INFORMATION

POLICY

NTIS’ Financial

Position Provides an

Opportunity to

Reassess Its Mission

United States General Accounting Office

GAO Report to Congressional Committees

June 2000

GAO/GGD-00-147

United States General Accounting Office General Government Division

Washington, D.C. 20548

Page 1 GAO/GGD-00-147 NTIS’ Financial Position

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June 30, 2000

Congressional Committees

This report responds to the requirement in Senate Report 106-76 that we

examine an issue involving the Department of Commerce’s National

Technical Information Service (NTIS). NTIS is a permanent repository and

principal disseminator for scientific, technical, and engineering

information (hereafter referred to as research). As agreed with your

offices, this report also responds to broader NTIS issues of concern to the

Senate Committee on Commerce, Science, and Transportation and the

House Committee on Science.

NTIS’ World News Connection (WNC) operates an on-line foreign news

service that disseminates to the public, for a fee, news obtained from the

Central Intelligence Agency’s (CIA) Foreign Broadcast Information Service

(FBIS). The Senate Report asked us to determine whether WNC’s foreign

news service (1) falls within NTIS’ statutory authority and (2) is

detrimental to private businesses that offer similar news services.

For over 55 years, NTIS (or its predecessor agency) has collected and

disseminated agencies’ research reports to the public. However, during the

late 1990s, the agencies increasingly began making many of their research

reports available to the public for free through the World Wide Web. This

contributed to a decline in NTIS’ revenues from the sale of these reports.

This decline in sales is a serious problem for NTIS because its enabling

legislation requires that to the fullest extent feasible, all of the services and

functions provided by NTIS be self-sustaining.1

 In August 1999, Secretary

of Commerce Daley proposed to close NTIS by September 2000 because he

believed that declining sales revenues soon would not be sufficient to

recover all of NTIS’ operating costs. He also proposed transferring NTIS’

research report archives to the Library of Congress and requiring federal

agencies to give the public free on-line access to new research reports.

Commerce’s draft legislation to close NTIS has not been introduced in

Congress.

Our objectives were to (1) determine whether NTIS can continue to be

self-sufficient and, if not, what issues need to be addressed; and (2)

 

1

 15 U.S.C. 1153.
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Page 2 GAO/GGD-00-147 NTIS’ Financial Position

determine whether WNC’s on-line foreign news service exceeds NTIS’

statutory authority to the detriment of private firms offering similar news

services.

NTIS may be able to remain self-sufficient (or solvent) for a few years, but

its solvency beyond fiscal year 2003 remains in doubt. Solvency for a few

years may be possible because Commerce and NTIS officials acted in fiscal

year 1999 to reduce costs when it appeared there would not be sufficient

funds to operate. For example, Commerce officials transferred 45 NTIS

employees to other agencies within the department. These actions allowed

NTIS to report a $600,000 profit in fiscal year 1999, and NTIS officials

project an estimated $1 million profit for fiscal year 2000. However, NTIS’

solvency beyond fiscal year 2003 is in doubt based on our forecast of NTIS’

revenues and costs that suggests that losses will begin in fiscal year 2001

and continue. If these losses are realized, retained earnings from previous

years’ operations could be absorbed, and NTIS could run out of operating

funds after fiscal year 2003.

However, if any of three events not included in our financial analysis

occur, they could cause financial reversals that would threaten NTIS’ selfsufficiency before fiscal year 2003. First, the 5-year decline in NTIS’

revenues from selling reports may accelerate, as larger segments of the

public gain access to the Web and as more agencies make their research

reports available for free over the Web. For example, Congress recently

appropriated $250,000 for the Department of Transportation to give the

public free on-line Web access to more than 400,000 research reports.

Second, NTIS’ costs may increase faster than accounted for in our

financial analysis because NTIS officials say they have nearly exhausted

their plans to reduce costs. Third, the fees that federal agencies pay NTIS

for various brokerage and Web services ($12.4 million, or 37 percent of

NTIS’ total fiscal year 1999 revenue of $33.3 million) may begin to decline

rapidly if agencies decide to obtain those services elsewhere because of

the Secretary’s announced plan to close NTIS or for other reasons. For

example, 11 percent of NTIS’ total revenues came from fees it charges the

Internal Revenue Service (IRS) to host that agency’s Web page and for

other services. IRS asked the Secretary of Commerce in May 2000 for

assurance that NTIS would continue to provide IRS with services through

fiscal year 2001.

Because of NTIS’ precarious financial position, policymakers may want to

address the question of whether the government still needs NTIS (or

another agency) to serve as a permanent repository and disseminator for

research reports. To help in this reassessment, congressional committees

 Results in Brief
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Page 3 GAO/GGD-00-147 NTIS’ Financial Position

could benefit from the annual financial and operational reports on NTIS

that Commerce is required to submit to Congress but has not submitted

since fiscal year 1995.

Regarding our second objective, WNC’s foreign news service falls within

NTIS’ statutory mission to disseminate technical information.

