CONGRESSIONAL BUDGET OFFICE 

COST ESTIMATE 

July 9, 2002

H.R. 5005

Homeland Security Act of 2002

As introduced on June 24, 2002

SUMMARY

H.R. 5005 would establish the Department of Homeland Security (DHS) to prevent terrorist

attacks within the United States, reduce the United States’ vulnerability to terrorism,

minimize the damages from attacks that occur, and help to recover from any attacks. The

new department’s primary responsibilities would include: (1) analyzing information and

protecting infrastructure; (2) developing countermeasures against chemical, biological,

radiological, and nuclear attacks; (3) securing U.S. borders and transportation systems;

(4) organizing emergency preparedness and response efforts; and (5) coordinating counterterrorism activities with other federal agencies, state and local governments, and the private

sector. The new department would consist of over 30 existing federal agencies or portions

of agencies. Each of these agencies would continue to be responsible for carrying out its

other, nonhomeland-security functions.

CBO estimates that implementing H.R. 5005 would cost about $3 billion over the 2003-2007

period, assuming appropriation of the necessary amounts. This amount is in addition to

projected net spending for ongoing activities of the transferred agencies—about $20 billion

in 2002, growing to $31 billion by 2007 under CBO’s baseline assumptions. Enacting

H.R. 5005 could affect direct spending by authorizing the new department to retain and

spend proceeds from the sale or lease of government property; therefore, pay-as-you-go

procedures would apply. CBO expects, however, that the net effect on direct spending

would not be significant in any year.

The bill contains no intergovernmental or private-sector mandates as defined in the Unfunded

Mandates Reform Act (UMRA) and would impose no costs on state, local, or tribal

governments. 
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ESTIMATED COST TO THE FEDERAL GOVERNMENT

H.R. 5005 would combine over 30 existing agencies and programs to form the new

department. The major components would include the following:

• Federal Emergency Management Agency (FEMA);

• U.S. Secret Service;

• U.S. Customs Service;

• U.S. Coast Guard;

• Immigration and Naturalization Service (INS);

• Transportation Security Administration of the Department of Transportation;

• Federal Protective Service and Federal Computer Incident Response Center of the

General Services Administration;

• National Infrastructure Protection Center, National Domestic Preparedness Office,

Office for Domestic Preparedness, and Domestic Agency Support Teams of the

Department of Justice;

• Critical Infrastructure Assurance Office and Computer Security Division of the

National Institute of Standards and Technology of the Department of Commerce;

• National Communications System of the Department of Defense; 

• Animal, Plant and Health Inspection Service (APHIS) and the Plum Island Animal

Disease Center of the Department of Agriculture; and

• Various programs of the Department of Energy and the Department of Health and

Human Services.

The following table summarizes the estimated net budgetary impact of reorganizing these

agencies and programs, administering them within a new cabinet-level department, and

implementing certain new activities authorized by the bill. The first two lines of the table

show funding for the agencies and programs to be transferred at the CBO baseline levels

(that is, the 2002 appropriation adjusted for anticipated inflation in succeeding years). The

table also shows, as a memorandum item, the estimated direct spending of federal agencies

transferred to the department. CBO estimates that the amount of direct spending would not

be affected by enactment of the bill. 

The costs of this legislation fall within budget functions 050 (national defense), 250 (general

science, space and technology), 350 (agriculture), 370 (commerce and housing credit),

400 (transportation), 450 (community and regional development), 550 (health), 750

(administration of justice), and 800 (general government). 
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TABLE 1. ESTIMATED BUDGETARY IMPACT OF H.R. 5005

By Fiscal Year, in Millions of Dollars

2002 2003 2004 2005 2006 2007

SPENDING SUBJECT TO APPROPRIATION

Net Spending By Affected Agencies

Under Current Law

Estimated Authorization Level a 25,309 26,037 26,710 27,395 28,096 28,823

Estimated Outlays 19,751 22,443 23,934 25,724 27,074 28,207

Proposed Changes 

Reorganize Agencies and Administer

New Department

Estimated Authorization Level 0 150 225 230 235 240

Estimated Outlays 0 120 210 229 234 239

Bio-Weapons Defense Analysis Center

Estimated Authorization Level 0 420 429 438 447 457

Estimated Outlays 0 231 362 433 442 451

New Intelligence-Related Activities

Estimated Authorization Level 0 30 10 10 10 10

Estimated Outlays 0 20 20 10 10 10

Other Newly Authorized Activities

Estimated Authorization Level 0 2 2 2 2 2

Estimated Outlays 0 2 2 2 2 2

Total Changes

Estimated Authorization Level 0 602 666 680 694 709

Estimated Outlays 0 373 594 674 688 702

Net Spending Under H.R. 5005

Estimated Authorization Level 25,309 26,639 27,376 28,075 28,790 29,532

Estimated Outlays 19,751 22,816 24,528 26,398 27,762 28,909

MEMORANDUM:

