
prepared to respond to a chemical incident today than even two years 
ago. Alert and notification systems have been installed to warn the 
public, in-place communications systems will allow on- and off-post 
responders to communicate effectively, and, through Federally-funded 
public education programs, the public is continually informed of 
protective action measures to be taken in case of a chemical accident.
    FEMA recognizes that not all anticipated emergency preparedness 
equipment has been purchased and/or installed, and, as a result, full 
programmatic capability has not yet been attained in all sites. 
However, many sites have completed the purchase and installation of 
necessary equipment, and are nearing the maintenance phase. While not 
all equipment is in place, operational capability has been attained for 
most benchmark items at each site. Thus, while capability will 
undeniably improve, employable capability exists in nearly every case.
    There have been issues requiring resolution between FEMA and the 
Department of the Army regarding the day-to-day management of CSEPP. 
However, while we recognize that perceptions exist in some quarters 
that the issues are affecting program delivery, both FEMA and the Army 
have worked very closely to ensure the uninterrupted delivery of 
program services. Given the different operating styles of FEMA and the 
Army, it is reasonable to expect periodic problems to arise with 
program delivery. As they have with previous programmatic or stylistic 
differences, both FEMA and the Army have been taking positive steps 
toward resolving those issues and believe that they will be resolved 
shortly for the maximum benefit of the program. It is worthy of note 
that FEMA Director James Lee Witt and Secretary of the Army Togo West 
are personally involved in resolving these issues expeditiously.

                            ARSON INITIATIVE

    Question. In the fiscal year 1997 operating plan, FEMA proposed a 
reprogramming of $775,000 for participation in the President's National 
Arson Prevention Initiative, which was established in response to the 
rash of church burnings last year. Can you tell me precisely what 
FEMA's role is in this initiative, what has been accomplished so far, 
and whether additional funds are requested in fiscal year 1998 to 
continue participating in the President's initiative?
    Answer. In June 1996, the President asked FEMA Director Witt to 
lead a National Arson Prevention Initiative and coordinate available 
public and private sector resources to combat arson nationally. 
Although prompted by the tragic series of fires at houses of worship, 
the Initiative is intended to address the larger problem posed by arson 
in this country. FEMA has been joined in this effort by the Departments 
of Justice, the Treasury, Housing and Urban Development, Education, 
Agriculture, and the Corporation for National Service. Governors in 
States most affected by the church burnings have rallied in their 
support of arson prevention and they, with local leaders throughout the 
country, have been strong partners in the Initiative.
    Each of the major law enforcement, crime prevention, education, 
church, and voluntary groups and organizations have been tremendous 
contributors to the Initiative. In addition, eight national fire 
service organizations pledged their memberships in the fight against 
arson including the Alliance for Fire and Emergency Management 
(International Society of Fire Service Instructors), the International 
Association of Arson Investigators, the International Association of 
Black Professional Fire Fighters, the International Association of Fire 
Chiefs, the International Association of Fire Fighters, the National 
Fire Protection Association, the National Association of State Fire 
Marshals, and the National Volunteer Fire Council.
    Recognizing that arson is a local problem that requires local 
solutions, FEMA's role in the Initiative has been to facilitate 
community arson prevention efforts and apply public and private 
resources to their best effect. Provided for the record is a copy of 
``Fire Stops With You--The National Arson Prevention Initiative: Six 
Month Report to the President.'' This report details the interagency 
and intergovernmental accomplishments of the Initiative from June 
through December 1996.
    The Initiative entered a new phase in January. FEMA is piloting the 
creation of community-based arson prevention coalitions in three cities 
in the Southeast and one city in the Northeast. The cities that are 
participating include Macon, Georgia, Nashville, Tennessee, Charlotte, 
North Carolina, and Utica, New York. The experiences of these 
communities in forming a coalition and actively engaging their 
residents in arson prevention will serve as models for communities 
across the country. Three of the pilot cities will ``launch'' their 
coalitions nationally as part of a series of events occurring during 
National Arson Awareness Week, May 4-10, 1997. As part of that week, 
arson prevention grant awards of $12,000 will be made to every State 
($5,000 to each territory and the District) to encourage and support 
Statewide arson public education and awareness effort.
    Efforts on the full range of arson prevention topics also continue. 
In partnership with the Department of Justice, a series of Statewide 
arson prevention conferences will be conducted over the next several 
months in seventeen States. Additionally, development of training and 
public education materials on juvenile firesetters is underway. Between 
July 1996 and March 1997, the National Arson Prevention Clearinghouse 
received nearly 15,000 telephone calls and distributed approximately 
half a million packets of information.
    The National Arson Prevention Initiative has resulted in a 
framework to support State and local governments that capitalizes on 
available resources from a variety of sources and has resulted in 
increased understanding and awareness of the problem. Individuals have 
begun to recognize the impact that arson has on their lives and have 
become involved in preventing it within their communities. This 
Initiative will be institutionalized and will serve as the umbrella 
strategy for the Agency's overall arson efforts within the U.S. Fire 
Administration. Funding requested for fiscal year 1998 will continue to 
support vital training, public education, and technical assistance 
efforts, as well as the continuance of the National Arson Prevention 
Clearinghouse and the coalition-building efforts.
                mt. weather emergency assistance center
    Question. In the fiscal year 1997 operating plan, FEMA indicated 
the need to renovate and expand building 430 at MWEAC to accommodate a 
rapidly expanding demand for additional training class rooms and 
conference areas, at a cost of $1.67 million. At the time, FEMA said 
``we are currently evaluating options to fund this requirement later 
this fiscal year. Should sufficient funds be available, we will forward 
to you the required reprogramming request.'' What is the status of your 
evaluation? Do you anticipate a reprogramming request? Are any funds 
requested in fiscal year 1998 for renovations at Mt. Weather? When will 
there be a long-term plan for the Mt. Weather facility, and why should 
any renovations take place prior to the completion of such a plan?
    Answer. The Office of Financial Management is conducting a mid-year 
review of all FEMA spending plans. Upon completion of the review, a 
final determination will be made as to the distribution of fiscal year 
1997 funds held for prior year obligations. The expansion of the Mt. 
Weather Training Center has already been determined a high priority 
candidate for any funds that may become available. If funds are 
determined to be available, a reprogramming request will be forwarded.
    Mt. Weather has been selected as the initial participant in FEMA's 
Working Capital Fund (WCF) and in fiscal year 1998, will complete the 
transition to a fully operational mode, continuing to provide office, 
conference, training and billeting accommodations for FEMA and other 
Federal agencies. Currently Mount Weather supports seven internal 
customers and several external Federal tenants. While an aggressive 
marketing plan has been implemented to attract new customers, the 
fiscal year 1998 anticipated income will not fund extensive building 
renovations. Some building maintenance projects such as roof repair, 
road maintenance, painting and concrete repair are planned and will be 
funded through the collections of the WCF.
    Mt. Weather has become a hub of emergency activity since it was 
restructured in 1993 to support the all-hazards mission of the agency. 
A population explosion has occurred during the last 4 years, moving 
from a daily workforce of about 400 employees to one of more than 900. 
The Conference and Training Center (CTC) activity has expanded 
dramatically from fewer than 6,000 students/conferees in 1993 to more 
than 18,000 in fiscal year 1996.
    Much of this growth is attributed to the decision to locate fixed 
disaster operations at Mt. Weather. Six major disaster functions have 
been established at the Facility that include: the National Processing 
Service Center-Virginia; Satellite Teleregistration Center; Disaster 
Finance Center; Disaster Information Systems Clearinghouse; Disaster 
Personnel Operations Division; and the Agency Logistics Center. On a 
day-to-day basis, Mount Weather supports about 250 new disaster CORE 
positions that did not exist in 1993.
    This changed environment requires careful strategic planning to 
support current operations and to accommodate the growth that is likely 
to occur with the implementation of an aggressive marketing effort. As 
part of the strategic planning, a capital expansion plan, based upon an 
assessment of the Agency's operational requirements over the next 5 
years, has been prepared. This plan includes six projects that will 
provide additional space and capability to include major building 
renovations, expansion of training facilities and infrastructure 
improvements.

                       NATIONAL PROCESSING CENTER

    Question. What is the status of the new National Processing Center 
in Hyattsville, MD? How many staff have been hired at Hyattsville, and 
how many additional staff are anticipated?
    Answer. The Hyattsville National Processing Services Center build-
out is nearing completion and FEMA and the General Services 
Administration (GSA) are entering into final lease negotiations. While 
these deliberations are taking place, FEMA has initiated recruitment 
actions for 66 of the 112 baseline staffing positions at the facility 
and has established a Human Resources Management recruiting office on-
site. The Human Resources Management Office will also be responsible 
for the recruitment of surge staff that will provide additional 
operational staffing capacity on a disaster by disaster basis. 
Occupancy of the facility will occur as soon as the lease between FEMA 
and GSA is signed, which is expected to occur sometime during the month 
of June.

                                 INEEL

    Question. In the fiscal year 1997 operating plan, FEMA proposed 
funding for the Idaho Nuclear Engineering Laboratory (INEL) out of 
funds set aside by the Congress for pre-disaster mitigation activities, 
even while the conference report stipulated that no such funds be spent 
until the agency develop a comprehensive pre-disaster mitigation plan. 
Even more astounding in the agency's proposal was the fact that in 
answers to questions proposed by Congressman Jerry Lewis last year, 
FEMA said, ``We advised [INEL] that they should discuss research with 
the National Science Foundation. With limited resources for hazard 
mitigation, it is our opinion that additional research and testing 
facilities are not needed at this time. The money could be better spent 
by taking existing research and putting it into application for use by 
state and local governments to reduce the damages to life and property 
from natural disaster.'' Why did FEMA reverse itself and propose 
funding INEL's research proposal? What is the status of the 
International Multi-hazard Mitigation Partnership to be created by 
INEL, and what is this partnership intending to accomplish?
    Answer. FEMA's response to Chairman Lewis' question regarding the 
Idaho National Engineering and Environmental Laboratory (INEEL) was 
based on an initial proposal presented by INEEL. Later, INEEL changed 
the proposal significantly, to emphasize the concept of a private--
public partnership to promote full-scale environmental hazard 
simulation. INEEL informed FEMA that many private sector potential 
partners were prepared to make significant contributions to this 
initiative if FEMA would step forward and provide an initial financial 
contribution. FEMA technical staff carefully analyzed the revised 
proposal and consulted many of our mitigation partners. The analysis 
and discussion with our partners, underscored some of the benefits of a 
full-scale wind storm simulation facility.
    FEMA recognizes the need to move towards a greater emphasis on 
disaster loss mitigation through the development of policies and 
procedures that may either prevent future losses or reduce their 
magnitude. FEMA has also identified the need for a greater coordinated 
effort in the area of Private-Public partnerships. This need is 
greatest in the area of windstorm mitigation. The FEMA--Department of 
Energy agreement is designed to result in the creation of a new 
mitigation partnership called the International Multi-Hazard Mitigation 
Partnership (IMMP).
    Since the benefits derived under the IMMP will be diffused across a 
broad spectrum, FEMA expects INEEL to identify a broad spectrum of 
technical and financial support. The Agency's continued involvement in 
the IMMP is predicated on a broad coalition being constituted. It 
expects that its financial contribution will be leveraged against the 
contributions of others, particularly the private sector that will reap 
much of the benefit from the testing that will occur at this facility. 
FEMA`s future financial contributions should not be the primary source 
of funding for the IMMP or the construction and use of any proposed 
testing facilities.
    In an effort to advance the IMMP, FEMA agreed to provide an initial 
financial contribution of $1 million dollars. To date, INEEL has 
contributed a similar amount of funds, in both cash and services. To 
ensure accountability, FEMA is providing funding in four installments. 
Presently, the IMMP has received and spent $731,000. The remaining 
funding of $269,000 is proposed to come from the fiscal year 1997 Pre-
disaster Mitigation Program. These funds have recently been obligated 
based on Congressional concurrence with FEMA's proposed Predisaster 
Mitigation Program spending plan.

