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DEPARTMENTS OF TRANSPORTATION, TREASURY

AND GENERAL GOVERNMENT, AND RELATED

AGENCIES APPROPRIATIONS FOR FISCAL YEAR

2004

HEARINGS

BEFORE A

SUBCOMMITTEE OF THE

COMMITTEE ON APPROPRIATIONS

UNITED STATES SENATE

ONE HUNDRED EIGHTH CONGRESS

FIRST SESSION

ON

H.R. 2989/S. 1589

AN ACT MAKING APPROPRIATIONS FOR THE DEPARTMENTS OF TRANSPORTATION AND TREASURY, AND INDEPENDENT AGENCIES FOR THE

FISCAL YEAR ENDING SEPTEMBER 30, 2004, AND FOR OTHER PURPOSES

Department of the Treasury

Department of Transportation

Nondepartmental witnesses

Printed for the use of the Committee on Appropriations

Available via the World Wide Web: http://www.access.gpo.gov/congress/senate
(II)

COMMITTEE ON APPROPRIATIONS

TED STEVENS, Alaska, Chairman

THAD COCHRAN, Mississippi

ARLEN SPECTER, Pennsylvania

PETE V. DOMENICI, New Mexico

CHRISTOPHER S. BOND, Missouri

MITCH MCCONNELL, Kentucky

CONRAD BURNS, Montana

RICHARD C. SHELBY, Alabama

JUDD GREGG, New Hampshire

ROBERT F. BENNETT, Utah

BEN NIGHTHORSE CAMPBELL, Colorado

LARRY CRAIG, Idaho

KAY BAILEY HUTCHISON, Texas

MIKE DEWINE, Ohio

SAM BROWNBACK, Kansas

ROBERT C. BYRD, West Virginia

DANIEL K. INOUYE, Hawaii

ERNEST F. HOLLINGS, South Carolina

PATRICK J. LEAHY, Vermont

TOM HARKIN, Iowa

BARBARA A. MIKULSKI, Maryland

HARRY REID, Nevada

HERB KOHL, Wisconsin

PATTY MURRAY, Washington

BYRON L. DORGAN, North Dakota

DIANNE FEINSTEIN, California

RICHARD J. DURBIN, Illinois

TIM JOHNSON, South Dakota

MARY L. LANDRIEU, Louisiana

JAMES W. MORHARD, Staff Director

LISA SUTHERLAND, Deputy Staff Director

TERENCE E. SAUVAIN, Minority Staff Director

SUBCOMMITTEE ON TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND

RELATED AGENCIES

RICHARD C. SHELBY, Alabama, Chairman

ARLEN SPECTER, Pennsylvania

CHRISTOPHER S. BOND, Missouri

ROBERT F. BENNETT, Utah

BEN NIGHTHORSE CAMPBELL, Colorado

KAY BAILEY HUTCHISON, Texas

MIKE DEWINE, Ohio

SAM BROWNBACK, Kansas

TED STEVENS, Alaska (ex officio)

PATTY MURRAY, Washington

ROBERT C. BYRD, West Virginia

BARBARA A. MIKULSKI, Maryland

HARRY REID, Nevada

HERB KOHL, Wisconsin

RICHARD J. DURBIN, Illinois

BYRON L. DORGAN, North Dakota

Professional Staff

PAUL DOERRER

LULA EDWARDS

SHANNON HINES

PETER ROGOFF (Minority)

KATE HALLAHAN (Minority)

DIANA GOURLAY HAMILTON (Minority)

Administrative Support

JACQUELINE ESAI

MEAGHAN L. MCCARTHY (Minority)
(III)

CONTENTS

WEDNESDAY, APRIL 2, 2003

Page

Department of Transportation:

Federal Aviation Administration .................................................................... 1

Office of the Inspector General ........................................................................ 13

Office of the Secretary ...................................................................................... 29

WEDNESDAY, APRIL 9, 2003

Department of the Treasury: Internal Revenue Service ...................................... 73

THURSDAY, MAY 8, 2003

Department of Transportation ................................................................................ 119

TUESDAY, MAY 20, 2003

Department of the Treasury: Office of the Secretary ........................................... 175

THURSDAY, MAY 22, 2003

Department of Transportation:

National Highway Transportation Safety Administration ............................ 221

Federal Motor Carrier Safety Administration ............................................... 235

Nondepartmental Witnesses ................................................................................... 242

Nondepartmental Witnesses ................................................................................... 301

Material Submitted Subsequent to Conclusion of Hearings ................................ 325

(1)

DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND RELATED AGENCIES APPROPRIATIONS FOR

FISCAL YEAR 2004

WEDNESDAY, APRIL 2, 2003

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 10:33 a.m., in room SD–124, Dirksen

Senate Office Building, Hon. Richard C. Shelby (chairman) presiding.

Present: Senators Shelby, Bennett, Murray, and Dorgan.

DEPARTMENT OF TRANSPORTATION

FEDERAL AVIATION ADMINISTRATION

STATEMENT OF MARION C. BLAKEY, ADMINISTRATOR

OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

Senator SHELBY. Good morning. The hearing is called to order.

Every year when it comes time to hold hearings on the upcoming

fiscal year’s budget request, it is likely that we will cover some of

the same old ground. But, unlike other agencies or departments,

the nature of the industry and facilities that the FAA regulates

seem to be in a constant state of change.

A few years ago we were concerned about hub concentration and

the anti-competitive behavior. More recently, we turned our concern to airline treatment of passengers and system-wide delays.

Now, we wonder where all the passengers have gone, whether the

hubs will survive, and if the traditional airline structure will remain intact or if we will see something substantially different

emerge as a result of all the upheaval.

This is a very difficult time for virtually everyone involved in

aviation: the passengers, communities, airports, airlines, aircraft

manufacturers and the FAA. Passengers are anxious about flying

in the aftermath of the September 11th attacks. The terrorist

threat alerts exacerbate people’s fears about the vulnerability of

our air transportation system to terrorism attack, and military operations to free Iraq have further increased the public’s concern

about the safety of flying.

In addition, passengers are facing fewer choices in flight options

as the air transportation market undergoes the first significant

service contraction since deregulation.
2

Airports face increased operational and capital costs as they respond to increased security requirements at the same time that

their revenues are declining because of reductions in flights, reduced revenues from concessionaires, and fewer passengers.

Communities that were struggling to maintain service levels are

finding that challenge even more daunting as the fixed costs of initiating or maintaining a marginally justified service continue to

rise.

Airlines not already in bankruptcy or headed into bankruptcy

have little to be optimistic about. As an industry, air carriers did

not have time to recover after the September 11th attacks and the

sluggish economy that we have experienced for the past 3 years

has compounded an already difficult financial situation.

Most carriers are not predicting meaningful growth in traffic or

bookings for several months after the Iraq war is favorably concluded, and many more are not anticipating a firming in the yields

for more than a year. Clearly, this is an industry on the ropes.

Aircraft manufacturers, for their part, are typically the first to

feel the slowdown and the last to recover from it. Neither Boeing

nor Airbus anticipates an upturn in the demand for aircraft until

the middle of 2004 at the earliest. Airbus is struggling with the

challenges of keeping the new A–380 within their revised cost and

weight estimates, and Boeing is undertaking an aggressive new

aircraft program with the 7E7 and is marshalling $10 billion to develop it. Clearly, both manufacturers are feeling the pressure of the

industry downturn, but both are looking to the future.

This brings us to the FAA. Administrator Blakey, you have now

been at the FAA just long enough to start putting your imprint on

that organization and begin shaping your vision of what you want

that agency to achieve under your stewardship.

I feel certain that you have begun turning the programs, budgets, policy, and regulatory processes and directed the career personnel to your vision of where the agency should head to support

a safe and efficient air transportation system.

I know that this budget was largely completed before you became

administrator, and I know that the budget constraints that we face

make your job even more difficult. But I would like to explore with

you where we are going to take the FAA in the next several years.

The budget request for FAA operations anticipates an 8.1 percent

growth, but it seems to me to be a current services budget with few

new initiatives.

That kind of growth to deliver the same services, I believe, will

be hard to justify or secure in the current environment.

I believe it is important to show what the FAA is doing to foster

a safe and efficient system as we move forward. We need to show

how the FAA is responding to the evolving air transportation system. We need to show what works in the FAA. We need to know

where we need to reinvigorate our efforts. And we need to show

where we can save and redirect sources to higher priorities.

More importantly, we need to show how the FAA program is

changing in the aftermath of the 9/11 terrorist attacks. I am told

that the agency’s Operational Evolution Plan (OEP) has not

evolved since that time and that troubles me. None of these things

can be done if we sit passively by and expect that things will just
3

work themselves out. It is imperative that the FAA, that our government, implement innovative and aggressive approaches to dealing with our rapidly changing world.

I want to work with you to help make the FAA responsive to the

needs of the public and the industry it regulates.

Today we are pleased to have Marion Blakey, the Administrator

of the Federal Aviation Administration; Ken Mead, the Department

of Transportation Inspector General; and Jeff Shane, the Under

Secretary for Policy at the Department of Transportation as our

witnesses.

Senator Murray?

STATEMENT OF SENATOR PATTY MURRAY

Senator MURRAY. Thank you, Mr. Chairman, and I want to

thank you for calling this hearing on the aviation industry.

Our airlines, our airports, and our employees are facing an immediate crisis and they need our help. Thousands of hard-working

Americans are being put out on the streets every week by the airlines or their suppliers. At home, tens of thousands of my constituents have lost their jobs because of the downturn in air travel. Together, these companies and their employees have faced the triple

whammy of September 11th, a deteriorating economy, and now the

war with Iraq. It is difficult to overstate the seriousness of the crisis facing this vital part of our Nation’s transportation infrastructure.

Some carriers are emerging from bankruptcy. Others are entering it. And still others are desperately trying to avoid it. Some retired airline employees are seeing their monthly pension checks cut

dramatically. And one of our Nation’s largest carriers is facing the

very real possibility of liquidation.

In just a half an hour from now the Senate will begin debating

the war supplemental that we marked up in the Appropriations

Committee yesterday. Yesterday, during markup, I offered an

amendment to increase the size of the aviation relief package from

$2.8 billion to $3.5 billion dollars. I am pleased that that amendment was adopted and that the full bill passed the committee on

a unanimous and bipartisan basis. My amendment expanded the

amount of relief provided to our airlines and addressed two gaping

holes in the original proposal, the absence of assistance for our airports and the absence of help for the workers who have suffered

the most during this crisis.

While our committee was reporting the war supplemental with $3.5 billion dollars in overall aviation relief, the House Appropriations Committee reported its version of the supplemental with

roughly $3.2 billion in assistance. The House Committee version,

however, did not include any help for workers.

The Administration’s supplemental budget request included absolutely nothing for our airlines, our airports, or our aviation workers. Since then we have heard from the OMB Director and others

that the Administration would not close the door on some form of

aviation relief.

Unfortunately, it has not been clear what, if anything, the Bush

Administration wants to do to address the crisis in our aviation industry.
4

That was until today. Today, we read that senior Bush Administration officials think that the packages approved by the House and

Senate committees were too large and wrong-headed. Transportation Secretary Norm Mineta is quoted in the New York Times

this morning saying that our committee’s actions yesterday—and I

quote—‘‘show that a considerable gulf remains between Congress

and the Administration regarding the amount and structure of this

assistance.’’

Commerce Secretary Don Evans was quoted in an Associated

Press (AP) story today saying we will work with the Congress to

ensure that the airlines receive more reasonable assistance.

I fear that the Administration is long on rhetoric but short on detail. Time and again we hear that the Administration has a position, but they just do not tell Congress or the American people

what it is.

Workers have lost their jobs. They are trying to figure out how

to pay the mortgage this month. But instead of offering support,

the Administration is failing them.

Mr. Chairman, this morning we are joined by President Bush’s

Under Secretary for Transportation Policy. I hope that this morning we will find out what the Bush Administration finds unreasonable in the committees’ assistance package.

I have carefully reviewed the Under Secretary’s formal testimony

and I did not find any answers to those questions. I did find some

nice multicolored charts documenting the problem, and a commitment by the Administration to continue to monitor the situation.

I hope the President does not object to helping thousands of

workers who have lost their jobs through no fault of their own.

I want to put this in context. At a time when the President has

proposed $700 billion more in tax cuts, I would hope he could find

it in his heart to support less than 1⁄20 of 1 percent of that amount

for our laid off workers.

And I would remind the Administration that 10,000 aviation industry workers have gotten pink slips since the start of the Iraq

war.

I hope during our questions this morning we will finally get some

clear answers on precisely where the Bush Administration stands

on Congressional efforts to help this industry and its workers.

Let me close, Mr. Chairman, with another area where the Administration can do more, and that is carefully monitoring aviation

safety. Many years ago, as we all know, during the bankruptcy and

liquidation of Eastern Airlines, we learned that air carriers in difficult financial condition could be tempted to cut corners in the critical areas of maintenance and safety compliance.

It is the job of Administrator Blakey, who is here with us, to see

that does not happen again. And it is the job of the Inspector General to make sure that Mrs. Blakey is doing her job.

So I look forward to asking both of them whether we should be

concerned that the financial downturn in this industry could impact the overall safety of our aviation system.

Thank you, Mr. Chairman. I look forward to the questions.

Senator SHELBY. Senator Bennett.
5

Senator BENNETT. Thank you, Mr. Chairman. I do not have an

opening statement and I look forward to hearing the witnesses and

I will have some questions.

Senator SHELBY. Ms. Blakey, you will be first. Your written

statement will be made part of the record, all of your written statement in its entirety. You can proceed as you wish. We welcome you

to the committee.

STATEMENT OF MARION C. BLAKEY

Ms. BLAKEY. Thank you very much, Chairman Shelby, Senator

Murray, Senator Bennett.

I very much appreciate the opportunity to testify before you

today. And it is a pleasure because this is my first opportunity as

the Administrator of the Federal Aviation Administration.

Before I begin, I have to acknowledge the new Chairman of this

committee, Senator Shelby, who hails from the great State of Alabama. Since that is where I got this accent, you can appreciate the

fact that I am really looking forward to working with you.

Senator SHELBY. I was enjoying your speech.

Ms. BLAKEY. I hope so. I also would like to thank Ken Mead and

our Under Secretary for Policy, Jeff Shane for the enormous

amount of work they put into working with us at the FAA to ensure that we are doing the right thing for the aviation system.

REAUTHORIZATION PROPOSAL

On March 25th, Secretary Mineta sent to Congress the Administration’s new reauthorization proposal. The Centennial of Flight

Aviation Authorization Act or Flight 100, as we like to call it. Secretary Mineta has challenged the Department and the FAA to be

safer, simpler, and smarter, as he puts it. And I think these guiding principles, you will find, do form the basis for Flight 100, as

we move to provide better performance, more flexibility, and increased accountability.

To that end, we believe the Administration’s proposal will serve

as a strong foundation for the development of the reauthorization

legislation because it builds on AIR–21, which I know you all

worked very hard on. It also provides the kind of funding levels

that will support important infrastructure improvements, safety

initiatives, system efficiencies, and important research in the safety

area. Most importantly, I would stress to you that Flight 100 adds

no additional taxes, no economic demands on the ailing industry,

and no new financial burdens for the American flying public.

FISCAL YEAR 2004 BUDGET REQUEST

Now, let me turn my attention to the purpose of today’s hearing,

or at least in part the purpose, and that is the President’s 2004

budget for the FAA. The President has proposed a budget of $14

billion for the FAA, a lean budget but I believe a generous one,

given these challenging times. Specifically, his budget requests $7.6 billion for Operations, $2.9 billion for Facilities and Equipment, $3.4 billion for Airport Improvement Grants, and $100 million for Research, Engineering and

Development. This represents a 3.7 percent increase from the 2003
6

enacted budget and provides funding for the 49,745 employees that

work for the FAA.

SAFETY

Let me turn initially and most importantly to not only my number one priority, but I firmly believe the number one priority of this

committee, and that is safety. The United States has a remarkable

safety record in aviation. Almost 100 years after the Wright brothers first took to the skies, I am pleased to report that 2002 was one

of the safest years in aviation history. Not a single fatality occurred

on a U.S. commercial airline.

We are all proud of this achievement, but I know that none of

us think we can rest on our laurels on this, either. Every day at

the FAA we help to ensure the safety of an airline industry that

is in serious economic peril. I know we all agree that safety cannot

be shortchanged. No matter how tough the economic circumstances

become, we have got to keep it in front of us. For this reason, out of a total budget request of $14 billion, $8.7

billion will be used to support the FAA’s safety goals. Full funding

of the President’s budget will provide needed funds for inspecting

aircraft, operating and maintaining the air traffic control system,

including hiring 302 additional air traffic controllers in anticipation

of the retirements that we expect in that workforce.

Funds are also provided for inspecting hazardous materials,

making additional AIP grants for airport safety, capacity, and security investments, noise mitigation, safety research, and I could go

on.

But the point here is that specifically in the area of commercial

aviation, we have a number of programs and initiatives that have

been particularly responsible for the remarkable safety record I

was alluding to. The FAA’s Runway Safety Program has helped significantly reduce the number of high risk runway incursions, which

of course lowers the risk of collisions. Runway incursions declined

from 407 in 2001 to 339 in fiscal year 2002. The number of high

risk incursions fell from 58 to 37.

The Airport Movement Area Safety System, AMASS, is now operational in 31 airports. And I am happy to say it has occasioned

saves in San Francisco, Boston, and Detroit.

The Safer Skies Initiative is a joint Government and industry effort to reduce commercial fatal accidents by 80 percent by 2007. We

have made significant progress on this very aggressive goal, and we

are on track to meet it.

Now, I know no one here can forget the tragedy of TWA 800.

This accident focused national attention on the critical need to improve fuel tank safety. For a number of years my old agency, the

National Transportation Safety Board (NTSB), and others have

been calling for a way to remove flammable oxygen from fuel tanks

and substitute inert gas which would, of course, eliminate the explosion potential. But the designs were always deemed too heavy,

too complicated, and too expensive to be viable.

Building on previous research on ground-based inerting, the

FAA’s researchers recently developed a relatively simple but effective way to generate nitrogen enriched air in flight. That is why

I have this in front of me. It is a very, very simple solution, one
7

that involves no moving parts, one that is not heavy. Even at full

scale, the inerting system that the FAA’s research has developed

will be less than a single passenger on board a flight, in terms of

weight.

We are going to flight test the system next month. If it goes as

we expect, it is going to be a major improvement in terms of aviation safety. So it is just one example of the kind of things that the

funds that you all appropriate, make a real difference.

CAPACITY

Let me turn to capacity for a moment. I am very fond of the saying that the Aircraft Owner and Pilots Association likes, which is

that a mile of road will get you a mile. A mile of runway will get

you anywhere. It is something I think we have to remember as we

are looking at capacity issues.

Given the current downturn, we do have a unique opportunity

right now to increase capacity before we return to the pre-9/11 traffic levels. Increasing capacity, as you well know, can be accomplished in basically three ways: new technology, new operations,

new pavement. That is what it really comes down to. We have to

have all three. If we invest in them wisely, I am convinced that we

are going to have the capacity we need.

Our Operational Evolution Plan calls for a 31 percent increase in

capacity by 2010, and it is yielding results. We have a brand new

version of the plan that I would love an opportunity to brief you

all on, because it has identified choke points in the system and developed a much more intensive, dynamic communication system

with the airlines that is really yielding a lot of results. We are seeing real changes in terms of bottom line efficiencies for the airlines

in a way we never did before.

From the standpoint of new technology, and new procedures, the

User Request Evaluation Tool gives controllers the ability to approve direct routes and is saving time and saving fuel.

We are also seeing terrific results from our new Traffic Management Advisor which gives us a way to control traffic at our busiest

airports, in a way again that is promoting great efficiency.

What about the tough one, which is new pavement? The FAA’s

Operational Evolution Plan is tracking now on 12 airport projects

that are scheduled for completion in the next 10 years. And the terrific news is four of them are going to come online this year—Houston, Denver, Miami and Orlando. They are all still on track to open

this year. So that is really a major improvement for the system.

Additionally, the President’s Executive Order on Environmental Streamlining, and the $3.4 billion investment included in the budget for AIP program funding, demonstrates the Administration’s

commitment to expanding capacity. With this level of funding and

with some structural changes in the AIP formulas, the Administration is going to be better able to target projects of national significance while at the same time helping our smaller airports.

FINANCIAL MANAGEMENT AND COSTS CONTROL

Finally, it is clear to all of us at the FAA, that we have to do

a better job managing our finances and controlling our costs. Certainly, the Inspector General has called this to our attention and,
8

as they say, we get it. I am pleased to report that the FAA has recently received another unqualified or clean audit opinion on our

2002 consolidated financial statements. I am also proud to say it

is the second year in a row that this has happened. It gives us a

firm foundation that we need to implement a new financial system

that is coming online this fall, DELPHI, which will continue to help

us implement a cost accounting system that means something.

Just as our safety decisions have to be driven by data, so must

our management decisions as well. We now track 80 percent of our

costs on a monthly basis at the FAA. But we have got to do a better job of using the data to manage those costs. As part of the cost

accounting system, we are implementing a labor distribution system as well in the Air Traffic Services line of business. It is called

Cru-X.

It is our commitment to also track, control, and look at the issue

of how we are distributing our labor costs. Our air traffic controller

workforce will use this data to assess controllers’ workload and figure out whether we are hitting the performance measures we want

to.

Recently, the Inspector General noted that the system needs to

be improved. We agree. I am committed to making the changes we

need to ensure the integrity of the cost information. With budget

shortfalls and depleting trust fund revenues, we have to be diligent

stewards of the public funds.

PERFORMANCE-BASED PAY SYSTEM

Furthermore, the FAA has worked hard to implement a performance-based pay system. You all gave us personnel reform and we

are working very hard to take advantage of the flexibility it provides. But we have got a ways to go. Approximately 36 percent of

our workforce right now is currently under the performance-based

system. It is intended and will link the organizational goals that

we are developing in the strategic planning process we are undertaking right now, so that every single individual has a clear line

of sight from their job to what the organization sets out to do. I

pledge you my commitment to implementing this system across the

entire FAA.

PREPARED STATEMENT

With that, I will conclude the prepared statement and look forward to questions. Thank you.

[The statement follows:]

PREPARED STATEMENT OF MARION C. BLAKEY

Chairman Shelby, Senator Murray, Members of the Subcommittee: Thank you for

the opportunity to appear before you today to discuss the Federal Aviation Administration (FAA) and our budget request for fiscal year 2004. Before we begin, I would

like to acknowledge the new Chairman of this Subcommittee, Senator Shelby from

the great State of Alabama. I look forward to working closely with you as well as

the other Members of this Subcommittee during my tenure as FAA Administrator.

Finally, I would also like to recognize Kenneth Mead, Inspector General for the Department of Transportation. Thank you, Ken, for your commitment to work jointly

with us to tackle our most pressing financial and performance challenges.

In the seven months I have served as Administrator, I have had the privilege to

lead an agency whose mission is second to none—the safety of our Nation’s aviation

system. Our mission is carried out by thousands of talented, energetic, and dedi-
9

cated employees who care about the safety of the American people and our mission.

It is an honor to represent them here today.

We at the FAA operate and maintain the Nation’s complex air traffic control system and the facilities and equipment that enable its optimal operation. Our controllers control and monitor more than half of the world’s air traffic—up to 5,000 aircraft in U.S. airspace at any given moment. FAA conducts state-of-the art research

to continually improve safety and efficiency. We help improve the safety and capacity of more than 5,000 public-use airports in the United States. Our inspectors oversee more than 7,000 operators, including 139 major air carriers. Our maintenance

technicians perform the maintenance, repair and engineering of over 62,000 facilities and pieces of equipment.

REAUTHORIZATION

I am pleased to say that on March 25, Secretary Mineta sent to Congress the Administration’s reauthorization proposal—the Centennial of Flight Aviation Authorization Act, or Flight-100. I would like to thank Secretary Mineta and Deputy Secretary Jackson for their commitment and dedication to developing and supporting

Flight-100.

I also want to thank them for their tremendous efforts in challenging the Agency

to be Safer, Simpler, and Smarter. These three principles form the basis of Flight100, but they also form the cornerstone of the entire Agency’s mission—better performance, more flexibility, and increased accountability. Later in my remarks, I will

address several of the Agency initiatives designed to meet these challenges.

To that end, we believe that the Administration’s proposal will serve as a strong

foundation for the development of reauthorization legislation. It builds upon AIR–

21 in that it maintains our commitment to safety, capacity, and system efficiency.

The funding levels in Flight-100 continue to support important infrastructure improvements, safety initiatives, system efficiencies and safety research. It adds no additional taxes, no economic demands on an economically troubled industry, and it

provides no new financial burdens on the American people. I thank you for your consideration of Flight-100, and I look forward to continuing the dialogue on this, our

blueprint for aviation in the future.

BUDGET

Let me now turn my attention to the purpose of our meeting today—the 2004

President’s Budget. Our budget supports Flight-100 in that it contributes to our efforts to be Safer, Simpler, and Smarter.

To support our operations and capital investments, the President has proposed a

fiscal year 2004 budget of $14 billion—a lean budget, but generous given these challenging times. Specifically, his budget requests $7.6 billion for operations, $2.9 billion for facilities and equipment, $3.4 billion for airport grants, and $100 million for

research and development.

This represents a 3.7 percent increase from the 2003 enacted budget. Funding will

support 49,748 employees.

I want to thank all the members of this Subcommittee for your tireless efforts and

continued dedication to supporting the FAA’s funding needs. Fully enacting the

President’s budget will permit the FAA to hire more controllers to prepare for an

expected surge in retirements, make needed improvements in the National Airspace

System (NAS), and fund safety, capacity, and security improvements at our Nation’s

airports. Your support for these investments will reap benefits for years to come,

as FAA provides a safe and efficient aviation system that contributes to national

security, promotes economic growth, and encourages the recovery of civil aviation.

SAFER, SIMPLER, SMARTER

Safety

First, let me address my number one priority, and that of every FAA employee—

safety, both in the skies and on the ground. Under the superb leadership of Secretary Mineta, the Department’s emphasis on safety has never been greater. The

United States has a remarkable safety record. Almost 100 years after the Wright

Brothers first took to the skies, FAA is proud to report that calendar year 2002 was

one of the safest years in the history of the U.S. airlines, not a single fatal air carrier accident, and we continue to make progress in reducing the number of general

aviation fatal accidents. We are proud of this achievement, but we will not rest on

our laurels.

Safety must always be our top priority, especially with the airline industry in serious economic trouble. As a carrier reduces its schedule, its fleet and its personnel,
10

we must evaluate the impacts of these reductions and amend our surveillance plans

as necessary. I recently met with the FAA managers overseeing USAirways and

United Airlines to ensure that we have appropriately expanded our review of these

carriers. The approach we are taking with these carriers is to focus our safety oversight on areas that may be more at risk during a financial crisis.

We will support the resurgence of the airline industry with some of our most effective mechanisms—continuing our investments in building capacity at our Nation’s airports and putting safety first. Out of a total budget request of $14 billion, $8.7 billion will be used to support

FAA safety goals. Full funding of the President’s Budget will provide needed funds

for inspecting aircraft, expanding safety programs and hiring an additional 20 safety

staff; operating and maintaining the air traffic control system; hiring 302 additional

air traffic controllers (in anticipation of the first wave of controller retirements); returning the Hazardous Materials Program from TSA; purchasing airport surface

movement detection equipment; making AIP grants for airport safety, capacity and

security investments, as well as for noise mitigation and research on aviation safety.

In commercial aviation safety, several programs and initiatives were instrumental

in reaching last year’s high level of aviation safety. The Runway Safety Program

helped reduce the number of high-risk runway incursions significantly, which in

turn lessened the risk of collisions. Runway incursions declined from 407 in fiscal

year 2001 to 339 in fiscal year 2002 due to our aggressive actions to reduce these

incidents, and the number of high risk incursions fell from 53 in fiscal year 2001

to 37. The Airport Movement Area Safety System (AMASS), now operational at 31

major airports, has been officially credited with saves at San Francisco, Boston, and

Detroit.

Our Safer Skies initiative, a joint government and industry effort to reduce commercial fatal accidents by 80 percent by 2007, made significant progress in addressing a number of factors that cause air carrier accidents. I am pleased to say that

we are on track to accomplish this goal.

The Air Transportation Oversight System (ATOS) is another tool to increase air

travel safety and, like Safer Skies, is targeted for increased funding in the President’s Budget. Under ATOS, in addition to comparing carriers’ performance to all

the requirements of our regulations, aviation safety inspectors evaluate air carrier

systems that impact safety. Using ATOS, we have identified weaknesses in air carrier programs and made sure that the carrier took corrective actions.

In fiscal year 2002, the FAA research program focused on key areas to reduce the

size, weight and complexity of fuel tank inerting system designs. We developed a

simple system to inert the critical fuel tanks (heated center tanks) in transport airplanes. The system has virtually no moving parts, resulting in high reliability, low

installation weight, and low operating costs. The FAA’s R&D program and the sharing of the data and system design have helped the industry, including the Boeing

Company pursue inerting systems for the transport airplane fleet. The availability

of a practical inerting system provides for a balanced approach of ignition prevention and flammability reduction. In fiscal year 2004, the research program will focus

on high priority safety projects.

We have also strengthened our international safety focus. We are working with

the International Civil Aviation Organization (ICAO), as well as other members of

the international aviation community, to strengthen and further aviation safety. For

example, ICAO and the Joint Aviation Authorities are both involved in the Commercial Aviation Safety Team (CAST), the commercial aviation side of Safer Skies. FAA

also initiated the Global Aviation Information Network (GAIN), a program that promotes the global collection and sharing of safety information.

Though progress has been made, we agree with the Inspector General that more

can be accomplished. We will continue to build upon our 2002 successes.

Security

Since the events of September 11, the focus of Congress and the American people

has been on security, and understandably so. You and your colleagues should be applauded, along with TSA, on your joint efforts to improve aviation security. By federalizing baggage screeners, ensuring that all checked baggage is screened, and expanding the Federal air marshal program, your efforts have made air travel much

more secure.

The FAA has played an important role by providing resources and in successfully

transitioning our former security programs to TSA. And we continue to work closely

with TSA to assure that our safety programs are interrelated and coordinated with

their security programs—without redundancy and complications. We look forward to

the healthy continuation of our partnership to restore the faith of the American people in aviation.
11

The President’s Budget requests $198 million to secure FAA facilities and elec- tronic systems. This includes $145 million in Operations to fund internal FAA security, including securing our many information systems and background checks of

staff. Internal security is not a new activity, but was temporarily transferred to TSA

in the fiscal year 2003 budget. Fully funding the President’s Budget request would

also provide 26 new controllers to support the North American Air Defense command and its expanded airspace security programs.

Capacity Building

While safety remains our first concern, we must also remain committed to expanding capacity throughout the aviation system—in the air and on the ground.

While demand for passenger travel is down, it will return. The FAA must be ready

for this recovery. Now is the time to focus on increasing airport capacity, while air

traffic is temporarily reduced. Both the President’s Executive Order on environmental streamlining and the $3.4 billion investment included in the budget for the

AIP program demonstrate the Administration’s commitment to expanding capacity.

With this level of funding, coupled with some structural changes in AIP formulas,

the Administration will be able to better target projects of national significance that

provide the greatest system benefit and, at the same time, provide additional funding to airports that rely most on Federal assistance.

Even after September 11, FAA’s Operational Evolution Plan (OEP) remains fundamentally sound—with a planned 31 percent increase in capacity by 2010. In response to the costly, frustrating, and unacceptable delays that plagued the system

in the summers of 1999 and 2000, FAA made needed changes, such as identifying

and addressing choke points in the system and developing and refining regular communications between the airlines and the FAA Command Center to deal with daily

problems in the system.

The User Request Evaluation Tool (URET) gives controllers the ability to approve

more direct routes and is saving airlines time and fuel. With this tool everyone

wins. We’re also seeing terrific results from the Traffic Management Adviser (TMA),

which makes more efficient use of our busiest airports.

We believe that new runways added at the right airports are the single most effective way to increase capacity. Thus, FAA’s OEP tracks 12 runways scheduled for

completion in the next 10 years. During calendar years 2003 and 2004, Denver,

Houston, Miami, and Orlando airports are expected to complete runway projects.

The importance of investing in airport infrastructure cannot be discussed only in

terms of alleviating a congestion problem at a specific location. These investments

provide relief to the entire air system. The economy relies on aviation to move people and products, and aviation relies on an efficient NAS to accommodate the capacity demands placed upon it. We must all work together—Congress, Federal, State

and local governments, and industry stakeholders—to ensure that the future does

not catch us unprepared for the return of air traffic to pre-September 11 levels and

higher. Future generations depend upon us.

A SAFER, SIMPLER, SMARTER AND MORE BUSINESS-LIKE FAA

In my tenure as Administrator, it has become apparent that FAA’s operational

costs must be brought under control. Since any future growth must be manageable,

our decisions must be made in an informed manner. Just as our safety decisions

should be driven by data, so should all our management decisions. Consequently,

we must accelerate our efforts to set up our new financial system, DELPHI, and

complete the implementation of our Cost Accounting System (CAS) and Labor Distribution Reporting (LDR) initiative, and use these tools to drive analysis toward

better decisions.

We will improve our cost accounting and acquisition processes, and we will become a performance-based organization. Currently, FAA has implemented cost accounting in two lines of business and several support organizations. And while we

track 80 percent of our costs on a monthly basis, we still have a lot of work to do.

As part of our cost accounting system, we are implementing a labor distribution

system in air traffic services called Cru-X, to account for and distribute labor costs.

Our air traffic controller workforce will use this data to better assess their workload

and performance. Recently, the Inspector General noted that we have additional

work to do on internal controls related to this system. I am committed to making

this change, and to assuring the integrity of our cost information. With budget

shortfalls and depleting trust fund revenues, we must be diligent stewards of the

public’s funds.

Though we have made great strides, there is still much to be done. FAA received

another unqualified or ‘‘clean’’ audit opinion on our fiscal year 2002 Consolidated

Financial Systems. I am proud to say that this is the second year in a row that the
12

Agency has received such an opinion. This gives us the firm foundation that we

need to implement DELPHI effectively and to continue to build our cost accounting

system.

The Agency has worked hard to implement a performance based pay system. Approximately 36 percent of our employees are currently under the system—a system

that links organizational goals with individual performance goals at every level. We

must fully embrace a new way of thinking: pay equals performance. I pledge to you

my full commitment to implementing such a system FAA-wide.

CONCLUSION

To ensure that FAA moves forward in all these areas, one of my top priorities is

to provide consistency and predictability in the way FAA works with industry. I do

not want any variations in FAA policy or practice in the regions or field offices. I

want our industry partners in the United States and around the world to know

what they can expect and count on when dealing with the FAA. The future of aviation is dependent upon all of us leveraging our reduced resources in support of the

common goal: a safe and efficient aviation system for our children and generations

to follow.

This year marks the centennial of the Wright Brothers’ historic flight at Kitty

Hawk. When you look back on those early days of aviation and compare how dangerous air travel was to its safety record of today, it is easy to congratulate ourselves and feel content with how far we’ve come. Yet, our pride should not give way

to complacency. We must continue to set and work to achieve goals on safety, capacity and efficiency. Though we will face countless obstacles and difficult decisions, we

must draw upon the strength and courage of great aviation pioneers, such as Lindbergh and Earhart, who set difficult goals and attained them. I am proud to take

part in the future of aviation, and I stand ready to work with you, as together we

enter the second century of flight. Thank you.

This concludes my prepared statement. I am happy to answer your questions at

this time.

BIOGRAPHICAL SKETCH OF MARION C. BLAKEY

Marion Clifton Blakey was sworn in September 13, 2002 as the 15th Administrator of the Federal Aviation Administration. As Administrator, Blakey is responsible for regulating and advancing the safety of the Nation’s airways as well as operating the world’s largest air traffic control system. Prior to being named FAA Administrator, Blakey served as Chairman of the National Transportation Safety

Board.

During her tenure as Chairman, Blakey managed a number of accident investigations including the crash of American Airlines flight 587. Blakey worked to improve

the Board’s accident reporting process and increased industry and regulatory responsiveness to NTSB safety recommendations. Additionally, Blakey strengthened

the Board’s advocacy and outreach programs to promote safer travel throughout all

modes of transportation. She also furthered development of the NTSB Academy as

a national and international resource to enhance aviation safety and accident investigations.

At the FAA, Ms. Blakey, continues a long career of public service. In addition to

NTSB Chairman, Blakey has held four previous Presidential appointments, two of

which required Senate confirmation. From 1992 to 1993, Blakey served as Administrator of the Department of Transportation’s National Highway Traffic Safety Administration (NHTSA). As the Nation’s leading highway safety official, she was

charged with reducing deaths, injuries, and economic losses resulting from motor vehicle crashes. Prior to her service at NHTSA, she held key positions at the Department of Commerce, the Department of Education, and the National Endowment for

the Humanities, the White House, and the Department of Transportation.

From 1993 to 2001, Blakey was the principal of Blakey & Associates, a Washington, DC public affairs consulting firm with a particular focus on transportation

issues and traffic safety.

Ms. Blakey, born in Gadsden, Alabama, received her bachelor’s degree with honors in international studies from Mary Washington College of the University of Virginia. She also attended Johns Hopkins University, School of Advanced International Studies for graduate work in Middle East Affairs.

Senator SHELBY. Mr. Mead?
13

OFFICE OF THE INSPECTOR GENERAL

STATEMENT OF KENNETH M. MEAD, INSPECTOR GENERAL

Mr. MEAD. Thank you, Mr. Chairman, Senator Murray, Senator

Dorgan, Senator Bennett.

It is good to be here with Administrator Blakey and Under Secretary Shane, very good people and great to work with.

In your packages you have some slides. It has a blue wheel on

the front. I will refer to those a couple of times.

This hearing is occurring, of course, against the backdrop of an

industry in financial distress. As I was writing my statement, I had

to change it by the hour because it is hard to know who is in bankruptcy and who is out. But as Senator Murray was pointing out,

they are either in or right on the brink of bankruptcy, or just coming out of it.

I think it is important, though, for us all to recognize that this

is due to a confluence of factors that include an unsustainable cost

and fare structures that predate 9/11 by a long time. That pattern

persisted and became more pronounced after 9/11 and now, with

the war in Iraq, we are experiencing an even greater precipitous

decline in bookings, particularly in the international area.

Of course, the airlines also point to increased security related expenditures.

This first chart, I tried to map out on this first chart the yellow

and blue, what has happened with respect to business travel both

before and after 9/11. You can see the steep drop in September,

2001.

But look to the left of that axis and you will note that business

travel was down 20 percent just before 9/11. And in November

2002 compared to November 2000, leisure travel was down 19 percent and business was down 32 percent. What we are seeing, to

some degree, is a continuation of some problems that existed before

9/11.

Even before the war with Iraq, major carriers were projecting

losses of about $6 or 7 billion for 2003. With the war, and their assumption is a 90-day war, major carrier projections are about $10

to $11 billion. And the end is not in sight. We do not think you are

going to see a recovery to the 2000 levels until 2005, 2006, which

is consistent with FAA’s aviation forecast.

Here are some other interesting metrics. In February 2003 actual

flight operations were down 10 percent compared to February 2000.

And an interesting dimension to that is there has been a huge increase in the use of regional jets, a 156 percent increase compared

to a 17 percent decline in larger aircraft and a 46 percent decline

in the use of turboprop aircraft.

Domestic emplanements are down nearly 8 percent in 2003 compared to January 2000. Much of the reduced demand represents

what had been the highest fare business travelers. An interesting

statistic here relates to the network carrier cost structure. About

10 to 20 percent of their passengers, the business travelers, were

providing between 40 and 50 percent of the revenues. So when the

business travel part of the market began to fall out, you can see

why the airlines were hurting so much.
14

Another interesting statistic, last year break-even load factors,

that is the average percentage of paying passengers on all flights

that are needed to cover an airline’s costs. For the industry as a

whole it was 87 percent. In other words, 87 percent of that plane

had to be full before an airline would start talking about turning

a profit.

Actual load factors, though, were only averaging about 74 percent. One airline had a break-even load factor of over 100 percent.

And you might say well, how can an airline fill more than 100 percent of its seats? The answer is it cannot. And that is why that airline is teetering on the edge of bankruptcy.

I know you are considering some relief packages and you and

your staffs must be exhausted from the last few days. I would say

that great care has got to be taken in framing a relief package. I

think a relief package is warranted. But take care to not provide

a cash subsidy that is going to simply allow the airlines to avoid

making hard calls that many of them are already in the process of

making. We do not want it to be a bailout.

And I might add, I think it has been pretty unseemly for airlines

to come up here to Congress and ask for financial aid from the taxpayers for not the first, but the second time when the senior executives are getting very large bonuses. I think the American taxpayer

would wonder what is wrong with this picture.

The second factor is that you require any airline security costs

that Congress judges are eligible be documented. And that the airlines have some evidence of that $4 billion that they are claiming

is justifiable. I do not think we want a repeat of what happened

last year when Congress thought it was going to be $1 billion and

it eventually ended up being about $300 million.

Third. That it be a limited duration. This is an important issue,

a limited duration package will allow you to come back to revisit

it if it is necessary.

And finally, I am not sure that the packages consider how we are

going to treat the foreign carriers that come here and pay these

fees. We want to make sure that we do not develop an equity argument whereof they pay a fee and we reimburse domestic carriers.

I would expect that there would be some expectation that they be

reimbursed as well.

I would like to move to a word on small communities. You hear

a lot of anecdotal evidence that service to small communities is declining. It is not just anecdotal. I have a chart, chart 2 cuts up the

United States into quadrants. And you can see that on the average

you have lost about 19 percent of service to your small, medium

non-hub communities. The Northeast is particularly hard hit—

about 33 percent of their service has been lost. I know an important matter on your agenda is the essential air service program.

I now would like to turn to FAA. I think it is very important to

recognize that this agency oversees the largest and safest air transportation system in the world. FAA deserves a lot of credit for that.

I think Ms. Blakey’s safety background is going to serve the Nation

extremely well in that regard.

But this agency urgently needs to get its costs under control.

Why? Well, projected tax receipts to the Aviation Trust Fund for

2004 have dropped from approximately $12.5 billion to around $10
15

billion. Over the next 4 years the projected trust fund tax revenues

are down and you are going to have about $10 billion less than you

were counting on.

While these projections have dropped precipitously, FAA’s spending has not. Budgets increased from about $8 billion in 1996 to $14

billion in 2004. That is about 70 percent. Over half of that, though,

is for increased operations cost, which are mostly payroll costs.

The committee should know that personnel reform was a key element of the move to make FAA performance-based. But to date, the

reality has been increasing workforce costs and significantly higher

salaries.

The new compensation system for controllers, FAA’s largest

workforce, was a big cost driver. They have a very good pay package. The average base salary for fully certified controllers, exclusive of overtime, is now about $106,000. In 1998 it was about

$72,000. That is a 47 or 48 percent increase.

Even though FAA is supposed to be a performance-based organization, only 36 percent of the employees actually get paid based on

individual performance. The rest is largely automatic.

In terms of acquisitions, for air traffic control, five major acquisitions out of 20 that we tracked have experienced cost growth of

over $3 billion and that cost growth alone is equivalent to 100 percent of a full year’s appropriation for acquisitions. I do not think

continued cost growth of that magnitude is sustainable, especially

given the decline in revenues.

In some ways, it is the same picture the airlines were facing. I

think FAA, under Ms. Blakey’s leadership, needs to redouble its efforts to be a performance-based organization.

On the safety front, there are a couple of areas I would like to

mention. One is FAA has had some progress in reducing operational errors and runway incursions, but they are still much too

high. They are experiencing one involving a commercial airliner

every 10 days. That means that once every 10 days a commercial

airliner is coming very close to just barely avoiding a collision, either on the ground or in the air. And so more progress is needed

there.

Close attention also is needed with respect to the level of oversight being provided to repair stations. Some metrics, in 1996, 36

percent of airline maintenance costs went to repair stations. Now

it is 47 percent, and you can expect it to grow. For some airlines,

64 to 77 percent of their maintenance is being outsourced. So we

should expect a corresponding shift in the FAA’s vigilance and attention to that area.

And finally, a pending wave of controller retirements. There is

some debate about how many controllers will retire and when. And

that is one reason we need this Cru-X cost accounting system or

labor distribution system so we can find out where the controllers

are that are going to retire and how to plan accordingly.

But the number that some are using is that by 2010 you could

lose about 7,000 controllers. This is about half the controller workforce. It takes about 5 years right now to train a controller to full

proficiency.
16

PREPARED STATEMENT

And finally, a security related matter on the airports that I

would encourage the Congress to resolve. Nobody knows who will

pay for the installation of these SUV-sized explosive detection machines at airports. The airports, I am sure, have visited you. And

when they say this is of concern to them, they have a legitimate

point. This is not an inconsequential cost item, Mr. Chairman. We

peg it at about $3 to $4 billion. So some resolution is needed on

that point.

That concludes my statement, sir.

[The statement follows:]

PREPARED STATEMENT OF KENNETH M. MEAD

Mr. Chairman and Members of the Subcommittee, we appreciate the opportunity

to testify today as the Subcommittee begins deliberations on the fiscal year 2004 appropriation for the Federal Aviation Administration (FAA).

This hearing is occurring against the backdrop of an industry in financial distress—two airlines representing more than 20 percent of the industry are in bankruptcy, and several others are teetering on the brink. This is due to a confluence

of factors that include unsustainable cost and fare structures that clearly predate

9/11 and, with the advent of the war in Iraq, precipitous declines in travel bookings.

The airlines also point to increased security-related expenditures for passenger

screening, insurance, and Federal security taxes as contributing factors to their financial condition.

Great care must be taken to ensure that any relief package provided by Congress

(1) does not provide a cash subsidy that allows a way for airlines to avoid making

the hard calls necessary to become sustainable, including lowering labor costs (including management salaries and bonuses) and increasing productivity of capital;

(2) require that any airline security-related costs that Congress judges are eligible

for reimbursement be supported by documentary evidence that clearly demonstrates

that claimed costs were actually incurred; and (3) be of limited duration.

The issue of service to small- and medium-sized communities is related to the financial condition of the airline industry. In an effort to stem losses, airlines have

reduced service in the smallest communities by 19 percent in the past 5 years.

Funding levels for the Essential Air Service Program (EAS), which is one vehicle

for restoring access to air service in small communities, will be an important issue

for the Committee’s consideration this year. It should be noted, however, that maintenance of service in small communities will be most successful where restructuring

of the cost structures of the network carriers is most successful.

As for FAA, it is important to recognize that the agency oversees the largest and

safest air transport system in the world, but FAA urgently needs to do considerably

more to bring its costs under control. FAA’s budget has increased from $8.2 billion

in 1996 to $14 billion in fiscal year 2004—an increase of $5.8 billion, or over 70 percent. Over half of this increase is attributable to sharply rising costs in FAA’s operations, which are made up primarily of salaries (about 74 percent of FAA’s fiscal

year 2004 Operations budget). From 1998 (when FAA began implementing new pay

systems), salaries within the agency have increased 41 percent whereas the overall

increase for the Federal workforce in Washington, DC, for example, was about 30

percent.

In terms of acquisitions, 5 major acquisitions out of 20 that we track have experienced substantial cost growth totaling more than $3 billion, which is equivalent to

an entire year’s budget for FAA’s modernization account. These same 5 acquisitions

have also experienced schedule slips of 3 to 5 years.

Continued cost growth of this magnitude is unsustainable given the financial

state of the airline industry, multi-billion dollar declines in projected Aviation Trust

Fund receipts, and greater dependence on the General Fund to pay for FAA’s operations. We do not believe the answer to cost growth at FAA lies in an increase in

taxes, fees, or other charges, which are already significant. Given the weak demand

environment, any further increases are likely to reduce airline revenues and further

threaten the financial health of the industry. Just as the airlines have had to

rethink the basics of their business, FAA also must re-examine how it does business

and redouble its efforts to become performance based in deed as well as in word.

Administrator Blakey is taking steps to move the agency in that direction.
17

1 As of April 1, 2003, the two carriers in bankruptcy were United Airlines and Hawaiian Airlines. USAirways emerged from bankruptcy protection on March 31, 2003. 2The average percentage of paying passengers on all flights needed to cover airline costs.

In terms of safety, we feel the imperatives for FAA are: (1) further reducing operational errors (when planes come too close together in the air) and runway incursions (potential collisions on the ground)—in 2002, a commercial aircraft was involved in at least one serious runway incursion or operational error every 10 days;

(2) providing adequate oversight of air carrier maintenance in view of shifts in carrier practices from in-house to outsourced (from 1996 to 2001, outsourcing maintenance by major air carriers increased from 37 percent of total maintenance costs to

47 percent); and (3) addressing pending controller retirements.

On the security front, an important issue will be resolving who will pay for the

next phase of explosives detection systems integration into airport baggage systems.

This is a multi-billion dollar item.

STATE OF THE AIRLINE INDUSTRY

Most of the major domestic airlines are in a precarious financial condition. Several airlines are in bankruptcy and others are teetering on the brink. 1 As a group,

the major carriers reported net losses totaling over $11 billion in 2002, which followed a year where their combined losses totaled $7.5 billion. For 2003, even before

the United States went to war with Iraq, major carriers were projecting losses of

between $6 billion and $7 billion. Now that the United States is at war, the airlines

have increased their estimated losses to between $10 billion and $11 billion, based

on a 90-day war. And the end is not yet in sight, as current forecasts now extend

the timeframe for recovery from 2004 to 2005 or 2006.

In February 2003, actual flight operations were down 10 percent compared to February 2000. Overall, domestic enplanements were down nearly 8 percent in January

2003 compared to January 2000. Much of the reduced demand represents what had

once been the higher fare business travelers. By some estimates, business travelers

account for 50 percent of airline revenues although they typically represent only 20

percent of airline travel. As the following figure illustrates, business travel in November 2002 was nearly one-third less than it was in November 2000.

In the third quarter 2002, breakeven load factors 2 for the industry as a whole

were 87 percent, while actual load factors averaged only 74 percent. One airline in

that period experienced breakeven load factors of over 100 percent. How can an airline fill more than 100 percent of its seats? The answer is it cannot, which is why

that carrier is on the brink of bankruptcy.

In response to the economic downturn and increased costs following 9/11, airlines

have reduced their workforces, modified schedules, eliminated flights, closed offices

and facilities, and retired aircraft. Negotiations are underway to reduce employment

expenses throughout the industry by an additional $10 billion. Several airlines have

used the bankruptcy process to restructure their costs, including renegotiating their
18

labor contracts and their debt instruments. Still, financial conditions continue to be

weak, exacerbated now by the ongoing war in Iraq.

Based on a scenario of a 90-day war, the airlines project that their losses will be $4 billion higher in 2003 than the $6.7 billion they had originally projected. The

losses would be driven by decreased passenger demand, higher fuel prices, and

lower airfares. The airlines attest that they have already incurred over $4 billion

in additional security costs since 9/11, including passenger screening fees, new security taxes, increased insurance costs, freight restrictions, cockpit door fortification,

and the Federal Air Marshall program.

A case could be made for providing some form of financial relief to assist airlines

in the short term; such as extending the Federal war risk insurance program and

extending the Air Transportation Stabilization Board loan guarantee program. Loan

guarantees, if prudently incurred, can help to stabilize the financial condition of the

industry. They may also prove a prudent, short-term market intervention if used to

finance a realistically restructured airline’s exit from bankruptcy.

Other forms of potential relief, including reimbursing the airlines for security improvements, eliminating or reducing the Passenger Security Tax and Air Carrier Security Fee, and drawing down the Strategic Petroleum Reserve, should be considered in the following context.

The airlines are requesting a very large sum of money from the American taxpayers. In that regard, we are concerned, as are American taxpayers, about the appearance of large executive pay packages that are still in place for top executives

at some of the airlines with large operating losses. Financial aid is not a substitute

for self-help. This must come in the form of restructuring labor costs and management salaries, as well as increasing productivity of capital.

Policy decisions are being made that could affect the competitive balance of the

airline industry, and the implications of providing financial assistance for any reason need to be carefully considered. The airline industry is important to the economy of the United States and certainly financial assistance at this juncture would

help preserve the industry in the short term. But it should be noted that while all

airlines have had to incur the increased financial burden of operating in a post 9/

11 environment, not all airlines are suffering equally. In fact, two airlines. Southwest and JetBlue, earned profits last year. These airlines were successful because

their cost structures represent a more realistic picture of a post-deregulation competitive airline industry. Care should be taken not to penalize carriers who have

adapted or revised their cost structures to forms that are sustainable, even during

an economic crisis.

Consideration should also be given to how financial assistance to the airline industry will be viewed by our international counterparts. To the extent possible, any

relief package should be structured to limit the possibility of being criticized as an

unfair airline subsidy.

The airlines are especially vulnerable to the effects of this war and the terrorist

attacks that may accompany it. But it should not be forgotten that during wartime,

many industries suffer financial losses–travel agents, retail outlets, cruise lines, and

hotels—to name a few. Therefore, it is essential that a financial aid package designed to assist just one affected industry—the airlines—include narrowly defined

relief terms and be of limited duration.

If the decision is made to provide some sort of assistance to the airlines, the following guidelines should apply.

—The effects of 9/11 and the war in Iraq have no doubt affected the airlines’ costs

and revenues, but the fact is that many airlines had unsustainable cost structures long before these events took place. Any financial assistance that is forthcoming should not result in a bail-out for failures in the competitive marketplace that occurred prior to 9/11. Funding that is not tied specifically and demonstrably to direct security-related costs simply postpones the restructuring

that will be necessary in order for the major network carriers to remain viable.

Most of the current financial woes of the industry should be solved by the marketplace.

—Documentation of which costs are being claimed and in what amount must be

provided by the airlines and verified to ensure that funds provided under a security relief package are not subsidizing financial losses unrelated to security.

Clarity is needed concerning whether financial assistance will be restricted to

future war-related costs or security-related costs already incurred by the industry. Whichever costs are deemed eligible, the airlines must be held absolutely

accountable for documenting the costs the aid is applied towards.

—Financial assistance aimed at providing short-term war relief should be just

that: short term. Aid, if provided, should be of limited duration and should not

come to be expected by the industry on a recurring basis. Given the uncertainty
19

of what could happen over the course of the coming year, an aid program should

terminate at the end of a firmly fixed time period with the option to revisit the

terms of the program if conditions warrant.

SERVICE TO SMALL AND MEDIUM SIZED COMMUNITIES

Financial problems for major airlines may ultimately affect the air service to

small- and medium-sized communities. The major network carriers serve these communities through their mainline service and regional affiliates by connecting passengers from these communities to the major airlines’ hubs. At the current time,

low-cost carriers are not a solution for many small- and medium-sized communities

if their service declines. The low-cost carrier business models focus on serving dense

markets that make it economical to fly multiple frequencies in large-volume jets.

That model would not be sustainable in these small- or medium-sized communities.

Maintenance of service in these markets will be most successful where the restructuring of the network carriers is most successful.

In the smallest communities—those served by non-hub airports—service has been

declining for the past 5 years. Between March 1998 and March 2003, non-hub airports nationwide lost 19 percent of their commercial air service as measured by

available seat miles. Between March 2000 and March 2003, non-hub airports in the

Northeast and Midwest lost approximately one-third of their service.

The Essential Air Service Program is a tool that these small communities rely on

for attracting air service to their communities. The funding levels for this program

will be an important matter for the Committee’s consideration this year.

GENERAL STATE OF FAA

As a result of the slow economy and the decline in air travel, there has been a

significant decrease in tax revenues coming into the Aviation Trust Fund. Projected

tax receipts to the Aviation Trust Fund for fiscal year 2004 have dropped from approximately $12.6 billion estimated in April 2001 to about $10.2 billion estimated

in February 2003. Over the next 4 years, Aviation Trust Fund tax revenues are expected to be about $10 billion less than projections made in April 2001. Although

Trust Fund projections are down for next year, FAA’s spending request is not; increasing from $13.6 billion this year to $14.0 billion next year. If this $3.8 billion

gap between Trust Fund revenues and FAA’s budget ($10.2 billion to $14.0 billion)

is financed by the General Fund, it would represent a rough doubling of such spending compared to recent years.
20

While there have been suggestions that this gap could be closed by increasing

taxes or fees on airlines and air passengers, we urge extreme caution in this area.

Taxes and fees are already high. For example, a non-stop round-trip ticket costing

$200 may consist of nearly $33 in taxes, fees, and airport passenger facility charges

or 16 percent of the fare. On a connecting flight, the taxes on a $200 ticket could

be up to $51, or nearly 26 percent of the fare. Any further increases are likely to

reduce airline revenues, given the weak demand environment and will further

threaten the financial health of the industry.

Over the past 5 years, FAA has had some notable accomplishments—successfully

managing the Y2K computer problem, obtaining a clean opinion on agency-wide financial statements, bringing new Free Flight controller tools on-line, deploying the

Display System Replacement on time and within budget, and expeditiously shutting

the system down safely on 9/11. However, a key focus for FAA now must be effective

cost control. This, in our opinion, is a primary challenge facing FAA for the next

several years.

Operating as a Performance Based Organization.—In 1996, Congress acted to

make FAA a performance-based organization by giving the agency two powerful

tools–personnel reform and acquisition reform. The expectation was that FAA would

operate more like a business—that is, services would be provided to users cost effectively and major acquisitions would be delivered on time and within budget. FAA

was also directed to establish a cost accounting system so that FAA and others

would know where funds were being spent and on what. It is now over 6 years later

and we do not see sufficient progress toward FAA’s becoming performance-based or

toward achieving the outcomes that Congress envisioned. —Personnel Reform.—Personnel reform was a key element of the move to make

FAA performance-based. But to date, the reality has been increasing workforce

costs and significantly higher salaries. From 1998 (when FAA began implementing new pay systems), salaries within the agency have increased 41 percent whereas the overall increase for the Federal workforce in Washington,

D.C., for example, was about 30 percent.

The new pay system for controllers (FAA’s largest workforce) was a significant cost driver. The average base salary for fully certified controllers is now

over $106,000, which is exclusive of premium pay and overtime. That figure

represents a 47 percent increase over the 1998 average of $72,000, and compares to an average salary increase of about 32 percent for all other FAA employees during the same period. Although linking pay and performance was a

key tenet of personnel reform, only about 36 percent of FAA employees receive

pay increases based on individual performance. The remaining FAA employees

receive largely automatic pay increases.

In our work, we also found there are between 1,000 and 1,500 side bar agreements or Memorandums of Understanding (MOUs) that are outside the national

collective bargaining agreement with controllers. Many serve very legitimate

purposes, but some can add millions to personnel costs. For example, one MOU

we reviewed allows controllers transferring to larger consolidated facilities to

begin earning the higher salaries associated with their new positions substantially in advance of their transfer or taking on new duties. At one location, controllers received their full salary increases 1 year in advance of their transfer
21

(in some cases going from an annual salary of around $54,000 to over $99,000).

During that time, they remained in their old location, controlling the same air

space, and performing the same duties.

We found that controls over MOUs are inadequate. FAA management does

not know the exact number or nature of these agreements, there are no established procedures for approving MOUs, and their cost impact on the budget has

not been analyzed. It is important for FAA to get a handle on this process because many MOUs involve issues pertaining to deploying new equipment. We

briefed Administrator Blakey on our concerns regarding MOUs; FAA is now in

the process of identifying those MOUs that are problematic or costly and has

begun a dialogue with the controller’s union to address them.