Nevertheless, WNC’s service may have a detrimental impact on private

sector firms that offer similar electronic news services because NTIS does

not pay to obtain or translate the foreign news, or pay taxes, as private

firms do.

Although NTIS is still solvent, we suggest that Congress consider whether

and how NTIS’ mission should be carried out in the future. In addition, we

are recommending that the Secretary of Commerce resume submitting the

required annual reports to the appropriate congressional committees to

help keep them fully informed on NTIS’ operations and financial condition.

Commerce agreed that Congress should review NTIS’ mission and said it

would work to ensure that Congress receives all of the relevant

information.

Since 1945, NTIS (or its predecessor agency) has served as a permanent

repository and principal disseminator for scientific, technical, and

engineering information that is useful to American business, industry, and

the public. NTIS acquires its information primarily from federal agencies

and their contractors and grantees, as well as from international sources.

Its collection includes about 3 million titles.

Customers learn of the availability of NTIS information through a variety

of publications, searches of major commercial information brokers, and

the NTIS bibliographic database in FedWorld.2

 According to NTIS officials,

NTIS classifies, maintains, and disseminates information in the formats

most useful to customers; develops electronic and other new methods and

media for information dissemination; provides information processing

services to other federal agencies; and charges fees for its products and

services that recover its operating costs.

In addition to selling research reports, NTIS offers various services to

other federal agencies that account for a significant portion of its total

revenues. For example, NTIS’ FedWorld provides agencies an on-line

information network that enables agencies to meet their information

 

2

 FedWorld is an on-line information network system, allowing users with a computer and a modem or

Internet connection to identify and gain access to a broad array of government information products.

Background
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Page 4 GAO/GGD-00-147 NTIS’ Financial Position

dissemination obligations. Also, the systems, equipment, financial

structure, and specialized staff skills used in the clearinghouse program

allow NTIS to offer production and dissemination services to other

agencies and provide them with brokerage (billing, collection, and

financial management) services.

Although NTIS’ enabling legislation intended that to the fullest extent

feasible, all the services and functions provided by NTIS would be selfsustaining, NTIS received annual appropriations from its inception in 1945

through 1987. In 1988 Congress enacted legislation—the National

Technical Information Act3

 — that expanded NTIS’ authority to, among

other things, enter into contracts, cooperative agreements, joint ventures,

and other transactions with private firms; and make its bibliographic

information products (catalogs, abstracts, etc.) available to the

Government Printing Office’s (GPO) Depository Library Program. In 1992,

legislation was enacted to establish the National Technical Information

Service Revolving Fund.4

 This legislation provided that without further

appropriations, all expenses NTIS incurs shall be paid from the fund.

From fiscal years 1988 through 1994, NTIS showed a net profit in all years

except 1 and generated a cumulative net profit of $5.8 million. However,

over the next 5-year period of fiscal years 1995 through 1999, NTIS had a

cumulative net loss of about $4.2 million. Revenue declined 3 percent

during this period, decreasing from $34.3 million to $33.3 million; sales of

research reports declined 28 percent from about 1.8 million to 1.3 million.

Over this same period, the number of reports that NTIS obtained from

agencies declined by 51 percent, from 104,000 to 51,000. In fiscal year 1998,

NTIS lost $1.3 million. Through some cost reduction initiatives, such as

reducing staff from 337 at the end of fiscal year1998 to 255 at the end of

fiscal year 1999, NTIS rebounded in fiscal year 1999 and showed a profit of

$600,000.

According to NTIS’ 1999-2003 Strategic Plan, the decline in sales revenue

that began in 1995 can be attributed, at least in part, to the explosive

growth of the World Wide Web. Agencies made greater use of the Web to

disseminate their reports, and some customers may have expected that

federal information was free or inexpensive from the Web. This may have

affected what people were willing to pay NTIS for the same reports. Also,

as more information became available for free on the Web, customers

 

3

 P.L. 100-519, October 24, 1988.

4

 P.L. 102-395. October 6, 1992.
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abandoned the information brokers that paid fees to NTIS for access to

NTIS’ database of reports. According to NTIS’ strategic plan, this resulted

in the loss of potential sales as well as reduced revenues from fees.

In order for Congress to provide oversight of NTIS’ financial condition, the

Secretary of Commerce and the NTIS Director are required to keep the

appropriate committees of Congress fully and currently informed about all

activities related to the performance of NTIS, including changes in fee

policies. Section 3704b(f)(3) of Title 15 of the U.S. Code requires that the

Secretary submit an annual report to Congress that, among other things,

summarizes the operations of NTIS during the preceding year, including

financial details and staff levels broken down by major activities, and

discusses its operating plan for the upcoming year.

As discussed previously, WNC is an on-line electronic foreign news service

that is accessible via NTIS’ World Wide Web page. WNC receives foreign

news from the CIA’s FBIS, which collects this information from foreign

newspapers, conference proceedings, television and radio broadcasts,

periodicals, and nonclassified reports. FBIS translates the news into

English if necessary and provides it daily to WNC in an electronic format

without charge. WNC updates this information on-line daily, so it is usually

available for sale to the public within 48 to 72 hours after the original

publication or broadcast appeared in the foreign media. NTIS is

responsible for resolving any copyright complaints resulting from its

dissemination of FBIS information. From 1974 to 1996, NTIS sold the

foreign information in paper form but no longer does.