                             MOBILE ASSETS

    Question. Last year, FEMA identified 10 actions considered to be of 
highest priority for upgrading its mobile response actions. While no 
funds were requested by the administration, the Congress appropriated 
$3.4 million in fiscal year 1997 for the first of these 10 actions. 
What is the total cost associated with the remaining ``high priority'' 
actions, and are any funds requested in fiscal year 1998, and if not, 
why not? How much is requested to maintain the Mobile Emergency 
Response System (MERS)? What is the status of the baseline capability 
assessment of MERS, which was due at the end of calendar 1996? What did 
the baseline assessment reveal? What are the costs in the next 5 years 
required to maintain adequately the MERS system?
    Answer. The projected cost associated with the remaining high 
priority actions is $18.85 million. While the fiscal year 1998 budget 
submission was made prior to the initiation of the baseline assessment 
of the MERS, the annual budget requested $5.75 million for the 
Operation and Maintenance of the MERS. This supports the costs of 
electricity, water, heating oil or gas, trash collection, vehicle/
equipment maintenance, spare parts, maintenance contracts for unique 
equipment and systems, facility maintenance, and training.
    Following completion of the initial phase of the baseline 
capability assessment of MERS in December 1996, a summary of the 
assessment was provided in the Report to Congress. The second phase of 
the baseline assessment will continue in 1997 and the results will be 
used to reprioritize any request included in the fiscal year 1999 
Budget submission. The baseline assessment determined the priority for 
the replacement/upgrade of MERS vehicles and equipment. In addition, a 
list of vehicles and systems no longer required to support the FEMA 
All-Hazard Mission was developed. These vehicles and systems are to be 
declared excess to the needs of MERS and offered to other elements 
within FEMA and through GSA to other Federal Departments and Agencies 
for their use.
    The projected O&M budget of $5.75 million is adequate to maintain 
the MERS if limited or no replacement/upgrade of vehicles or systems is 
accomplished. To insure the replacement/upgrade of those systems 
identified by the baseline assessment is accomplished over the next 5 
years, the additional funds estimated are: fiscal year 1998: $5.15M; 
fiscal year 1999: $5.45M; fiscal year 2000: $4.75M; fiscal year 2001: 
$3.5M. Following these replacements/upgrades, an additional $1.5 
million per year should be programmed to allow for the replacement/
upgrade of other vehicles, equipment, or systems that will become non-
maintainable.
                                 ______
                                 

                Questions Submitted by Senator Campbell

                      fire suppression declaration
    Question. I understand that it is FEMA's responsibility to make a 
Fire Suppression Declaration to get aid to communities in fighting 
wildfires. Is it possible to streamline this process so communities can 
get the help they need in a shorter amount of time?
    Answer. The Fire Suppression Assistance program provides assistance 
to any State for suppression of any fire on publicly or privately owned 
forest or grassland which threatens such destruction that would lead to 
a major disaster declaration.
    The entire process, described below, is accomplished in an 
expedited or streamlined manner, normally by telephone, and many times 
a FEMA decision is rendered within an hour upon receipt at national 
headquarters. FEMA can respond to a State's request for Fire 
Suppression Assistance 24 hours a day.
    The program is administered on a real time active ``incident fire'' 
basis, under which the Governor or authorized representative submits a 
request for assistance to FEMA's Regional Director at the time a 
``threat of a major disaster'' exists. The Region contacts headquarters 
with the State's request, the Regional recommendation, and the U.S. 
Forest Service's Principal Advisors assessment of the fire situation. 
FEMA then evaluates the following factors in order of priority to 
determine the approval of a Fire Suppression Assistance grant:
  --The location of the fire and continued threat to life and improved 
        property.
  --The existence of high fire danger conditions: humidity, wind speed 
        and direction.
  --The availability of State and local resources.
  --The existence of two or more fires in the same area.
    To facilitate program delivery, FEMA has updated the Fire 
Suppression Assistance manual, which should be ready for distribution 
in June of 1997.

                      PUBLIC-PRIVATE PARTNERSHIPS

    Question. Following the Buffalo Creek wildfire and the flooding 
that resulted in Colorado, I understand that FEMA produced some 
educational materials for homeowners. The JANUS group paid for 
production while Rotary Clubs distributed the material. Is FEMA looking 
at this excellent model of a public-private partnership in other areas 
of its responsibility?
    Answer. For the past year and a half, FEMA has been actively 
exploring opportunities to partner with the business sector to develop 
and distribute educational materials and better coordinate and 
communicate with the business sector during and after disasters. 
Director Witt has sponsored several roundtable discussions with 
business and constituency groups to explore partnership opportunities. 
FEMA is currently working with insurance industry representatives on 
several task forces seeking ways we can work together to provide better 
service to mutual customers, and is in the final stages of developing a 
local-based emergency management pilot project designed to include the 
business sector in emergency management planning and operational 
activities at the local level. FEMA has also worked closely with the 
business sector in managing donations of goods and services to 
communities and individuals impacted by disasters.

                           DROUGHT ASSISTANCE

    Question. During and after the devastating drought in the 
Southwest, it seemed to take a long time to get relief to communities 
and individuals in need. Has FEMA considered changing its policy on 
dealing with drought problems as rapidly as it already does with higher 
profile emergencies such as hurricanes?
    Answer. Unlike the immediate devastation usually caused by a 
hurricane, droughts develop and inflict damage over an extended period 
of time. In response to the Drought of 1996, FEMA formed a task force 
to coordinate Federal response to drought affected States by 
identifying needs, applicable programs and barriers to programs, and 
outlining suggestions of the participants for improved drought 
management. At the urging of the Western Governors' Association (WGA) 
Drought Task Force, a Memorandum of Understanding was signed early this 
year which identifies the United States Department of Agriculture 
(USDA) as the lead Federal agency on drought issues. USDA volunteered 
to be the lead agency because agriculture is most severely affected by 
drought. Currently, a Coordinating Council is being formed by the WGA, 
which will include other relevant Federal agencies, including FEMA, to 
address drought on an event-by-event basis and to also establish long-
term planning, mitigation and response policies for droughts.

                          HAZARDOUS MATERIALS

    Question. Some of the nation's major highways run through Colorado. 
This places our citizens at risk as hazardous materials routinely move 
through our state. Do you feel confident that FEMA is prepared to deal 
with emergencies resulting from accidents involving these hazardous 
materials?
    Answer. Initial response to a hazardous materials incident is a 
state and local government responsibility. In Colorado, the State 
Highway Patrol has responsibility for hazardous materials response. 
This organization is well trained and equipped to respond to most 
hazardous materials transportation emergencies. In the event that an 
incident should be severe enough to require a presidential disaster 
declaration, FEMA, in partnership with the Environmental Protection 
Agency (EPA) would respond under the Federal Response Plan. The Federal 
Response Plan has been successfully used in past disasters and I am 
confident that it would save lives and property in the case of a severe 
hazardous materials spill.
                                 ______
                                 

                  Questions Submitted by Senator Craig

                            LANDSLIDE POLICY

    Question. Please clarify what policy, if any, the federal 
government has related to disaster assistance for landslides. Please 
differentiate between FEMA assistance during an incident period as it 
relates to actual slide damage and FEMA assistance either during or 
after the incident period as it relates to potential land slides and 
damage.
    Answer. The FEMA policy related to assistance when landslides 
occur, has remained substantially unchanged since 1984, although it was 
recently (November 30, 1995) republished in a format that FEMA has 
adopted for all disaster assistance program policies. The policy is 
best explained as it relates to two different types of work, emergency 
protective measures, and permanent repair of damaged facilities.
    Eligible emergency protective measures are defined as work 
necessary to alleviate an immediate threat to public health and safety 
or improved property that is the result of a slide caused by the 
declared disaster. When such a slide results in an immediate threat, 
that threat may be reduced by removal of slide material or by temporary 
stabilization. Such emergency work may also be completed if the 
disaster event causes an immediate potential of a slide that would 
damage improved property or endanger public health and safety. 
Emergency protective measures could also include work completed during 
the incident period to reduce immediate threats. The basic eligibility 
question to be answered in both situations is whether the threat is a 
result of the disaster and not a condition that existed before the 
disaster.
    When an eligible facility has been damaged by a landslide, work to 
stabilize the slide is only eligible when it is integral to the 
eligible repair of the damaged facility and when the site is not 
unstable due to a pre-existing condition. The applicant must first 
correct any pre-existing condition before the facility repair will be 
approved by FEMA.
          fema coordination of long term flood recovery plans
    Question. As I understand it FEMA is currently responsible for 
coordinating the response phase of a disaster. Is any agency 
responsible during the recovery phase of federal disaster efforts? In 
your opinion, could FEMA be the lead agency in the recovery phase? If 
so, how would you direct your agency to handle the responsibility?
    Answer. FEMA has been working with the primary Federal departments 
and agencies involved in the Federal Response Plan (FRP) to determine 
if, and how best to integrate recovery into the FRP. The complexity 
arises from the significant difference between response and recovery 
operations. Different authorities, Federal agencies and programs are 
involved during disaster recovery. The full recovery effort may take a 
considerable period of time, and continue long after FEMA field 
operations have been concluded. The State and local role in recovery is 
much more critical because that is where mitigation priorities are 
determined and implemented.
    FEMA has the clear responsibility under statute and executive 
orders to lead and coordinate the Federal response to an emergency or 
major disaster. Normal disaster response includes many of the recovery 
efforts we now engage in for the full range of disasters, including 
floods. At present, FEMA addresses recovery issues on a case by case 
basis with our State and Federal counterparts to determine: (1) what 
recovery efforts are appropriate; (2) who should participate; and (3) 
what resources are available. FEMA's long-term goals to reduce the 
impacts of future disasters can often be implemented by focusing on 
increased mitigation efforts during the recovery phase. In addition, 
during this year's Midwest floods, FEMA was asked by President Clinton 
to establish a Long-Term Recovery Task Force to coordinate the Federal 
effort. This approach may serve as a model for our future efforts; 
however, to do this effectively additional personnel and financial 
resources should be required. Normally, FEMA would transition out of 
the recovery process as quickly as possible to free up critical 
manpower and resources for other disasters, and to permit State and 
local authorities to assert themselves in carrying out their recovery 
responsibilities.
    We acknowledge that specific Federal programs may continue as an 
integral component of the long-term recovery effort. These programs 
would operate under their own authorities and program guidelines.