—Acquisition Reform.—FAA has learned from past mistakes and its ‘‘build a little, test a little’’ approach has clearly avoided failures on the scale of the multibillion dollar Advanced Automation System acquisition. But the bottom line is

that significant schedule slips and substantial cost growth for major air traffic

control acquisitions are all too common. The following chart provides cost and

schedule information on 5 of 20 projects we track that were largely managed

since FAA was granted acquisition reform.

Program

Estimated program costs

(dollars in millions) Percent

cost

growth

Implementation

schedule

Original Current Original Current

Wide Area Augmentation System ........................ $892.4 1 $2,922.4 227 1998–2001 2003–2 3

Standard Terminal Automation Replacement

System.

940.2 2 1,690.2 80 1998–2005 2002–2 3

Airport Surveillance Radar–11 ............................ 752.9 916.2 22 2000–2005 2003–2008

Weather and Radar Processor ............................. 126.4 152.7 21 1999–2000 2002–2003

Operational and Supportability Implementation

System.

174.7 251.0 44 1998–2001 2002–2005

1 This includes the cost to acquire geostationary satellites and costs are under review.

2 Costs and schedules are under review by FAA.

3 To be determined.

These five acquisitions have experienced substantial cost growth totaling

more than $3 billion, which is equivalent to an entire year’s budget for FAA’s

modernization account (Facilities and Equipment). These same five acquisitions

have also experienced schedule slips of 3 to 5 years. Problems with cost growth,

schedule slips, and performance shortfalls have serious consequences. They result in costly interim systems, a reduction in units procured, postponed benefits

(in terms of safety and efficiency), or ‘‘crowding out’’ other projects. For example,

in fiscal year 2002 alone, FAA reprogrammed over $40 million from other modernization efforts to pay for cost increases in the Standard Terminal Automation Replacement System (new controller displays for FAA’s terminal facilities).

FAA needs to set priorities and link the Operational Evolution Plan (OEP)

(FAA’s blue-print for enhancing capacity), with the agency’s budget and address

uncertainties with how quickly airspace users will equip with new technologies

in the Plan (estimated at $11 billion). FAA is retooling the OEP, and both FAA

and industry officials told us that considerable benefits may be obtained

through airspace changes, new procedures, and taking advantage of systems

currently onboard aircraft—all of which do not require major investments by

airlines. According to senior FAA officials, hard decisions about funding OEP

initiatives and related major acquisitions will need to be made. In addition,

FAA needs to develop metrics to assess progress with major acquisitions.

—Cost Accounting System.—To effectively operate as a performance-based organization, FAA needs an accurate cost accounting system to track agency costs and

provide managers with needed cost data by location. Without a reliable cost accounting system, FAA cannot credibly claim to be, nor can it function as, a performance-based organization.

At the direction of Congress, FAA began developing its cost accounting system

in 1996, which was estimated at that time to cost about $12 million and be completed in October 1998. Now, after nearly 7 years of development and over $38

million, FAA still does not have an adequate cost accounting system, and it expects to spend at least another $7 million to deploy the cost accounting system

throughout FAA. Although FAA’s cost accounting system is producing cost data

for two of its lines of business, it still does not report costs for each facility location. For example, for the Terminal Service in fiscal year 2001, about $1.3 bil-
22

lion of $2.4 billion was reported in lump-sum totals and not by individual facility locations.

FAA also needs an accurate labor distribution system to track the costs and

productivity of its workforces. Cru-X is the labor distribution system FAA chose

to track hours worked by air traffic employees. As designed, Cru-X could have

provided credible workforce data for addressing controller concerns about staffing shortages, related overtime expenditures, and to help determine how many

controllers are needed and where. That information in turn is especially important given projections of pending controller retirements. Unfortunately, Cru-X

has not been implemented as designed. We hope it will be in the coming year.

Aviation Safety.—After several years of continuous increases in operational errors

and runway incursions, FAA has made progress in reducing these incidents. In fiscal year 2002, operational errors decreased 11 percent to 1,061 and runway incursions decreased 17 percent to 339 from fiscal year 2001 levels. Despite FAA’s

progress, the number of these incidents is still too high considering the potential

catastrophic results of a midair collision or a runway accident. On average, in fiscal

year 2002, at least one commercial aircraft was involved in a serious runway incursion or operational error (in which a collision was barely avoided) every 10 days.

We will be issuing our report on operational error and runway incursions shortly.

FAA also needs to pay close attention to the level of oversight it provides for repair stations. Since 1996, there has been a significant increase in air carriers’ use

of these facilities. In 1996, major air carriers spent $1.6 billion for outsourced maintenance (37 percent of total maintenance costs), whereas in 2001, the major air carriers outsourced $2.9 billion (47 percent of total maintenance costs). As of September 2002, four major carriers were outsourcing between 64 and 77 percent of

their maintenance.

In spite of this increase in the use of repair stations, FAA’s surveillance continues

to target more resources on air carriers’ in-house maintenance facilities than repair

stations. In fact, repair stations are required to be inspected by FAA only once annually. In addition, some FAA-certified foreign repair stations are not inspected by

FAA inspectors at all because foreign civil aviation authorities review repair stations on FAA’s behalf.

This trend in outsourcing maintenance is likely to continue, and FAA needs to

consider the shift in maintenance practices when planning its safety surveillance

work. We will be issuing our report on FAA’s oversight of repair stations shortly.

Another significant issue is the pending wave of controller retirements. In May

2001, FAA estimated almost 7,200 controllers could leave the agency by the end of

fiscal year 2010. In general, the training process to become a certified professional

controller can take up to 5 years. Given that time lag, FAA needs to take actions

now to address when and where new controllers will be needed. The pending retirements underscore the need for an accurate labor distribution system. We will be

starting an audit of controller training in the next several weeks.

Mr. Chairman, let me conclude by discussing a major issue for airports—funding

the next phase of explosives detection systems (EDS) integration. Thus far, nearly

all EDS equipment has been lobby-installed. The planned next step (integrating the

EDS equipment into airport baggage systems) is by far the most costly aspect of full

implementation. We have seen estimates that put the costs of those efforts between

$3 and $5 billion. A key question is who will pay for those costs as well as other

costs still to be determined, such as improving access controls and acquiring new

screening technologies.

MAKING FAA A PERFORMANCE-BASED ORGANIZATION THROUGH CONTROLLING COSTS IN

OPERATIONS AND MAJOR ACQUISITIONS

Controlling Operating Cost Increases.—Although Congress envisioned that personnel reform would result in more cost-effective operations, this has not occurred.

Since 1996, FAA’s operating costs have increased substantially. As shown in the following graph, FAA’s operations budget has increased from $4.6 billion in fiscal year

1996 to $7.6 billion in fiscal year 2004. Given the decline in Aviation Trust Fund

revenues and the financial situation of the airlines, a continuation of this growth

can no longer be sustained.
23

Much of the increase in operations costs has been a result of salary increases from

collective bargaining agreements negotiated under FAA’s personnel reform authority. The 1998 collective bargaining agreement with the National Air Traffic Controllers Association (NATCA), which created a new pay system for controllers, was a

significant cost driver. Under the agreement, most controllers’ salaries increased

substantially. For example,

—The average base salary for fully certified controllers has now risen to over

$106,000—a 47 percent increase over the 1998 average of about $72,000 (as

shown in the table below). This compares to an average salary increase for all

other FAA employees during the same period of about 32 percent, and for all

Government employees in the Washington, D.C. area of about 30 percent.

AVERAGE BASE SALARIES FOR FAA EMPLOYEES

Average base salary (including locality) Fully certified air

traffic controllers

Non-controller

FAA employees

2003 ........................................................................................................................................ 1 $106,580 $78,080

1998 ........................................................................................................................................ $72,580 $59,200

Percentage Increase From 1998 to 2003 ............................................................................... 46.8 31.9

1 After 4.9 percent increase.

Following the NATCA agreement, other FAA workforces began organizing into

collective bargaining units as well. Today, FAA has 48 collective bargaining units

as compared to 19 collective bargaining units in 1996.

The increase in bargaining units has complicated FAA’s plans for fielding its

agency-wide compensation system (created in April 2000), because FAA’s 1996 reauthorization requires that FAA negotiate compensation with each of its unions. This

has also complicated FAA’s plans to create a link between pay and performance. Although linking pay and performance was a key tenet of personnel reform, only about

36 percent of FAA employees receive pay increases based on individual performance.

The remaining FAA employees receive largely automatic pay increases.

We also found, that outside the national collective bargaining agreement with

NATCA, FAA and the union have entered into hundreds of side bar agreements or

MOUs. These agreements can cover a wide range of issues such as implementing
24

new technology, changes in working conditions and, as a result of personnel reform

bonuses and awards, all of which are in addition to base pay. We found that FAA’s

controls over MOUs are inadequate. For example, there is:

—no standard guidance for negotiating, implementing, or signing MOUs;

—broad authority among managers to negotiate MOUs and commit the agency;

—no requirement for including labor relations specialists in negotiations; and

—no requirement for estimating potential cost impacts prior to signing the agreement.

In addition, FAA has no system for tracking MOUs, but estimates there may be

between 1,000 and 1,500 MOUs agency-wide. While most MOUs serve very legitimate purposes, we reviewed a number of MOUs that had substantial cost implications. For example,

—As part of the controller pay system, FAA and NATCA entered into a national

MOU providing controllers with an additional cost of living adjustment. As a

result, at 111 locations, controllers receive between 1 and 10 percent in ‘‘Controller Incentive Pay,’’ which is in addition to Government-wide locality pay. In

fiscal year 2002, the total cost for this additional pay was about $27 million.

—One MOU we reviewed allows controllers transferring to larger consolidated facilities to begin earning the higher salaries associated with their new positions

substantially in advance of their transfer or taking on new duties. At one location, controllers received their full salary increases 1 year in advance of their

transfer (in some cases going from an annual salary of around $54,000 to over

$99,000). During that time, they remained in their old location, controlling the

same air space, and performing the same duties.

Administrator Blakey is aware of our concerns regarding MOUs and has begun

a dialogue with NATCA to address this issue.

Improving Management of Major Acquisitions.—FAA spends almost $3 billion annually on a wide range of new radars, satellite-based navigation systems, and communication networks. Historically, FAA’s modernization initiatives have experienced

cost increases, schedule slips, and shortfalls in performance. While progress has

been made with Free Flight Phase 1, problems persist with other major acquisitions.

In 1996, Congress exempted FAA from Federal procurement rules that the agency

said hindered its ability to modernize the air traffic control system. Now, after nearly 7 years, FAA has made progress in reducing the time it takes to award contracts,

but acquisition reform has had little measurable impact on bottom line results—

bringing large-scale projects in on time and within budget. The following chart provides cost and schedule information on 5 of 20 projects we track that have been

managed since FAA was granted acquisition reform.

Program

Estimated program costs

(dollars in millions) Percent

cost

growth

Implementation

schedule

Original Current Original Current

WAAS .............................................................................. $892.4 1 $2,922.4 227 1998–2001 2003–2 3

STARS ............................................................................. 940.2 2 1,690.2 80 1998–2005 2002–2 3

ASR–11 .......................................................................... 752.9 916.2 22 2000–2005 2003–2008

WARP .............................................................................. 126.4 152.7 21 1999–2000 2002–2003

OASIS ............................................................................. 174.7 251.0 44 1998–2001 2002–2005

1 This includes the cost to acquire geostationary satellites and costs are under review.

2 Costs and schedules are under review.

3 To be determined.

These five acquisitions have experienced cost growth of over $3 billion and schedule slips of 3 to 5 years. Problems with cost growth, schedule slips, and performance

shortfalls have serious consequences—they result in costly interim systems, a reduction in units procured, postponed benefits (in terms of safety and efficiency), or

‘‘crowding out’’ other projects.

For example, STARS, which commenced operations at Philadelphia this past year,

has cost FAA more than $1 billion since 1996. Most of these funds were spent on

developing STARS, not delivering systems. When the STARS development schedule

began slipping, FAA procured an interim system, the Common Automated Radar

Terminal System (Common ARTS) for about $200 million. FAA is now operating

Common ARTS (software and processors) at approximately 140 locations.

Moreover, in fiscal year 2002 alone, FAA reprogrammed over $40 million from

other modernization efforts (data link communications, oceanic modernization, and

instrument landing systems) to pay for cost increases with STARS. As a result of

these cost and schedule problems, in March 2002, FAA officials proposed scaling

back the program from 182 systems for $1.69 billion to a revised estimate of 73 sys-
25

tems for $1.33 billion. No final decision has been made, and FAA is currently reevaluating how many STARS systems it can afford.

Cost growth of this magnitude must be avoided because only 60 percent of FAA’s

fiscal year 2004 request for Facilities and Equipment is expected to be spent on new

air traffic control systems, whereas the remaining funds are requested for FAA facilities, mission support (i.e., support contracts), and personnel expenses.

There are large-scale acquisitions—both old and new—whose cost or schedule

baselines need to be revised because the programs have changed considerably or

benefits have shifted. For example, the Integrated Terminal Weather System

(ITWS) provides air traffic managers with enhanced weather information. FAA

planned to complete deployment of the new weather system in 2004 at a cost of

$286 million. However, unit production costs have skyrocketed from $360,000 to

over $1 million; FAA cannot execute the program as scheduled and may extend the

deployment by 4 years.

In addition, FAA intended to have the Local Area Augmentation System (Category I)—a new precision approach and landing system—in operation in 2004. It is

now clear that this milestone cannot be met because of additional development

work, evolving requirements, and unresolved issues regarding how the system will

be certified as safe for pilots to use. Moreover, the more demanding Category II/III

services (planned for 2005) are now a research and development effort with an uncertain end state. This means that benefits associated with the new precision approach and landing system will be postponed.

Our work has also found that FAA has not followed sound business practices for

administering contracts. We have consistently found a lack of basic contract administration at every stage of contract management from contract award to contract

closeout.

For example, we found that Government cost estimates were:

—prepared by FAA engineers, then ignored;

—prepared using unreliable resource and cost data;

—prepared by the contractor (a direct conflict of interest); or

—not prepared at all.

FAA has stated that it will take actions to address these concerns—the key now

is follow through.

In addition to strengthening contract oversight, FAA needs to develop metrics to

assess progress with major acquisitions, make greater use of Defense Contract Audit

Agency audits, and institute cost control mechanisms for software-intensive contracts. FAA needs to obtain these audits from the Defense Contract Audit Agency
26

for contract costs billed by private companies for research and development, production, and all costs related to system development. FAA should get these audits to

ensure that the amounts billed are reasonable and that the government’s interest

is properly protected. By ensuring that only acceptable costs are paid to contractors,

FAA will be able to stretch its procurement dollars further.

With schedule slips and cost overruns in major acquisitions, it should be noted

that FAA is not getting as much for its $3 billion annual investment as it originally

expected.

Tracking Costs.—An effective cost accounting system is fundamental to measuring

the cost of FAA activities and provides the basis for setting benchmarks and measuring performance. Without a reliable cost accounting system, FAA cannot credibly

claim to be, nor function as, a performance-based organization. It represents the underpinning for FAA’s operation as a performance-based organization through the development of good cost information for effective decision-making. At the direction of

Congress, FAA began developing its cost accounting system in 1996, which was estimated at that time to cost about $12 million and be completed in October 1998.

Now, after nearly 7 years of development and spending over $38 million, FAA still

does not have an adequate cost accounting system, and expects to spend at least

another $7 million to deploy the cost accounting system throughout FAA.

Although FAA’s cost accounting system is producing cost data for two of its lines

of business, it still does not report costs for each facility location. For example, for

the Terminal Service in fiscal year 2001, about $1.3 billion of $2.4 billion was reported in lump-sum totals and not by individual facility locations.

FAA also needs an accurate labor distribution system to track the costs and productivity of its workforces. Cru-X is the labor distribution system FAA chose to

track hours worked by air traffic employees. As designed, Cru-X could have provided

credible workforce data for addressing controller concerns about staffing shortages,

related overtime expenditures, and to help determine how many controllers are

needed and where. That information in turn is especially important given projections of pending controller retirements. Unfortunately, Cru-X as designed has not

been implemented. We hope it will be in the coming year.

BUILDING AVIATION SYSTEM CAPACITY AND MORE EFFICIENT USE OF AIRSPACE TO

PREVENT A REPEAT OF THE SUMMER OF 2000

FAA needs to be strategically positioned for when demand returns through a combination of new runways, better air traffic management technology, airspace redesign, and greater use of non-hub airports. It would be shortsighted to do otherwise.

FAA estimates that domestic passenger numbers are expected to return to 2000 levels by 2005, although the recovery in passenger traffic will lag by a year for major

carriers. FAA also reports large increases in the use of regional jets (from 496 in

2000 to over 900 in 2002)—this bears careful watching because of their impact on

FAA operations and modernization efforts.

FAA’s OEP is the general blueprint for increasing capacity. As currently structured, the plan includes over 100 different initiatives (including airspace redesign

initiatives, new procedures, and new technology) and is expected to cost in the $11.5

to $13 billion range, excluding the costs to build new runways, but the true cost

of implementing the plan is unknown. FAA estimates the plan will provide a 30 percent increase in capacity over the next 10 years assuming all systems are delivered

on time, planned new runways are completed, and airspace users equip with a wide

range of new technologies.

While airspace changes and new automated controller tools will enhance the flow

of air traffic, it is generally accepted that building new runways provides the largest

increases in capacity. The OEP now tracks 12 runways scheduled for completion in

the next 10 years. Four of the runway projects are expected to be completed in 2003

at Denver, Houston, Miami, and Orlando airports. However, construction on several

other airports has been delayed from 3 months to 2 years. There are other new runway projects not in the plan but important for increasing capacity, such as Chicago

O’Hare. These runway projects are not in the plan because airport sponsors have

not finalized plans or developed firm completion dates. FAA needs to continue to

closely monitor all new runway projects.

Progress has been made with OEP initiatives, but much uncertainty exists about

how to move forward with systems that require airlines to make investment in new

technologies. FAA and the Mitre Corporation estimate the OEP would cost airspace

users $11 billion to equip with new technologies. For example, FAA and Mitre estimate the cost to equip a single aircraft with Automatic Dependent SurveillanceBroadcast ranges from $165,000 to almost $500,000, and the cost for Controller-Pilot
27

Data Link Communications ranges from $30,000 to $100,000 excluding the cost to

take the aircraft out of revenue service.

FAA is working to retool the OEP. With the slow down in the demand for air travel, FAA has an opportunity to synchronize the OEP with FAA’s budget and set priorities, and address uncertainties with respect to how quickly airspace users will

equip with new technologies in the plan. Senior FAA officials noted that hard decisions will need to be made. Further, some large-scale, billion-dollar acquisitions are

not in the Plan but critical for its success. For example, the Enroute Automation

Replacement Modernization project (new software and hardware for facilities that

manage high altitude traffic with an estimate cost of $1.9 billion) is not an OEP

initiative but needs to be fully integrated with the Plan and considered when setting

priorities.

It is a good time to rethink what reasonably can be accomplished over the next

3 to 5 years, and what will be needed by FAA and industry given the decline in

Trust Fund revenue and the financial condition of the airlines. According to the Associate Administrator for Research and Acquisition, it is likely that the OEP will

shift from a plan that relied heavily on airspace users to equip their aircraft to one

that places greater emphasis on airspace changes and procedural changes that take

advantage of equipment already onboard aircraft.

STRIKING A BALANCE BETWEEN HOW AIRPORT FUNDS WILL PAY FOR CAPACITY AND

SECURITY INITIATIVES

A major issue for airports is funding the next phase of EDS integration. Thus far,

nearly all EDS equipment has been lobby-installed. TSA’s planned next step (integrating the EDS equipment into airport baggage systems) is by far the most costly

aspect of full implementation. The task will not be to simply move the machines

from lobbies to baggage handling facilities but will require major facility modifications. We have seen estimates that put the costs of those efforts at over $5 billion,

and this is an almost immediate issue facing the airports.

A key question is who will pay for those costs and how. While the current Airport

Improvement Plan (AIP) has provided some funding in the past for aviation security, we urge caution in tapping this program until we have a firm handle on airport

safety and capacity requirements.

In fiscal year 2002, airports used over $561 million of AIP funds for security-related projects. In contrast, only about $56 million in AIP funds were used for security in fiscal year 2001. Continuing to use a significant portion of AIP funds on security projects will have an impact on airports’ abilities to fund capacity projects. The

following chart shows how AIP funds were used and for what type of project in fiscal

year 2002.
28

AIP funds as well as passenger facility charges (PFCs) are eligible sources for

funding this work. However, according to FAA, PFCs are generally committed for

many outlying years and it would be difficult, requiring considerable coordination

among stakeholders (i.e. airports and airlines), to make adjustments for security

modifications at this point. The following chart shows how PFC funds have been

used since 1992.

There have also been proposals to raise the cap on PFCs; however, we urge caution before adding additional fees or taxes for air travel. Consumers already pay a

significant amount in aviation taxes and fees. For example, a non-stop round-trip

ticket costing $200 may consist of nearly $33 in taxes and fees, or 16 percent of the

fare. On a connecting flight, the taxes on this ticket could be up to $51, or nearly

26 percent of the fare. Any further increases are likely to reduce airline revenues,

given the weak demand environment and will further threaten the financial health

of the industry.

AVIATION SAFETY

The U.S. air transport system is the safest in the world and safety remains the

number one priority for FAA. Until the recent Air Midwest crash in Charlotte, there

had not been a fatal commercial aviation accident in the United States in 14

months.

Progress has been made this past year in reducing the risk of aviation accidents

due to operational errors and runway incursions. Operational errors (when planes

come too close together in the air) and runway incursions (potential collisions on the

ground) decreased by 11 percent and 17 percent, respectively, in fiscal year 2002.

Notwithstanding these improvements, operational errors and runway incursions

should remain an area of emphasis for FAA because at least three serious operational errors and one serious runway incursion (in which collisions were narrowly

averted) occur, on average, every 10 days.

In the current financially-strapped aviation environment, FAA must remain vigilant in its oversight to sustain a high level of aviation safety. FAA has recognized

this need and has taken steps to heighten surveillance during times when airlines

are in financial distress. For example, FAA has increased the number of inspections
29

planned for distressed air carriers’ internal aircraft maintenance operations. We are

beginning an audit of this issue in the next several weeks.

FAA also needs to pay close attention to the level of oversight it provides for repair stations. In the past 5 years, there has been a significant increase in air carriers’ use of these facilities. In 1996, major air carriers spent $1.6 billion for

outsourced maintenance (37 percent of total maintenance costs), whereas in 2001,

the major air carriers outsourced $2.9 billion (47 percent of total maintenance costs).

Even as air carriers currently outsource close to half of their maintenance work,

FAA has continued to focus its surveillance on air carriers’ in-house maintenance

operations with no comparable shift toward increased oversight of repair stations.

For example, FAA assigns a team of as many as 27 inspectors to continuously monitor air carriers’ internal maintenance operations, while typically, only one to two

inspectors that have other collateral duties are assigned to monitor work performed

at aircraft repair stations. Because use of repair stations represents a less costly

way of getting maintenance work completed, the trend in outsourcing maintenance

is likely to continue. FAA needs to consider this shift in maintenance practices when

planning its safety surveillance work.

Another significant issue is the pending wave of controller retirements. In May

2001, FAA estimated a total of 7,195 controllers could leave the agency by the end

of fiscal year 2010. In general, the training process to become a certified professional

controller can take up to 5 years. Given that time lag, FAA needs to take actions

now to address when and where new controllers will be needed. The pending retirements underscore the need for an accurate labor distribution system. We will be

starting an audit of controller training in the next several weeks.

That concludes my statement, Mr. Chairman. I would be pleased to address any

questions you or other members of the Subcommittee might have.

Senator SHELBY. Secretary Shane, welcome to the committee.

OFFICE OF THE SECRETARY

STATEMENT OF JEFFREY N. SHANE, UNDER SECRETARY FOR POLICY

Mr. SHANE. Thank you, Mr. Chairman, and ranking member

Murray, Senators Bennett and Dorgan. It is always a pleasure to

appear before you, and it is today. We appreciate very much your

holding this hearing.

I believe I can summarize my prepared remarks referred to by

Senator Murray earlier, and do them fairly briefly. I will skip the

part where I talk about how closely the Administration is monitoring industry developments. And I think Ken Mead has also covered a little bit of the ground, so I can be quick.

Almost 3 months ago, in testimony before another Senate committee, I outlined the challenges facing the industry and pointed at
30

the record losses that had occurred during calendar year 2001 and

that were continuing into 2002.

Wall Street analysts, even before the war in Iraq, were predicting about $6.5 billion dollars in additional industry losses for

2003. We now know that these losses could be even higher if the

conflict results in an extended period of reduced demand for air

travel.

The airline industry has proven over the years to be remarkably

resilient, however, and it is important to note that the news even

now is not all bad. Despite heavy losses for the industry overall,

for example a number of low fare airlines have remained profitable,

and have been expanding their operations despite the downturn in

demand.

At the same time, our largest network airlines are making

progress in controlling their costs. USAirways, as we all read the

other day, emerged from bankruptcy 2 days ago. And American, despite a lot of concern in the market, has been able to avoid bankruptcy. That is because both carriers have found ways to reduce

their cost structures dramatically and to retool their business

plans. Other airlines are making similar progress.

I have appended to my prepared statement some charts that illustrate the current state of the industry and the challenges that

it is facing, particularly since the start of the war in Iraq. What

I would like to do is summarize those charts very, very quickly.

I apologize, I did not bring blow ups of the charts. I believe that

we have made sufficient copies available so that everybody has copies. If that is not the case, please let us know and we will supply

them right now.

Chart 1 really covers ground that Inspector General Mead covered. It really just demonstrates how, in fact, the long period of

record profits during the 1990s was transformed into a period that

we now know to be record losses beginning in late 2000 and early

2001.

Chart 2 shows system operating profits or losses over the last 3

calendar years. But it is important because the airlines are divided,

in that chart, into three different groups. The first group includes

our largest network carriers. And the third group are low fare carriers.

I apologize for the airline codes that we used to identify the airlines. We actually have a legend. They are not all self-evident. So

we can supply you that to make clear who the airlines are that we

are talking about.

The important message from this chart is that while the industry

as a whole has sustained operating losses approaching $10 billion

for each of the past 2 years, the low fare carriers, as I indicated

earlier, have indeed continued to earn profits.

Chart 3 shows system-wide operating margins. Note the contrast

between the double-digit negative operating margins for the large

network airlines and the low fare carriers’ positive operating margins during this time.

Our review of recent information suggests that the financial

trends observed in the quarterly data throughout 2002 are continuing into 2003.
31

Chart 4 compares weekly traffic levels, beginning in mid-December 2002, for those Air Transport Association member carriers that

have international routes with traffic levels from a year earlier. It

shows that from mid-December of last year to the end of January,

traffic was up slightly over a year before. A pronounced downward

trend begins in February, however, and accelerates after the start

of the conflict in Iraq, especially for trans-Atlantic traffic.

Finally, chart 5 compares daily traffic for the same carriers beginning March 12th of this year with traffic a year earlier. Initially

the trend is up slightly but then declines sharply at the start of the

hostilities. By March 26th, traffic was down about 20 to 25 percent

for each of the regions shown on the chart.

So where does this leave us? Many airlines have suffered large

losses for more than 2 years, are heavily leveraged, and are now

dealing with steep declines in demand. Does this mean that the

airline industry is doomed to fail? Certainly not. But there will be

change. Airlines are working hard to do what they must do to survive and to eventually return as viable competitors.

We are going to get through this. My personal conviction is when

we do, the industry will look a lot like the industry we have today

except that it will be more cost-effective, more competitive, and

more robust.

Let me just say one thing particularly in response to Ranking

Member Murray’s comments about Secretary Mineta’s statement

for the press last night. Secretary Mineta, I hope everybody knows,

has been a consistent champion of some limited temporary assistance to the airline industry. There has never been any question

about that. My testimony was prepared at a time that productive

negotiations were already underway between the Administration

and Congressional leadership. Those negotiations, I hope, are continuing.

There is, as the secretary said, a considerable gulf between

where the Administration believes we should come out and where

the House and the Senate votes yesterday set the numbers.

We should continue to negotiate. I think the biggest difference,

if I can just comment on this briefly, and I know we will have a

colloquy about it afterwards, is that it is important to recognize

that USAirways came out of bankruptcy on Monday. It is important to recognize that through heroic efforts American Airlines has

been able to reduce its cost structure such that it did not have to

go into bankruptcy. Other airlines are doing exactly the same

thing.

The question for the Congress and for the Administration must

be what measure of assistance is appropriate given the absolute

duress the industry is in without compromising or interfering with

a process that this industry has to go through. Otherwise, if it does

not go through this process now, if it does not retool itself, if it does

not fix itself for the future, we will face this issue every time there

is another crisis and it will be a perennial albatross for every administration and for every Congress that succeeds us.

PREPARED STATEMENT

That is really the discussion that we should be having. We believe that some assistance is appropriate. The level of that assist-
32

ance is the only thing that separates the Administration and Congress right now.

Let me stop right there and I do look forward to any questions

you may have. Thank you.

[The statement follows:]

PREPARED STATEMENT OF JEFFREY N. SHANE

Chairman Shelby, Ranking Member Murray, and Members of the Subcommittee,

I appreciate the opportunity to appear here today to discuss the state of the airline

industry.

As you are well aware, these are extraordinary times for the airline industry. Significant challenges are occurring virtually every day. The Administration is working

hard to keep up with these developments and to assess their near-term and longerterm implications.

Almost three months ago, on January 9, in testimony before the Senate Committee on Commerce, Science, and Transportation about the future of the airline industry, I pointed to record losses during calendar year 2001, continuing heavy losses

during 2002, and into 2003.

We now know that the predictions for large losses during 2002 were correct, and

Wall Street analysts, even before the war in Iraq, had changed their loss predictions

for 2003 from the range of $2.5 to $3.0 billion to about $6.5 billion. The large network airlines that today account for a major part of our domestic passenger air

transportation system account for most of these losses. The war in Iraq may both

reduce their revenue and increase their losses in 2003.

In my testimony three months ago I also pointed to the fact that the airline industry has proven to be remarkably resilient over the years, and that not all news was

bad. Despite the overall heavy losses for the industry, and in stark contrast to the

experience of the large network airlines, a cadre of low-fare airlines had remained

profitable and was rapidly expanding. This trend has continued as well.

In addition, we now see individual large network airlines making progress in getting their costs under control. For example, USAirways has emerged from bankruptcy, and American has thus far avoided it, in part because they have been successful in reducing their costs by restructuring labor costs and overhauling their

business plans. Other large network carriers have also progressed with their cost

control efforts.

Many issues are now at play—structural issues that emerged before September

11, the aftermath of the September 11 terrorist attacks, the sluggishness of the return of air travel demand, and the war in Iraq. How all of this is resolved will have

major consequences for the airline industry and related industries, and, indeed, our

economy for many years to come.

To provide context, before getting into more specific details about what is driving

the financial plight of much of the industry, an important deregulation development

must be briefly discussed. Specifically, two very different types of carriers have

evolved—large network carriers and low-cost carriers. Generally speaking the

former are pre-deregulation carriers and the latter are new airlines that evolved

after deregulation. To a certain extent these two types of airlines serve different

types of markets, have different business strategies, and focus on different customers, even when they operate in the same geographic regions.

A basic reason for the emergence of the low-fare airlines is that this was the only

effective response to the powerful networks that were quickly built by the pre-deregulation airlines. Low costs allowed the new carriers to charge such low fares that

they could profitably serve a demand sector that was mostly unserved by the large

network airlines. While these airlines, other than Southwest, struggled for years to

establish a competitive toehold, several have now done so. Almost ironically, while

the low-cost strategy was initially pursued as a vehicle for coexisting with the larger, dominant network airlines, the success of this strategy now poses a challenge

to the continuing viability of the larger airlines unless they too are successful in

their own efforts to control costs.

But both types of operation are vital components of our Nation’s air transportation system. Low-cost airlines are an increasingly important element of our commercial air travel system. Their substantially lower costs enable them to provide capacity for price sensitive passengers, and to price compete for time sensitive passengers who are otherwise faced with substantially higher prices. But the traditional ‘‘major’’ airlines, through their feeder systems, serve an unmatched variety

of markets—including a great many smaller communities that would not be on the

aviation map without them. Over the course of many decades our largest airlines
33

1Fourth quarter 2002 data are preliminary and subject to change.

have established critical international franchises as well—links to foreign markets

that are essential to trade and economic growth.

The simple truth is that the markets for air travel are best served by airlines pursuing diverse strategies, and just one category or the other is unlikely to adequately

and efficiently serve demand. That is why we cannot be cavalier about any part of

the industry, and why the Administration is watching developments so closely.

With this background I will now briefly address the various changes and events

that have contributed to the situation facing our major airlines today by directing

your attention to a series of charts. Chart 1 shows why a long period of record profits for the airline industry abruptly came to an end well before the September 11

terrorist attacks. This chart shows trends both in unit revenues, or operating revenues per available seat mile, known as RASM, and in unit costs, or operating expenses per available seat mile, known CASM. Note that for several years CASM increased very slightly, compared with much larger increases in RASM. These trends

portray a period of solid revenue growth and cost control underpinning continual

profitable operations, indeed several years of record profits. But the combination of

increasing costs beginning in 1999, and declining demand starting in early 2001,

turned record profits into losses. Indeed, the decline in industry profitability for the

year ended June 30, 2001, compared with a year earlier, was the largest year-overyear decline ever, before September 11. The losses for the year ended June 30, 2001,

were not record losses, but that too changed abruptly with the terrorist attacks.

Chart 2 shows system operating profits or losses by quarter for the last 3 calendar

years for the large network carriers, and a number of other airlines including a

group of low-cost carriers. These carriers account for over 90 percent of the passenger industry. Note first, that these carriers collectively have sustained operating

losses approaching $10 billion for each of the past 2 years.1 Observe, however, that

the group of low-fare carriers has continued to earn profits during this same time,

and that this is not just attributable to Southwest. Five of the six low-fare carriers

earned profits in 2001, and half of them earned profits in 2002, while two of the

other three were close to break even. Note next, that the last profitable quarter for

the large network carriers was the third quarter of 2000, and also, these carriers

continued to suffer sizeable losses throughout 2002. It is especially important to

note that these carriers’ losses have accelerated since the second quarter, including

the third quarter, which is normally their best quarter of the year. Despite the disastrous losses during the last two quarters of 2001, total losses for calendar 2002

approach the same levels. Indeed, in reality 2002 losses were even greater given

that these six large network carriers’ operations were considerably smaller.

Chart 3 shows systemwide operating margins (operating profit or loss divided by

total revenues), and, as just indicated, the negative operating margins of the large

network carriers were even greater in 2002 than a year earlier. Note also that this

varies greatly from carrier to carrier. During 2001, for every $5 collected by American and United in revenues, they had $6 of costs. You can also see that during the

first three quarters in 2002 for which we have final results these tendencies do not

change much for either carrier. Finally on this chart, note that in contrast to the

double-digit negative operating margins for the large network airlines, the low fare

carriers earned very respectable positive operating margins. Indeed, the margins for

these carriers in 2001 exceeded those for the network carriers for 2000.

In addition to the financial information the airlines file with the Department

every quarter, they also file preliminary data on a monthly basis. While this information is subject to change, we believe it can be relied upon to reveal general tendencies. Our review of this information suggests that the financial trends you have

just observed in the quarterly data throughout 2002 are continuing into 2003. Indeed, the results for the large network carriers in January 2003, or 16 months after

the September 11 terrorist attacks, are no better than a year earlier, despite the

fact that travel demand was still severely depressed.

With this context, please look at Chart 4. This compares weekly traffic, in terms

of revenue passenger miles, for Air Transport Association member carriers that provide international service, beginning for the week ended December 15, 2002 with

traffic a year earlier. This shows that from mid December 2002, to the end of January 2003, traffic was up slightly over a year earlier. Then note the rather marked

downward trends beginning with early February. Next, note the increased rate of

decline at the time of the first strikes in the war. This information is broken down

into four major traffic categories, and, as would be expected, transatlantic traffic has

suffered the greatest decline.

Chart 5 compares daily traffic for the same carriers beginning March 12, 2003

with traffic a year earlier. Initially the trend is up slightly until the Azores Summit.
34

Traffic then plummets after the 48-hour ultimatum, and again as the war starts.

Note that by March 26, traffic is down from about 20 to 25 percent for each category. Subsequently, the year-over-year declines eased up for several days before

worsening again for all but the domestic category.

So where does this leave us? Many airlines, including the large network airlines

that now provide the bulk of airline service in the United States, have consistently

suffered large losses for more than 2 years, they are heavily leveraged, and now,

once again, they see airline demand in steep decline for some unknown period. Does

this mean that the airline industry as we know it today is doomed to fail? No, but

there will be change. Airlines that are in trouble are all working hard at what they

must do to survive and eventually return as viable competitors. How quickly and

to what extent they recover will depend largely on three factors: how much they are

able to reduce their costs, the recovery of travel demand, and the extent to which

carriers reduce capacity in light of the now-diminished level of demand.

While my focus here today is the financial state of the airline industry, this painful process affects everyone in the aviation industry: aircraft lessors and investors,

aviation vendors, airports and their concessionaries, and—more than anyone else—

airline employees. Since September 11, more than 100,000 airline employees have

lost their jobs. Just in the past 2 weeks airlines have announced an additional

10,000 layoffs. The aircraft industry has also been hard hit. Of the 7,525 jet aircraft

available for service today, 971 are either stored or temporarily inactive.

We are going to get through this. My personal conviction is that when we do, the

industry will look a lot like the industry we have today, except that it will be more

cost-effective, more competitive, and more robust.

As many of you know, the Administration has recently unveiled its proposal, Centennial of Flight Aviation Authorization Act as a successor of AIR–21, which expires

at the end of this fiscal year. A lot of people at FAA and in the Office of the Secretary have spent a lot of time over the past several months developing those proposals, and we are proud of them. They would promote the industry’s growth and

vitality while retaining safety as our top priority. We plan to reinforce our commitment to safety by making substantial investments in National Airspace System infrastructure and ensuring that our highly trained controller workforce is fully capable of sustaining its high levels of performance over the course of the next reauthorization period and beyond.

Our proposal will also ensure that we are prepared for the demand levels predicted in the FAA’s recent industry forecast by continuing to fund airport capacity

enhancements at record levels and restructuring Airport Improvement Program formulas and set-asides.

CONCLUSION

Mr. Chairman and members of the Subcommittee, thank you for the opportunity

to testify here today. I look forward to responding to any questions you may have.
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RELIEF TO THE AIRLINE INDUSTRY

Senator SHELBY. Secretary Shane, as you know, the committee

reported a Supplemental Appropriations Act yesterday that included provisions to provide some relief and assistance to the aviation industry for relief to the airlines. Do you believe it is better

to lower carrier costs in the form of a temporary suspension of security fees prospectively for a period of time or to reimburse carriers for security fees that they have already paid to the government?

Mr. SHANE. Well, either formulation will deliver relief to the industry and I am not sure the industry itself is of a view about

which is preferable. I would evaluate those two scenarios essentially in terms of ease of administration.

The most important lesson we took from the compensation program that Congress enacted immediately after 9/11 was that the

process of evaluating claims, if you are creating a system in which

airlines are required to document costs, document claims in a complicated way, and then the Department of Transportation necessarily has to validate all of those claims, the amount of time that

we simply have to expend in order to validate the claims is such

that it is inconsistent with what we are trying to do with the program, which is deliver the relief in real-time.

The reason we have to do it is that my friend, Ken Mead, right

here will have something to say about it if we are not vigilant in

the way we evaluate those claims.

Senator SHELBY. He should have something to say about it.

Mr. SHANE. That is right. That is why I think if we are looking

at various forms of assistance to the industry right now, the Department of Transportation would strongly favor a system in which

we simply either reimburse or forgive fees that the industry incurs.

It does not require subjective evaluation of whether these are really

the amounts that we should be paying. We know what those

amounts are. They are written down someplace. We just write

checks.

REIMBURSEMENT TO THE CARRIERS

Senator SHELBY. Let me follow up on that.

One of my concerns with the reimbursement to the carriers is

that the payment would include the fees that are paid by the passengers. I do not know why we would levy a fee first on the flying

public and then pass that directly to the airlines.

Mr. SHANE. The airlines, in this environment, maintain that they

are not able to pass that fee along to the carriers, in fact, that

there is no market power whatsoever in this market, and that, in

fact, they are absorbing that fee. It is supposed to be passed along

and in a normal environment you would expect it to be passed

along and tacked onto the ticket.

The fact is the prices in the market right now are what the market sets and there is no incremental amount that you could say is,

in fact, passing on a fee to the passengers.
41

OPERATIONAL EVOLUTION PLAN

Senator SHELBY. The FAA has a plan for enhancing capacity

called the Operational Evolution Plan or the OEP. Since the OEP

was first published, the aviation industry has been hard-hit by the

economic downturn of 9/11, increased security costs, and rising fuel

prices. I want to address this question to you, Madame Administrator.

With the industry in such upheaval, what changes are being

made to the OEP to adjust to the new realities in airline operations

and the market environment?

Ms. BLAKEY. It is a good question because certainly there is a dynamic there that I think we have to respond to in real-time. For

an organization like the FAA that depends tremendously on consultation with the industry and the research community to construct a solid plan, this is certainly calling us to really step up realtime on this.

We just issued a new version of OEP, 5.0, which does stay the

course for a 10-year period to get 31 percent additional capacity at

the end of 10 years. It is a good plan. It is one that there is a remarkable degree of consensus in the industry and in the affected

communities that it makes sense.

That said, what I have asked that we do is develop a very intensive approach. We call it the skunk works, to look at the OEP and

say okay, what could we put on the fast-track here that number

one, will not burden the industry; number two, is develop technology; and number three, could be implemented in the next 1, 3,

5 years at the outside. Not the 10-year horizon. Let us see what

we can do in terms of really fast-tracking some of this.

So far the staff has come up with some very interesting, and I

think productive, avenues. We are going to vet them in the next

month or 2 with the industry and with others before taking this

out. But I think this is going to yield some more immediate results,

if you will, from that standpoint.

Senator SHELBY. Mr. Shane, the Aerospace Commission recommended making the transformation of the U.S. Air Traffic Management System a national priority. What confidence do you have

that the FAA and the OST are making the necessary changes to

the OEP, as warranted by the call to action by the Aerospace Commission?

Mr. SHANE. Thank you, Mr. Chairman.

I have great confidence in that. The reason I have such confidence is that Administrator Blakey and I have talked about that

issue dating back to before the Aerospace Commission actually

issued that report. The Administrator is absolutely committed to

giving life to some of the vision in the report. We have spoken to

Secretary Mineta about it and the Deputy Secretary, Michael Jackson, as well.

I think in the not-too-distant future we will probably have a

more concrete announcement for you. But at this point, there is not

any question that we are on a path to realizing that.
42

RISING OPERATING COSTS

Senator SHELBY. A major cost driver of FAA’s rising operating

costs has been salary increases from collective bargaining agreements negotiated under FAA’s personnel reform authority. Mr.

Mead’s prepared statement indicates that controller salaries have

increased by 47 percent—47 percent since 1998.

Can you compare the increase in salary for air traffic controllers

from 1998 through 2003 to other work forces inside FAA, as well

as other Federal Agencies?

Also, what can you tell us about overtime costs and other cost

drivers that are due to memorandums and MOUs related to controller contracts?

Ms. BLAKEY. The Inspector General has focused on this issue.

And in fact, is undertaking an audit on just that issue right now.

This goes to the issue of a contract that was negotiated in 1998

which did substantially increase the compensation for controllers.

As time has gone on there have also been a number of additional,

if you will, side agreements, these memoranda of understanding

which, in some cases, do add on costs in terms of the way the system is running. There are about 1,500 of these, many of which are

perfectly fine and address operational work rules et cetera.

But there are some that without doubt add to the cost of this

contract substantially, as well as ones that really do infringe on the

rights of management to deal flexibly with the demands in traffic

and in the kind of management that the system needs from an efficiency standpoint.

We are very committed to working with NATCA to address those

issues. This is something that we have already notified the union

that we do have a number of those that have been pointed out by

the Inspector General that fall under the category I just discussed,

that we need to sit down at the table and review and come to a

more efficient way of operating from the standpoint of the taxpayer’s money.

Senator SHELBY. Mr. Mead, do you want to comment on that?

Mr. MEAD. I appreciate Administrator Blakey’s movement to get

their hands around this.

One thing that was pretty alarming to us was that nobody knew

how many of these deals or memoranda understanding existed.

There was no inventory. In fact, as part of our audit effort we probably started developing the inventory. And they have very large financial impacts.

As Administrator Blakey says, a lot of them are legitimate and

are needed, but we really ought to know what the cost impact of

them is.

RELIEF PACKAGE FOR AVIATION INDUSTRY

Senator SHELBY. Senator Murray.

Senator MURRAY. Thank you, very much, Mr. Chairman. Mr.

Shane, thank you for your testimony.

I just want to go back to this again because we are trying to

work through this. The Senate had a $3.5 billion aviation package.

The House has $3.2 billion. And again, as we noted, Secretary Mineta said there is a huge gulf here.
43

I just wanted to see if you would help us pin this down a little

better and tell us precisely what the structure of a relief package

the Administration will support and what amount? If you could tell

us, we would really appreciate it.

Mr. SHANE. I really have not been involved personally in the negotiations that have been taking place. I am aware of them. And

I would simply ask that I be excused from trying to give you an

amount, because I really did not come authorized to talk amount,

and it would be interfering with, I think, a conversation that is

going on that I am not privy to.

The structural issue is, as I said in response to the Chairman’s

questions, that we would emphasize the importance of ease of administration. Let us find a set of security fees that we can quantify

easily and that we can either forgive or reimburse on day one, simply because those numbers are readily available. If we go beyond

that and get into a variety of imponderables and airlines then

begin putting claim documents together—first we have to figure

out a form. They will have to fill out the form, and then we have

to evaluate the form. Weeks and months can go by before they will

see any money from a process like that. And that is inconsistent

with what they need right now in our judgment.

So we would urge whatever the amount, which is going to be the

product of a negotiation, I expect, whatever the amount, it should

be an amount that is delivered in a very transparent and easily administered form.

Senator MURRAY. So you have not heard any specific number

mentioned by the Administration whatsoever?

Mr. SHANE. I am not—well, I have heard a lot of numbers but

I really do not know precisely, because honestly it is taking place

way above my pay grade, where the Administration is at the moment.

Senator MURRAY. Specifically let me ask you, as part of the

amendment we passed yesterday, we put in funding for expanding

unemployment insurance for laid-off workers. Do you find that to

be a reasonable part of the package?

Mr. SHANE. Well, I am an undersecretary of transportation, not

an undersecretary of labor and Department of Labor really would

be the proper agency to comment on that.

I would just say generally that typically we extend unemployment insurance benefits in times when unemployment across the

country is 10 percent or more. There have been two extensions, as

I understand it, of unemployment benefits thus far in an environment in which the unemployment rate was in the neighborhood of

5 to 6 percent.

So my guess is the Administration will say it is inappropriate to

extend those unemployment benefits yet again. It would be an extraordinary thing to do.

Senator MURRAY. This is for aviation workers and I understand

they have had the triple whammy. They had September 11th, they

have had the downturn in the economy. And now, with the Iraq

war, we have had 10,000 lay-offs from aviation and related industries just since the war started. This is not something somebody

did to make this happen. These are country-wide, nationwide,
44

worldwide issues that have impacted these employees. Certainly

the Administration would have sympathy for that.

Mr. SHANE. I think the Administration has enormous sympathy

and there is no question that the workers have taken it on the chin

in a way that we have not seen before. There are a whole variety

of programs that are available to the workers including national

emergency grants and training programs and reemployment programs.

Again, I am way out of my depth in talking about the Labor Department’s programs and I really do not want to get much further

into it. But I have no reason to think that the Administration is

going to be supportive of yet another extension, even for a particular sector.

There is a fairness element. Industries across the board are suffering as a result of the environment that we are living in today.

A lot of it can be attributed to the same causes that the airline industry’s problems are attributable to. It is just difficult to explain

to people in another sector why it is that you have chosen this sector to provide special benefits to.

POST-9/11 IMPACT ON AVIATION INDUSTRY

Senator MURRAY. They have had a huge impact over the past 21⁄2

years, or 11⁄2 since September 11th.

What about the airlines? We put incredible pressure on them in

terms of safety and security since September 11th, and certainly

our airports as well. Massive requirements that we have put on top

of them. Do you not think that has some kind of impact on their

ability to avoid bankruptcy?

Mr. SHANE. There is no question that the Government has picked

up a tremendous amount of the cost of the security that we have

laid on. We have taken over all of the airport security. Those are

all Federal workers now. They used to be airline employees.

There is a tremendous amount that has been done. There has

been the $15 billion from 9/11. The question now is whether or not

we are going to start finding ways of gifting the industry with so

much more assistance that we take them off the track that they

are on, leading to a perpetuation rather than a solution of the problem. And that is a genuine concern.

Senator MURRAY. But would you not agree that we have required

a lot of our airports and our airlines in terms of security that has

added a burden at a time when they are still struggling because

of the economy?

Mr. SHANE. Yes, and we are also requiring a lot of every other

sector of the transportation industry and I am not aware that we

have picked up any portion of the costs that other transportation

sectors are being required to bear or will be required to bear.

Senator MURRAY. I would just argue that the aviation industry

has, in fact, really been hit because obviously September 11th had

an impact on people’s willingness to travel by air. And certainly

that has not eased in the last months and certainly not since the

war in Iraq started, would you not agree?

Mr. SHANE. It eased and then it went down again. Yes, the war

in Iraq has been obviously a repeat in terms of the actual adverse

impact on demand.
45

But again, without trying to suggest that we are out of the woods

in any way, or to suggest that it is inappropriate to think about

some additional assistance. That is not the position of the Administration. What we are saying is that it is important that we calibrate that additional assistance in a way that does not compromise

what the industry must do now if we are to have a viable air transportation system going forward.

SUPPLEMENTAL APPROPRIATIONS ACT

Senator MURRAY. Let me just ask you, do you foresee a scenario

where the President would veto the supplemental if we do add $3

plus billion for aviation?

Mr. SHANE. I have not had that conversation with anybody in the

White House. I have no answer for that.

Senator MURRAY. I know you are not going to let me pin you

down, but there is a rumor swirling that the Administration has

drawn a line in the sand at $900 million. That is about a quarter

of the size that the House and Senate versions both have in them.

Have you heard that figure and do you think that figure includes

any help for workers?

Mr. SHANE. Somebody reported to me that that figure was in the

press, but I had not heard it anywhere else. So I have no way of

knowing whether that has any validity whatsoever as a negotiation

position or an Administration position.

Senator MURRAY. So you have heard nothing about what is in

any kind of formal talks from the Administration, whether it includes work for employees, whether it includes airports, what kind

of structure for the airlines? You have heard nothing?

Mr. SHANE. I have heard that we have circled around the idea

of a very limited, targeted form of assistance, along the lines that

I was suggesting which is related specifically to the security fees

that are paid by passengers now and paid by the industry.

That is as much as I have heard. I do not know more than that.

I do not know what would be acceptable at the end of the day to

the Administration. I do know that it would be substantially less

than the amount voted in either house of Congress yesterday.

Senator MURRAY. I am sorry, it will be substantially less than?

Mr. SHANE. An amount acceptable to the Administration would

have to be substantially less than was voted in either house of Congress yesterday. That was what Secretary Mineta was saying last

night.

Senator MURRAY. Would it include anything for airports?

Mr. SHANE. No, I do not believe that we had anything in mind

for airports. Again, I do not mean to be cute here. I am just getting

a little bit beyond my depth because this negotiation has been taking place, I believe, between White House staff members and members of Congress. And I have not been privy to those personally. In

recent days I am not even sure any of us at the Department have

been privy to them.

Senator MURRAY. I will hold on my other questions and let other

members of the committee respond and then come back to Ms.

Blakey. Senator Bennett?
46

STATEMENT OF SENATOR ROBERT F. BENNETT

Senator BENNETT. Thank you. This is an interesting picture that

you have painted for us here this morning. And as I go through it,

I ask myself how much can the Government do about it. Because

many of the things that I see that ought to be done are things that

probably ought to be done by the airlines themselves.

First, let me just make a few comments and then I will engage

in a dialogue here. You referred to Southwest and Jet Blue as the

low-cost carriers. You are aware that Jet Blue’s fares are higher

than their competitions? Were you aware of that?

To fly from New York City to Fort Lauderdale on Jet Blue is $36

more than to fly on their competitor. And the reason is that experience on Jet Blue is $36 better than the experience on their competitors. People who fly Jet Blue become tremendously loyal, almost fierce defenders of the Jet Blue experience and say we want

to fly Jet Blue wherever you go.

I think there is a lesson there that I do not know what Government can do about. But when I was in business I focused tremendously on consumer satisfaction.

We now have a circumstance where consumers are almost driven

away from air travel by the experience. Jet Blue goes out of their

way to do everything they can to create a worthwhile experience

and they can charge higher fares, thus saying to us that air travel

is not a commodity. There are alternatives. We think of commodities, we think of competition and commodity, it is solely on the

basis of price. There is competition on the basis of consumer satisfaction.

Again, if you could think of something the Government could do

to get airlines to try to make the experience more satisfactory, and

thereby people would be willing to pay a little more to have the experience, instead of going there only when they have no other alternative.

One thing we could do which probably does not fall in your department is to reduce the hassle factor around security. I am as

concerned as anybody about security but if I were running the airline industry as a whole as a business, I would certainly do something about the experience you get with TSA.

Now TSA, to its credit, is a better experience than it used to be

following September 11th in that period when it was still contracted out to others. The TSA people are substantially more professional and handle that experience with a better sense of consumer satisfaction than you used to get.

I remember when I was in the Department of Transportation

when hijackings began, we talked about—forbidden word—profiling

as a way to deal with hijacking. Now it is not politically correct to

even use the word unless you are using it in speech to denounce

it.

But airlines know their customers. Do a background check on a

frequent-flier and discover that that frequent-flier is not, nor has

ever been, nor ever will be connected with a terrorist organization.

Cannot that frequent-flier, thus checked out, and not picked on the

basis of so many miles, but checked out with an actual profile, be

given a pass?
47

We senators come into the Capitol without having to go through

a security check because the Capitol Police knows who we are. I

am not suggesting that we get to the point where everybody has

to be carefully identified, but would it not help the business flier

to want to get back on the airplane if he or she knew, properly

profiled and in an identity bank and even with biometrics—you put

your hand on a screen, so as you go through they know that is who

you are you get to go by without having to strip all the way down

to taking off all your shoes and the kinds of things we go through

now?

BUSINESS TRAVELERS

We have got to get the business traveler back on the airplane.

If you are making a business decision and you are going to go

downtown from Washington to New York City, you say well I have

got to be at Reagan at least 1 hour before they takeoff. And it is

going to take me 20 minutes to get from my office to Reagan. So

this is 1 hour, then a little extra, 11⁄2 hours before I get on the airplane. And then it takes me 1 hour to fly to LaGuardia, so that is

21⁄2 hours. And then, depending on the time of day, it is going to

take me a half hour in good times and 1 hour in bad times to get

from LaGuardia to downtown New York. Very, very strong incentive to be on the Metroliner.

I happen to think that is a good idea. I would like to see more

people on the Metroliner. But that same phenomenon is what is

driving people in other markets to the highways. That is the competition for the airline, not the train. It is the highway. Testimony

shows the highway is less safe, more congested. We have to appropriate money for highways to deal with the increased traffic there.

How do we get people back on the airplane? We make it a better

experience and, aside from dealing with that TSA thing, I do not

know quite what Government can do in this area.

I just want you to think about that and see if you can come up

with any.

Now, moving quickly, and I apologize to my colleagues for taking

so much time. But in this morning’s Wall Street Journal, a new

airline policy, kill United. Did any of you read that? If not, read

it and I would be interested in your response.

Again, when I was at the Department of Transportation, we had

to deal with serious problems in the railroad industry, and that is

referred to in this piece, where we dealt with the Penn Central

bankruptcy. I remember all of the ins and outs about the Penn

Central bankruptcy. It was an important part of my tenure there.

Now we are going through bankruptcy in the airline industry

and this is a suggestion based on a railroad experience. When Conrail was broken up and Conrail’s routes were given to the two competitors, and they are saying United should be broken up and their

facilities given to competitors to reduce capacity in a way that is

rational.

With that rant on those two areas, do you have any comments

or suggestion as to what we can do, looking at it not from the

standpoint of legislation or budget, but from the standpoint of overall approach to this tremendous problem that you have presented

to us here this morning?
48

Mr. SHANE. First, Senator, let me just say I remember fondly

your days as an Assistant Secretary of Transportation. You probably do not remember, but we were colleagues back then.

Senator BENNETT. You stayed in the industry.

Mr. SHANE. I have been in and out more times than I care to remind myself of but I am in at the moment.

TSA

Let me just say, in response to the hassle factor, the most important thing you said is that it is much reduced. That TSA, which

is as you noted no longer part of the Department of Transportation

but now part of the Department of Homeland Security, has performed heroically in the course of the last year.

There is no question that there were enormous growing pains

and that the hassle factor became a buzz in the business community. Nobody would fly because of all the reasons that you cited.

I do not see that today. I am speaking anecdotally, I know, but

the fact is that my impression is average waits are about what they

were prior to 9/11. TSA and its very professional cadre of screeners

have done an enormous job of bringing that wait time down, so

that you really do not have to plan very differently now for an airplane ride than you did prior to 9/11. And enormous credit goes to

the folks at TSA who have made that happen.

There is a profiling system that TSA is working on. It is called

CAPPS–2. You have undoubtedly read about it and it does embrace

much of the vision that you have for making the process easier to

create greater confidence in our knowledge of who, in fact, is boarding an airplane. I have no doubt that, as time passes, we will have

a much improved system for looking at passengers and not having

to put everybody through the wringer on a random basis.

AIRLINE INDUSTRY

As to how you get people back on the airplane, I think the Congress should be very proud of what it did in 1978 when it deregulated the industry. We have been to hell and back in this industry

any number of times since that time but Congress has always

stayed the course.

I am old enough to remember in the early 1980s when the industry was here, in Congress, talking about worst ever losses in the

industry since the beginning of time. The same claims were made

in the beginning of the 1990s. And we had meetings with the industry about what form of assistance might be appropriate. Serious

consideration was given to that. There never was any assistance

back then.

I do not pretend that any of that was anything like what we have

going on today. This is a world apart from even those long dark

nights of the soul that the industry went through.

But we have never veered from the conviction that we have as

a country that the best solution for this industry is to allow the

market to work. When we are prepared to go forward and provide

some assistance in the current environment—and I am repeating

myself here, I realize—we have to be mindful of the importance of

letting the industry make the changes it has to make if, in fact,

it is going to be viable in the long-term.
49

When you referred to an article in the Wall Street Journal about

a putative policy of killing United and breaking it up, that to me

is mindless. The first thing that would happen if you actually tried

to kill United is that you would vitiate all the good work that is

happening now. By taking that additional capacity out, you take

the pressure off everybody else to continue to reduce costs the way

they are doing right now.

That is not a good position. United going away is not a good solution for this industry. And it would be a horrible solution, of course,

for the thousands and thousands of people who work for United

and who are served by United. So that has no place. I know you

did not suggest that it would have any place, but it has no place

in Government policy, as we sit here today.

Senator BENNETT. It gave you the opportunity to give you the

speech you have just given.

Mr. SHANE. Those are some random comments that I would have

on your remarks.

Mr. MEAD. I have two quick comments.