To evaluate whether NTIS can continue to be self-sufficient and, if not,

what issues need to be addressed, we analyzed NTIS’ audited financial

data for fiscal years 1991 through 1999.5

 We used the simple trend

forecasting method to forecast NTIS’ costs and revenues through fiscal

year 2004. Forecasting methods use data about past history to develop

models to predict the future. If trends for the future do not follow what

occurred in the past, then the future predictions will be inaccurate. To

perform this analysis, we assumed that future costs and revenues would

change at a rate approximately equal to NTIS’ historical 8-year average.

(See app. I for more detail on our forecast and the results.) To determine

when NTIS’ retained earnings would be depleted, we compared our

projected losses for NTIS to NTIS’ projected retained earnings at the end

of fiscal year 2000.

 

5

 We excluded data for the midpoint of our series – fiscal year 1995 –from our forecasting method

because the method required an even number of data points.

Scope and

Methodology
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In addition to this analysis, we interviewed NTIS and Commerce officials,

as well as officials from agencies that paid NTIS at least $140,000 in fees in

fiscal year 1999 for various services that NTIS provided. These interviews

were to determine if agencies had contingency plans to find a source—

other than NTIS— as a result of Commerce’s announced plan to close

NTIS. We also monitored a study by the National Commission on Libraries

and Information Science (NCLIS)6

 on alternatives to NTIS operating the

repository.

To determine whether WNC’s on-line foreign news service exceeds NTIS’

statutory authority to the detriment of private firms offering similar news

services, we interviewed NTIS, Commerce, and FBIS officials; reviewed

various federal laws and accounting rules and regulations; obtained NTIS’

audited financial documentation on amounts of retirement contributions,

taxes, etc. paid; and contacted private sector firms considered to be

competitors of WNC to determine how their foreign news services and

prices compared to WNC’s services. We also determined how WNC sets

prices for its products.

We conducted our work between September 1999 and June 2000 in

accordance with generally accepted government auditing standards. On

June 8, 2000, we provided a draft of this report to the Secretary of

Commerce for review and comment. The Secretary’s comments are

discussed at the end of this letter and reprinted in appendix II.

NTIS may be able to remain self-sufficient (or solvent) for a few years, but

its solvency beyond fiscal year 2003 remains in doubt, particularly if it

experiences one or more potential financial reversals. Solvency through

fiscal year 2003 may be possible because Commerce and NTIS officials

acted in fiscal year 1999 to reduce costs when it appeared there would not

be sufficient funds to operate. Commerce and NTIS officials transferred 45

NTIS employees to other agencies within the department, implemented an

NTIS hiring freeze, consolidated NTIS operations into 1 building, and

canceled NTIS staff bonuses and awards. These actions allowed NTIS to

report a $600,000 profit in fiscal year 1999, and NTIS officials project an

estimated $1 million profit for fiscal year 2000.

However, based on our forecast of NTIS’ revenues and costs that suggests

that losses will begin in fiscal year 2001 and continue through fiscal year

 6

 NCLIS is an independent agency of the federal government charged by P. L. 91-345 to take a

leadership position on matters pertaining to the library and information needs of the nation and advise

the President and Congress on the implementation of national policy.

NTIS May Be Able to

Remain Self-Sufficient

for a Few Years, but

Future Solvency Is in

Doubt
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Page 7 GAO/GGD-00-147 NTIS’ Financial Position

2004, NTIS’ solvency beyond fiscal year 2003 is in doubt. If these losses are

realized, nearly all the funds in retained earnings from previous years’

operations could be absorbed, and NTIS could run out of operating funds

after fiscal year 2003. Our forecast, which incorporated some financial

data not available to the Secretary when he proposed in August 1999 to

close NTIS by September 2000, generally supports the Secretary’s view of

the viability of NTIS.

The fiscal year 1999 financial statement audit report showed significant

cost reductions and areas where revenues increased. This report noted

several positive developments that occurred during the year:

• NTIS made a $600,000 profit in 1999, after reporting losses the 2 previous

years.

• NTIS’ brokerage services for agencies recorded their fifth consecutive year

of profits, and profits were at the highest levels in fiscal year 1999.

• NTIS had seven new FedWorld projects that generated almost $300,000.

Not all of the report’s findings were positive, however. For example:

• NTIS’ total revenue declined $3.4 million.

• The number of research reports that NTIS acquired from agencies for sale

to the public declined significantly.

• The number of paper copies of reports sold declined 4.6 percent.

In April 2000, NTIS’ Deputy Director and former Chief Financial Officer

told us that the agency is estimating about $1 million profit in fiscal year

2000 and that the agency should be able to remain self-sufficient in the

near future. However, without any appropriated funds, he said that NTIS

would not be able to invest adequately in technology, products, and

services to position itself in the marketplace to serve its customers,

safeguard its collection of reports, and maximize the public’s investment in

research. He added: “In short, we can survive—but we cannot operate as

all similar organizations do by building upon the rapid technological

change that is now occurring.”