     PRE-DISASTER MITIGATION/INTERNATIONAL MULTI-HAZARD MITIGATION 
                              PARTNERSHIP

    Question. The President's budget request includes funding for pre-
disaster mitigation. Would you please tell the subcommittee what 
specifically that funding is intended to accomplish?
    Answer. Specifically, our priority goal is to reduce the impact of 
natural hazards on public facilities eligible for disaster assistance 
under the Stafford Act.
    Question. Do you feel there is a need for additional technical 
knowledge to help understand the science of how physical structures 
react to disasters?
    Answer. FEMA recognizes the need to improve our understanding of 
how structures react to natural hazard events. Improved understanding 
may either prevent future losses or reduce their magnitude. For this 
reason, FEMA's National Mitigation Strategy (NMS) has identified 
applied research and technology transfer as one area for further work.
    Question. Do you feel there is a role for the national laboratories 
in the pre-disaster mitigation program? What is that role?
    Answer. The Department of Energy's National Engineering and 
Environmental Laboratories have a long history of developing and 
transferring state-of-the-art technologies throughout the public and 
private sectors. The laboratories have been involved in studying the 
effects of natural hazards for many years, such as the effects of high 
winds and earthquakes on nuclear facilities. Currently the laboratories 
have numerous initiatives underway in the area of natural hazards 
mitigation. As examples, the Idaho lab is implementing the 
International Multihazard Mitigation Partnership, intended to promote 
full-scale simulation of natural hazards on structures and the Oak 
Ridge lab has formed a partnership with the Roofing Industry Council On 
Wind Impacts (RICOWI) to study the effects of high winds from tornadoes 
hurricanes on roofing systems.
    Question. Could you explain FEMA's position on the need for full-
scale testing of physical structures against simulated environmental 
phenomena?
    Answer. There is a broad agreement, both inside and outside 
government, that a full scale wind test facility may improve our 
understanding of the performance of buildings, structures, and 
infrastructure when exposed to high winds associated with hurricanes, 
coastal storms, gust fronts, thunderstorm downbursts, and limited 
tornado scenarios.
    FEMA and the Department of Energy have an inter-agency agreement to 
establish a mitigation partnership called the International Multi-
Hazard Mitigation Partnership (IMMP). The IMMP shall work to achieve 
relevant goals of the National Mitigation Strategy, specifically the 
coordination of applied research and the implementation of research 
results and public education. The IMMP will emphasize wind hazard 
mitigation and utilize the Idaho National Engineering and Environmental 
Laboratory (INEEL) as its applied research instrument.
    Since the benefits derived under the IMMP will be diffused across a 
broad spectrum, FEMA and INEEL believe there must be a broad coalition 
of technical and financial support. FEMA's continued partnership with 
INEEL is predicated on such a broad coalition being established. 
Therefore, FEMA expects that its financial contribution will be 
leveraged against the contributions of others and that the agency's 
future financial contributions will not be the primary source of 
funding for the IMMP or the construction and use of any proposed test 
facilities.
                                 ______
                                 

                Questions Submitted by Senator Mikulski

                    MARYLAND FLOOD TASK FORCE REPORT

    Question. What commitments if any has FEMA made to assist with the 
projects recommended in the Task Force Report?
    Answer. FEMA has committed to working with the State of Maryland in 
order to define statewide mitigation priorities relative to the 
projects and measures identified in the Western Maryland flood 
mitigation report. Prioritization will be based upon costs, projected 
benefits, the effectiveness of the measures, and any other criteria 
which the State believes need to be included. This is a critical step 
in the process of carrying out the mitigation measures and actions 
delineated in the report since the estimated cost of them is, at this 
point, well beyond even those resources available nationwide.
    Question. What time-line has FEMA committed to providing any 
assistance to Maryland for projects outlined in the Flood Task Force 
Report?
    Answer. Two of the projects have already been approved for hazard 
mitigation grant program funds: (1) the floodproofing of the Hancock 
waste water pumping station and (2) floodproofing of the Friendsville 
water treatment plant.
    Question. Will any of the localities be eligible for a greater 
match from FEMA than 75 percent?
    Answer. Matching for hazard mitigation grants is set at 75 percent 
Federal/25 percent State by the Stafford Act.

                    FLOOD INSURANCE CLAIM PROCESSING

    Question. What steps have been taken in the last year by FEMA to 
improve flood insurance claim processing?
    Answer: While there are no published industry guidelines, the 
private insurance industry accepts average claims closure of 60 days. 
They expect 90 percent of all claims to be closed in 90 days. The NFIP 
processing compares very well with private industry. Our record is 
above private industry standards when you consider NFIP's losses are 
much more severe and more difficult to adjust than windstorm losses 
sustained by private industry in similar events.
    In fact, private industry standards for claims check processing is 
7 days from receipt of proof of loss. The average claims check 
processing time for the NFIP is 3 days. Additionally, the standard for 
claims adjustments averages 45 days from receipt of notice of loss. The 
NFIP average is 31 days.
    Ninety-two percent of the National Flood Insurance Program (NFIP) 
policies are written by private insurance companies participating in 
the Write Your Own (WYO) Program under an agreement with the Federal 
Insurance Administrator. The agreement calls for the WYO Companies to 
handle flood insurance as they would any other line of business.
    When a claim is presented by the policyholder, the WYO company 
handles the claim as if it were any other line of business they write. 
Depending on their own rules, they will allow the agent to assign the 
claim to an independent adjuster or the company will make the 
assignment themselves, either to an independent or staff adjuster.
    The other 8 percent of the NFIP policies are handled by the NFIP 
Servicing Agent, National Con-Serv Incorporated (NCSI). These flood 
policies are written through an insurance agent, but there is no 
private company involved. The Federal Insurance Administration (FIA) 
has staff on site to oversee the claims and policy operations.
    At the time of a disaster, the WYO companies or NFIP Servicing 
Agent decide whether to set up a claims office in the area of the 
flooding. This generally depends on how many claims each entity expects 
from the flooding event. Some of the WYO Companies have contracts with 
independent insurance adjusting firms to handle the flood claims; 
others rely on the local agents' knowledge of competent local adjusters 
to handle the claims; and others assign the claims, or some of them, to 
staff adjusters.
    It should be remembered that the NFIP is an insurance operation and 
must deal with an insurance contract that spells out what is covered 
(paid) and under what circumstances. An adjuster is assigned to 
determine what coverage is available to the insured, what the true 
damages are, and what the values of the damaged items are. In order to 
do this, the adjuster must write a building estimate and help the 
insured compile a damaged contents list. All of this activity takes 
some time and may require several visits to the same structure to 
conclude the loss.
    When a homeowner reports a fire claim under his homeowners policy, 
it is assigned to an adjuster, generally a staff adjuster, who has a 
backlog of about 30 claims, assigned to him over a period of a month. 
In a flood catastrophe, the adjuster is assigned about 30 claims, or 
more, all at once. Some structures are not ready to be inspected, 
either because they are not completely dry or actually have flood 
waters in them. Some dwellings are secondary dwellings, and the 
insureds are not in the area. In hurricane catastrophes, some areas are 
inaccessible, either because the roads/bridges are washed out or it is 
too dangerous for anyone other than emergency or repair people to 
enter.
    The FIA has Computer Sciences Corporation under contract to act as 
the NFIP Bureau and Statistical Agent. One of their duties is to employ 
experienced, knowledgeable property insurance ``general adjusters'' 
(GA's) to be in the field to help the company and the NFIP Servicing 
Agent adjusters with claims handling in general and with specific 
coverage questions. The GA's also conduct reinspections of claims to 
determine if the rules and regulations of the NFIP are being followed.
    Also, the FIA has seven claims professionals who oversee various 
aspects of the claims process and are available to give guidance to the 
companies, contractors and adjusters. They also handle claims appeals 
that deal with technical issues. The FIA staff go into the field to 
help in the overall claims process and to give support to the Federal 
Coordinating Officer (FCO) at the Disaster Field Office (DFO). The FCO 
is also supported by the NFIP Bureau and Statistical Agent staff in the 
aftermath of a Presidentially declared disaster.
    Finally, to improve NFIP claims processing, the Bureau and 
Statistical Agent holds adjuster workshops all over the United States. 
The adjuster workshops teach what is expected by the NFIP on claims 
handling processes and also claims coverage. Some of these workshops 
are done in conjunction with workshops put on by the larger independent 
claims adjustment firms or for staff adjusters of individual WYO 
Companies. In fiscal year 1996 FEMA conducted 33 workshops.

