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S. Hrg. 109–888

UNOBLIGATED BALANCES: FREEING UP FUNDS,

SETTING PRIORITIES AND UNTYING

AGENCY HANDS

HEARING

BEFORE THE

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT 

INFORMATION, AND INTERNATIONAL 

SECURITY SUBCOMMITTEE

OF THE

COMMITTEE ON 

HOMELAND SECURITY AND 

GOVERNMENTAL AFFAIRS 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

MAY 18, 2006

Available via http://www.access.gpo.gov/congress/senate

Printed for the use of the Committee on Homeland Security 

and Governmental Affairs

(

(II)

COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS 

SUSAN M. COLLINS, Maine, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

NORM COLEMAN, Minnesota 

TOM COBURN, Oklahoma 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

JOSEPH I. LIEBERMAN, Connecticut 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

THOMAS R. CARPER, Delaware 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

MICHAEL D. BOPP, Staff Director and Chief Counsel 

MICHAEL L. ALEXANDER, Minority Staff Director 

TRINA DRIESSNACK TYRER, Chief Clerk 

FEDERAL FINANCIAL MANAGEMENT, GOVERNMENT INFORMATION, AND 

INTERNATIONAL SECURITY SUBCOMMITTEE 

TOM COBURN, Oklahoma, Chairman 

TED STEVENS, Alaska 

GEORGE V. VOINOVICH, Ohio 

LINCOLN D. CHAFEE, Rhode Island 

ROBERT F. BENNETT, Utah 

PETE V. DOMENICI, New Mexico 

JOHN W. WARNER, Virginia 

THOMAS CARPER, Delaware 

CARL LEVIN, Michigan 

DANIEL K. AKAKA, Hawaii 

MARK DAYTON, Minnesota 

FRANK LAUTENBERG, New Jersey 

MARK PRYOR, Arkansas

KATY FRENCH, Staff Director 

SHEILA MURPHY, Minority Staff Director 

JOHN KILVINGTON, Minority Deputy Staff Director 

LIZ SCRANTON, Chief Clerk 

(III)

C O N T E N T S 

Opening statements: Page 

Senator Coburn ................................................................................................. 1

Senator Carper ................................................................................................. 16

WITNESSES 

THURSDAY, MAY 18, 2006

Phyllis F. Scheinberg, Assistant Secretary for Budget and Programs, Chief 

Financial Officer, U.S. Department of Transportation ..................................... 4

Lee J. Lofthus, Deputy Assistant Attorney General and Controller, Department of Justice ..................................................................................................... 6

John P. Roth, Deputy Comptroller, Office of the Under Secretary of Defense, 

Department of Defense ........................................................................................ 7

Charles E. Johnson, Assistant Secretary for Budget, Technology and Finance, 

Department of Health and Human Services ...................................................... 9

Robert J. Henke, Assistant Secretary for Management, Department of Veterans Affairs ......................................................................................................... 11

ALPHABETICAL LIST OF WITNESSES

Henke, Robert J.: 

Testimony .......................................................................................................... 11

Prepared statement .......................................................................................... 51

Johnson, Charles E.: 

Testimony .......................................................................................................... 9

Prepared statement with an attachment ....................................................... 40

Lofthus, Lee J.: 

Testimony .......................................................................................................... 6

Prepared statement .......................................................................................... 32

Roth, John P.: 

Testimony .......................................................................................................... 7

Prepared statement .......................................................................................... 36

Scheinberg, Phyllis F.: 

Testimony .......................................................................................................... 4

Prepared statement with attachments ........................................................... 25

APPENDIX 

Chart submitted for the Record entitled ‘‘FY’05 Unobligated Balances Government-Wide’’ ........................................................................................................... 59

(1)

UNOBLIGATED BALANCES: FREEING UP 

FUNDS, SETTING PRIORITIES AND 

UNTYING AGENCY HANDS 

THURSDAY, MAY 18, 2006

U.S. SENATE,

SUBCOMMITTEE ON FEDERAL FINANCIAL MANAGEMENT,

GOVERNMENT INFORMATION, AND INTERNATIONAL SECURITY, 

OF THE COMMITTEE ON HOMELAND SECURITY

AND GOVERNMENTAL AFFAIRS,

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:34 p.m., in room 

SD–342, Dirksen Senate Office Building, Hon. Tom Coburn, Chairman of the Subcommittee, presiding. 

Present: Senators Coburn and Carper. 

OPENING STATEMENT OF SENATOR COBURN 

Senator COBURN. The Subcommittee on Federal Financial Management, Government Information, and International Security of 

the Committee on Homeland Security and Governmental Affairs 

will come to order. 

I want to first thank each of our guests for being here. The topic 

we are going to talk about today is something called ‘‘unobligated 

balances.’’ An unobligated balance is money that we appropriate to 

a government agency, but for whatever reason, and there are 

many, the agency does not or cannot spend it in that particular 

year, and so the money sits, parked in the agency’s accounts. 

There are different types. The first kind of unspent funds are 

called ‘‘expired funds,’’—money we said was to be spent during a 

certain fiscal year. At the end of the year the money is considered 

expired and is supposed to sit in these accounts for 5 years. At that 

point, it is supposed to go back to the Treasury where it can pay 

down debt or be put toward emergencies and other priorities. 

The notion is that bills come late, projects get delayed, so the 

money should be available for 5 years to pay for commitments 

made during that first year. 

We can argue about whether 5 years is too long but one thing 

for sure—the system is not working the way it should. First of all, 

there is too much expired money. From our cursory investigation, it looks like there is at least $54 

billion in expired funds. That is over half the war supplemental we 

just passed. We ought to be thinking seriously about how to investigate expired funds each year in a systematic way so that we can 

figure out how much of it we are likely to need to pay bills we have 

2

already incurred and how much is just going to sit in the account 

for 5 years. 

Another problem is that Congress views expired funds approaching the 5-year waiting period as new money in the year that they 

are supposed to revert to the Treasury. That means if we appropriate $1 million in fiscal year 2000, and that $1 million did not 

get used, in 2006, Congress can take that money and spend it for 

‘‘free’’ on 2006 programs. That means we actually spend $1 million 

more than the budget caps allow. That is what actually happens 

to unobligated balances. 

Calling this money ‘‘new budget authority’’ renders meaningless 

the spending caps that are in place each year. What is worse, it 

is used to grow government and liabilities in 2006 rather than paying down the debt incurred by repeated supplemental appropriation 

bills and out-of-control spending. 

This is not how the real world operates. The Federal Government 

should take the same approach as a private business. The money 

should not be used to offset spending that would otherwise bust the 

budget cap if it were not for this ‘‘accounting gimmick.’’

By my estimates, and let me tell you—it has been very hard for 

this Subcommittee to estimate because we are not keeping good 

track of these monies at the Federal level—there is somewhere 

around $430 billion in unspent funds government-wide. Of this, at 

least $54 billion, as I said earlier, is sitting in expired accounts. 

And I am not confident that this number is even within the ballpark of what is really sitting in these accounts. 

It is difficult to get the exact figures because the Office of Management and Budget (OMB) does not track this money. They could 

not provide this Subcommittee with a reasonable figure for the carryover balance of unobligated funds government-wide because each 

agency uses different methods to keep their own records. 

I am not doubting the financial accounting of the individual 

agencies, but I think these are records OMB should officially monitor and keep to inform the budget makers and financial planners. 