On what you were referring to about doing a background check

on people like the U.S. Senators, you can come in here and you do

not have to go through a big hassle. And you said that was because

they know who you are and know about you.

TSA, which is now at Department of Homeland Security, is working on what they call a smart card that, I think, is probably about

a year away. And one of the key questions is going to be how much

information do we want to know about you before you get a smart

card? Do we want to know about your income taxes? Do we want

to know about your travel? Do we want to know who your friends

are? And that is very controversial.

As Jeff said, also, the profiling, I forget what they call it, but

Lockheed Martin has a contract right now. It was issued just before TSA went over to DHS. So I expect there will be movement

on that front.

On the price issue. I would like to come back to that. Probably

in late 2000, early 2001, the bottom was falling out of the business

market on the airlines. And that was because the airlines had

taken things too far in what they were charging the business traveler. And one of the reasons they had taken things too far was because people could afford it. Dotcoms out on the West Coast, I

think if you spoke to UAL, they would tell you that dotcom travelers provided a lot of their business travel. But dotcoms, the bottom fell out of that market.

So I think what is happening now in the industry is they are trying to reattract business travelers, but they are also trying to do

so at a substantially lower fare. And I suspect, sir, in time that is

going to work.

CAPACITY BUILDING

Ms. BLAKEY. I would like to add one other point, too, because as

Ken is referring to 2000 and what happened there. You asked what

the Government can do. And I think very importantly we have to

remember that part of the phenomena of 2000 were incredible

delays. The summer of 2000 was a horrific time as a business trav-
50

eler or as a traveler period. And I think it did put a damper on

things.

What we can do is increase the capacity in the system. And as

I say, staying the course on that right now, in terms of our investment in this, I think is critically important because it really is an

appropriate role for Government.

Senator BENNETT. Thank you very much. Senator Dorgan?

Senator DORGAN. Thank you very much.

Let me make a couple of observations and then ask a couple of

questions. First of all, Mr. Shane, you indicated that we should let

the market work. Let me say I am not someone who looks at the

airlines and thinks they have done nothing wrong. I am not a big

fan of the pricing schemes. You can pay twice as much to go half

as far if you want to go to North Dakota versus Los Angeles from

D.C. So I have plenty of irritation about a number of things.

But I must say that it is not a market system that works when

an entire industry is shut down from a terrorist attack. Shut down,

every asset ordered to be grounded immediately. And the airplanes

themselves were used as the missiles, loaded with fuel, for the attack itself. And the picture is shown on television and all of those

potential fliers are watching these hijacked airplanes being used to

destroy the passengers, and being used to topple the skyscrapers.

There is no market system with respect to how people and potential passengers react to that.

In addition, as we went into that September 11th terrorist attack, we had a recession prior to it and a sputtering economy and

the economy still sputters. There is really nothing market oriented

about fuel prices and the airline industry has a heavy burden with

fuel prices and fuel prices have spiked up because of the uncertainty of war over months and months and months and months.

There is certainly nothing market oriented about war and what it

does to people’s interest in flying and concern about flying.

There is a whole series of things that have converged at the

same intersection at the same time. And we can simply say let us

ignore this and let the market system work and behave in that

manner. But the fact is our economy will pay a heavy, heavy price

if those who counsel that while the tent collapses we should just

be interested in watching and observe how interesting it is prevail.

If they win, if that is the mindset, in my judgment this economy

will pay a heavy price.

Mr. Mead, you mentioned rural areas. We are pretty familiar

with the price that is paid for dislocation and for discontinuance of

service. We are pretty familiar with people that talk about the

market system from their enclaves in big cities. But I must say,

this is an industry that is essential to this country’s economy. It

is in bigger trouble than most anybody knows. We may see all of

the major players being in bankruptcy, some of them never coming

out. The question is do we do something or do we do nothing but

observe and talk about how interesting it is?

ADMINISTRATION’S REPRESENTATIVE

Mr. Shane, I voted for you and I said in the Commerce Committee when you appeared before us, I think you have great cre-
51

dentials. I am impressed with your background and was pleased to

vote for your nomination.

But frankly, I do not know why they sent you to this particular

hearing which, I was told, was a hearing to talk about the financial

challenges facing the aviation industry. My colleague, Senator Murray and certainly I, having been in the discussion yesterday in the

Appropriations Committee about the issue of what we should do,

what kind of financial package we might want to construct.

And you say well, I am not involved in all of that. And I really

cannot respond to it. I do not understand, maybe you were not the

one to come to testify on behalf of the Administration, but somebody should be here to tell us what the Administration thinks.

What are they prepared to accept? What are they prepared to reject? What do they think we ought to do?

So with that as a prelude, let me just ask the question, Mr.

Shane. And I do not mean this in a personal way to you. But you

were responding repeatedly to Senator Murray, ‘‘Look, I am not involved. I do not know.’’

Frankly, this hearing, it seems to me, needs to be represented by

someone in the Administration that says here is what we think we

ought to do at this point. And we might disagree with that and we

can have a discussion about it, but we need somebody to say what

the Administration’s plan is and what they will accept? Can you respond to that?

Mr. SHANE. I think you do need somebody who can respond to

those questions. Whether a hearing of this sort is the appropriate

forum for having that discussion, or whether there is some more

effective forum where you can have that discussion is an open

question in my mind.

I was invited to come here and testify and I showed up and the

original billing was that we were going to be talking about the FAA

budget.

Senator DORGAN. Then we have a different understanding because my heading on this says it was to be a hearing on aviation

safety and security and financial challenges facing the industry.

Mr. SHANE. That is correct, and we did learn that well in advance of the hearing. I am not faulting the committee for not telling us what the hearing was going to be about, far be it from me.

But we did not know, when we began planning for the hearing,

that there would be votes in both houses yesterday. We could not

respond that quickly for purposes of this hearing with that sort of

information.

GOVERNMENT INTERVENTION

If I could only add one more point, Senator, what you said about

the market not working when there was a terrorist attack on the

United States, I do not disagree with anything you said. Of course,

the market was not working then and we had a compensation program put in place and we created an Air Transportation Stabilization Board because of that. And we had a whole program of assistance to the airline industry at that time. And I agree with you that

a war obviously compromises the effectiveness of market forces.

No question about that. We are not arguing about whether there

should or should not be assistance. We are just arguing about how
52

much is consistent with the ideal of a restructuring of this industry

for the future. That is the only issue.

Senator DORGAN. But you know, what I observe is folks in the

Administration just watching all of this. I do not see that the Administration has developed an aggressive, robust plan.

And frankly, while Senator Murray is trying to apply a patch to

this—and I support that, and I think she did a remarkable job yesterday in the Appropriations Committee—I frankly think it is not

enough. I know what she is doing. She is trying to do the best she

can to get something put in this supplemental bill, and she did that

yesterday to add to what was in the bill.

But frankly, I think if we do not think in a bit longer term here

with respect to this industry about the consequences of having a

substantial portion of it just completely collapse, I think we do this

country a great disservice.

And the question is, is that sort of thing going on in the Administration? If so, where? Who is involved? And who can we call up

here to talk to about it?

Mr. SHANE. Yes, it is going on in the Administration. If you are

talking about the in extremis situation where we are looking at

what you might even consider to be a disorderly liquidation of a

number of airlines, yes, we are considering the ramifications of

that and attempting to plan for it.

Senator DORGAN. What is the worst case that you see? You talk

about the disorderly dissolution.

Mr. SHANE. Well, a worst case scenario is probably something we

should not discuss in an open hearing, to be quite honest with you.

We are talking about a variety of scenarios that I think none of us

wants to think about out loud. And I would be happy to come and

visit you in your office and talk about that at greater length.

But to suggest that the Administration is not focused on those

issues as a major priority would be a complete injustice. We do not

go into all of that in great detail in public fora like this, but plenty

is going on.

The main point, however, is that there is a process happening

within the industry that does appear to be producing some success.

And the USAirways success story is a prime example. And the Congress can take credit for that. You set up the Air Transportation

Stabilization Board (ATSB). They qualified for a $900 million loan

guarantee but only if they made certain cost savings in the structure of their company, which they then did.

So the ATSB created the incentive, and the Congress also created

the incentive for USAirways to do what it did. And USAirways now

has probably a very long lease on life. We can all be proud of that.

Those are the kinds of things that we support. There was never

any argument about whether we should do the ATSB program.

Senator DORGAN. Let me just say, in response to my colleague

Senator Bennett, who I have great regard for, I think there are

some examples of successes. In fact, there are a couple of carriers

that are, at the moment, profitable. But in most cases, those successes are point-to-point carriers that have picked certain explicit

markets and said those are the markets that we are going to serve,

and only those markets because those are the markets in which we

think we can make some profit.
53

Carriers that have a broader reach and serve some smaller areas

react kind of viscerally to this question of the market system. I

think the market system is really, really wonderful, I mean really

terrific. The market system, however, needs a referee from time to

time.

And so, with respect to aviation and commercial airline service

specifically, I am very concerned that we maintain a network of

providers and that we not sit back and say let us allow dissolution

to occur, despite the fact that we have had an intersection of the

most unusual events perhaps in a century, the convergence of severe economic stress, a war, fuel prices ratcheting way up, and a

terrorist attack using airplanes. We have not seen that since we

began flying with a network of air carriers.

That is what I think Senator Murray was talking about yesterday and it is my great concern. I do not think this industry is going

to come out of this whole or in any way in a manner that serves

all of our country, unless we develop a strategy. Some call it industrial policy. Well, maybe it is. But nonetheless, a strategy of some

sort that says this is a very serious, unique problem and we need

to address it.

That is why I believe Senator Murray’s amendment, and Senator

Stevens’ as well, is a start. But I think it is short of perhaps what

we are going to need to do in a very aggressive way in the future.

Let me just conclude by saying I had intended to ask questions

of Administrator Blakey, and thanks for your service down there,

and I will send some questions in writing, if you do not mind.

Ms. BLAKEY. I would be delighted.

Senator DORGAN. Mr. Mead, thanks for your continued work. You

have appeared before not only this committee, but the Commerce

Committee, and I think your work has been extraordinarily helpful

to us.

Mr. Shane, again, I did not mean it in a pejorative way. Thanks

for coming down. But I really think we need to know a lot about

what is being done and what is being considered in the Administration because there has to be a partnership in terms of how we address these issues.

Mr. SHANE. Senator, thank you for your vote.

Senator DORGAN. For confirmation?

Mr. SHANE. Yes.

Senator DORGAN. I would still vote that way.

ADMINISTRATION’S POSITION ON AIRLINE AID

Senator MURRAY. Mr. Chairman, can I just follow up on Senator

Dorgan, just to ask Mr. Shane, and it is frustrating because we

hear Secretary Mineta in the papers say that we are far apart. But

unless you talk to us and tell us what your plan is and what you

think is reasonable, it is hard for us to know where to go.

My question, just following up on Senator Dorgan, is you had

talked about the Administration negotiating. I just want to know

who they are negotiating with. The Senate Democrats added $700

million yesterday. No one is talking to us. Are they talking to

someone representing the unemployed workers? Are they talking to

the airports? Are they just talking to the airlines? Or are they just

talking to themselves?
54

Mr. SHANE. I thought they were talking to congressional leadership and I cannot be more specific than that. I thought it was being

done in White House Legislative Affairs and in the normal way in

which——

Senator MURRAY. So you know, if you could pass it back to them,

we are not hearing from anybody. And I do think they need to talk

to the airports and to the unemployed workers, as well.

Mr. SHANE. Thank you.

Senator SHELBY. Some of these questions I am getting to may

have been asked. I had to go to a press conference, and I apologize.

I hope we will never pursue ‘‘an industrial policy’’ but I understand how important the airlines are to our travel, to our way of

life, and to our commerce. We all do. It is a question of how we

make it work for all of us.

Industrial policy troubles a lot of people, including this senator.

Madame Administrator, if you could focus——

Senator DORGAN. Mr. Chairman, let me amend that. I did say industrial policy. Let me just say cogent policy.

Senator SHELBY. A well thought out policy.

Senator DORGAN. Yes, well thought out policy.

Senator SHELBY. I am sure we will work on that.

MOST IMPORTANT AIR TRAFFIC CONTROL PROJECTS

Madame Administrator, if you could focus on only three air traffic control modernization projects, which three projects in your

judgment are the most important to the future of the aviation system and why?

Ms. BLAKEY. That is a good question. I think the first thing I

would call your attention to, in terms—and we are talking technology here, rather than procedures; is that correct?

In terms of technology, I would have to tell you that the most

urgent thing is modernizing the Host computer system, if we will,

that really is the heart and brains of the air traffic control system.

This is the En Route System and there is a new procurement, a

research and acquisition program on, called En Route Automation

Modernization (ERAM), which we are at the beginning of. It is a

very expensive one. I certainly would let the committee know that

we understand that we are talking about something that is a major

taxpayer’s investment.

Senator SHELBY. Huge.

Ms. BLAKEY. Yes, huge. The word huge is quite right.

But what we have to realize is we have a 30-year-old system

now—30 years. The language that that system is written in, the

software for it, is called Jovial. Now how many among us know

anyone who even knows what Jovial is, much less can write it? I

am told there are six people in the country at the moment.

So it is not hackable. That is the good news. But it is on life support. It is still safe, but we are at the very end of the life of this

system. And we can, if we stay on track with this new research and

procurement program. That is number one.

The STARS program. I know again, this committee and others

have had to sweat bullets over STARS because again it is a very

expensive program. It had a lot of inflation in its cost, and was

rebaselined.
55

I had the best meeting I have had since I got to the FAA just

the other day on STARS, because I will tell you what we are finding out. We have deployed the system in Philadelphia and not only

is it working, it is working very well for air traffic controllers, the

airlines, and our maintenance workforce. It is going beautifully.

And we believe that what we are seeing is that rather than the

heavy costs that we had expected, in terms of deploying system

after system, a lot of those costs, I think, were absorbed in the

early stages of development. As we roll it out it will not require as

much customization. It will not require as many development dollars, if you will.

Senator SHELBY. Are you telling us it is going to be under budget?

Ms. BLAKEY. No, I am not.

Senator SHELBY. As appropriators, we have been waiting to hear

some very good news.

Ms. BLAKEY. Well, listen, I will tell you, I am looking for some

really good news in the area you are focusing on. Needless to say,

it is one of the areas that keeps me awake at night. But the fact

of the matter is, I think we are going to have, and I would be delighted to get together with the committee on this, some good news

on that ongoing rollout on STARS as we go forward. So those two

I would call your attention to.

I would also call your attention to the fixed-price contract that

we have for the Oceanic Aerospace. Again, that contract is going

forward and it is staying within the fixed cost that we have anticipated. And that is something that is supported.

And may I finally give you one other piece, because we all like

good news. Our WAAS, this is the Wide Area Augmentation System, is providing a lot of support in terms of guidance for smaller

airports in particular. It is important to our general aviation community for vertical guidance.

That is going to come in early. We are going to turn it on this

summer. And we are discovering again, we got some efficiencies

through computer modeling. Rather than having to fly every approach for 530-some-odd airports we are going to roll it out for, we

are able to do that on a sampling basis and model the rest of them

and save some real money and get it online quicker. So that is

going well. It costs a lot initially, but I think you are going to see

that it is going to be a great asset in the system.

AIP AND SECURITY RELATED FUNDING

Senator SHELBY. Thank you. More than $560 million in AIP

funding was used for security related expenses in 2002, which was

up from only $57 million the previous year. Recently TSA Undersecretary James Loy testified that TSA would like to have ‘‘one

more bite at the apple’’ this year to use AIP for high priority security purposes.

Is the FAA contemplating spending fiscal year 2003 AIP funds

for installation of explosive detection equipment at airports? And if

so, how much does the Administration propose using?

Ms. BLAKEY. There are massive costs for a lot of our airports involved with installing these van-sized pieces of equipment.

Senator SHELBY. They are not cheap, are they?
56

Ms. BLAKEY. They are not cheap at all, I will tell you. In fact, for some of our airports it is over $200 million. So the short answer

is yes, because I think we have to. What I would caution the committee about is this, we have said that certainly we can sustain another bite at the apple of about the same size bite as last year.

Senator SHELBY. Not the whole apple, though.

Ms. BLAKEY. Not the whole apple, and over the long run we will

eat it to the core in terms of maintenance, safety, enhancing capacity. So for out years, I think you have to pay attention to that.

Senator SHELBY. What effect would the use of AIP at 2002 levels,

or even higher levels, have on other important safety, service improvement, or noise related projects in 2003?

Ms. BLAKEY. AIP is a critical program in terms of both the kinds

of issues you just highlighted and certainly in terms of noise. I am

happy to say that the way the AIP funds work right now, we are

able to substantially mitigate the effect on our citizens, 14,000 of

them every year through AIP on the noise front.

We are also going to use some of those funds for emissions,

issues of air quality. I have to tell you, I am very pleased that the

reauthorization that we are putting before you all is very aggressive on the environmental front, both in terms of using those funds

well and wisely for that, and also in terms of streamlining so we

do not drag these projects out the way we have.

In terms of capacity, I mentioned earlier some of the airports we

are bringing online. One thing I would tell you is this, while these

great big runway projects, Chicago, Denver, pick one of them, but

we are talking, in some cases, over a billion dollars for these runways, are supported significantly through passenger facility

charges.

For the smaller airports AIP money makes all the difference.

And so we would like to see a greater percentage of AIP money

going to smaller airports because they really cannot raise the

money in other ways the way the big airports can.

So I would say on the capacity and safety front, that is important

and I would urge your attention on that.

Senator SHELBY. Mr. Shane, what would be the long-term impact

on using AIP funding at these levels for security purposes.

Mr. SHANE. As the Administrator hinted, I think we really begin

to take a great big bite out of our ability to grow capacity. And we

have to grow capacity, even in this environment. If we stop growing

capacity, as the Administrator said in her earlier remarks, we will

be losing an enormous opportunity. We will have the summer of

2000 again. We will have it in the summer of 2004 or 2005. And

we will not have a very good excuse for it. It is just terribly important to maintain AIP for capacity growth purposes.

CONTROLLER-IN-CHARGE PROGRAM AND OPERATIONAL ERRORS

Senator SHELBY. Mr. Mead, has expanded controller-in-charge

programs had any impact on operational errors?

Mr. MEAD. We cannot say for sure that it has. We can say that

there is a statistical correlation. What you need to watch in this

controller-in-charge program is in order to move out some supervisors, FAA would designate the elite controllers, the best performing ones as in charge.
57

What has evolved at some facilities, in some large facilities, is

the FAA has designated about 100 percent of the controllers as in

charge, controllers-in-charge. I do not think they need that many

supervisors.

In some of these facilities we have seen a statistical correlation

between the program and operational errors but I would stop short

of saying it was cause and effect relationship.

AIP SPENDING

May I respond to your question on the AIP? I would put the

brakes on spending AIP money until you had a firm idea of how

much the Administration thought it needed to overhaul, to install

these SUV-sized machines and where. And that you get from FAA

a list with some granularity of what your near-term, big safety capacity projects are.

Senator SHELBY. Senator Murray.

Senator MURRAY. Thank you, Mr. Chairman.

STARS AND OTHER PROGRAMS’ COST GROWTH

Mr. Mead, you heard Ms. Blakey a few minutes ago talk about

the STARS program, a fairly rosy scenario, which was interesting.

I have heard you be very critical in the past. And I wondered if you

could let us know are you feeling better about where it is moving,

or do you still have concerns?

Mr. MEAD. I am certainly feeling better about Philadelphia. Actually before Administrator Blakey and I have talked at length about

STARS. I think every one of our concerns, about how it was going

to work, the technical problems and so forth, Administrator Blakey

set forth to address them. And they were addressed in Philadelphia. And Philadelphia went online.

That being said, I am very concerned about the cost of this program. It has gone from $800 million to $900 million. Now we are

telling people it is about $1.6 billion. I would be surprised if you

can deliver the bacon on that.

I am concerned about when you take the four or five big acquisitions at FAA, which include the WAAS and STARS, when you add

up all that cost growth, I can hand you the equivalent of one full

year’s appropriation. That has a cascading effect on other meritorious projects that you cannot undertake. It is going to affect our

ability to achieve the vision that both Administrator Blakey and

Jeff Shane were speaking about.

Ms. BLAKEY. Let me also just mention one thing, if I might, on

the cost growth issue. I think one of the things we have to do, and

I am addressing this at the FAA largely, but I think the industry

and everyone has to accept this approach. And that is that we cannot keep adding to the requirements. We cannot keep shifting what

these systems are intended to do without accepting the fact that it

then costs a lot more money.

One of the things we are trying to do is develop real discipline,

as well as bring them to the forefront more quickly, so that this

issue of accretion of new and different changing requirements does

not just completely knock a hole in the budget.
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REPAIR STATIONS

Senator MURRAY. Thank you. I know the chairman wants to conclude here and I have a question I wanted to come back to because

I heard Mr. Mead talking about repair stations and oversight of repair stations and that air carriers are outsourcing as much as, I

think it is 47 percent of their total maintenance costs.

Ms. Blakey, if you could just tell us whether you think your safety personnel are providing the same level of scrutiny to contract repair stations as they are providing to air carrier’s in-house maintenance facilities?

Ms. BLAKEY. We are very aware of this phenomena of the increase in contractor repair stations both here and abroad. It is certainly a subject for our focus. We have a very rigorous regime of

inspections, as well as requirements for the air carriers themselves

to maintain a very diligent oversight. And when it is abroad, for

our corresponding civil aviation authorities to do the same thing.

Senator MURRAY. I think I heard Mr. Mead say that the foreign

repair stations, some of them are not inspected at all; is that correct?

Mr. MEAD. Yes, that is correct. It is delegated to the foreign

equivalent of the FAA, in some cases.

Senator MURRAY. Especially when we are in an era of worrying

about terrorist attacks and those kinds of things, are you going to

be increasing the number of inspections for our foreign repair stations? Or how are you going to deal with that?

Ms. BLAKEY. We have a strong regime right now of inspections

on foreign, and they are required also to have a renewal of their

certificate every 12 months to 24 months.

Senator MURRAY. Does that require an on-site inspection for foreign stations?

Ms. BLAKEY. Yes, from the FAA standpoint, we do require that.

Senator MURRAY. So every 12 months, you are inspecting foreign

stations?

Ms. BLAKEY. Every 12 to 24 months. It is in that range. It depends on the level of service and what the specifics are with that

repair station.

Let me assure you of this, though. I realize this is an area of

great concern. This is something again, there is a phenomena of increasing usage of this. And this is certainly something that at the

FAA we are going to pay increased attention to in a number of

ways. So I would be very pleased also to get back with you on some

specifics.

Senator MURRAY. I would really like you to do this, especially in

this era. I think we really need to pay attention to that. And if we

are contracting more out, I think we need to really be watching. I

would like to hear more from you.

[The information follows:]

FAA’S OVERSIGHT OF FOREIGN REPAIR STATIONS

FAA assigns a principal maintenance inspector and, depending on the size of the

facility, additional staff to provide regular oversight and inspection of repair stations

located in the United States or abroad. The standards that repair stations have to

meet remain the same regardless of whether the repair station is a domestic facility

located within the United States or a foreign repair station located outside the

United States.
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The National Flight Standards Work Program requires a facility inspection at

least once a year on all repair stations. Additional inspections may be required for

various reasons, including changes in the internal workforce composition, NTSB recommendations, or aircraft accidents.

In addition, if a repair station performs maintenance for an airline it must follow

the airline’s approved maintenance program. An FAA principal maintenance inspector assigned to the airline inspects the repair station to determine that the proper

maintenance procedures are followed.

When an applicant applies for FAA certification as a foreign repair station, the

FAA must first determine if a U.S. repair station certificate is necessary to maintain

or alter U.S.-registered/operated aircraft and/or aeronautical products at the applicant’s proposed location. If the certificate is found to be necessary, and is granted,

the foreign repair station is required to apply for certificate renewal every 12–24

months, as appropriate. If a foreign repair station no longer maintains U.S. aircraft

or components, the certificate may not be renewed or the FAA limits the repair station’s capabilities to only those articles used on U.S. aircraft. FAA is not obligated

to renew a foreign repair station certificate.

The regulations do not require FAA to justify or provide cause for not renewing

foreign certificates. Foreign repair stations are well aware of this, which is reflected

in their certificate revocation rates. There were 11 violations filed against foreign

repair stations in 2002 and no violations so far this year. For the last 8 years, the

average number of violations for foreign repair stations (out of the total of enforcement filed for all repair stations) came out to be just 4.7 percent.

Finally, the airline is responsible to conduct audits of any repair stations it uses.

FAA inspectors review the results of the airline’s audits to evaluate the performance

of the repair station.

For repair stations located in France, Germany and Ireland, the FAA has negotiated bilateral agreements that allow the civil aviation authorities in those countries to provide oversight of 173 foreign repair stations on our behalf. FAA provides

similar oversight to 1,159 of the 4,571 domestic repair stations located in the United

States that have been approved by the Joint Airworthiness Authorities of Europe.

Mr. MEAD. One of the interesting dimensions of this is that when

an air carrier does most of its maintenance in-house, FAA has a

team that is essentially dedicated to that airline. They know that

airline’s maintenance system and so forth. Once the maintenance

is done out-house, though, the jurisdiction, the responsibility for

the oversight is of a different unit.

In other words, the people that are dedicated to United Airlines

inspections by FAA, would not necessarily be the people that check

on how good the maintenance is at the repair station where UAL

planes are being maintained.

So I think FAA needs to develop a greater connectivity between

the two.

ADDITIONAL SUBCOMMITTEE QUESTIONS

Senator MURRAY. I appreciate that.

Mr. Chairman, I do have some other questions I will submit for

the record, since we are out of time.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED TO MARION C. BLAKEY

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

ENVIRONMENTAL REVIEW PROCESS FOR CAPACITY PROJECTS

Question. The FAA has made a concerted effort in recent years to streamline the

review and approval process for key capacity-related projects. What is the status of

those efforts? How have they affected the time it takes to review key projects? Do

you anticipate further administrative improvements in this area? Do you support efforts in Congress to make further improvements to the process?
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Answer. FAA issued a Report to Congress in May 2001 reporting on Federal environmental requirements related to the planning and approval of airport improvement projects together with recommendations for streamlining the environmental

review process associated with those types of projects. Six initiatives for streamlining were identified and implemented, as outlined below.

—FAA established Environmental Impact Statement (EIS) Teams for preparing

EISs for major runway projects at large hub primary airports. Since the Report

to Congress in 2001, FAA Teams have been working on the EISs for nine major

runway projects (Atlanta, Boston, Chicago-O’Hare, Chicago South Suburban

Airport (SSA), Cincinnati, Greensboro, Los Angeles, Philadelphia, and San

Francisco). EISs have been completed for five of the projects (Atlanta, Boston,

Greensboro, SSA-Tier I, and Cincinnati) with the other four in various stages

of EIS preparation.

—FAA has reallocated staff to provide for five more environmental specialist positions in the Office of Airports. With the passage of the fiscal year 2003 Department of Transportation and Related Agencies Appropriations Act, funding has

been provided for hiring 18 more airports environmental specialists and 13 environmental attorneys. These additional personnel will specifically conduct and

expedite the environmental analysis and review of airport and aviation development, so as to maximize the capacity benefits to the National Aviation System.

FAA is implementing plans to hire qualified personnel to fill these positions at

various locations around the country.

—FAA continues to maximize the use of consultant resources to perform more EIS

tasks that can be outsourced by the FAA.

—FAA is working with the Council on Environmental Quality (CEQ) to expand

the FAA list of categorical exclusions that will be published in revisions to FAA

environmental orders. Initiatives are being explored to provide for shortened

and streamlined EISs, as well as environmental assessments, that will also involve CEQ and the Environmental Protection Agency (EPA).

—FAA continues to engage other Federal agencies at the beginning and during

preparation of EISs, about their environmental reviews and permit requirements in order to avoid unnecessary delays. Also, the FAA, and the National

Association of State Aviation Officials, has undertaken a joint review of Federal

and State environmental processes and coordination. As a result of this partnership, opportunities have been identified for improving ways in which Federal

and individual State requirements can be more effectively and efficiently combined and coordinated.

—FAA has developed, published (on FAA’s web site) and updates (at least twice

a year) a compendium of best practices for EIS preparation and management.

The compendium of best practices addresses practices that are the responsibility of the airport proprietor, the EIS consultant, as well as those of the FAA.

The 2001 Report to Congress noted that the average time for completion of an EIS

(from start of the EIS until EIS approval) was 3 years. The average time to issue

an agency Record of Decision (ROD) was 3 months. Looking at data available for

four of the five runway EISs completed since issuance of the 2001 Report to Congress, and implementation of FAA streamlining initiatives, the Atlanta EIS took 7

months less than the 3-year average; the SSA EIS, 12 months less than the average;

and the Cincinnati EIS, just 2 months more than the average. RODs for Atlanta,

SSA, and Cincinnati were prepared and issued in 11⁄2, 2, and 3 months respectively.

The Boston project was unique and controversial and, therefore, the EIS process

was lengthy (almost 7 years). Adding to the process was an 18-month delay between

1996 and 1998 because of a change in Massport leadership and priorities, and extraordinary steps taken to engage community groups and the public in the process.

The Boston EIS was not a typical new runway EIS project. In the ongoing EIS

projects, FAA streamlining initiatives are being utilized to ensure that environmental process times are minimized to the maximum extent possible, and hiring

more environmental staff will greatly aid the effort.

FAA hopes that further agency, as well as congressional actions, will lead to administrative improvements in streamlining the environmental process for major

runway projects around the country.

Further action taken by the FAA includes our implementation of the environmental streamlining provisions of Presidential Executive Order (E.O.) 13274, Environmental Stewardship and Transportation Infrastructure Project Review. Two airport EIS projects (Philadelphia and Los Angeles) have recently been designated as

priority projects for oversight under the E.O.

The Administration’s Flight-100 bill proposes a number of streamlining provisions

including:
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—Designating aviation congestion projects and aviation safety projects for high

priority coordinated, concurrent reviews;

—Concurrent reviews will be through newly-established Interagency Environmental Impact Statement (EIS) teams;

—Interagency EIS teams are directed to establish milestones, and responsible

Federal agencies are directed to give these projects the highest priority within

their own agencies;

—Interagency EIS teams will defer to the Secretary on project purpose and need,

and on determining reasonable alternatives, aviation factors, and aviation noise

and emission analyses;

—Noise mitigation for capacity enhancement airport expansion may be funded

from the noise set-aside without an additional Part 150 process requirement,

and FAA may commit in the EIS Record of Decision to changes in flight procedures to minimize noise impacts due to the capacity enhancement project;

—Airport sponsors are permitted to fund additional FAA staff to facilitate timely

processing of the environmental actions for the airport’s capacity enhancement

project.

OCEANIC AIR TRAFFIC

Question. The FAA has a long history of problems in attempting to provide new

air traffic control equipment to manage oceanic air traffic. Since 1995, FAA has

spent more than $290 million but has yet to deliver a new oceanic system.

Answer. Since 1995, the FAA has delivered incremental oceanic air traffic improvements and capabilities, required to keep pace with international standards:

—Two way controller/high frequency radio operator ‘‘email’’ automatically updating the controllers’ flight data processor, followed by high frequency radio operator voice relay to pilot via conventional radio transmission, 1995.

—Two way controller/pilot direct ‘‘email’’ via satellite data link operational prototype, 1995.

—Interim Situation Display which automatically updates and displays tracking

aircraft positions, 1997.

—Reduced Vertical Separation Minima allowing more planes to fly preferred

routes with increased numbers of flights, 1997.

—Conflict probe which provides an automatic or controller initiated conflict prediction tool, 1997.

—Automated ‘‘email’’ transfer of flight data between international flight information regions, 1997.

—Two way controller/pilot direct ‘‘email’’ via satellite data link in all Oceanic sectors, 1999.

—Host & Oceanic Computer System Replacement, replaced aging hardware with

Year 2000 compliant computers supporting Oceanic air traffic control communications, 1999.

—MicroEARTS, as the platform for the Capstone program, provides surveillance

data directly to airlines, allowing them to track aircraft in flight, 2002.

FAA led the way in implementing reduced vertical separation standards in the

Pacific and followed suit with our partners in the Atlantic. Further separation reductions require a fully integrated, modernized system and its accompanying procedures.

In March 2000 the FAA initiated the Advanced Technologies and Oceanic Procedures (ATOP) program to take advantage of technology developed for the international marketplace. After conducting a robust, global competition, the FAA awarded the ATOP contract to Lockheed Martin in June 2001. Program costs are within

the Acquisition Program Baseline budget, approved in May 2001 by FAA’s Joint Resources Council.

Question. The schedule of the current effort, the Advanced Technologies and Oceanic Procedures (ATOP) is significantly behind schedule.

Answer. The FAA’s Acquisition Program Baseline schedule for the ATOP program

calls for initial operational capability at Oakland in June 2004. The program is operating within its baseline schedule.

Question. What problems are the FAA experiencing with this acquisition program

and what corrective measures are you taking?

Answer. Lockheed Martin Air Traffic Management (ATM) underestimated the

amount of source lines of code and the amount of modification needed to its existing

commercial system. In March 2003, an independent assessment team concluded that

the job is larger than expected, and will take longer to complete. The fixed price

contract ensures that the cost of developmental delay is borne by the vendor.
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Installation of ATOP hardware is on schedule at the New York, Oakland and Anchorage centers. The FAA continues to prepare for system test, operational training,

and site acceptance test activities.

Question. When can we expect a new system for oceanic air traffic?

Answer. Initial operational capability at Oakland Air Route Traffic Control Center

(ARTCC) is expected by June 2004.

OPERATIONAL ERRORS AND RUNWAY INCURSIONS

Question. What progress has FAA made in reducing the number of operational errors and runway incursions?

Answer. FAA has achieved an 11 percent reduction in operational errors, following 4 years of steady increases. Operational errors declined from 1,194 in fiscal

year 2001 to 1,061 in fiscal year 2002.

FAA continues to address operational errors within the National Airspace System.

Several initiatives have been developed and implemented in an effort to increase

management focus on operational errors in areas such as communications, position

relief briefings and operational focus. The FAA deployed an enhanced terminal

radar replay tool, updated quality assurance training provided by the FAA Academy, produced and distributed a training video on communication errors, and conducted more than 30 special evaluations focusing on operational errors. A 3-year

operational error reduction plan has been implemented and represents a collaborative approach to the reduction of operational errors.

Runway incursions have declined from 407 in fiscal year 2001 to 338 in fiscal year

2002, due in part to FAA’s aggressive actions to reduce these incidents. FAA established a system to categorize runway incursions by severity risk and has reduced

the number of close calls (those runway incursions in the two highest categories)

from 53 in fiscal year 2001 to 37 in fiscal year 2002 and 18 to date in fiscal year

2003 (through April).

FAA plans to continue its aggressive actions in reducing runway incursions by

continued training of pilots in situational awareness while on the airport surface,

and the use of existing and new technologies to warn pilots and controllers of potential incidents.

WAKE TURBULENCE RESEARCH

Question. In the last 2 fiscal years, FAA has requested $1 million for the wake

turbulence research program. Congress recognized that the wake turbulence standards must be reassessed in a data-driven research program to address important capacity and safety issues, and enacted $4 million in fiscal year 2002 and $8 million

in fiscal year 2003, to accelerate this important research. By proposing to zero-fund

this program in fiscal year 2004, FAA has ignored the need for this research and

has disregarded Congress’ obvious intent to have an adequately funded wake research program. Why has FAA failed to provide funding for this important research

program? What are the specific plans for the FAA to rectify this problem and accordingly revise its fiscal year 2004 request?

Answer. The FAA will complete the Joint FAA/NASA Wake Turbulence Research

Management Plan and the Investment Package for the near and mid-term wake research activities within the next few months. FAA has no plans to revise its fiscal

year 2004 request, but will reexamine the program in future years.

COST ACCOUNTING SYSTEM

Question. What is the current status of the cost accounting and labor distribution

systems and when can we expect the full implementation of these systems?

Answer. Cost accounting has been implemented in 80 percent of the agency to

date. Managers are beginning to use the Cost Accounting System (CAS) data. For

example, the Air Traffic Services organization has used CAS data to target and

track initiatives to reduce field maintenance by 3.5 percent, reduce overhead costs

by 4 percent, and hold costs in Oceanic and Flight Services constant.

Implementation of the cost accounting/labor distribution reporting system will be

completed in fiscal year 2004. CAS is now in place in Air Traffic Services, Commercial Space Transportation, Financial Services/CFO, Human Resource Management,

Free Flight, and the Academy and Logistics Center at the Mike Monroney Aeronautical Center. In fiscal year 2004, CAS will be implemented in Research and Acquisitions, Airports, and Regulation and Certification.
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AEROSPACE COMMISSION

Question. The Commission on the Future of the United States Aerospace Industry

issued a report making a number of recommendations to ensure the competitiveness

of the American industry. One of the Commission’s recommendations called for the

Federal Government to establish a national aerospace policy and promote aerospace

by creating a government-wide management structure. How is the FAA responding?

Answer. FAA formed a Joint Planning Office (JPO) comprised of Federal Aviation

Administration (FAA), Department of Defense, Transportation Security Administration, Department of Commerce and National Aeronautics and Space Administration,

to focus on development of the next generation air traffic management system. FAA

leads the team. The Agency is also establishing a high-level policy committee to

guide this effort. It will be chaired by the Secretary of Transportation, and will be

established this summer. The next steps are to establish advisory committees for

this activity, to coordinate a framework for the initiative through the five participating agencies and departments, and begin drafting the national plan.

QUESTIONS SUBMITTED BY SENATOR PATTY MURRAY

CHIEF OPERATING OFFICER

Question. Will the FAA ever have a Chief Operating Officer?

Administrator Blakey, at previous FAA hearings in this subcommittee, it has been

noted that the FAA has yet to appoint a Chief Operating Officer for the agency. This

position, as you well know, was created in AIR–21 and is considered critical to moving air traffic control into a more performance-based operation. The COO position

has never been filled. Your reauthorization proposal modifies the responsibilities of

the Chief Operating Officer to clarify that the position will focus on the day-to-day

operational functions of the air traffic control organization.

Why do you think these changes will improve your chances of recruiting a Chief

Operating Officer?

Answer. While the changes proposed are modest, the FAA and the executive

search firm believe that clarifying the role of Chief Operating Officer (COO) is key

to the successful recruitment for the position.

Question. What can you tell us about your efforts to recruit a COO so far, specifically how many serious candidates have you considered?

Answer. With the help of Korn-Ferry International, there was a search conducted

earlier this year. The Administrator and Deputy Administrator have interviewed

several of the top candidates. Discussions are ongoing.

CONTROLLER RETIREMENTS

Question. Ms. Blakey, over 50 percent of the controller workforce will be eligible

to retire by the year 2010 and the General Accounting Office has estimated that

roughly 5,000 controllers plan to leave the FAA by the end of fiscal year 2006. Your

budget requests funding for only 302 additional air traffic controllers. Based on this

request, I’m concerned that the agency isn’t adequately preparing for the surge in

controller retirements.

Given that it takes as much as 5 years to train a new employee to become a fully

certified controller and assuming that the GAO’s estimates are correct, shouldn’t we

be concerned that safety or the air traffic control system’s operational capabilities

might be compromised?

Answer. Staffing standards have been revised based on recent traffic forecasts.

These standards are an important element, along with projected retirement losses,

to predicting future controller requirements and hiring needs.

With the drop in staffing requirements due to reductions in air traffic, the 302

additional positions in the fiscal year 2004 budget, and the FAA’s hiring plans for

future years, the agency is positioned to meet all of its staffing needs.

The agency is sensitive to the additional hiring needs that are needed to address

the surge in retirements. The FAA’s annual retirement projections have been very

accurate, and the FAA has been meeting its annual hiring goals. Over the last 6

years, the agency has hired more than 3,000 new controllers.

AVIATION TRUST FUND REDUCTIONS

Question. Ms. Blakey, the Inspector General’s testimony states that over the next

4 years, Aviation Trust Fund tax revenues are expected to be about $10 billion less

than projections made in April, 2001. He also stated that the options for compensating for these declines—whether it is increasing excise taxes, limiting investment
64

in the aviation system, or relying more heavily on General Funds—are not attractive.

Ms. Blakey, in order of preference, how do you think we should bridge the gap

between declining trust fund revenues and the FAA’s budgetary needs? Should we

raise excise taxes, defer investments in air traffic control modernization or contribute more General Funds?

Answer. Just as a healthy industry is important to FAA’s mission, FAA is important to a healthy industry. By virtue of its mission to regulate and promote the U.S.

aviation industry, the FAA plays a vital role in sustaining the health of this critical

section of the U.S. economy. The recent economic hardships experienced by the industry have caused the FAA to refocus on how its programs affect the industry, and

particular, on what actions it might take to help improve the serious conditions facing the industry.

The FAA must continually endeavor to make its own operations more efficient

and responsive to the needs of industry and the public, particularly in a time of

tighter Federal budgets. Areas where the FAA is investigating possible improvements are procurement activities, staffing requirements, organizational structure,

and enhancements to our financial systems—DELPHI, Cost Accounting (CAS), and

Labor Distribution Reporting (LDR). Potential benefits include the ability to respond

more efficiently, quickly, and cost effectively to the needs of industry and the public.

The Airport and Airway Trust Fund is the principal source of funding for FAA

programs, accounting for all capital program funding. In fiscal year 2004 approximately 79 percent of operations funding will be derived from the Trust Fund. FAA

remains committed to using the Aviation Trust Fund only to fund the Department’s

aviation programs, but in a change from AIR–21, the Agency is proposing to increase the use of balances that have built up in the Trust Fund. In fiscal year 2004,

FAA would use $12.4 billion of trust fund dollars and $1.6 billion from the General

Fund.

CARRIER SAFETY OVERSIGHT

Question. What specific measures has your safety inspection workforce taken to

ensure that the air carriers aren’t shortchanging critical maintenance needs? For example, how does the frequency and intensity of your on-site inspections of financially-distressed carriers differ from those conducted on financially stable carriers?

Answer. In addition to monitoring an air carrier’s regulatory compliance, FAA inspectors are constantly monitoring their carriers’ financial and labor relations circumstances so they have a complete picture of the airline’s status. When inspectors

see indicators of financial trouble, the inspectors increase their interaction with the

airline’s management and adjust their surveillance plan to increase their focus on

areas that might be at risk due to financial cutbacks.

Each carrier’s experience is different and requires that the surveillance plan be

tailored to the circumstances. As a carrier reduces its schedule, its fleet, and its employee ranks, the impacts of these reductions must be constantly evaluated and surveillance plans amended. Areas of adjusted surveillance would include: training to

ensure employees who are reassigned are properly prepared for their assignments;

maintenance to ensure that discrepancies reported by pilots are properly addressed;

and other areas affected by the carrier’s plans.

The carrier’s quality assurance and quality control process are monitored to ensure they are being followed and that findings are being addressed. Data and

trends—such as dispatch reliability, on time performance, and minimum equipment

list deferrals—are monitored and surveillance is retargeted if the data indicates a

negative trend.

OVERSIGHT OF FOREIGN AND DOMESTIC REPAIR STATIONS

Question. Please provide us specific detail as to how the FAA intends to increase

its oversight of foreign and domestic repair stations in terms of frequency of inspections and safety audit requirements?

Answer. Currently, the FAA is looking at a new model for Certificate Management Oversight of Part 145 repair stations. The model is designed to mirror that

of a major air carrier Certificate Management Unit, and has already been put in

place to provide oversight for a major repair station in the Seattle area. The FAA

has increased the inspectors assigned to oversee this station from 1 to 5.

Under this model, the Certificate Management Unit is able to identify possible deficiencies in the repair station’s organizational structure, quality control procedures

and repair stations’ manual. This enables the repair station to make needed changes

to the organization and procedures to mitigate and/or eliminate known risks.
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STATUS OF THE ASR–11 RADAR AND STARS

Question. Have all the software problems now been resolved with this radar and

has your testing of the radar uncovered any additional performance concerns that

would delay its implementation or increase its costs further?

Answer. Yes, all software problems associated with the ASR–11 radar have been

resolved. Results of testing have proven the system suitable for operational use, as

is the case for the Willow Grove ASR–11, which currently feeds the Philadelphia

STARS.

FAA does not foresee any performance issues that would delay implementation of

ASR–11, although some sites may present a challenge to obtain optimum performance. In these unique situations, as with any radar, additional measures (e.g. extra

adjustments/enhancements) may need to be considered.

ASR–11 is a joint FAA and Department of Defense (DOD) procurement program

intended to replace aging Airport Surveillance Radar Models 7 and 8, which are

nearing the end of their service life and becoming more difficult to maintain. The

ASR–11 system is an integrated system that includes a primary radar system and

associated beacon system. The ASR–11 will provide digital radar input to new automation systems such as Standard Terminal Automation Replacement System

(STARS).

Question. Since the full deployment of STARS is dependent upon the ASR–11 to

provide the digital radar feed, how confident are you that STARS will stay on schedule?

Answer. FAA has developed a deployment plan and budget for STARS which is

currently being validated by an independent third party. The waterfall schedule has

been coordinated with the ASR–11 team to ensure synchronization as much as possible. FAA will continue to coordinate both program schedules throughout the deployment of both STARS and ASR–11. In the event of a delay to the ASR–11 schedule, several radar digitizers have been purchased which can be used in place of the

ASR–11 until the two programs line up.

STARS is a joint FAA and Department of Defense (DOD) procurement program

intended to replace the aging Automated Radar Terminal System (ARTS) at FAA

TRACONs and DOD terminal facilities. STARS will work in conjunction with digital

radar systems to allow air traffic controllers to track aircraft within the terminal

area. The new equipment and software will be based on a digital platform and provide higher-resolution screens with color capabilities and higher system reliability.

STARS can also be expanded to meet increased traffic demands and accommodate

new automation functions.

REVISION OF THE OPERATIONAL EVOLUTION PLAN

Question. Ms. Blakey, the Operational Evolution Plan (OEP) was unveiled just 3

months prior to the tragic events of September 11. The OEP was expected to be the

FAA’s blueprint for how to increase the capacity and safety of our Nation’s air traffic control system by 2010. Your recently released Aviation Forecast predicts an

even slower recovery than what was estimated last year. Given the anticipated

slower recovery, how has the OEP changed—what specific programs have been

modified, deferred or expedited?

Answer. There is no doubt that the timelines for the Operational Evolution Plan

have been impacted by the events of September 11 and by the subsequent downturn

in the airline industry. Airlines have had to deal with their own financial issues as

well as additional costs for security. As a result, they have not been able to maintain the level of investment they had hoped for in OEP improvements.

The most recent update to the OEP (Version 5, published in December 2002), reflected adjustments made over the past 18 months in response to these forces. Runways at Atlanta and Seattle were delayed and Charlotte’s runway has been deferred

as a result of decisions reached by the local community. We also scaled back activities in Miami with the Controller Pilot Data Link because of the airlines’ limitations

to voluntarily equip as originally planned. With Version 5, the OEP added a new

runway at Cleveland and Boston, four Traffic Management Advisor (TMA) sites

were added, along with several other capacity enhancing technologies, to include required navigation performance, collaborative decision-making, and more efficient approaches to airspace management. Further discussions with industry will occur this

summer, leading to the next update of the OEP.

AIR TRAFFIC CONTROL AS A COMMERCIAL ACTIVITY

Question. Ms. Blakey, in February, the Department of Transportation published

their Federal Activities Inventory Reform or FAIR Act list which changed the status
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of air traffic control from a governmental activity to a commercial activity. As you

well know, the National Air Traffic Controllers Association has expressed concern

that this takes air traffic control one step closer to privatization.

Why was the classification of air traffic control changed?

Answer. On December 18, 2002, the Secretary of Transportation determined that

air traffic control is commercial and not inherently governmental. There are two

reasons: (1) Functions that are inherently governmental involve a sovereign act on

behalf of the Government or bind the Government to a particular course of action.

The separation and control of air traffic does not meet this rigorous definition and

takes into account the FAA’s existing contract tower program. (2) There are 219 contract towers that are safely and efficiently providing air traffic control services by

private contractors. However, this was not a step toward privatizing the air traffic

control system. This is not under consideration.

Question. Ms. Blakey, in February, the Department of Transportation published

their Federal Activities Inventory Reform or FAIR Act list which changed the status

of air traffic control from a governmental activity to a commercial activity. As you

well know, the National Air Traffic Controllers Association has expressed concern

that this takes air traffic control one step closer to privatization.

How can you assure the committee that air traffic control will continue to be a

core mission of the FAA and that it will not be subject to privatization?

Answer. On December 18, 2002, the Secretary of Transportation signed a formal

determination that functions involved in the separation and control of air traffic are

a core capability required for the successful accomplishment of the FAA mission to

ensure the safety and security of the National Airspace System. Based on the Secretary’s determination, these functions are not subject to competition and will not

be contracted out. I fully support the Secretary’s position.

ENVIRONMENTAL REVIEW PROCESS FOR AIRPORT PROJECTS

Question. Ms. Blakey, last October, Secretary Mineta announced a list of seven

transportation construction projects that were selected to receive accelerated environmental reviews. The Philadelphia International Airport runway construction

project was the only airport project that was included on that list. Why was only

one airport included in this initial list of projects selected for accelerated environmental review?

Answer. Secretary Mineta chose the initial selection of priority transportation

projects in order to get the accelerated environmental review process underway before completion of project nominations in December. The Secretary, therefore, asked

for project nominations by the Modal Administrators. He considered several airport

projects before making his selection. Because the initial list of selected projects was

to be small in number, the competition was keen. As a result only one airport

project was selected.

Question. Ms. Blakey, last October, Secretary Mineta announced a list of seven

transportation construction projects that were selected to receive accelerated environmental reviews. The Philadelphia International Airport runway construction

project was the only airport project that was included on that list. Since that announcement, how many other airport projects have been selected for accelerated environmental review? Which specific airports?

Answer. Since announcing the Philadelphia Airport project, one other airport

project was selected for accelerated environmental review under Executive Order

13274. Secretary Mineta announced the selection of the Los Angeles World Airport

project on February 27, 2003 with five other transportation construction projects.

Five other nominated airport projects remain on the Department’s project review

register for future consideration.

FAA highest priority projects for expediting or streamlining the environmental review process continue to be those major runway projects at large primary airports.

These projects are the types that reduce national congestion the most. FAA will continue to apply and carry out streamlining initiatives for these projects regardless

of whether such projects are nominated or selected for review under Executive

Order 13274.

AIRPORT IMPROVEMENT PROGRAM

Question. At a time when airports are struggling to pay for the installation of explosive detection systems, what is your rationale for keeping the Airport Improvement Program (AIP) flat while requesting increases for FAA’s other major programs?

Answer. AIP was funded at levels up to $1.95 billion prior to the enactment of

AIR–21. Post AIR–21, AIP funding increased in fiscal year 2000 to $3.2 billion, a
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65 percent increase. In fiscal year 2003, AIP funding rose to $3.4 billion. This represents a dramatic increase in funding that the President’s Budget would retain in

fiscal year 2004. Although airports face high costs associated with the deployment

of explosive detection systems, there is other Federal money available to assist airports, specifically from the Department of Homeland Security (DHS).

GRAPHIC ADVISORIES FOR GENERAL AVIATION PILOTS

Question. Ms. Blakey, the recently-passed 2003 Omnibus Appropriations Bill directed the FAA to publish graphic advisories in addition to the notice-to-airmen

advisories and to make these available to flight service stations and the aviation

community via the Internet. The increased number of special use airspace and temporary flight restrictions subsequent to September 11, 2001, and the recent elevation of the threat to Code Orange make it even more critical to share this information with pilots. As yet, the FAA has not done as Congress has directed. Why

not?

Answer. The FAA web page contains a link to graphic depictions of Temporary

Flight Restrictions (TFRs). The site was activated shortly after September 11, 2001.

Except for general notices, each TFR contains corresponding graphics.

The flight service stations (FSS) were heavily impacted by the above event, which

led to the activation of the Flight Service Operation Support Center (FSOSC) team.

The FSOSC creates graphical depictions of TFRs, as well as plain text versions of

the TFR Notice to Airmen (NOTAM) using the TFR Operational Display System

(TODS) special version software developed by Jeppesen for FSS use. This information is stored on the Jeppesen server and can be accessed via the Internet. At that

time, most FSSs did not have the connectivity to access this data. The FAA has

since purchased and deployed the hardware and software to support this capability.

This information will be available to the FSS, pilots, and others on June 15, 2003.

Question. When precisely can we expect these graphics to be available to general

aviation pilots via the Internet?

Answer. Graphical Temporary Flight Restrictions (TFR) information is currently

available to pilots through one of the FAA’s direct user access terminal system

(DUATS) vendors, CSC (formerly Dyncorp, Inc.). The TFR Operational Display System (TODS) products will be made available to the general aviation public on June

15, 2003.

SAN JUAN COUNTY’S AIRSPACE FREQUENCY

Question. What specific steps are you taking to ensure pilots flying in San Juan

County, without the assistance of any air traffic control, will be aware of and adhere

to the new frequency?

Answer. The FAA process to inform all pilots of new frequency changes is to submit the change to the National Flight Data Center (NFDC) in the FAA Headquarters, Washington, DC. The information is then published in the National Flight

Data Digest (NFDD), which comes out daily. This publication is sent to subscribers

of NFDD, which includes air traffic facilities, chart producers, airlines, computer

database providers, military, etc. General aviation pilots do not normally subscribe

to the NFDD. The NFDD is used as the official authority to incorporate the change

into airmen’s charts and the Airport/Facility Directory (AFD). New charts and the

AFD are published every 56 days. Since pilots are required, under 14 Code of Federal Regulations, Part 91.103, Preflight Action, to ‘‘become familiar with all available information concerning (their) flight,’’ they are aware of any changes in the National Airspace System, including frequencies, as of the effective date of these publications. Therefore, frequency changes should coincide with charting cycles so pilots

are aware of these changes when they discard outdated charts and AFDs, and begin

to use new or updated charts and AFDs.

Additionally, many fixed-based operators will post proposed changes to the airport

and the surrounding airspace, including Common Traffic Advisory Frequency and

Unicom frequency as soon as they become aware a change is planned.

Question. Should we hold off relinquishing the CTAF until we are sure that pilots

are educated enough to not create a safety problem?

Answer. In this case, education and notification are interchangeable terms. The

FAA recommends that notification occur via the publication of the Airport/Facility

Directory (AFD), and that the change to the new frequency coincides with the date

the new frequency will be charted. The FAA will provide timely notification to the

pilots by ensuring that CTAF changes do not occur until the AFD and new charts

are published. Pilots are required to be aware of the AFD chart changes and to use

current publications. If the frequency change does not coincide with the charting

cycle, the FAA would then be obligated to notify pilots through other means, such
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as Letter to Airmen or Notice to Airmen. A common practice is to provide pilot notification of changes through the AFD and charts.

AIR TRAFFIC MODERNIZATION

Question. Administrator Blakey, the Aerospace Commission recommended making

the transformation of the U.S. air transportation system a national priority. The

Commission’s report specifically called for the ‘‘rapid deployment of a new, highly

automated Air Traffic Management system, beyond the Federal Aviation Administration’s Operational Evolution Plan, so robust that it will efficiently, safely, and securely accommodate an evolving variety and growing number of aerospace vehicles

and civil and military operations.’’ I am very interested in seeing this recommendation implemented to ensure the economic security of our country.

Can you tell me what your agency is doing to respond to this recommendation?

Answer. Working with other government agencies, the FAA has initiated an informal working group to develop a unified national air transportation plan for 2020

and beyond. The key objectives of the plan are to develop a series of unified strategic goals and actions that will move the industry forward. Critical to this is an

emphasis on aligning the activities and resources of the various government departments to support the plan.

FAA will continue to follow the blueprint laid out in the Operational Evolution

Plan (OEP) for the capacity goal. To help the Agency in assessing the aviation system of the future, FAA had discussions with industry representatives to explore

what they believed will be the changes and challenges to the system. FAA is considering broadening this goal to better reflect the mobility goal of the Department by

focusing more directly on the passenger experience. In that way, the OEP will become the jumping off point for the longer-term national plan. The scope of the

team’s work will include issues related to air traffic management, aviation safety,

capacity enhancement, airport improvement, security, and homeland security.

Question. When do you expect to have a design and development plan for a next

generation Air Traffic Management (ATM) system in place and when do you envision starting the implementation of such a plan?

Answer. A draft plan is scheduled to be completed by December 2003. The plan,

which FAA is developing jointly with DOD, NASA, DHS and DOC, will establish

a more formal coordination process for research and implementation activities.

Question. Since this recommendation will require a great deal of interdepartmental coordination to meet both our civil, defense and homeland security needs,

what are you doing to ensure the appropriate level of participation from DOD,

NASA, and DHS?

Answer. The FAA has a long and successful working relationship with NASA on

research and development, an excellent relationship with DOD in coordinating airspace requirements, and a new partnership with DHS/TSA. By continuing to

strengthen the relationships the Agency has with these partners we can develop a

joint approach—and most importantly a greater alignment of resources—that will

enable regular monitoring of the unification of our plans, goals, and objectives.

Question. Administrator Blakey, what is your agency doing to take advantage of

the current slow down in the air travel demand to move forward on Air Traffic Management (ATM) system modernization to ensure we don’t end up with horrendous

delays like we had during the summers of 1999 and 2000 when traffic returns?

Answer. The goal of the Operational Evolution Plan (OEP) is to increase capacity

and by doing so, improve the efficiency of the National Airspace System and reduce

delays.

It is the FAA’s objective, through the initiatives of the OEP and related Air Traffic Modernization projects, to increase the capacity of the National Airspace System

by 31 percent during the next 10 years. While the events of September 11, and the

subsequent downturn in the industry have impacted various elements of the plan—

particularly those requiring collaborative work with the industry—the FAA is continuing to put considerable energy into this initiative.

During the past 2 years the FAA has aggressively pursued its OEP related initiatives. This includes airspace redesigns throughout the National Airspace System,

the implementation of Required Navigation Performance (RNP), various capacity enhancing technologies, collaborative decision making, and new runway construction.

The industry has experienced a reduction in the number of flights and passenger

loads. The market is not expected to reach pre-September 11 levels until 2005. However, overall capacity of the system, because of the OEP, is continuing to grow by

3 to 5 percent each year. This means, that when the system does recover we will

be far less likely to experience the delays we faced in 1999 and 2000.
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QUESTIONS SUBMITTED BY SENATOR BARBARA A. MIKULSKI

ACE–IDS

Question. It is my understanding that air traffic controllers are very pleased with

the performance of the new ASOS Controller Equipment-Information Display System (ACE–IDS) systems that is currently provided by a small business. I also understand that the older SAIDS4 systems in the field use hard to maintain obsolete

software and use computers that have limited extensibility. What is your agency’s

position on the desirability of the acquisition of ACE–IDS for additional towers and

TRACONS to replace the out of date systems?

Answer. Air traffic controllers are pleased with the ASOS Controller EquipmentInformation Display System (ACE–IDS). The Information Display System 4 (IDS4)

does include aging hardware and software that will eventually need to be replaced.

The FAA is developing an acquisition strategy for the next-generation display system. However, the agency will consider ACE–IDS as a potential solution for satisfying requirements that exist prior to the next-generation display system award.

Question. There are many capable small businesses that provide products, services and systems to the FAA, including the current provider of ACE–IDS. To what

extent would the ACE–IDS or FAA Data Display System (FAADDS) program lend

itself to being set aside for small business? Has the FAA examined that possibility?

Answer. The FAA is currently developing the acquisition strategy for the next

generation display system. All available options, to include small business set

asides, will be considered in the course of the acquisition.