Net Direct Spending By Affected Agencies

Under Current Law and Under H.R. 5005b

Estimated Budget Authority 430 484 2,070 2,217 2,284 2,469

Estimated Outlays 246 436 2,017 2,113 2,165 2,221

a. The 2002 level is the amount appropriated for that year for agencies that would be combined to form the Department of Homeland Security. The

estimated authorization levels for 2003 through 2007 are CBO baseline estimates that adjust the amounts appropriated for 2002 for anticipated

inflation. Those amounts are net of offsetting collections credited to appropriation accounts.

b. CBO estimates that the amount of direct spending by agencies that would be combined to form the new department would not be changed by enacting

H.R. 5005. Authority to collect Customs user fees expires at the end of 2003. CBO estimates that those fees will total $1.3 billion in 2003.
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BASIS OF ESTIMATE

CBO estimates that implementing H.R. 5005 would cost about $3 billion over the 2003-2007

period, assuming appropriation of the necessary funds. These costs are in addition to those

that would be incurred by the Office of Homeland Security under current law. They include

expenses to establish and administer a new cabinet-level department and carry out within the

department new activities and programs authorized by the bill. This estimate does not

include additional funds to enhance the homeland security functions of the agencies that

would be transferred to the new department. 

For this estimate, CBO assumes that H.R. 5005 will be enacted before January 1, 2003, and

that the necessary funds will be appropriated for each fiscal year. The estimated costs of

implementing the bill are based on information obtained from affected federal agencies and

on the administrative expenses of other federal departments. 

Consolidate Affected Agencies and Administer the New Department

CBO estimates that establishing and administering the new department would cost about

$150 million in fiscal year 2003 and about $225 million a year thereafter, adjusted annually

for anticipated inflation. 

Costs to Consolidate Agencies. Most of the estimated 2003 authorization level would be

spent on one-time costs to hire, house, and equip key personnel to manage the new

170,000-person department. New positions would include appointees such as assistant

secretaries, key managers such as a general counsel and inspector general, and other

departmental-level personnel to perform administrative functions such as policy

development, legislative affairs, and budget and finance activities. Two of the largest costs

of consolidation would be for providing and equipping office space for the central

administrative staff. 

CBO estimates that initially the General Services Administration would need to renovate and

furnish office space for key personnel needed to support a cabinet-level department. The

preparation of office space typically constitutes a significant portion of the start-up budget

for a new department. For example, we estimate that the cost to renovate and furnish enough

space to accommodate the new Department of Energy in the late 1970's was nearly

$40 million (in current dollars). This effort did not include costs incurred later to consolidate

most of the department’s operations into a central, permanent facility. We expect that

eventually some staff of the agencies consolidated into the new Homeland Security

Department also would be centralized in a new facility, either by constructing or leasing a

new building or by taking over the space of another federal agency. For this estimate, we
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further assume that employees of the transferred entities that currently work in the

Washington, D.C., area—over 7,000—are not relocated to a central location within the next

five years.

Additional one-time costs to purchase computers, network equipment, and supplies in the

first years following creation of the new department also would be significant. Probably, the

largest of these costs would be the acquisition of basic computer systems for administrative

functions, such as budget and finance, as well as for information management and

communications. For this estimate, CBO has not included the cost of efforts to address

existing deficiencies in communications and computer infrastructure in some of the agencies

that would be transferred to the new department because those costs are not a result of

creating a new Department of Homeland Security. Moreover, we have not included costs

that are already being incurred by transferred agencies for new data collection systems that

could be helpful for homeland security. For example, the U.S. Customs Service has already

received nearly $700 million for a new system to process trade data, information that could

be used by the new department to monitor cargo shipments into the United States. 

Ongoing Administrative Costs. CBO estimates that it would cost about $225 million

annually to provide centralized leadership, coordination, and support services for the DHS.