Expired funds are only one of the unobligated balances. There 

are other types—those sitting in multi-year accounts for projects 

expected to stretch out over several years, and those in so-called 

‘‘no-year’’ accounts—such as contingency funds that need to be 

ready if needed at any time, such as the Vaccine Injury Compensation Fund or the Public Health Emergency Fund. The amount in 

these accounts is around $376 billion. 

While some of these no-year accounts are important to retain, it 

is still worth taking an examination and looking at them. Certain 

funds need to stay at a certain level, but some certainly could be 

reduced. 

Several programs consistently carry-over a large amount of 

money each year, but then have no problem asking Congress for 

budget increases. Take food stamps. OMB estimated that last year 

the program carried over $2 billion in unobligated balances at the 

end of the fiscal year. That is on top of overpayments of $1.6 billion. The program is estimated to carry over $3 billion this year 

and $3 billion next year. Yet I am sure the Administration will continue to request steady or increased funding for the program regardless of the reserve balances. 

3

It is time to start thinking creatively about the budget process. 

Given the serious financial challenges we all face, at the very least 

we should be asking appropriate questions and exploring all avenues so future generations may have the same opportunities we 

have had. 

The one consistent finding from our investigation has been that 

every agency uses different definitions of terms, tracks different 

types of balances, and has different rules governing unspent funds. 

The Department of Justice, for instance, has a special waiver allowing it to treat unspent funds differently than other departments. With OMB responsible for the overall budget process request, it would be helpful if they set systemic standards about how 

to define, measure, and report unspent funds at all agencies. 

I am very disappointed that OMB is not testifying here today, 

since fixing this problem is so critical to developing a responsible 

budget request. The ad hoc system we have now is allowing billions 

of dollars to go to waste every year. That waste will be paid for by 

our children and grandchildren with interest. 

Again, I want to welcome each of you here. I ask that you would 

limit your verbal testimony to 5 minutes. Your complete written 

statement will be made part of the official hearing record and we 

will hold our questions to the end. 

Senator Carper will be here. He is running a little bit behind. 

Our first witness is Phyllis Scheinberg, Assistant Secretary for 

Budget and Programs/Chief Financial Officer of the Department of 

Transportation. She directs the development and presentation of 

the Department’s budget, coordinates DOT’s programs to achieve 

the goals of the President’s Management Agenda and oversees all 

DOT financial programs and systems. 

Lee Lofthus is Deputy Assistant Attorney General and Controller 

of the Justice Management Division, Department of Justice. He is 

the Deputy Chief Financial Officer and is responsible for department-wide financial reporting, budget formulation and execution, 

accounting operation, assets forfeiture fund, operational support, 

procurement, debt management support, budget performance reporting, integration into the President’s Management Agenda. 

John Roth is Deputy Comptroller Office of the Under Secretary 

of Defense, Controller, Department of Defense. He is responsible 

for budget review and analysis of all defense programs. He is a 

former Deputy Director of the Investment Directorate, Office of the 

Under Secretary of Defense, where he was responsible for all defense programs funded by procurement and research development 

tests and evaluations appropriation. He is also an honorary professor at the Defense Systems Management College. 

Charles Johnson is well-known to this Subcommittee. He is Assistant Secretary for Budget Technology and Finance at the Department of Health and Human Services. He is the former Chief 

Financial Officer of the Environmental Protection Agency. He previously served as President of the Huntsman Cancer Foundation. 

He is a former member of the Utah State Board of Regents. He had 

a 31-year career practice of accounting, retiring from KPMG in 

1991. Welcome back. 

Robert Henke is Assistant Secretary for Management, Department of Veterans Affairs. He serves as VA’s Chief Financial OffiVerDate 0ct 09 2002 12:11 May 14, 2007 Jkt 028247 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 C:\DOCS\28247.TXT SAFFAIRS PsN: PAT
4

1The prepared statement of Ms. Scheinberg with attachments appears in the Appendix on 

page 25. 

cer, Chief Acquisition Officer and Senior Real Property Officer. He 

is responsible for the Department’s budget, financial policy and operations, acquisitions and material management, real property 

asset management and business oversight. 

He is the former Principal Deputy Under Secretary at the Department of Defense. He served in Operation Desert Storm and 

most recently as a Navy reservist in Operation Enduring Freedom 

in Afghanistan. 

Welcome and thank you for your service. 

Ms. Scheinberg, you are recognized for 5 minutes. 

TESTIMONY OF PHYLLIS F. SCHEINBERG,1 ASSISTANT SECRETARY FOR BUDGET AND PROGRAMS/CHIEF FINANCIAL 

OFFICER, U.S. DEPARTMENT OF TRANSPORTATION 

Ms. SCHEINBERG. Good afternoon, Mr. Chairman. Thank you for 

the opportunity to appear before you today to discuss the treatment 

of unobligated balances by the Department of Transportation 

(DOT) and how they affect the Department’s budgeting and programming processes. 

To put this discussion in context, I would like to briefly describe 

the Department’s programs. The President’s fiscal year 2007 budget request for the departmental totals $65.6 billion in budgetary resources to support major investments in transportation nationwide 

that are vital to the health of our Nation’s economy and the American way of life. This includes over $41 billion for highway infrastructure investment and for highway safety programs. 

An additional $8.7 billion has been requested for Federal transit 

grant programs that will be used to construct new transit projects, 

purchase bus and transit rail cars, and replace and refurbish existing transit systems. 

Over $13.6 billion has been requested to build, maintain, and operate the Nation’s air traffic control system, regulate and inspect 

commercial and general aviation safety, and improve the capacity 

and safety of airports. Combined, these investments account for 

over 95 percent of the Department’s fiscal year 2007 budget request. 

Typically, Federal operating programs, such as those that fund 

the salaries and expenses of our railroad safety inspectors, are 

funded year by year through the annual appropriations process and 

the resources are used during that same year. 

At DOT such programs constitute a very small portion of our 

total budget. Instead, the majority of the Department of Transportation’s program dollars support major capital investment projects 

like highway, transit, and airport construction, that generally take 

several years to complete. As a result, funding for these programs 

also needs to be available over multiple years and linked to the 

overall construction cycle. As infrastructure projects progress, the 

specific funds linked to each project are obligated as they are needed to complete construction phases. Because this often happens 

over a long period of time, a sizable portion of each year’s funding 

is likely to remain unobligated and unexpended for several years. 

5

For the Federal-aid Highway Program, the primary reason for 

most of the unobligated balances is the application of statutory 

budgetary controls known as obligation limitations. These limitations, set in the annual appropriations process, control the use of 

contract authority that is authorized in multi-year highway authorization acts. 

Typically, the limitation on obligations is lower than the amount 

of new contract authority each year so a portion of the contract authority is at least temporarily unavailable for obligation. At the end 

of fiscal year 2005, $23 billion of the $34.4 billion in the Federalaid Highway Program unobligated balances reflected the cumulative effect of annual obligation limitations. This partially explains 

why DOT had an unobligated balance of approximately $43 billion 

at the end of fiscal year 2005. 

The unobligated balances that result from slow spending patterns of capital infrastructure projects typically cannot be directed 

to other funding needs. In addition, the Department as such, is 

subject to the reprogramming provisions included in our annual appropriations acts that tend to limit the movement of funds when 

doing so would typically change a program or move funds to other 

projects. 

In the Federal-aid Highway Program there is considerable flexibility for the States to transfer their formula funds to other programs when they would be more useful to the States. Similar flexibility does not exist for funds statutorily designated for specific 

projects. The only exception is for funds still remaining from 

projects designated before 1991. 