QUESTIONS SUBMITTED BY SENATOR RICHARD J. DURBIN

WORKING GROUP ON THE AIRLINE INDUSTRY’S FINANCIAL CRISIS

Question. Does the FAA have a working group to address the financial crisis in

the airline industry?

Answer. The Office of the Secretary (OST), not the FAA, is responsible for oversight of the financial condition of the airline industry. OST does not have a formal

working group on this issue, but has undertaken extensive efforts both to monitor

the financial condition of the industry and to evaluate longer-term effects of the industry’s ongoing financial plight.

The airline industry is in the midst of the most difficult period of financial distress since it was deregulated almost 25 years ago. This began well before the terrorist attacks of September 11 and reflected a combination of rapidly escalating

costs—a trend that started in 1999—and severely decreased demand beginning in

early 2001. With these changes, several years of record profits quickly turned to

losses.

The terrorist attacks greatly exacerbated losses for the passenger carriers and led

to record losses. The industry has suffered operating losses of about $10 billion during each of the past 2 years, and is now expected to lose another $7 to $8 billion

this year. A number of smaller carriers have failed, and two major carriers, United

and US Airways, filed for bankruptcy, although the latter carrier has now successfully emerged from that process. To compensate for the ongoing losses, airlines have

undertaken large-scale capacity cuts, laid off more than 100,000 employees, made

operational changes designed to enhance efficiency, and engaged in a wide variety

of other efforts to reduce operating costs. These efforts have not yet stopped continuing losses as the industry has been confronted by a continuing series of events

that have affected demand, such as the Iraq war and SARS.

It is also important to note that not all news is bad. While the large network airlines in particular have suffered massive losses throughout this period even while

significantly reducing capacity, in marked contrast several low-fare airlines have

profitably expanded throughout this same period. Now that several low-fare airlines

have gained a critical mass and are expanding, cost control by the large network

carriers is paramount. The structure of the industry that will evolve from this financial turmoil will depend in large part on how the less stable carriers respond to

their cost cutting and restructuring efforts, but also on how soon and to what extent

the economic recovery brings relief.

OPERATIONAL EFFICIENCY IN THE NAS

Question. What steps are being taken to improve operational efficiency in the national aviation system? Will they help the airlines operate more efficiently and save

money?
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Answer. The FAA’s work in improving the operational efficiency of the National

Airspace System can be considered both on a short-term and long-term basis. Nearterm operational improvements include such initiatives as continued deployment of

Traffic Management Advisor, enhanced use of collaborative decision making tools to

mitigate the impacts of weather on efficiency, and Reduced Vertical Separation

Minima. Longer-term initiatives include additional runways as well as the modernization of the en route automation system.

These efforts and systems will provide the airlines and flying public with fuel-efficient routes, predictable schedules, and minimize the disruptions caused by weather.

AIRPORTS WHICH WILL BENEFIT FROM NEW RUNWAYS

Question. Is Chicago O’Hare one of those airports which will benefit from new

runways?

In your testimony, you state ‘‘We believe that new runways added at the right

airports are the single most effective way to increased capacity.’’ Is Chicago O’Hare

one of those airports?

Answer. Chicago is one of the 35 airports in the agency’s Capacity Benchmark

Study/Operational Evolution Plan. Since over 70 percent of all scheduled traffic

moves through these 35 airports and 15 of these airports account for 80 percent of

the total delays in the entire National Airspace System (NAS), any project which

increases capacity or reduces delays at these airports has benefits that ripple

through to the entire NAS. O’Hare ranks third in the number of delays over the

past 5 years and had the highest ratio of delays to operations of any of the Operational Evolution Plan (OEP) airports in 2002 (57.60 per 1,000). Given that O’Hare

also handled more operations than any other airport last year, these delay ratios

are indicative of a delay problem at O’Hare.

Delays at O’Hare International Airport will continue to grow as demand increases. Delays at O’Hare are having a ripple effect throughout the country and additional capacity is needed. The FAA is currently evaluating a draft plan proposed

by the City of Chicago for the modernization of O’Hare Airport that is expected to

significantly increase its capacity. The modernization plan includes the realignment

of existing runways as well as the addition of a new runway.

QUESTIONS SUBMITTED TO JEFFREY N. SHANE

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

ROLE OF THE OFFICE OF THE SECRETARY IN FAA MATTERS

Question. Secretary Shane, now that the Coast Guard and TSA have moved to the

Department of Homeland Security, do you see an increased role for the Office of the

Secretary in matters relating to the FAA? Can you give us a few examples?

Answer. There has been no change in the role of the Office of the Secretary (OST)

with relation to the Federal Aviation Administration (FAA) since the transfer of the

Coast Guard and Transportation Security Administration (TSA) to the Department

of Homeland Security. OST coordinates the broad policy goals of the Department

and the administration among all the operating administrations. Its role with regard to the FAA is no different than its role with any other modal administration.

For example, the aviation reauthorization legislation (Flight-100) that was proposed

by the administration was a collaborative effort between the FAA and OST. The

same collaborative process was followed with the various operating administrations

included in the administration’s surface transportation reauthorization proposal

(SAFETEA). We expect this coordination role to continue with regard to all operating administrations within the Department.

FAA MANAGEMENT OF PROCUREMENT

Question. When you were at the Department in the early 1990’s as the Assistant

Secretary for Policy, the FAA and the Department were struggling with the Advanced Automation System procurement (AAS) and now, to read the IG’s testimony,

we still seem to be struggling with procurement at the FAA: WAAS, STARS, and

Oceanic to be specific. And, in fact, I believe that STARS and Oceanic are, in part,

follow-on procurements to the AAS procurement that was such a disaster for the

FAA.

Do you think that the FAA does a good job in managing procurements?

What should OST do or Congress do to help the FAA improve its ability to deliver

desired capability, reduce schedule slippages, and reduce cost overruns?
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Answer. The FAA remains committed to delivering National Airspace System

(NAS) systems within cost and schedule baselines. FAA has made a number of management changes that strengthen its ability to develop leading-edge technologies.

For example, about 2 years ago, the agency instituted a more disciplined process to

establish cost, schedule, and performance baselines. This new process acknowledges

that a great deal of planning and analysis must be invested in a program before

clear cost and schedule parameters can be established in an official acquisition program baseline. The FAA’s investment review board also reviews major programs on

a regular basis to identify and remove barriers to successful completion. These processes are producing more accurate cost estimates and better performance vis-a`-vis

program baselines. In fact, over the past 2 years, the FAA has stayed within cost

estimates for the vast majority of modernization programs. With respect to the specific programs mentioned:

The Wide Area Augmentation System (WAAS) program has overcome its technical

challenges and was commissioned on July 10, 2003. The Oceanic program has been

delivering significant, incremental improvements to oceanic controllers since 1995.

The Advanced Technologies and Oceanic Procedures program combines those earlier

oceanic improvements, adds others, and integrates everything into a single controller workstation. The program is on track to meet the deployment milestones in

its official acquisition program baseline.

The Standard Terminal Automation Replacement System (STARS) program is

also on track. Except for a 3-day delay in achieving an early display capability in

Syracuse in June, 2002, STARS has met every single milestone on or ahead of

schedule for the past 3 years. The first full version of the STARS system began operations at an FAA facility on April 30, 2002, in El Paso. It is currently operational

at El Paso; Syracuse; Philadelphia; Portland, Oregon; and Miami.

The FAA has also shown that it is willing to make hard decisions when faced with

significant cost variances. The agency cancelled the Gulf of Mexico buoy program

last year and just recently decided to defer further expansion of the controller-pilot

data link communications program.

The Office of the Secretary of Transportation will continue to work closely with

the FAA—to establish realistic and accurate cost/schedule baselines, improve program management, execute according to plan, and cancel or defer programs when

their costs exceed benefit profiles.

THE FUTURE OF THE U.S. AEROSPACE INDUSTRY

Question. The Commission on the Future of the United States Aerospace Industry

issued a report making a number of recommendations to ensure the competitiveness

of the American industry. One of the Commission’s recommendations called for the

Federal Government to establish a national aerospace policy and promote aerospace

by creating a government-wide management structure. How is the Department responding?

Answer. The Secretary is establishing a joint planning office (JPO) to address the

air transportation portion of the recommendations. The objective of the JPO is to

coordinate with the National Aeronautics and Space Administration, the Departments of Commerce, Homeland Security and Defense, and outside stakeholders on

a national plan for the transformation of the air transportation system. These joint

activities will unify interagency research and development by aligning our vision,

goals, policies, and resources out to 2025. A second piece of the management structure will be a policy committee, chaired by the Secretary of Transportation, which

will advise and guide these planning efforts with inputs on the overall national policies that will promote economic growth through the transformation of air transportation.

SUBCOMMITTEE RECESS

Senator SHELBY. Thank you.

This concludes today’s hearing. The subcommittee is in recess

subject to the call of the Chair.

We thank all of you for appearing.

[Whereupon, at 12:18 p.m., Wednesday, April 2, the subcommittee was recessed, to reconvene subject to the call of the Chair.]

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DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND RELATED AGENCIES APPROPRIATIONS FOR

FISCAL YEAR 2004

WEDNESDAY, APRIL 9, 2003

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 2:02 p.m., in room SD–124, Dirksen

Senate Office Building, Hon. Richard C. Shelby (chairman) presiding.

Present: Senators Shelby and Murray.

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

STATEMENT OF ROBERT E. WENZEL, ACTING COMMISSIONER

ACCOMPANIED BY TODD GRAMS, CHIEF FINANCIAL OFFICER

OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

Senator SHELBY. The Committee will come to order. With the

April 15th tax filing deadline less than a week away I believe it

is appropriate that we review the Internal Revenue Service’s (IRS)

fiscal year 2004 budget request. Since the newly nominated Commissioner of the Internal Revenue Service has not been confirmed

we will hear from Bob Wenzel, the Acting Commissioner of the IRS

today. I would also like to thank you for appearing before the committee this morning.

Although I am the Chairman of the newly created Transportation, Treasury and General Government Subcommittee, these are

not necessarily new issues for me. Many of you may recall that I

was the Chairman of the Treasury and General Government Subcommittee several years ago when the reorganization and modernization of the IRS was in its infant stage. Since those days, the

IRS has improved its service to the taxpayers, but there’s still a

great deal more to be achieved.

I am relieved to know that today, unlike the last time I chaired

a hearing on these issues, taxpayers are receiving courteous service, refunds are being processed in a timely manner, and more individuals are filing their taxes electronically. The Offer in Compromise program is working efficiently to help the taxpayers eliminate tax debts, and the Innocent Spouse program, I am told, is also
74

making progress because only the guilty party is now being assessed the tax liability.

Even with the success of all these programs, the IRS still has a

long way to go to provide the service that taxpayers deserve and

expect. I believe that the IRS should provide top quality service to

America’s taxpayers by helping them to understand and to meet

their tax obligations, and by applying the tax laws with integrity

and fairness. Americans deserve and expect no less from the Service.

Turning now to the IRS budget request, I would like to point out that your fiscal year 2004 request is $10.4 billion, an amount that

comprises over 90 percent of the overall budget for the Department

of the Treasury. The IRS’ ongoing business systems modernization

efforts will require $429 million in the year 2004. The Subcommittee appreciates the efforts that continue to go into this massive upgrade that we hope will improve the speed, timeliness, and

accuracy of IRS’ administration of the tax system.

I am aware that last year’s efforts encountered some setbacks

and I am interested to learn how the Service has gotten back on

track and will ensure that such issues will not occur again because

I expect positive results from such an investment.

While the IRS’ traditional role is to implement and enforce our

tax laws, it has also been charged with administering the earned

income tax credit. The earned income tax credit has expanded since

its enactment in 1975 and at the same time has become politically

controversial. This budget proposes a number of changes to that

program because of the high level of fraud associated with the program’s administration. Each year the IRS makes approximately $9

billion in erroneous earned income tax credit payments. This is a

direct and permanent cost to the American taxpayer because it is

virtually impossible to recapture these payments once they have

been made.

You are requesting $251.2 million in 2004 for the EITC program, and of that amount, $100 million is requested to implement the

earned income tax credit task force recommendations to address

the problems associated with current program administration that

results in these overpayments. Eliminating erroneous payments

and ensuring the proper administration of this program are certainly goals with which I completely agree.

Compliance is a problem and you are requesting an additional

$133 million for staff to strengthen compliance. I am interested in

hearing of the abusive tax schemes you will be targeting and how

you will deal with them.

With the IRS’ progression into the information age, I am keenly

interested in how the electronic filing system is working, who is

using the system, under what conditions, and finally, what kinds

of systemic cost savings are being realized.

The IRS promotes electronic filing as ‘‘free’’ but I have been made

aware that most, if not all, of the programs or services that are requested do charge a fee. I do not know anyone that would agree

that is free. I am interested in exploring this more.

Along those lines, the IRS has initiated a new program called

Free File, which is a public-private partnership between the IRS

and a consortium of tax software companies that offer free filing
75

services to qualifying taxpayers. I applaud this effort and the assistance that it provides low income taxpayers. It is my understanding that savings identified because of electronic filing and increases in productivity will enable the IRS to close one of its processing sites. I would think that the closure of this processing site

will realize some savings. Additionally, I am interested in how you

think continued increases in electronic filing will change the nature

of the IRS and its workforce.

Another significant change is this budget proposes to employ private collection agencies to track down taxpayers that owe billions

of dollars in delinquent taxes. I do support the effort of collecting

delinquent debt, but this is of serious concern because in addition

to having a responsibility to protect taxpayers’ privacy, I cannot

imagine IRS as having the resources to administer and oversee

such an undertaking.

While this is a fairly straightforward budget, the IRS proposes

a significant number of changes in the way that it does business.

As I mentioned, I am very interested in these changes and look forward to your explanation of the proposal that is included in the

budget.

Senator Murray.

STATEMENT OF SENATOR PATTY MURRAY

Senator MURRAY. Thank you, Mr. Chairman. We are now less

than a week away from tax day, and 2002 was a very rough year

for America’s working families. The economy has continued to decline, hundreds of thousands of Americans were put out of work,

and many of them still have not found jobs. Even those who have

found jobs have had to take big pay cuts. Six days from now many

of those families will be hard-pressed to cover their check to the

IRS. At a time when our national economy is struggling and when

individual families are hurting, the President is pushing for tax

cuts that overwhelmingly favor our wealthiest citizens. That has

got to be pretty disheartening to the many families who are struggling through no fault of their own.

Today I want to shine a light on a similarly, I believe, unfair proposal in the President’s budget that could mean less help for low

income families. An initiative in the President’s 2004 IRS Budget

seems to be targeted at throwing working families off of the rolls

for receiving the earned income tax credit or EITC. This is a tax

credit that is targeted at the working poor. The EITC is probably

the most targeted means-tested tax benefit in the entire Federal

Code. It was started by President Gerald Ford and it was greatly

expanded under President Reagan.

While many working families are eligible to receive it, as many

as 25 percent or more of those families do not even apply for it.

We should be taking steps to allow more eligible families to get the

help they need, but I believe the President’s proposal goes the

other away. It would require many of these working poor families

to basically pre-certify that they are eligible to receive the EITC.

This proposal is designed, we are told, to minimize fraud in the

earned income tax credit program.

Mr. Chairman, you will not find one Senator on this committee

or anywhere in the U.S. Senate that supports citizens perpetuating
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fraud on the IRS. Tax fraud by any taxpayer should never be tolerated. It is a disservice to every other family that works hard and

pays its share.

As we work to eliminate fraud we need to be careful that we do

not penalize the families who rely on this credit. As I understand

it, under the Administration’s proposal, within a couple of months,

tens of thousands of families will receive Federal forms requiring

a great deal of documentation in order to qualify them to take the

Earned Income Tax Credit later in the year. Much of this required

documentation will be hard to get, and the Federal tax assistance

centers for the poor will not be up and running during the summer

months. By this time next year more than 2 million families are

expected to be subject to this procedure. The average earned income tax is roughly $1,660. That makes a pretty big difference for

families that are struggling.

I will repeat, I believe each and every case of tax fraud should

be prosecuted. Given the fact that the IRS never has and never will

have enough resources to audit every return, I am mystified by its

decision that $100 million in scarce funds should be committed to

going after the working poor. No amount of fraud should be allowed for any taxpayer at any income level and I think we need

to be very cautious of proposals that could have an adverse effect

on families getting the benefits that they deserve.

The IRS should go after people that are cheating the system to

receive the EITC when they are not eligible. But I believe the IRS

also carries the responsibility to make sure that these enforcement

efforts do not undermine the whole purpose of that the EITC program and the families that rely on it.

I hope that we will pursue this critical issue of fairness in our

tax collection system today, Mr. Chairman. Thank you.

Senator SHELBY. Mr. Wenzel, your written statement will be

made part of the record in its entirety. Proceed and sum it up, if

you would.

STATEMENT OF ROBERT E. WENZEL

Mr. WENZEL. Mr. Chairman and distinguished members of the

Subcommittee, thank you for this opportunity to discuss the President’s fiscal year 2004 budget for the IRS. Accompanying me today

is Mr. Todd Grams, the IRS’ chief financial officer.

The President’s overall fiscal year 2004 budget request increases

discretionary spending by 4 percent. Seen in this context, the proposed 5 percent funding increase over the fiscal year 2003 request

for the IRS is greatly appreciated. We will work hard to justify this

confidence and investment.

Mr. Chairman, we also share your commitment to make the most

efficient and productive use of the taxpayers’ dollars. Indeed, beginning with the fiscal year 2004 budget, strategic planning, budgeting, resource allocation and performance goals, are much better

aligned at the IRS.

Moreover, we are now integrating the development of our budget

with the establishment of performance measures, a key part of the

President’s management agenda, and we believe we are on the

right track.
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Mr. Chairman, let me briefly discuss the President’s fiscal year

2004 budget request. Simply put, it keeps us on track. The funding

provided will help us to build on the improvements we have made

in enforcement, service, and productivity, while continuing to make

longer term investments in our business systems modernization

program.

The principal strategic focus of the budget is strengthening enforcement activities. Last October we realigned our audit resources

to focus on key areas of noncompliance, such as offshore credit card

users and promoters of abusive schemes and scams.

To strengthen enforcement programs across the board, the IRS

budget request includes $133 million to fund numerous initiatives.

For example, new revenue agents and revenue officers will be

added to address offshore credit cards, abusive trusts and shelters,

high risk high income taxpayers, and other priority work. We also

will increase staff devoted to frivolous returns and refund claims

to counteract recent growth and aggressiveness by promoters in

this area.

A legislative proposal is also in the budget that would authorize

us to contract with private sector collection agencies to supplement

current IRS tax collection efforts. By using these private collection

agencies we expect to be able to handle more collection cases at an

earlier stage, before the accounts become stale and uncollectible.

Moreover, we can then concentrate our resources on more complex

cases and issues.

The second focus of the proposed budget is reinvestments.

Through the IRS’ strategic planning and budgeting process, the

agency’s senior managers identified a significant potential for more

effective and efficient use of current resources. A total of $166 million and 2,145 FTEs were identified for reallocation within the base

budget for fiscal year 2004. By reinvesting $166 million, primarily

from increased productivity, we will be able to increase performance in key tax administration areas.

For example, electronic filing success provides a great opportunity to reduce and reallocate resources from submission processing. The fiscal year 2004 budget reflects the first-ever closing of

a submissions processing pipeline as paper filings decrease. We can

use these reinvestments to strengthen enforcement and improve

customer service.

The third and final focus is business systems modernization. The

BSM program requests a total of $429 million, an increase of $65

million over the current fiscal year 2003 budget level. Over the

course of the BSM program, these investments will benefit the IRS

and taxpayers by reducing operating costs, increasing cost avoidance, reducing taxpayer burden, and boosting tax receipts.

PREPARED STATEMENT

Mr. Chairman, in conclusion, current trends in customer service

and enforcement are pointing in the right direction. The President’s

budget will help us to maintain this upward course and to succeed

in achieving our mission.

Thank you.

[The statement follows:]
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PREPARED STATEMENT OF ROBERT E. WENZEL

INTRODUCTION

Mr. Chairman, and distinguished Members of the Subcommittee, thank you for

this opportunity to discuss the President’s proposed fiscal year 2004 budget for the

Internal Revenue Service. Accompanying me today is Mr. Todd Grams, IRS Chief

Financial Officer.

I also want to thank the President and Treasury Secretary Snow for their strong

and visible support of the IRS and our critical mission during these challenging

times. The President’s overall fiscal year 2004 budget request increases discretionary spending by 4 percent. Seen in this context, the proposed 5 percent funding

increase over the fiscal year 2003 request for the IRS is greatly appreciated and we

will work hard to justify their confidence and this investment.

The funding provided in the President’s budget will help us to build on the improvements we have made in compliance, service and productivity while continuing

to make longer-term investments in our Business Systems Modernization (BSM)

program.

Mr. Chairman, I also welcome the opportunity to work closely with you and we

share your commitment to make the most efficient and productive use of the taxpayers’ dollars. Indeed, beginning with the fiscal year 2004 budget, strategic planning, budgeting, resource allocation and performance goals are better aligned. Moreover, we are now integrating development of our budget with the establishment of

performance measures—a key part of the President’s Management Agenda. We believe we are on the right track.

BUILDING ON A GOOD FOUNDATION

Mr. Chairman, the IRS continues to make steady progress on the mandates and

new direction set forth by the IRS Restructuring and Reform Act of 1998 (RRA 98).

We continue to make gains on our three strategic goals: top quality service to each

taxpayer in every interaction; top quality service to all taxpayers through fair and

uniform application of the law; and productivity through a quality work environment.

Although still unacceptable in some areas, service to taxpayers has improved. Returns, payments and refunds are better processed. Taxpayers are getting better

service over the telephone, in person and over the Internet. Most are getting the

right answers to their tax law and account questions. New incentives, such as the

innovative Free File program, are breaking down the last barriers to e-file.

After careful study, we are redirecting our resources to the key areas of noncompliance, such as offshore tax avoidance schemes. New programs such as the Offshore Voluntary Compliance Initiative are producing promising results.

The four customer-focused operating divisions are also meeting the varying needs

of their taxpayer segments. After years of planning, the BSM program is entering

a new, challenging but risky phase: producing the flexible systems, technology and

tools needed to provide service to taxpayers on a par with the best private sector

financial services companies and to administer an increasingly complex tax system.

Clearly, we are doing a better job than when RRA 98 was enacted into law although we are far short of providing the level of service envisaged in the legislation.

We still have a long way to go, but if we stay the course we began almost five years

ago, we can still succeed.

Customer Service

The IRS has made steady gains in better serving America’s taxpayers. Each filing

season and year is appreciably better than the previous one and we are building

on those successes. With only one week left in the filing season, we can detect some

very positive trends.

For the 2002 filing season, the agency processed over 128.7 million individual returns, and issued over 99.5 million refunds totaling $191.2 billion. We believe we

will exceed these numbers by the end of this filing season.

In 2002, web site usage smashed all records with 2.7 billion hits and 336 million

files downloaded. For the 2003 filing season, usage on our newly designed web site

is already running almost 25 percent ahead of last year’s torrid pace.

IRS representatives also answered 25.9 million telephone calls during fiscal year

2002; the automated telephone system handled about 62.4 million calls. For the

2003 filing season, total assistor calls answered are running about level with last

year, with automated calls down dramatically. This drop can be most likely traced

to the high volume of calls we received last year related to the advance refund

checks.
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The big news is assistor level of service. It is up 20 percent over last year. This

can be attributed to the implementation of new telephone lines, less complicated

scripts and lower demand. Time spent waiting, while still below private sector

standards, improved substantially. Average wait time is down 26 percent from the

previous year.

Quality of service is as important as access to service. Taxpayers expect not only

to get through on our toll-free telephone lines but to get the correct answer to their

tax law or account question. For the 2002 filing season, taxpayers were receiving

correct responses to 82.76 percent of tax law questions and 88.89 percent of account

questions. So far this filing season, the numbers stand at 82.02 percent and 86.42

percent respectively.

In 2002, more than 46.7 million taxpayers (36 percent) filed electronically—a 16.4

percent rise from last year. This filing season, all e-file is up by almost 9.23 percent

and e-filing on line has grown by 29.28 percent. Much of this surge can be attributed to the Free File program that will help us reach the RRA 98 mandated goal

of 80 percent of individual returns filed electronically by 2007.

On January 16, 2003, the Treasury Department, the Office of Management and

Budget (OMB) and the IRS launched the free online tax preparation and filing service called Free File. It was made possible through a partnership agreement between

the IRS and the Free File Alliance, LLC—a private sector consortium of tax software companies.

The partnership agreement requires that the Alliance as a whole provide free tax

preparation and filing to at least 60 percent, or approximately 78 million American

taxpayers. The primary candidates for Free File are those taxpayers who prepare

their own taxes and still file paper returns.

Initial Free File reports are most encouraging. As of March 19, Alliance members

have processed and transmitted more than 2.0 million tax returns. This represents

approximately 25 percent of the total 8 million online e-filed returns.

Improved service to taxpayers has not gone unnoticed. On the 2001 American

Customer Satisfaction Index Survey (ACSI), taxpayers gave the IRS an overall score

of 62, an 11 percent increase among individual tax filers over 2000, and a 22 percent

increase over 1999. This was the largest favorable gain of the 30 federal agencies

surveyed by the ACSI. The 2002 annual rating for IRS in the Roper Starch customer satisfaction survey was 44 percent—a 38 percent increase over its 32 percent

nadir in 1998. However, it reflects a small decrease from 2001.

Compliance

The IRS does not have the resources to attack every case of noncompliance.

Therefore, it must apply its resources to areas where noncompliance is greatest

while still maintaining adequate coverage in other areas. After careful study, the

IRS identified some of the most serious compliance problem areas. These include:

(1) promoters of tax schemes of all varieties; (2) the misuse of devices such as trusts

and offshore accounts to hide or improperly reduce income; (3) abusive corporate tax

shelters; (4) underreporting of tax by higher-income individuals; (5) accumulation

and failure to file and pay large amounts of employment taxes by some employers;

and (6) the high rate of erroneous earned income tax credit (EITC) payments.

Our goal was to stop the long-term decline in compliance while beginning to focus

effectively and efficiently on the key areas of noncompliance. In most areas, the IRS

achieved this goal. For example, in fiscal year 2002, the IRS closed 140,737 Tax Delinquent Investigation cases. It also examined 60,894 individual returns for taxpayers with incomes exceeding $100,000 and 528 Large Cases (corporate). All of

these show gains over the previous fiscal year and the audits of individuals with

incomes over $100,000 represented a 22 percent increase. However, the 724,430 Tax

Delinquent Account closures represent a small drop over the same period last year.

Our new emphasis against promoters of abusive tax devices has also shown results. As of March 19, 2003, the IRS had 25 promoter injunctions granted, 17 promoter injunctions pending in District Court and 17 pending at the Department of

Justice, 216 promoter exams and information requests underway, and 464 ongoing

criminal investigations of promoters of various tax schemes. The Offshore Voluntary

Compliance Initiative, which ends April 15, is also producing promising leads on

promoters and is bringing back taxpayers into compliance.

In addition, an abusive tax shelter disclosure initiative was launched in 2002. The

IRS processed 1,664 disclosures from 1,206 taxpayers who came forward. The disclosures cover 2,264 tax returns and involved more than $30 billion in claimed losses

or deductions.

Also, key to successfully executing a compliance program is better data. The IRS

failed to detect new areas of noncompliance in part because of a reliance on increasingly obsolete data from the old Taxpayer Compliance Measurement Program.
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(TCMP was last conducted in 1988.) The agency designed and is implementing a

National Research Program that will obtain the essential information with far less

burden on the taxpayer. New scoring models are being developed using 21st century

techniques, with interim models already deployed.

Technology and Modernization

Critical to our success is better managing our massive technology and Business

Systems Modernization program. From 15 separate information systems operations,

we created one MITS (Modernization and Information Technology Services) organization that has the job of serving all of our operating units and managing our modernization program.

As part of this major transition, standards were established and largely implemented for hardware and software. We consolidated mainframes from 12 centers to

three and established one standard for desktop and laptop hardware and software.

We implemented nationwide e-mail and voice messaging systems, standard office

automation software, and security certifications and standards. We deployed important interim applications systems, including Intelligent Call Routing, Integrated

Case Processing and the Integrated Collection System.

Business Systems Modernization laid the foundation for success of this massive

program. Both the long-term vision and enterprise architecture were established

and embedded as a living blueprint for all business and technology improvement

programs.

BSM has finally begun delivering the first projects with tangible benefits to taxpayers, such as moving the first set of taxpayers to a modern, reliable database in

2003. This year, taxpayers also began using the new Internet Refund/Fact of Filing

(IR/FoF) application that allows them to check on the status of their return and refund 24 hours a day, 7 days a week. Of paramount importance, we implemented

the first project on our new security system, which provides one standard for ensuring the security of all IRS data and systems. IR/FoF usage has already exceeded

our expectations. So far this filing season, there have been more than 8.7 million

uses of ‘‘Where’s My Refund?’’; we project that number will rise to 15 million by the

end of the year.

Over the next five years, all individual taxpayers will be moved to the new database, cutting times for refunds on e-filed returns to less than a week and allowing

us to provide taxpayer and employees with up-to-the-minute accuracy on their accounts.

All major management processes, which are needed to manage this program on

a continuing basis, were improved. Indeed, we are only the second agency in the

federal government to obtain Level Two certification in the Software Engineering

Institutions Capability Maturity Model.

FISCAL YEAR 2004 RESOURCE REQUEST

For fiscal year 2004, the IRS is requesting resources totaling $10.437 billion and

100,043 FTE (full time equivalent). This represents an increase of $521 million (5

percent) over the President’s fiscal year 2003 request.

Mr. Chairman, the fiscal year 2004 budget request can be best viewed through

its three strategic drivers that are derived them from the IRS performance-based

budgeting process.

First is Compliance.—The principal strategic focus of the President’s fiscal year

2004 IRS budget is strengthening compliance activities, especially in the area of

high-income, high-risk taxpayers and businesses, and abusive tax avoidance

schemes and offshore trusts. A legislative proposal would also authorize the IRS to

contract with private-sector collection agencies to supplement current IRS tax collection efforts. The budget further includes a major initiative to reduce erroneous payments in the Earned Income Tax Credit (EITC) Program.

Second is Reinvestments.—We are committed to better utilizing the resources the

IRS already has by ‘‘reinvesting’’ base resources. By reinvesting $166 million, primarily from increased productivity within the base budget, the IRS will be able to

deliver increases in the performance of key tax administration programs that are

significantly higher than the additional dollar and FTE increases requested in the

budget.

Third is Business Systems Modernization.—Investments in modernization through

the BSM program would continue with a total request of $429 million, an increase

of $65 million above the fiscal year 2003 appropriation. Over the course of the BSM

program, these investments will benefit the IRS and taxpayers by reducing operating costs, increasing cost avoidance, reducing taxpayer burden and increasing tax

receipts.
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Mr. Chairman, I also want to draw the subcommittee’s attention to a new task

that was added to the IRS’ traditional tax administration duties and operations. In

August 2002, the President signed Public Law 107–210, the Trade Adjustment Assistance Act of 2002. Title II of this statute provides a refundable tax credit for the

cost of health insurance for certain individuals who receive a trade readjustment allowance or a benefit from the Pension Benefit Guaranty Corporation (PBGC). The

tax credit is equal to 65 percent of the health insurance premium paid by eligible

persons to cover them and qualifying family members. The IRS must implement the

Health Coverage Tax Credit provisions.

We are requesting $35 million for Health Insurance Tax Credit Administration.

The amount provided in the Consolidated Appropriations Resolution, 2003 ($70 million) will be used to provide software, hardware, and contract services to develop

the system mandated by Public Law. The IRS will oversee the contractor’s work.

Let me now provide the highlights of our proposed fiscal year 2004 budget.

COMPLIANCE

Additional Funds Requested to Strengthen Tax Administration Compliance

(∂$133M and ∂1,700 FTE)

The Internal Revenue Service is realigning its audit resources to focus on key

areas of noncompliance with the tax laws. The strategy represents a new direction

for the agency’s compliance effort.

Following months of research and planning, the new approach is focusing on highrisk areas of noncompliance. Our effort will generally focus first on promoters and

then on participants in these various schemes. The initiative will feature new and

enhanced efforts on the most serious compliance problem areas described earlier in

my testimony.

Our Small Business/Self-Employed (SB/SE) Operating Division will handle the

new effort in these key areas affecting individuals and businesses. Compliance efforts will continue in other parts of the agency, such as the tax shelter initiative

in the Large and Mid-Sized Business (LMSB) Division.

To strengthen compliance programs across the board, the IRS budget request includes $133 million to fund numerous compliance initiatives. Key examples of these

initiatives are:

Address Complex Enforcement Issues of Small Business/Self Employed Taxpayers

(∂$56M and 887 FTE).—Additional staff will be provided to all major compliance

programs in SB/SE and new workload selection systems and case building techniques will be employed. New revenue agents (exam work) and revenue officers (collections work) will be applied in the field to address offshore credit cards, abusive

trusts and shelters, high-risk/high-income taxpayers, and other priority work. Additional staff at call sites will be employed to specialize in out-going calls and offset

levies. Greater resources in the Automated Substitute for Return (ASFR) program

will allow us to focus on high-income taxpayers who do not file returns. Also, staff

devoted to frivolous returns and frivolous refund claims will be increased to counteract recent growth and aggressiveness by promoters in this area.

Address Passthrough Entities and Abusive Trusts of Large Business Taxpayers

(∂$22M and 258 FTE).—This increase will allow the IRS to apply the most experienced revenue agents to the highly complex and technical issues of passthrough entities—such as partnerships, trusts and S-corporations—and abusive corporate tax

shelters while maintaining minimum coverage of other priority exam work.

Counterterrorism (∂$6M and 24 FTE).—The IRS is heavily involved in the fight

against both global and domestic terrorism. Demand for the financial investigative

skills of Criminal Investigation (CI) special agents remains high. After September

11, 2001, over 273 FTE in fiscal year 2002 and 206 FTE projected in fiscal year

2003 were redirected from CI tax enforcement activities to counterterrorism related

activities. CI is working on counterterrorism with the Treasury Executive Office of

Terrorism Financing and Financial Crimes and is an integral part of the nation’s

war on terrorism.

Use of Private Sector Contractors for Collection of Taxes Due

There is a significant and growing backlog of cases involving individual taxpayers

who are aware of their tax liabilities but are not paying them. We believe that many

of these individuals are capable of paying their outstanding tax liabilities. This is

unfair to every hard-working American who pays his or her fair share of taxes. To

address this problem, the President’s budget proposes to support the IRS’ collection

efforts with private collection agencies (PCAs) that will engage in specific, limited

activities, allowing the IRS to concentrate its resources on more complex cases and

issues.
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By eliciting the assistance of PCAs, the IRS expects to be able to address this important part of the existing backlog of collection cases. Over time, the IRS expects

that PCAs would assist the IRS in handling more collection cases at an earlier stage

in the process—before the accounts become stale and uncollectible. PCAs have proven successful with over 40 states and have been used for many years with other

federal programs. PCAs would hold no enforcement power and their employees

would be subject to the same rules that apply to the IRS governing taxpayer rights

and confidentiality. Consequently, taxpayer protections would be unaffected. The

IRS would be required to closely monitor the activities and performance of the PCAs

to ensure these rules are followed.

Reduce Inappropriate Payments in EITC Program (∂$100M and ∂650 FTE)

The EITC program benefits millions of low-income workers. The EITC lifts nearly

4 million people, especially single mothers, out of poverty each year. However, the

current error rate for the EITC program is too high. In 1999, between 27 and 32

percent of EITC claims—or between $8.5 billion and $9.9 billion—were paid in

error. EITC has been consistently listed among high-risk federal programs. Congress has recognized this by providing a separate appropriation that has been used

for EITC compliance enforcement.

The Fiscal Year 2004 Budget requests an additional $100 million to begin a new

strategy for improving the EITC program. This approach, suggested by the Department of Treasury EITC Task Force, concludes that the IRS must obtain additional

information on certain EITC eligibility criteria before payment of the EITC-portion

of refunds. A major portion of the request will be used to invest in suitable information technology and develop business processes.

The IRS will begin to use an integrated approach to address potential erroneous

claims by identifying cases that have the highest likelihood of error before they are

accepted for processing and before any EITC benefits are paid.

A key part of this strategy is to begin certifying taxpayers who claim qualifying

children on the relationship and residency requirements. In addition, the IRS will

use limited additional taxpayer information, in combination with taxpayer-specific

IRS historical data, third party data and error detection systems to detect and

freeze the EITC-portion of refunds that pose a high risk or filing status errors or

income misreporting. The IRS will seek to minimize the burdens on taxpayers by

using existing databases and other sources of information to verify eligibility in advance. This integrated approach is designed to provide far greater assurance that

EITC payments go to the individuals who qualify for the credit, without sacrificing

the goals of the EITC program.

REINVESTMENTS

Resources Freed-Up Within the Base Budget for Reinvestment (–$166 million and

–2,145 FTE)

The President’s budget submission states, ‘‘In fiscal year 2004, the IRS will improve performance primarily through better management and fundamental reengineering of business processes, and secondarily by increases in resources.’’

Through the IRS’ Strategic Planning and Budget process, the agency’s senior

managers identified significant potential for the more effective and efficient use of

current resources. A total of $166 million and 2,145 FTE were identified for reallocation within the base budget in fiscal year 2004. Examples of sources for reallocations

include:

Submissions Processing/Electronic Filing (–$13.5M and –366 FTE).—IRS’ continued success with electronic filing provides a great opportunity to reduce and reallocate resources from submission processing to strengthen compliance and improve

customer service. The fiscal year 2004 budget reflects the first-ever closing of a submissions processing pipeline (Brookhaven, NY) as the labor-intensive processing of

paper filings decreases across the system.

Compliance Support Reengineering (–$26M and –394 FTE).—Reengineering of the

compliance program in SB/SE will improve operational efficiency and workload selection, and reduce taxpayer burden. Business process improvements and centralization of the Compliance Support Organization will generate FTE that can be reapplied in front-line activities.

Remittance Transaction Research (–$9M and –199 FTE).—Creating a central data

repository (taxpayer payment data and related images) for all individual taxpayer

payment documents will increase efficiency, improve accuracy of posting payments,

and reduce the time it takes to resolve payment issues.
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Information Technology (–$46M and –39 FTE).—Efficiencies through reengineering and other efforts will reduce expenditures in end-user support, computing center support, and network operations and maintenance.

Reinvestment of Reallocated Funds within the Base Budget (∂$166 million and

∂649 FTE)

Resources reallocated within the base budget would be used to improve Customer

Service and strengthen Compliance programs. The specific initiatives include:

Reduce Compliance Staff Support of Filing Season (∂$13M and ∂154 FTE).—

Due to lower-than-needed staff levels in Field Assistance Programs for individual

taxpayers, the IRS must detail compliance staff from SB/SE to field assistance during the filing season to meet taxpayer demand. Under this initiative, we would hire

additional staff in field assistance so that the level of service in assistance is maintained while the number of compliance details can be reduced, and compliance staff

can devote more time to compliance activities.

Improve Telephone Service to Small Business/Self Employed Taxpayers (∂$11M

and ∂184 FTE).— Additional resources are needed to assist SB/SE taxpayers in Accounts Management phone services. These staff members assist taxpayers with a

broad range of issues concerning taxpayers’ accounts.

Information Technology (∂$33M and 0 FTE).—IT investments will expand web

services to taxpayers, replace aging servers, purchase needed software, and expand

high speed and secure access for revenue agents at remote sites.

CONTINUED INVESTMENT IN BUSINESS SYSTEMS MODERNIZATION (∂65 MILLION AND 0

FTE)

The BSM program request totals $429 million, an increase of $65 million over the

current fiscal year 2003 level. The BSM account provides for modernizing IRS-wide

business practices and acquiring new technology.

We use a formal methodology to prioritize, approve, fund and evaluate our portfolio of BSM investments. This methodology enforces a documented, repeatable and

measurable process for managing investments throughout their life cycle. The IRS

Core Business System Executive Steering Committee, chaired by the Commissioner,

approves investment decisions. This executive-level oversight ensures that products

and projects delivered under the BSM program are fully integrated into IRS Business Units.

Highlights in BSM for fiscal year 2004 include: (1) modernized e-File will provide

electronic filing for large and small businesses; (2) implementation of the Integrated

Financial System will replace the current antiquated administrative core accounting

system; (3) the first release of the Custodial Accounting Project will put individual

taxpayer data in a data warehouse for easier access and analysis; and (4) the Customer Account Data Engine and Internet Refund Fact of Filing will be revised for

tax law changes to support the 2004 filing season. Given the changes in the fiscal

year 2003 and fiscal year 2004 BSM funding totals, we are currently reviewing the

fiscal year 2004 allocation project-by-project to determine the optimum plan. They

are discussed in greater detail below.

Achievements and Benefits

In fiscal year 2002, the BSM Program provided real benefits, including a secure

online system and system management capability and the aforementioned Internet

Refund/Fact of Filing pilot program. In fiscal year 2003 and fiscal year 2004, additional supporting infrastructure services will be added, and an increasing number

of business and internal applications will be delivered, creating benefits for taxpayers and practitioners and enabling internal efficiencies.

The fiscal year 2003 delivery plan will move the BSM Program into a wide spectrum of critical new areas:

—Customer Account Data Engine (CADE) R1.—In July 2003, CADE will begin

processing single 1040EZ filers (both electronic and paper). Taxpayers covered

under CADE will receive their refunds about 40 percent faster than under Master File processing, if they use direct deposit. More importantly, we will have

taken the first of many steps to replace the 40-year old Master Files.

—Custodial Accounting Project (CAP).—We will continue development and testing

of CAP Release 1 scheduled for deployment in the first quarter of fiscal year

2004. CAP will create a repository for modernized Individual Master File data

and will address documented financial material weaknesses.

—Enterprise Architecture (EA) and Tax Administration Vision and Strategy

(TAVS).—TAVS focuses on creating a long-term vision of how the agency should

work in the future. Delivery and acceptance of EA Release 2.0 was a significant

achievement. We also conducted a planning effort called ‘‘TAVS Refresh’’ to
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identify gaps and outdated information in TAVS which we plan to address in

fiscal year 2003.

—e-Services.—e-Services sub-releases will provide: registration of electronic return

originators, Taxpayer Identification Number (TIN) matching, initial partner relationship management capabilities, electronic account resolution, transcript delivery, secure e-mail, and bulk TIN matching.

—Infrastructure (STIR and Infrastructure Shared Services [ISS]).—This project

provides the basic secure infrastructure necessary to support the modernization

effort including e-Services R1, IR/FoF, Internet Employer Identification Number

(EIN), and subsequent fiscal year 2003 releases.

—Integrated Tax Administration Business Solutions (ITABS).—Projects to ensure

we understand requirements and select COTS (commercial off-the-shelf) solutions that can effectively integrate business processes in IRS functions.

—Internet EIN.—This application will automate Employer Identification Number

(EIN) requests over the Internet. Currently, the EIN request process is cumbersome and people-intensive, often resulting in unacceptable delays for those

starting new businesses.

—Integrated Financial System (IFS).—Although the first release of the new financial system will not go live until October 1, 2003 (therefore, an fiscal year 2004

delivery project), it is likely to be our most work-intensive project during fiscal

year 2003.

—Modernized e-file.—The Modernized e-file project will be in pre-deployment testing for all of fiscal year 2003, with initial deployment in early calendar year

2004, with Forms 1120 and 990 e-file capabilities.

BSM benefits delivered in fiscal year 2004 will include:

—Modernized e-file will provide electronic filing for large and medium-sized businesses (Forms 1120 and 990), as well as a new Tax Return Data Base, which

will greatly improve customer service and issue resolution.

—e-Services will provide support for the 2004 Filing Season as well as implement

support structures for modernized e-file planned for implementation later in the

fiscal year.

—IFS will develop the detailed functional requirements to support internal management requirements for financial and management planning, execution and

reporting.

—CAP will provide an integrated enterprise data warehouse to support organizational data needs, performance measurement, and tax operations process improvements.

—CADE will allow for electronic processing of selected Form 1040 Wage & Investment returns with additional taxpayer segments that have increasingly more

complex tax returns and/or balance due returns.

—ISS will establish a program whose goal is to deliver a fully integrated shared

information technology infrastructure to include hardware, software, shared applications and data, telecommunications, security and an enterprise approach to

systems and operations management. This approach results in overall reductions in time and dollars to develop, deploy, and maintain the infrastructure

and the business applications that use the infrastructure.

IMPACT OF UNFORESEEN COSTS ON STAFFING LEVELS

Although staffing increases were supported in recent budgets, they could not be

realized because of unexpected cost increases. The IRS is labor intensive; salaries

and benefits make up 71 percent of our Operations Budget. Therefore, any unexpected major cost that the agency must absorb will have a negative effect on staffing

levels, despite efforts to reduce non-labor costs.

For fiscal year 2003, the President proposed a budget for the IRS that included

98,727 FTE (less EITC). However, the total FTE for fiscal year 2003 (less EITC) is

currently expected to be 96,802, which is 1,925 FTE less than the President’s request. The following are examples of what drove projected fiscal year 2003 FTE

down below the President’s request by 1,925.

—The unfunded increase in the fiscal year 2002 annual pay raise from the President’s 3.6 percent request to the 4.6 percent enacted level (Cost: $43 million).

—Postage increases above initial budget projections (Cost: $22 million).

—Unfunded increase in security costs after 9/11 (Cost: $20 million).

Let me put the staffing problem in even greater perspective. Over time, the current fiscal year 2003 FTE projection is 1,249 FTE less than what was requested in

the President’s fiscal year 2001 Budget. It is also important to note that the fiscal

year 2003 appropriation bill created a $68 million unfunded pay increase and an

across-the-board cut of $64 million. These actions will further reduce our staffing
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levels and directly affect our ability to deliver on performance projections included

in the fiscal year 2003 budget request.

MODIFICATIONS TO THE IRS RESTRUCTURING AND REFORM ACT OF 1998 (RRA 98)

Mr. Chairman, in the fiscal year 2004 budget submission, the Administration proposed modifications to RRA 98. Last year, the House passed legislation that contained five of these proposals; the Senate did not act before adjourning. We commend the House for its actions and believe that these modifications preserve the intent of the Act while allowing us to administer it more efficiently and effectively.

We urge the Congress to take similar action this year.

There are six parts to the Administration’s proposed modifications. The first modifies infractions subject to Section 1203 of RRA 98 and permits a broader range of

available penalties. Our ability to efficiently administer the tax code is currently

hampered by a strong fear among our employees that they will be subject to unfounded 1203 allegations, and perhaps lose their jobs as a result. This proposal will

reduce employee anxiety resulting from unduly harsh discipline or unfounded allegations.

The second part adopts measures to curb the large number of frivolous submissions and filings that are made to impede or delay tax administration.

The third permits the IRS to enter into installment agreements with taxpayers

that do not guarantee full payment of liability over the life of the agreement. It allows the IRS to enter agreements with taxpayers who desire to resolve their tax obligations but cannot make payments large enough to satisfy their entire liability and

for whom an offer in compromise is not a viable alternative.

The fourth allows the IRS to terminate installment agreements when taxpayers

fail to make timely tax deposits and file tax returns on current liabilities.

The fifth streamlines jurisdiction over collection due process cases in the Tax

Court, thereby reducing the cycle time for certain collection due process cases.

The sixth and last provision would eliminate the monetary threshold for IRS

Chief Counsel reviews of offers in compromise.

The Administration also has two proposals to improve IRS efficiency and performance from current resources. The first would modify the way that Financial Management Services (FMS) recovers its transaction fees for processing IRS levies by permitting FMS to retain a portion of the amount collected before transmitting the balance to the IRS, thereby reducing government transaction costs. The offset amount

would be included as part of the 15-percent limit on levies against income and

would also be credited against the taxpayer’s liability.

The second proposal would encourage growth in electronic filing by extending

from April 15 to April 30 the return filing and payment date for the filing of individual income tax returns, if the return is filed electronically and any balance due

is paid electronically.

CONCLUSION

Mr. Chairman, in conclusion, the President’s proposed fiscal year 2004 budget for

the IRS keeps us on track and will allow us to provide both the short-term and

longer-term benefits to taxpayers, which has been the hallmark of our modernization program from its inception. Once again, I thank the President and his Administration for their continued support of our program and their confidence that we can

get the job done, and at the least cost to America’s taxpayers.

ELECTRONIC FILING

Senator SHELBY. I want to talk to you a little about electronic filing. This process clearly makes your job easier and maximizes efficiency within the Service, but there are serious concerns about the

inability of the average American to fill out his or her own tax return and press a button on the IRS’s web site and file their return

electronically. I understand that there are a number of reasons

floating out there but I would like to hear from you, why can’t I

or somebody else go to the IRS’ web site, fill out my tax return and

file it unless, of course, I print it out and put it in the mail?

Mr. WENZEL. This year, for the first time, we do offer the opportunity to have individuals come into the IRS.gov site and avail

themselves of a program we refer to as Free File. There are 17
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commercial software firms that make up the consortium. I need to

back up and explain that a little bit.

The electronic filing program started from very humble beginnings in 1996 at the IRS. The first year we had 26,000 returns

filed. This year we expect about 53 million returns filed electronically of the 132 million individual income tax returns that will be

filed this calendar year. So there is a significant increase.

As you are aware, the Congress in 1998, as a result of the Restructuring and Reform Act of the Internal Revenue Service set a

goal for the IRS that by the year 2007, 80 percent of individual and

business tax returns will be filed electronically. While we have had,

as I mentioned, some significant success, attracting 53 million electronically filed individual returns this year, we still have quite a

ways to go for not only individual returns, but also business returns, to reach that goal in 2007.

FREE FILE INITIATIVE

Senator SHELBY. Can you file an electronic return from your

home if you had the software?

Mr. WENZEL. You can file, beginning this year, with the consortium that we entered into, this agreement with the private sector.

One of the efforts that we are—as I mentioned, it is the first year—

trying to increase the number of returns filed electronically. We

have a long-standing position at the IRS, that we were not going

to compete with the private sector software vendors, to offer free

software. That was a position that the IRS took, Treasury took.

As a result of that position we contacted the private sector to

form this consortium. As a result of it, this Free File initiative has

come up on the IRS.gov web site. Over 68 percent of individuals required to file a return are able to use that right now, at no cost

to them. Because all they have to do is pick one of the 17 sites,

go into it and have the opportunity to file a return at no cost.

Senator SHELBY. They would have to have the proper software to

do this, would they not?

Mr. WENZEL. No, it is there. It is on our system. So far this year

over 2.1 million individuals have opted to use one of those 17 software products. Since it is still a week to go——

Senator SHELBY. How much does that cost?

Mr. WENZEL. There is no cost.

Senator SHELBY. No cost to it?

Mr. WENZEL. No cost.

Senator SHELBY. Free?

Mr. WENZEL. Maybe the confusion here——

Senator SHELBY. There is some confusion.

Mr. WENZEL [continuing]. Because you can go in and use the programs at no cost, but what we agreed to with these 17 vendors is

they would have the opportunity to use what is called pop-up

screens. So if an individual went in, there is a screen that pops up

and says, ‘‘Would you be interested in getting some additional information, some products and services that we offer?’’ If you said

no, the pop-up screen would go away and you can continue to file

your return. But if you said yes, that screen will open up and there

are other products and services there.
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That is where the confusion may be, Mr. Chairman, because

some individuals have availed themselves to take advantage of the

additional services offered where there is a cost. But to file a return, there is no charge for that.

Senator SHELBY. The system that I understand is currently in

place requires, for example, me to seek an IRS-approved e-file partner to file my return electronically; is that right? Do you want me

to repeat that?

In other words, the system I understand that is currently in

place would require me to seek an IRS-approved e-file partner to

file my tax return electronically. Is that what you were talking

about?

Mr. WENZEL. Yes, the partner——

Senator SHELBY. That is what I thought.

Mr. WENZEL [continuing]. Would be one of these 17——

Senator SHELBY. Seventeen of them?

Mr. WENZEL. Yes, for this first-year effort.

Senator SHELBY. Now that costs some money, does it not? It cost

something. I do not know how much.

Mr. WENZEL. Not for the taxpayer to go in and file their return.

Senator SHELBY. But as I understand, my staff did a quick

search on your web site and found a few examples I want to share

with you. There is a $6.95 senior special, the number one tax forms

for beginners is $9.95, and finally, there is the complete tax package for $24.95 and when you are finished you can e-file them for

free. In other words, you have got to do that first, is my understanding. Am I wrong?

Mr. WENZEL. Mr. Chairman, I have received e-mail, I have received correspondence——

Senator SHELBY. I do not know if I am wrong or not. I am just

asking the question.

Mr. WENZEL [continuing]. From individuals of the 2-million-plus

that have used this that have said, this is great because it has

been free. It was no cost to me in terms of filing.

Senator SHELBY. In other words, they did not have to pay that

other money?

Mr. WENZEL. No. I need to check on the examples given here

because——

Senator SHELBY. We will furnish those for you, because we would

be interested——

Mr. WENZEL [continuing]. I would really need to look into that

immediately.

BUSINESS SYSTEMS MODERNIZATION

Senator SHELBY. Business systems modernization, something we

have been working with a long time. The Service has informed the

staff that the IRS’ current IT infrastructure is not equipped to receive and process electronic transactions directly from individual

taxpayers. Given our discussion here, I am interested to know if,

in fact, the Service’s massive business systems modernization

project includes an upgraded capability to receive and process electronic transactions directly from individual taxpayers. And if not,

why not.
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Mr. WENZEL. One of our initiatives and programs in the future,

as it relates to the business systems modernization, is to make that

a reality in terms of account information.

Senator SHELBY. Would that not help a lot and move a lot of people into electronic filing?

Mr. WENZEL. Absolutely.

Senator SHELBY. And that is what you really want.

Mr. WENZEL. That is one of our e-services that we have been trying to make a reality because it is done so much already in the private sector. The timeliness improves significantly, less cost.

PRIVATE COLLECTION AGENCIES

Senator SHELBY. I want to move into debt collection. It is my understanding you are planning to use private collection agencies to

collect some of the $280 billion owed in taxes. I remember Senator

Kerry and I were involved in this committee at one time and we

tried that. But actually it did not work very well at that time.

Maybe it will work now.

But what will IRS do to ensure that this will be a worthwhile

project and cost effective this time?

Mr. WENZEL. As you mentioned, there was a pilot in 1996–1997.

We learned from that experience, in terms of benefiting from that

limited pilot. We also, in getting ready for this proposal, in terms

of the budget request, included three private sector companies; a

large organization, medium-size, and a small business organization

to get their input.

You are right in the sense that the total number of accounts receivable, what we call now potentially collectible inventory, is well

over $200 billion. A lot of that, as you know, is corporations out of

business or deceased taxpayers. The reality is that we know for a

fact there are at least $13 billion right now just waiting for a contact to be made that has an opportunity to potentially be collectible. The reality is that the best we can do at the present time is,

once a year, send out a notice to remind that taxpayer they still

owe that money.

There is a 10-year statute period which we have to collect the potentially collectible inventory. Every year there is a significant

amount of money dropping off because we have not attempted a

telephone call, for example.

Senator SHELBY. How do you plan to ensure the protection of

taxpayers’ rights and the confidentiality of taxpayers to taxpayer

information when you contract this out to private contractors?

Mr. WENZEL. This is a very important area for us, Mr. Chairman,

in terms of——

Senator SHELBY. Very sensitive too.

Mr. WENZEL. Absolutely. We expect the private sector collection

agencies, when they go out and hire people, the people they are hiring will have to meet the same kind of requirements that we expect

of IRS employees in terms of background checks and so forth.

We have included our National Taxpayer Advocate in the development of this whole proposal for this very—for obvious reasons,

but particularly for this reason, to ensure that taxpayer rights are

not violated.

Senator SHELBY. It is very important.
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What will be the cost of these contracts compared to the cost of

collecting the same debts using IRS employees? Have you done any

comparisons there?

Mr. WENZEL. Mr. Chairman, we are finalizing what the projected

cost would be. This is not the first time this kind of effort has been

done. Forty-two States currently use collection agencies as do the

Department of Education and also Financial Management Services,

which is part of the Treasury Department. We are having discussions with them about the cost for this, but our proposal is basically that the costs would be recaptured in the proceeds that are

collected by these agencies or companies.

Senator SHELBY. So that leads me to the compensation of the

contractors, the people you contract out with. Is their compensation

a percentage of what they collect?

Mr. WENZEL. Yes, that is generally what the States and the two

Federal agencies that I mentioned that have entered into these

kinds of agreements do, and there is a certain percentage of the receipts that are collected.

Senator SHELBY. Okay.

Senator Murray?

EARNED INCOME TAX CREDIT

Senator MURRAY. Thank you, Mr. Chairman. In the fiscal year

2004 President’s budget, the IRS is proposing a so-called pre-certification initiative for the EITC program, and while you are asking

for the money for this in the next fiscal year, you are planning to

send verification documents as soon as this July, I understand, to

about 45,000 individuals requiring them to provide additional documents to ensure their EITC eligibility. These taxpayers, I understand, will have until this December to submit verification documents and your agency intends to delay the EITC portion of their

refund until IRS can review that documentation.

Can you tell me how quickly IRS expects to review that documentation?

Mr. WENZEL. The proposal, in terms of the $100 million, is that

we would send out letters to 45,000 taxpayers to ask them to precertify things like what we call a ‘‘qualifying child.’’ The intent is

not to put more burden on the taxpayers as it relates to how we

are doing business today. As you are aware, the EITC program for

some time has been determined to be a high risk program because

it is a tax credit. For a number of years now we have been funded

additional monies, not only to do the outreach, the informing and

educating to make sure that individuals who are eligible for EITC

are in the program, but also there was certain direction given to

us to make sure we minimized the amount of fraud that goes into

the program.

Senator MURRAY. I was not actually asking about your rationale.

I was asking, because you are sending 45,000 questionnaires out

and you are telling taxpayers that it may delay their refund, how

long can we tell these people that it is going be, that it will take

you to review this documentation?

Mr. WENZEL. We would try to make sure that we keep that time

span to the absolute minimum. Right now, Senator, we are still

talking with some interest groups on the outside. We have not even
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finalized the form that would be used. We have had two meetings

that have been coordinated by our National Taxpayer Advocate to

make sure that the form and what we are requiring for the documentation is kept to the absolute minimum, so that once the information comes in to us, we can immediately review it, turn it

around and issue the refund.

Senator MURRAY. Do you expect a lot of EITC payments to be delayed this year?

Mr. WENZEL. Delayed in the sense of, in the past that—yes, that

would be a correct statement. There would be a delay and we hope

to keep it to an absolute minimum.

Senator MURRAY. Can you give us any kind of time line on that?

Mr. WENZEL. I think what is key here, Senator, is to really finalize—as I mentioned, we are still finalizing some of those decisions,

working with considered outside stakeholders. That would be key.

I would be happy, once we get that—it should be done——

Senator MURRAY. If you could let us know. We will be hearing

from our constituents and we need to give them a response on that.

Then I understand that you expect to expand this project next

year and require pre-certification by two million EITC recipients.

I am curious if before you expand it from the 45,000 to the two million, are you going to do any kind of evaluation?

Mr. WENZEL. Absolutely. That is why we are starting out with

a much smaller number; that is correct.

Senator MURRAY. And you will have the results of that evaluation before you send out pre-certification documents to two million

people?

Mr. WENZEL. We will carefully track that and make sure that we

completely analyze what has occurred here, and then make a decision in terms of what is the correct number. We think the two million is a fair estimate, but that does not mean that that would not

be modified based on what we see.