Our analysis of NTIS’ financial data suggests that it has sufficient funds in

retained earnings from previous years’ operations to absorb estimated

future losses and remain self-sufficient through fiscal year 2003—barring

any financial reversals. This statistical analysis used NTIS financial data as

of September 30, 1999, and assumes that revenues and costs would change

at a rate approximately equal to NTIS’ historical 8-year average.

Financial Statement Audit

Report Cites NTIS Profit in

Fiscal Year 1999

NTIS Management Forecasts $1

Million Profit in Fiscal Year 2000

Financial Forecast Suggests That

Retained Earnings Are Sufficient

to Absorb Losses for 3

Additional Years
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Page 8 GAO/GGD-00-147 NTIS’ Financial Position

The financial statement audit report for fiscal year 1999 cited about $1.63

million in retained earnings. If the agency realizes its projected $1 million

profit for fiscal year 2000, total retained earnings would be about $2.63

million as of September 30, 2000.

Our forecast of NTIS’ costs and revenues suggests these retained earnings

would be sufficient to continue operations through the end of fiscal year

2003 if past cost and revenue trends continue. According to our forecast,

the agency’s losses could exceed the funds it has available in retained

earnings in the middle of fiscal year 2004. Specifically, the forecast shows

losses of $0.2 million in fiscal year 2001, $0.6 million in fiscal year 2002,

$1.0 million in fiscal year 2003, and $1.4 million in fiscal year 2004. In sum,

we estimate a total of $3.2 million in losses for the 4 fiscal years starting in

fiscal year 2001—more than the projected $2.63 million in retained

earnings available to absorb these losses. Our forecast can be found in

appendix I.

However, NTIS’ costs may increase or revenues decrease faster than

accounted for in our forecast for various reasons. If this occurs, losses

could increase significantly beyond those in our forecast and absorb all of

NTIS’ $2.63 million in retained earnings earlier than fiscal year 2003.

Three events not included in our forecast could, if they occur, lead to

financial reversals that could threaten NTIS’ self-sufficiency before fiscal

year 2003.7

First, the 5-year decline in NTIS’ revenues from selling reports might

accelerate, as larger segments of the public gain access to the Web and as

more agencies make their research reports available for free over the Web.

For example, Congress recently appropriated $250,000 for the Department

of Transportation to give the public free on-line Web access to more than

400,000 research reports.

In addition, Congress appropriates about $25 million annually to GPO for

its free dissemination of agency and congressional reports to the nation’s

1,400 depository libraries. Other agencies, including us, disseminate free

copies of their reports over the Web. A search of NTIS’ report database

revealed a December 1997 report of ours that NTIS is selling for $27 ($12

for microfiche), plus the $5 per order handling fee. That same report is

 7

 Commerce officials told us that if NTIS suffers a rapid financial decline, resources available in

retained earnings might not be sufficient to cover all of the costs, such as those associated with a

reduction-in-force, that would be required to close operations.

Financial Reversal Could

Affect Forecast
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Page 9 GAO/GGD-00-147 NTIS’ Financial Position

available for free from our Web page, or the public can order one paper

copy for free. Other examples of agency Web pages offering free copies of

research reports are discussed below.

• The public can visit the Environmental Protection Agency’s (EPA) Web

site to order one free paper copy of each publication listed until supplies

are exhausted, then customers can order them for a fee from NTIS or the

Educational Resources Information Center. One particular 1989 EPA

document could not be found in the EPA database; however, it was

available from NTIS for $28.50 (or $15 on microfiche), plus a $5 handling

fee per order. This is also an example of how NTIS provides the public

with permanent public access to research reports that may not be available

on agencies’ Web pages.

• The public can visit the Department of Agriculture’s Economic Research

Service Web site, which gives the public free access to electronic copies of

selected reports, but it notes that reports issued before 1989 may not be

available.

Second, as previously discussed, NTIS’ costs may increase faster than

accounted for in our forecast. NTIS officials told us that (1) the recent

reductions in NTIS’ staff and office/warehouse expenses have nearly

exhausted their options for lowering costs; (2) actions taken to reduce

costs may harm the agency’s future capacity to service its existing

customers and keep up with technology (possibly reducing revenue); and

(3) higher than average cost increases are possible in payroll, rent, and

other items in future years. As an example of how costs may increase

faster than our projections, which used data through fiscal year 1999, NTIS

officials told us that their fiscal year 2001 projected savings in rent from

consolidating buildings will not be realized for various reasons and that it

is possible rent will actually increase over previous years’ costs. If so, NTIS

may run out of operating funds sooner than forecast unless additional

sources of revenue or other cost reductions are found.