                           MITIGATION EFFORTS

    Question. Director Witt, like you, I am an advocate for strong 
mitigation efforts that take a proactive approach to reducing the 
impact from nature's fury. At last year's hearing, you mentioned that 
FEMA was working on Memoranda of Understanding (MOU's) with the States 
to establish a statewide mitigation plan within each State where they 
identify their high-priority mitigation projects. What is the status of 
the MOU's? What are the State plans looking like--are the standards 
consistent with FEMA's view of what standards States should meet?
    Answer. After last year's hearings, a workgroup composed of both 
FEMA and State representatives met and determined that there are 
several existing FEMA/State documents beyond MOU's that can serve as 
tools for resolution and clarification of issues. These documents range 
from formal long-term agreements (such as the Performance Partnership 
Agreements), to extremely detailed operational documents (such as the 
Hazard Mitigation Grant Program Administrative Plan).
    Because of the existence of these other tools, FEMA and the 
National Emergency Management Association decided to leave it up to 
each State whether or not they wish to develop a separate MOU with FEMA 
in order to capture high-priority mitigation projects and other 
critical pieces of information that could streamline State mitigation 
activities. FEMA's Regional Offices are currently working with the 
individual States to determine their interest in developing separate 
MOU's.
    Question. FEMA's budget request for fiscal year 1998 includes $50 
million for a pre-disaster mitigation program. Has the program been 
authorized? If not, what is the status of FEMA's attempt to get the 
program authorized? Will the program take into account lessons learned 
in past mitigation work by FEMA and local communities? What are the 
eligibility criteria for communities seeking funding? Will communities 
that have received post-disaster mitigation money in the past be 
eligible for funds? Has FEMA done an analysis of how much money could 
be saved by doing needed pre-disaster mitigation?
    Answer. There is presently no statutory authority for the pre-
disaster mitigation program for which FEMA has requested $50 million in 
fiscal year 1998 appropriations. However, by July 4 we will be 
submitting draft legislation to amend the Stafford Act to authorize a 
pre-disaster hazard mitigation program.
    In designing the Pre-Disaster Mitigation Program (using the $2 
million already provided by the Congress in fiscal year 1997), FEMA 
considered lessons learned from Federal, State and local mitigation 
activities in order to ensure the success of the program. For example:
  --Historically, the most successful mitigation actions have been 
        those which involved persons and organizations from across the 
        community. That is why the Pre-Disaster Mitigation Program will 
        encourage communities to bring all the necessary players to the 
        table from the very beginning to develop a consensus regarding 
        mitigation needs and priorities.
  --In many areas, the support of the private sector has been critical 
        in gaining the necessary resources and support for mitigation 
        work, and in ensuring that the subject mitigation actions 
        protect the economic health and vitality of target communities. 
        That is why FEMA's Pre-Disaster Mitigation Program will place 
        such a heavy emphasis on bringing in private sector partners 
        (such as insurance companies, financial institutions, and area 
        manufacturers) at an early stage.
  --Communities often have difficulty managing unreasonable 
        administrative requirements associated with Federal programs. 
        At FEMA, we are committed to reducing paperwork and 
        bureaucratic red-tape in the delivery of this new mitigation 
        program.
  --Both past experience and research have demonstrated that mitigation 
        is a ``dollars and cents'' issue (i.e., incentives are 
        necessary to effectively encourage mitigation at the State and 
        local levels). This is the reason why the Pre-Disaster 
        Mitigation Program will leverage State, local and private 
        sector contributions with Federal project funding.
    While these are but a few examples of how we plan to use ``lessons 
learned'' from past experience, they demonstrate that we are trying to 
avoid past mistakes and maximize our successes in implementing this new 
program at FEMA.
    The communities selected to participate in the program will be 
chosen according to a number of factors, including: their level of 
risk; the degree to which the proposed pre-disaster mitigation actions 
and processes will reduce that risk; and the ability to transfer the 
processes, approaches, or technologies to similar at-risk communities 
throughout the United States. In addition, communities will be selected 
according to the proposed level of commitment of State, local, and 
private sector partners (i.e., time, funding and resources brought to 
the table). This should help maximize the ``bang for the buck'' 
realized for each taxpayer dollar invested through the Pre-Disaster 
Mitigation Program. Communities will not be disqualified or lowered on 
the priority list simply because they have experienced past disasters 
and have received prior mitigation funding from FEMA.
    The actual level of cost-savings resulting from this program are 
difficult to quantify at this time, since the return on the Federal 
investment will be highly project-specific, and will vary upon the 
amount of non-Federal contribution to each activity. However, we have 
found that mitigation measures return, on average, more than $2 for 
every $1 invested. This demonstrates that an investment in pre-disaster 
mitigation now will result in real cost-savings over the long-term to 
the American taxpayer.

                 FITNESS FOR DUTY/PREPAREDNESS TRAINING

    Question. What is the status of FEMA's work with states on 
developing a plan to evaluate state capability that gauges fitness for 
duty, and not just written reports?
    Answer. FEMA is currently working with our partners to develop a 
formal system that will enable us to assess the effectiveness of State 
and local capabilities. The goal is to create an assessment system that 
will be acceptable to all States and will result in a reliable and 
consistent national evaluation of the state of readiness in the nation. 
Our intent is to have the capability assessment tool tie into and 
complement the States' strategic plans developed as a part of their 
performance partnership agreements developed cooperatively by FEMA and 
the State and local emergency management departments and agencies. We 
expect that we will soon be able to provide an objective appraisal of 
their capabilities and progress.
    It is intended that States will use these Mitigation Assistance 
funds to enhance their capabilities to implement mitigation, and 
provide assistance to local governments to implement mitigation. As a 
result, these funds should have minimized any impact that reduced SLA 
support would have on State mitigation programs.
    Question. The budget request asks for $11.3 million less for 
Preparedness, Training and Exercises. I understand that some of this is 
due to limiting development, revision, and dissemination of field 
courses. How will this impact the ability of FEMA to ensure we have 
adequate fitness for duty training?
    Answer. Nearly 80 percent of the $11.3 million reduction results 
from the redistribution of funds that support the Mt. Weather Emergency 
Assistance Center from the Preparedness, Training and Exercises 
activity to users/customers of the facility. A shift to decentralized 
counter-terrorism programs results in the reduction of approximately 17 
percent of the total reduction. Lastly, less that a two percent 
reduction applied to training activities. This $200,000 reduction will 
somewhat reduce centrally-developed materials which support field 
delivery of training, and will defer two course development/revision 
projects. FEMA has not taken any steps that will reduce fitness for 
duty training, either for our State and local partners, or for in-house 
personnel.
    Question. The Maryland Emergency Management Agency and the National 
Emergency Management Association have contacted me about the negative 
impact experienced at the local level by reductions in the State and 
Local Assistance Grants (SLA). My understanding is that there was a 
$2.9 million cut to SLA for deficit reduction purposes, and that FEMA 
has requested additional money for the account to bring it back up to 
fiscal year 1996 levels. What impact has the cut had on States' 
response and recovery and hazard mitigation efforts?
    Answer. FEMA's fiscal year 1998 budget request for SLA is at the 
same level as the fiscal year 1997 appropriation. This request includes 
funding in support of implementing counter-terrorism activities and 
improving HAZMAT emergency preparedness. FEMA also has several other 
programs that provide assistance, directly or indirectly, to State and 
local governments for the development and enhancement of emergency 
management capabilities.
    The decrease in SLA funds should have had no impact on States' 
mitigation efforts. In fiscal year 1997, FEMA provided an additional $3 
million to States for the purpose of enhancing their capabilities to 
implement hazard mitigation efforts. These Mitigation Assistance funds 
were distributed equally among all 56 States and Territories. 
Additionally, FEMA provides risk-based funds to States that have an 
identified hurricane or earthquake hazard (in fact, during 1997 FEMA 
doubled the funding it provides to hurricane-prone States). Both of the 
Hurricane and Mitigation Assistance funds are provided to States as 
elements of the Mitigation Assistance Program, which is part of the 
FEMA/State Performance Partnership Agreement/Cooperative Agreements 
(PPA/CA) process.
    Our current approach emphasizes development of partnerships with 
State and local emergency management departments and agencies that will 
allow greater flexibility to better meet their needs. FEMA provides 
grants to the States and encourages the locals to work through their 
States to ensure a coordinated effort in working towards the objectives 
identified in their Performance Partnership Agreements. These 
partnerships are based on the expectation, and the confidence, that 
giving the States greater control over the process will enable the 
States and their subdivisions to perform more effectively and 
efficiently. We are developing a nationwide capability assessment 
process in fiscal year 1997 which will allow us to provide an objective 
appraisal of the level of capability among all pieces of the emergency 
management partnership nationwide, and our progress.

            DISASTER RELIEF (FEMA REPORT ON REDUCING COSTS)

    Question. During consideration of last year's VA-HUD bill, FEMA was 
directed to submit a report within 120 days proposing steps to reduce 
disaster relief costs. The draft of this report was delivered to staff 
last week. What has FEMA done to reduce disaster relief costs? How 
effective have these efforts been in reducing costs?
    Answer. As indicated in FEMA's March 13, 1997 Report to Congress 
entitled ``Improving Management Controls in the Disaster Relief Fund,'' 
major steps have been taken in the administration of disaster programs 
that have not only helped contain costs, but have also resulted in 
better and more timely service to our customers. Chief among these 
steps is the central processing of our Human Services Programs. We no 
longer establish Disaster Application Centers throughout the declared 
areas or a separate processing center for each disaster--which can be 
very costly in terms of staff and equipment. Rather, disaster victims 
are encouraged to call a toll-free number to register for assistance, 
and all applications are processed at one of three National Processing 
Service Centers. In a similar fashion, a single Disaster Finance Center 
has been established to aggregate disaster payments and reduce overhead 
costs.
    Administrative improvements have been accomplished in many other 
areas to streamline our operations and reduce costs. These include the 
establishment of a Disaster Resources Board to review and monitor 
funding for those support functions needed to support all disasters, 
and reinvigorated efforts for disaster debt collection and disaster 
close-outs.
    FEMA also has a major initiative underway to streamline the Public 
Assistance Program, and has proposed measures to reduce program costs 
by limiting eligibility for certain types of assistance. These measures 
were addressed in a separate March 13, 1997 Draft Report to Congress, 
entitled ``Reducing Disaster Relief Expenditures.'' That report has 
been transmitted to our State partners in emergency management for 
review and comment.
    However, a number of the recommendations from that report are 
already in the process of being implemented.
  --A final report with recommendations to streamline the Public 
        Assistance Program will be issued by late April, and measures 
        to streamline the program will be pilot tested by early summer.
  --A proposed rule was published in October 1996 to limit appeals from 
        three to two. FEMA is now in the process of preparing a final 
        rule to reduce the number of appeals.
  --A massive training effort was undertaken in the past year to train 
        Public Assistance Inspectors to ensure that the program is 
        implemented efficiently and consistently. Over the past two 
        years over 1,000 inspectors have been trained.
  --On February 20, 1997 FEMA issued an interim policy stating that 
        trees and shrubs would no longer be an eligible cost under the 
        Public Assistance Program. On March 10, 1997 a formal policy 
        disallowing trees and shrubs was sent to all FEMA regions and 
        to States for review and comment.
  --FEMA is in the process of preparing legislative changes that would 
        implement many of the other recommendations of the draft 
        report.
    It is difficult to calculate the cost savings of many of our 
administrative or program improvements, though we do have specific cost 
figures on some of these measures. FEMA, in a study two years ago, 
calculated that using teleregistration rather than Disaster Application 
Centers for the Human Services Programs has reduced the cost per 
application from $59 to under $14. FEMA's accelerated disaster close-
out effort has resulted in closing out 415 Human Services Programs, 
with a reconciliation of more than $1.8 billion in the Disaster Relief 
Fund. Of this amount nearly $403 million in obligation authority was 
returned to the Fund.
    Measures to streamline the Public Assistance Program, and to 
restrict types of assistance, are still in the early stages of 
development and implementation so their effectiveness has not yet been 
measured. Cost-savings could potentially be great if substantive 
measures are taken to refocus this program on essential governmental 
facilities and the protection of life and property.
    Question. Which of the options for reducing costs outlined in the 
FEMA report can realistically be implemented in the next 1-2 years?
    Answer. Those recommendations which do not require statutory change 
could be implemented in the next 1-2 years.
    Question. What is FEMA's time-line for implementing the options 
noted in the FEMA report?
    Answer. Those recommendations which can be done without statutory 
change can be implemented within the next 1-2 years. FEMA will also be 
submitting a legislative proposal by July, 1997 to implement those 
recommendations which require statutory change.
    Question. What is the status of work on clarifying the criteria for 
disaster declarations?
    Answer. In the Fall of 1996, FEMA established a Panel on Disaster 
Cost Savings to examine, among other things, the issue of declaration 
criteria. Upon analysis and consultation with our partners, we have 
concluded that the high costs in the disaster program are driven by the 
number of large major disasters and broad eligibility criteria, rather 
than the number of declarations.
    We believe that the current declaration criteria continue to be 
appropriate, and, in order to reduce costs, have placed major focus on 
streamlining activities and targeting eligibility. However, factors 
used to judge severity, magnitude and impact are being updated to 
reflect current dollars and procedures for conducting Preliminary 
Damage Assessment are being reengineered.