The estimated annual cost represents about 1 percent of the current spending for agencies

that would form the new department and is based on the assumption that a proportionate

share of each combined agency or office would be transferred to the DHS from the

department where it is currently located. If sufficient resources are not transferred to the new

department, added annual costs would be higher. For this estimate, CBO assumes that new

departmental staff would be hired over the first two to three years following enactment of

the legislation. 

New Human Resources Management System. The estimate does not include any

budgetary impact that might result from implementing section 730, which would create a

new human resources management system for the new department. CBO cannot predict

whether (or to what extent) the new pay and retirement systems would supplant—or improve

upon—those currently governing the federal entities to be transferred to the new department.

New Program Authorizations

H.R. 5005 would authorize a few new programs for the Department of Homeland Security

that are not currently conducted by any of the agencies that would be transferred to the new

department. Based on information from the Administration and the costs of other similar
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efforts, CBO estimates that those new efforts would cost about $450 million a year, subject

to appropriation of the necessary amounts.

National Bio-Weapons Defense Analysis Center. Section 907 of the bill would establish

a National Bio-Weapons Defense Analysis Center within the Department of Defense. The

bill also would transfer this function to the new department. This new agency would be

responsible for coordinating public and private research on biological counterterrorism and

on area monitoring systems. The cost of operating this center would depend on the amount

of funding that the Congress chooses to provide for this research as well as the degree to

which existing agencies and personnel are consolidated into the new agency. CBO estimates

that implementing this provision would cost about $420 million a year (adjusted for

inflation), based on the level of funding requested by the President for this proposed center

in fiscal year 2003.

Intelligence-Related Activities. H.R. 5005 would give the Department of Homeland

Security access to all executive agency reports, assessments, and analytical information

relating to the responsibilities of the new department. Analysis of intelligence is not

currently performed by any of the agencies that would be transferred to the new department,

and the level of effort anticipated for this activity is unknown. Assuming the DHS

undertakes an effort on the scale of a similar program at the Federal Bureau of Investigation

that integrates intelligence collected by other agencies, CBO estimates that the new

department would need to spend about $20 million for information technology systems and

$10 million a year for personnel and other expenses to analyze intelligence information. 

Other Newly Authorized Activities. In addition, H.R. 5005 would authorize two other new

programs at DHS—one related to public health and the other to responses to nuclear

incidents. CBO estimates that those new programs would cost:

• An estimated $1 million annually to coordinate biological, biomedical, and infectious

disease research and development through agreements with the Department of Health

and Human Services (HHS), and

• An estimated $1 million a year to coordinate and prepare to manage the Nuclear

Incident Response Team (which would continue to reside within the Department of

Energy and the Environmental Protection Agency) in the event of a nuclear incident.
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Costs to Continue Agency Functions and Enhance Homeland Security Mission 

As shown in Table 2, CBO estimates that budget authority for the agencies that would form

DHS totals close to $31 billion in 2002 (including both mandatory and discretionary

accounts). About $5 billion of that amount is offset through various fees and collections.

Three agencies account for more than half of the 2002 funding—FEMA, the Coast Guard,

and the INS. Together with the Customs Service and the chemical and biological research

and response functions of the Department of Health and Human Services, they account for

more than 80 percent of the 2002 funding.

For 2003, funding for the new department would almost certainly be higher. CBO estimates

that the President’s 2003 budget would provide about $35 billion in funding for functions

and agencies that the bill would transfer to the Department of Homeland Security, which is

about a 14 percent increase over 2002 spending for these same functions. This figure

includes both mandatory and discretionary budget authority. Receipts for those agencies also

would grow to over $6 billion. 

CBO’s estimate of the cost of establishing a Department of Homeland Security as specified

in H.R. 5005 does not include additional funding for the affected agencies to enhance their

homeland security functions, except for those added responsibilities specified in the bill.