In addition, the Congress has authorized the Federal Highway 

Administration to conduct a process known as the August redistribution. The process allows for obligation authority that cannot 

be used by the end of a fiscal year to be made available to States 

that can obligate these additional funds before the end of the fiscal 

year. Given the complex nature of Federal infrastructure projects, 

this redistribution project has been an effective way for managing 

highway transportation dollars. 

Finally, Mr. Chairman, you asked if DOT’s unobligated balances 

expire. In some cases, our unobligated balances do expire based on 

the number of years the Congress has made the funds available to 

the Department in the annual appropriations acts or in authorizing 

statues. 

Unobligated balances that expire may stay within an account for 

up to 5 additional years and can be used only to cover upward adjustments of prior year obligations. 

However, a significant portion of our funds do not expire as they 

are provided in ‘‘no-year accounts’’ with unlimited availability. 

These accounts include Federal-aid highways and transit grant programs. 

Thank you for the opportunity to testify and I will be happy to 

answer any questions. 

Senator COBURN. Thank you, Ms. Scheinberg. Mr. Lofthus. 

6

1The prepared statement of Mr. Lofthus appears in the Appendix on page 32. 

TESTIMONY OF LEE J. LOFTHUS,1 DEPUTY ASSISTANT ATTORNEY GENERAL AND CONTROLLER, U.S. DEPARTMENT OF 

JUSTICE 

Mr. LOFTHUS. Thank you, Mr. Chairman. Good afternoon. I appreciate the opportunity to appear before you today to discuss unobligated balances and how they affect budgeting and program 

funding at the Department of Justice. We are committed to the 

wise use of unobligated balances in support of the Department’s 

critical mission programs. 

In terms of funding flexibilities, like many other agencies, the 

Department of Justice is permitted by our appropriations act to reprogram current year funds between programs, projects, and activities within appropriations. We also have a provision that permits 

us to transfer funds between appropriations. At certain limits these 

capabilities require OMB clearance and Congressional notification. 

Reprogrammings and transfers are beneficial flexibilities for current funds but we also have two important capabilities for using 

funds beyond a single fiscal year’s limitations. 

The first category is explicit in the language of our appropriations act, that funding is provided in the form of multi-year or noyear appropriations. The multi-year or no-year authority is typically targeted for specific program needs such as information technology projects, automated litigation support, construction, or accounts with significant variability in funding needs across years 

such as prisoner detention. 

The second authority provided to the Department of Justice by 

Congress is a provision which permits us to access expired balances, a capability which is of tremendous importance in managing 

our operations effectively. As with most agencies, we receive a substantial portion of our funding in annual appropriations that expire 

if they are unobligated at the end of a fiscal year. Agencies often 

describe these expired funds as lapsed money, since the funds are 

no longer available for new program needs. 

Importantly in regard to expired balances, in fiscal year 1992 the 

Congress gave the Department of Justice the authority to recapture 

expired unobligated balances prior to their permanent Treasury 

cancellation. Public Law 102–140 allows us to transfer expired unobligated balances to the Department’s working capital fund when 

we are sure that all of the original obligations are covered and the 

remaining balances are not required for adjustments or outlay. 

These transfers are made to a specific working capital fund account 

that we call the unobligated balance transfer account, known by its 

initials, UBT. 

The working capital fund is a no-year fund, so after a component’s unobligated balances are transferred to the UBT account, 

that funding remains available until expended. The law specifies 

that the unobligated balances are transferred only for departmentwide acquisition of capital equipment, for law-enforcement or litigation-related information technology systems, and for financial and 

payroll/personnel systems. We do not commingle the UBT balances 

with other working capital fund balances. Our use of the UBT resources is subject to Congressional notification. 

7

1The prepared statement of Mr. Roth appears in the Appendix on page 36. 

Since 1992, we have transferred approximately $1.8 billion in 

funding to the Department’s working capital fund to be reused for 

various priority projects. Once the funds are deposited in the UBT 

account, the funding is used for purposes approved by the Attorney 

General and OMB and with Congressional notification. 

In recent years, we have used the UBT funding for critical information technology projects such as the FBI’s Fingerprint Identification System, the FBI’s Project Sentinel Case Management System 

and the Law Enforcement National Data Exchange System. We 

have used the UBT money for financial systems projects and have 

also used it for the costs of department-wide projects such as the 

Joint Automated Booking System project and the Justice Consolidated Office Network, called JCON. 

The Department has used the UBT authority wisely in solving 

unforeseen funding problems that occur in the course of our operations. We have carefully used this authority in the manner intended by Congress. 

In closing, I would like to stress that the Department of Justice 

highly values the authorities we have been given to effectively 

manage our resources including the authority to transfer expired 

unobligated balances into our working capital fund. This flexibility 

provides a strong incentive for prudent financial management and 

ensures that funds appropriated to the Department of Justice remain accessible for high priority needs. 

Mr. Chairman, this concludes my prepared remarks. I would be 

pleased to answer any questions. Thank you. 

Senator COBURN. Thank you, Mr. Lofthus. Mr. Roth. 

TESTIMONY OF JOHN P. ROTH,1 DEPUTY COMPTROLLER (PROGRAM BUDGET), OFFICE OF THE UNDER SECRETARY OF DEFENSE (COMPTROLLER), DEPARTMENT OF DEFENSE 

Mr. ROTH. Thank you, Mr. Chairman. I, too, welcome the opportunity to testify on behalf of the Department of Defense’s unobligated balances, their treatment and how they affect our budgeting 

and programming. 

As you are aware, the Department of Defense budget is large and 

complex. In fiscal year 2006, we are executing programs from 110 

different military accounts. Of this number, 80 are funded by appropriations from Congress and 30 are funded from other sources 

such as permanent and indefinite appropriations, receipts or revolving fund sales. 

These accounts vary as to purpose and obligation life. Approximately 39 percent are available for incurring new obligations for 

only 1 year. The majority of these are military personnel and operation and maintenance accounts. Investment accounts are available 

for new obligations for multiple years ranging from 2 years, for example, in the research and development accounts to 5 years for accounts such as military construction and shipbuilding. 

For the most part, the Congress appropriates the total funding 

for a given quantity of items or a program activity even though the 

funding will obligate over a number of years. 

8

Last, a few of our accounts, such as the Defense Working Capital 

Fund and things like the Base Realignment And Closure (BRAC) 

account are no-year accounts, meaning that these funds are available for new obligations for an indefinite time period. 

Accounts expire for new obligations at the end of the period of 

obligation availability stated in the relevant appropriation act. Any 

unobligated balance remaining after the account expires can only 

be used to adjust previously recorded obligations. We cannot write 

new contracts or start new projects after the account expires. For 

example, a contract amendment for a cost growth, a price redetermination for example, or claims that are within the scope of the 

original contract are chargeable to that same account that originally funded the contract. Adjustments up to $4 million must be approved by the compo- nent requesting the change. Adjustments between $4 million and 

$25 million must be approved by the Defense Comptroller. And any 

just over $25 million requires Congressional notification in accordance with 31 U.S. Code 1553. 

Accounts cancel 5 years after they expire for new obligations. 

When an account is canceled, all remaining balances, both the unobligated balances and obligated balances not yet paid, are written 

off of the Treasury’s books. No obligation adjustments and no further payments can be made from the account. 

In certain cases, this process prevents us from making payments 

on valid obligations of the Federal Government. In these cases, the 

Congress has, in fact, provided as with special authority that allows the use of up to 1 percent of our current use funds to pay 

those kinds of bills. 

The Department monitors obligations and unobligated balances 

very carefully. Obligation rates are one of our key financial metrics. 