Senator MURRAY. But you are going to take a look at what happens with the 45,000, and if we are seeing tons of delay and a lot

of problems then you will relook at that?

Mr. WENZEL. We will try to make sure that we do this right the

first time, and not incur any delay, even with the 45,000. But if

that is the case, we will make sure we modify our process and

carry that into the next year and the year after that.

Senator MURRAY. GAO estimates that in 1999 25 percent of eligible households, or about 4.3 million households, did not know even

how to claim this credit. The Government Performance and Results

Act requires you to set quantifiable goals for your agency’s objective. Does your fiscal year 2004 performance plan set a numerical

goal to increase the participation rate for EITC?

Mr. WENZEL. We have not quite finalized that goal yet, but it is

important, based on the feedback we received from GAO, to make

sure that we have an appropriate performance measurement in

that area.

Senator MURRAY. Why has it not been done yet?

Mr. WENZEL. We are still working through what the right percentage should be in terms of first time effort and setting the right

goal.
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Senator MURRAY. So you have not set a numerical goal. When do

you expect to do that?

Mr. WENZEL. We should be able to do that within, probably within the next 45 days.

Senator MURRAY. The IRS has identified other high risk compliance areas such as promoters of tax schemes, misusers of trusts

and offshore accounts, and under-reporting of tax by higher income

individuals. The average EITC credit is estimated to be only $1,660

while the average dollar-level fraud by those upper income individual is obviously much higher. Do you really believe that focusing

$100 million on EITC is how the taxpayer gets the biggest bang for

their buck?

Mr. WENZEL. Our intent is to make sure that we continue to devote a significant amount of our resources, as I mentioned in our

budget proposal for 2004, to address the other areas that you just

mentioned. But I also would say that we feel that the $100 million

is appropriate because almost one-third of the program right now,

$9 billion, is going out to individuals that are not entitled to the

EITC. Based on trending, that percent may continue to increase

unless we try to do something like the pre-certification. That is a

real concern on our part as far as how a significant tax credit program like the EITC where already a large proportion, the money

is going to the wrong individuals.

Senator MURRAY. You have estimated that almost one-third of

the EITC claims in tax year 1999 should not have been paid due

to taxpayer errors. But that percentage does not take into account

the changes that were made in the 2001 tax act. Shouldn’t that figure be lower now?

Mr. WENZEL. We have not been able to validate that. We should,

based on this national research program that we just recently have

gone out and done, a random audit, receive information to verify

what you just mentioned; however, the information will not be

available until next year, about this time, to see what the results

were.

Senator MURRAY. So we will not know whether it is still that

high until a year from now?

Mr. WENZEL. It is true, we are——

Senator MURRAY. We made changes in the 2001 tax act that

should have reduced that. But you are basing what you want to do

now back on what happened before we did that act.

Mr. WENZEL. That is correct. That is the latest information that

we have that we cited. And despite our efforts in terms of how we

approached this in the past, we have not been successful to reverse

this trend.

Senator MURRAY. But shouldn’t we wait until we get a more accurate estimate of what occurred with the 2001 tax act before implementing this kind of regime that could cause a lot of disruption

among many taxpayers?

Mr. WENZEL. Senator, our assessment of this is that we really

need it—we could not wait any longer. We needed to go ahead and

try this pre-certification as a better way to identify and stop the

30 percent and reduce it significantly.

Senator MURRAY. Your documentation actually indicates that one

reason that we have a high error rate is because taxpayers are con-
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fused about many of the complex EITC rules. What steps have you

taken to simplify these rules so that we can avoid taxpayer confusion?

Mr. WENZEL. We continue to get the input from our National

Taxpayer Advocate and her advocates around the country. We ourselves at the IRS are always trying to learn from interested outside

groups that give us input, to try to make sure that—the example

I gave, in terms of this current effort, is to come up with a form

that is easily understood, simplified, as much as possible, including

the instructions, so people are not confused.

Senator MURRAY. Mr. Chairman, I would just say that if we do

pre-certification and confuse people even more, then we are doing

a real disservice to people who actually should be getting the EITC

for very good reasons that we have set out before. So I think we

have to be very careful. If we have confusing rules now and we add

more confusing rules, I do not think it is very fair to low income

taxpayers.

Mr. WENZEL. Senator, just in terms of the $100 million I just—

and I am sure you are aware of this, but I just wanted to point out

that of the $100 million, we asked for about 650 FTEs. About 20

percent of the 650 FTEs will be spent on educating and informing

again, trying to reach out and make sure that people know they

are entitled to the EITC and trying to clarify for them any misunderstanding. So it is not all totally devoted towards the enforcement side.

Senator MURRAY. Thank you, Mr. Chairman.

IRS FREE FILE INITIATIVE

Senator SHELBY. I want to go back to the free filing and so forth.

Are there two separate systems here? One, the free file alliance is

free for qualifying taxpayers.

Mr. WENZEL. Yes.

Senator SHELBY. And by that, do you have to have a certain income to qualify?

Mr. WENZEL. Yes, what is referred to as the adjusted gross income, Mr. Chairman. But what these different sites offer in the

way of——

Senator SHELBY. What would that be before they could——

Mr. WENZEL. It varies by site. But when you add them all up,

at least 68 percent of all taxpayers that would want to avail themselves of one of the 17 sites will have the opportunity to free file.

It is not 100 percent.

Senator SHELBY. In other words, you have to have a certain income before you can go to these sites. So it is not for all taxpayers.

Mr. WENZEL. Not right now.

Senator SHELBY. Do you expect it to be for all taxpayers?

Mr. WENZEL. This is a first-year effort.

Senator SHELBY. So you are trying.

Mr. WENZEL. We are trying. It is truly a pilot. The response has

been tremendous; 2.1 million people to date have used this option

that would not have otherwise. They have had the opportunity to

come in and file a return at no cost.

Senator SHELBY. Now the e-file partners are the only entities

that the IRS allows to file tax returns; is that correct?
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Mr. WENZEL. Through that site, yes. Through IRS.gov, yes.

Senator SHELBY. I wanted to clear that up.

CUSTOMER SERVICE

The IRS’ budget request proposes to reduce the individual call

service workforce. Some of us are concerned about the implications

of the workforce reduction in the individual call service area. The

IRS has come a long way in terms of customer service in the years

since I chaired this committee last, and we are concerned that a

reduction of this size will have a negative impact on the provision

of customer service to individual taxpayers.

Mr. WENZEL. We fully agree with you in that regard, Mr. Chairman. We do not want to step back and reduce the service, what we

have been able to achieve. Just to give you one measurement——

Senator SHELBY. Because, in a sense, if you reduce the service

it will reduce your efficiency, will it not?

Mr. WENZEL. We have a responsibility to provide the best products and services to citizens of the United States, and one of the

ways we do that is through our telephone call centers. We want to

make sure we maintain and continue to improve the way we do

business. We have been successful in improving the efficiency of

the telephone operations, particularly in the last 12 months, but

our performance goals, as you would review them, would continue

to show that we want to improve in all areas, including the quality

of the responses we give and also the level of service that we offer

on our telephones. We do not intend to step back.

CAMPUS CONSOLIDATION

Senator SHELBY. Electronic filing again. We do not want to get

away from that, I think. As more returns are filed electronically,

what is the impact on IRS staffing in facilities? It has to go down.

Mr. WENZEL. Absolutely. Because of the 53 million that I mentioned earlier, as a result of that, we are closing one of what we

call our submission processing centers.

Senator SHELBY. Brookhaven service center?

Mr. WENZEL. That is the Brookhaven service center, yes. We

have eight, what we call individual tax return submission processing centers, and two for just business returns. As of September

30th of this year, not too many months from now, the submission

processing operation in Brookhaven will shut down completely and

we will go to seven, with plans as electronic filing continue——

Senator SHELBY. What savings will you realize by closing this facility?

Mr. WENZEL. Significant savings.

Senator SHELBY. How will the savings be used?

Mr. WENZEL. We hope in terms of reinvesting back into the IRS

to put the savings into our customer service, into enforcement.

Senator SHELBY. What formula or criteria did you use to determine which centers to close and the order in which to close the centers?

Mr. WENZEL. I would be happy to share that with you and your

staff, Mr. Chairman, but things like labor and rent savings, the impact on——

Senator SHELBY. Just management positions basically?
94

Mr. WENZEL. Yes. A whole list of criteria that we came up with.

Senator SHELBY. Okay, we would be interested in seeing it.

Since all taxpayers are still not filing their taxes electronically,

are there plans to upgrade the paper returns processing system?

Mr. WENZEL. We are always looking for ways to continue to improve every part of the IRS’ operation. The submission processing

paper side has been in business for a long time, and even though

it has been around for a long time, we have made substantial improvements, and we continue to realize efficiency savings. We will

continue to look for additional efficiency savings.

BUSINESS SYSTEMS MODERNIZATION

Senator SHELBY. The IRS has developed an expenditure plan for

Congressional approval detailing how funds are to be spent before

the funds can be released. The key component of systems modernization is the customer account data engine (CADE), and it is

scheduled to be released in June or July of this year. It has experienced numerous delays. Will CADE be rolled out as scheduled, and

will it offer improved service to taxpayers?

Mr. WENZEL. This is, of any major business systems modernization project that we have, the most significant project because what

it does is completely overhaul our master file. Right now we expect

that the first iteration of CADE will be available to us later this

year, around July and August. What that is, basically as I mentioned, is the first phase of——

Senator SHELBY. Master file, tell me what you mean.

Mr. WENZEL. Master file is every individual, business, exempt organization, employee plans——

Senator SHELBY. The whole matrix?

Mr. WENZEL. Everything, in terms of individuals and businesses

that are housed, currently, on a very outdated system. So it is very

sophisticated, very difficult. The PRIME contractors that we have,

some of the best companies in the world, realize the challenges

here. They are the ones that are doing this work for us, as you

know. Right now we have regular meetings and the goal is to stay

with the schedule of July or August to have the first version of

CADE delivered.

Senator SHELBY. What steps are you taking at IRS to ensure

that the business operating divisions are adequately prepared to

accept and operate and support these modernize systems?

Mr. WENZEL. That is a very essential part because all of this

modernization, when you talk about modernization——

Senator SHELBY. It means nothing without that, doesn’t it?

Mr. WENZEL. It means nothing without having your people come

along and understand what the new systems offer. So there is a

training part, awareness part, all of that is so important, and it is

integral to this whole effort.

Senator SHELBY. You do not want to purchase software and no

one knows how to operate it.

Mr. WENZEL. That is exactly right. We have seen that happen in

some other agencies, and we are not going to let that happen here

at the IRS.

Senator SHELBY. GAO has reported that IRS has made progress

in implementing modernization management controls and capabili-
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ties, certain BSM management capabilities have not been fully implemented they say. GAO reiterated prior recommendations that

the IRS correct modernization management weaknesses. We know

you have made progress from when I used to benchmark it.

What is IRS’s plan and schedule for addressing the GAO’s recommendations, including implementing effective procedures for

validating contractor development, cost and schedule estimates?

Mr. WENZEL. We have done a number of things based on the

input from the GAO’s oversight of the IRS, and also our inspector

general’s oversight of the BSM program. One of the things that we

have done is this year, fiscal year 2003, we have slowed down or

eliminated some of the projects that we thought we were going to

undertake, and really focused on CADE and some of the other critical programs, which has helped us immeasurably.

We have also met with the PRIME contractor and entered into

an understanding that a lot of the programs in the future will be

cost performance-based type of compensation, rather than just continuing to write a check. That’s the expectation; the work will be

based on a set cost price or possibly a performance-based price, so

there is accountability going back to the PRIME contractor.

The third thing that the PRIME contractor has done, based on

their further awareness of the challenges that these efforts offer,

is beefed up their experts, their expertise, particularly their senior

leadership of the contract, and have brought in some individuals

that really understand this better and know how to manage it better, and to work with the IRS leadership in terms of making sure

we deliver on BSM this time.

OFFERS IN COMPROMISE

Senator SHELBY. The Offer in Compromise, this initiative has allowed the IRS to reduce the backlog of cases and all new cases are

to be processed at one of two centralized sites, and only those offers

that cannot be completed there are sent to field offices for resolution. Concerns exist because the program has been costly to operate

in comparison to the return on the investment. Have the new initiatives enabled IRS to make the program more cost efficient?

What measures are used to make your assessment?

Mr. WENZEL. What we have done is, in two sites, as you mention,

one in Brookhaven and one in Memphis, added a total of 600 employees, roughly 300 in each of the locations. They are lower-graded

employees. Obviously, to start this up we had to go through an extensive training program for the 600 employees. Now their skill

level has really reached the point where they have become quite

productive, and we are able to screen out and work in those sites

some of the real easy offer in compromises where we do not have

to make a one-on-one contact with a revenue officer who is much

higher-graded, where there is travel time involved and so forth.

So our key measurement is what you might expect in terms of

the quality of the work performed, the efficiency of the work performed. We feel, at this point in time, that now that we have gone

through this learning curve, that our decision to go to that kind of

an operation is going to really pay the overall benefits that we initially expected.
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SECURITY

Senator SHELBY. Information security. News reports that the IRS

has not done a good job in making sure that contractors receive appropriate background checks. There have been problems with lock

box employee guards and even bomb-sniffing dogs that really could

not detect explosives. What is the IRS doing to address these problems? Can these problems have an impact on the safety of IRS employees as well as on the security of the taxpayer data? It is important to have a safe place to work.

Mr. WENZEL. Mr. Chairman, if there is a number one priority at

the Internal Revenue Service, it is to ensure the safety of our

100,000 employees around the country. We take seriously and welcome the reviews that have been conducted by the GAO and the

inspector general for the IRS, who has also provided us ongoing

feedback on things like you just mentioned, in terms of the contract

employees. We have responded to those and taken the necessary

actions to correct that problem, so that the background checks are

done of contract employees, and do the follow-up reviews and make

sure it does not recur again.

Ever since September 11th of 2001, we have an ongoing site here

in Washington, D.C. with the Inspector General, where cooperatively we are looking at every aspect of physical security in every

one of our 795 offices around the country to try to ensure the safety

of our employees.

ADDITIONAL COMMITTEE QUESTIONS

Senator SHELBY. That is good to hear.

We appreciate your appearance here today. We will continue to

work with you and we believe that we have to measure the expenditures of the taxpayer and you are in a position to set the ground

rules.

Mr. WENZEL. Mr. Chairman, thank you for your oversight and

support that you provide to the Internal Revenue Service.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

GENERAL

Question. Why is IRS requesting additional staffing in fiscal year 2004, when the

positions granted in fiscal year 2003 have not been filled?

Answer. The IRS requested additional funding in fiscal year 2003 for 1,179 FTE

to improve customer service and compliance and meet workload increases. However,

before we published the fiscal year 2004 budget, a number of unfunded and unanticipated costs arose that reduced the funding available for hiring these additional

staff. Since over 70 percent of the IRS Operating budget consists of salaries and

benefits, any unanticipated costs we must pay requires the reduction of labor costs

(i.e., FTE).

For example, the fiscal year 2002 annual pay raise of 4.6 percent cost an additional $43 million above the 3.6 percent budgeted amount. The IRS had also expected savings resulting from legislative proposals for postage and the Financial

Management Service (FMS) levy that Congress did not pass that required us to fund

an additional $23 million. The unfunded postage increase raised our postage costs

by $22 million. Moreover, an unfunded increase in security costs resulting from the

9/11 tragedy cost the agency an additional $20 million. These changes and others
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amounted to $170 million in unexpected, unfunded costs mandatory to meet our

mission.

In addition, the extended Continuing Resolution for fiscal year 2003 limited our

funding to the fiscal year 2002 level until the appropriation was passed in early

2003. That restriction forced the IRS to concentrate available funds on ensuring a

good filing season and prevented the execution of hiring plans. Despite these setbacks, the IRS needs the additional funding in fiscal year 2004 to continue to build

the staff necessary to address the enforcement problems that ensure that all taxpayers pay their fair share of taxes.

Question. What formula did IRS use to determine which Service Center to close

and what cost savings if any, are derived from this action?

Answer. In the past, all ten IRS submissions processing centers processed returns

from both the Individual Taxpayers (IMF) and Business Taxpayers (BMF). Prior to

our reorganization the ten centers were identical to each other. Each center processed IMF and BMF returns. Each center also handled Taxpayer Accounts (correspondence/telephones) and Compliance programs for both IMF and BMF. While

this was successful, we felt we could improve our Business results, and be more responsive to the Customer/Taxpayers by specializing our organization structure

based on our customers. We based the initial IMF Consolidation Strategy of these

centers around Wage and Investment (W&I), Small Business/Self Employed (SB/

SE), Large and Mid-Size Business (LMSB) and Tax Exempt and Government Entities (TE/GE) customer segments. As a result of this reorganization, we reorganized

the ten Processing Campuses into eight W&I and two SB/SE Submission (Return)

Processing Centers.

With the increased emphasis on Electronic Filing we have designed a detailed

business plan to reduce the number of Processing Centers from eight W&I sites to,

eventually, two. This is several years in the future, but this plan will reduce the

number of centers every couple of years, providing the public continues to switch

from filing paper to electronic returns.

We used economies of scale, labor market factors and real estate costs, as well

as the criteria listed below, to determine the order of consolidation of the sites:

—A Program Optimization Model using site specific volumetric and production

rates,

—Campus specific Return on Investment for real estate expenditures associated

with Submission Processing,

—Detailed potential severance costs associated with a Submission Processing consolidation,

—Qualitative factors such as, operational feasibility, infrastructure and work force

impacts.

As Electronic Filing increases and paper returns decrease, consolidation of Submission Processing campuses will result in savings. The IRS’ intent is to reinvest

these savings to maximize program opportunities in other areas. While there is not

a final figure for the Brookhaven Submission Processing consolidation, the initial

cost savings projection was approximately $50 million. The projected savings at the

Memphis Service Center consist of both Real Estate and Salary costs and are currently projected to be $12.5 million dollars for the period 2004 through 2006. We

project an annual cost avoidance of $9.5 million dollars a year starting in 2007. It

is too soon to project the cost savings for each center beyond Memphis at this time.

ELECTRONIC FILING

Question. Reports state that the 2002 filing season has been successful with the

implementation of e-filing. There should be some cost savings from this program;

can you identify savings generated because of this initiative?

Answer. During fiscal year 2002, IRS estimates that the savings generated from

e-file were $9.995 million. Savings for fiscal year 2003 are estimated to be $10.369

million. Savings are computed as the costs that would have been incurred for processing the decreased number of paper returns, reduced by the costs of processing

them as e-file returns.

Question. The IRS contracted with the Free File Alliance, to provide free online

tax preparation and filing services for at least 60 percent of all taxpayers through

the IRS Website. Since the 2002 filing date has passed, do you think the Free File

Alliance was a success? What changes if any, would you make to this process for

the next filing season?

Answer. We did not contract, but rather established and are executing a publicprivate partnership agreement with the Free File Alliance, LLC.

As of May 31, 2003, the IRS has received over 2.77 million returns through the

17 companies participating with the Free File Alliance. This figure represents over
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23 percent of all returns filed online with the IRS (11.7 million). These free tax

preparation and e-filing services will continue to be available to taxpayers through

October 15, 2003 on the irs.gov web site. Deemed a tremendous success by Treasury,

OMB and IRS, the Free File initiative exceeded expectations for the program. Based

on the volume of returns received through Alliance members and the relatively

small number of comments/concerns sent to the IRS, the Free File initiative was

very well received by taxpayers.

The IRS and the Free File Alliance are assessing all feedback and impact of the

program on both industry and the IRS. Completion of this process will determine

appropriate refinements for the 2004 filing season.

Question. Electronic filing has a number of discrepancies pertaining to e-filing.

Explain how free e-filing works? How can an individual qualify for free e-filing?

Answer. In November of 2001, the Office of Management Budget’s (OMB) Quicksilver Task Force established 24 e-government initiatives as part of the President’s

Management Agenda. The task force designed these initiatives to improve government to government, government to business, and government to citizen electronic

capabilities. One initiative, EZ Tax Filing (now known as Free File) instructed the

IRS to provide free online tax return preparation and electronic filing services to

taxpayers. To accomplish this objective, the IRS began working in partnership with

the tax software industry to develop a solution. The result was a precedent-setting

agreement between the government (IRS) and private sector (Free File Alliance,

LLC, a group of tax software companies, managed by the Council for the Electronic

Revenue Communication Advancement (CERCA)), that requires tax software companies to provide free online tax preparation and electronic filing services to eligible

taxpayers. This agreement requires Alliance members to provide free tax return

preparation and electronic filing services to a significant portion of the taxpaying

population (at least 60 percent or 78 million taxpayers) through April 15, 2003.

Many of these free services will be available for taxpayers with extensions through

October 15, 2003. These free services were launched to the public on January 16,

2003 and are being promoted by the IRS and are accessible at www.irs.gov.

The following describes how a taxpayer can participate with Free File:

Determine eligibility.—Upon arrival to the Free File page within irs.gov, the taxpayer must determine his or her eligibility for using a particular company’s free

service. This eligibility can be determined by two methods: the taxpayer may browse

the complete listing of Alliance members and their free services; or the taxpayer can

use a ‘‘questionnaire’’ application (i.e., Free File Wizard) designed to help identify

those free services for which they may qualify. Each Alliance member’s company

name is identified and a simple description of the criteria for using their free service

is provided. For interested taxpayers, each Alliance member’s company or product

name is linked to additional information about the company and/or services.

Link to free services.—Upon determining eligibility, the taxpayer can link directly

to that Alliance member’s free service by clicking on the Alliance member’s ‘‘Start

Now’’ link. Upon doing so, taxpayers are notified they are leaving the irs.gov web

site and are entering the Alliance member’s web site.

Prepare and File Income Tax Return.—At the Alliance member’s web site, the taxpayer can use the member’s online software to prepare and e-file his or her income

tax return using proprietary processes and systems. Once complete, the member

transmits the taxpayer’s return information to the IRS through the established efile system. Upon receipt, IRS computers check the return information for errors or

missing information and send the taxpayer notification of return acceptance or rejection through the Alliance member. Taxpayers will receive notification from the Alliance member.

[NOTE.—Each Alliance member has specific qualifying criteria for its free service.

For the 2003 filing season, the members based these requirements on factors such

as age, adjusted gross income, State residency, military status, or eligibility to file

a Form 1040EZ or claim the Earned Income Tax Credit. Taxpayers who met these

requirements can use that member’s online software to prepare and e-file their Federal tax return for free. An Alliance member’s qualifying criteria may change for the

2004 filing season.]

Question. When the business system modernization of IRS is complete, will all

taxpayers be able to file their taxes by e-filing or file on-line from the privacy of

one’s own home? If not, why not?

Answer. Currently, over 99 percent of all tax returns can be e-filed from home

computers or by using an authorized provider. The IRS is systematically removing

the last few barriers to e-file to open eligibility to the remaining taxpaying population. However, IRS’ Business Systems Modernization program does not have plans

to offer direct on-line filing. RRA 98 directed the IRS to work cooperatively with the

industry to promote electronic filing. Additionally, the IRS believes that private in-
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dustry, given its established expertise and experience in electronic tax preparation,

has a proven track record in providing the best technology and services available.

As such, the IRS entered into an agreement with the private industry (Free File

Alliance), to provide free online tax filing and preparation services to at least 60 percent of the taxpaying population. These free services were offered, during the 2003

filing season, by 17 different companies and were accessible through IRS’ web site

(irs.gov). The IRS is continuing to work with industry partners to provide opportunities and solutions that will encourage taxpayers to file their tax returns electronically.

MODERNIZATION

Question. What contributed to the delays in the projects in the Business Systems

Modernization spending plan submitted to Congress?

Answer. The IRS is modernizing one of the largest and most complex information

systems in the world. Since the creation of the IRS in its current form in the 1950s,

our mission has evolved, and the volume and complexity of our operations have

mushroomed. Our tax system modernization initiative faces several challenges:

—Complex, ever-changing tax laws,

—Extremely high volumes,

—Over 130 million individual taxpayers,

—Over 6 million business taxpayers,

—200 million returns,

—$2.1 trillion in receipts, $1.5 trillion in electronic payments,

—Tax refunds totaling over $190 billion,

—1.5 billion information documents,

—52 million electronically filed returns,

—19.2 million combined Federal/State returns,

—Inputs with wide-variation in content ranging from few to many fields of various lengths,

—Seasonal processing with extreme variations in processing loads,

—Hundreds of legacy applications,

—Transaction rates on the order of billions per year and storage measured in the

tens of terabytes (trillions of bytes).

Since the Business System Modernization (BSM) effort began, the BSM program

office and PRIME contractor have struggled to implement defined and repeatable

processes that are necessary for effective and efficient systems development. Due to

the complexity of the BSM projects, these management processes have required time

to become established. Once all management processes are in place, and as they mature, the program will run closer to cost and schedule estimates and our capacity

to initiate additional deliverables will also increase. Also, we have addressed many

of the recommendations made by GAO, such as prudently slowing some projects and

deferring new ones when management capacity is inadequate, to proceed with an

acceptable risk level.

The IRS’ systems are woefully obsolete and inefficient for an organization so critically dependent on technology. We are saddled with a collection of computer systems

developed over a 35-year period. The most important systems that maintain all taxpayer records were developed in the 1960s. Additional cost and schedule delays

arise from the challenge of programming interfaces with these historical systems,

which cannot easily share information with the modernized systems.

Initial project budgets and delivery timelines are based on long term plans and

strategy and may be developed years before the project start date. As the projects

move through the lifecycle and as requirements become fully understood, we have

adjusted most project estimates and schedules to reflect the enormous complexity

of the systems. Legislative changes in the tax code also impact costs and schedules.

Both the IRS and the PRIME contractor have underestimated the enormous size

and complexity of the BSM effort. We are engaged in a comprehensive process improvement initiative to enhance our effectiveness in validating cost and schedule estimates. This includes working with the PRIME contractor to develop and deploy

best practice estimating capabilities consistent with Carnegie Mellon University’s

Software Engineering Institute (SEI), as recommended by GAO. Once all management processes are in place and as they mature, the program will run closer to cost

and schedule estimates and our capacity to initiate additional deliverables will also

increase.

In addition, given the important juncture we’ve reached with the first important

deliverable for CADE, we have decided to have an outside group of experts take an

independent look at the program and report back to us by the end of this summer.

We have not yet identified who will conduct this study but expect to do so in the
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next few weeks. No work will stop while the review is underway, but this is a good

time to assess progress, project risk and whether any midcourse corrections are

needed.

Question. Customer Account Data Engine (CADE) is the most critical of the components in the modernization process. When CADE goes live this year will it be able

to process all individual and business accounts?

Answer. The first release of CADE will go live later this summer. CADE will

begin to process individual returns this year. The system will not, however, process

business returns this year. The individual tax returns that CADE will begin to process will only be 1040EZ returns, paper and electronic, for single filers who either

fully paid or have a refund due. CADE’s first release will not include EITC filers

and filers with prior issues. The number of returns included in this first release will

be approximately 6 million. Although this is a relatively modest beginning, this first

release of CADE contains much of the highly complex infrastructure to support later

releases.

CADE will be deployed over 6 years in five releases, each related to a specific taxpayer segment. Each release will deliver functionality to support increasingly complex filing scenarios. At the conclusion of Release 5, CADE will have replaced the

Individual Master Files. Subsequent releases of CADE will eventually replace the

Business Master Files and Non-Master Files.

Because CADE is one of the most complex projects in the world, we are moving

forward carefully based upon positive results from the rigorous testing process, as

well as cost and capacity considerations.

PRIVATE COLLECTION AGENCIES

Question. What guidelines does the IRS have in place to protect taxpayer’s privacy, when and if the tax collection process is contracted to private collection agencies?

Answer. Under the Administration’s proposal, taxpayer protections provided by

the Internal Revenue Code (Code), IRS procedures, and other applicable laws, including those relating to taxpayer privacy, would be fully applicable to private collection agencies (PCAs). The taxpayer protections incorporated in the Administration’s proposal have been reviewed thoroughly, including consultations with the National Taxpayer Advocate. The National Taxpayer Advocate would have a continuing role in ensuring that taxpayer protections are maintained under this program.

Sections 6103(n) and 7431(a)(2) of the Internal Revenue Code currently permit a

taxpayer to pursue legal action against any person who is permitted to receive tax

returns and return information for purposes of assisting in tax administration, but

who unlawfully inspects or discloses that information. Criminal penalties also may

be imposed under I.R.C. §§ 7213, 7213A. These provisions would apply to PCAs. The

Administration’s proposal would require annual reports outlining the safeguards in

place at the PCAs to protect taxpayer confidentiality and PCA compliance with the

taxpayer confidentiality provisions.

PCA employees would receive extensive training on taxpayer rights and privacy

protections. The IRS’ oversight processes, which would include an on-site presence,

live and tape monitoring of communications with taxpayers, periodic audits, and

performance evaluations, would ensure that taxpayer rights and privacy are fully

protected.

PCAs would be required to maintain a dedicated secure physical space with approved access controls to ensure protection of taxpayer data. The IRS would evaluate the integrity of a PCA’s computer system to ensure that appropriate access controls are in place to protect taxpayer data. To protect against browsing of taxpayer

information, PCAs’ systems would be required to maintain a log of accesses to taxpayer information, which would be audited periodically by the IRS. On-site security

reviews would be performed to ensure that PCAs implement appropriate access controls to segregated areas where IRS work would be performed. Periodic security audits would be performed to ensure the PCAs maintain ongoing data and physical

security.

Question. A pilot project was tried previously, using private collection agencies

and it was not a success; what new information do you have that would indicate

that this process will work now?

Answer. The Administration’s proposal reflects the lessons learned from the pilot

program. The primary issues affecting the success of the pilot program, and the

manner in which those issues are addressed by this proposal, are set out below.

—Implementation Period.—The IRS was required to implement, almost from

scratch, the pilot program within the year of the appropriation legislation—i.e.,
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within 10 months of enactment. In contrast, planning for this proposal was

begun well over a year ago and has involved discussions between the IRS, the

Treasury Department, the Office of the National Taxpayer Advocate, the Department of Justice, and prospective contractors. Moreover, even once authorizing legislation is enacted, this proposal contemplates that additional time

would be required before the PCA program could begin. This additional time allows the IRS to ensure that the business processes, security and oversight

measures, and taxpayer protections are brought on-line and fully tested before

the program begins.

—Funding.—The pilot program effectively was funded out of IRS appropriations

and involved the assignment to PCAs of a range of cases. IRS employees can

exercise discretion and enforcement authority which cannot be delegated to a

PCA. IRS employees, therefore, should be more effective, compared to a PCA

employee, at collecting a range of outstanding tax obligations. Thus, PCAs in

the pilot program were destined to be judged as inferior to IRS employees over

such a range of cases. In contrast, however, this proposal would involve the

careful screening of cases to ensure that only the most appropriate ones are assigned to PCAs so that PCAs can act effectively and efficiently with respect to

these liabilities. The Administration’s proposal also involves PCAs

supplementing, and not displacing, existing IRS resources. Accordingly, the program would add to the net revenue collected.

—Processing and Communications.—At the time of the pilot program, IRS computer and communication systems were not adequate for the processing, delivery, and updating of liabilities being handled by the PCAs. These processing

and communications issues already are being addressed to ensure that all functions are performed timely in support of the program.

—Selection of Accounts.—The pilot program required the IRS to place accounts

where the IRS had previously made attempts to collect the monies owed. Consequently, the pilot program involved the referral of many outstanding liabilities to PCAs that did not have realistic collection potential. This resulted in

wasted effort by both the PCA and the IRS. Under the Administration’s proposal, the IRS would focus on ensuring that the outstanding liabilities that are

referred to PCAs are those that not only are within the authority of the PCA

to resolve but also represent cases with a sufficient likelihood of payment if a

PCA, in fact, were to handle the liability.

—Taxpayer Information.—The pilot program overly restricted the amount of information that could be provided to PCAs for purposes of collecting outstanding

liabilities. As a result, many cases had to be returned by the PCAs to the IRS

due to the PCAs’ inability to respond to often straightforward questions about

a taxpayer’s liability. Under the Administration’s proposal, PCAs would have

access to specific information regarding an outstanding tax liability (e.g., type

of tax, tax years affected, dates of assessment, whether the assessment is based

on a taxpayer’s own balance due return or an IRS notice, prior payments, and

application of prior payments) in order to answer basic, but important, questions that a taxpayer may have regarding the liability. The taxpayer information that would be provided to PCAs would be strictly limited to the information

required for the collection of the specific tax liability at issue. PCAs would not

receive, for instance, information regarding a taxpayer’s total or adjusted income, sources of income, results of IRS examinations, delinquency history for

liabilities not being handled by the PCA, or employer information. All existing

restrictions imposed by section 6103 of the Code would apply to the PCAs, and

taxpayers would have the right to assert a claim against PCA employees who

violate those protections.

—Contract Structure.—The pilot program involved a fixed-price contract with incentive payments. The Administration’s proposal would involve a competitive,

fee-for-service, performance-based, incentive contract structure. The performance evaluation would be based on a balanced scorecard that would look to

quality of service, taxpayer satisfaction, and case resolution, in addition to collection results. The allocation of accounts among the PCAs participating in the

program would be based on this performance evaluation, thereby providing a

further incentive for PCAs to respect all taxpayer rights and protections. This

compensation structure is modeled on the successful FMS and Department of

Education contracts.

—Oversight.—The Administration’s proposal would involve extensive oversight of

the PCAs participating in the program, including direct, on-site monitoring.

This oversight would ensure that procedures are followed, and that any issues

are identified and resolved early.
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QUESTIONS SUBMITTED BY SENATOR TED STEVENS

PUBLIC EMPLOYEES RETIREMENT SYSTEMS RULING

Question. In 2001, the Alaska State legislature passed a bill sponsored by Senator

Rick Halsford (S.B. 145) which created the Village Public Safety Officer Program.

The bill mandates Village Public Safety Officers are eligible to become a member

of the Public Employees’ Retirement Systems (PERS) under as 39.35. The IRS is

considering the inclusion of Village Public Safety Officers in PERS, however they

have not yet rendered a decision. Until the IRS makes a decision, S.B. 145 can’t

be implemented. In March, I wrote a letter to the IRS requesting a response regarding the status of the IRS’ ruling on the inclusion of Village Public Safety Officers

in PERS. No response has been received to this date. When can I expect to receive

a written response regarding the inclusion of Village Public Safety Officers in PERS,

or can you address this question right now?

Answer. The ruling request is under active consideration. Because positions taken

by the Pension Benefit Guaranty Corporation and the Department of Labor can be

affected by IRS rulings concerning the status of a plan as a governmental plan, we

informally coordinate these rulings with those agencies on a taxpayer anonymous

basis. We cannot disclose or otherwise make a draft taxpayer ruling available while

we are deliberating on a ruling, whether redacted or not. Once the ruling is issued,

with the taxpayer’s permission we can make a redacted copy available to you.

We plan to forward a redacted copy of our ruling to the aforementioned agencies

for their comments in mid-June. We expect their response within 30 days, and, assuming they concur with our proposed ruling or have no concerns or comments that

require follow-up, we will issue our decision within a week of receipt.

EXCISE TAX CALCULATION

Question. You have stated one of the goals of the IRS is to ensure that top quality

service is provided to each taxpayer through fair and uniform application of the law.

It has come to my attention that an Alaskan company called Hawaiian Vacation has

been using a handbook published by the Airlines Reporting Corporation to calculate

its excise tax for flights from Alaska to Hawaii. According to the handbook, the

route from Anchorage to Honolulu is subject to a 4.9 percent tax. The tax table has

been used in the airline industry for over 30 years, and during this time, the IRS

has not taken issue with the ARC handbook tables.

Recently, the IRS has disputes the use of the ARC handbook and has proposed

the tax calculation for the flight between Anchorage and Honolulu is 10.45 percent.

Obviously, the IRS’ calculation affects Alaskans because this is a tax paid by passengers. In the past, has the IRS rejected the use of the ARC handbook to determine

tax rates? If so, name the circumstances in which the use of the ARC handbook was

rejected. Will you provide the code section that prohibits the use of the ARC handbook when computing excise taxes?

Answer. Industry tables are useful tools in the calculation of the taxable and excludable mileage for air transportation and are normally published by an entity having no Form 720 filing requirement. Neither the Internal Revenue Code nor Treasury Regulations prohibit or authorize the specific use of industry tables when calculating the excise tax due on taxable air transportation to or from Alaska or Hawaii.

However, the underlying formulas and calculations to generate these industry tables

must be in compliance with IRC section 4262(b) and applicable regulations.

The Airline Reporting Corporation (ARC) has published tables used in the airline

reservation industry for over 30 years. Based on historical files, it appears that the

IRS had reviewed tables revised by the Air Transport Association of America (ATA)

in 1969. The tables concerned tax rate ratios for 29 TRANSPAC gateway cities. Although the specific mileages were not authenticated, the IRS stated the formula appeared reasonable, with an understanding that the computations were made using

the method set forth in Reg, Sec. 49.4262(b)–1(c).

Recently, we determined that the airline reservation industry tables currently include tax rate ratios for over 700 cities to Alaska and Hawaii. It appears they may

not conform to the method set forth in the regulations and revenue rulings. For example, all cities in Alaska have the same rate to Hawaii, as well as all cities in

an area east from Vermont to Nova Scotia, regardless of the miles involved. In addition, established flight patterns over Kodiak Island in Alaska and Catalina Island

in southern California, which are within the United States and taxable, are possibly

not considered in the rate tables.

Although IRC Sec. 6103 prevents the discussion of specific taxpayers and their returns, we are able to provide general tax information in response to these questions.

The industry table calculates the taxable mileage portion of a trip from Anchorage
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to Hawaii to be 4.9 percent of the total miles. The 7.5 percent Federal Excise Tax

rate would then be applicable to 4.9 percent of the amount paid for the ticket. Computing the specific mileage when normal flight patterns to Hawaii are over Kodiak

Island, the taxable portion of the mileage is more closely reflected at 10.45 percent

of the total mileage, because the flight passes over a point that is U.S. territory.

This is a broad-based issue that impacts airlines, charter companies, and travel

agencies who have a Form 720 filing requirement, as well as all taxpayers who travel to and from Alaska and Hawaii. In an effort to treat all taxpayers fairly and

equally, we hope to resolve the issue with a uniform application of the law. We have

agreed to meet with the industry and determine whether this issue can be addressed on a broad scale. We will be including excise, industry and Counsel specialists in this matter to come to a final determination as to the Service’s position.

There are several options open to pursue this, including Industry Issue Resolution,

Tax Advisory Memorandum, or Field Technical Guidance. We will determine the appropriate format and a path of resolution after a review of the underlying information and a discussion with industry.

QUESTIONS SUBMITTED BY SENATOR PATTY MURRAY

WILL THE IRS TRY TO INCREASE EARNED INCOME TAX CREDIT (EITC) PARTICIPATION?

Question. Mr. Wenzel, you stated that you intend to develop your numerical performance goal in no more than 45 days.

Please forward to me your goal and an accompanying detailed description of how

you intend to achieve this goal no later than May 26th.

Answer. We are currently developing a methodology to identify the EITC participation rate to allow us to establish a targeted goal. We will provide this goal and

accompanying detail by the end of June, as we discussed with your staff.

Question. Some Federal agencies have used paid television advertising in English

and Spanish as a method of publicizing their message. For example, the National

Highway Traffic Safety Administration spent $10 million to buy primetime advertising utilizing volunteer celebrities to get out its enforcement message on seat belts

with great success.

How much does the IRS plan to spend on paid advertising on radio and television

in order to boost participation in the EITC program?

Answer. The IRS does not normally use paid advertising for EITC. EITC is promoted primarily through free Public Service Announcements (PSA). In 2003, IRS

spent approximately $1.5 million for development and distribution of PSAs (TV,

radio, and print media) in both Spanish and English and other related outreach materials. For 2004, we are beginning to plan an EITC awareness and understanding

promotion strategy that will focus on encouraging workers eligible for EITC to claim

it, while reducing erroneous payments. We have budgeted approximately $1.5 million for this effort.

Question. Will you be using volunteer celebrities to get people’s attention?

Answer. In years past, celebrities have appeared in IRS PSAs from time to time.

However, we do not actively seek celebrity participation. Celebrities can pose a public relations risk if the celebrity’s positive image changes in the future.

Question. You are asking for an additional $100 million for the EITC program.

We are told that this funding will go both for your pre-certification effort and to enhance participation.

Precisely what percentage of the $100 million will go toward pre-certification

versus outreach efforts?

Answer. Of the $100.2 million:

—$16.2 million is allocated to the Qualifying Child Verification initiative,

—$13.0 million is allocated for Communications and Outreach,

—$11.1 million is allocated to the Filing Status and Income Misreporting initiatives,

—$7.1 million is for operations management,

—$9.9 million is allocated to phone support, and

—$4.5 million is allocated for support from a variety of areas, including Field Assistance, Taxpayer Advocate Service and Appeals.

The vast majority of the remainder ($38.4 million) is allocated to developing business and technological infrastructure. A description of the technology infrastructure

that we are developing or acquiring is provided in Appendix I.
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SHOULD THE IRS BE ALLOWED TO USE PRIVATE COLLECTION AGENCIES (PCAS) TO HELP

COLLECT DELINQUENT TAX DEBTS?

Question. Mr. Wenzel, your agency is seeking legislative authority to use private

collection agencies to help collect delinquent tax debts. IRS documentation states

that the IRS would be required to closely monitor private collection agencies’ activities and performance, including the protection of taxpayer rights. This is particularly important because PCAs would be compensated out of the revenue collected

through their activities.

Please explain in detail the precise steps that would be in place to ensure that

vigilant oversight would be conducted on PCA activities?

Answer. The IRS would establish an oversight group with responsibility for managing case referrals, monitoring and evaluating PCA performance, monitoring interactions with taxpayers, and reviewing and approving PCA invoices. The oversight

group would be required to monitor a statistically valid number of taxpayer contacts

by each PCA to evaluate taxpayer treatment and adherence to IRS approved procedures. A manual review of PCA activity on taxpayer accounts would be performed

to ensure compliance with approved IRS procedures and overall quality of case handling. A full on-site audit of each PCA by the IRS oversight group would be performed on a regular basis and would be in addition to ongoing quality-control and

taxpayer protection monitoring.

The PCA would be responsible for ensuring that each employee who has access

to taxpayer account information has completed the appropriate background investigation and non-disclosure forms. The PCA would be required to submit verification

of the required background investigation and copies of the non-disclosure forms to

the IRS at least 20 days before the employee is permitted to access taxpayer information. In addition, the IRS would adopt tracking procedures developed during the

1996–97 pilot program to ensure that no PCA employee would be granted access to

the IRS work site or taxpayer data until he/she successfully completed a satisfactory

background determination. These procedures were very successful during the pilot.

The IRS’ oversight of PCAs would be similar in many respects to the IRS’ oversight of its own employees. For example, the IRS audit system logs for indications

of improper accesses to taxpayer information. The IRS also performs oversight of

employee work for quality and appropriateness of taxpayer interactions.

PCAs would be required to provide a large amount of information to the IRS, as

well as access to various systems, to facilitate IRS oversight. This would include:

—detailed Operational Management Information Systems (MIS) reports,

—telephone Service Level reports,

—audits of employee access to IRS taxpayer data,

—access to PCA collection system for auditing purposes,

—remote telephone monitoring access to authorized IRS personnel,

—PCA employee tracking information,

—PCA employee quality review monitoring evaluations,

—PCA Operational Plans, and

—PCA Business Continuation Plans.

To make certain the IRS promptly hears, evaluates and addresses taxpayer complaints, a PCA would be required to provide to taxpayers, orally and in writing, information on how to report a complaint with the IRS. Any complaint received by

the IRS from a taxpayer would immediately be provided to the PCA. If a PCA were

to receive a complaint directly from the taxpayer, the PCA would be required to immediately forward the complaint to the IRS.

Upon receipt of a complaint from the IRS or directly from a taxpayer, a PCA

would be required to immediately cease collection activity on the account in question

and provide to the IRS, by the close of business on the following business day, a

copy of its records on the account and any other information relevant to the complaint. The PCA would not be permitted to resume collection activity on the account

until IRS resolved the problem and provided the PCA written authorization to resume work. Failure by the PCA to cease collection activity on the account would result in IRS recalling the account from the PCA and, if appropriate, the termination

of the PCA’s contract.

A PCA also would be required to investigate the complaint and provide a complete

report to the IRS within 10 business days of receiving the complaint. The report

would include a description of all actions taken to resolve the situation and steps

put in place to ensure there are no future occurrences of similar situations.

If a complaint is validated, the PCA would be required to remove the offending

employee from the IRS account and take all necessary steps to ensure the employee

no longer has any access to taxpayer information. In addition, the PCA’s bonus and

inventory would be reduced, and the PCA would be subject to a penalty. The IRS
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1 In determining whether to suspend a contract, the IRS would consider the severity and frequency of valid complaints for a PCA (whether related to one or more employees).

could choose to suspend all contract activity for the PCA either permanently or until

the IRS has determined, at its discretion, that the PCA had taken appropriate corrective actions to prevent further complaints.1 The IRS’ determination that a complaint was valid would not be subject to review.

If a potential statutory violation is identified, the IRS also would notify the Treasury Inspector General for Tax Administration (TIGTA). TIGTA may investigate the

complaint, depending on the circumstances and seriousness of the complaint. If

TIGTA initiates a formal investigation of the complaint, the PCA would be required

to cooperate fully with the investigation and coordinate its own management efforts

with the IRS and TIGTA. TIGTA would provide a report of its investigation to the

IRS Contracting Officer after concluding the investigation.

Question. What mechanisms would be in place to ensure that taxpayer rights are

protected and private data is accurately secured in the use of private collection

agencies?

Answer. Under the Administration’s proposal, taxpayer protections provided by

the Internal Revenue Code (Code), IRS procedures, and other applicable laws, including those relating to taxpayer privacy, would be fully applicable to private collection agencies (PCAs). The taxpayer protections incorporated in the Administration’s proposal have been reviewed thoroughly, including consultations with the National Taxpayer Advocate. The National Taxpayer Advocate would have a continuing role in ensuring that taxpayer protections are maintained under this program.

Sections 6103(n) and 7431(a)(2) of the Internal Revenue Code currently permit a

taxpayer to pursue legal action against any person who is permitted to receive tax

returns and return information for purposes of assisting in tax administration, but

who unlawfully inspects or discloses that information. Criminal penalties also may

be imposed under I.R.C. §§ 7213, 7213A. These provisions would apply to PCAs. The

Administration’s proposal would require annual reports outlining the safeguards in

place at the PCAs to protect taxpayer confidentiality and PCA compliance with the

taxpayer confidentiality provisions.

PCA employees would receive extensive training on taxpayer rights and privacy

protections. The IRS’ oversight processes, which would include an on-site presence,

live and tape monitoring of communications with taxpayers, periodic audits, and

performance evaluations, would ensure that taxpayer rights and privacy are fully

protected.

PCAs would be required to maintain a dedicated secure physical space with approved access controls to ensure protection of taxpayer data. The IRS would evaluate the integrity of a PCA’s computer system to ensure that appropriate access controls are in place to protect taxpayer data. To protect against browsing of taxpayer

information, PCAs’ systems would be required to maintain a log of accesses to taxpayer information, which would be audited periodically by the IRS. On-site security

reviews would be performed to ensure that PCAs implement appropriate access controls to segregated areas where IRS work would be performed. Periodic security audits would be performed to ensure the PCAs maintain ongoing data and physical

security.

Question. To what degree will the backgrounds of contractor employees be investigated?

Answer. The IRS, following Internal Revenue Manual (IRM) procedures and using

input from the National Background Investigations Center (NBIC) would determine

the degree of background investigation required in accordance with the risk associated with the job function performed and the taxpayer information being provided

to the PCAs. We anticipate PCA employees would undergo a moderate level of background investigation, which includes a criminal activity check, a tax compliance

check and verification of personal references.

Question. The Administration is supporting legislation to allow private collection

agencies to collect tax debt and be paid out of the proceeds of their collection efforts.

Isn’t this in conflict with the 1998 IRS reform legislation that specifically prohibits IRS employees or managers from being evaluated on the amount of taxes they

collect?

Answer. Fully consistent with Section 1204 of the IRS Reform and Restructuring

Act, the IRS’ contracts with PCAs would prohibit a PCA from evaluating a PCA employee based on quotas or collection results with respect to Federal tax debts serviced for the IRS. Moreover, these contracts would require that PCA employee evaluations include taxpayer service as a factor.
106

The PCAs themselves would be evaluated based on a balanced measure scorecard

that would reflect quality of service, taxpayer satisfaction, employee satisfaction and

case resolution, in addition to collection results. A PCA therefore will be judged at

its, and its employees’ effectiveness, at resolving outstanding accounts and, where

appropriate, effecting payment of outstanding tax liabilities.

PCAs would have a very strong incentive to fully respect taxpayer rights and protections, including privacy rights. Validated taxpayer complaints and deficiencies

identified during the IRS’ monitoring and audit of a PCAs would result in significant monetary penalties for the PCA. In addition, the PCA’s future allocation of

cases would be significantly impacted. Simply put, a PCA that does not fully respect

taxpayer rights and protections would soon find itself with a small to nonexistent

role in the program.

Question. Congress was concerned that evaluating employees on tax collection success could promote overly aggressive collection techniques. Even if the individual

contract employees are not evaluated on how much they bring in, they may be concerned that they won’t have a job unless they are bringing in money.

Doesn’t this conflict with the provisions of the 1998 IRS reform legislation?

Answer. The Administration’s proposal combines carefully restricted PCA activities, careful and continuous oversight, and significant short and long-term penalties

and incentives to ensure PCAs and their employees will fully respect taxpayer rights

and protections.

PCAs would focus on taxpayers who are likely to pay their outstanding tax liabilities, either in full or in installments, if they were located and contacted. These are

functions that do not require the exercise of discretion and which would not involve

enforcement actions. PCAs may be provided by the IRS with a specific statement

that can either be sent or delivered verbally to taxpayers regarding the benefits of

paying an outstanding tax liability, and the potential consequences of failing to do

so. PCAs would be prohibited from threatening or intimidating taxpayers, or otherwise suggesting that enforcement action will or may be taken if a taxpayer does not

pay the liability. In no case would a PCA be permitted to take enforcement action

against a taxpayer.

As described in previous responses, PCAs and their employees would be subject

to extensive oversight and audit. A violation by a PCA of a taxpayer protection provided by the Internal Revenue Code (Code), IRS procedures, or other applicable

laws, including those relating to taxpayer privacy, would have real short-term and

long-term consequences to the PCA and its employee, including, where appropriate,

contract termination.

Question. I understand that under current law, if an IRS employee misuses taxpayer information, the injured taxpayer can recover damages from the U.S. government.

Would that be the case with private contractors?

Answer. The existing protections against unauthorized disclosure of returns or return information would apply to PCAs and their employees. Sections 6103(n) and

7431(a)(2) of the Internal Revenue Code permit a taxpayer to pursue legal action

against any person who is permitted to receive tax returns and return information

for purposes of assisting with tax administration, but who unlawfully inspects or

discloses that information. Criminal penalties also may be imposed under I.R.C.

7213 and 7231A.

Question. IRS employees are routinely charged with frivolous claims of misconduct

by noncompliant taxpayers. These charges are investigated by IRS or the Treasury

Inspector General for Tax Administration.

Who would do the investigating and who would pay the cost of investigations of

charges against contract employees?

Answer. The process generally would be similar. The IRS would establish an oversight group with responsibility for managing case referrals, monitoring and evaluating PCA performance, monitoring interactions with taxpayers, and reviewing and

approving PCA invoices. The oversight group would be required to monitor a statistically valid number of taxpayer contacts by each PCA to evaluate taxpayer treatment and adherence to IRS approved procedures. A manual review of PCA activity

on taxpayer accounts would be performed to ensure compliance with approved IRS

procedures and overall quality of case handling. A full on-site audit of each PCA

by the IRS oversight group would be performed on a regular basis and would be

in addition to ongoing quality-control and taxpayer protection monitoring.

The PCA would be responsible for ensuring that each employee who has access

to taxpayer account information has completed the appropriate background investigation and non-disclosure forms. The PCA would be required to submit verification

of the required background investigation and copies of the non-disclosure forms to

the IRS at least 20 days before the employee is permitted to access taxpayer infor-
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2 In determining whether to suspend a contract, the IRS would consider the severity and frequency of valid complaints for a PCA (whether related to one or more employees).

mation. In addition, the IRS would adopt tracking procedures developed during the

1996–97 pilot program to ensure that no PCA employee would be granted access to

the IRS work site or taxpayer data until he/she successfully completed a satisfactory

background determination. These procedures were very successful during the pilot.

The IRS’ oversight of PCAs would be similar in many respects to the IRS’ oversight of its own employees. For example, the IRS audit system logs for indications

of improper accesses to taxpayer information. The IRS also performs oversight of

employee work for quality and appropriateness of taxpayer interactions.

PCAs would be required to provide a large amount of information to the IRS, as

well as access to various systems, to facilitate IRS oversight. This would include:

—detailed Operational Management Information Systems (MIS) reports,

—telephone Service Level reports,

—audits of employee access to IRS taxpayer data,

—access to PCA collection system for auditing purposes,

—remote telephone monitoring access to authorized IRS personnel,

—PCA employee tracking information,

—PCA employee quality review monitoring evaluations,

—PCA Operational Plans, and

—PCA Business Continuation Plans.

To make certain the IRS promptly hears, evaluates and addresses taxpayer complaints, a PCA would be required to provide to taxpayers, orally and in writing, information on how to report a complaint with the IRS. Any complaint received by

the IRS from a taxpayer would immediately be provided to the PCA. If a PCA were

to receive a complaint directly from the taxpayer, the PCA would be required to immediately forward the complaint to the IRS.

Upon receipt of a complaint from the IRS or directly from a taxpayer, a PCA

would be required to immediately cease collection activity on the account in question

and provide to the IRS, by the close of business on the following business day, a

copy of its records on the account and any other information relevant to the complaint. The PCA would not be permitted to resume collection activity on the account

until IRS resolved the problem and provided the PCA written authorization to resume work. Failure by the PCA to cease collection activity on the account would result in IRS recalling the account from the PCA and, if appropriate, the termination

of the PCA’s contract.

A PCA also would be required to investigate the complaint and provide a complete

report to the IRS within 10 business days of receiving the complaint. The report

would include a description of all actions taken to resolve the situation and steps

put in place to ensure there are no future occurrences of similar situations.

If a complaint is validated, the PCA would be required to remove the offending

employee from the IRS account and take all necessary steps to ensure the employee

no longer has any access to taxpayer information. In addition, the PCA’s bonus and

inventory would be reduced, and the PCA would be subject to a penalty. The IRS

could choose to suspend all contract activity for the PCA either permanently or until

the IRS has determined, at its discretion, that the PCA had taken appropriate corrective actions to prevent further complaints.2 The IRS’ determination that a complaint was valid would not be subject to review.

If a potential statutory violation is identified, the IRS also would notify the Treasury Inspector General for Tax Administration (TIGTA). TIGTA may investigate the

complaint, depending on the circumstances and seriousness of the complaint. If

TIGTA initiates a formal investigation of the complaint, the PCA would be required

to cooperate fully with the investigation and coordinate its own management efforts

with the IRS and TIGTA. TIGTA would provide a report of its investigation to the

IRS Contracting Officer after concluding the investigation.

The IRS would pay for an initial number of the background investigations (75),

and the PCA would bear the cost for any additional background investigations after

the first 75.

Question. How would IRS decide which cases to give to contractors?

Answer. The IRS is currently evaluating the cases that would be referred to

PCAs. In general, the cases the IRS would refer to PCAs are cases where the taxpayer has a reasonable likelihood of paying the outstanding tax liability if contacted

by telephone. These cases would include situations where a taxpayer has filed a return indicating an amount of tax due but has not sent in full payment of that

amount (so-called ‘‘balance-due’’ taxpayers). These cases also would include situations where the taxpayer has made three or more voluntary payments of tax that

the IRS has assessed (e.g., after having failed to file a return or report all income
108

received). The IRS would not refer cases for which there is any indication that enforcement action would be required to collect the tax liabilities or cases in which

the taxpayer disputes the amount of the liability or the existence of the liability.

The IRS anticipates that it initially would refer only cases relating to the Form

1040 series of returns, i.e., individual taxpayers. These cases also would include tax

liabilities of Small Business/Self-Employed (SB/SE) taxpayers and sole proprietors

who file a Form 1040 with a Schedule C, E, or F. Although the IRS would use PCAs

to help address both new cases as well as those cases that currently are not to be

addressed due to resource and collection priorities, the IRS does not intend to refer

cases that are over 6 years old.

The IRS is currently evaluating the potential inventory of cases that may be appropriate for referral. The IRS is developing more detailed screening criteria to

eliminate cases likely to result in a referral back to the IRS or that otherwise would

have a low probability of collection by the PCA. In addition, the IRS is examining

whether commercially available credit data could assist in identifying and

prioritizing the potential inventory for PCA placement.

Question. Wasn’t funding to analyze which cases could be given to contractors cut

in this year’s budget?

Answer. Collection Contract Support (CCS) was initially part of the Filing & Payment Compliance (F&PC) Modernization project. Although this project is now on

hold, the IRS has identified fiscal year 2003 funding for critical needs, including

analysis and development of predictive models that will place the appropriate accounts with PCAs should legislation be enacted. We have engaged an industry leader in the credit and risk management scoring process to develop these models for

use with CCS.

While the empirical models that are envisioned for F&PC are ultimately desirable

for the modernized IRS, the commercially available models presently planned for

use in CCS will provide valuable insight to the IRS on which accounts can be best

resolved in the PCA environment.

HAS THE IRS IMPROVED ITS CUSTOMER SERVICE?

Question. For the 2002 filing season and so far in this year’s filing season, taxpayers have received correct responses to questions approximately 85 percent of the

time.

What is the IRS doing to improve this rate?

Answer. The IRS utilizes several methods to continually address quality issues.

—The IRS monitors error data from the Centralized Quality Review System on

a daily basis and provides ongoing feedback about top errors to frontline employees. The Centralized Quality Review system is conducting in-depth analysis

of fiscal year 2003 Filing Season data to make recommendations on correcting

problem areas.

—Frontline managers and local review staffs continually listen to the responses

given to customers on the toll free telephone lines to ensure responses are correct and complete and to provide performance feedback to frontline employees.

—The IRS is working continually to improve tools used by frontline employees to

respond to customer inquiries. These tools include the Service Wide Electronic

Research Program, the Electronic Accounts Resolution Guide, and the Tax Law

Probe and Response Guide.

—Employees responding to tax law inquiries are specialized in their respective

topics and tested before being permitted to take live calls.

The IRS has accumulated data from each toll-free site on challenges faced during

the fiscal year 2003 filing season and actions taken to overcome these challenges.

This information is being used to plan for fiscal year 2004 and beyond to eliminate

barriers to providing world-class customer service.

Field Assistance initiated several actions to improve the accuracy of responses

given to taxpayers who visit Taxpayer Assistance Centers (TAC). Some of the actions are:

—Monitor Employee Performance.—TAC managers are monitoring 12 tax law

counter contacts for each technical employee during the year. At least six of the

contacts will be monitored during the filing season. To place the monitoring

commitment into the proper context, Field Assistance had 1521 permanent and

335 seasonal and permanent part time employees as of March 2003. Considering that tax law represents only 10 percent of the total workload and the geographic dispersion of our TACs this is a significant number of reviews.