           CHEMICAL STOCKPILE EMERGENCY PREPAREDNESS PROGRAM

    Question. FEMA and the Army have been working jointly on the 
Chemical Stockpile Emergency Preparedness Program (CSEPP). I know there 
has been some dispute over the management of the program, and the 
funding of some programs and activities that didn't necessarily fit the 
mission of the program. What is the status of FEMA's involvement with 
the CSEPP program?
    Answer. There have been issues between FEMA and the Department of 
the Army regarding the day-to-day management of CSEPP that require 
resolution. However, while we recognize that there is a perception in 
some quarters that the issues are affecting program delivery, both FEMA 
and the Army have worked very closely to ensure the uninterrupted 
delivery of program services. Given the different operating styles of 
FEMA and the Army, it is reasonable to expect periodic problems to 
arise with program delivery. As they have with previous programmatic or 
stylistic differences, both FEMA and the Army have been taking positive 
steps towards resolving these issues and believe that they will be 
resolved shortly for the maximum benefit of the program. It is 
important to note that FEMA Director James Lee Witt and Secretary of 
the Army Togo West are personally involved in resolving these issues 
expeditiously.
    Question. What are some improvements that you think both the Army 
and FEMA could make to ensure that we are getting the most bang for the 
taxpayers buck, and to make sure we are sticking to the mission of the 
program?
    Answer. With respect to program funding, of over $536 million 
requested to date by the States to support the program, only $240 
million has been provided. In many instances, this difference is the 
direct result of the Federal government's insistence that only projects 
consistent with CSEPP policy be funded. Thus, while in some instances 
States and local governments continue to make budgetary requests which 
exceed programmatic needs, FEMA is confident that strong program 
oversight has minimized the approval of these excess or extravagant 
projects.

                      NATIONAL DAM SAFETY PROGRAM

    Question. The National Dam Safety Act was signed by the President 
in October. This program to help States prevent dam failures seems like 
a prudent investment toward protecting people and property below dams, 
especially considering there are over 1,800 unsafe dams in the country. 
There are 55 high hazard dams in Maryland alone--many of which don't 
have effective emergency warning plans. The issue of effective warning 
systems was raised after the flooding at Port Deposit, Maryland last 
year. What is FEMA doing to implement the Dam Safety Act Program?
    Answer. After the National Dam Safety Act was signed into law, FEMA 
developed a work plan, which established a mechanism and process for 
implementing the new legislation. The work plan consists of nine 
sections:
  --Establish an Interagency Committee on Dam Safety (ICODS).--ICODS 
        was originally established in 1980 under Executive Order 12148 
        and operated under a Charter published in the Federal Register 
        on August 28, 1985. Now that the National Dam Safety Act has 
        codified the ICODS, the group's charter is being revised to 
        reflect its new status.
  --Develop and Complete the Implementation Plan for the Dam Safety 
        Program.--A task force, including representatives from FEMA, 
        the Departments of Agriculture, Defense and Interior, the 
        Federal Energy Regulatory Commission, and the States, has been 
        formed to accomplish this initiative. To date, the Task Force 
        has met three times and the assignments made to members have, 
        to date, progressed on schedule. The Task Force is on course 
        for completion of the implementation plan by the deadline 
        established in the National Dam Safety Act.
  --Training for State Dam Safety Officials.--An ICODS training 
        subcommittee has been revived, and members are now working on 
        developing a list of priorities for new training courses. In 
        addition, FEMA recently developed two new courses: (1) Dam 
        Safety Emergency Action Plan Development for Dam Owners; and 
        (2) Dam Safety Emergency Action Plan Exercise Development for 
        Dam Owners. If the funds that were authorized for training are 
        appropriated by the Congress, the dissemination of new training 
        opportunities will escalate.
  --Establish Goals, Objectives, Priorities, Schedules, and Regulations 
        for Implementing the National Dam Safety Program.--The Task 
        Force, in a largely parallel effort, is developing information 
        on goals, objectives, priorities and schedules necessary to 
        prepare the needed regulations. All activities are on schedule 
        at this time.
  --Provide Recommendations on Establishment of the National Dam Safety 
        Review Board.--The Act specifies the composition of this Board, 
        and the Task Force is in the process of developing 
        recommendations to present to the FEMA Director on the 
        feasibility, desirability and viability of forming this Board.
  --Develop and Implement a Program of Technical and Archival 
        Research.--This assignment is being accomplished at two levels: 
        (1) the ICODS Subcommittee on Research has been established and 
        will identify research needs both at the Federal and non-
        Federal level; and (2) the National Performance of Dams Program 
        (located at the Center on the Performance of Dams at Stanford 
        University) has been established as an outreach mechanism to 
        obtain information and data on dams.
  --Prepare a Biennial Report to Congress on the Status of the National 
        Dam Safety Program for Fiscal Year 1996-97.--FEMA has been 
        providing biennial reports to the President and Congress since 
        1980. This process will continue. The 1996-97 report will be 
        ready to transmit to Congress and others by December 31, 1997.
  --Report to Congress on the Availability of Dam Insurance.--We have 
        solicited information from the Federal Insurance Administration 
        and the Insurance Industry, and are in the process of analyzing 
        available data. This report should be ready by April 30, 1997.
  --Develop a Staffing Plan for Implementing the National Dam Safety 
        Program.--At this time, two FTE are dedicated to the Program. 
        No change in the staffing level is anticipated for fiscal year 
        1998.
    Question. I understand that one dam failure last year alone caused 
$5.5 million in damages and the death of one woman. What amount of 
disaster relief funds have been spent by FEMA as a result of dam 
failures over the past five years?
    Answer. While dam failures may have resulted from some incidents, 
they have not been the principal cause of any recent major disaster 
declarations. FEMA's charting of the causes of natural disasters 
generally reflects the weather event (hurricane, storms, tornadoes, 
etc.) which was the initial cause of the declaration.

    COORDINATION EFFORTS WITH COUNCIL ON ENVIRONMENTAL QUALITY (CEQ)

    Question. I know that FEMA works in partnership with other 
agencies. Working in partnerships with other agencies can help produce 
a more effective and efficient government approach to disaster 
readiness, response, recovery, and mitigation. What is FEMA doing to 
coordinate with the Council on Environmental Quality (CEQ) to make sure 
that environmental mandates don't impede relief efforts?
    Answer. FEMA has historically coordinated with CEQ as we developed 
improved environmental compliance methodologies or as complex and 
controversial issues have arisen. Of special note is the fact that CEQ 
recently hired an individual to act as primary point of contact with 
FEMA. This provides a mechanism to better interact with CEQ as we 
continue to improve the process to evaluate and minimize environmental 
impacts of our activities while ensuring environmental mandates do not 
impede relief efforts.
    FEMA, in coordination with CEQ, has undertaken several significant 
initiatives recently which have helped reduce potential impediments of 
environmental compliance. The most significant initiatives include:
  --FEMA has revised its environmental regulations at 44 CFR adding to 
        its list of Categorical Exclusions activities requiring minimal 
        environmental review and documentation. This has reduced 
        environmental review requirements by as much as 50 per cent for 
        some Agency programs.
  --FEMA has provided a National Environmental Policy Act (NEPA) 
        training course to over 300 FEMA and State Emergency Management 
        staff Nationwide to enhance the capabilities of individuals 
        involved in environmental review. This has served to provide 
        the State Agencies who administer many of FEMA's programs with 
        the ability to identify and resolve environmental issues early 
        in the relief effort or project development phase.
  --FEMA has hired seven Regional Environmental Officers to coordinate 
        environmental issues in the field. This is a significant step 
        in the process of decentralization of environmental review that 
        will allow for improved coordination between FEMA, other 
        federal agencies, and State and local officials on 
        environmental issues related to disaster relief efforts.
    Question. I suggested to CEQ Chairman Katie McGinty at their 
hearing in February that FEMA, CEQ and other relevant agencies develop 
SWAT teams that can rapidly determine emergency provisions in 
environmental regulations so that relief efforts won't be unduly 
delayed while FEMA is trying to save lives. What can you commit FEMA to 
doing regarding this coordination of SWAT teams? What can FEMA do to 
involve CEQ in its simulation maneuvers?
    Answer. It is very important to note that provisions within the 
Stafford Act and FEMA's regulations are in place to ensure that 
environmental requirements will never delay FEMA's immediate efforts to 
save life or property. The issue of streamlining environmental review 
requirements by utilizing emergency provisions and through coordination 
with other Federal agencies is an issue which is more relevant in FEMA 
undertakings for which there is sufficient time to plan and evaluate an 
action.
    One of the primary responsibilities of the recently created 
position of Regional Environmental Officer is to coordinate 
environmental issues immediately following a disaster event. This 
includes being located at the Disaster Field Office to coordinate with 
relevant agencies such as the Environmental Protection Agency, the Army 
Corps of Engineers, and the U.S. Fish and Wildlife Service in order to 
streamline implementation of the requirements of the environmental laws 
that these agencies administer. FEMA will continue to further define 
the roles of the Regional Environmental Officers and work with CEQ to 
ensure coordination of relevant agencies, an approach which is 
consistent with the ``SWAT'' team concept.

                          SUBCOMMITTEE RECESS

    Senator Bond. The subcommittee stands in recess until April 
8, at 9:30 a.m., when we will take testimony from the EPA.
    [Whereupon, at 10:58 a.m., Tuesday, March 18, the 
subcommittee was recessed, to reconvene at 9:30 a.m., Tuesday, 
April 8.]


 DEPARTMENTS OF VETERANS AFFAIRS AND HOUSING AND URBAN DEVELOPMENT AND 
        INDEPENDENT AGENCIES APPROPRIATIONS FOR FISCAL YEAR 1998

                              ----------                              


                         TUESDAY, APRIL 8, 1997

                                       U.S. Senate,
           Subcommittee of the Committee on Appropriations,
                                                    Washington, DC.
    The subcommittee met at 9:34 a.m., in room SD-138, Dirksen 
Senate Office Building, Hon. Christopher S. Bond (chairman) 
presiding.
    Present: Senators Bond, Burns, Shelby, Craig, Mikulski, 
Leahy, Lautenberg, and Boxer.