Our programs are, in fact, utilizing the funding provided in accordance with their plan. During the active life of an appropriation, unobligated balances not required for their original purposes can be 

shifted to other programs in accordance with established reprogramming procedures and statutory transfer authorities. 

The Congress has long recognized the Department needs some 

flexibility to move funds amongst these 80 accounts and the several 

thousand individual programs contained in our budget in order to 

satisfy urgent requirements, to accommodate fact of life changes 

after appropriation action is complete. 

We can group these flexibilities into two categories: Reprogramming and transfers. Reprogramming actions move funds between 

different programs within an appropriation account. We control 

these programs at the program, project and activity level or what 

we call the line item level, as specified in the relevant oversight 

committee reports. 

Transfers move funds between appropriation accounts. For example, Congress provides us with what is called general transfer 

authority. General transfer authority allows us to move funds between accounts up to a certain aggregate dollar limit. These transfers must be for higher priority purposes based on unforeseen military requirements when determined to be in the national interest. 

Once funds have expired, it is important to note that, except for 

very limited cases, the Department has no authority to transfer 

9

1The prepared statement of Mr. Johnson with an attachment with an attachment appears in 

the Appendix on page 40. 

funds, nor can we transfer funds between fiscal years. The major 

exception is our authority to transfer unobligated balances to accommodate fluctuations in foreign currency rates. The Department 

does have standing authority to transfer expired funds into operation and maintenance, military personnel and construction accounts to the foreign currency transfer accounts to fund foreign 

currency variances. 

Unobligated balances are part of the Federal financial management process, particularly when you have multi-year accounts and 

those kinds of appropriations. The Department is very conscious of 

its accountability responsibilities. As good stewards of the taxpayer 

funds, the Department manages unobligated balances carefully to 

maximize utility of the funding provided by Congress and to ensure 

that all relevant policy and procedures are properly followed. 

That concludes my comments and I am here for any questions 

that you might have. 

Senator COBURN. Thank you, Mr. Roth. Mr. Johnson. 

TESTIMONY OF CHARLES E. JOHNSON,1 ASSISTANT SECRETARY FOR BUDGET, TECHNOLOGY AND FINANCE, DEPARTMENT OF HEALTH AND HUMAN SERVICES 

Mr. JOHNSON. Thank you, Dr. Coburn. It is good to be with you 

again. I am pleased to represent Secretary Leavitt in testimony before you this afternoon. 

You have asked us in our testimony to deal with the funding 

flexibility that we have and to discuss the status of our unobligated 

balances. 

The Department of Health and Human Services has a budget of 

almost $700 billion, approximately one out of every four Federal 

dollars is spent by us. Almost everyone would assume that we have 

a lot of money that can be moved around. People talk about all we 

want are the crumbs that you drop by each day. 

When I joined HHS, I thought, too, that funding for projects 

would be easy to find compared to the $8 billion budget that I had 

at EPA. It is not as easy as I thought and here is what I have discovered in my analysis. 

Although it is $700 billion, almost 90 percent is in mandatory 

funds. That still leaves a very substantial discretionary amount, 

but that side, too, has its limitations. We are subject to the normal 

budget rules which have been carefully developed over time. The 

necessary expense rule, use money only for its original stipulated 

purpose. Augmentation, you cannot add additional funds to 

amounts previously specified by Congress. Transfers, you cannot 

transfer between appropriation accounts except for a small amount 

that we can transfer under an emergency. And reappropriations, 

even if Congress allows a reappropriation, it is scored again by 

CBO so there is some reluctance by Congress to do so. 

We are presently beginning work on our 2008 budget while we 

are under a fiscal 2006 spending plan. It is not surprising that 

there are events that cannot wait for 2008 action. 

10

1The graph referred to appears in the Appendix on page 00. 

I can cite three recent examples where we have not as yet been 

able to obtain funds because of these limitations. We wanted to 

change our secure site for HHS to do business in emergencies, the 

so-called COOP site because we need a closer location. We were 

looking for some money to put into systems to save substantial 

labor costs and to shorten the time in response to our constituents. 

And Secretary Leavitt would like some put in for a data collection 

system but there is no secretarial discretionary fund. He has a 

small amount, that 1 percent transfer authority, but only in an 

emergency. 

So what about unobligated funds? Why not use those? Let me 

show you our unobligated funds through a graph.1 And I am 

pleased to report that it is the same number on both graphs. 

Senator COBURN. That is amazing is it not? 

Mr. JOHNSON. That really pleases me. 

Senator COBURN. That does not happen often. 

Mr. JOHNSON. No, so I am very pleased with that. 

But you can see that it is broken down with $825 million in user 

fees, revolving funds, cooperative research agreements, other people’s funds for which we are the custodian. 

Under the mandatory programs the largest number, of course, is 

TANF and child care. We received an appropriation in late September for disbursement in October, so it is an anomaly really. The 

TANF Contingency Fund was part of the welfare reform developed 

in 1996 in which we wanted to protect States on an ongoing basis. 

Other mandatory programs, including vaccine for children, State 

demo grants, child support enforcement, other issues like that all 

in the mandatory program. 

So we get down to the discretionary side. On the discretionary 

side, we have buildings and facilities for FDA, Indian Health Services, National Institute of Health, CDC. Of course, those are noyear funds until we can complete our construction projects. 

And then our other discretionary programs contain things like 

free clinic, malpractice claims—a reserve basically—stockpile, 

LIHEAP contingency funds. 

And so as I looked at that, I said you know, not a lot of real 

promise out of those funds. So what about our expired unobligated 

funds? 

The question I ask is would we like more flexibility? Would we 

like to reduce our current request in order to access the existing 

funds? The answer is absolutely. We understand that when Congress gives us more flexibility it can possibly take some flexibility 

away from you. So I understand that dilemma. But if we look at the expired but unobligated funds, we have $4.8 billion again, we agree, of which $1.8 billion of that is in the discretionary category. We do not presently have access to those funds 

other than to cover newly discovered claims that apply to prior 

years. 

So as I have read the testimony and heard the testimony today, 

I see some special consideration has been given to some other agencies to use expired but unobligated funds that are about to be canceled. I am anxious to hear about those departments and the speVerDate 0ct 09 2002 12:11 May 14, 2007 Jkt 028247 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 C:\DOCS\28247.TXT SAFFAIRS PsN: PAT
11

1The prepared statement of Mr. Henke appears in the Appendix on page 51. 

cial rights that they may have and certainly your desire to get 

more uniformity among agencies. 

I stand ready to answer any questions you may have. 

Senator COBURN. Mr. Johnson, thank you. Mr. Henke. 

TESTIMONY OF ROBERT J. HENKE,1 ASSISTANT SECRETARY 

FOR MANAGEMENT, DEPARTMENT OF VETERANS AFFAIRS 

Mr. HENKE. Good afternoon, Mr. Chairman. Department of Veterans Affairs and the Subcommittee share the common goals of accountability, stewardship and improved financial management. VA 

values and needs the authority that Congress has given us in law 

to carry over unobligated funds, and in certain specific circumstances to move resources between accounts. This authority 

gives us the smart management flexibility that we need to steward 

our resources in a way that maximizes VA’s mission, which is providing timely, high-quality health care and benefits to our Nation’s 

veterans. 

At the end of fiscal year 2005, VA’s unobligated balances totaled 

$21.601 billion. About $19 billion of this, or 89 percent, was in our 

mandatory accounts, our trust funds and our revolving funds. 