Third, the fees that federal agencies pay NTIS for various services—

FedWorld and production and brokerage services—may begin to decline

rapidly if agencies decide to obtain those services elsewhere, possibly

because of the Secretary’s announced plan to close NTIS. In fiscal year

1999, these fees of $12.4 million represented more than one-third of NTIS’

total revenues of $33.3 million. IRS alone paid NTIS $3.5 million (or 11

percent of NTIS’ total revenues) to host its Web page and for other

services.
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The loss of a major customer like IRS could adversely affect NTIS’

financial condition. Therefore, we contacted the top nine agency

customers of NTIS for FedWorld and production and brokerage services

for fiscal year 1999—all of whom paid at least $140,000 or more in fees.

The agencies were generally very satisfied with NTIS’ services and prices

and did not want to see NTIS close. Of the nine, one agency told us it was

actively looking for an alternative to NTIS—and that was due to the prices

that NTIS charges the public for its products. All of the agencies had heard

of the proposed closure of NTIS, and a few were making contingency plans

in case NTIS does close. For example, on May 18, 2000, the IRS

Commissioner sent a letter to Commerce requesting assurance that NTIS

would continue to provide IRS with services through fiscal year 2001. As of

May 25, 2000, the Secretary had not responded.

Given NTIS’ uncertain financial future, Congress could benefit from

detailed information on NTIS’ operations that would highlight potential

problem areas and plans for the future. Commerce is currently required by

Section 3704b(f)(3) of Title 15 of the U.S. Code to provide this type of

information to Congress annually. The required reports to Congress are to

contain a summary of NTIS operations for the year, including financial

details and staff levels by major activities; a detailed operating plan; details

of modernization progress and long-term plans; and the results of the most

recent annual audit by independent auditors. According to NTIS officials,

however, those annual reports have not been prepared since fiscal year

1995.

NTIS officials told us that they stopped providing this annual report

because they believed the information was being given to Congress in

other formats, specifically the annual financial statement audits. However,

according to Commerce’s Office of the Inspector General, these audits –

which contain only some of the required information — are not routinely

provided to Congress. Also, even though Commerce provides some

information about NTIS’ operations in the reports required by the

Government Performance and Results Act, the information is not detailed

enough to assist policymakers considering the future of NTIS. For

example, in its first Annual Program Performance Report for fiscal year

1999, Commerce stated that the goal for NTIS was to “collect, preserve,

and disseminate government scientific, technical, and business-related

information.” The measures for performance were “number of items in

archive,” which it met; and “documents reproduced from electronic

media,” which it exceeded.

Annual Financial and

Operational Reports Could

Help Congress Make Policy

and Funding Decisions
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Page 11 GAO/GGD-00-147 NTIS’ Financial Position

Although NTIS may be able to remain solvent for a few years, our analyses

suggest that solvency beyond fiscal year 2003 remains in doubt.

Consequently, NTIS would have to significantly increase revenues beyond

what we project or make even more cost reductions in order to survive

without appropriations. Also, according to NTIS’ Deputy Director, without

appropriations, NTIS will not be able to adequately invest in technology

and other improvements necessary to serve its customers and safeguard

its collection. Thus, at some point in the not too distant future, it may not

be possible for NTIS to continue serving as a self-sufficient permanent

repository and principal disseminator for agency reports.

The precarious nature of NTIS’ financial condition means that

policymakers may soon want to consider whether and, if so, how NTIS’

statutory mission should continue to be carried out and funded. Among the

questions to be considered are:

• Should the policy of permanently retaining and disseminating federal

research results be continued?

• If that policy is continued, should permanent retention be the

responsibility of a single entity or the individual agencies?

• Should NTIS continue to serve as a disseminator of federal research; if so,

should it continue to do so on a self-sustaining basis?

After the Secretary’s proposal to close NTIS was announced, NCLIS began

a study to evaluate the pros and cons of various other agencies performing

the NTIS repository function. On March 16, 2000, NCLIS released a

preliminary assessment outlining eight alternatives and recommended that

Congress appropriate funds to NTIS to continue operations while NCLIS

completes its study—expected to take 18 months. It should be noted that

the Library of Congress, GPO, and the National Archives and Records

Administration – potential alternatives to NTIS that NCLIS is considering

as permanent repositories—all indicated that additional appropriations

would be required for them to take over NTIS’ mission. The results of

NCLIS’ study may be useful if Congress decides that a permanent

repository for reports is still needed.

The circumstances leading to NTIS’ current situation are part of a broader

set of circumstances that have affected all aspects of how the federal

government collects, stores, and disseminates information. Technological

advances, such as the Internet, are dramatically affecting all of these

processes. Therefore, Congress is likely to have a range of options – those

recommended by NCLIS and possibly others — to consider in addressing

Policymakers May

Want to Debate

Whether a Central

Repository Is Still

Needed and How It

Should Be Funded
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Page 12 GAO/GGD-00-147 NTIS’ Financial Position

whether NTIS’ mission should be abolished, altered, or otherwise carried

out more effectively.

WNC’s sale of foreign news to the public falls within NTIS’ statutory

mission. NTIS has certain cost and tax advantages over private sector

firms that provide similar services, which may have a detrimental impact

on those firms.