                    ENVIRONMENTAL PROTECTION AGENCY

STATEMENT OF CAROL M. BROWNER, ADMINISTRATOR
ACCOMPANIED BY:
        FRED HANSEN, DEPUTY ADMINISTRATOR
        SALLYANNE HARPER, ACTING CHIEF FINANCIAL OFFICER
        AL PESACHOWITZ, ASSISTANT ADMINISTRATOR, OFFICE OF 
            ADMINISTRATION AND RESOURCES MANAGEMENT
        JONATHAN Z. CANNON, GENERAL COUNSEL
        DAVID GARDINER, ASSISTANT ADMINISTRATOR, OFFICE OF POLICY, 
            PLANNING AND EVALUATION
        ROBERT PERCIASEPE, ASSISTANT ADMINISTRATOR, OFFICE OF WATER
        TIMOTHY FIELDS, ACTING DEPUTY ASSISTANT ADMINISTRATOR, OFFICE 
            OF SOLID WASTE AND EMERGENCY RESPONSE
        MARY NICHOLS, ASSISTANT ADMINISTRATOR, OFFICE OF AIR AND 
            RADIATION
        STEVE HERMAN, ASSISTANT ADMINISTRATOR, OFFICE OF ENFORCEMENT 
            AND COMPLIANCE ASSURANCE
        LYNN R. GOLDMAN, ASSISTANT ADMINISTRATOR, OFFICE OF PREVENTION, 
            PESTICIDES AND TOXIC SUBSTANCES
        ROBERT J. HUGGETT, ASSISTANT ADMINISTRATOR, OFFICE OF RESEARCH 
            AND DEVELOPMENT
        WILLIAM A. NITZE, ASSISTANT ADMINISTRATOR, OFFICE OF 
            INTERNATIONAL ACTIVITIES
        NIKKI L. TINSLEY, ACTING INSPECTOR GENERAL
        JULIE ANDERSON, ACTING ASSOCIATE ADMINISTRATOR, OFFICE OF 
            CONGRESSIONAL AND LEGISLATIVE AFFAIRS
        MARY LOUISE UHLIG, ACTING ASSOCIATE ADMINISTRATOR, OFFICE OF 
            REGIONAL OPERATIONS AND STATE/LOCAL RELATIONS
        PHILIP LANGRIGAN, EPA CONSULTANT, CHILDREN'S OFFICE
        J. CHARLES FOX, ASSOCIATE ADMINISTRATOR, OFFICE OF REINVENTION
        W. MICHAEL MC CABE, REGIONAL ADMINISTRATOR, EPA REGION, III
        KATHRYN S. SCHMOLL, COMPTROLLER
        ELIZABETH CRAIG, DIRECTOR, BUDGET DIVISION

                OPENING STATEMENT OF CHRISTOPHER S. BOND

    Senator Bond. Good morning. The subcommittee will come to 
order.
    We meet this morning to take testimony from the 
Environmental Protection Agency on its fiscal year 1998 budget 
request. The request totals $7.6 billion, an increase of $845 
million, or 12 percent over the current budget. Today, we are 
pleased to welcome EPA Administrator Carol Browner, Deputy 
Administrator Fred Hansen, and other EPA officials.
    While most agencies in the VA-HUD portfolio have budget 
requests which would maintain current services at best, EPA 
would enjoy increases in virtually every programmatic area 
under the President's proposal with the exception of clean 
water State revolving funds. Not surprisingly, I do not believe 
EPA's proposal is realistic in the budget environment in which 
we are operating.
    Overall spending available to this subcommittee for 
Veterans Affairs and Housing and Urban Development, EPA, NASA, 
and other areas may not be significantly more than a freeze at 
the current year's level. Yet to maintain current health care 
service for veterans, at last $500 million above last year's 
level would be needed. About $5.6 billion would be needed to 
maintain existing low-income housing contracts scheduled to 
expire next year, and a total of $5 billion will be needed to 
meet FEMA disaster assistance requirements this year and next 
year. Clearly, we have to be looking closely at all aspects of 
EPA's budget requests to ensure that dollars are targeted to 
those areas offering the largest opportunity for risk 
reduction.
    Quite frankly, EPA's budget proposal is disappointing. Last 
year, Deputy Administrator Hansen testified that EPA's fiscal 
year 1998 budget process would be based on a new system, 
bringing together risk-based planning, budgeting, and 
accountability. But there is no evidence that such a process 
was employed to develop the budget for the coming year. It 
seems to me that no hard choices were made to discontinue lower 
priority programs or to reduce costs through program 
efficiencies.
    Despite internal EPA analyses dating back to 1987 that 
found that Superfund sites rank relatively low in risk compared 
to such problems as air pollution and pesticide residue on 
foods, EPA's budget proposes a 50-percent increase, $700 
million for the Superfund program. The proposal seems based 
entirely on a campaign commitment made by the President in 
Kalamazoo, MI, to double the pace of cleanups. If EPA were 
truly applying a relative risk methodology to its budget 
process, I am convinced this program would not merit a 50-
percent increase.
    While the Superfund budget would increase dramatically, the 
clean water State revolving fund, a program which works well 
and for which tens of billions of dollars are needed, would be 
cut by $275 million. Rumor has it that EPA offered up this 
program to be cut as an offset to the Superfund increase. If 
additional funds are to be found within our allocation, my 
highest priority within EPA will be to restore the cut to the 
clean water SRF program.
    Now, the General Accounting Office has done a little study 
in the high-risk series. It has found that Superfund is 1 of 25 
Government programs which is high risk, subject to fraud, 
waste, abuse, and mismanagement. It is not just the GAO. This 
program has been criticized by many, many in this room, I dare 
say, over the years because it lines the pockets of lawyers 
while sites get studied and studied and studied. Legislative 
reforms have been blocked. But until legislative reforms are 
enacted, I cannot support any increase in this program. If we 
get this program reformed so it cleans up sites, call me 
immediately. I can be reached day or night when a proposal to 
reform Superfund is adopted.
    EPA's fiscal year 1997 budget showed outyear budget 
projections of $1.4 billion through the year 2000 for the 
Superfund program. Yet now we are told $2.1 billion is 
imperative for each of the next 2 years. Indeed, top officials 
at EPA have been quoted in the press warning about the dire 
consequences of not fully funding the President's request for a 
50-percent increase. Why all of a sudden this program became 
EPA's highest priority has not been fully explained. How EPA 
would manage to spend prudently 50 percent more in the program 
has not been explained. Which specific sites will be funded, at 
what cost and when has not been explained. It appears that the 
methodology used to support the Superfund request is flawed, 
and uses inflated cost assumptions, according to the 
Congressional Budget Office.
    Finally, I note that skepticism abounds over the Superfund 
proposal. Senator Chafee, chairman of the authorizing 
committee, has stated:

    That Superfund remains a fundamentally flawed program. 
Cleanups still take too long, many cleanups are still too 
costly, and there is still too much litigation. It would be 
unwise and irresponsible for Congress to authorize a 
significant increase in funding for this program until we 
complete the task of reauthorization and can be sure that the 
money will be used to accelerate the pace of cleanup and 
protect our citizens.

    And the Association of State and Territorial Solid Waste 
Management Officials, in testimony, states:

    We do not know whether there is enough pending work for the 
full $700 million in additional funds requested in fiscal year 
1998, nor that the infrastructure exists to spend it 
effectively.

    Other items in EPA's budget request rekindle debates of the 
past. For example, $149 million is requested for the climate 
change action plan, a 73-percent increase over current spending 
even while the global environment management initiative 
recently reported that voluntary programs are not affected. In 
its recent report, GMI stated programs which depend for their 
success on cooperation, voluntariness, and trust still do not 
fare well. To date, the Green Lights Program, which would enjoy 
the largest proportion of the requested increase, has achieved 
a relatively small amount of greenhouse gas reductions and 
participants have not upgraded as much floor space as 
anticipated.
    Also, an earmark of $100 million is requested for Boston 
Harbor, more than double what was approved in the VA-HUD bill 
last year. While the clean water State revolving funds which go 
to every State on a fair share basis would be cut by $275 
million. Several new initiatives have been proposed with scant 
detail, including an urban livability initiative and a new 
right to know initiative announced by the President in 
Kalamazoo.
    Outside of the budget proposal, we have other concerns. 
While this committee has strongly supported efforts to provide 
more flexibility and reduce oversight on the States, and the 
National Academy of Public Administration recommended 2 years 
ago, recent reports raise concerns about EPA's relationship 
with the States. While EPA promised there would be a new 
partnership, it appears that the marriage is on the rocks. Ms. 
Browner, the Environmental Council of States told you after 
your interview with the New York Times in December, in which 
you criticized State enforcement efforts:

    States are very concerned about what appears to be a 
retreat on your part from the partnership relationship which 
has been carefully, and in some instances painfully built over 
the past 4 years. State commissioners are disappointed to be 
the objects of your apparent lack of trust.

    In addition, there are significant problems with EPA's so-
called reinvention efforts. Ms. Browner, in our hearings 2 
years ago you told Senator Mikulski:

    We would like nothing better than to see an integration of 
our underlying statutes. I believe we can achieve almost exact 
same results through programs such as the common sense 
initiative. We want to focus our energy on those kind of 
concrete on-the-ground changes. Our reinvestment effort CSL 
project XL will in the end achieve as important results as the 
kind of legislation which you speak of.

    Unfortunately, it appears that project XL and the common 
sense initiative hardly have lived up to the promises made. 
Earlier this year the petroleum industry withdrew from the 
common sense initiative, and the auto industry apparently said 
it would remain a part of CSI until work it has done is 
completed. CSI participants have told us that little has been 
accomplished in the way of meaningful reforms, and too much 
emphasis has been placed on reaching absolute consensus.
    As to project XL, which has been called the centerpiece of 
the administration efforts to reinvent environmental 
regulations, 2 years ago EPA claimed it would be launching 50 
initiatives in 1995. Yet today there have been only three 
project approvals. Bill Sugar, senior director of environmental 
affairs for Anheuser Busch in St. Louis, one of the eight pilot 
XL projects selected in November 1995, has said we could not 
seem to get the out of the box thinking we wanted to get out of 
them.
    EPA recently announced the creation of an Office of 
Reinvention. We look forward to hearing about how this new 
office will reinvigorate these initiatives and get them on the 
track. I would note that the enterprise for the environment 
project under Bill Ruckelshaus' stewardship, is nearing 
completion. EPA has been an active participant in that project, 
and I particularly commend Fred Hansen for the many hours he 
has devoted to it. E4E is intended to offer recommendations for 
an improved environmental management system, including 
legislative recommendations. We are anxiously awaiting the 
final report and recommendations of E4E, and hope to see 
positive bipartisan recommendations to address some of the 
current problems.
    In closing, it is my hope that EPA's appropriation can be 
resolved in an expeditious nonpartisan manner, and that we can 
work together to address some of the problems we are seeing and 
achieve the most effective allocation of resources. We look 
forward to your testimony, and now it is my pleasure to turn to 
my ranking member, Senator Mikulski.