These resources are for our entitlement programs and can only be 

used for veterans benefits as specifically mandated by law. By design and statute, Congress has designated these as no-year accounts or funds that do not expire, and we maintain these balances 

to ensure that veterans benefits are paid on time. In some cases, 

the balances actually represent veterans assets and not the VA’s. 

This $19 billion I mention is largely in three accounts. First, our 

National Service Life Insurance Trust Fund, started in 1940 to finance life insurance for World War II veterans, contains $9.1 billion of unobligated funds. The Department oversees this trust fund 

on behalf of veterans. Indeed, the $9.1 billion represents insurance 

premiums that veterans have paid over time. 

Second, our housing accounts contain $5.7 billion. These funds 

operate our guaranteed housing loan and direct housing loan programs which, for over 60 years, have provided veterans with the 

opportunity to become homeowners. 

Third, $1.1 billion was unobligated in our compensation and pensions mandatory account. This account makes compensation payments to service-connected disabled veterans and pension payments to wartime veterans. We disperse about $3 billion a month 

from this account, from this compensation and pensions account. 

And so this unobligated balance was used to pay benefits to veterans in the first month of 2006. 

On the discretionary side, we had about $2.4 billion in unobligated balances, almost entirely in two accounts. VA’s major construction account carried forward funds into fiscal year 2006. This 

account is also a no-year account and unobligated balances are carried over each year. Large capital construction projects typically 

take 12 months to award design contracts and 18 to 24 months to 

make construction contracts. Funds are obligated over time but 

only when key construction milestones are met. 

12

Multi-year projects require multi-year money and having this 

flexibility ensures these projects are completed on time and without 

interruption. 

Our medical care discretionary accounts carried over more than 

$1.1 billion from fiscal year 2005. VA received a $1.5 billion supplemental for health care near the end of 2005 and it was provided 

as 2-year money. Given that timing, much of the supplemental was 

carried over and is being used to provide veterans health care in 

2006. 

In those few instances when funds do expire, they are not available for new obligations. They remain expired for 5 years to make 

obligation adjustments and at the end of the fifth year, the funds 

are canceled and returned to the Treasury. 

VA financial managers take many steps to ensure that we minimize the amount of funds that expire. Of the $21.6 billion in unobligated funds at the end of fiscal year 2005, only $13 million lapsed 

or was not available for obligation, and that is less than 0.1 percent 

of the balance. 

Sir, you asked about our ability to shift funds between accounts. 

VA has specific defined authority to transfer available funds between certain appropriated accounts. The accounts we can transfer 

funds between and the requirements for us to do so are clearly 

spelled out in law. In each case, VA notifies Congress of its intent 

to transfer or reprogram funds, and this ensures proper oversight 

and transparency. 

The ability to transfer funds when necessary makes good sense 

and it is a critical and prudent financial management tool. It allows VA to respond to changing conditions during the budget year 

and it helps us to ensure that taxpayer dollars are well spent. 

To close, Mr. Chairman, VA strives to ensure that every dollar 

devoted to veterans programs is used wisely and smartly managed. 

We do this to maximize both the effective and efficient delivery of 

benefits and services earned by those who have served our country 

in uniform. 

Thank you for the opportunity and I welcome your questions. 

Senator COBURN. Thank you. Let me just ask a general question. 

We are going to make this pretty informal. 

You basically have three different types of unobligated balances. 

As you look at them, one of my questions is the gaming that takes 

place on the appropriation cycles when they go and steal your unobligated balance to create budget cap elevation. The money that 

you have in unobligated balances is not real money. It is not—

money is not borrowed against that money until it is actually 

spent. So it is an account. It is not actually cash. Have those 

grown? And have they grown disproportionately to the size of the 

program that you are administering? 

For example, in VA health care, have the unobligated balances 

risen at a rate faster than the growth of the program in the mandatory programs, for example? I know that you, I think, at the end 

of March, with the transparency that has come from the VA—and 

I want to compliment you all on that because it has helped Congress a great deal—I think you had $600 billion still in that account at the end of March just for the veterans health care. 

13

Are you seeing in these different areas growth or have you even 

looked at year-to-year-to-year unobligated balances growing faster 

than what the program growths are? Because what that allows us 

to do is, although you all are charged with doing it in your areas 

of responsibility, it allows us to redirect dollars where they should 

be. 

My question is do you see any trend in that in any of the accounts? Or have you even looked at it? 

Mr. JOHNSON. Dr. Coburn, I will tell you what I have looked at 

is the unobligated balances that expire and that is what you are 

dealing with. And I have looked at it for the last 5 years. And it 

really moves around with some, I guess regularity, if you can say 

it moves around with regularity. There is no pattern to it. 

Senator COBURN. It is irregularly regular. 

Mr. JOHNSON. It is irregularly regular; right? 

And so I did not see a trend that would indicate that it is growing faster nor is there a trend that is reducing. It just moves 

around. 

Senator COBURN. Let me ask each of you, the Department of Justice has what would seem to be some flexibility for things that will 

make them more efficient, increase their data, streamline some of 

their processes and allow them to do things that they might not 

otherwise because they have more flexibility than many other 

agencies when it comes to unobligated balances. 

What do you think about that? Does it actually, and I will ask 

you again Mr. Lofthus, has it really truly decreased the requests 

coming from DOJ on the total budget request, what it would have 

been otherwise? And how do we take what we are doing there and 

maybe give some flexibility to the other departments to allow them 

to be wiser with the money under their own discretion in transferring or reprogramming some of this money? 

Mr. LOFTHUS. If I can start on that one, Senator, I think one of 

the advantages that we have with the unobligated balance transfer 

authority, it really does allow us to maximize the use of the appropriations we have received and diminishes the need for us to go in 

for new money in the sense that we are often left with rather small 

amounts in many accounts. We have over 300 different appropriations, if you count current and expired appropriations. 

And across those appropriations we are often left with rather 

modest or small balances that by themselves are not going to accomplish a whole lot. But by being able to go to those accounts, 

transfer the money into our unobligated balance transfer account, 

we can then use it for sizable capital expenditures that the Department really needs. 

We have bought a plane for the Justice Prisoner Transportation 

System. That was desperately needed and that was a great use. 

We have used the unobligated balance transfer to go in for 

money for the FBI’s crime lab, and that meant we did not have to 

go in with a new budget request. It was by cobbling together these 

small balances from many sources. I think it has given us a real 

advantage. 

Senator COBURN. Yes, ma’am, Ms. Scheinberg. 

Ms. SCHEINBERG. Mr. Chairman, I read Mr. Lofthus’s testimony, 

and I listened to his testimony, and I am taking copious notes on 

14

this program because this would help us quite a bit at the Department of Transportation for similar reasons. 

We often do not need a huge amount of money to do something 

very significant. We need some money, but we do not have the 

flexibility to put the money together to do something. I am thinking more in the terms of Information Technology (IT) and financial 

systems, things that would improve the way we manage the Department. 

In a Department like ours, where there is a lot of interest in construction programs, there is not a lot of outside interest in our own 

internal financial management. 

Senator COBURN. They want the money to go through the door. 

Ms. SCHEINBERG. A small amount of flexibility could really be 

helpful to us in the management systems that we need to keep 

track of all of this money. 

As it is, we try to find bits and pieces of money and put these 

systems together. But it would be really helpful. 

We also have about 100 appropriations accounts. When you have 

large numbers of accounts, there is a lot of money spread around. 

But we do not have the transfer authority. 

Senator COBURN. Anybody else want to comment? Mr. Johnson. 

Mr. JOHNSON. We looked at that proposal with great envy. The 

three examples I mentioned, the COOP site and two systems issues 

that we are desperately looking for ways to find funds, would fit 

right into that working capital idea. I think it is a tremendous 

idea. 