Under statutory authority enacted in 1950,8

 NTIS is directed to collect

scientific, technical, and engineering information from both domestic and

foreign sources and make it available to industry and business, to state and

local governments, to other federal agencies, and to the general public.

The statute does not define scientific, technical, and engineering

information. However, in 1954, in response to a request from the Secretary

of Commerce as to whether certain studies qualified as such information,

we endorsed the Secretary’s position that the statute included “all types of

information which have a more or less direct bearing on business and

industry generally.”9

 The Secretary specifically described such information

as including “economic information, market information, and related

information so long as it is reasonably specific and bears some direct

relationship to the organization and operation of industrial or business

enterprise.” Our decision stated that there was nothing in the legislative

history requiring a contrary interpretation and pronounced the Secretary’s

interpretation to be reasonable.

In 1992 Congress enacted a statute providing that the head of each

executive agency or department is to transfer to NTIS unclassified

scientific, technical, and engineering information that results from

federally funded research and development activities. The statute directed

the Secretary of Commerce to issue regulations outlining procedures for

the transfer of such information to NTIS. Under the authority of that

provision the Secretary issued regulations that define scientific, technical,

and engineering as basic and applied research that results from the efforts

of scientists and engineers in any medium and information that bears on

 

8

 15 U.S.C. 1152.

9

 34 Comp. Gen. 58 (1954).

NTIS’ World News

Connection Operates

Within its Statutory

Mission but Has a Cost

Advantage Over

Private Sector Firms

WNC Is Within NTIS’

Mission
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Page 13 GAO/GGD-00-147 NTIS’ Financial Position

business and industry generally, such as economic information, market

information, and related information.10 Commerce further clarified this

definition of technical information by stating that the term “can embrace

matters beyond the restricted field of applied science and mechanical

arts,” but must be “limited to information which has a direct relationship to

business, industry or technology.”11

NTIS stated that the type of information required by business has

significantly changed since 1950 when NTIS’ legislation was enacted. NTIS

stated that there is an accelerating pace of technological change, rapid

emergence and disappearance of new products and industries, a global

outlook in terms of potential exports and location of industrial facilities,

and a need to make rapid decisions. NTIS stated that given these

circumstances, information such as that in WNC that can reasonably affect

decisions on how to allocate research and development resources, how

and where to organize and locate production facilities, and how to identify

market opportunities has the direct bearing described in our opinion. We

have no basis to question NTIS’ position.

For over 20 years, NTIS sold FBIS Daily Reports to the public in printed

form. With the advent of new technologies and demands by the public, by

the end of 1996 FBIS decided to provide its products only in electronic

form and NTIS offered them to the public through WNC. A private sector

firm that says it competes with WNC told us its sales revenue initially

declined an estimated $500,000 to $600,000 when WNC began selling its

foreign news in electronic format. Prior to WNC being in electronic format,

that firm had provided an electronic index of the printed FBIS Daily

Reports as a product for its customers. WNC’s searchable electronic

database negated the need for such an index. In addition to electronically

disseminating the news to the public, NTIS assumed the responsibility of

ensuring compliance with copyright provisions.

According to NTIS officials, WNC was not a product developed to generate

additional revenues—instead, WNC only replaced the hard copy version

previously sold by NTIS when FBIS changed the format. Furthermore, with

regard to NTIS’ dissemination of WNC in electronic format, in 1988 the

National Technical Information Act specifically directed NTIS to

 

10 15 C.F.R. 1180.2.

11 This regulation was discussed and endorsed as an appropriate interpretation of the statute in Wade v.

Department of Commerce, Civil Action No. 96-0717, (D.D.C. March 26, 1998). The Court found that the

IRS Electronic Filer Mail List that NTIS sells to the public has a direct relationship to business because

it contains information on people who are in the business of filing tax documents electronically.
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Page 14 GAO/GGD-00-147 NTIS’ Financial Position

“implement new methods or media for the dissemination of scientific,

technical, and engineering information.” In 1992, legislation was enacted to

amend the 1988 act by inserting “including producing and disseminating

information products in electronic format.”

NTIS officials said that WNC’s prices do not include any of the CIA’s costs

to acquire or translate the news. This gives WNC a cost advantage over

private news services that must pay to acquire and translate the news.

Specifically, it permits WNC’s sales prices to be lower than its competitors’

prices. Differences in the products that WNC and competing news services

offer (e.g., subscription provisions, such as number of authorized users

and search capabilities) preclude any meaningful direct price comparisons.

NTIS also has certain tax advantages as a federal entity with regard to

WNC. This WNC cost advantage allows NTIS to set its prices at a level that

may have a detrimental impact on private sector firms offering, or

considering offering, similar electronic news services.

Our answers to the other specific questions in Senate Report 106-76 follow:

• Does WNC’s pricing structure of news products include a complete

accounting of costs?

WNC’s prices do not include the costs of collecting and translating the

information, which are borne by the CIA. NTIS receives the daily data file

from FBIS and must delete from it those items for which it has no

copyright agreements. NTIS then converts the file to WNC format and

indexes it for searching. Finally, NTIS prepares and E-mails specific

profiles of regions of the world to those who ordered them.