—Employee Counseling.—Counseling is provided when we identify an improper

referral to a publication. We follow up with education and role playing to demonstrate proper use of the Publication Method. The Publication Method is a
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technique to ‘‘walk’’ a taxpayer through a publication to cover all appropriate

probing questions and illustrates the correct answer to his/her question.

—Training Assessment Battery (TAB).—TAB will be administered to all employees

and managers to identify skill levels and training needs. The TAB includes four

modules that align directly with the four-stage training curriculum for Tax Resolution Representatives (TRRs).

—Employee Certification Process.—We have completed the first round of employee

certifications. The certification process requires employees to correctly answer

three out of three questions on four tax law topics (social security benefits, education credit, earned income tax credit and dependents). Employees will only be

allowed to answer taxpayers’ questions on topics for which they have been certified.

—Anonymous Managerial Visits.—The sample plan requires 30 anonymous visits

monthly per Area. Results of the visits are provided to the employee’s manager

within one business day for follow-up for potential quality improvement.

—Anonymous Headquarters Quality Assurance Visits.—Our Headquarters Quality

Assurance staff is required to make monthly anonymous visits to the TACs. Results of the visits are also provided to the employees’ managers.

—Error Trend Reports.—Issued by Headquarters Quality Assurance staff when

we identify errors. Areas are required to follow up on the errors identified and

take appropriate actions to improve the accuracy of responses given to taxpayers who visit the TACs.

Question. How accurate are the answers supplied by employees using the IRS tollfree help phone lines?

Answer. Using fiscal year 2003 cumulative as of May 23rd, for the 2003 filing season the accuracy rate for tax law is 82.25 percent and accuracy rate for accounts

is 88.11 percent.

Question. What is the result of reviews of the quality of walk-in service to taxpayers at IRS Taxpayer Assistance Centers?

Answer. The results of Field Assistance quality reviews and Treasury Inspector

General for Tax Administration (TIGTA) reviews of the quality of walk-in service

at TAC’s during fiscal year 2003 are:

Field Assistance Quality Review Results.—The cumulative accuracy rate through

April 2003 is 87 percent based on 840 questions asked nationwide.

TIGTA Results.—The cumulative accuracy rate through April 2003 is 68 percent

based on 445 questions asked. We disagree with including referrals to publications

and service denied responses in computing the accuracy rate. When recomputed to

reflect only answers that are technically correct or incorrect, the cumulative accuracy rate is 73 percent. [NOTE.—The term ‘‘service denied’’ includes situations where

the IRS employee did not answer the taxpayer’s question, did not refer the taxpayer

to a publication, another employee, the toll-free telephone number or offer to prepare a written referral for the question. The IRS employee may have told the taxpayer that no one was available to answer their question and that they should come

back the next day.]

Question. Is there separate data available regarding the accuracy of information

given in response to inquiries pertaining to EITC?

Answer. Yes. Cumulative through April 2003, IRS has achieved an 81.4 percent

accuracy on Earned Income Tax Credit (Tax Law) for inquiries to our telephone

assistors.

The accuracy results for EITC questions for our walk-in offices are as follows:

Field Assistance Quality Review Results.—The cumulative accuracy rate through

April 2003 for EITC questions is 96 percent based on 69 questions asked nationwide.

TIGTA Results.—The cumulative accuracy rate through April 2003 for EITC questions is 70 percent based on 96 EITC questions asked. As stated above, we disagree

with including referrals to publications and service denied in computing the accuracy rate. When recomputed to reflect only answers to EITC questions that are technically correct or incorrect, the cumulative accuracy rate for EITC questions is 79

percent.

IRS MODERNIZATION

Question. It seems that for more than a decade, IRS has been modernizing its

computer systems. Obviously, this has been a challenge.

Why has it taken so long and why is it not completed? Despite improvements, the

major modernization projects continue to experience significant delays, cost increases, management difficulties, and reductions in deliverables.
110

Answer. The IRS is modernizing one of the largest and most complex information

systems in the world. Since the creation of Internal Revenue Service (IRS) in its

current form in the 1950s, our mission has evolved, and the volume and complexity

of our operations have mushroomed. Comparable to no other in the world today, our

tax system modernization initiative faces several challenges:

—Complex, ever-changing tax codes,

—Extremely high volumes,

—Over 130 million individual taxpayers,

—Over 6 million business taxpayers,

—200 million returns,

—$2.1 trillion receipts, $1.5 trillion in electronic payments,

—Tax refunds totaling over $190 billion,

—1.5 billion information documents,

—52 million electronically filed returns,

—19.2 million combined Federal/State returns,

—Input with wide-variation in content ranging from few to many fields of various

lengths,

—Seasonal processing with extreme variations in processing loads,

—Hundreds of legacy applications, and

—Transaction rates on the order of billions per year and storage measured in the

tens of terabytes (trillions of bytes).

As you know, past modernization attempts have yielded small improvements, but

have been largely unsuccessful. A critical question moving forward was whether or

not the IRS could learn from these failures to become more successful at managing

modernization. At the direction of Congress and to maximize the likelihood of success, the IRS awarded the PRIME contract to provide leadership in the development

of the IRS long-term vision of tax administration including; systems integration and

engineering, best practices in business process reengineering and business solution,

software acquisition/development and program/project management capability.

Notwithstanding the complexity of our modernization effort, we are experiencing

the same challenges faced by private industry in developing and deploying technology projects. The CHAOS report, published by the Standish Group, evaluated the

causes for success and failure of technology projects. The Standish Group research

shows a staggering 31.1 percent of projects will be canceled before they ever get

completed. Further results indicate 52.7 percent of projects will cost 189 percent of

their original estimates. The Modernization projects are realizing a success rate

equal to or greater than the success rate experienced by private industry.

The Modernization program is delivering real benefits for taxpayers, tax practitioners and the IRS, and we are supporting an aggressive deliverable schedule. In

addition to the accomplishments realized by project releases in fiscal year 2001 and

2002 discussed in the response to question 39d, planned deliverables for fiscal year

2003 include functionality for Internet Employer Identification Number (EIN), Customer Account Data Engine (CADE), Human Resources (HR) Connect and e-Services.

Initial project budgets and delivery timelines are based upon the long term

visioning and strategy and sometimes developed several years before the project

start date. As the projects move through the lifecycle and requirements become fully

understood, most project estimates and schedules have been adjusted to reflect the

enormous complexity of the systems. Additional costs and schedule delays also arise

from legislative changes and the need for the modernized systems to interface with

the existing legacy systems.

We are engaged in a comprehensive process improvement initiative to enhance

our effectiveness in validating cost and schedule estimates. This includes working

with the PRIME contractor to develop and deploy best practice estimating capabilities consistent with Carnegie Mellon University’s Software Engineering Institute

(SEI), as recommended by GAO. Following the present rollout of cost and schedule

estimating enhancements our focus will transition to ensuring increased accuracy

and reliability of estimates. Once all management processes are in place, and as

these mature, the program will run closer to cost and schedule estimates and our

capacity to initiate additional deliverables will also increase.

The modernization effort is a major challenge. As the GAO noted in its January

assessment, modernization remains a high risk area. It stated, ‘‘The scope and complexity of the program are growing—the challenge for the IRS is to make sure the

pace of systems acquisition projects does not exceed the agency’s ability to manage

them effectively.’’ Given the important juncture we have reached with the first important deliverable for CADE, and the need to ensure future success of the program,

we have decided to have an outside group of experts take an independent look at

the program and report back to us by the end of this summer. We have not yet iden-
111

tified who will conduct this study but expect to do so in the next few weeks. No

work will stop while the review is underway, but this is a good time to assess

progress, project risk and whether any midcourse corrections are needed.

Finally, because of the importance of successfully achieving modernization, the

new Commissioner recently appointed a new position, the Deputy Commissioner for

Operations Support, who will supervise the Chief Financial Officer, Chief Information Officer, the Chief Human Capital Officer, Agency Wide Shared Services and the

Service’s IT and physical security operations. The Deputy Commissioner for Operations Support will own the modernization program and drive productivity across

the organization in order to improve service to taxpayers.

IRS FINANCIAL MANAGEMENT

Question. The Acting Inspector General has found that IRS lacks, on an ongoing

basis, the timely, accurate, and useful information needed to make informed management decisions.

How do you respond to this charge?

Answer. The IRS is in the process of implementing the Integrated Financial System, a Joint Financial Management Improvement Program (JFMIP)-certified, commercial off-the-shelf software application that addresses the legislative requirements

for the IRS in support of the financial and revenue accounting, property and procurement processes. Release 1 is scheduled for agency-wide deployment in October

1, 2003.

This release will:

—Improve the capability to meet internal/external requirements related to management controls and financial reporting, including cost accounting;

—Improve the timeliness, quality, and utility of administrative activity data provided to IRS managers, as well as to central agencies, so they can make effective business decisions; and

—Address several Remediation Plan action items, and address GAO concerns regarding lack of integrated financial management systems at IRS.

With the implementation of IFS Release 1, the IRS expects to dramatically improve the timeliness, accuracy, and usability of the information required to make

informed management decisions.

QUESTIONS SUBMITTED BY SENATOR BARBARA A. MIKULSKI

IRS ON PRIVATIZING TAX COLLECTION

Question. The Administration is supporting legislation to allow private collection

agencies to collect tax debt and be paid out of the proceeds of their collection efforts.

This seems to me to be in conflict with the 1998 IRS reform legislation that specifically prohibits IRS employees or managers from being evaluated on the amount of

taxes they collect. Congress felt that evaluating employees on tax collection success

promoted overly aggressive collection techniques. Even if the individual contract employees are not evaluated on how much they bring in, they will know that they

won’t have a job unless they are bringing in money. Isn’t that in conflict with the

provisions of the 1998 IRS reform legislation?

Answer. The Administration’s proposal combines carefully restricted PCA activities, careful and continuous oversight, and significant short and long-term penalties

to ensure PCAs and their employees will fully respect taxpayer rights and protections. Fully consistent with Section 1204 of the IRS Reform and Restructuring Act,

the IRS’ contracts with PCAs would prohibit a PCA from evaluating a PCA employee based on quotas or collection results with respect to Federal tax debts serviced for the IRS. Moreover, these contracts would require that PCA employee evaluations include taxpayer service as a factor.

PCAs would focus on taxpayers who are likely to pay their outstanding tax liabilities, either in full or in installments, if they were located and contacted. These are

functions that do not require the exercise of discretion and which would not involve

enforcement actions. PCAs may be provided by the IRS with a specific statement

that can either be sent or delivered verbally to taxpayers regarding the benefits of

paying an outstanding tax liability, and the potential consequences of failing to do

so. PCAs would be prohibited from threatening or intimidating taxpayers, or otherwise suggesting that enforcement action will or may be taken if a taxpayer does not

pay the liability. In no case would a PCA be permitted to take enforcement action

against a taxpayer.

A violation by a PCA of a taxpayer protection provided by the Internal Revenue

Code (Code), IRS procedures, or other applicable laws, including those relating to
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taxpayer privacy, would have real short-term and long-term consequences to the

PCA and its employee, including, where appropriate, contract termination.

Question. It’s my understanding that under current law if an IRS employee misuses taxpayer information the injured taxpayer can recover damages from the U.S.

government? Would that be the case with private contractors?

Answer. The existing protections against unauthorized disclosure of returns or return information in would apply to PCAs and their employees. Sections 6103(n) and

7431(a)(2) of the Internal Revenue Code permit a taxpayer to pursue legal action

against any person who is permitted to receive tax returns and return information

for purposes of assisting with tax administration, but who unlawfully inspects or

discloses that information. Criminal penalties also may be imposed under I.R.C.

7213 and 7231A.

Question. IRS employees are routinely charged with frivolous claims of misconduct

by noncompliant taxpayers. These charges are investigated by IRS or the Treasury

Inspector General for Tax Administration. Who would do the investigating and who

would pay the cost of investigations of charges against contract employees?

Answer. The process generally would be similar. The IRS would establish an oversight group with responsibility for managing case referrals, monitoring and evaluating PCA performance, monitoring interactions with taxpayers, and reviewing and

approving PCA invoices. The oversight group would be required to monitor a statistically valid number of taxpayer contacts by each PCA to evaluate taxpayer treatment and adherence to IRS approved procedures. A manual review of PCA activity

on taxpayer accounts would be performed to ensure compliance with approved IRS

procedures and overall quality of case handling. A full on-site audit of each PCA

by the IRS oversight group would be performed on a regular basis and would be

in addition to ongoing quality-control and taxpayer protection monitoring.

The PCA would be responsible for ensuring that each employee who has access

to taxpayer account information has completed the appropriate background investigation and non-disclosure forms. The PCA would be required to submit verification

of the required background investigation and copies of the non-disclosure forms to

the IRS at least 20 days before the employee is permitted to access taxpayer information. In addition, the IRS would adopt tracking procedures developed during the

1996–97 pilot program to ensure that no PCA employee would be granted access to

the IRS work site or taxpayer data, and even then only limited access, until he/she

successfully completed a satisfactory background determination. These procedures

were very successful during the pilot.

The IRS’ oversight of PCAs would be similar in many respects to the IRS’ oversight of its own employees. For example, the IRS audit system logs for indications

of improper accesses to taxpayer information. The IRS also performs oversight of

employee work for quality and appropriateness of taxpayer interactions.

PCAs would be required to provide a large amount of information to the IRS, as

well as access to various systems, to facilitate IRS oversight. This would include:

—detailed Operational Management Information Systems (MIS) reports,

—telephone Service Level reports,

—audits of employee access to IRS taxpayer data,

—access to PCA collection system for auditing purposes,

—remote telephone monitoring access to authorized IRS personnel,

—PCA employee tracking information,

—PCA employee quality review monitoring evaluations,

—PCA Operational Plans, and

—PCA Business Continuation Plans.

To make certain the IRS promptly hears, evaluates and addresses taxpayer complaints, a PCA would be required to provide to taxpayers, orally and in writing, information on how to report a complaint with the IRS. Any complaint received by

the IRS from a taxpayer would immediately be provided to the PCA. If a PCA were

to receive a complaint directly from the taxpayer, the PCA would be required to immediately forward the complaint to the IRS.

Upon receipt of a complaint from the IRS or directly from a taxpayer, a PCA

would be required to immediately cease collection activity on the account in question

and provide to the IRS, by the close of business on the following business day, a

copy of its records on the account and any other information relevant to the complaint. The PCA would not be permitted to resume collection activity on the account

until IRS resolved the problem and provided the PCA written authorization to resume work. Failure by the PCA to cease collection activity on the account would result in IRS recalling the account from the PCA and, if appropriate, the termination

of the PCAs contract.

A PCA also would be required to investigate the complaint and provide a complete

report to the IRS within 10 business days of receiving the complaint. The report
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3 In determining whether to suspend a contract, the IRS would consider the severity and frequency of valid complaints for a PCA (whether related to one or more employees).

would include a description of all actions taken to resolve the situation and steps

put in place to ensure there are no future occurrences of similar situations.

If a complaint is validated, the PCA would be required to remove the offending

employee from the IRS account and take all necessary steps to ensure the employee

no longer has any access to taxpayer information. In addition, the PCA’s bonus and

inventory would be reduced, and the PCA would be subject to a penalty. The IRS

could choose to suspend all contract activity for the PCA either permanently or until

the IRS has determined, at its discretion, that the PCA had taken appropriate corrective actions to prevent further complaints.3 The IRS’ determination that a complaint was valid would not be subject to review.

If a potential statutory violation is identified, the IRS also would notify the Treasury Inspector General for Tax Administration (TIGTA). TIGTA may investigate the

complaint, depending on the circumstances and seriousness of the complaint. If

TIGTA initiates a formal investigation of the complaint, the PCA would be required

to cooperate fully with the investigation and coordinate its own management efforts

with the IRS and TIGTA. TIGTA would provide a report of its investigation to the

IRS Contracting Officer after concluding the investigation.

The IRS would pay for an initial number of the background investigations (75),

and the PCA would bear the cost for any additional background investigations after

the first 75.

Question. How would the IRS decide which cases to give to contractors? Wasn’t

funding to analyze which cases could be given to contractors cut in this year’s budget?

Answer. The IRS is currently evaluating the cases that would be referred to

PCAs. In general, the cases the IRS would refer to PCAs are cases where the taxpayer has a reasonable likelihood of paying the outstanding tax liability if contacted

by telephone. These cases would include situations where a taxpayer has filed a return indicating an amount of tax due but has not sent in full payment of that

amount (so-called ‘‘balance-due’’ taxpayers). These cases also would include situations where the taxpayer has made three or more voluntary payments of tax that

the IRS has assessed (e.g., after having failed to file a return or report all income

received). The IRS would not refer cases for which there is any indication that enforcement action would be required to collect the tax liabilities or cases in which

the taxpayer disputes the amount of the liability or the existence of the liability.

The IRS anticipates that it initially would refer only cases relating to the Form

1040 series of returns, i.e., individual taxpayers. These cases also would include tax

liabilities of Small Business/Self-Employed (SB/SE) taxpayers and sole proprietors

who file a Form 1040 with a Schedule C, E, or F. Although the IRS would use PCAs

to help address both new cases as well as those cases that currently are not to be

addressed due to resource and collection priorities, the IRS does not intend to refer

cases that are over 6 years old.

Collection Contract Support (CCS) was initially part of the Filing & Payment

Compliance (F&PC) Modernization project. Although this project is now on hold, the

IRS has identified fiscal year 2003 funding for critical needs, including analysis and

development of predictive models that will place the appropriate accounts with

PCAs should legislation be enacted. We have engaged an industry leader in the

credit and risk management scoring process to develop these models for use with

CCS.

While the empirical models that are envisioned for F&PC are ultimately desirable

for the modernized IRS, the commercially available models presently planned for

use in CCS will provide valuable insight to the IRS on which accounts can be best

resolved in the PCA environment.

BUSINESS SYSTEMS MODERNIZATION

Question. I am concerned about the requested funding levels for the IRS business

systems modernization program. The budget request for this year is just $429 million, about $21 million or 5 percent below the initial fiscal year 2003 request and

$79 million or 14 percent below the level recommended by the IRS Oversight Board.

a. Are you committed to a robust Federal investment to continue the business systems modernization program at IRS?

Answer. Yes. We firmly believe we are making progress on our commitments, are

leveraging our precious resources, and are managing the considerable risk inherent

in a program of the enormous size, complexity, and sensitivity. The current BSM

program funding level for fiscal year 2003 is $407 million (including available appro-
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priations from previous years). The President’s Budget proposes an increase to $429

million in fiscal year 2004.

The $429 million enables us to provide a balanced program that builds out essential infrastructure, delivers taxpayer value, improves internal operations and is

within our ability to manage and implement.

The BSM program has been steadily implementing management processes based

on best practices in cost and scheduling planning, configuration management, risk

management, management progress reporting, acquisition management and others.

We feel the management processes coupled with our governance process will strike

the proper balance between delivering business value, building critical infrastructure, and ensuring control and effectiveness. As the management processes mature,

the program will run closer to cost and schedule estimates.

In addition, the modernization effort is a major challenge. As the GAO noted in

its January assessment, modernization remains a high risk area. It stated, ‘‘The

scope and complexity of the program are growing—the challenge for the IRS is to

make sure the pace of systems acquisition projects does not exceed the agency’s ability to manage them effectively.’’

Given this assessment and the important juncture we have reached with the first

important deliverable for CADE, we have decided to have an outside group of experts take an independent look at the program and report back to us by the end

of this summer. We have not yet identified who will conduct this study but expect

to do so in the next few weeks. No work will stop while the review is underway.

But this is a good time to assess progress, project risk and whether any midcourse

corrections are needed.

Question. b. What is the Administration’s five-year run out for the business systems modernization—both in the annual appropriations request and the annual

BSM program (expenditure plan) level?

Answer. In fiscal year 2001 we developed a Tax Administration Vision and Strategy (TAVS) and an Internal Management Vision and Strategy (IMVS) to guide the

BSM program. TAVS and IMVS reflected our priorities (the sequencing plan). Some

critical projects like CADE were already started, but future projects are generally

chartered from the sequencing plan that we developed as part of TAVS and IMVS.

We also developed an Enterprise Architecture (EA) that added significant functional

and technical detail to TAVS and IMVS. The EA includes an Enterprise Transition

Plan that further details the TAVS and IMVS sequencing plan.

The request for $429 million was determined after extensive analysis of: (1) the

requirements for in-progress projects begun prior to fiscal year 2004; (2) the TAVS

and IMVS sequencing plan; (3) funding the Custodial Accounting Project and Integrated Financial System to correct material weaknesses in financial management;

(4) improving IRS e-gov functionality with e-Services and Modernized e-file; (5)

maintaining adequate management reserve; (6) the Business Systems Management

Office (BSMO) capacity to manage the program and projects; and finally, (7) the

ability of the business units to absorb new software vis-a`-vis training and implementation impacts. In requesting the $429 million, we believe we have set a realistic

funding level that will allow us to continue the investments begun prior to fiscal

year 2004 and initiate critically needed systems software and hardware for business

operations.

As the IRS moves forward in its modernization efforts, funding requests will be

developed after careful consideration of our long-term strategy, the sequencing plan

and the priorities in the President’s Management Agenda, as well as our ability to

manage and absorb new functionality and business processes.

Question. c. The program’s development growth has generally been sustained

through a combination of annual appropriations and carryover from prior year appropriations so that this year’s (2003) program level is $450 million (the $370 million appropriation ∂ carryover from prior years). I am concerned that prior year

carryover funding will pretty much be exhausted after 2003. So how can the BSM

program—as it enters into a critical period next year for a series of major projects—

maintain its momentum if the program level in 2004 actually drops below the anticipated level for 2003?

Answer. The current BSM program funding level for fiscal year 2003 is $407 million, including carryover from prior years. The President’s Budget proposes an increase to $429 million in fiscal year 2004. The requested funding level of $429 million will allow us to continue the investments begun prior to fiscal year 2004 and

initiate critically needed systems software and hardware for business operations.

Question. d. OMB seems to be pushing expenditure of funds for this program into

more internal IRS information technology applications rather than robustly funding

the development of major activities that benefit the four major IRS business units.
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Can you explain what you are doing to guarantee that the products developed by

the BSM are going to be used by the IRS’ business units?

Answer. Guiding the BSM Program is our Tax Administration Vision and Strategy and Internal Management Vision and Strategy, both of which are reflected in

the BSM Enterprise Architecture. The business units developed these during late

2002 and early 2001 and keep them current.

As we develop products based on the business priorities reflected in our sequencing plan, we have management processes that deeply invest the business units in

leadership and ownership positions across the life cycle. One example is our Executive Steering Committees (ESC), which are chaired by the business unit. The Deputy Commissioner for Large and Mid-Size Business LMSB heads the Filing and

Processing Management Sub-ESC and the Deputy CFO heads the Internal Management Sub-ESC, for example.

Our integrated project teams have representation from all the relevant affected

business areas, including information technology, and all key designated roles, such

as the Requirements Director, are always from the business units. There are many

other examples of how bonded the systems people and the business people are in

this process, but hopefully the examples above convey the flavor of what we are

doing to ensure deep business engagement and ownership from the outset.

Our programs to date have addressed improved tax administration, internal management, and building technical infrastructure. Establishing a new secure online infrastructure to support tax administration applications like the very popular

‘‘Where’s My Refund?’’ is one achievement we cite with pride. We have delivered

several other tax administration applications (a new customer communications system, a new system for tax computations for use by LMSB revenue agents, and a

new Internet Employer Identification Number system) and one major internal management system (human resources).

This summer we will implement a new Internet-based system to enable streamlined communications with tax practitioners, and the first release of CADE, which

will be the first step in replacing the old master files with a modernized taxpayer

account data system. This fall we will implement two new internal management applications, a new core financial system, replacing our current financial system, and

a new custodial accounting system. Next January, we will launch electronic filing

for large businesses and tax-exempt organizations.

As you can see, this represents an ambitious, but balanced (across tax administration and internal management) portfolio.

Question. I am very supportive—as have the House and Senate Appropriations

Committees—of the efforts made to advance Business Systems Modernization (BSM)

by its systems integrator—the PRIME Alliance. In fact, it was this Subcommittee

in the fiscal year 1997 Treasury Appropriations bill that set the whole BSM/PRIME

concept in motion. I am concerned, however, about a couple of items and would like

your review of several matters.

a. Currently, about $50 million are spent each year on Tier B projects that are

designed to be the next generation of applications for certain IRS business units,

yet these funds are not controlled by either BSM or the PRIME. I am concerned

about the failure to make sure that the right hand and the left hand are not only

coordinated, but marching in lock step with each other—something only settled by

putting these funds under the control of BSM and the PRIME. Can you apprise the

Subcommittee of your position on this concept and provide for us a detailed idea of

how we guarantee the kind of program integration on IRS IT activities that are necessary for BSM to succeed?

Answer. The BSM Business Integration Office is responsible for ensuring that

strategically linked Tier B projects are under the BSM governance structure. In this

case the Sub-Executive Steering Committees have oversight responsibility for Strategic Tier B projects along with Tier A projects, thus insuring project integration.

In addition each modernization project contains a Transition to Support Plan, which

details Operations & Maintenance activities after the modernized system is deployed.

These investments are not as large, dramatic or far reaching as the BSM program. They are small-scale investments that provide bridge systems until modernization arrives or, in some cases, are the modernized end-state solutions. All investments or projects within this portfolio are selected through the IRS’ integrated

prioritization process. A major component of this prioritization and selection process

is a thorough engineering analysis to ensure that the proposed systems are compliant with the modernized enterprise architecture and do not duplicate what is being

developed by the BSM program. This engineering analysis also ensures that these

projects will run on the modernized or BSM infrastructure. And, finally, the engineering analysis checks for duplication with legacy system enhancements.
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In order to support continuation of modernization efforts the newly appointed

Deputy Commissioner for Operations Support will supervise the CFO, CIO, the

Chief Human Capital Officer, Agency Wide Shared Services and the Service’s IT and

physical security operations. The Deputy Commissioner for Operations Support will

own the modernization program and drive productivity across the organization in

order to improve service to taxpayers.

Question. b. I am also concerned that an increasing amount of the funds appropriated for BSM are not flowing through the PRIME Alliance. When Congress directed the IRS to initiate BSM in fiscal year 1997, we were emphatic that a private

sector integrator needed to be brought in to do the job. Yet by bypassing the

PRIME, and splintering BSM funds in multiple directions, it appears the IRS—in

the wake of Commissioner Rossotti’s departure—is trying to return to a position of

itself being the systems integrator. That is at odds with the original Congressional

intent for the program and President Bush’s Management Agenda. What can you

do to make sure that we let the private sector serve as the systems integrator for

this program as was intended?

Answer. The table below was recently prepared for House Congressional testimony. It shows the total amount of obligated funds since we awarded the PRIME

contract. Over the life of the contract the PRIME has received approximately 75 percent of all obligated BSM funds. During the last two full fiscal years, 2001 and 2002,

the PRIME has received approximately 76 percent of the obligations each year. Because of the long Continuing Resolution and the recent approval of the revised fiscal

year 2003 Business Systems Modernization Expenditure Plan, we do not yet have

comparable fiscal year 2003 numbers available.

We do not believe that the numbers indicate that the share of funds going to

PRIME has decreased significantly. It is not the intention of the IRS to move away

from the Congressional intent of having the private sector serve as systems integrator for the BSM program.

PRIME CONTRACTOR AND OTHER IRS SUPPORT CONTRACTORS

BSM

Obligated Expended

PRIME .............................................................................................................................. $771,031,696 $634,725,415

MITRE .............................................................................................................................. 52,801,406 49,440,693

Other ................................................................................................................................ 202,236,866 171,071,729

Total ................................................................................................................... 1,026,069,968 855,237,837

APPENDIX I.—TECHNOLOGY REQUIREMENTS FOR EITC CAN BE CATEGORIZED BY PRE-FILING,

FILING, AND POST-FILING ACTIVITIES 1

System Component Description

PRE-FILING TECHNOLOGY COMPONENTS

CERTIFICATION DATABASE ......................... Database containing certification status (entered during Filing); Database may

contained imaged documents.

AUTOMATED INFORMATION SYSTEM .......... System for taxpayers to check certification status through multiple channels, including Internet, Phone (ACD/IVR), E-File terminal, etc.

FILING STATUS SYSTEM ............................. System to build taxpayer profiles from historical data to identify Filing Status

errors in post-filing in batch.

CHOICEPOINT SYSTEM ............................... System to import and store third-party data (Choicepoint).

EITC UNDER REPORTER SYSTEM .............. System to analyze and access historical AUR information and identify taxpayer

fitting certain criteria (i.e. repeater offenders).

EITC CONTACT CENTER/ACCTS MANAGEMENT.Complete call center solution that allows CSRs to access all EITC information;

DSTs; Ability to transfer calls to external contractor; Includes application to

access imaged documents.

FILING TECHNOLOGY COMPONENTS

EITC E-FILING SYSTEM .............................. System that enables taxpayers to electronically submit certification documentation.

CERTIFICATION SYSTEM ............................ System to capture certification information during processing; Includes OTA-like

Decision Support Tools to aid in decisions; Provides certification status to

end-users; allows for scanning, sending, and viewing of documents (16 M) to

central location.
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APPENDIX I.—TECHNOLOGY REQUIREMENTS FOR EITC CAN BE CATEGORIZED BY PRE-FILING,

FILING, AND POST-FILING ACTIVITIES 1—Continued

System Component Description

FILING STATUS SYSTEM ............................. System to capture new Filing Status information at time of processing.

MATCHING SYSTEM ................................... System to match taxpayer reported information against information stored in

databases to determine if filing requirements have been met.

TECHNOLOGY MODIFICATIONS ................... Master File and other systems modifications to separate and freeze only EITC

portion of return (instead of freezing the entire return).

POST-FILING TECHNOLOGY COMPONENTS

RISK-BASED COMPLIANCE SYSTEM ........... System to analyze and identify trends in non-compliance; This system will aid

in compliance strategies and case selection (can leverage F&PC RBSS).

COMPLIANCE DATA SYSTEM ...................... System that allows Tax Examiners to access multiple databases containing EITC

information.

FILING STATUS COMPLIANCE SYSTEM ....... System to access and analyze filing status information (internal and thirdparty) and identify errors in batch at the time of filing; Includes automated

case building and issue-based notice generation; Provides all relevant Filing

Status information to Tax Examiner; Includes OTA-like Decision Support Tools.

AUR MODIFICATIONS ................................. Systems changes to AUR that would allow EITC cases to be identified, analyzed,

and worked separately from other AUR cases; Includes changes to AUR to include the expected change in EITC in the AUR dollar discrepancy.

SUPPORT SYSTEMS

MIS ............................................................ System that provides all management information requirements, including prefiling, filing, and post-filing activities; Includes OTA-like Decision Support

Tools.

WORKFORCE/INVENTORY MANAGEMENT

SYSTEM.

System to predict and manage workload and inventory in pre-filing, filing, and

post-filing activities; Includes OTA-like Decision Support Tools.

1 System includes applications, database, infrastructure, maintenance, etc.; DST—Decision Support Tools.

SUBCOMMITTEE RECESS

Senator SHELBY. Thank you. Thanks for your appearance.

The subcommittee is in recess.

[Whereupon, at 2:50 p.m., Wednesday, April 9, the subcommittee

was recessed, to reconvene subject to the call of the Chair.]

(119)

DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND RELATED AGENCIES APPROPRIATIONS FOR

FISCAL YEAR 2004

THURSDAY, MAY 8, 2003

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 10:14 a.m., in room SD–138, Dirksen

Senate Office Building, Hon. Richard C. Shelby (chairman) presiding.

Present: Senators Shelby, Campbell, Brownback, Stevens, and

Murray.

DEPARTMENT OF TRANSPORTATION

STATEMENT OF NORMAN Y. MINETA, SECRETARY

ACCOMPANIED BY DONNA McLEAN, ASSISTANT SECRETARY OF

TRANSPORTATION FOR BUDGET

OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

Senator SHELBY. The committee will come to order. Welcome, Mr.

Secretary. We are pleased that you are doing better, and as I told

you, we will be walking briskly down the hall together. We are

pleased to see you here today. I know it has been a difficult year

for you and I hope that the remainder of 2003 is better.

I look forward to our discussion this morning on the Department

of Transportation’s 2004 budget request. I hope we will also have

an opportunity to uncover how the budget request relates to your

authorization proposals and your other goals for the Department.

I first want to commend you, Mr. Secretary, for proposing a

budget that does not impose any new user fees. With our economy

struggling to recover, I believe that now would be the worst time

to increase the burden on transportation users. Our goal should be

to do more with less and to relieve unnecessary impediments to efficiency in the transportation system.

In addition, I look forward to obtaining greater detail about the proposal to establish a new $1 billion infrastructure performance

and maintenance program for highway projects that can be constructed quickly, and how those funds would be allocated to enhance transportation systems and relieve congestion.

The budget request for the Federal Transit Administration proposes the most significant changes from previous fiscal years. I am
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skeptical that consolidation of programs and distribution by formula of transit dollars will improve the delivery of transit services

or capital improvements. Formula fights can be distracting and the

Federal role in transit should be more than simply revenue sharing.

Instead, I believe that we should structure transit funding to improve rural connectivity, eliminate the bias toward rail capital

projects, focus Federal investment on key projects that might not

otherwise get built but have a significant impact, and put in place

oversight procedures for early identification of the risk associated

with project execution.

While funding for the highway program is not what I had hoped

for, and is less than what we provided in the omnibus, it is better

than what the RABA-like mechanism would have provided, and

considerably better than some of the rumors that were circulating

last December. Nevertheless, I believe that the highway obligation

limitation needs to be increased and I look forward to working with

you to further that goal.

Other than that, I view this budget basically as a status quo

budget. I know that the Department has focused almost exclusively

on TSA last year and on transitioning Coast Guard and the TSA

to the Department of Homeland Security. But I did expect a bit

more in this budget proposal on where you wanted to take the remainder of the Department.

I am as concerned about what is missing from the budget request

as I am with what it includes. Highway fatalities are headed in the

wrong direction, increasing for the fourth consecutive year. And

just as troubling, alcohol-related accidents and fatalities increased

again for a third time in as many years.

Yet, there is no new initiative to increase seatbelt use, reduce

drunken driving, or to do anything differently at NHTSA other

than consolidating several existing State grant programs or shifting funds for grant programs from FHWA to NHTSA.

I think that we can do better. Two years ago, Senator Murray

and I provided funding for Click It or Ticket campaigns. After

struggling with NHTSA to get them to use the money, the program

had a positive impact on the national seatbelt usage rate. This

shows why we need to make greater use of targeted, data-driven

programs.

If they work, you will have my support to grow the initiative. If

they do not, we will try something else, even if that means upsetting some of NHTSA’s partners. The only thing that is not acceptable I believe is not trying new things to reduce the carnage on our

highways.

With regard to passenger rail, I must say that I am disappointed

there once again. The Department has failed to provide the leadership, I believe, that is necessary to transform Amtrak. While the

Congress waits for a legislative proposal that embodies the principles of reform that you articulated last June, your representative

on the Amtrak board of directors has supported a budget that is

an all-out effort to preserve the current failed system.

Amtrak’s budget assumes a Federal subsidy that is twice as

much as what was included in the President’s budget, but does not

contemplate even minor changes to the current structure. Amtrak’s
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hostility to reform was further demonstrated when Amtrak’s CEO

abandoned his commitment to fully recover the cost of State-supported lines as soon as private rail companies offered to provide the

service for the States at a much lower cost.

In a similar vein, I have impressed upon both your predecessors

and the FAA administrator that something needs to be done to contain the cost growth of the FAA. Over the past 9 years, the FAA

operations budget has grown 65 percent, including a proposed 8.1

percent growth in the budget request for 2004. By comparison, aircraft operations, the primary driver for FAA operations activities,

have declined 10 percent since 2000. In a budget constrained environment it is unsustainable to have unchecked costs at the FAA.

This is a perennial item on the Inspector General’s top ten management challenge list, yet nothing ever seems to get done. Like

Amtrak, ignoring the issue of cost growth of the FAA’s operation

budget will not make it go away and is a disservice, I believe, to

the American taxpayer.

Finally, Mr. Secretary, I want to raise what I believe is an

emerging challenge for the Department and the FAA: the economic

trade and regulatory implications of a consolidated European

Union Member States open skies or open aviation area concept.

Whether an open aviation area multilateral agreement is a good

idea or not, I believe that the die is cast and that the European

Union will be working in a much more coordinated manner with

regard to International Civil Aviation Organization regulatory and

safety issues. That presents enormous challenges and potential

risks for the United States given the opportunity for mischief that

can intentionally or unintentionally creep into standards consideration and creation.

This is an important and a very complicated area and I encourage you to put some of your best people on it and to provide a clear

and comprehensive statement of where you believe the United

States should head in this regard in order to maintain our preeminence in aviation.

Mr. Secretary, we have an obligation to do better than just delivering the status quo and I look forward to working with you toward

that end. It is good to see you again.

Senator Murray.

STATEMENT OF SENATOR PATTY MURRAY

Senator MURRAY. Thank you, Mr. Chairman. First let me join

with you in saying how pleased I am to see Secretary Mineta back

before this subcommittee. We all know that Secretary Mineta has

worked far harder than he should have during his recuperation

from surgery. I suspect that his leadership of the Department during this period was far more involved than his doctors would have

liked. I want to publicly thank you for all the extra effort during

these last few months.

I know they have been difficult ones but our Nation and our entire transportation enterprise is better off because of your selfless

commitment, Mr. Secretary, and we thank you.

Just a few minutes ago, I had the opportunity to introduce Ms.

Annette Sandberg to the Senate Commerce, Science, and Transportation Committee. She is Secretary Mineta’s Acting Administrator
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at the Federal Motor Carrier Safety Administration. I think the

President made an excellent choice in asking that she be appointed

as the permanent Administrator of that agency. Ms. Sandberg was

the first woman to serve as the head of a State police force, having

served as chief of the Washington State force for 6 years. I was

really honored to introduce her to the Commerce Committee today

and I have great faith in her ability to advance the cause of truck

safety at that agency.

With the passage of the Homeland Security Act, the reorganization of the Department, and the reorganization this committee,

both Secretary Mineta and this subcommittee have an opportunity

to refocus and redouble our efforts on the core missions of the Department of Transportation. For the last 2 years we have been focused on the urgent security needs in all of the transportation

modes. With that responsibility now vested in another department

and another Appropriations Subcommittee, we can focus on alleviating congestion on our runways and our highways, and minimizing the number of transportation-related fatalities.

This morning I would like to focus on four areas of the President’s budget proposal: highway safety, aviation, highway construction, and Amtrak. Mr. Chairman, as you mentioned in your statement, we have experienced the fourth consecutive year of increased

fatalities on our highways and that unacceptable record must be

reversed. As I look at the President’s budget request for 2004 for

the Department of Transportation, I see a mixed bag. There are increased resources to address highway safety, and this subcommittee will need to pursue whether the requested levels are

sufficient to really change behavior, especially involving drinking

and driving.

In the area of aviation, increased resources are requested for the

FAA’s operations budget. However, given the financial problems

facing our airlines, the FAA has some major new challenges. The

FAA is charged with inspecting and certifying the safety procedures for all of our airlines. At the same time, the airlines are increasingly contracting out maintenance to entities that have minimum Federal oversight. Indeed, the FAA has its own standard requiring increased scrutiny of the safety practices of airlines that

are operating in bankruptcy? It is not yet clear that the FAA even

has enough inspectors on its payroll to fulfill its own standard. It

is also not clear that the President’s 2004 budget provides the kind

of resources that will enable the FAA to meet its standard if airlines are still operating in bankruptcy in 2004.

In the area of highways, the President is calling for a cut of $2.3

billion or 7.3 percent. This request is far preferable to the $8.6 billion cut that the Administration requested last year, but it is still

moving, I believe, very much in the wrong direction. As a Senator

whose home State includes Seattle, a city with the third worst traffic congestion in the Nation, I can tell you that a further retreat

in the Federal investment in our Nation’s highway infrastructure

is not the right way to go.

Finally, let me turn to Amtrak. The Administration has requested $900 million. That is a reduction of 22 percent below the

de facto 2003 appropriations. Last year, the President requested

only $521 million. Further, this Administration never articulated
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precisely how the railroad could avoid bankruptcy at that level of

funding. So this year’s request, at least in dollar terms, is an improvement.

With the $900 million request, the Administration may be on its

way to earning a seat at the table when it comes to a meaningful

discussion with Congress as to Amtrak’s future. But for the Administration to be a meaningful partner with us in that discussion, the

Administration needs to submit a comprehensive reauthorization

proposal for Amtrak. That proposal was due to Congress over a

year ago. We still have not seen it yet, though the Deputy Secretary recently testified to the authorizing committees about some

of the concepts that we can expect to see in the document. But we

will not be able to decide if $900 million is enough until we have

seen the Administration’s actual proposal.

One thing I do know about this legislation is it is not Secretary

Mineta’s fault we have not seen it yet. I can only hope that in his

last 30 days on the job that OMB Director Daniels will take it upon

himself to see to it that this piece of business is taken care of before he leaves the Government.

So in conclusion, I want to thank Secretary Mineta for being

with us here this morning. I want to thank him as well for the invitation to introduce his soon-to-be-confirmed Federal Motor Carrier Safety Administrator. I look forward to having a dialogue with

him this morning about our shared goals of alleviating congestion

and saving lives.

Thank you, Mr. Chairman.

Senator SHELBY. Senator Campbell.

STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

Senator CAMPBELL. Thank you, Mr. Chairman. Welcome to my

friend and former colleague from the House side days, Secretary

Mineta. Our State of Colorado is the third fastest growing State,

Mr. Chairman, behind Nevada and Arizona. Certainly we face the

same problems all fast-growing States do. We have transportation

problems that are huge. We have one great big construction job on

I–25 between Denver and Colorado Springs that we call T-Rex for

an appropriate reason; because the thing is a monster if you try to

drive through there with the ground tore up and the old bridges

coming down, new ones going up, and so on.

I have to associate myself with the comments of Senator Murray

and say that the President’s budget I think is inadequate. I worry

that a lot of these contracts that have been let are going to just

leave the States hanging with their projects half done and without

enough money to finish them.

But I do want to thank you for your past support, Mr. Secretary,

for that particular project in Colorado because it is a very unique

project. It uses what is called a design-built process which combines light rail, highway, bike, pedestrian, and other transit options all into one. I think that when it is finally done it is going

to really become a model for the country. So I want to thank you

for that, and also for the help you have given us with the sixth runway at DIA that is under construction, as you know, and will be

done shortly.
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One concern I do have that really carries over from last year, Mr.

Chairman, is the hours of service that the Federal Motor Carriers

Safety Administration has implemented. I went to the hearings before we delayed that for a year last year. I had my staff go to two

of them; I just went to one. I was convinced then that the Administration had already made a decision and they were just doing perfunctory things of listening to people complain. But they are implementing that, and requiring the truckers to stay off the road two

more hours, which sounds good on the surface.

But I have a CDL, as you probably know, Mr. Chairman. Still

have a couple of Class A trucks and go to those a lot, and I think

that there are some real downsides to it. The truckers themselves,

as you know in any kind of cold climate, they do not shut those

things off. That means they sit in truck stops or on off-ramps and

on-ramps, which are becoming more crowded all the time, or in rest

stops, highway rest stops that are run by the States usually. They

have to keep them on to stay warm. I do not know how we say that

we are going to save fuel by not putting it to productive use and

just keeping them running while they are sitting there.

Secondly to that, most of the truckers that I know, they get bored

silly, so they just spend most of their time and most of their money

running the video games and doing the things that now you can

do at these big RV truck stop combinations.

We talk about safety. It is my understanding that if you do implement these hours and you have the same amount of shipping of

merchandise, that means you are going to have more trucks on the

road to offset the ones that are just sitting idle for those extra

hours. For the life of me, I cannot understand how that is an increased safety feature when you say there are going to be more 18-

wheelers on the roads instead of less.

I am going to ask the Secretary, if I can stay long enough, to give

me his opinion about the present state of that when we get into

questions and answers. But it is certainly one of my big concerns.

Thank you, Mr. Chairman.

PREPARED STATEMENT OF SENATOR SAM BROWNBACK

Senator SHELBY. Senator Brownback has submitted a written

statement he would like to have included for the record.

[The statement follows:]

PREPARED STATEMENT OF SENATOR SAM BROWNBACK

Mr. Chairman, I would like to thank you for holding this hearing today and inviting The Honorable Secretary Mineta to testify before us. There are two issues of

particular importance to the State of Kansas that I hope the Secretary will address

today. First, is that of the aviation industry and the need to bolster aviation and

aeronautics research and development. In particular, I would like to highlight a bill

I recently introduced with Senator Hollings, S.788, the Second Century of Flight

Act. Second, I would like to address the issues of short line railroads and the needs

there for track rehabilitation and preservation.

Just last week in the Committee on Commerce, Science, and Transportation we

marked-up the Federal Aviation Administration (FAA) Reauthorization bill. S.788,

The Second Century of Flight Act addresses many of the concerns currently facing

the aviation sector. And I was extremely pleased that my Colleagues on the Commerce Committee agreed to include three out of the four titles of that bill in the

FAA Reauthorization.

This bill would create a national office to coordinate aviation and aerospace research activities within the U.S. Government and encouraging public-private co-
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operation. Additionally, this bill creates a national office to focus on a next generation air traffic management system and establishes a new educational program to

train the next generation of aeronautics engineers and mechanics.

I am sure it is a goal of all of ours to ensure that the United States continues

to lead the world in aeronautics and aviation safety, technology, and efficiency.

Additionally, an issue that should be of importance to all of us in the room is the

future of ‘‘short line’’ local freight railroads. These short lines account for roughly

half the rail miles in Kansas. These lines gather tens of thousands of carloads of

grain and start them on their way across the country and for export abroad. However, government disincentives forced the prior owners of these light density lines

to neglect investment in the infrastructure, and now the weight of loaded railroad

cars are growing ever heavier. This has forced many of these light density lines to

abandon operations.

Last year, the Senate addressed these issues through Senate Bill 1220. That bill

would have established a capital grant program for rehabilitation and improvement

of tracks and related structures on small railroads to being the infrastructure up

to a level permitting safe and efficient operation. Unfortunately, that bill never saw

action on the Senate floor during the 107th Session of Congress. The Members in

this room should make a commitment to this issue, realizing the important and impact short line operations have on highway miles.

Again, Secretary Mineta, thank you for being here today. I look forward to hearing your responses to some of the questions I have for you.

Senator SHELBY. Mr. Secretary, your written statement will be

made part of the record in its entirety. You may proceed as you

wish.

STATEMENT OF NORMAN Y. MINETA

Secretary MINETA. Mr. Chairman, thank you very much, to the

members of the subcommittee as well, for this opportunity to appear before you today. Before I begin, let me offer my congratulations to you, Mr. Chairman, for taking the helm of this very important subcommittee.

Senator SHELBY. We swap it back and forth. But let’s do not do

it soon.

Secretary MINETA. Again, I appreciate this opportunity to be before you, and all the members of the subcommittee, who have extended to me a very warm welcome. I have enjoyed the opportunity

to work with all of you in terms of advancing the cause of transportation in our great country. I want to thank you, Senator Murray,

for taking the time to introduce Annette Sandberg at the Commerce hearing on her nomination. As the acting administrator of

the Federal Motor Carrier Safety Administration she has already

been subjected to a great deal of work in the short time she has

been there.

Mr. Chairman, I would also like to introduce our Assistant Secretary of Transportation for Budget, Donna McLean, who, with

your permission will be sitting at my side to assist me with any

details on questions that come up.

I am pleased to share with you the Department of Transportation’s 2004 budget. President Bush is requesting $54.3 billion for

the Department, including more than $14 billion, or 27 percent,

that is being targeted to support my number one priority, safety.

As you have indicated, highway traffic deaths are starting to go up.

For the last 15 months, my senior management team has spent a

great deal of time focused on the security threats that face transportation. But this year I have challenged my team to bring that

same passion, that same innovation and what I hope will be the

same outstanding success on a simple but important goal: improv-
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ing safety and saving lives while continuing to improve America’s

transportation system.

REAUTHORIZATION OF SURFACE AND AVIATION PROGRAMS

As you all are very well aware, the current laws authorizing vital

surface and air transportation programs expire in the next few

months. Accordingly, our 2004 budget includes the foundation for

proposed legislation addressing our Nation’s future transportation

needs. President Bush recently presented to the Congress his aviation reauthorization legislation, the Centennial of Flight Aviation

Authorization Act, or Flight-100. Consistent with this proposal, the

President’s 2004 budget requests $14 billion for the FAA. We are

currently finalizing our proposed surface transportation reauthorization legislation and anticipate its delivery to you shortly.

Although a few details are still under discussion within the Administration let me simply say this, the Administration’s forthcoming reauthorization proposal will serve as the largest surface

transportation investment in our Nation’s history. I firmly believe

that the Administration’s proposal, when enacted by the Congress,

will dramatically further our efforts to grow the Nation’s economy

without imposing any new gasoline taxes.

Now as a former member of Congress who spent considerable

time on the other side of this microphone, I know it is important

to determine what the total amount of funding will be. But as all

of you know, what we spend is only part of the challenge in legislation we will work together on. How we spend it is just as critical.

That is why our proposal will be more than simply a spending

plan. It is a true blueprint for investment.

Our proposal will include a dedicated commitment to saving lives

by consolidating and expanding Federal safety programs, increasing funding flexibility for State and local authorities, encouraging

innovative financing tools, accelerating environmental reviews by

building on President Bush’s executive order on environmental

stewardship, and finally, simplifying transit programs to foster a

seamless transportation network.

Now the President’s 2004 budget supports these principles by re- questing $30.2 billion for highway programs, $1.2 billion for motor

carrier and highway safety, and $7.2 billion for transit.

AMTRAK

In addition to our proposals to support our highways and air- ways, President Bush is requesting $900 million for Amtrak. But

this funding comes with a very strong message. Amtrak must undergo significant reform. Last week our Deputy Secretary of Transportation, Michael Jackson, and our Federal Railroad Administrator, Alan Rutter, testified before your colleagues in the Senate

and in the House on the Administration’s vision for a strong national intercity passenger rail system. I believe that America deserves a national rail system that is driven by sound economics,

fosters competition, and establishes a long-term partnership between States and the Federal Government.

Mr. Chairman, this vision cannot be achieved without a fundamental reform of Amtrak. Simply put, America can no longer afford

the status quo. I am personally committed to working closely with
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all of you, the Congress, the States, industry, and labor leaders to

develop a financially healthy system that provides a viable national

passenger rail service to America.

PREPARED STATEMENT

Let me close by again thanking you for the opportunity to testify

today. I have worked with all of you over the years on these issues

and I look forward to tackling them again with you. I pledge that

we will work closely with this subcommittee, Mr. Chairman, and

with the entire Congress as we consider the 2004 budget. Now I

look forward to responding to any questions that you might have.

[The statement follows:]

PREPARED STATEMENT OF NORMAN Y. MINETA

Mr. Chairman, Members of the Subcommittee, thank you for the opportunity to

appear before you today to discuss the Administration’s fiscal year 2004 budget request for the Department of Transportation. President Bush is requesting $54.3 billion for the Department including over $14 billion, or 27 percent, targeted to support

our number one priority—safety. But before I outline the specifics of our 2004 budget, let me briefly speak to our making safety a priority while we improve our Nation’s transportation system.

For the Department of Transportation, 2003 will be a year of special focus on

highway and aviation safety. For the last 15 months, we at the Department of

Transportation have spent a great deal of our time making transportation secure

and responding to the threats of terrorism. This was absolutely necessary. We’ve

made great progress.

In the aftermath of September 11th, the Department of Transportation had a

laser-like focus on security. Two months ago, we successfully handed off to the new

Department of Homeland Security the United States Coast Guard and the Transportation Security Administration—two of their largest and high profile agencies.

The Department of Transportation is proud to have provided strong leadership

and steady support to the United States Coast Guard for more than 35 years. I am

particularly proud of our work standing up the Transportation Security Administration from its creation through its first full year of operation. Indeed, this was a monumental task—one in which we performed under the intense glare of the public

spotlight. It was a task that many of the so-called ‘‘experts’’ said was undeliverable.

On November 19, 2001, the day that the TSA was created, there were only 33

Federal Air Marshals nationwide. At that time, there was a poorly qualified, poorly

equipped screener service at the airports, with substandard supervision. In less

than one year and under wartime conditions, we recruited, trained, and deployed

thousands of Air Marshals. We recruited over 300 highly qualified Federal Security

Directors to oversee more than 429 airports in the country.

Through an unprecedented partnership with the private sector, we processed over

a million applications, and hired, trained, and deployed more than 50,000 passenger

and baggage screeners who provide world-class security and world-class customer

service.

All of this was done while meeting 37 mandates—36 of which were set by you

the Congress in the Aviation and Transportation Security Act. The 37th was my

own. I told my colleagues to be sure and meet the other 36. I am proud to say that

the stellar employees of the Department of Transportation performed spectacularly—designing and delivering, on time and in working order, the Transportation

Security Administration. When you look at the airline security system on September

12, 2001 and our system today, I am tremendously proud of the Department of

Transportation and I am grateful to the Congress and this Committee for the cooperation we received.

We at the Department of Transportation look forward to continuing to work closely with our colleagues in the U.S. Coast Guard, the TSA, and throughout the Department of Homeland Security to ensure that America’s transportation system remains safe, secure and efficient.

Now for this year, and going forward, I have challenged my senior management

team to focus the same passion and the same innovation spent on security over the

last year on a simple but profoundly important goal: improving safety and saving

lives. Once again, I would like you in Congress to be our partners and achieve the

same historic record of performance.
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As I stated at the outset, more than one quarter of President Bush’s 2004 budget

is dedicated to ensuring the highest levels of safety across America’s transportation

infrastructure. The Administration’s reauthorization proposals for both surface and

air transportation programs will provide evidence of our continued commitment to

safety. As you all know, those vital programs will expire in September. In anticipation of this, our 2004 budget request includes the foundation for proposed new legislation to address our Nation’s transportation needs over the next four to six years.

We recently presented to the Congress President Bush’s aviation reauthorization

legislation—The Centennial of Flight Aviation Authorization Act, or Flight-100. We

look forward to working with the members of this Subcommittee and with the entire

Congress on swift passage of both this key aviation legislation, and the upcoming

surface transportation legislation.

Let me share with you several principles of our aviation and surface transportation reauthorization proposals.

—Our proposals will include an emphasis on consolidating and expanding Federal

safety programs.

—For the surface transportation programs, we will include increased funding

flexibility for State and local authorities.

—We will continue to encourage innovative financing tools.

—We will propose efficient environmental stewardship processes that facilitate

transportation infrastructure projects without compromising the environment.

—Finally, we will continue a strong emphasis on public transportation by simplifying transit programs and fostering a seamless transportation network. The $14 billion requested by President Bush for the Federal Aviation Administration in 2004 will further ensure the highest possible levels of safety throughout the

aviation system.

Flight-100 improves safety oversight of operators, repair stations and others,

while tightening enforcement of the FAA’s stringent safety and maintenance regulations. Because at the same time travel demand for air service will inevitably return

to, and exceed, pre-September 11th levels in the future, we cannot afford to reduce

our commitment to investing in the Nation’s air traffic control system and our airports. Equally important, we cannot take our eye off the safety goal: to reduce aviation fatality rates by 80 percent over the period 1996 to 2007.

To meet both safety and mobility needs, the budget proposes to spend a greater

portion of the accumulated cash balances from the Airport and Airway Trust Fund.

The President’s budget request and our reauthorization proposal provide $2.9 billion

in fiscal year 2004 for facilities and equipment. In 2007, that figure rises to $3.1

billion.

Our proposal also provides $7.5 billion for FAA operations and maintenance in

2004 to improve efficiency—an 8 percent increase over the 2003 enacted level—and

supports implementation of the Operational Evolution Plan, the acceleration of airspace redesign, and future air traffic controller staffing needs.

Turning to our soon-to-be presented surface transportation proposal, let me begin

with a fundamental principle: the President and his Administration are committed

to maintaining guaranteed funding levels that link highway spending to Highway

Trust Fund receipts.

Our proposed program spends at a level that keeps the Highway Trust Fund balance relatively constant. The proposed obligation limitation for 2004 is $29.3 billion.

When comparing the Administration’s 6-year surface transportation reauthorization

proposal in total to the six years of TEA–21, the President proposes an overall increase of 19 percent. The fiscal year 2004 budget accomplishes this increase without

proposing new user fees.

For the Federal Highway Administration, the fiscal year 2004 budget request proposes that all revenue from gasohol taxes be deposited directly in the Highway

Trust Fund rather than the current approach that deposits gasohol taxes into the

General Fund. If enacted, this one change will add more than $600 million of available funding to the Highway Trust Fund for each year of the authorization cycle.

In addition to spending estimated Highway Trust Fund receipts, our proposal also

unveils a new $1 billion Infrastructure Performance and Maintenance initiative to

fund preservation and congestion alleviation projects that can be implemented

quickly. Totaling $6 billion over the authorization period, this funding will target

projects that address traffic congestion and bottlenecks, and improve pavement conditions.

Every year, more than 42,000 people die on our Nation’s roads and highways.

This is unacceptable—we can and must do a better job to save lives.

Reducing highway fatalities is ‘‘priority one.’’ That is why the President’s budget

request includes $665 million for the National Highway Traffic Safety Administration to reduce fatalities, prevent injuries, and encourage safe driving practices. Of
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NHTSA’s 2004 funding request, $447 million will support grants to States to enforce

safety belt and child safety seat use and reduce impaired driving.

The Federal Motor Carrier Safety Administration, too, is focusing on ways to prevent fatalities and injuries resulting from accidents involving commercial motor vehicles. The 2004 budget request includes $447 million to address these critical safety

issues. We will also continue to emphasize a comprehensive safety inspection program at the southern border so Americans can be assured that trucks entering the

United States from Mexico meet our Federal safety regulations.

The Administration’s 2004 budget request includes $7.2 billion to strengthen and

maintain our public transportation systems and includes $1.5 billion to fund 26

‘‘new starts’’ projects that will carry over 190 million riders annually when completed.

In addition to our proposals to support our highways and airways, President Bush

is requesting $900 million for Amtrak. But this funding comes with a strong message: Amtrak must undergo significant reform.

Last week, my Deputy Secretary Michael Jackson and my Federal Railroad Administrator Allan Rutter testified before your colleagues in the Senate and the

House on the Bush Administration’s vision for a strong national intercity passenger

rail system. I believe that America deserves a national rail system that is driven

by sound economics, fosters competition, and establishes a long-term partnership between states and the Federal Government.

Mr. Chairman, this vision cannot be achieved without the fundamental reform of

Amtrak. Simply put, America can no longer afford the status quo, and I am personally committed to working closely with the Congress, the states, and industry and

labor leaders to develop a truly healthy and viable national passenger rail system.

Finally, I want to share with you President Bush’s request for our maritime programs. I am pleased that this Committee has recently received the jurisdiction of

all transportation modes including maritime. I believe maritime transportation

issues, particularly our ports, are critical to the success of a truly intermodal transportation system. Waterways, canals and rivers were one of our Nation’s first transportation systems. From the great explorers Lewis and Clark, to today’s Ready Reserve Force supporting our troops in the Middle East, maritime shipping has moved

generations of people and vital supplies.

The recent strike at our West Coast ports clearly indicated the importance of our

ports to the national economy. This Congress can recognize that one of the true definitions of intermodalism and one of the great economic challenges of the next two

decades will be our ability to move freight quickly and efficiently. To do so means

recognizing that America is a maritime nation and that moving freight intermodally

starts at the water’s edge with our ports.