It also includes an accountability clause, which I understand that 

you have to submit any proposed expenditures out of it to the Congress for oversight, which does add the oversight and accountability 

to it. I just think it is a tremendous idea. 

Senator COBURN. Welcome, Senator Carper. I am glad you are 

here. I was kind of lonely up here by myself. 

This phenomenon of spending down as you get towards the end 

of the fiscal year. You all know what I am talking about. It happens. 

If you had some kind of flexibility like that (DOJ working capital 

fund flexibility), do you think that would be a tool to keep you from 

spending down in anticipation that ‘‘oops, somebody on the Hill 

might not think we need this money. So we are not going to get 

rid of it, maybe not in the best way?’’ I am not saying necessarily 

wasteful, but maybe done in terms of the highest priority and 

need? 

Could you see that that could create an opportunity where there 

would be a pressure exerted on more judicious financial decisions 

made as you ended the fiscal year, knowing that some of that 

would go into an unobligated balance that then could allow you to 

do what you wanted to do with the money rather than spend it? 

Do you think there is any truth to that across your agencies? 

Go ahead, Mr. Henke. 

Mr. HENKE. Yes, sir, that is a true statement. We at VA have, 

in our discretionary accounts, typically a fraction of our appropriations that have a 2-year availability to avoid that very phenomenon. It typically ranges between 5 percent and 7 percent of 

the account. But it is a particular portion of the account that keeps 

15

its availability beyond 1 year to avoid that very phenomena that 

you talk about. And we use that ability and that authority flexibly 

to ensure that the end of year spend down does not happen. Having 

2-year money available affords us that opportunity. 

Senator COBURN. Go ahead, Mr. Roth. 

Mr. ROTH. We, too, at the Defense Department, have looked at 

some of our annual accounts and whether it would be judicious to 

extend the availability into the 2 years. 

I will say, we take a hard look every year at unobligated balances. You asked in one of your early questions is the trend up or 

down. We have tried to really squeeze that number down to ensure 

that people are making maximum utility of their resources. And so 

we frequently look at the current year budget. One of your questions in setting up this hearing is how do we use the unobligated 

balances in terms of setting future budgets and programs. In fact, 

as I said in my opening statement, as one of the key metrics in 

judging some of these accounts is the size of the unobligated balances and the trend that they have had in recent years. For those 

that show a persistent trend of having large unobligated balances, 

we take a hard look at that account to see why that persists. 

Senator COBURN. There is another downside on this, and I am 

going to use something from your agency and it is not to slam you 

at all. 

Senator Ensign held a hearing on the $6 billion in overpayment 

of performance bonus payments to people who were not eligible. 

The finding from that hearing was that if it was not going to get 

spent, they were not going to get it next time. So therefore they 

paid the performance bonuses even though people did not meet the 

standards for the performance bonuses. 

So we have to balance that against the unobligated balances, 

against the incentive to do the right thing. Because here the incentive worked the wrong way. We paid contractors $6 billion in 2005 

or 2004, one of those years, for performance that they did not perform in a fear that they would not get the money the next year to 

pay the performance bonuses. So it defeated the whole purpose of 

having a performance bonus system and the taxpayers are out $6 

billion in one fiscal year. 

Those are difficult things to handle, but the purpose of this hearing is to find out these unobligated, and then figure the psychology, 

how do we best create the incentives to make the best decisions. 

Mr. Johnson, I think you wanted to say something. 

Mr. JOHNSON. I have some experience from two different agencies. At EPA, where they had 2-year money so you were not as worried at the end of the fiscal year about obligating very quickly. And 

now, at HHS, where it is all 1-year money and there is a rush to 

obligate. 

I am not saying that bad decisions are made. But whenever there 

is a rush, you do change the culture a little bit. And you may indeed move into some things that you should not move into. 

Senator COBURN. That might not be the highest priority. 

Mr. JOHNSON. It may not be the highest priority, that is correct. 

Senator COBURN. Senator Carper, would you like to inquire? 

16

OPENING STATEMENT OF SENATOR CARPER 

Senator CARPER. I do. Thanks, Mr. Chairman. 

To all of you, welcome. Some of you I see a lot, regulars around 

here. We are glad to see you, whether it is your first time or your 

third or fourth time. 

I am struck, Mr. Chairman, by what Mr. Henke said from the 

VA. I am always looking for best practices and models that we can 

try to identify and see if they may be replicable in other agencies. 

You may recall in one of our hearings, I want to say it was on 

real property management with the VA. I think one program I 

thought they were doing an especially good job. I personally like 

the way they harnessed information technology with respect to the 

delivery of health care. 

I want to more fully understand how you address this issue of 

unobligated funds. Just give me a little primer on what you do at 

the VA and how that works. 

Mr. HENKE. Yes, sir. The large balance of our unobligated money 

is typically in our mandatory or trust fund accounts. About 90 percent of what is unobligated is unobligated by design and it remains 

available until expended. For example, our Life Insurance Trust 

Fund, which is actually insurance premiums paid by veterans, had 

$9 billion of unobligated balances at the end of fiscal year 2005. 

So where appropriate the funds are necessary and are designed 

to match the needs of the program. In our compensation and pensions accounts, those funds are necessary to carry over to make 

payments early in the next part of the fiscal year. 

On the discretionary side, we have some accounts that are necessarily 2-year money or are no-year money based on the particular 

project and activity that they are going to fund. But we try to 

match up what the program needs with the way that we finance 

it with the funds that are available to us. 

Senator CARPER. Are you aware of other agencies where we could 

have an apples to apples comparison, where other agencies are 

doing what VA is doing, in some respects? 

Mr. HENKE. I think, sir, each agency is unique in the specific authorities that it has, perhaps in its appropriations act. Obviously, 

we all are required to follow Title 31 and the fiscal laws that are 

established there. But I think we have seen today a fairly interesting variation in the authorities and the flexibilities between different agencies. 

Senator CARPER. Going back to a point I think the Chairman was 

making earlier, in State government in Delaware we used to have 

a situation, and maybe we still do. I have been away from State 

government for a while now. But it used to be that we worked on 

a cash basis accounting. We got to the end of the fiscal year in late 

June and agencies would spend their money because if they did not 

they would lose it. 

And then we got to the place where we were encumbering the 

money and agencies could carry the money over from year to year. 

So I remember well the motivation that some agencies feel. Some 

people in agencies feel a use it or lose it kind of approach. 

I do not know who once said the only thing that is new in the 

world is the history that we never learned. I want to go back in 

history just a little bit and better understand how this system 

17

worked, how we treated these unobligated funds prior to 1990. I 

want to understand a little bit of the history of why the Congress 

made the changes that it did in 1990. 

I do not know if any of you could help us with that, but if you 

could just give me a little bit of the history? Anybody? 

Senator COBURN. They are not old enough. 

Senator CARPER. A couple of them might be old enough. 

Mr. ROTH. I can talk to some basics. I will not claim to be a subject matter expert, to go back that far. The rules before 1990 were 

that the active appropriations would then go into a surplus fund 

for 2 years where the funds would retain their line item and appropriation and fiscal year integrity and identification for the 2 years. 

At that point, the funds then transitioned into something called 

merged surplus and so-called M accounts. And in the so-called 

merged surplus accounts, as the name would indicate in the M accounts, the funding lost its fiscal year identification and lost its appropriation identification. In the case of the Defense Department 

these accounts never canceled. In today’s world, after 5 years the 

money is canceled and gets written off the Treasury’s books. 