The CBO baseline funding level for those agencies in 2003 and beyond assumes adjustments

to account for anticipated inflation but does not reflect the amount of additional spending

that may be necessary to prevent terrorist attacks, reduce the nation’s vulnerability to attacks,

and recover from any attacks. CBO has not estimated how much those agencies might need

to spend to enhance homeland security. Such additional spending may occur whether or not

a new department is created.
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TABLE 2. CBO ESTIMATES OF 2002 ENACTED SPENDING AND THE PRESIDENT’S 2003

REQUEST FOR AGENCIES AFFECTED BY THE PROPOSED CREATION OF THE

DEPARTMENT OF HOMELAND SECURITY (In billions of dollars)

Discretionary

Budget Authoritya

Estimated

Mandatory

Budget

Authority

 Estimated

Fees and

Receiptsb

Enacted for 2002

Federal Emergency Management Agency 7.7 0.0 -0.1

Coast Guard (DOT) 4.4 1.0 0.0

Immigration and Naturalization Service (DOJ) 4.0 1.8 -2.2

HHS Chemical and Biological Research and Response 2.7 0.0 0.0

Customs Service (Treasury) 3.1 0.6 -1.2

Secret Service (Treasury) 1.0 0.2 0.0

Animal and Plant Health Inspection Service (USDA) 0.7 0.3 0.0

Federal Protective Services (GSA) 0.4 0.0 0.0

Transportation Security Agency (DOT) 1.3 0.0 -1.3

Other Affected Agencies 1.1 0.0 0.0

Total 26.6 4.0 -4.8

Proposed for 2003

Federal Emergency Management Agency 6.6 0.0 -0.1

Coast Guard (DOT) 5.0 1.0 0.0

Immigration and Naturalization Service (DOJ) 4.0 1.8 -2.1

HHS Chemical and Biological Research and Response 4.1 0.0 0.0

Customs Service (Treasury) 3.0 0.6 -1.5

Secret Service (Treasury) 1.0 0.2 0.0

Animal and Plant Health Inspection Service (USDA) 0.8 0.5 0.0

Federal Protective Services (GSA) 0.4 0.0 0.0

Transportation Security Agency (DOT) 4.8 0.0 -2.7

Other Affected Agencies 1.1 0.0 0.0

Total 30.8 4.0 -6.3

NOTE: Numbers may not add up to totals due to rounding.

a. Does not include the Administration’s proposal that federal agencies pay the full cost of benefits for their employees as such benefits accrue. Such

payments would total about $1.4 billion in 2003.

b. Includes offsetting collections credited to appropriation accounts as well as offsetting receipts; excludes fees classified as revenues.
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PAY-AS-YOU-GO CONSIDERATIONS

The Balanced Budget and Emergency Deficit Control Act sets up pay-as-you-go procedures

for legislation affecting direct spending or receipts. Although the legislation would affect

programs involving direct spending, such as the Immigration and Naturalization Service’s

immigration fees, the U.S. Coast Guard’s boat safety grants, and the Animal and Plant Health

Inspection Service’s animal quarantine inspection fees, CBO estimates that enacting

H.R. 5005 would have no effect on existing direct spending or receipts because the

legislation would not change any of those programs. 

The bill would authorize the new department to spend proceeds resulting from sales and

leases involving real or related personal property without further appropriation. Under

current law, most proceeds from such activities must be deposited in the Treasury. CBO

expects that the Department of Homeland Security would use its leasing and sales authorities

under the bill to obtain funds for capital improvements. We expect that enacting this bill

would accelerate the pace of sales of surplus property and would lead to greater subleasing

or leasing of underutilized property because it would provide an incentive by allowing the

department to spend proceeds from sales and leases. CBO estimates that such transactions

would have no significant net effect on direct spending in any year.

INTERGOVERNMENTAL AND PRIVATE-SECTOR IMPACT

The bill contains no intergovernmental or private-sector mandates as defined in UMRA and

would impose no costs on state, local, or tribal governments. 

PREVIOUS CBO ESTIMATE

On June 17, 2002, CBO transmitted a cost estimate for S. 2453, the National Homeland

Security and Combating Terrorism Act of 2002, as ordered reported by the Senate

Committee on Governmental Affairs on May 22, 2002. While both S. 2453 and H.R. 5005

would authorize the establishment of a Department of Homeland Security, they would

consolidate different agencies to form the new department and would authorize some

different activities for the new department. CBO’s cost estimates for the two bills reflect

these differences.
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ESTIMATE PREPARED BY:

Federal Costs: Matthew Pickford, Deborah Reis, Matthew Schmit, and Ellen Hays

Impact on State, Local, and Tribal Governments: Susan Sieg Tompkins

Impact on the Private Sector: Paige Piper/Bach

ESTIMATE APPROVED BY:

Robert A. Sunshine

Assistant Director for Budget Analysis