The Maritime Administration (MARAD) continues to support essential transportation and intermodal connections for domestic and international trade. President

Bush requests $219 million to continue MARAD’s efforts to expand and enhance capacity of our Nation’s maritime infrastructure. One of MARAD’s continuing challenges is the disposal of obsolete ships that potentially pose an environmental risk

to our nation’s waterways. The 2004 budget request includes $11.4 million for removal of the highest risk ships.

My prepared remarks focus on only a part of the whole picture. Yet each organization within the Department of Transportation contributes indispensably to accomplishing the goals I have outlined.

Let me finish my testimony by returning to the issue of safety. On 9/11 this Nation was stunned by the degree of destruction and loss we felt as a Nation by those

horrific events. Each of us look back on that day and know exactly where we were

when we heard the news. Yet each day thousands—thousands—of individuals experience their own moment of destruction and loss when the daily toll of death and

injury occur on our Nation’s roads and highways.

Frankly, we have been too complacent about finding new and innovative ways to

collaborate and end this plague on America. I invite this Committee to join in finding new ways and new energy for better solutions. Last year we created a legacy

of achievement. We can do it again.

Thank you again for the opportunity to testify today. My management team and

I will work closely with you, and with the entire Congress, as you consider the 2004

budget and I look forward to responding to any questions you may have.

HIGHWAY REAUTHORIZATION

Senator SHELBY. Mr. Secretary, I have a number of questions

and I think the other participants here do too.
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We have heard for months that the Department’s TEA–21 reauthorization proposal will be ready for release in 10 more days. Mr.

Secretary, is the proposal ready to be transmitted to the Hill or will

it be ready in 10 more days? I am interested, Mr. Secretary, not

only because of its relevance to this year’s budget request, but also

the Banking Committee, which we have authorizing jurisdiction of

transit and I as chair, am anxious to begin work on the reauthorization, to work with you on that.

Secretary MINETA. Mr. Chairman, the budget is at the printers

and we anticipated that well within the 10 days we will have all

of that material to you.

Senator SHELBY. Thank you. Mr. Secretary, virtually every highway safety expert that we have consulted has stated that increasing seatbelt usage is the most important way to reduce highway fatalities. That is why 2 years ago Senator Murray, who chaired the

committee then, and I worked together to dedicate funds for a national seatbelt paid media mobilization and enforcement campaigns, what are commonly referred to as click-it-or-ticket campaigns. The positive effects of these mobilizations to increase seatbelt usage rates are undeniable. According to NHTSA’s evaluation,

seatbelt usage increased by 8.6 percent.

In the omnibus we again set aside funds and directed NHTSA to

continue to fund click-it-or-ticket, and also expand this approach to

target alcohol-related driving, which we are all concerned about.

Mr. Secretary, with the demonstrated success of the program, why

isn’t funding specifically identified in your budget proposal to continue these campaigns in the year 2004? In other words, this is a

program that Senator Murray and I and others have seen the benefit of.

Secretary MINETA. Mr. Chairman, you are absolutely correct. In

fact on Monday I am going to be participating in a click-it-or-ticket

kickoff campaign. In our budget, I believe we have something like

$204 million for occupant safety programs. What we want to do is

to be able to increase seatbelt use. We have 18 States that have

primary laws on seatbelt use, so one of our efforts is to try to get

more States to go from secondary to primary laws relating to seatbelt use. Florida last week was considering it, but unfortunately at

the last minute they did not take the bill to the floor. Massachusetts, I believe did complete their passage of primary seatbelt law

usage this last week. We have many of the State legislatures that

are in session where we are working actively with them in order

to get primary seatbelt use laws on the book.

Senator SHELBY. I know you have a long-term interest, you did

in your legislative career in safety. You put seatbelt laws in use,

bringing it up, pushed alcohol driving down. We are making

progress, are we not, those two together?

Secretary MINETA. Also on DUI (driving under the influence), we

are bringing an increased amount in the 2004 request where we

will have $148 million to address impaired driving fatalities. This

is to increase the number of highly visible sobriety checkpoints and

other programs where we are working with the State highway patrols. In fact when Annette Sandberg was at the National Highway

Traffic Safety Administration (NHTSA) she undertook a very active

program because of her relationship with the International Associa-
131

tion of Chiefs of Police and her working knowledge of being able

to work with State agencies. So we are continuing that program

under the 2004 budget request that Annette started at NHTSA. We

are actively pursuing both programs as they relate to seatbelt

usage and the whole issue of occupant protection, including a heavy

emphasis on impaired driving.

AVIATION

Senator SHELBY. A recent commission on the future of U.S. aerospace industry has raised serious questions about the competitiveness of U.S. firms in the global marketplace. It blamed this situation on, among other things, restrictive Government regulations,

protectionist policies, and a failure to invest in technology innovation. I guess the question comes about, is America, Mr. Secretary,

at risk of losing its position of preeminence in aviation?

Secretary MINETA. This is a subject that I know that we are pursuing within the Department of Transportation and within the Administration. That is, to what extent should the Government be

working with industry in order to promote their specific goals in

terms of trade practices? Just yesterday there was an article in the

Wall Street Journal about Airbus moving away from Pratt & Whitney and looking at just European engines. That is the kind of thing

that I think we ought to be looking at in terms of our own department.

Senator SHELBY. How can the Transportation Department headed by you, how can you help?

Secretary MINETA. I think we can help in terms of making sure

that there are not any competitive impairments to our industries

to be able to work closely with other manufacturers. In this instance, if there is a policy on the part of Airbus just to deal with,

let us say Rolls Royce, or with their own other engine manufacturers in Europe, then I believe that kind of trade practice is something we ought to be earmarking as a subject of our interest.

INFRASTRUCTURE PERFORMANCE AND MAINTENANCE INITIATIVE

Senator SHELBY. Mr. Secretary, infrastructure performance and

maintenance initiative. Do you envision this program as a new apportionment program for the States or as a new discretionary program administered by FHWA?

Secretary MINETA. The monies will go into the formula program. Since the $1 billion is to be used for projects that can be started

very quickly, and if States do not use their apportioned amounts,

then we will draw that back and then reshuffle that money back

out to other States that are using the money very quickly. But it

will be distributed under the formula that goes out to the States.

To the extent that the States do not use the money, then we will

pull it back and, as I say, redistribute that money back out to other

States that are utilizing IPAM for quick projects.

Senator SHELBY. If this is a discretionary program, what criteria

would you propose to evaluate project eligibility? Give us some examples.

Secretary MINETA. Those projects will be judged very similar to

how we judge programs under the Surface Transportation Program.
132

FEDERAL AVIATION ADMINISTRATION REAUTHORIZATION

Senator SHELBY. The FAA reauthorization. What actions will

FAA and the Department take to ensure the agency operates within the amount that you are suggesting in the next 4 years?

Secretary MINETA. As you know, the operations account is something that is a very tight budget issue and Administrator Blakey

is working on that matter as we speak. We are trying to make sure

that we can do this without any staff layoffs, and to make sure that

the safety of the flying public remains paramount. The operations

budget is very key to that. Because of the pressures on the operations budget we are looking at all alternatives to make sure that

we can deliver safety to the American flying public.

AMTRAK

Senator SHELBY. Briefly, Amtrak appropriation. The 2003 appropriations bill placed a number of new requirements on Amtrak’s

ability to obtain their Federal subsidy. I am interested in your

thoughts on how those requirements are working, the interplay between FRA and Amtrak, and what, if any, changes that you would

propose to improve your oversight of the railroad for the 2004 bill.

Secretary MINETA. Mr. Chairman, the requirements that were

placed in the omnibus bill in terms of requiring us to get a business plan from Amtrak, and to get definitive cost implementation

schedules, all of that has now come to the Department of Transportation from Amtrak. We have found that this has been very helpful

in terms of our formulating our 2004 budget as well as imposing

on Amtrak these kinds of requirements so that we will have the

detailed information we need in order to make decisions and

choices to fulfill Amtrak’s needs. The requirements that were laid

out were adhered to by both Amtrak and DOT, and we have found

those to be very, very helpful.

Senator SHELBY. Thank you. I will pick it up in another round.

Senator Murray.

Senator MURRAY. Thank you, Mr. Chairman.

Mr. Secretary, your FAA administrator is about to enter into new

labor negotiations with most of her unions, and one thing that

could certainly sour those negotiations is the current talk we have

heard about the potential for furloughs of FAA employees in the

current fiscal year. Those rumors of furloughs persist even if you

were given more than 99 percent of what you requested for FAA

Operations this year. Although you just said that you did not want

to go that way, if you do not, what other belt-tightening measures

are you going to implement in order to keep everyone on board?

Secretary MINETA. Because of their needs, the FAA Administrator is trying to make sure that she takes a look at all of the

costs that are under operations. I believe that the whole issue of

trying to avoid furloughs is paramount as she does her work on operations.

Senator MURRAY. Can you be more specific about what other

things you are going to do in order to comply with the amount of

money that you have if you do not do furloughs?
133

Secretary MINETA. For instance, the whole issue of what to do on

her telecommunications budget within the operations part of FAA,

is being looked at along with hiring freezes.

Senator MURRAY. Is there going to be a reduction in the available

overtime for air traffic controllers this summer?

Secretary MINETA. With a sufficient number of air traffic controllers, we are hoping to reduce the number of overtime hours. We are

making sure that we have the right number of air traffic controllers so that we can do it without the use of overtime hours.

Senator MURRAY. There is also another issue of retiring air traffic controllers and lack of backfilling for those vacancies. In fact we

have already had controllers at one of our major air traffic control

facilities complaining quite publicly actually about vacant positions

that are not being filled and about the skies over Chicago not being

safe to fly. Are you confident we are going to have the necessary

funds to fill vacancies at that facility as well as sustain staffing at

your other air traffic control facilities throughout this year?

Secretary MINETA. On Chicago specifically, I think there is a

problem there, but it is an issue of the management there utilizing

the air traffic controllers in the most efficient way possible. I believe, that with the reports that I saw earlier, that there are many

of the air traffic controllers who just are not being utilized properly

because of the management team there. But nevertheless, I think

Chicago is adequately staffed. The overall picture is that in order

to deal with this retirement bubble that is coming up, we are also

going to have 302 air traffic controllers that are included in this

budget. It takes us about 3 years to have a hired air traffic controller to be at a full performance level.

Senator MURRAY. I would just say that I think there is a real

concern that we are not hiring those fast enough to meet that 3-

year requirement. So we will be watching that carefully.

Secretary MINETA. We believe that the whole level of operations

will not be coming back until about the year 2006, and because of

the reduced number of operations right now, we feel what we are

doing on hiring air traffic controllers anticipates that operations increase when it occurs in 2006.

AMTRAK

Senator MURRAY. Let me turn to Amtrak. I earlier pointed out

that you are seeking a 22 percent cut in the total level of funding

for Amtrak. Testimony by your Deputy Secretary indicates that the

Administration views any amount over $900 million as excessive

and unaffordable. You still have not submitted the Amtrak reauthorization bill that was due last year, but your Deputy Secretary

has testified regarding, as I said, some of the concepts that are

going to be in your legislation; concepts including dramatically increased cost-sharing by the States for receiving Amtrak service,

and a requirement that Amtrak compete against other potential

bidders to operate your intercity passenger trains.

A great deal of Deputy Secretary Jackson’s testimony focused on

the 17 so-called long distance trains that serve the vast majority

of our country. Amtrak’s annual Federal subsidy is over $1 billion

a year and the company has almost $5 billion in total debt. If we

eliminated those 17 long distance trains tomorrow, it would save
134

the company absolutely nothing this year. It would take 5 years before the elimination of those trains even saved $200 million. The

annual subsidy for these trains, while high on a per-passenger

basis is a pittance compared to the Federal subsidy that is granted

to the trains operating the Northeast corridor.

Mr. Secretary, when you finally submit your reauthorization proposal for Amtrak, will we find that the Northeast corridor trains

and the non-Northeast corridor trains will be subject to equal treatment?

Secretary MINETA. Absolutely. The reason that the Northeast

corridor gets treated differently in certain respects is because the

underlying tracks do belong to Amtrak there. Our intent is to eventually have two entities; one an operating entity, namely Amtrak,

and the other dealing with the infrastructure of rail.

Senator MURRAY. Will there be identical cost-sharing requirements by the States?

Secretary MINETA. The State would be required to agree to a 50/

50 match.

Senator MURRAY. The Northeast corridor and the non-Northeast

corridor, will their cost-sharing requirements be identical?

Secretary MINETA. Let me ask. In the long-term it would be a 50/

50 match. It would be the same cost-sharing.

[The information follows:]

Recently, the Department of Transportation completed its legislative drafting of

a bill entitled the ‘‘Amtrak System Stabilization, Improvement, and Streamlining

through Transition Act.’’ The purpose of the bill is to undertake a restructuring of

intercity passenger rail transportation in the United States that will allow it to compete successfully with other modes of transportation. We are now seeking final administration approval through OMB’s legislative clearance process. The administration will work to expedite clearance as quickly as possible and hopes to transmit

the text of the legislation to Congress shortly. Following the transmittal of the bill

to Congress, we can address the question of implementation of the cost-sharing requirements of the Northeast corridor and the non-Northeast corridor.

Senator MURRAY. In the long run. Will they be implemented on

the same schedule?

Secretary MINETA. I think what we would have to do on the

Northeast corridor is to bring the tracks up to a level that would

be satisfactory. Because of the lack of investment in infrastructure,

the roadbed for the Northeast corridor needs a great deal of work.

We feel that before we turn it over to the Northeast corridor companies, or the States, that we would have to bring those railbeds

up to a certain standard.

Senator MURRAY. Mr. Secretary, Amtrak is currently carrying

$3.8 billion in long-term debt and another $1 billion in short-term

debt. It is estimated that roughly 65 percent of that debt is attributable to improvements that have been made to that Northeast corridor. Your Amtrak reauthorization proposal is going to propose the

development of a Federal-State compact to operate that Northeast

corridor with the States taking on considerable additional requirements to operate and maintain that corridor. Will you be expecting

this new compact between the Federal Government and the States

in the Northeast corridor to take over the 65 percent of Amtrak’s

outstanding debt which is attributable to the improvements that

have been made in the Northeast corridor?
135

Secretary MINETA. Frankly, we have not determined that issue

yet on the assumption or transfer.

Senator MURRAY. I think it is a very important question, Mr.

Secretary, and we would like to hear from you as soon as possible.

If they are not going to take the debt, who is going to pay Amtrak’s

debts when you go into that compact? So I hope to hear from you.

[The information follows:]

Recently, the Department of Transportation has completed its legislative drafting

of a bill entitled the ‘‘Amtrak System Stabilization, Improvement, and Streamlining

through Transition Act.’’ The purpose of the bill is to undertake a restructuring of

intercity passenger rail transportation in the United States that will allow it to compete successfully with other modes of transportation. We are now seeking final administration approval through OMB’s legislative clearance process. The administration will work to expedite clearance as quickly as possible and hopes to transmit

the text of the legislation to Congress shortly. Following the transmittal of the bill

to Congress, we can address the question of who is going to pay Amtrak’s debts on

the Northeast corridor.

SOUND TRANSIT

Senator MURRAY. I just have a few seconds left. I do have one

other question I want to ask you about, Mr. Secretary, because Seattle is now the third most congested city in the Nation. Two years

ago, you recommended that the proposed Seattle light rail project

take a timeout for the purpose of getting its house in order, and

getting the cost and scope of the project under control. I joined with

you in that decision and with the help of your FTA Administrator

and Inspector General, a lot of progress has been made. I have

worked very carefully with Sound Transit in Seattle to ensure that

they have reformulated their light rail project so that you and your

staff are fully satisfied that their cost estimates and their construction plan are achievable. This project certainly reached a major

milestone when your administration included $75 million in your

budget for 2004 and announced your plan to revise the existing

Full Funding Grant Agreement.

Can you tell me this morning, based on what you know about the

improvements that have been made in the planning and financing

of this project, do you currently have any reservations surrounding

your request for $75 million in 2004?

Secretary MINETA. Not at all. We are very confident about the revised plan and we appreciate your work in working with the Sound

Transit System. I personally have a great deal of confidence in the

Executive Director of the system there. I think she has gone a long

way in helping both the system as well as the working relationships between FTA, your office, and the Sound Transit System, and

has been able to come up with a great plan.

Senator MURRAY. I agree. Can you tell me when you expect a revised Full Funding Grant Agreement to come to Capitol Hill on

that project?

Secretary MINETA. That is something I will have to submit to

you. I am not sure that we have a set schedule yet.

[The information follows:]

On January 19, 2001, the Department of Transportation approved the Full Funding Grant Agreement (FFGA) for the Central Puget Sound Regional Transit Authority. At the time the project was approved, major changes in the project’s tunnel

alignment were being discussed. The Department has withheld funding for the

project until a number of financial and timing issues are resolved and Congress had
136

time to adequately review the grant agreement. On July 7, 2003, the Department’s

Office of Inspector General (IG) issued a report on its audit of the project. The Federal Transit Administration (FTA) has concurred with the IG’s recommendation,

stating that it will request that the Sound Transit Board of Directors formally agree

to actions specified in the IG’s recommendations. FTA will closely monitor Sound

Transit’s continuing financial responsibility to operate, maintain and reinvest in its

existing transit system as well as the Initial Segment, as is the practice under all

FFGAs. Further, FTA will not execute the FFGA prior to written notification from

the Sound Transit Board of Directors of their agreement to take the actions specified by the IG.

Senator MURRAY. All right. Thank you very much, Mr. Secretary,

and thank you, Mr. Chairman.

Senator SHELBY. Senator Campbell.

HOURS OF SERVICE

Senator CAMPBELL. Thank you, Mr. Chairman. I would like to

ask the Secretary one general question about hours of service and

something specific to Colorado before my time is up.

Mr. Secretary, very frankly, I have to tell you, I think the people

that wrote the revision of hours of service neither know the significance of the trucking industry in America or the precarious position they are in; either one. I understand that over 1,000 companies, trucking companies went out of business last year, went into

bankruptcy. I know that repossession of trucks are at an all-time

high. Even with that, there are a shortage of drivers even for the

remaining trucks. It is something like 95 percent of everything that

moves in America, every portable thing that you can think of travels on a truck. So I think it is a very significant industry and I am

really concerned about this change of hours of service.

I would like you to, if you could, tell me, tell the committee

where the rulemaking has changed and where we are on it.

Secretary MINETA. Senator Campbell, as you know, this rule was

released about 3 weeks ago, I believe. The effective date of the

Hours of Service rule will be January 4, 2004. I think, from what

I can gather, since we had issued the original notice of proposed

rulemaking we got something like 53,000 comments during the

comment period. The Federal Motor Carrier Safety Administration

went through all of those comments.

Senator CAMPBELL. How many of the 53,000 would you say were

supportive or opposed to changing?

Secretary MINETA. As I recall, we had a substantial percentage

of the 53,000 that were supportive of the rule. This is the first time

since I believe 1939, that we have revised the hours of service rules

in a significant way. This rule is supported by the American Trucking Association. I think the major opposition comes from the independent drivers.

Senator CAMPBELL. The ATA represents the large fleets. I think

it is called OOIDA or something, represents the little guys, the

ones I am really concerned about losing their homes.

It is also my understanding though that these hours of service

are almost impossible to monitor with the Mexican trucks that will

be coming north now under the NAFTA agreement. They have a

log book, but they do not have to keep up with them in Mexico.

Secretary MINETA. They will be subjected to the same requirements once they are able to come in to the United States. We in-
137

tend to enforce the law on hours of service against the Mexican

drivers as we would U.S. drivers, or Canadian drivers.

Senator CAMPBELL. Thank you. I guess the proof will be in the

pudding to see if it works or not. I am absolutely convinced though

it is not going to work to the benefit of either drivers or small truck

owners, or to the country at large that has to do a lot of shipping.

COLORADO BLOOD-ALCOHOL STANDARDS

Let me ask just a couple related to Colorado. Colorado is one of

the few States that has a two-tier system relating to blood-alcohol

content. We have a driving while ability impaired is a lesser charge

where the blood alcohol content is less than .05 percent and .09

percent. During the authorization of TEA–21 Federal funds were

tied to each State requiring them to lower the blood alcohol content

to .1 percent if the States did not change their laws. If they did not

then the States were going to be penalized and funds withheld.

That is going to cost Colorado about $50 million a year.

If the Colorado law already requires a stricter requirement under

blood alcohol content, why should the State be penalized, if it is

more strict than the Federal requirement now?

Secretary MINETA. Senator, I will have to get together with you

on that because I am not familiar with the requirement.

[The information follows:]

To qualify for an incentive grant under Section 163, and to avoid a sanction under

Public Law 106–346-Appendix, sec. 351, 114 Stat. 1356A–34, 35 (Section 351), a

State must enact and enforce a law that provides that any person with a blood alcohol concentration of 0.08 percent or greater while operating a motor vehicle in the

State shall be deemed to have committed the per se offense of driving while intoxicated or an equivalent per se offense.

The State of Colorado does not currently have a driving while under the influence

(DUI) per se law that is stricter than the requirements of 23 U.S.C. Section 163 or

that meets the requirements of Section 163. The State’s standard DUI per se offense

applies at .10 BAC (Colo. Rev. Stat. Sec. 42–4–1301(6)(a)). The .05 to .09 provisions

relate to permissible inferences that are not a part of Colorado’s DUI per se law.

Rather, the inferences allow the evidence of a person’s blood alcohol concentration

to be deemed relevant and possibly admitted in a prosecution for DUI or driving

while ability impaired (DWAI). These inferences are merely permissible, not mandatory. Accordingly, these provisions cannot be utilized by the State of Colorado to

demonstrate compliance with the requirements of Section 163.

ASR–11

Senator CAMPBELL. All right, I appreciate that. One other one

you may have to look up. We have an airport that has been waiting

for years and years to get a radar system called an ASR–11. I know

Senator Murray also has been waiting, and Senator Stevens too. I

understand that that radar system, there are some concerns about

its viability and that has really halted the installation. Could you

give me a status report on the certification of that ASR–11? You

probably do not have that right there in your notes either, but if

you could get back to me. The county that I have been working on

for years trying to get one is called Eagle County, right in the middle of those mountains. Very predictably dangerous place to land

when we have high peaks all around and bad snowstorms and so

on. So I would appreciate it if you could——

Secretary MINETA. I will get back to you on that, sir.

[The information follows:]
138

ASR–11 is a joint FAA and Department of Defense procurement program intended

to replace aging Airport Surveillance Radar Models 7 and 8, which are nearing the

end of their service life and becoming more difficult to maintain. The ASR–11 system is an integrated system that includes a primary radar system and associated

beacon system. The ASR–11 will provide digital radar input to new automation systems such as Standard Terminal Automation Replacement System (STARS).

Results of operational tests have proven the system suitable for operational use.

The FAA proposes to formally certify the ASR–11 system for national use by August

2003.

The FAA has met with Eagle County Airport and Eagle County Commissioner

representatives to discuss possible surveillance solutions to address Eagle County’s

air traffic surveillance needs. Work is continuing with local and regional personnel

to define and evaluate potential improvements. A recommendation and business

case is expected by November 2003.

Senator CAMPBELL. All right, thank you. I have no further questions, Mr. Chairman.

Senator SHELBY. Senator Brownback.

STATEMENT OF SENATOR SAM BROWNBACK

Senator BROWNBACK. Thank you, Mr. Chairman. I appreciate

being able to join your subcommittee for the first time. It is a

pleasure to be here. Mr. Secretary, glad to have you here as well.

Secretary MINETA. Thank you, sir.

AVIATION INDUSTRY

Senator BROWNBACK. I want to focus my comments on two areas.

One is on the aviation industry itself. I understand the chairman

made some comments about this as well. Wichita, in my State, the

general aviation manufacturers in that State are headquartered in

Kansas. Boeing has a huge plant in the State. This has been an

industry that has been decimated in recent times. We had 30 percent layoffs, employment layoffs. That is bad enough. But it is an

industry that is somewhat use to the cyclical nature. At least the

general aviation manufacturers, not so much Boeing.

But when I met with the industry leaders in December something really troubling came up. I had all the leaders of the industry

in a meeting and they were saying—they are used to in general

aviation, the gamma groups are is the used to kind of an up and

down nature of the industry.

But what they are seeing take place is that as they are strapped

for cash, they are needing research money to develop the next wave

of products, the next wings, the next engines, the next fuselage of

the products. They are having countries come to them and saying,

we will pay for the research and the development of the wing, a

Japanese company but it is backed by the government. Saying, we

will pay for the development of the wing of this new product, but

you have to manufacture the wing then in Japan.

Or China is doing a similar sort of push where the government

is paying for the research and then using that as a hook to leverage the jobs coming to that country, to where the industry may be

fundamentally restructuring now, as we speak, because the companies are strapped for cash. They are strapped to make the next

wave of products. They need the research money to get the next

wave of products, and they are getting it from foreign governments

that are being backed by companies there that are then saying, we
139

have to manufacture the wing or the engine or whatever the piece

may be.

So we may end up being just an assembler of aviation products

rather than the developer and lose all the jobs underneath the system. So at the end of the day, the product still comes out of Wichita, but it did not really come out of Wichita. It came out of China

or Japan or India or Europe.

To me this is a very troubling trend. We have been a leading

aviation researcher, manufacturer since flight began, since the

Wright brothers. It seems to me that we are on the edge of losing

that. Five years ago, if the numbers I have are correct, we put

about $1 billion a year into aviation research as a government.

This is a combined set of sources. NASA had a major piece of that.

Now we are about $500 million a year, so we have cut that in half

at the same time the rest of the world is investing.

Now you can say, okay, it is another manufacturing set of jobs;

maybe we are going to end up losing those too. But these are the

highest wage, highest skilled manufacturing jobs in the world. People bid heavily for them. What I think we are doing is we are in

the process of losing them by virtue of not paying attention.

If we were losing them just as direct company on company competition, I can handle that. But not if it is a government-subsidized

research basis on it, and then the company coming in privately. If

that is the case, we either should back them down in trade negotiations or we should subsidize.

So I am coming to you with this issue. I put forward a bill with

Senator Hollings and the Commerce Committee, Second Century of

Flight. Calls for a coordinator on the overall aviation research. It

calls for more investment in aviation research. It calls for incentives to draw the next wave of engineers into aviation research. It

is Senate bill 788. It has cleared through Commerce Committee as

the authorizing. All but one title of it has cleared through the Commerce Committee. I would ask that you would look at that and I

would hope would aggressively get behind it or something like it,

because we are really losing this business.

And I would appreciate it if you would be willing to consider

bringing in these aviation business leaders in a roundtable. I think

they would be more than willing to come, or gather at the conference, a conference call, and ask them the same questions about

the restructuring of the industry, because this is happening right

below the surface. The company stays in Wichita but the product

and the jobs are actually coming in from other places. It should not

be happening that way. I would hope you could back more in the

way of aviation research or specifically this bill.

If you would care to comment, I would appreciate it.

AVIATION RELATED RESEARCH

Secretary MINETA. As I understand it, Titles I, II, and III of your

bill were incorporated into the aviation reauthorization legislation

that the Commerce Committee took up last week.

Senator BROWNBACK. That is right.

Secretary MINETA. We look forward to working with the committee on the structure as you have outlined it in S. 788.
140

This issue goes back to something earlier that the Chairman

mentioned and Senator Murray has an interest in as well. That is,

to what extent can we do Federal research, without being accused

of subsidizing the aviation industry? This is something that we

deal with the European Union on all the time. When we went

through the Aviation Stabilization Act and we reimbursed airlines

for losses in that period subsequent to September 11th, the Europeans were complaining that we were subsidizing our airlines in

terms of their operations. All we were saying was, we were reimbursing them for their operational losses as a result of my grounding all the planes on the 11th of September, and for that subsequent period before the airlines got back into operation.

Whenever we get into research, we do research on wings and to

the extent that Boeing uses that research to build a plane, or Gulfstream, or Beech, or anyone else, then we get accused of subsidizing the firms. The earlier question that the Chairman was

asking is something that I want to get into because I think that,

as you have indicated, we have somewhat lost our technology edge

in terms of aviation.

I remember being on the Science Committee in the House and

I remember saying to Dan Goldin, what happened to the ‘‘A’’ in

NASA? It was National Aeronautic and Space Administration

(NASA), but the aviation budget was going down, down, and down.

I was fearful that it was going down so much that Langley, WrightPatterson, and Ames Research Center at Moffett Field would also

be cut back. I believe that the problem with NASA, is that their

research budget still goes down because all of it is being sucked up

by the space station. The FAA’s research program is done mostly

by NASA.

Senator BROWNBACK. If I could ask you, because the time is so

short, if your agency could really start a study of what is taking

place, because if other countries are doing this, then we should

start a trade action against them. Particularly Boeing, we are down

to now 50 percent or below of market share, and that is all by a

subsidized Airbus that has come in and taken that market share.

We should be taking trade actions against Airbus. I would hope

your agency would push on that. Or if we are not going to do that,

that we would equal the European subsidy and then make them

sue us in the trade courts.

Secretary MINETA. You are absolutely correct, Senator

Brownback. About 4 months ago, I had asked our Under Secretary

for Policy to start taking a look at this whole issue. Then yesterday, there was a article in the Wall Street Journal about Airbus

pulling back from Pratt & Whitney so they could look exclusively

at European engines. That prompted me to tear that article out

and send it to Jeff Shane to, again, make sure that we are pursuing this issue.

[The information follows:]

The Department of Transportation continues to closely monitor issues concerning

possible subsidies and potential unfair trade actions. In all cases of possible unfair

trade practices, the administration seeks compliance with international trade obligations and is prepared to employ appropriate bilateral and World Trade Organization

mechanisms to achieve that outcome.
141

Senator BROWNBACK. I would urge it. I have got an issue I will

submit to you for the record of short line railroads and the need

for help on short lines, because on moving freight that are key for

a State like mine. But I will submit that.

Mr. Chairman, thank you.

Senator SHELBY. Thank you, Senator.

NEW ENTRANT PROGRAM

Mr. Secretary, I have a few more questions. You have been very

patient. The FMCSA budget proposes a total of $33 million for implementation of the new entrant program. Given that there are approximately 50,000 new entrants every year now, how many audits

does the Department actually expect to conduct if this program is

fully funded?

Secretary MINETA. Mr. Chairman, I am not sure.

Senator SHELBY. Do you want to get back with me on that?

Secretary MINETA. I will get back to you on that, sir.

[The information follows:]

FMCSA will conduct safety audits on all new entrants within the first 18 months

of carrier operations consistent with current law and regulation. The agency anticipates that 31,800 audits will be conducted in fiscal year 2004. This will be accomplished using both Federal and State safety inspectors: State inspectors will conduct

an estimated 19,800 audits and Federal personnel an estimated 12,000 audits. The

balance of audits will be completed within the first 6 months of the following fiscal

year, consequently meeting the 18-month legislative requirement to conduct audits

on the full estimated annual population of 50,000 carriers. This program will continue on a cyclical basis as approximately 40,000–50,000 new entrants are expected

to apply for interstate operating authority annually.

Senator SHELBY. I just want to add this to it. If we cannot expect

to conduct an audit of every new entrant, what consideration has

been given to phasing in the program or setting up some sort of

criteria for prioritizing these new entrants that will be audited?

You can do that for the record.

Secretary MINETA. We will include that as well.

[The information follows:]

FMCSA will conduct safety audits on all new entrants. With the funds requested

in fiscal year 2004, FMCSA will ramp-up the New Entrant program by hiring 67

contracted auditors and 32 oversight personnel; make facilities improvements; and

train Federal, contract, and State staff.

Audits will be conducted on a first in/first out rolling basis. New entrants will be

audited no sooner than 90 days after they start operating. This will provide FMCSA

with a 90-day window to obtain roadside inspection data from the new entrants, as

well as allow carriers time to stabilize their safety processes after starting their new

businesses. FMCSA will contact these carriers at the 90-day point with the intent

of completing the audit as close to that point as possible.

By the end of the third quarter of fiscal year 2004, the program should be operating at full capacity and FMCSA plans to cover any backlog of audits not completed

in fiscal year 2004 during the first 6 months of fiscal year 2005 in order to meet

the 18-month legislative requirement to conduct audits on the full population of carriers subject to an audit.

MARITIME ADMINISTRATION TITLE XI PROGRAM

Senator SHELBY. Title XI, guaranteed loan program; get into

that. What plans, if any, do you have to help assist the shipping

industry in securing financing? You are familiar with the program,

the MARAD program?
142

Secretary MINETA. Yes, sir. The only one we have right now is

the Title XI program.

Senator SHELBY. It has taken a downturn. Since 2000, the pro- gram has paid out almost $500 million in defaulted loans. What

steps are you taking to help get this program back on track?

Secretary MINETA. This has been a real issue because I think we

have had defaults amounting to something like $489 million.

Senator SHELBY. It is a lot of money, $500 million.

Secretary MINETA. Yes, sir. I believe we are requesting $4.5 million in the 2004 budget in this program. We are looking at the recommendations that will be forthcoming from an Inspector General

report on this whole issue of the Title XI program.

FAA OPERATIONAL ERRORS

Senator SHELBY. In 2001, FAA began replacing air traffic control

supervisors with controllers who assume supervisory duties and

were designated as controllers in charge (CIC). According to an Inspector General’s April 2003 report, the number of operational errors that occurred while a CIC was supervising an area in calendar

year 2001 increased 46 percent compared to calendar year 2000.

Has FAA determined the reason for the increase? If so, do you

know what corrective actions the FAA leadership have taken or has

planned? If you do not know offhand, you can get back to me.

Secretary MINETA. Let me get that for the record.

[The information follows:]

The Federal Aviation Administration investigates all incidents involving operational errors. In the course of these investigations, the agency looks for causal factors and makes appropriate adjustments to correct identified problems, which may

affect safety. Since the CIC expansion in January 2001, FAA has not seen the program impact safety and has not seen an increase in operational errors. In fact, the

records show an overall decrease in operational errors of 11 percent from fiscal year

2001 to 2002. Below is a table that reflects the data for fiscal year 2001–May, 2003.

Operational Errors

Fiscal year 2001 .................................................................................................................................. 1,193

Fiscal year 2002 .................................................................................................................................. 1,061

Fiscal year 2003 (through May) .......................................................................................................... 714

Senator SHELBY. Absolutely. Forty-six percent is a big number.

AIRPORT COMPETITION

Airport competition. Secretary Mineta, AIR–21 included a provision that prevents certain large and medium hub airports from receiving AIP funds or collecting new PFCs unless they submit competition plans to the Department of Transportation. It is my understanding that each year these airports must submit competition

plans on an annual basis and are required to provide detailed information on an extensive list of items.

I will support any proposal that will increase competition in the

commercial airline industry. Are you aware if air carriers have received access to gates and other facilities as a result of the competition plan requirements?

Secretary MINETA. I know the competition plans are being submitted, that those plans have opened up opportunities for new entrant carriers——
143

Senator SHELBY. It is so important; competition.

Secretary MINETA. Where you have a dominant carrier, they will

probably be at gates 1 through 43, and the new entrant carrier will

be at gate number 89. That is part of the whole issue that we are

trying to deal with in having the airports submit these competition

plans, so that we can make sure that the playing field is level.

Senator SHELBY. Absolutely.

Secretary MINETA. Especially today with traffic being down.

Senator SHELBY. Is it having an effect yet? Because that is the

bottom line.

Secretary MINETA. I do not think so yet, because a number of the

gates are still retained by carriers and they will not release them.

Senator SHELBY. They will not release them although they do not

need them?

Secretary MINETA. Right. But, I suppose where the airlines have

what they call a majority in interest clause, the dominant carrier

can be pretty aggressive in determining when they release those

gates.

Senator SHELBY. Absolutely. We found that out here from oversight. But at the same time, it stifles competition.

Secretary MINETA. That is right. You are absolutely correct.

Senator SHELBY. What we are interested in, and you are too, is

competition in the marketplace.

Secretary MINETA. Right.

Senator SHELBY. We all benefit, do we not? All the airlines will

ultimately benefit because they will have to change their business

model to compete, or disappear. That is the nature of the business.

It is tough.

I saw that the Department included a placeholder for competition

plans in its FAA reauthorization proposal. Are you proposing to expand, Mr. Secretary, the current requirements? If so, is it necessary?

Secretary MINETA. I am not sure what you are referring to under

placeholder.

Senator SHELBY. Competition plans, we saw that the Department

included a placeholder for competition plans in its FAA reauthorization proposal. The question is, are you planning to, or proposing

to expand the current requirements? The placeholder, we wonder

what is going to happen there?

Secretary MINETA. Let me find out. Mr. Chairman, it is my understanding that the Administration, I assume through the Domestic Policy Council, is looking at the whole issue of the airline industry as it is today. So part of this whole effort is to deal with the

competition that exists. It is my understanding that this was just

a placeholder put in place for the Administration to eventually

come up with a program relating to competition in the airline industry.

[The information follows:]
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U.S. DEPARTMENT OF TRANSPORTATION,

OFFICE OF THE SECRETARY OF TRANSPORTATION,

Washington, DC, May 20, 2003.

The Honorable JOHN MCCAIN,

Chairman, Committee on Commerce, Science, and Transportation, United States

Senate, Washington, DC, 20510.

DEAR MR. CHAIRMAN: The Department of Transportation requests your Committee’s consideration of the enclosed two legislative proposals for inclusion in pending

bills to reauthorize activities of the Federal Aviation Administration (H.R. 2115 and

S. 824).

The two proposals are intended to strengthen the ability of United States air carriers to compete domestically and internationally. The effects of September 11 on

airline traffic and, consequently, on the financial health of U.S. air carriers have

been exacerbated by the war in Iraq and by SARS. Given the growing external pressures to which aviation is being subjected, the Department has continued to identify

ways to give U.S. airlines the tools necessary to respond to market forces since Secretary Mineta transmitted our FLIGHT–100 Act proposal to Congress in March.

The proposal to allow greater access to foreign capital markets would expand the

resources potentially available to U.S. carriers as they restructure their operations

in response to the challenges of today’s domestic and international aviation realities.

Raising the ceiling on the percentage of voting shares that can be owned by foreign

citizens (without changing the requirement that U.S. carriers be controlled by U.S.

citizens) would be consistent with foreign investment restrictions that apply to airlines in European Union countries and those of other U.S. bilateral partners.

Achieving a consistent approach in the investment area could facilitate the United

States’ reaching new aviation agreements, thus expanding opportunities for U.S.

carriers.

The second proposal would expand the number of airports covered by the requirement (added by AIR–21 in 2001 to title 49) requiring certain large and medium hub

airports to submit a plan for increasing competition along with any PFC request or

AIP grant application. The expansion would be from approximately 38 to 50 airports, including large gateway airports that are not now covered.

The Department has devoted a considerable amount of time to reviewing competition plans and offering suggestions as to what actions airport officials could take

to enhance competitive airport access. As a result of the plan filings and suggestions

by the Department, some positive pro-competitive steps have been taken at the 38

airports required to file a plan. Such steps include making gates and related facilities more available and access requirements more transparent, pre-approving leasing and subleasing arrangements, monitoring gate use, converting exclusive-use

gates to common-use and recapturing unutilized gates. Low-fare air carriers benefited from the competitive actions by airport officials. In this regard, at 29 of the

38 airports, new or expanded entry/service has occurred. Large air carriers have

also benefited through new lease arrangements and gate-change accommodations.

To build on the success of the AIR–21 competition plan requirement, we are proposing to expand the number of airports required to file a plan to include all large

hub airports. This expansion will capture several facility-constrained airports. We

are also proposing that airports (1) actively monitor how frequently their gates are

used, (2) develop uniform gate-assignment protocols and notify all carriers when

gates become available, (3) adopt fair sublease arrangements, (4) develop procedures

to disapprove proposed subleases that would restrain competition, (5) prevent the

use of majority-in-interest clauses that limit the airport’s ability to develop projects

necessary to enhance carrier access, and (6) implement dispute resolution procedures. These additional requirements will provide a framework by which all air carriers are given full, fair and transparent competitive airport access.

We appreciate the Committee’s support to date for the Department’s proposal

transmitted on March 25 and would ask for favorable consideration of the enclosed

proposals. The Office of Management and Budget advises that it has no objection,

from the standpoint of the Administration’s program, to the submission of these proposals to the Committee for its consideration.

Sincerely yours,

KIRK K. VAN TINE.

SEC. . AIR CARRIER CITIZENSHIP.

Section 40102(a)(15)(C) of title 49, United States Code, is amended by striking

‘‘75’’ and inserting ‘‘51’’.
145

SEC. . COMPETITION PLANS.

(a) Section 47106(f) of title 49, United States Code, is amended—

(1) in paragraph (2) by—

(A) adding the following after ‘‘gate-assignment policy,’’: ‘‘requests for

access or accommodation by new entrant and incumbent carriers, responses

thereto, and reasons for any denials of such requests,’’; and

(B) adding a new sentence at the end of the paragraph as follows: ‘‘A

competition plan under this subsection shall also include a justification as

reasonable and not unjustly discriminatory (i) for any differential or variance in fees and/or terms of use for gates and associated facilities (including

overnight parking) charged to existing and prospective carriers, respectively; and (ii) for any failure to provide access, such as by undertaking the

activities listed in subparagraph (4) below within 90 days of a carrier’s request.’’;

(2) in paragraph (3), by striking subparagraphs (A) and (B) and inserting

the following:

‘‘(A) that has more than .25 percent of the total number of passenger

boardings each year at all such airports and at which 1 or 2 air carriers

control more than 50 percent of the passenger boardings; or

‘‘(B) that has more than 1 percent of the total number of passenger

boardings each year.’’; and

(3) by inserting at the end new paragraphs (4), (5) and (6) as follows:

‘‘(4) GATE AVAILABILITY.—In the case of a covered airport, as defined in

paragraph (3) of this section, the airport owner or operator shall demonstrate

that it will make gates and related facilities (including overnight parking) available, and otherwise provide access to new entrant and other requesting carriers

by, e.g., undertaking the following activities:

‘‘(A) developing dispute or complaint resolution procedures including

timelines, to resolve complaints by new entrants or other requesting carriers about access;

‘‘(B) specifying and publishing requirements for a new entrant to acquire a gate and for an incumbent carrier to expand;

‘‘(C) providing an airport competitive access liaison;

‘‘(D) developing procedures to monitor actual utilization of all gates and

overnight parking positions and to make this data available to the Secretary and to the public;

‘‘(E) maintaining a uniform policy of notifying all carriers (both incumbents and potential new entrants), of gate availability and having fair and

transparent gate assignment protocols, including timelines for access;

‘‘(F) adopting comparable policies and procedures for subleasing of

gates by tenant carriers;

‘‘(G) adopting dispute resolution procedures, including timelines, for

disputes about sublease fees, terms, and conditions, including ground handling;

‘‘(H) adopting caps on sublease fees and ensuring that non-tenant fees

do not include charges for unneeded services;

‘‘(I) adopting policies to review and approve or disapprove proposed subleases with explicit authority, in current and future lease agreements, to

disapprove proposed subleases that would restrain competition by a new entrant air carrier, a carrier offering competitive service, or a carrier that is

not dominant at the airport;

‘‘(J) making majority-in-interest clauses in air carrier lease and use

agreements inapplicable to an airport development project necessary to enhance access by an air carrier; and

‘‘(K) posting the submitted competition plans required under this subsection and the comments of the Secretary in a publicly available location,

including a website if such internet website exists.

‘‘(5) PLAN APPROVAL.—The Secretary may disapprove a competition plan

that is not in accordance with this subsection and guidance established by the

Secretary. The Secretary shall provide written notification of the disapproval to

the sponsor, which shall include specific findings regarding the basis for the disapproval.

‘‘(6) WITHOLDING APPROVAL.—(A) The Secretary may withhold approval of

an application under this subchapter for amounts apportioned under section

47114(c) and (e) of this subtitle following disapproval of a plan under subparagraph (4) only if—

‘‘(i) the Secretary provides the sponsor or a covered airport 30 days to

address specific findings in the notice of disapproval;
146

‘‘(ii) the Secretary provides the sponsor of a covered airport an opportunity for a hearing; and

‘‘(iii) not later than 180 days after the later of the date of the application or the date the Secretary notifies the sponsor of the disapproval of the

plan,

‘‘(B) The 180-day period may be extended by—

‘‘(i) agreement between the Secretary and the sponsor; or

‘‘(ii) the hearing officer if the officer decides an extension is necessary

because the sponsor did not follow the schedule the officer established.

‘‘(C) A person adversely affected by an order of the Secretary withholding

approval may obtain review of the order by filing a petition in the United States

Court of Appeals for the District of Columbia Circuit or in the circuit in which

the project is located. The action must be brought not later than 60 days after

the order is served on the petitioner.’’

(b) Section 47107(a) is amended—

(1) in paragraph (1) at the end of the sentence, by adding ‘‘, which includes

providing competitive access.’’;

(2) by adding at the end the following new paragraph:

‘‘(21) in the case of a covered airport, as defined in section 47106(f)(3), the

airport owner or operator will demonstrate that it will make gates and related

facilities (including overnight parking) available and otherwise provide access to

new entrants and other requesting carriers by undertaking the following activities:

‘‘(A) developing dispute or complaint resolution procedures, including

timelines, to resolve complaints by new entrants or other requesting carriers about access;

‘‘(B) specifying and publishing requirements for a new entrant to acquire a gate and for an incumbent carrier to expand;

‘‘(C) appointing an airport competitive access liaison;

‘‘(D) developing procedures to monitor actual utilization of all gates and

related overnight parking positions and to make this data available to the

Secretary and to the public;

‘‘(E) maintaining a uniform policy of notifying all carriers (both incumbents and potential new entrants), of gate availability, and having fair and

transparent gate assignment protocols, including timelines for access;

‘‘(F) adopting comparable policies and procedures for subleasing of

gates by tenant carriers;

‘‘(G) adopting dispute resolution procedures, including timelines, for

disputes about sublease fees, terms, and conditions, including ground handling;

‘‘(H) adopting caps on sublease fees and ensuring that non-tenant fees

do not include charges for unneeded services;

‘‘(I) adopting policies to review and approve or disapprove proposed subleases with explicit authority, in current and future lease agreements, to

disapprove proposed subleases that would restrain competition by a new entrant air carrier, a carrier offering competitive service, or a carrier that is

not dominant at the airport;

‘‘(J) making majority-in-interest clauses in air carrier lease and use

agreements inapplicable to an airport development project necessary to enhance access by an air carrier; and

‘‘(K) posting the submitted competition plans required under section

47106(f) and any comments of the Secretary on the plan in a publicly available location, including a website if such internet website exists.’’.

SEC.. AIR CARRIER CITIZENSHIP. This provision raises the maximum percentage of an air carrier’s voting stock that can be held by foreign citizens (in the

aggregate) from 25 percent to 49 percent. The change is intended to create greater

access for U.S. airline companies to the global capital marketplace without affecting

any requirements in current law or Department of Transportation precedent that

are intended to ensure that U.S. airlines are controlled by U.S. citizens. The amendment would bring U.S. foreign investment restrictions into line with those of the European Union and other countries.

SEC. . COMPETITION PLANS. This section would expand covered airports to

all large hub airports in addition to those medium hubs that have two or less carriers with 50 percent or more of boardings. It would clarify that compliance with

the existing AIP grant assurance on reasonable access includes providing competitive access. It also would require a new AIP grant assurance to increase opportunities for competition at covered airports and the use of gates and related facilities

at these airports by requiring covered airports to develop dispute resolution proce-
147

dures, publish requirements for gate access, appoint a competitive access liaison,

monitor usage of gates and aircraft parking positions, notify carriers of the availability of gates and of sublease opportunities on a uniform basis, adopt fair protocols

for gate assignment and for processing of subleases, adopt caps on sublease fees, develop procedures to disapprove proposed subleases that would restrain competition,

prevent the use of majority-in-interest clauses to airport development projects necessary to enhance air carrier access, and to post the competition plan on the airport’s web site. Covered airports would be required to provide information on these

initiatives in their competition plans and to justify any differences in the fees and/

or terms of use imposed on existing and prospective carriers, respectively, and on

any failure to provide access within 90 days of a carrier’s request. Non-covered airports would be encouraged to adopt these initiatives and procedures and would be

expected to rectify any practice that is found to hinder access. This section would

also provide explicit authority to the Secretary for disapproval of a competition plan

and would establish hearing procedures for covered airports whose AIP entitlement

funds are withheld based on a competition plan disapproval.

Senator SHELBY. Mr. Secretary, this will be my last question

hopefully. This is in the transit area.

TRANSIT REAUTHORIZATION

I must tell you that I am disappointed in what I am hearing

about the transit reauthorization. I am especially interested in

transit this year because, as you know, I chair the Banking Committee and I am involved with Senator Murray very much in transit on this committee. I would hope that you would take a fresh

look, Mr. Secretary, at the transit program and propose modifications that would improve rural connectivity, improve project oversight, provide more tools and options for States, urban centers, and

localities in dealing with their transit challenges, and to nudge the

program toward providing comprehensive transportation solutions

as opposed to transit band-aids.

I would have thought that the budget constraints you faced in

formulating your proposals would have pushed you at least in some

of these directions. I am hearing that the only thing the Administration’s proposal is likely to do is call for greater reliance on formula programs, and for program growth to come from innovative

financing. That concerns me. What is innovative financing? Can

you tell us what considerations you think are most important in

improving the transit program?

Secretary MINETA. First of all, this has been an interest of mine

for quite awhile. As you will recall, when we had ISTEA we

changed the name of UMTA, the Urban Mass Transit Administration to FTA, the Federal Transit Administration, in order to point

out that transit is not only an urban matter but it is a rural issue

as well. This has been an interest of mine, and this year in our

2004 submission we increase. For transit we increase that by 20

percent as it relates to rural areas. That includes the rural representation on MPOs as well in terms of how rural representation

gets treated in the MPOs.

So I think that what we are trying to do is to make sure that

there is what you refer to as rural connectivity. This is something

that the Administration is interested as well.

Senator SHELBY. Thank you. Senator Murray.
148

AIRLINE INDUSTRY SUBSIDIES

Senator MURRAY. Thank you, Mr. Chairman. I just have one

comment and one question. My comment is that I second what Senator Brownback was discussing with you in terms of the airline industry. We are deeply concerned about the impact of subsidies, and

I hope that you pursue this with the Trade Secretary Representative, Ambassador Zoellick, and have a conversation with him about

this because I think we are setting ourselves up for a very bad

place if we do not seriously take a look at this. I look forward to

working with you on that.

SOUTHERN BORDER

Let me just ask you, because 2 years ago this subcommittee imposed a number of strict new safety requirements that had to be

met before you could allow Mexican trucks into the United States.

According to the IG, you have fulfilled every one of those safety requirements. But as soon as that took place, the Ninth Circuit Court

of Appeals ruled that you could not open the border because the

Administration never prepared the required environmental impact

statement. Just a few weeks ago, you asked the Ninth Circuit to

rehear that case. Your request was denied and you now appear to

have a choice between appealing to the Supreme Court on this or

going forward and preparing the environmental impact statement.

I wondered which course you were going to take?

Secretary MINETA. We have not decided that yet. We have until

the 9th of July, I believe, in order to make a decision.

Senator MURRAY. If the Supreme Court hears an appeal, it is

likely that you will not get a decision well into 2004. Have you

looked at the fact that it might be much more timely to go ahead

and do the environmental impact statement?

Secretary MINETA. I think we are looking right now at the time

that it would take to complete the environmental impact statement

(EIS) as compared to appealing. We have not come to a decision yet

on which approach to take.

Senator MURRAY. Thank you, Mr. Chairman.

Senator SHELBY. We are joined by Senator Stevens, the chairman

of the full committee. Senator Stevens.

STATEMENT OF SENATOR TED STEVENS

Senator STEVENS. Thank you very much. It is nice to see you,

Mr. Secretary.

Secretary MINETA. Good to see you, sir.

TRUCK MONITORING

Senator STEVENS. I am searching right now for the name of the

program that was described to me yesterday that Alaska is not included in. It is a program whereby trucks are monitored throughout the southern 48 States that contain hazardous substances. I

was just notified yesterday that the trucks that come up to Alaska

through Canada and up the Alaska Highway into Alaska do not

have that program. I am sorry, I just do not remember the name

of it.
149

I did not know that, and one of the reasons is, of course, our

trucks pass through Canada and it is a satellite tracking program

to make sure that we have absolute control over those trucks that

contain hazardous materials. There are only a few of those trucks

that come up to Alaska that are Department of Defense. Most of

the Defense-oriented transportation comes by barge and goes up

the Alaska railroad. But there are a considerable number of private

concerns that do use that tracking system to bring these trucks

into Alaska. I wanted to call it to your attention and urge your review of it because it is my understanding that the Defense Department is unwilling to spend money for this system to go to Alaska

since they have such a small portion of coverage as far as hazardous materials coming to Alaska by truck; virtually none, as a

matter of fact.

Secretary MINETA. Senator, I will have to look into that matter

and get back to you.

TRACKING OF HAZARDOUS MATERIAL

Senator STEVENS. I apologize. A senior moment here. I cannot remember the name of the program. But I do hope, Norm, you will

look at it because we did not know—we have a considerable

amount of hazardous material that comes into Alaska. It is a very

tough thing to get it through Canada as a matter of fact. But I

think if we provided this tracking system it might improve our relationship with our neighbor, but certainly it has something to do

with rates for the people who have those trucks. If they do not

have this coverage, the rates for insurance are much higher.

So I am speaking really for the trucking industry from the State

of Washington that primarily brings hazardous materials into our

State. It is something that was just never called to our attention

and I would like to find some way to cure it. They have asked us

to add $4 million to your budget. That is what I am here for, to

cover the cost of adding that satellite coverage for hazardous material tracking as it comes through Canada and through Alaska. I

would appreciate it if you get the time——

Secretary MINETA. I will look at it and get back to you, Mr.

Chairman.

[The information follows:]

FMCSA has a $2.5 million on-going operational field test of vehicles with security

technologies, including satellite tracking that involves 100 trucks from 8 trucking

companies, 4 shippers, and 4 consignees of hazardous materials in various segments

of the hazardous materials industry. The goal of the project is to demonstrate the

effectiveness of technologies in improving both safety and security, and to quantify

the costs and benefits of implementing these technologies in the HAZMAT industry.

In addition, FMCSA is about to commence a $2 million project to demonstrate satellite tracking of untethered trailers.

Another related initiative is FMCSA’s Supplemental Notice of Proposed Rulemaking to establish a Federal HM permit program for carriers of the most dangerous hazardous materials. As part of this proposed rulemaking, currently in Departmental review, FMCSA is considering a requirement for carriers of these materials have a system to communicate with the driver. We expect that satellite tracking and communications systems will be widely used to satisfy this requirement. In

addition, the Research and Special Programs Administration (RSPA) is working on

a Notice of Proposed Rulemaking that may require communication systems for larger numbers of hazardous materials shipments.

DOT is undertaking demonstration projects to promote the safety, security, and

efficiency benefits of satellite tracking systems for the trucking industry. We believe
150

that through projects such as our two demonstration projects the industry will, on

its own accord, begin to incorporate these technologies. The implementation of these

systems will likely be further promoted as the Department finalizes security regulations for hazardous materials. As the untethered trailer tracking demonstration

project is still in the planning phase, we will examine whether Alaska is an appropriate venue for this effort.

Senator STEVENS. I will find that name, Norm, and send it to you

today. Thanks.

Senator SHELBY. Thank you, Senator Stevens.

ADDITIONAL COMMITTEE QUESTIONS

Mr. Secretary, we appreciate your appearance today. We know

we have asked some questions that you will answer for the record.

Secretary MINETA. Yes, sir.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

INFRASTRUCTURE AND PERFORMANCE MAINTENANCE INITIATIVE

Question. Has the Department identified any specific examples of the types of facilities that would be funded if the new ‘‘infrastructure performance and maintenance initiative’’ were authorized? If so, could you provide those examples to the

Committee?

Answer. The intent of the Infrastructure Performance and Maintenance (IPAM)

initiative is to focus the use of Federal funds on two types of Federal-aid highways

projects: system preservation and the elimination of chokepoints. System preservation projects include a range of activities from preventative maintenance (e.g., cleaning and resealing of pavement joints or the restoration of rust resistant bridge

paint) to minor reconstruction. During TEA–21, the States made good investments

in system preservation, and the physical condition of highways and bridges has improved. The system preservation component of IPAM should help maintain this positive trend.

The second category of eligibility under IPAM would be the elimination of traffic

chokepoints. IPAM spending for congestion reduction would be targeted to traffic

bottlenecks, not the widening of long stretches of highway. Likely projects would include intelligent transportation initiatives and the limited alteration of existing facilities. This would include improvements to interchange ramp, added auxiliary

lanes, short sections of added through lanes and intersection modernization.

In either case—system preservation or chokepoint elimination—the goal is to fund

projects that are ready to go and that can be completed in a relatively short timeframe, providing timely improvements for the Nation’s road users.

HIGHWAY SAFETY INITIATIVES

Question. The Department’s budget appears to propose a safety program that is

very different from the programs of the past. Knowing that both Click-It-or-Ticket

mobilizations and impaired driving mobilizations have proven to be extremely successful the Department still chose to specifically exclude them from the budget request. What then is being proposed that will yield even better results?

Answer. The National Highway Traffic Safety Administration (NHTSA) intends to

continue the ‘‘Click It or Ticket’’ and ‘‘You Drink & Drive. You Lose.’’ mobilizations

in 2004, and beyond. Early in calendar year 2003, NHTSA solicited input from the

Governors Highway Safety Association and the highway safety offices of the fifty

States, the District of Columbia and Puerto Rico. Given the solid commitment to

continuing the mobilizations that was expressed, NHTSA does not believe that it is

necessary to earmark grant funds to the States for this purpose. States can use

their Section 402 grants funds to support these efforts.

AMTRAK REFORM PROPOSAL

Question. Mr. Secretary, as I mentioned in my opening statement, we are all eagerly awaiting an Amtrak Reform proposal. You talked about it last year, Michael
151

Jackson has talked about it this year and we have yet to see a concrete proposal.

When may we expect some type of formal legislative proposal for Amtrak reform?

Answer. The Secretary of Transportation transmitted the Administration’s intercity passenger rail legislative proposal—The Passenger Rail Investment Reform Act

of 2003—to Congress on July 28, 2003.

SHIP DISPOSAL

Question. The Maritime Administration is tasked with the disposal of all obsolete

vessels from the National Defense Reserve Fleet by September 30, 2006. There are

more than 130 vessels presently in the fleet awaiting disposal, and MARAD has

only disposed of 14 vessels over the past 3 years.

I would like for you to keep me updated on how you plan to accomplish this task.

This is a serious and expensive endeavor that really needs to be resolved.

How does MARAD plan to dispose of these vessels by the statutory deadline? If

additional vessels are accepted from the Navy and other sources, what strategies

does MARAD have in place for the fleet to keep the program on schedule?

Answer. As the Federal Government’s ship disposal agent, MARAD acquires obsolete ships into its fleets on a continuous basis. Additional vessels to the 130 already

in custody will significantly increase the disposal challenge faced by MARAD.

MARAD’s only disposal options from 1994–2000 were domestic ship sales and occasional ship donations, which resulted in 12 vessel sales for recycling and 5 vessel

donations. Prior to 2001, MARAD did not have the authority to pay for dismantling

services; thus, there was no ship disposal budget. The vessels that accumulated in

the 1990’s (the backlog) are now in poor condition, and account for approximately

75 of the 130 ships on hand. Disposal of the vessel backlog, while acquiring even

more obsolete vessels, is a significant challenge.