Before 1991 the money never canceled. These merged surplus accounts and M accounts simply grew in size over time. That, in and 

of itself, became a matter of controversy, just the size of those accounts. 

So that, very quickly, was the nature of the world before that. 

Senator CARPER. A question for each of you. If you had to, 16 

years later, rewrite the rule book for the practices that we follow, 

and you probably already said this, but how would each of you rewrite the rules? Or would you just leave them pretty much as it 

is? 

Ms. SCHEINBERG. Senator Carper, there is a fine line between 

flexibility and oversight and controls. Even on the issue of spending 

at the end of the fiscal year, to spend what is available, we have 

controls to make sure that the money lasts through the fiscal year. 

We do not want people to spend their money too fast and we do 

not want them to spend it too slow. The goal is to get down to the 

end of the fiscal year with just the right amount of money. That 

is a very difficult thing to do. 

At the Department of Transportation, we do not have very many 

1-year accounts because we have a lot of accounts that fund construction programs and need to be available for many years. 

We do not have very much flexibility, and it would be helpful to 

have some more flexibility in being able to move money. We had 

some discussion already at this hearing about that. But I do appreciate the need for control, as well. It is a fine balance. 

I think it would be nice to have a little bit more flexibility but 

I do understand that we need to continue to control these things. 

Senator CARPER. Thank you. Mr. Lofthus. 

Mr. LOFTHUS. I think in terms of the flexibilities that Justice 

has, which are different I think from some of the other speakers 

here this afternoon, in terms of being able to make use of expired 

funds, when you look at things like the zeal that may exist in certain pockets to spend down at the end of the year, that environment really does not exist at the Justice Department because we 

do have a capability to look at our expired balances and be able to 

18

1 Chart referred to appears in the Appendix on page 59. 

maintain them in a special account where we can make use of 

them for capital expenditures in the future. 

I think it provides a built-in incentive to our financial managers 

and our program managers to have, I think, excellent stewardship 

over those funds because the agency can really put them to good 

use. 

So I think we have benefited tremendously from that provision 

that dates to 1992. And I think that is something that we rely 

heavily upon now, particularly in lean budget times. And it means 

a lot to our Agency. So I am pleased that we are able to make use 

of a capability like that. 

Senator COBURN. How much did the Justice Department turn in 

to the the Treasury Department in expired funds last year? 

Mr. LOFTHUS. To give you an exact figure, I would like to get 

back for the record. But you can see on this chart over here on the 

right that our expired balances are roughly $585 million at the 

close of 2005.1 A lot of that would have been swept into our unobligated balance transfer account and then we would have had just 

a small portion of that, maybe a few tens of millions that might 

have gone into that. Not even that amount. 

We try to make sure we sweep everything possible in so we leave 

a very small amount that actually lapses and goes back to the 

Treasury to be permanently canceled. 

Senator COBURN. But some did? 

Mr. LOFTHUS. Yes, we leave some back. We do that because right 

down to the last day, on September 30, we may have a bill come 

in that we have to pay or settle some ratification or something and 

we want to make sure there is money there until the last day. 

Senator CARPER. Mr. Roth, if you would just quickly address my 

question. 

Mr. ROTH. I share the sentiment in terms of this fine line between flexibility and accountability. There is not a program manager worth their salt out there who would not like more flexibility 

in terms of funding and being able to move money around. 

In our particular case, again we have about 100 accounts. We always have a tension, for example, for a program manager between 

what is called procurement accounts and research and development 

accounts. There are some fine lines between that. They would love 

to have some more flexibility to move money back and forth but 

you get into an accountability issue and into an oversight issue in 

terms of transparency, in terms of where you are spending the 

money and these kind of things. 

At the end of the day obviously the tension is you cannot spend 

more than what was appropriated in any given account, given the 

Anti-Deficiency Act laws and regulations and those kinds of things. 

So there will always be something of a balance. 

To answer one of the questions, on September 30, 2005, we canceled $2.7 billion at the end of that particular fiscal year. It sounds 

like a large number, but that is far less than 1 percent of the funds 

that were available within that program year. 

As I went through some of the accounts in preparing for this 

hearing, we typically cancel 0.3 percent. It is really a very small 

19

percentage. It turns out, on an aggregate level, ultimately to be a 

large number, in the billions of dollars. But it is always far less 

than 1 percent. 

So there clearly is a need for the funds during the expiration period to settle old contracts, to pay old claims and these kind of 

things. At the end of the day we actually, on a percentage basis, 

end up canceling very little in terms of the total program. 

Senator CARPER. Thank you. Mr. Johnson, do you want to take 

a shot at it? 

Mr. JOHNSON. You have asked the question have we heard some 

ideas today that we would like to insert, if you were to rewrite provisions? 

Senator CARPER. Please. 

Mr. JOHNSON. The two things I like, the first is the Justice Department, the Working Capital Fund, which would come from expired funds. 

The second I like is the ability to move a small amount of 1-year 

money and convert that into 2-year funds, so that at the end of the 

year you would have some small ability to carry over some amount 

of otherwise lapsed funds. I like both of those ideas. 

Senator CARPER. Thanks. Mr. Henke, the last word. 

Mr. HENKE. Yes, sir. Your question is a very thoughtful one because the incentive needs to be balanced between the need to spend 

funds wisely against the desire to spend the funds at this point in 

time. 

I would suggest that VA’s flexibility to carry some portion or 

some fraction of our 1-year money into a second year is particularly 

useful and helps us make prudent decisions. I think that the ability 

that the DOD and DOJ have to sweep expired balances for a particular purpose and need is also a sound practice. 

Senator CARPER. OK. Thank you all. Thanks, Mr. Chairman. 

Senator COBURN. For the record, the Treasury Department reported to us that they got $16.4 billion back from the agencies last 

year. 

I have a couple questions that I would like to ask. Would it be 

helpful to see, for everybody across the board, a transfer authority 

of X percent of unobligated balances and mandates? The rest is 

kept toward putting and keeping your annual budget request down. 

One of the things that we heard before you came here is that the 

request from the Department of Justice is actually less than their 

budget request because they have this flexibility with this money. 

So if that was agency-wide, where you had this ability, and then 

maybe combined with an idea to incentivize efficiency, in other 

words, incentivize not spending the money. I am not talking about 

in mandatory programs. We are going to spend what we have to 

on the mandatory programs, whether it is Veterans, Medicare, or 

whatever. 

But on the programs that are not, how do we incentivize inside 

the agencies to where the agency benefits by being a better steward? In other words, how do they share in the savings? And how 

do we do that agency-wise to where we could do that? Most of your 

funds go through the door. 

So this portion of your funds that are not going out through the 

door, how do we incentive the Department of Transportation that 

20

they get a share in the savings generated by good ideas, by good 

stewardship, by efficiency, by new IT? We can eliminate this many 

FTEs if we do this? 

In other words, how do you incentivize progress, like we see in 

everybody else that is working on the greed motive, on the profit 

motive? How can we do that? Any thoughts on that, how we could 

do that? It is not a matter of distrust. 

The other point that I would say is that you would have to have 

mandatory oversight every year of each one of these segments so 

that you knew you were going to have to have transparency with 

the Congress and the American public. 

Yes, ma’am? 

Ms. SCHEINBERG. Yes, Senator. 

As we mentioned a little while ago, one of the benefits would be 

the ability of combining small amounts of money. Right now we 

cannot move money, even if it is a very small amount. And so you 

end up with small amounts of money in different places in the Department. However, if we could combine those amounts we could 

actually do something very constructive for the Department as a 

whole in the sense of information technology and financial management. 