                    STATEMENT OF BARBARA A. MIKULSKI

    Senator Mikulski. Thank you very much, Mr. Chairman, and I 
want to welcome Administrator Browner here today, and her team. 
I note that this is Ms. Browner's fifth appearance before this 
subcommittee, and I want to take this opportunity to thank her 
for her efforts and her leadership over the last 5 years.
    I also note that Ms. Browner's tenure has not been 
uneventful. Budget cuts and Government shutdowns have not made 
it easy to do her job or easy for the people who work at EPA to 
do their job. In addition, often a climate of hostility toward 
environmental protection in the Congress as a whole, 
particularly the authorizing committees, has not necessarily 
been the most constructive climate to move our agenda. I 
believe that EPA has survived these challenges, and has taken 
many initiatives to make the long-term changes that are 
necessary to keep up with a changing world.
    I would agree that we need to do more in better management 
and more in better use of technology. I happen to believe that 
environmental protection goes hand in hand with economic growth 
and job creation. Protecting our environment does create jobs, 
and not destroy them. New economic opportunities and markets 
flow from environmental protection services and technology 
which hopefully generate jobs in our own country, and even give 
us an opportunity for global exports with both exporting our 
knowledge, our services, and our technology, an area I would 
like to pursue in our questions.
    Also, Maryland has benefited from the Environmental 
Protection Agency in the bipartisan support for the Chesapeake 
Bay, going back to Richard Nixon, to Senator Mathias, who 
really is the father of the Bay Program, until now. Cleaning up 
the Bay is not only good environment, but it is sure very good 
for Maryland economy. Watermen, commercial fishermen, economic 
development, and a host of other businesses depend upon a clean 
bay to earn a living. The Chesapeake Bay Program is an 
investment in cleaner environment and a healthier economy.
    I also want to talk about two other aspects in our 
questioning that I think will generate jobs, and then, also, 
another to save lives. Administrator Browner, I look forward to 
hearing from you more on the brownfields initiative. The 
brownfields legislation was recently passed by my own Maryland 
General Assembly. We are now looking forward to how brownfields 
could be an absolute tool to helping clean up some of the toxic 
areas around Baltimore that would then leave us new land, and, 
therefore, new opportunity in the very empowerment zone to 
attract jobs.
    We also note the President's child's health initiative, 
which though might not generate jobs, sure saves lives. We note 
again in my own home State of Maryland the rise in lung and 
respiratory illness gives me enormous pause, particularly the 
rise if asthma among children and the onslaught of adult asthma 
among adults is really of concern. This does not seem to have a 
genetic base, but it certainly does seem to have an 
environmental base. And for the little kids in Baltimore that 
we are trying to get in school and having them read by the time 
they are in the third grade, we want to make sure that this is 
an initiative that we want to hear more about, and is not just 
a photo op, just not a press release, and it is not a throw-a-
line at press conference, but a real initiative.
    I must say that in the budget, though, I am deeply 
concerned about the cut in the State water revolving fund. This 
has been a very important tool when I was both the chairman and 
now as ranking. We get more requests for special projects from 
our colleagues in the Senate around the need to have more water 
infrastructure, and as you know, Ms. Browner, infrastructure in 
our cities is really aging.
    So we look forward to working with you. We want to look at 
how we can reduce costs, and we also want to hear more about 
project XL, the commonsense initiative, and how you have 
continued to implement the NAPA project.
    So I welcome you, fellow or sister resident from downtown 
Tacoma Park, one of the garden spots in Maryland, and look 
forward to your testimony.
    Senator Bond. Thank you very much, Senator Mikulski.
    Senator Burns.

                       STATEMENT OF CONRAD BURNS

    Senator Burns. Thank you very much, Mr. Chairman. I do not 
have much of a statement. It would not make any difference 
anyway. There are a couple of areas that I cannot get my hands 
on. I got in late last night, and I cannot get my hands on 
them, but I am going to look at them very shortly. We had a 
list of all this money that goes to foreign countries to do 
something that comes out of the EPA. I do not know what it 
does, but I know there is a chunk of it. I would rather spend 
it in this country, to be honest with you.
    I am sensitive to ground water. I want to give you a little 
figure here, and I will tell you why. We in the West get very 
sensitive about our water. I got a daughter that graduates 
medical school in June. Her advice to me right now is very 
economical; however, she says after June 7 it goes up sharply. 
But she said, you know, the increase in the average life span 
of an American has gone up rather sharply since World War II. 
The medical profession cannot take but maybe 5 or 10 percent 
credit for that advance. The rest of it goes as how we handle 
our water, because more life-shortening diseases are waterborne 
than any other disease. So we are sensitive to that, and I want 
to look at it.
    You have also requested 100 more people in each one of your 
regions for EPA people, I think, and this is what I read in a 
newspaper, I think, the Casper Star. Well, anyway, it is always 
a big surprise, but the President has got it in his budget, and 
that should be you, I would imagine. I would want to change the 
emphasis of enforcement to people who help in compliance rather 
than a hammer. I want to carrot people, I do not want hammer 
people. And if I heard anything on small business hearings, and 
we had two of them in Montana and Wyoming over this last break, 
it is that.
    There are people who are willing to comply, but will not 
say much to anybody for the simple reason the way they have 
been treated in the past, and we have got to turn that around 
some way or another, and I do not know how we do it, but that 
is where I am going to place my emphasis, and I will get a hold 
of this other stuff later on.
    Thank you very much, Mr. Chairman
    Senator Bond. Thank you, Senator Burns.
    Senator Lautenberg.

                    STATEMENT OF FRANK R. LAUTENBERG

    Senator Lautenberg. Thank you, Mr. Chairman. I am pleased 
to see Administrator Browner here to talk about the EPA budget 
for 1998. I believe that the President's budget places the 
proper priority on protecting the environment by increasing 
funds for several Environmental Protection Agency programs. It 
also follows through on his pledge to offer a balanced budget 
while advancing the goals that Americans share in continuing 
programs to protect our Nation's environment.
    In poll after poll you will see that people will say I am 
willing to pay more if it goes to environmental cleanup. I want 
to know that it goes directly there, but they are willing to do 
it because that is the one legacy that all of us agree--that we 
ought to be giving our children a better environment in future 
generations.
    I am particularly impressed by the fact that the 
President's budget recognizes the importance of speeding the 
cleanup of our Nation's most hazardous wastesites. After 16 
years, the Superfund Program is now primarily in the 
construction rather than the study phase, and since 
construction is generally more expensive than studies, the need 
for funding is growing. Level Superfund spending would mean 
slower cleanups and a hampered ability to protect our 
neighborhoods and ground water from hazardous waste.
    The President's budget provides an additional $700 million 
for Superfund. It is a 50-percent increase, bring the total 
Superfund spending to over $2 billion. This increased spending 
is the first phase of funding that will allow an additional 250 
Superfund sites to be cleaned up by the year 2000. We will 
double the pace of that cleanup. The fact that the President's 
budget seeks to spend more on Superfund is a good sign. It 
means that we now have a handle on our hazardous waste 
problems, and that we are on the verge of making significant 
progress in expediting the cleaning of hazardous wastesites.
    Some have said that providing additional money to Superfund 
would simply be throwing more money at the problem. Well, in 
1993, I was one of the leading critics who claimed that 
Superfund was severely broken and needed fixing. In fact, in 
his first inaugural address President Clinton committed to 
changing Superfund so that money would go toward cleanup of 
hazardous wastes instead of paying lawyers. Since that time, I 
believe the administration's reform efforts have moved 
Superfund much closer to the goals of faster, fairer, and more 
efficient cleanups.
    It bears noting that these reforms do not reflect only the 
goals of the present administration; rather, Ms. Browner's 
administrative reform efforts were based on studies and task 
force recommendations developed under Administrator Bill Riley, 
a Bush appointee. And as a result of their reform efforts, 
Superfund is no longer in need of drastic overhaul.
    At the same time, I am in negotiation with the 
administration and Senators Baucus, Smith, and Chafee on 
improving Superfund, and I am confident that we can reach 
agreement on the issues that separate us and end up with a bill 
that will meet the goals of faster, fairer, more efficient 
cleanups, and we will receive the support of both parties, the 
various stakeholders, and the administration.
    Whether we fail or not in this ambitious goal, whether it 
takes the Congress one session or two, the President's budget 
recognizes a necessary and proper increase in EPA's budget so 
that we can speed the cleanup of our Nation's most hazardous 
wastesites. Seventy-five percent of the sites have proven 
health impacts, and holding funding hostage while we in 
Washington referee fights between the insurance industry and 
polluters and States and communities is not a position that I 
find appealing.
    I want to again thank Administrator Browner for her hard 
work, her leadership, and I look forward to hearing her 
testimony and her continued service.
    Senator Bond. Thank you, Senator Lautenberg.
    Senator Shelby.

                     STATEMENT OF RICHARD C. SHELBY

    Senator Shelby. I have just got a few remarks.
    Ms. Browner, welcome again to the committee.
    I believe overall that EPA has changed a lot of things for 
the better in this country: clean air, water, you name it, we 
can go on and on. But I want to associate myself with the 
remarks of Senator Burns that I believe your administration, if 
it were guided from the top down, could do a lot of things 
maybe with a velvet glove, a softer glove, and get notice to a 
lot of people that they have got to comply rather than a 
vicious attack on them. I think it would help the Agency and 
the image of the Agency.
    Having said that, I want to support you where I can. But I 
do not believe that everything is money. A lot of it is 
management. A lot of it is administration. I know it takes some 
money, but we are in some tight money situations up here. The 
chairman alluded to that earlier in his opening statement. But 
all of us are having to do basically more with less money, and 
I think EPA might have to do that.
    But I commend you for a lot of good things that I believe 
you are doing. I believe you are committed to the health, clean 
air, and water for people, and water is very, very important. 
Air is very, very important. You do not have to have asthma to 
know that. We all know it. But people with asthma or touches of 
it realize it more than some of us. But think about how you can 
do more with less, how you can be a top-flight administrator 
with less dollars, with fewer dollars, and I think you would 
hit it off not only here but with the American people, because 
overall your purpose is good.
    Thank you.
    Senator Bond. Thank you very much, Senator Shelby.
    Now, Administrator Browner, you have heard all of our 
views. We are ready to hear your testimony.

                     STATEMENT OF CAROL M. BROWNER

    Ms. Browner. Thank you, Mr. Chairman and members of the 
subcommittee, for this opportunity to testify before you on the 
1998 budget request for the Environmental Protection Agency. I 
am proud to be joined by colleagues at the Agency, including 
the new Associate Administrator for Reinvention, Chuck Fox, and 
Dr. Phil Langrigan, who has joined us in our work to create an 
Office of Children's Health.
    As we approach the 21st century, EPA faces many stiff 
challenges in our mission to the public health and the 
environment, including the air, the water, the land, the food 
they eat. We believe that Americans want us to meet these 
challenges, that they want clean, healthy air to breathe, they 
want to know their tap water is safe to drink, and that the 
food they buy is safe to eat. They want us to rid the Nation of 
its toxic waste dumps and to prevent the further pollution of 
America's neighborhoods.
    Americans want their children protected from environmental 
hazards. They want to pass on to their children a safe and 
healthy environment. And they have come to expect that we can 
do the job of protecting their health, their environment, and 
provide for the Nation's economic growth and security. We 
firmly believe, as I think all here believe, that environmental 
protection goes hand in hand with economic progress, that a 
healthy environment is, in fact, vital to the long-term 
economic success of the Nation, and vice versa. Indeed, this 
has been our history.
    EPA celebrates its 27th anniversary this year. Over the 
past 27 years, we have made tremendous strides in cleaning up 
our environment. While we have taken these efforts to reduce 
pollution, America's gross domestic product has nearly doubled. 
Over the past 4 years in particular, President Clinton has 
shown that it is possible to bring down the deficit, restore 
the Nation's economic health, and at the same time strengthen 
protection of public health and the environment.
    The budget request we make today totaling $7.6 billion 
expands on that commitment and that promise. It calls for an 
increase of nearly $850 million over this year's appropriated 
levels, most of which would be used to fund the President's 
call to action to clean up the worst environmental problems 
millions of Americans face in their own community. We are 
talking about doubling our record pace of cleanups at the 
Nation's worst toxic wastesites, and ridding our country of 500 
more Superfund sites by the end of the year 2000. We want to 
expand on our brownfields initiative, so that we can help the 
communities across the country clean up literally thousands of 
old, abandoned industrial sites and return them to productive 
use.
    Additionally, this budget request increases funding for 
expansion of the public's right-to-know about toxic pollution 
in their neighborhoods, without imposing any new reporting 
requirements on anyone. It also means tougher, more aggressive 
criminal enforcement against those who actually pollute our 
air, our water, and our land.