The NTIS price for a report on the results of a research project does not

include an amount to recover the cost of the research. Likewise, NTIS does

not attempt to recover the FBIS cost to produce WNC through its

subscription price. FBIS collects the foreign news to fulfill its own mission

and provides it to NTIS at no cost. NTIS does set its prices to recover its

dissemination costs, royalty costs to foreign news organizations for use of

their copyrighted material, and a share of NTIS’ overall operating costs.

WNC Has a Cost Advantage

Over Private Sector Firms
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Page 15 GAO/GGD-00-147 NTIS’ Financial Position

• To what extent does NTIS pay federal, state, and local taxes on its news

products?

NTIS, like other federal agencies, does not pay any federal, state, or local

taxes on its news products.12

• Does NTIS pay translation costs for information provided by FBIS?

No. Although some foreign news media are published in English, many

others are not and need to be translated. According to NTIS officials, FBIS’

translation of sources is being done for internal purposes, not for WNC’s

benefit. For this reason, FBIS provides the translated news to WNC at no

charge.

• Does NTIS have to pay employer’s Social Security contributions for its

employees?

Like other federal agencies, NTIS is required by law13 to make Social

Security contributions for employees hired since January 1, 1984, who are

covered under the Federal Employees Retirement System and for those

employees who transferred from the Civil Service Retirement System to

the Federal Employees Retirement System. NTIS is also required to make

retirement contributions for those employees covered by the Civil Service

Retirement System and for those participating in the Thrift Savings Plan. In

fiscal year 1999, NTIS’ reported pension cost for WNC employees was

$48,649.

• Are the subscription prices for NTIS products fairly priced relative to

similar products offered by the private sector?

As previously discussed, NTIS officials said that WNC’s prices do not

include any of the CIA’s estimated costs to acquire or translate the news.

Although this practice is consistent with NTIS’ enabling legislation, it gives

WNC a cost advantage over private news services that pay to acquire and

translate foreign news.

 

12 The doctrine of sovereign immunity and the Supremacy Clause of the Constitution (Art. VI, cl. 2)

combine to prohibit the states from taxing the federal government or its activities. McCulloch v.

Maryland, 17 U.S. (4 Wheat.) 316 (1819).

13 42 U.S.C. 410.
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Page 16 GAO/GGD-00-147 NTIS’ Financial Position

Although NTIS is solvent under its current statutory framework, it is

doubtful whether NTIS can remain self-sufficient. If NTIS is no longer able

to fund its operations out of sales of products and other services, it would

have to curtail operations unless it received additional appropriations.

The doubt about NTIS’ ability to remain solvent suggests that Congress

should consider whether and how NTIS’ statutory mission should be

carried out in the future. The increasing use made of the Internet by

federal agencies to disseminate information and reports is a recent

development that is integrally related to NTIS’ mission and ability to

remain self-sufficient. The annual reports that the Secretary of Commerce

is required to submit under section 3704b(f)(3) of Title 15 of the U.S. Code

could provide useful information to Congress on NTIS’ evolving financial

status and any detailed operating plans that NTIS develops to remain

solvent. Costcutting initiatives have made the short-term projections

encouraging, but NTIS’ financial condition should be closely monitored to

determine if it has sufficient revenues to continue operating in the longer

term.

WNC’s operations are within NTIS’ statutory mission. However, because

NTIS does not pay to acquire or translate foreign news used by WNC and

does not pay taxes on revenues generated by WNC, WNC has a cost

advantage over private sector firms.

While NTIS is still solvent, we believe Congress should reassess whether

NTIS should continue to serve as a disseminator of federal research and, if

so, whether it should be required to do so on a self-sustaining basis.

In order to keep the appropriate committees of Congress fully informed

about NTIS’ activities and comply with current law, we recommend that

the Secretary of Commerce submit the annual reports in accordance with

Section 3704b(f)(3) of Title 15 of the U.S. Code.

On June 8, 2000, we provided the Secretary of Commerce with a draft of

this report for comment. We received Commerce’s comments in a letter

dated June 20, 2000, which is reprinted in appendix II.

In commenting on our report, the Deputy Secretary of Commerce said that

Commerce agrees that (1) Congress should review NTIS’ mission in the

age of the Internet, (2) NTIS’ insolvency may occur in the near future, and

Conclusions

Matter for

Congressional

Consideration

Recommendation

Agency Comments and

Our Evaluation
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Page 17 GAO/GGD-00-147 NTIS’ Financial Position

(3) WNC is within NTIS’ statutory mission. The Deputy Secretary also

stated that NTIS, as currently structured, is not viable.

The Deputy Secretary disagreed, however, with an implication in the draft

report that WNC had harmed a competitor because of NTIS’ advantage of

paying neither taxes nor translation costs. The Deputy Secretary noted that

the competitor’s product—an index to the printed reports—was not

comparable to WNC and became obsolete because WNC is a searchable

electronic database. We moved the reference to a competitor losing

revenue to another section of the report so as not to imply that any

revenue loss was due to an NTIS cost advantage. We also revised the

report language to better reflect that the need for the competitor’s index

was negated after WNC was changed to electronic form.