Senator COBURN. Or maybe five miles more of highway. 

Ms. SCHEINBERG. The highway money——

Senator COBURN. I understand but it does not necessarily—in 

other words, the point I am making in responding to your question, 

it does not necessarily have to go for things inside. It could buy 

more highway or more transit cars or do something else if we got 

to the point where you were running efficiently with the tools that 

you need. 

Ms. SCHEINBERG. Right, and actually, that is a different issue. 

Right now we do not, at the Department level, have the ability to 

go out and bring back money that is unspent. The States have the 

ability to move money but we do not. And so money does sit in 

States around the country. If we could bring it back and redistribute it, that would be very helpful. 

That is a much larger issue because it involves the authorization 

of these programs. 

Senator COBURN. I think the other Senator from Oklahoma 

would be very interested in your thoughts on that. 

Ms. SCHEINBERG. What I consider a smaller and easier issue to 

tackle would be the money that stays in the Department. Instead 

of having it spread throughout our 12 operating agencies, DOT 

would benefit by being able to combine it for purposes that would 

be department-wide. It is not that I would be looking for money to 

be moved from one agency to another for somebody else’s purpose 

but to do things that are department-wide. 

Right now we are not able to do that. We are not able to get folks 

to come together because the money is all separate. 

Senator COBURN. I am asking this for information and not in an 

accusatory tone at all, so do not take it that way. 

Are there any other ways that are padded in your agencies? In 

other words, that things get padded towards the end of a fiscal 

year? Padded because of some quirk in what Congress has said? 

What else is out there in terms of padding? 

21

That is kind of the response I thought I would get, no response. 

Nobody is going to voluntarily offer that. 

Mr. LOFTHUS. I will stick my neck out just to say that since we 

have had the ability to transfer our expired balances into the unobligated balance transfer account, I think it has diminished the likelihood that people see an incentive to pad or somehow put extra obligations on the books because they simply do not have to do that. 

There is now an incentive not to do it, to keep the funds available 

moving into this account where a large number of our components 

across the Agency have all benefited. They do not all benefit in a 

single year. They may get taken care of in 1 year and they may 

not get taken care of again for 2 or 3 years because it is somebody 

else’s turn. But the fact is they know there is a chance for them 

to have a turn. 

So there is really an incentive to be a good steward in this environment. 

Senator CARPER. I had two more questions and you asked them 

both. In fact, one of them you answered and that was the amount 

of unobligated balance figures that went to the Treasury Department? 

Senator COBURN. $16.4 billion. 

Senator CARPER. So I do not have any more questions for this 

panel. Thank you. 

Senator COBURN. I have a couple more. 

Is the 5-year period the right number? Or should it be flexible? 

In other words, in the Defense Department, on some of these systems, should it be longer and on other things should it be shorter? 

In other words, the fact that on funds that are going to go into 

the unobligated expired accounts, we know that is 1 year. And then 

it is going to be held for 5 years. Are there differences in those? 

Are there some times where it should be 2 years and sometimes 

when it should be 8? In other words, I do not know how we got 

to 5 years and I do not know the legislative history behind that. 

But it would just seem to me that the 5 years does not necessarily 

apply uniformly across all the different needs and tasks that agencies are given. 

Any thoughts on that? 

Mr. ROTH. Since you focused on us to begin with, let me try to 

answer your question. 

Like any standardized number, I think you are absolutely correct, 5 years is a relatively artificial number. I think for some of 

our annual accounts like our operating accounts and our personnel 

accounts, 5 years is probably more than adequate in terms of covering the kinds of claims that might come in during that period. 

For some of our larger capital investment accounts, shipbuilding 

accounts, building space assets, and some of our military construction facilities, 5 years is at a razor’s edge. We, on more than the 

odd occasion, use this 1 percent rule to pay a bill after the 5 years. 

So for large capital investment kinds of things, the 5 years is 

probably not long enough. For annual accounts probably 2 to 3 

years would be adequate. 

Ms. Scheinberg, how much do you think is sitting in State accounts in unobligated highway funds now? A rough guess. 

Ms. SCHEINBERG. I can tell you as a whole——

22

Senator COBURN. Yes, as a whole, not individual States. 

Ms. SCHEINBERG. As a whole, the amount that is unobligated for 

the Federal-aid Highway Program——

Senator COBURN. But is in State accounts. 

Ms. SCHEINBERG. It would be about $10 billion in obligation limitation. 

Senator COBURN. There is all sorts of quirky things that happen. 

I was talking with our State highway director. They keep the 

money there because some people do not file claims for bridge repairs that is done in a county by county commissioner. But they 

kind of like having that little cushion there. 

Ms. SCHEINBERG. There are a lot of reasons why this money has 

not yet been obligated. Part of it has to do with money that has 

been designated for special projects. And so the project is not ready 

because it did not come from the State’s program. The State did 

not identify it and have it ready for expenditure. 

The other issue has to do with the fact States are waiting for certain requirements to be met first. There are environmental impact 

statements that have to be completed before you can obligate the 

money. There is a long series of steps that a State must go through 

before a highway project can be completed. 

In fact, even once it is obligated, we expect it to take 9 years for 

money that is obligated to be expended. Our outlay stream is 9 

years. So there is a very long process for these projects. 

There are a lot of reasons. 

Senator COBURN. This is the last question and you do not have 

to answer it here but I would love a written response. If you could 

use all of your expired unobligated balances in your agency for the 

next year, what would that reduce your request on appropriations 

coming to Congress for? In other words, is there a one-to-one correlation? Or is it 80 percent of that we are going to get benefit out 

of it? 

In other words, how do we better use the money that has been 

appropriated? And how can you, you are there, you are on the 

ground. You see the problems. You see the needs. 

If you had that opportunity every year, if you had that year end 

unobligated balances that were expired and were going directly to 

you for your discretion, what would that do in terms of the request 

of decreasing budget for your individual agencies? 

In your case, it is only $13 million so it is probably not going to 

do much in terms of veterans. But it would do something. 

So the point is to allow that. But one of the things that is happening is this money is getting gamed. You all need to know this. 

Because we have a budget cap and then we use these expiring unobligated balances to increase spending to the flavor of what a senator or congressman wants, and most of it is in terms of earmarks 

not in terms of something you all identify as a priority but what 

some political need is in terms of a priority. 

So one of my goals in having this hearing is how do we utilize 

the money in an area in which it was originally intentioned and 

not in an area that is localized geographically to somebody’s political benefit. 

That is the other thing that we want to look at because we are 

going to look at it this year as we go through the appropriation 

23

cycle, is how much of this is used to pump up the budget? And how 

much of that pump does not go for you all but does go in terms 

of directed funds to something that is not necessarily a priority 

seen by you. But yet you have to do—and you experience that a lot, 

Mr. Roth I know in terms of the Department of Defense. 

Department of Energy, 50 percent of their budget is earmarks. 

So you can see the potential there where we could get online on 

things that you are obligated to do in terms of your charge as agencies can further benefit and the politics can get out of it a little bit 

Thank you all for being here. Let me say I appreciate what you 

do. I appreciate President Bush because of what he has done in 

terms of putting CFOs in, in terms of his PART program and how 

we are seeing the agencies starting to become financially secure in 

terms of their information systems and trying to do it. 

And my hope is that OMB can get as good as you all are in terms 

of your CFO responsibilities and analysis of how you are doing it. 

Thank you for being here. 

The hearing is adjourned. 

[Whereupon, at 3:42 p.m., the Subcommittee was adjourned.] 

(25)

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