                            NEW LEGISLATION

    On another front, this requested increase enables EPA to do 
its part to implement two major new environmental laws passed 
by Congress last year. Both enjoyed broad bipartisan support: 
The Safe Drinking Water Act amendments of 1996 and the new Food 
Quality Protection Act, are two shining examples of how 
Congress and the administration can work together to protect 
the public health and our environment.
    Under the Safe Drinking Water Act amendments, EPA will 
undertake a variety of new efforts to improve the way we set 
and enforce drinking water standards, protect drinking water 
supplies, help communities upgrade their facilities, and 
provide timely and important information to consumers. The new 
law is a model for regulatory reform. It gives EPA flexibility 
to act on contaminants of greatest risk, and to analyze cost 
and benefits while keeping the public health as the paramount 
concern.
    Under the Food Quality Protection Act, EPA will be adding a 
new level of protection from harmful pesticides in our food. 
The budget includes funds to set a single health-based child-
first standard for pesticides and all foods.

                      CHILDREN AS A HIGH PRIORITY

    In addition to funding these new, high-priority items, the 
EPA budget request for 1998 supports a greater overall emphasis 
on protecting children. Since the President came to office we 
have tried to put children at the focal point of our mission, 
because they are among the most vulnerable to environmental 
threats. Their bodies, their brains, are still developing. 
Relative to their body weight they consume more of certain 
types of foods and fluids, and breathe more air than adults. 
When we set public health and environmental standards, we will 
do so after taking into account the unique vulnerabilities of 
our children.
    We believe that by doing all of this we will be ensuring 
that everyone is protected. All of these initiatives, Mr. 
Chairman, will be enhanced by our efforts to continue 
reinventing the way EPA works. We are determined to carry out 
our action plan in the most commonsense, cost-effective ways. 
We are resolved to strengthening our partnerships with States 
and tribes, and to providing them more flexibility in how they 
reach the environmental goals we all share.
    We intend to improve our success at reducing redtape, 
adopting alternative strategies so long as they produce 
superior environmental results.
    In closing, Mr. Chairman, this budget will take us further 
down the road toward our goal of a cleaner, safer, and 
healthier environment. It is a budget that says to our citizens 
we can put our fiscal house in order without sacrificing our 
basic values; we can protect both the health of our economy, 
the health of our children; we can have both economic progress 
and environmental protection that is second to none.
    Thank you, Mr. Chairman, and I am happy to answer any of 
your questions.
    [The statements follow:]

                 Prepared Statement of Carol M. Browner

    Mr. Chairman, I appreciate the opportunity to be here before you 
and the Members of your Subcommittee to present the President's 1998 
Budget Request for the U. S. Environmental Protection Agency. This 
request is $7.6 billion and 18,283 FTE's. President Clinton showed 
during his first term that it is possible to reduce the deficit, 
restore the nation's economic health, and protect public health and the 
environment, and he believes in continuing on that course. The 
President and I believe strongly that a healthy environment and a 
strong economy go hand in hand.
    This budget focuses on the environmental challenges of the 21st 
Century by strategically expanding EPA's resources for protecting the 
air we breathe, the water we drink, and the land on which we live. By 
protecting the environment we protect the health of millions of 
Americans, particularly our children, who are often the most vulnerable 
to environmental health risks. Everything we do to clean our air, water 
and soil, and to make the environment more healthy, we do for them.
    The President is requesting an increase for EPA of nearly $850 
million over this year's appropriated levels. When you add the 
additional resources that our agency will be redirecting from other 
areas, this budget contains a total of more than $900 million in new, 
high priority investments for environmental protection and public 
health.
    Last August, the President presented America with a ``call to 
action'' to deal with the most pressing environmental problems faced by 
our nation's communities. Of this year's budget increase, $736 million 
will fund these high priority initiatives, including an acceleration of 
Superfund cleanups, a revitalization of communities through Brownfields 
cleanups, a commitment to expand the public's access to information 
about toxic pollution in their neighborhoods, and a strengthening of 
criminal enforcement against polluters.
    This budget proposes $2.1 billion for Superfund, including a $650 
million increase over 1997 to meet the President's pledge to nearly 
double the pace of toxic waste cleanups. This increase is the first of 
two installments of the $1.3 billion planned to accomplish this goal, 
which will result in the cleanup of another 500 sites by the end of the 
year 2000. Twenty-seven million Americans live near a Superfund site. A 
commitment to clean up these sites means that millions of Americans who 
live near the nation's worst toxic waste sites will start off their 
21st Century in healthier neighborhoods free of toxic impacts. Cleaning 
up toxic waste sites will not only ensure the health of our citizens, 
but will generate jobs and economic development through returning 
damaged areas of our country to productive use.
    This budget also proposes a major expansion of the Brownfields 
initiative with a $50 million increase to the budget, as part of a 
program to ensure cleanup of approximately 5,000 sites by the year 
2000. Restoring these areas through a partnership with communities and 
the Department of Housing and Urban Development will result in economic 
revitalization for communities throughout the country, where scores of 
abandoned commercial properties will be re-developed and put back into 
commercial use.
    Americans have a right to information about toxic pollution in 
their neighborhoods. This budget proposes an additional $35 million for 
an initiative to expand the information available to people about toxic 
threats to their families--without imposing more reporting requirements 
on anyone. Informed, involved citizens will always make far better 
decisions than some distant bureaucracy. Information on toxics will be 
available to American citizens through a comprehensive monitoring 
system with computer links to schools, libraries, and home computers.
    The President has also made a commitment to a more aggressive 
criminal enforcement effort against those who pollute our air, our 
water, and our land. This budget requests a modest funding increase to 
enhance the training available for state, local, and tribal officials 
who work at the grassroots of environmental law enforcement.
    On another front, this budget contains a $36 million increase to 
enable EPA to implement two major new environmental laws passed by 
Congress last year: the Safe Drinking Water Act Amendments and the new 
Food Quality Protection Act. Those bipartisan legislative successes 
show how the Congress and the Administration can work together to serve 
the American people by enhancing the safety of the water we drink and 
the food we eat.
    Under the Safe Drinking Water Act Amendments, EPA will undertake a 
variety of new efforts to improve the way we set and enforce drinking 
water standards, protect drinking water supplies, help communities 
upgrade their facilities, and provide timely and important information 
to consumers. The new law is a model for regulatory reform. It gives 
the EPA flexibility to act on contaminants of greatest risk and to 
analyze costs and benefits, while keeping the public health as the 
paramount concern.
    Under the Food Quality Protection Act, EPA will be adding a new 
level of protection from harmful pesticides in our food. The budget 
includes funds to set a single, health-based, children-first standard 
for pesticides in all foods, along with the resources necessary to re-
evaluate some 9,000 different pesticides to assure safety and to 
provide better information to the public. By carrying out this act, we 
will help families to have the safest possible food on the dinner 
table.
    In addition to our commitment to helping implement this new 
legislation, the President's budget supports the broad goals of 
protecting children from environmental health threats, revitalizing the 
environmental and economic health of cities, and strengthening 
partnerships with state, local and tribal governments.
    Because children may face significant, long-term, and unique 
threats from environmental toxics, we are taking a comprehensive 
approach to providing children with the strongest possible health 
protection. Children are more at risk from toxics because their systems 
are still developing. Relative to their body weight, children consume 
more of certain types of food and fluids and breathe more air than 
adults. We are addressing these concerns in programs across the Agency 
with an initiative called ``Assessing Health Risks to Children.'' This 
budget dedicates $15.5 million to this initiative. Through focusing 
activities such as standards-setting and scientific research on 
children, we will invest in the health of those Americans who will live 
most of their lives in the next century.
    This budget recognizes that states and tribes play a central role 
in protecting the environment. To strengthen our partnership with them, 
the President requests an increase in the State and Tribal Assistance 
Grants account from $674 million to $715 million. Because tribes face 
some of the greatest environmental challenges today, this increase 
includes $31 million in additional funds to tribes.
    The Administration recognizes the unique circumstances facing 
states and tribes when it comes to environmental protection. Last year, 
Congress enacted the President's proposal for EPA's Performance 
Partnership Grants, which allows states and tribes to combine several 
categorical grants into a single multi-media grant. These grants give 
states and tribes more flexibility to reach environmental goals, and 
they allow less-extensive EPA oversight for States that show strong 
performance. Last year, 20 states took advantage of the flexibility you 
provided in our fiscal year 1996 appropriation. In 1997, we expect at 
least 13 more to use this same flexibility. As more states recognize 
the benefits of these grants, we expect most, if not all, of them to 
participate in this program. We are confident that Performance 
Partnership Grants will continue to reap environmental benefits while 
they streamline grant administration and strengthen our partnerships 
with states and tribes.
    An important part of our partnerships with local governments 
involves helping communities upgrade their drinking water 
infrastructure. This budget proposes $725 million in capitalization 
grants for the new Drinking Water State Revolving Funds, which make 
low-interest loans to municipalities to help them meet the requirements 
of the new Safe Drinking Water Act Amendments. Combined with last 
year's levels, the states will ultimately receive $2 billion to help 
provide all Americans with safe, clean drinking water.
    Through specific initiatives such as the Project XL and the Common 
Sense Initiative, we are reinventing the way EPA does business. Forging 
productive relationships with industry, environmental groups, and 
concerned citizens is a common thread through all that we do at EPA. In 
Project XL, industries are able to adopt alternative strategies to 
current regulations, so long as they produce superior environmental 
results. Industry has responded positively to this initiative. One 
example is Intel's new computer chip manufacturing plant in Arizona. An 
agreement with EPA provides for Intel to reduce overall pollution at 
the plant, as well as inform and involve local residents on 
environmental matters through frequent and regular public meetings. In 
return, Intel gains regulatory flexibility to continue to adapt its 
operations quickly and efficiently in a competitive and rapidly 
changing industry.
    The Common Sense Initiative (CSI) is another commitment to build 
effective partnerships. Through this initiative, EPA