The Deputy Secretary agreed with our recommendation that Congress

would benefit from annual submission of detailed information on NTIS’

operations. Although he said that the report referred to in our

recommendation and a separately required independent financial audit are

duplicative, he also said that Commerce would work with the Inspector

General to ensure that Congress receives a single report containing all

relevant information. We believe this action would fulfill the intent of our

recommendation.

We are sending copies of this report to the Honorable William M. Daley,

Secretary of Commerce; and Mr. Ronald Lawson, Director of NTIS. We will

make copies available to others upon request.

Major contributors are acknowledged in appendix III. If you have any

questions, please contact me or Alan Stapleton on (202) 512-8676.

Michael Brostek

Associate Director, Federal Management

 and Workforce Issues
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Page 18 GAO/GGD-00-147 NTIS’ Financial Position

Report Addressees:

The Honorable John McCain, Chairman

The Honorable Ernest F. Hollings, Ranking Minority Member

Committee on Commerce, Science, and Transportation

United States Senate

The Honorable Judd Gregg, Chairman

The Honorable Ernest F. Hollings, Ranking Minority Member

Subcommittee on Commerce, Justice, State,

 the Judiciary, and Related Agencies

Committee on Appropriations

United States Senate

The Honorable F. James Sensenbrenner, Jr., Chairman

The Honorable Ralph M. Hall, Ranking Minority Member

Committee on Science

House of Representatives
Page 19 GAO/GGD-00-147 NTIS’ Financial Position
Page 20 GAO/GGD-00-147 NTIS’ Financial Position

Contents

1 Letter

Appendix I 22

GAO Analysis of NTIS’

Financial Position

Appendix II 23

Comments from the

Department of

Commerce

Appendix III 25

GAO Contacts and

Staff

Acknowledgments

Table I.1: Simple Revenue, Cost, and Net Profit or Loss

Trend Forecasts, 2001-2004

22 Tables

Abbreviations

CIA Central Intelligence Agency

EPA Environmental Protection Agency

FBIS Foreign Broadcast Information Service

GPO Government Printing Office

IRS Internal Revenue Service

NCLIS National Commission on Libraries and Information Science

NTIS National Technical Information Service

WNC World News Connection
Page 21 GAO/GGD-00-147 NTIS’ Financial Position
Appendix I

GAO Analysis of NTIS’ Financial Position

Page 22 GAO/GGD-00-147 NTIS’ Financial Position

In our analysis of the National Technical Information Service’s (NTIS)

financial position, we used a simple trend forecasting method that uses

data about past history to predict the future. If trends for the future do not

follow what occurred in the past, then our future predictions for NTIS will

be inaccurate.

For our simple trend analysis, we entered cost and revenue data from

fiscal years 1991 through 1999 for NTIS’ three business lines combined

(Clearinghouse, FedWorld, and Production/Brokerage Services). We

excluded data for the midpoint of our series,1995, from our forecasting

method because the method required an even number of data points.

These data show a general trend over the 9-year period towards both

higher costs and revenues until fiscal year 1999, when costs and revenues

declined significantly. We did not include Cyberfile costs and revenues in

1996, a one-time project that was conducted for the Internal Revenue

Service. We also did not include cost or revenue data for the first half of

fiscal year 2000 because of concerns that such data could vary significantly

in the second half of the year.

The following table shows our simple trend forecasts for NTIS’ financial

position for the period 2001 through 2004 for (1) revenue, applying the

annual trend to the 1999 value and forward; (2) cost, applying the annual

trend to the 1999 value and forward; and (3) net (profit or loss). The

numbers may not add up due to rounding.

Dollars in millions

Year 2001 2002 2003 2004

Revenue $34.4 $34.9 $35.5 $36.0

Cost 34.6 35.5 36.4 37.4

Net -0.2 -0.6 -1.0 -1.4

Source: GAO analysis of NTIS’ financial data.

Table I.1: Simple Revenue, Cost, and Net

Profit or Loss Trend Forecasts, 2001-

2004
Appendix II

Comments from the Department of

Commerce

Page 23 GAO/GGD-00-147 NTIS’ Financial Position
Appendix II

Comments from the Department of Commerce

Page 24 GAO/GGD-00-147 NTIS’ Financial Position
Appendix III

GAO Contacts and Staff Acknowledgments

Page 25 GAO/GGD-00-147 NTIS’ Financial Position

Michael Brostek (202) 512-8676

Alan M. Stapleton (202) 512-8676

In addition to those named above, Alan N. Belkin, Jessica A. Botsford,

Michael W. Jarvis, Larry J. Modlin, Bonita L. Mueller, Sidney H. Schwartz,

and Warren Smith made key contributions to this report.

GAO Contacts

Acknowledgments
Page 26 GAO/GGD-00-147 NTIS’ Financial Position
Page 27 GAO/GGD-00-147 NTIS’ Financial Position
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