The deadline of September 30, 2006, established in the National Defense Authorization Act of 2001, will be difficult to reach because the Fleet is projected to receive

15 additional ships in each of the next 3 years. When this goal was established 2

years ago, there were 115 vessels in the Fleet. Since then, 16 vessels have been removed; however, MARAD received an additional 31 obsolete ships during that period.

The program priority remains focused on disposal of MARAD’s 27 high-risk, nonretention vessels (20 in the James River Reserve Fleet (JRRF), Virginia; 5 in the

Suisun Bay Reserve Fleet, California; and 2 in other locations—Mobile, Alabama,

and Portsmouth, Virginia).

MARAD anticipates removing a minimum of 25 vessels from the Fleet through

domestic and export disposal recycling using the fiscal year 2003 appropriation of

$11.1 million, coupled with $20 million in funding from the Department of Defense.

Proposals received thus far for the export of ships for recycling clearly indicate that

export is the most cost-effective method because of higher demand for recyclable materials, lower labor costs, greater industrial capacity and greater competition. The

ability to export ships for recycling will expedite the elimination of high-risk ships,

significantly mitigate the environmental threat of oil discharge at the Fleet sites,

and reduce the total number of obsolete vessels significantly.

Ship disposal methods currently available, and the industry’s response to

MARAD’s announcements, indicate that the cost-effectiveness of ship dismantling is

based on economies of scale. The current contract with the United Kingdom involving the removal of 15 ships for $14 million is one example—the higher the number

of ships, the greater the yield of steel and other recyclable materials. Many of the

Program Research & Development Announcement (PRDA) proposals involving export contain costs to the Government that are significantly lower than current and

anticipated costs for domestic dismantling. While the domestic dismantling industry

has limited capacity, higher costs and limited competition, MARAD is currently in

the process of awarding contracts to four domestic companies to recycle 10 ships.

Ship dismantling/recycling is heavy industrial work—low tech and labor intensive.

It involves the handling and disposition of hazardous materials, and thus has some

inherent risks regardless of where the work is done. Although foreign facilities are

not subject to worker and environmental laws as domestic facilities are, the foreign

industry must demonstrate to MARAD and the EPA that they can accomplish responsible vessel recycling that protects worker safety and health.

Other initiatives include:

(a) National environmental best management practices (BMP) for preparing vessels

for use as artificial reefs.—This is an interagency effort involving MARAD, the Environmental Protection Agency (EPA), Navy, United States Coast Guard, National

Oceanic and Atmospheric Administration, Army Corps of Engineers, National Marine Fisheries, and other agencies, that MARAD initiated in 2002 with a projected
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completion in the spring of 2004. Establishing best practices will standardize the

ship preparation guidelines on a nationwide basis, thus facilitating the application

and vessel preparation processes, and aiding the States and MARAD in estimating

the costs associated with ship preparation for artificial reefing.

(b) Fuel removal for JRRF vessels.—MARAD continues to assess the risks associated with the removal of oil from obsolete ships prior to disposal. A PRDA was posted in fiscal year 2003; however, the proposals received did not offer any technologies, methodologies or innovations to make oil removal a cost-effective option.

MARAD’s policy has been that the safest and most cost-effective method of removing

oil, and thus mitigating the risk of oil discharges from our obsolete ships, is to remove the oil during the ship dismantling process and not beforehand. MARAD continues to pursue opportunities to assess the feasibility and cost-effectiveness of oil

removal technologies beyond traditional pumping methods. The goal is to identify

cost-effective methods for the safe removal of some fuels, while the vessels are

awaiting disposal. Heretofore, traditional oil pumping methods have not been costeffective in removing significant quantities of oil to mitigate the threat of oil discharges into the environment.

(c) Streamlining the artificial reefing application review and approval process.—

The current application process required of coastal States to acquire vessels to be

used as reefs, and the subsequent Federal agency review and approval process, is

cumbersome and time consuming. MARAD, jointly with all the Federal agencies involved in the artificial reefing process, is working to streamline the process.

(d) Discussions with the Mexican Government.—MARAD and EPA are exploring

opportunities that mutually benefit Mexican vessel recycling facilities and MARAD,

by providing a possible source of cost-effective and environmentally responsible vessel recycling.

(e) Global Action Program (GAP).—MARAD has begun preliminary discussions related to partnering with interested Basel Convention countries, the International

Maritime Organization, and the International Labor Organization in an international program to promote environmentally responsible and sustainable ship disposal.

(f) Army Corp of Engineers (ACOE) and Louisiana barrier island stabilization

using obsolete vessels.—MARAD has held preliminary discussions with the ACOE

related to a potential pilot project and feasibility study to test the effectiveness of

using obsolete vessels to stabilize the shorelines of barrier islands.

HIGHWAY-RELATED FATALITIES

Question. The Department’s goal for highway-related fatalities in 2004 is 1.38 per

100 vehicle miles traveled. The budget seems to indicate that the two major reasons

for the lack of significant progress in reducing overall highway-related fatalities can

be directly attributed to motorcycles and pedestrians. What then is the Department

doing to address and reduce the number of fatalities between these two groups? I

ask because the budget appears to assume a steady rate among these groups and

a necessity to focus on passenger cars and light trucks.

Answer. NHTSA’s fiscal year 2004 budget request addresses the action items in

the NHTSA Motorcycle Safety Program document released in January 2003 and the

National Agenda for Motorcycle Safety developed in collaboration with motorcycle

safety partners.

A new fiscal year 2004 initiative will address a concern that motorcycle training

programs accommodate all those who seek training. NHTSA plans to work with

identified State rider education and training programs to develop and implement

long-range strategic plans to make training available for all those who need it and

in a timely fashion. NHTSA will continue research on motorcycle lighting as a

means to improve motorcyclist conspicuity and will continue research on motorcycle

braking systems.

Additionally, NHTSA will: conduct research on crash avoidance skills; conduct research on motorcyclists conspicuity; support projects to reduce impaired riding by

developing and testing activities that may include peer-to-peer efforts, social norm

models, enforcement efforts, and motorcycle impoundment; and collect and analyze

motorcycle crash, injury, and fatality data and compare motorcyclists who successfully completed formal rider training to those who have not.

Pedestrian crashes are addressed through a combination of public information,

legislation, enforcement, engineering, and outreach strategies. NHTSA will: fund

competitive demonstration projects designed to involve the law enforcement community to improve pedestrian safety; develop a community guide to tackle the challenges of implementing comprehensive pedestrian safety programs; explore the feasibility of developing and disseminating a school crossing guard curriculum; and de-
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velop community-level Safe Routes to School workshops to increase pedestrian safety around schools.

NHTSA will also disseminate tools to encourage communities to promote safe

walking. Non-traditional partners, such as smart growth coalitions or local government commissions, will be identified and encouraged to incorporate pedestrian safety into their organizations’ missions. NHTSA will continue its partnership with the

Federal Highway Administration to incorporate infrastructure improvements with

behavioral safety principles.

REQUIREMENTS FOR AMTRAK TO RECEIVE FEDERAL SUBSIDY

Question. The Fiscal Year 2003 Appropriations Act placed a number of new requirements on Amtrak’s ability to obtain their Federal subsidy. What, if any

changes to those requirements would you propose to improve the Department’s oversight of the railroad for the 2004 bill?

Answer. The Fiscal Year 2003 Appropriations Act’s new requirements on grants

to Amtrak are built upon reforms required by the Department as conditions to the

fiscal year 2002 loan under the Railroad Rehabilitation and Improvement Financing

(RRIF) program. These requirements have resulted in a significant improvement in

the way Amtrak does business and should be continued. While additional reform is

needed in the way intercity passenger rail service is provided in this country, such

reforms should be part of comprehensive authorization legislation and are included

in the legislation that the Secretary of Transportation transmitted to Congress.

PATRIOT ACT

Question. The Patriot Act requires a background check on all drivers transporting

Hazardous Materials. When TSA was transferred to the Department of Homeland

Security, the background investigative authority for the HAZMAT endorsement was

also transferred as was the ability to grant that endorsement to CDL holders. However, the Department has requested money in the 2004 budget to continue to pay

for these background checks. While I recognize that there is an outstanding contract

between Motor Carriers and Lexis-Nexis to provide these services, I am concerned

that this will be an ongoing request in future budgets. What is the Department

doing to work with TSA to transfer this financial responsibility as well?

Answer. The Fiscal Year 2004 President’s Budget includes $3 million for FMCSA

to implement Section 1012 of the Patriot Act. These funds would be obligated for

the existing Lexis-Nexis contract. The Department has developed a memorandum of

understanding between TSA and FMCSA, with FMCSA delegating day-to-day contractual administrative management responsibilities to TSA for the Lexis-Nexis contract. There will be no further financial responsibility for the Department beyond

fiscal year 2004.

IMPROVING PAVEMENT RIDE QUALITY

Question. One of the Department’s Strategic and Performance Goals is to increase

the percent of pavement on the National Highway System with acceptable ride quality to 93.1 percent. Can you tell me how, with less highway funding, this budget

proposes to reach this goal?

Answer. The Department’s performance goal for 2004 is to increase the percent

of travel with acceptable ride quality on the National Highway System to 93.0. In

addition to normal Federal-aid construction funds, the Department proposes to utilize research and technology funds to develop products and deliver technology that

will improve pavement smoothness during initial construction and pavement ride

quality over the life cycle of highways. Specific examples include improved pavement smoothness specifications, best practice guides for construction, improved

pavement profile measurement equipment and profile analysis software.

Additionally, specific initiatives will be focused on the 10 States where 76 percent

of the travel on highways with unacceptable ride quality exists. The Department

will initiate development and delivery of customized workshops focused on addressing specific needs in these States.

HIGHWAY PERFORMANCE AND MAINTENANCE INITIATIVE (IPAM)

Question. The budget purposes a new, $1 billion highway performance and maintenance initiative which targets ‘‘ready-to-go’’ highway projects that address traffic

bottlenecks and improve infrastructure conditions. How will the funds be distributed

to the States? What specific guidance will be given for expenditures of the funds?

Will States be allowed to reimburse themselves for already completed projects meeting the required criteria? In developing this new initiative were any specific projects
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identified that would meet the criteria? If so, could you provide a list of those

projects and the characteristics that qualify them for the new initiative?

Answer. The funds would be distributed by formula with 25 percent of the funds

distributed based on each State’s relative share of Federal-aid lane-miles, 40 percent

based on each State’s relative share of vehicle-miles of travel on Federal-aid highways and 35 percent based on each State’s relative share of contributions to the

Highway Account of the Highway Trust Fund. There would be a one-half percent

minimum for each State. This formula is the same as is being used for the Surface

Transportation Program.

States would have 6 months to obligate their IPAM funds. This is consistent with

the requirement that the funds be used for ready-to-go projects. After the 6-month

deadline, un-obligated funds would be withdrawn from States and distributed to

other States that could obligate the funds by the end of the fiscal year. We do not

anticipate that States will find it difficult to comply with the 6-month timeframe.

States would not be allowed to reimburse themselves for projects meeting the required criteria that are already completed or are already underway using the advance construction provisions of title 23. The intent of the IPAM program is to

quickly initiate and deliver projects and their benefits to the public. Allowing the

use of IPAM funds to reimburse already completed projects or projects that are already being advanced using other approaches would defeat this intent.

Program guidance would also clarify eligible projects for IPAM funds by further

defining the types of projects that would be eligible. The selection of projects to be

carried under the IPAM program would be a State prerogative.

The IPAM does not create new eligibilities for Federal-aid highway funds. The intent is to focus the use of Federal funds on two types of projects on Federal-aid

highways, system preservation and the elimination of chokepoints. System preservation projects include a range of activities from preventative maintenance to minor

reconstruction. During TEA–21, States made good investments in system preservation and the physical condition of highways and bridges has improved. The system

preservation component of IPAM should help maintain this positive trend.

The second category of eligibility under IPAM would be the elimination of traffic

chokepoints. Reducing congestion is a great and costly challenge. IPAM spending for

congestion reduction would be targeted to traffic bottlenecks, not the widening of

long stretches of highway. Likely projects would include intelligent transportation

initiatives and the limited alteration of existing facilities. This would include interchange ramp improvements, added auxiliary lanes, short sections of added through

lanes and intersection modernization.

ADDITIONAL FTE’S

Question. The budget requests 12 new FTE for the purposes of ‘‘enhancing the

oversight of major projects; improvements to the security of our critical information

systems; upgrades to our information technology infrastructure; and FHWA’s share

of the costs to consolidate all DOT modes located in Lakewood, Colorado, into one

facility.’’ Could you provide a breakdown of exactly how these new FTE will be utilized in each of the areas specified in the description? Provide a prioritization for

each of these 12 FTE based upon need.

Answer. The 12 FTE that are requested in fiscal year 2004 will be used specifically to enhance major projects oversight and fulfill FHWA’s commitment of having

a dedicated oversight project manager on each mega-project. All 12 FTE are considered equal and will be used as environmental commitments of the projects are entered into.

FHWA will designate Mega-Project Oversight Managers who are personally accountable for proper Federal oversight and establish Integrated Product Teams to

assist the oversight manager. The addition of the 12 FTE is essential for FHWA to

perform its stewardship and oversight role. The responsibilities of each mega-project

oversight manager include:

—Representing FHWA before other Federal agencies, State Transportation Agencies (STA), local agencies, consultants, and contractors on all project delivery

and oversight issues.

—Briefing FHWA upper management, the Office of the Secretary of Transportation, and the media on project status, and significant project activities and

issues.

—Monitoring environmental commitments and ensuring that they are incorporated into the plans and specifications.

—Overseeing the review and approval of plans, specifications, and estimates for

appropriate application of design standards and criteria, conformance with poli-
155

cies and regulations, traffic-safety features, reasonableness of estimated costs,

and proper specifications and other contract provisions.

—Monitoring and reporting cost and schedule changes and updates, analyzing

project status for reasonableness and accuracy, and managing changes to minimize impacts to costs and schedules.

—Ensuring cost containment strategies such as value engineering,

constructability reviews, design-to-cost strategies, and up-front planning to minimize contractor risks are incorporated. Coordinating with FHWA bridge engineers for design reviews of major structures.

—Ensuring FHWA laws and requirements for Federal-aid construction contracts

are incorporated, such as Buy America, Davis-Bacon minimum wage rates, Disadvantaged Business Enterprise and affirmative action requirements, records of

materials and supplies, etc.

—Conducting project inspections to verify compliance with standard engineering

practice, and providing technical assistance.

—Providing assistance and direction to the STA on the proper application of Federal funds, designated funding, and innovative financing programs.

—Reviewing the Initial Finance Plan and Annual Updates, coordinating with the

STA and Headquarters Office, and ultimately accepting the initial plan and updates.

—Promoting technology transfer to and from the project.

FISCAL YEAR 2004 FTE REQUIREMENT FOR ACTIVE (AND FUTURE) MAJOR PROJECTS

Projects Status Current Staffing

Level Fiscal Year 2004

I–80/San Francisco-Oakland Bay Bridge (East Span), CA ........................ Active ............ 1 1

SR 210/Foothill Freeway ............................................................................. Active ............ ........................ ........................

I–25/I–225 Southeast Corridor, CO ............................................................ Active ............ 1 1

New Haven Harbor Crossing, CT ................................................................ Active ............ ........................ 1

Miami Intermodal Center, FL ...................................................................... Active ............ ........................ 1

I–4/I–275 Tampa Interstate, FL ................................................................. Active ............ ........................ 1

New Mississippi River Bridge, IL-MO ......................................................... Active ............ ........................ 1

Central Artery/Ted Williams Tunnel, MA ..................................................... Active ............ 5 3

Central Texas Turnpike, TX ......................................................................... Active ............ 1 1

I–10/Katy Freeway, TX ................................................................................ Active ............ ........................ 1

I–95/Woodrow Wilson Bridge, MD .............................................................. Active ............ 2 2

I–95/I–495 Springfield Interchange, VA .................................................... Active ............ 1 1

I–64/Hampton Roads Third Crossing, VA .................................................. Active ............ ........................ 2

I–94/East-West Corridor, WI ....................................................................... Active ............ ........................ 1

New Ohio River Bridges, KY-IN .................................................................. Future ........... ........................ 1

I–94/Edsel Ford Freeway, MI ...................................................................... Future ........... ........................ 1

Mon/Fayette Expressway, PA ....................................................................... Future ........... ........................ 1

I–635/LBJ Freeway (West Section), TX ....................................................... Future ........... ........................ 1

I–405 Corridor/SR 509 and I–5/SR520/Alaskan Way Viaduct, WA ........... Future ........... ........................ 2

Totals ............................................................................................. ....................... 11 23

INTELLIGENT VEHICLE INITIATIVE

Question. The budget request discusses an example of an Intelligent Vehicle Initiative (IVI) to develop driver assistance systems that will reduce the number and

severity of crashes and goes further to discuss systems currently under development

to ‘‘warn drivers of dangerous situations and recommend corrective actions, or in

some cases, even assume partial control of vehicles to avoid collisions.’’ Where is this

research being conducted, who is participating and when do you anticipate the research will be completed? Additionally, is there a coordinated effort with the automobile manufacturers to develop and test these systems?

Answer. The work under the IVI program is being conducted in a series of coordinated contracts and cooperative agreements with the Department of Transportation’s (DOT) partners in the public and private sectors, as well as universities and

other research institutions. DOT’s partners were chosen because they are the critical organizations needed to develop and deploy effective systems. They include

seven of the largest automobile manufactures (General Motors, Ford, DaimlerChrysler, Toyota, Nissan, BMW and Volkswagen), the largest technology suppliers

to the U.S. automotive industry (Delphi Delco, Visteon, TRW and DENSO), heavy

truck manufacturers (Freightliner, Mack, Volvo Trucks, and Navistar International),
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the State Departments of Transportation for California, Minnesota and Virginia,

and finally several commercial and transit fleet operators.

Under the IVI program, DOT is working on crash countermeasures that address

the largest types of crashes (rear-end, road departure, intersection and lane change)

and the factors that cause the crashes. The understanding of the crash problem and

development of effective solutions varies in levels of maturity. Consequently, the IVI

program is a long-term effort that is designed to produce incremental results. DOT’s

previous efforts already have led to the deployment of vision enhancement, adaptive

cruise control and lane tracking systems. DOT’s current activities are expected to

support deployment of rear-end and road-departure collision-avoidance systems for

passenger cars in the next 2 to 5 years. Intersection collisions are a more complicated problem that will require vehicle and infrastructure cooperative systems.

Therefore, DOT does not expect these systems to be available for 8 to 10 years.

The IVI program coordinates with automobile manufacturers at several levels.

Overall strategic planning is coordinated through a Light Vehicle Industry Federal

Advisory Committee Panel. DOT is working with a partnership of General Motors,

Ford, Daimler-Chrysler, Toyota, Nissan, BMW and Volkswagen to study various enabling research issues. We are currently conducting studies with this partnership

on driver workload, forward collision warning, enhanced digital maps and dedicated

short-range communications (DSRC). DOT is also working directly with General Motors and Delphi-Delco on a Field Operational Test of Rear-end Collision Avoidance

Systems for passenger cars. We also have a Field Operational Test for Road Departure Collision Avoidance Systems for Passenger cars with Visteon.

ADOPTION OF SAFETY COUNTERMEASURES

Question. One of FHWA’s anticipated accomplishments is a ‘‘greater adoption and

understanding by States of the safety benefits of countermeasures, including rumble

strips and related roadside hardware, particularly on rural roads.’’ What percentage

of highway fatalities does FHWA attribute to hazardous roadway conditions? What

specific programs will FHWA pursue with the States to promote these particular

countermeasures? Will FHWA encourage States to utilize a majority of their safety

funding for this purpose? If not, how will FHWA ensure greater adoption of countermeasures by the States?

Answer. J.R. Treat’s ‘‘Indiana Tri-Level Study—A Study of Pre-Crash Factors Involved in Traffic Accidents’’ attributes 34 percent of highway crashes to the roadway

as a cause or contributing factor. Treat’s study is based on on-site reviews of actual

highway crashes. The study recognizes that many crashes involve multiple factors

related to the roadway, the driver and the vehicle. The percentages include crashes

where there is more than one causal factor.

FHWA pursues a number of programs to address infrastructure-related safety opportunities. One key area of focus is working with the American Association of State

Highway and Transportation Officials (AASHTO) on the development and implementation of guidebooks which address areas of emphasis within the AASHTO Strategic Highway Safety Plan. Several of these areas of emphasis address roadway and

roadside features, including newly-released guidebooks on run-off-road collisions,

collisions in intersections without signals, head-on collisions, and collisions involving

trees in hazardous locations.

In addition to these partnering efforts with the AASHTO, FHWA issued a Technical Advisory on shoulder rumble strips last year to help States design and install

them on rural National Highway System segments. The Mississippi Department of

Transportation installed and tested different rumble strip designs combined with

pavement marking overlays on rural roads. Initial evaluations indicate improved

safety on rainy nights due to more visible pavement markings and audible rumble

strip warnings. Also, FHWA reviews crash test data on new roadside hardware to

verify its effectiveness and compliance with current crash test evaluation criteria.

To provide States, local agencies and other interested parties information on which

roadside hardware can be used safely, FHWA posts letters of acceptance for new

hardware on its roadside safety website, http://safety.fhwa.dot.gov/

report350hardware. Since 1998, over 240 letters have been posted on guardrails,

bridge rails, crash cushions, sign and light poles and work zone traffic devices.

FHWA encourages States to use their safety funding for a variety of safety countermeasures based on a strategic approach to highway safety that identifies key

problems and the most effective countermeasures. For example, studies on two-lane

rural highways show that crash rates decline as shoulders are added or widened.

Rumble strips may not be the most effective countermeasure on these narrow roads.

Each State must identify and evaluate its particular safety needs to make the best

use of its safety funding. FHWA is working with States to develop goals and per-
157

formance measures to improve their safety performance. Accurate data on crash

causation forms the basis of a strategic approach to highway safety that also encourages State adoption of effective countermeasures.

STATE SPENDING ON HAZARD ELIMINATION PROJECTS

Question. How much of current highway safety funding is utilized by States for

hazard mitigation projects? Please provide a breakdown for each State for 2000,

2001 and 2002?

Answer. The chart that follows shows the funds obligated by the States for hazard

elimination projects during fiscal years 2000–2002.

State Fiscal Year 2000 Fiscal Year 2001 Fiscal Year 2002

Alabama ......................................................................................... $597,579.25 $10,461,385.53 $1,385,519.46

Alaska ............................................................................................ 834,666.00 861,301.22 804,812.00

Arizona ........................................................................................... 0 1,124,342.00 3,890,823.00

Arkansas ........................................................................................ 2,056,734.00 436,375.00 28,142.00

California ....................................................................................... 11,250,001.87 17,940,935.96 16,401,450.91

Colorado ......................................................................................... 2,273,901.00 2,279,921.00 2,389,313.00

Connecticut .................................................................................... 1,705,329.88 1,858,893.25 2,084,266.35

Delaware ........................................................................................ 828,325.00 414,768.35 0

District of Columbia ...................................................................... 0 0 0

Florida ............................................................................................ 3,349,934.00 3,516,589.00 5,050,791.00

Georgia ........................................................................................... 2,336,036.69 1,902,328.28 542,338.25

Hawaii ............................................................................................ 790,219.00 635,143.00 0

Idaho .............................................................................................. 140,692.00 1,145,248.00 451,065.25

Illinois ............................................................................................ 8,913,513.02 10,305,632.69 8,976,229.72

Indiana ........................................................................................... 3,518,335.67 2,229,913.41 1,127,612.56

Iowa ................................................................................................ 450,000.00 2,266,100.00 1,079,943.13

Kansas ........................................................................................... 1,808,724.51 5,146,482.47 3,187,743.50

Kentucky ......................................................................................... 1,936,379.04 1,845,245.72 719,869.66

Louisiana ........................................................................................ 1,239,652.00 1,187,013.71 3,901,352.15

Maine ............................................................................................. 1,094,811.91 267,029.07 521,805.41

Maryland ........................................................................................ 0 3,264,098.00 2,619,436.00

Massachusetts ............................................................................... 0 0 0

Michigan ........................................................................................ 8,279,378.92 10,087,363.35 8,781,312.87

Minnesota ....................................................................................... 3,282,132.09 1,962,307.15 5,321,754.92

Mississippi ..................................................................................... 4,018,145.00 2,072,571.00 1,981,001.00

Missouri .......................................................................................... 6,067,894.55 7,803,017.92 4,541,348.70

Montana ......................................................................................... 1,538,908.82 1,281,269.85 1,294,459.86

Nebraska ........................................................................................ 502,392.48 1,474,977.84 1,009,775.23

Nevada ........................................................................................... 65,112.40 276,392.79 2,175,028.65

New Hampshire .............................................................................. 775,905.97 899,448.32 812,840.72

New Jersey ...................................................................................... 5,030,912.00 143,842.00 4,117.00

New Mexico .................................................................................... 0 0 0

New York ........................................................................................ 12,842,632.00 9,916,012.00 9,339,778.00

North Carolina ................................................................................ 4,530,423.00 4,714,589.00 7,392,083.00

North Dakota .................................................................................. 896,162.06 620,700.44 476,702.67

Ohio ................................................................................................ 6,858,605.00 6,858,605.00 6,773,562.00

Oklahoma ....................................................................................... 2,540,771.10 2,320,514.07 1,193,435.63

Oregon ............................................................................................ 1,109,536.00 1,642,846.33 1,020,490.96

Pennsylvania .................................................................................. 2,138,876.83 1,733,185.18 1,781,980.73

Rhode Island .................................................................................. 859,495.64 196,365.90 1,339,574.70

South Carolina ............................................................................... 2,392,535.29 2,315,590.40 2,279,377.00

South Dakota ................................................................................. 1,996,928.47 573,514.78 1,765,831.43

Tennessee ....................................................................................... 3,211,638.35 2,161,580.31 1,519,477.87

Texas .............................................................................................. 17,222,270.82 13,680,765.93 9,754,310.11

Utah ............................................................................................... ¥30,240.62 83,489.08 116,520.09

Vermont .......................................................................................... 0 0 0

Virginia ........................................................................................... 1,561,569.00 1,804,992.00 3,412,329.92

Washington .................................................................................... 1,556,759.93 649,197.25 2,280,643.14

West Virginia .................................................................................. 0 713,917.00 41,097.00

Wisconsin ....................................................................................... 3,872,858.70 899,648.48 4,427,545.59

Wyoming ......................................................................................... 487,993.00 1,477,222.00 1,104,907.00

Total .................................................................................. 138,734,431.64 147,452,671.03 137,103,799.14
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INTERSECTION SAFETY

Question. Intersection safety due to cooperative efforts of FHWA, AASHTO, and

ITE has been identified as another anticipated accomplishment. Will State and local

governments also be involved in this cooperative effort? Could you provide specific

examples as to how intersection safety will actually be accomplished in order to

make intersections safer for pedestrians and bicyclists?

Answer. State and local governments have been involved in the intersection safety

effort from the beginning. State and local transportation and safety professionals

played a major role in developing the National Intersection Safety Agenda that

guides Federal, State and local efforts to improve intersection safety. Now they are

actively involved in implementing the Agenda. For example, an intersection safety

workshop for State and local professionals was developed with the active participation of State, local and private sector transportation and safety professionals.

Another example of State participation in the intersection safety effort is the research study on the ‘‘Safety Effectiveness of Intersection Left- and Right-Turn

Lanes.’’ Ten States—Iowa, Illinois, Louisiana, Minnesota, Montana, Nebraska, New

Jersey, North Carolina, Oregon, and Virginia—and the District of Columbia provided research funds and participated in the study. Accurate estimates of the safety

impacts of dedicated intersection turning lanes were developed over 6 years. Rural

left-turn lanes reduced crashes by 15 percent to 50 percent. Urban left-turn lanes

reduced crashes by 10 percent to 50 percent. Crashes related to left turns are one

of the common safety problems at intersections.

FHWA is pursuing several strategies to make intersections safer for pedestrians

and bicyclists. Local governments and Metropolitan Planning Organizations are participating in three FHWA demonstration projects to test and evaluate innovative

countermeasures at intersections and to market the results to other State and local

governments. Training for State and local engineers and planners in how to safely

accommodate pedestrians and bicyclists at intersections is needed. FHWA will work

with its safety partners to develop and promote workshops, conferences and meetings as well as training materials. To educate young engineers, teaching materials

will be developed for university professors so they can incorporate pedestrian and

bicycle safety into their intersection design and planning curriculum for undergraduate and graduate students. FHWA is developing more partnerships with State

and local governments, academia, and private sector organizations to accelerate the

development of expert tools to identify pedestrian and bicyclist safety problems and

potential solutions.

PEDESTRIAN AND BICYCLIST SAFETY AT INTERSECTIONS

Question. The budget states that ‘‘more consideration will be given to the safety

of motorists, pedestrians, bicyclists, workers and those persons with disabilities in

the planning, design and use of transportation facilities; and roadway users will

have a better awareness of pedestrians and bicyclists.’’ Does ‘‘consideration’’ also

mean that proactive steps will be taken to actually improve the safety conditions?

If so, what steps will be taken and/or what steps are planned? How will roadway

users gain a greater awareness of pedestrians and bicyclists?

Answer. FHWA has taken specific steps to improve the safety of all roadway users

including vulnerable populations such as older drivers and pedestrians. FHWA has

been proactive in researching older road users’ needs and capabilities and identifying highway changes that can improve their safety in using the transportation

system. FHWA developed the ‘‘Highway Design Handbook for Older Drivers and Pedestrians’’ with guidelines that identify design, operational and traffic engineering

enhancements to roadway features that pose safety risks for older road users, such

as intersections. These recommendations make our roads safer and easier to use for

older drivers and pedestrians and all roadway users. To accelerate implementation

of the guidelines, FHWA developed a workshop for Federal, State and local practitioners to communicate the results of its research on older road users and the safety

benefits of the older driver and pedestrian guidelines. Four hundred and forty-seven

practitioners have attended workshops in 39 States. A survey of the participants indicates that 54 percent of the respondents have designed or changed their facilities

to accommodate older road users.

To increase road user awareness of pedestrian and bicyclist safety needs, FHWA

is marketing pedestrian and bicyclist safety awareness products to State and local

governments and private sector safety organizations. Interactive tools such as ‘‘Safer

Journey’’ increase road user knowledge of pedestrian and bicyclist safety problems

and solutions. Seven States have decided to provide copies of the ‘‘Safer Journey’’

CD to all of their elementary schools to increase awareness of pedestrian and bicyclist safety. English and Spanish pedestrian safety materials for television, radio,
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and print media are being developed as part of a national campaign to raise awareness. FHWA is developing pedestrian safety materials targeted to specific populations including Hispanics and Native Americans. FHWA is also expanding its

partnerships with State and local agencies and private sector safety organizations

to accelerate the marketing and distribution of these pedestrian and safety materials.

STATE STRATEGIC HIGHWAY SAFETY PLANS

Question. FHWA plans to encourage State departments of transportation to adopt

a strategic highway safety plan and a comprehensive safety planning process. As

part of this process, will FHWA also encourage States to allow Metropolitan Planning Organizations to participate and integrate them as part of their overall budget?

Are there any States that currently have either a highway safety plan or a comprehensive safety planning process? If so, could you please provide a list of those?

Answer. The collaborative process for developing a strategic highway safety plan

requires States to include major State and local stakeholders. As major stakeholders

at the local level, Metropolitan Planning Organizations would be expected to participate in the process. State and local agencies and organizations participating the

process are required to share information and assist in the analysis of safety data

to produce a strategic highway safety plan. The development of the plan would not

require changes in the planning processes, plans or programs of other State or local

agencies. An informal survey indicates that at least 20 States and the District of

Columbia have some sort of a comprehensive safety plan. The 20 States are California, Colorado, Florida, Illinois, Kentucky, Louisiana, Maryland, Michigan, Maine,

Mississippi, North Carolina, Nebraska, New Jersey, New York, Oregon, Pennsylvania, Texas, Utah, Washington, and Wyoming.

CONGESTION MITIGATION

Question. FHWA has stated its capability to identify and mitigate causes of highway congestion. However, the portion of travel that occurred under congested conditions has increased each year. The short-term goal appears to be slowing the annual

rate of increase to 32.3 percent in fiscal year 2004. What specific actions will FHWA

take in 2003 to achieve this goal?

Answer. FHWA knows from surveys that traffic congestion, particularly that associated with unexpected and non-recurring events such as work zones and incidents,

is aggravating Americans. And the agency knows from these surveys what matters

most to highway users is the reliability of the system. FHWA has designated congestion mitigation as one of its ‘‘vital few’’ goal areas. Traffic congestion is influenced by a number of factors outside the influence of the transportation sector, such

as population increases and land use decisions, but there are a number of areas

where FHWA can make a significant difference in terms of mitigating traffic congestion levels. Solutions to traffic congestion include building additional highway capacity (new facilities, added lanes, removing bottlenecks, etc.), better managing peak

demands, and squeezing the highest level of performance out of existing capacity by

effectively managing the highway system in a customer-focused, performance-based,

proactive, real-time manner. While FHWA has a number of initiatives underway

that focus on this last concept, the following five likely will have the greatest longterm impact:

1. To date FHWA has not had a means of measuring how well the operation of

the highway system is being managed. In the last 2 years, FHWA has developed

and tested a system reliability index in 21 cities that it calls the ‘‘buffer index’’ (the

amount of time added to your trip because of system unreliability). FHWA hopes

that this measure eventually becomes as well known as (say) the temperature humidity index and helps cities gauge how well they are doing in responding to incidents, managing their work zones, and responding to the negative effects of adverse

weather. FHWA will repeat the measurement in up to 10 additional cities both this

year and in fiscal year 2004, while it continues to build support for use of reliability

and other appropriate performance measures in system monitoring and decisionmaking.

2. FHWA will continue a major program focus on reducing delays caused by work

zones by emphasizing the concept of ‘‘getting in, getting out and staying out.’’ Current and fiscal year 2004 program activities will be focused on consideration of work

zone impacts in the planning process, innovative design and construction techniques, traffic control planning, and use of performance measures.

3. FHWA will continue to build the foundation of a national traffic incident management organization, and develop and share detailed information, technical guidance and training on procedures to develop effective incident management programs
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and effectively respond to traffic incidents. The overall focus of these efforts is to

reduce the time required to detect, respond to, and clear traffic incidents, which

should result in a significant improvement in the congestion that they cause.

4. Half the battle of mitigating the real and perceived impacts of traffic congestion

on system users is giving people accurate and complete information. FHWA is in

the process of helping to facilitate deployment of the 511 national travel information

telephone numbers in cities and States across the United States. Currently about

14 percent of the U.S. population has access to high quality 511 services, with access expected to increase to about 25 percent by the end of 2003. FHWA’s fiscal year

2004 goal is to reach 35 percent of the U.S. population.

5. Finally, it is difficult to effectively manage the transportation system to mitigate traffic congestion in a culture that is still very much focused on developing and

delivering construction projects. FHWA is continuing a significant program focus

begun in fiscal year 2002 that seeks to encourage and incentivize regional collaboration and coordination among transportation system operators and public safety

agencies at all levels of government. Use of the techniques developed in this program area will result in more extensive and more effective implementation of regional operations strategies such as regional traffic incident management programs,

regional traveler information services, inter-jurisdictional coordination of traffic signals and regional emergency planning and response.

BORDER PLANNING, OPERATION AND TECHNOLOGY PROGRAM

Question. The Border Planning, Operations and Technology (BPOT) program

funds can be used for multimodal planning that results in improvements in freight

movement and highway access to rail, marine and air services. Can this money be

used for actual multimodal improvements or simply multimodal planning?

Answer. The BPOT funds can be used for an improvement at or near a land border with Canada or Mexico if the improvement is needed for operational enhancements or technology applications.

AREAS CURRENTLY ELIGIBLE FOR CMAQ FUNDING

Question. Please identify the areas currently eligible for CMAQ funding.

Answer. CMAQ funding must be used within non-attainment and maintenance

areas if any exist within the State. If a State has no non-attainment or maintenance

areas, it may use its CMAQ apportionment anywhere in the State on projects eligible under either the CMAQ or the Surface Transportation Programs.

FISCAL YEAR 2003 CMAQ-ELIGIBLE NON-ATTAINMENT MAINTENANCE AREAS—STATE AND COUNTY

STATE—Nonattainment/Maintenance Area Name COUNTY—Nonattainment/Maintenance Area Name

ALABAMA: Birmingham ............................................................. Jefferson, Shelby

ALASKA:

Anchorage ........................................................................ Anchorage

Fairbanks ......................................................................... Fairbanks

ARIZONA: Phoenix ...................................................................... Maricopa

ARKANSAS ................................................................................. Anywhere

CALIFORNIA:

Chico-Paradise ................................................................. Butte

Los Angeles ...................................................................... South Coast Air Basin, Los Angeles, Orange, Riverside, San

Bernadino

Sacramento Metro ............................................................ El Dorado, Placer, Solano, Sutter, Sacramento, Yolo

San Diego ......................................................................... San Diego

San Joaquin Valley ........................................................... Fresno, Kern, Kings, Madera, Merced, San Joaquin Valley,

Stanislaus, Tulare

Santa Barbara-Santa Maria-Lompoc ............................... Santa Barbara

Ventura Co ....................................................................... Ventura

Monterey Bay .................................................................... Monterey, San Benito, Santa Cruz

San Francisco Bay Area ................................................... Alameda, Contra Costa, Marin, Napa, San Francisco, San

Mateo, Santa Clara, Sonoma

COLORADO:

Colorado Springs .............................................................. El Paso, Teller

Denver-Boulder-Greeley .................................................... Adams, Arapahoe, Boulder, Denver, Douglas, Jefferson

Fort Collins ....................................................................... Larimer

Longmont ......................................................................... Weld
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FISCAL YEAR 2003 CMAQ-ELIGIBLE NON-ATTAINMENT MAINTENANCE AREAS—STATE AND

COUNTY—Continued

STATE—Nonattainment/Maintenance Area Name COUNTY—Nonattainment/Maintenance Area Name

CONNECTICUT:

Greater Connecticut ......................................................... Hartford, Middlesex, New Haven, New London, Tolland,

Windham

New York-New Jersey-Long Island ................................... Fairfield, Litchfield

DELAWARE:

Philadelphia-Wilmington-Atlantic City ............................. Kent, New Castle

Sussex .............................................................................. Sussex

DISTRICT OF COLUMBIA: Washington, DC–MD–VA .................. DC

FLORIDA:

Miami-Ft Lauderdale-W. Palm Beach .............................. Broward, Miami Dade, Palm Beach

Tampa-St. Petersburg-Clearwater ................................... Hillsborough, Pinellas

GEORGIA: Atlanta ...................................................................... Cherokee, Clayton, Cobb, Coweta, DeKalb, Douglas, Fayette,

Forsyth, Fulton, Gwinnett, Henry, Paulding, Rockdale

HAWAII ....................................................................................... Anywhere

IDAHO ........................................................................................ Anywhere

ILLINOIS:

Chicago-Gary-Lake County ............................................... Cook, DuPage, Grundy, Kane, Kendall, Lake, McHenry, Will

St. Louis, MO ................................................................... Madison, Monroe, St. Clair

Jersey Co .......................................................................... Jersey Co

INDIANA:

Chicago-Gary-Lake County ............................................... Lake, Porter

Evansville ......................................................................... Vanderburgh

Louisville, KY–IN .............................................................. Clark, Floyd

Indianapolis ..................................................................... Marion

South Bend-Elkhart .......................................................... Elkhart, St. Joseph

IOWA .......................................................................................... Anywhere

KANSAS: Kansas City KS–MO ................................................... Johnson, Wyandotte

KENTUCKY:

Cincinnati-Hamilton ......................................................... Boone, Campbell, Kenton

Edmonson ......................................................................... Edmonson

Louisville, KY–IN .............................................................. Bullitt, Jefferson, Oldham

Huntington-Ashland ......................................................... Boyd, Greenup

Lexington-Fayette ............................................................. Fayette, Scott

Owensboro ........................................................................ Daviess, Hancock

Paducah ........................................................................... Livingston, Marshall

LOUISANA:

Baton Rouge .................................................................... Ascension, E. Baton Rouge, Iberville, Livingston, W. Baton

Rouge

Lake Charles .................................................................... Calcasieu

Point Coupee .................................................................... Point Coupee

MAINE:

Hancock & Waldo ............................................................. Hancock, Waldo

Knox & Lincoln ................................................................. Knox, Lincoln

Lewiston & Auburn .......................................................... Androscoggin, Kennebec

Portland ............................................................................ Cumberland, Sagadahoc, York

MARYLAND:

Baltimore .......................................................................... Anne Arundel, Baltimore County, Baltimore City, Carroll, Harford, Howard

Kent-Queen Anne’s ........................................................... Kent, Queen Anne’s

Philadelphia-Washington-Trenton, PA–NJ–DE–MD .......... Cecil

Washington, DC–MD–VA .................................................. Calvert, Charles, Frederick, Montgomery, Prince George’s

MASSACHUSETTS:

Boston-Lawrence-Worcester ............................................. Barnstable, Bristol, Dukes, Essex, Middlesex, Nantucket, Norfolk, Plymouth, Suffolk, Worcester

Springfield (Western MA) ................................................. Berkshire, Franklin, Hampden, Hampshire

MICHIGAN:

Detroit-Ann Arbor ............................................................. Livingston, Macomb, Monroe, Oakland, St. Clair, Washtenaw,

Wayne

Grand Rapids ................................................................... Kent, Ottawa

Muskegon ......................................................................... Muskegon

MINNESOTA:

Minneapolis-St. Paul ........................................................ Anoka, Carver

Dakota .............................................................................. Hennepin, Ramsey, Scott, Washington, Wright
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FISCAL YEAR 2003 CMAQ-ELIGIBLE NON-ATTAINMENT MAINTENANCE AREAS—STATE AND

COUNTY—Continued

STATE—Nonattainment/Maintenance Area Name COUNTY—Nonattainment/Maintenance Area Name

Duluth .............................................................................. St. Louis

MISSISSIPPI ............................................................................... Anywhere

MISSOURI:

St Louis ............................................................................ Franklin, Jefferson, St. Charles, St. Louis City, St. Louis

County

Kansas City ...................................................................... Clay, Jackson, Platte

MONTANA: Missoula .................................................................. Missoula

NEBRASKA ................................................................................. Anywhere

NEVADA:

Reno ................................................................................. Washoe

Las Vegas ........................................................................ Clark

NEW HAMPSHIRE:

Boston-Lawrence-Worcester, NH–MA ............................... Hillsborough, Rockingham

Manchester ....................................................................... Merrimack

Portsmouth-Dover-Rochester ........................................... Strafford

NEW JERSEY:

Allentown-Bethlehem-Easton ........................................... Warren

Atlantic City ..................................................................... Atlantic

New York-New Jersey-Long Island ................................... Bergen, Essex, Hudson, Hunterdon, Middlesex, Monmouth,

Morris, Ocean, Passaic, Somerset, Sussex, Union

Philadelphia-Wilmington-Trenton ..................................... Burlington, Camden, Cumberland, Gloucester, Mercer, Salem

NEW MEXICO:

Sunland Park ................................................................... Dona Ana

Albuquerque ..................................................................... Bernalillo

NEW YORK:

Albany-Schenectady-Troy ................................................. Albany, Greene, Montgomery, Rensselaer, Saratoga, Schenectady

Buffalo-Niagara Falls ...................................................... Erie, Niagara

Essex ................................................................................ Essex

Jefferson ........................................................................... Jefferson

New York-New Jersey-Long Island ................................... Bronx, Kings, Nassau, New York, Orange, Queens, Richmond,

Rockland, Suffolk, Westchester

Poughkeepsie ................................................................... Dutchess, Putnam

Syracuse ........................................................................... Onondaga

NORTH CAROLINA:

Charlotte-Gastonia ........................................................... Gaston, Mecklenburg

Greensboro-Winston-Salem-High Point ............................ Davidson, Davie, Forsyth, Guilford

Raleigh-Durham ............................................................... Durham, Granville, Wake

NORTH DAKOTA ......................................................................... Anywhere

OHIO:

Cincinnati-Hamilton ......................................................... Butler, Clermont, Hamilton, Warren

Canton-Masillon ............................................................... Stark

Cleveland-Akron-Lorain .................................................... Ashtabula, Cuyahoga, Geauga, Lake, Lorain, Medina, Portage, Summit, Columbus, Delaware, Franklin, Licking

Dayton-Springfield ........................................................... Clark, Greene, Miami, Montgomery

Toledo ............................................................................... Lucas, Wood

Youngstown-Warren-Sharon ............................................. Mahoning, Trumbull

OKLAHOMA ................................................................................. Anywhere

OREGON:

Portland-Vancouver-Salem ............................................... Clackamas, Multnomah, Washington

Grants Pass ..................................................................... Josephine

Kalmath Falls ................................................................... Kalmath

Medford ............................................................................ Jackson

PENNSYLVANIA:

Allentown-Bethlehem-Easton ........................................... Carbon, Lehigh, Northampton

Altoona ............................................................................. Blair

Erie ................................................................................... Erie

Johnstown ......................................................................... Cambria, Somerset

Harrisburg-Lebanon-Carlisle ............................................ Cumberland, Dauphin, Lebanon, Perry

Lancaster ......................................................................... Lancaster

Philadelphia-Wilmington-Atlantic City PA–DE–NJ–MD .... Bucks, Chester, Delaware, Montgomery, Philadelphia

Pittsburgh-Beaver Valley ................................................. Allegheny, Armstrong, Beaver, Fayette, Washington, Westmoreland
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FISCAL YEAR 2003 CMAQ-ELIGIBLE NON-ATTAINMENT MAINTENANCE AREAS—STATE AND

COUNTY—Continued

STATE—Nonattainment/Maintenance Area Name COUNTY—Nonattainment/Maintenance Area Name

Reading ............................................................................ Berks

Scranton-Wilkes-Barre ..................................................... Columbia, Lackawanna, Luzerne, Monroe, Wyoming

York .................................................................................. Adams, York

Youngstown-Warren-Sharon ............................................. Mercer

RHODE ISLAND: Providence (All RI) .......................................... Bristol, Kent, Newport, Providence, Washington

SOUTH CAROLINA ...................................................................... Cherokee

SOUTH DAKOTA .......................................................................... Anywhere

TENNESSEE:

Knoxville ........................................................................... Knox

Memphis ........................................................................... Shelby

Nashville .......................................................................... Davidson, Rutherford, Sumner, Williamson, Wilson

TEXAS:

Beaumont-Port Arthur ...................................................... Hardin, Jefferson, Orange

Dallas-Fort Worth ............................................................. Collin, Dallas, Denton, Tarrant

El Paso, TX ....................................................................... El Paso

Houston-Galveston-Brazoria ............................................. Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty,

Montgomery, Waller

UTAH:

Salt Lake City-Ogden ....................................................... Davis, Salt Lake

Ogden ............................................................................... Weber

Provo-Orem ....................................................................... Utah

VERMONT ................................................................................... Anywhere

VIRGINIA:

Norfolk-Virginia Beach-Newport News ............................. Chesapeake City, Hampton City, James City County, New Port

News City, Poquoson, Suffolk City, Williamsburg City, York

Richmond ......................................................................... Charles City Co., Chesterfield, Colonial Heights City, Hanover, Henrico, Hopewell City, Richmond City

Baltimore-Washington, DC–MD–VA–WV .......................... Alexandra City, Arlington, Fairfax, Fairfax City, Falls Church

City, Loudoun, Manassas City, Manassas Park City, Prince

William, Stafford

Smyth ............................................................................... Smyth

WASHINGTON:

Portland-Salem ................................................................ Clark

Seattle-Tacoma ................................................................ King, Pierce, Snohomish

Spokane ............................................................................ Spokane

WEST VIRGINIA:

Charleston ........................................................................ Kanawha, Putnam

Greenbrier ......................................................................... Greenbrier

Huntington-Ashland ......................................................... Cabell, Wayne

Parkersburg-Marietta, WV–OH ......................................... Wood

WISCONSIN:

Green Bay-Appleton ......................................................... Door

Manitowoc ........................................................................ Manitowoc

Milwaukee-Racine ............................................................ Kenosha, Milwaukee, Ozaukee, Racine, Washington,

Waukesha

Kewaunee ......................................................................... Kewaunee

Sheboygan ........................................................................ Sheboygan

Walworth .......................................................................... Walworth

WYOMING ................................................................................... Anywhere

ECOSYSTEM AND HABITAT CONSERVATION INITIATIVES

Question. The budget states an intention to increase the number of exemplary ecosystem and habitat conservation initiatives from 8 to 10 in fiscal year 2004 with

the long-term goal of 30 initiatives in at least 20 States or Federal Lands divisions

by fiscal year 2007. Could you identify the 8 existing initiatives where FHWA plans

to implement the additional two in fiscal year 2004 and what, if any, new initiatives

will be attempted?

Answer. There are currently five initiatives that have been designated to-date.

These five initiatives are:
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Colorado Department of Transportation’s Shortgrass Prairie Initiative

The Colorado Department of Transportation’s (CDOT) Shortgrass Prairie Initiative is a programmatic consultation and proactive avoidance, minimization, and

mitigation effort covering 36 listed and non-listed species and associated habitats

that could be impacted by CDOT’s maintenance and construction activities on Colorado’s prairie over the next 20 years.

Montana Department of Transportation’s US 93 Agreement

The new highway was designed with the idea that the road is a visitor and should

respond to and be respectful of the land and Spirit of Place. Montana DOT, FHWA,

and the Confederated Salish-Kootenai Tribes reached a shared vision of the road’s

interaction with the environment and Tribal culture.

North Carolina’s Ecosystem Enhancement Program

In order to deal with a rapidly expanding transportation program that will impact

an estimated 6,000 acres of wetlands and a million feet of streams over the next

7 years, the North Carolina Department of Transportation, the United States Army

Corps of Engineers, and the North Carolina Department of Environment and Natural Resources are designing an Ecosystem Enhancement Program to protect the

State’s natural resources.

Oregon DOT’s Fish Friendly Maintenance Practices

The Oregon DOT has developed a Geographic Information System-based sensitive

resource inventory along nearly 6,000 miles of State highway as part of its Salmon

Resources and Sensitive Area Mapping Project. The primary purpose of the project

is to provide accurate resource protection maps to roadway maintenance crews so

that mowing, pesticide application, and other activities do not harm listed salmon

species and other sensitive resources.

Washington DOT’s Watershed Approach to Mitigation Setting

This watershed approach is a community based environmental decision making

process that uses watersheds as functional systems, coordinating and integrating

human activities to implement watershed recovery efforts and to prevent further

degradation of natural resources within the watershed basin. A key component of

the Washington DOT’s watershed approach is the targeting of mitigation funds to

sites offering greatest ecological benefits.

Detailed information on these five initial initiatives (established in fiscal year

2002) is available on the FHWA website at: http://www.fhwa.dot.gov/environment/

strmlng/bestprac.htm.

Three additional initiatives are being examined and will be implemented by the

close of fiscal year 2003. These initiatives include:

Nevada—Regional Wetland Bank

Constructed by the Nevada DOT, this project is on public land, within sight of

a major highway, has public hunting, wildlife viewing platforms, long-term monitoring, extensive irrigation rights and control structures and support from agencies.

It has been very successful over a 6–10 year period. It was built as a regional bank

for projects between Reno and Gardnerville.

Arizona—State Route 260 Wildlife Measures

This project in Arizona involves area-wide habitat connectivity monitoring and

measures for wildlife passage. The project is just below the Mogollon Rim. This area

has one of the highest wildlife-vehicle (primarily elk) collision rates in the State.

The Arizona DOT is in the process of building 17 sets of bridges along 17 miles of

highway to allow wildlife permeability underneath the highway based on extensive

habitat studies interagency coordination. The Arizona Game and Fish Department

has been given the task of monitoring the effectiveness of these structures. Monitoring will compare the differences in bridge design based on the number of animals

and how readily they use them.

New Hampshire—Route 101 Mitigation Program

The mitigation plan was developed for the New Hampshire DOT project to improve 17.6 miles of NH Route 101 from Epping to Hampton. This is a multi-faceted

program with measures to minimize impacts to existing wetland resources, restore

estuarine marsh, protect upland habitat, maintain water quality, preserve and

study historic and archeological sites, minimize highway noise and create replacement wetlands.

FHWA has identified several additional initiatives as possibilities for 2004 and beyond:
165

—Iowa—the State DOT’s living roadside and prairie restoration program;

—California—several land-use/transportation/conservation planning initiatives;

—Alaska—highway culvert replacement program to improve fish passage;

—Arizona—Desert bighorn habitat study and conservation plan relative to the US

93 upgrade.

CONTEXT SENSITIVE SOLUTIONS

Question. In 2004, the budget proposes to establish a baseline of best practices

for integrated planning and encourage 11 States to adopt context sensitive solutions

(CSS). Have those 11 States been identified and what will their participation require?

Answer. FHWA is advocating the advancement of context sensitive solutions

(CSS) and integrated approaches to the planning and environmental process as part

of its Environmental Vital Few Goal. As a baseline for CSS, FHWA selected the five

States (Connecticut, Kentucky, Maryland, Minnesota, and Utah) that were selected

in 1998 as Context Sensitive Design (CSD)/CSS pilot States.

FHWA is currently finalizing the criteria that will be used to identify additional

States that have adopted CSS. The criteria under consideration include the following:

—Some projects are being implemented using a CSS approach, tools, and methodologies.

—Technical staff is trained in a CSS approach, both in field and central offices,

and across disciplines (planning, environment, design, right-of-way, operations,

and maintenance).

—Interdisciplinary teams are involved in the process from the beginning to the

end.

—There is early, continuing, and interactive public involvement throughout the

project development process.

—There is a written commitment or policy.

Following finalization of the criteria, FHWA anticipates identifying a minimum of

three additional CSS States by the close of fiscal year 2003. The fiscal year 2004

target for CSS is to increase the total number of CSS States to 11, although FHWA

has not yet identified the additional States that will allow the agency to reach its

fiscal year 2004 target.

STRATEGIC HIGHWAY NETWORK

Question. The budget requests $4.6 million to coordinate military and civilian traffic needs in emergencies focusing on the Strategic Highway Network. Please provide

an accounting of exactly how FHWA plans to spend this $4.6 million. Answer. The $4.6 million requested is to support security activities that are much

broader than just the Strategic Highway Network (STRAHNET). The STRAHNET

system (a portion of the National Highway System) supports military deployment

and is in good structural and operational condition.

DOT works with the Department of Defense (DOD) to improve mobilization effectiveness, and to help State and local transportation agencies safely and securely

sustain vital traffic flows. Approximately $2.3 million of the funds will be used to

support and improve military deployment including: (1) workshops with civilian and

military authorities at the major deployment ‘‘forts’’; (2) development and distribution of a best practices guide for support of military deployment; (3) specific reviews

of one or more of the ‘‘fort-to-port’’ routes at the major military platforms; and (4)

coordination with DOD to facilitate rapid mobilization over the highway network

and to minimize disruption to traffic during the mobilization. The remaining $2.3 million will be used for a broad array of security initiatives,

the more significant of which include: (1) coordination with highway industry partners to implement the Transportation Security Administration’s (TSA) proposed security standards regarding protection of critical infrastructure; (2) transportation-focused emergency response preparedness activities for natural disasters, accidental

incidents involving hazardous materials, and intentional acts in metropolitan areas

designated by the Department of Homeland Security (DHS) as being at greatest

risk; and (3) internal agency initiatives to ensure continuity of operations preparedness for emergencies. The emergency response activities are fully coordinated with

DHS units including FEMA, TSA, etc., the National Academy of Sciences, and the

American Association of State Highway and Transportation Officials (AASHTO).

MEGA PROJECTS OVERSIGHT

Question. The Department has identified and initiated steps to improve oversight

of mega projects by developing a comprehensive, standard approach. What is the
166

new comprehensive, standard approach that will be applied to all mega projects?

How is it different than previous oversight requirements, and how does the Department envision that this new approach will improve mega project planning and construction?

Answer. Beginning in May 2000, FHWA issued its Financial Plan Guidance defining the content and format of the Financial Plans as required by Section 1305 of

TEA–21, for all highway projects with an estimated total cost of $1.0 billion or more.

The Financial Plan provides a comprehensive document reflecting the total cost of

the project, and provides reasonable assurances that there will be sufficient financial resources to complete the project as planned. Cost containment strategies are

also identified in the Financial Plans, as well as an implementation schedule for

completing the project. Annual updates are required to track significant cost and

schedule deviations from the initial Financial Plan, and mitigative actions taken to

adjust for those deviations. A provision in the SAFETEA reauthorization proposal

would make Financial Plans a requirement for all highway projects receiving $100

million or more in Federal-aid funds.

As a standard operating procedure, major (mega) projects produce periodic (usually monthly) cost, schedule, and status reports; and periodic status meetings are

held with the State Transportation Agency’s project management team, FHWA, and

other involved agencies in attendance. The periodic status meetings discuss project

costs, schedules, quality issues, and other status items in sufficient enough detail

to allow involved parties to be aware of significant issues and actions planned to

mitigate any adverse impacts.

FHWA is committed to assigning a designated Oversight Manager to each active

major project, dedicated full-time to that specific major project. The Oversight Manager may draw upon resources from within his/her Division Office, in order to form

an integrated project team that is responsible for providing proper Federal stewardship and oversight of the major project. Core competencies and training resources

have been established for the major project Oversight Managers. A web-based resource manual has also been completed in order to provide guidance, tools, and best

practices to assist the Oversight Managers in effectively carrying out their duties.

An active major projects monthly status reporting system has been implemented

in conjunction with the Department’s Office of Inspector General (OIG). The assigned Oversight Managers are responsible for updating the critical issues and risks

(schedule, cost, funding, legal, contractual, and technical) on a monthly basis, with

the consolidated report forwarded to FHWA upper management and the OIG.

The sharing of best practices and lessons learned among the major projects are

accomplished via annual Oversight Managers meetings, semi-annual newsletters,

and the Central Artery/Tunnel Project’s Innovations and Advancements workshop.

Project Management Plans are strongly encouraged from a best practices point of

view, in order to clearly define the roles, responsibilities, processes, and activities

that will result in the major project being completed on-time, within budget, with

the highest degree of quality, in a safe manner, and in a manner in which the public

trust, support, and confidence is maintained. A provision in the SAFETEA reauthorization proposal would make Project Management Plans a requirement for all highway projects with an estimated total cost of $1.0 billion or more.

All of these initiatives have been implemented within the last 3 years and have

expanded the Federal stewardship and oversight of major project planning and construction.

‘‘AT-RISK’’ MEGA PROJECTS

Question. The budget discusses plans to designate mega projects with significant

deviations from cost and schedule baselines as ‘‘at-risk.’’ Does this designation carry

with it any additional requirements or Federal oversight? Please identify mega

projects currently underway that, under this new plan, would receive an ‘‘at-risk’’

designation?

Answer. Major (mega) projects designated ‘‘at-risk’’ would trigger certain special

conditions or restrictions, until the recipient of Federal funds addresses identified

issues in an approved recovery plan. These special conditions may include withholding of authority to proceed to the next phase of the project; requiring additional,

more-detailed cost, schedule, or financial reports; requiring the recipient to obtain

technical or management assistance; establishing additional prior approvals; requiring more direct on-site inspection of the project by Department personnel; and/or follow-up reporting on a periodic basis until the Department removes the designation.

The Boston Central Artery/Tunnel project was designated ‘‘at-risk’’ in 2000 after

several investigations and project reviews indicated significant rising costs. The I–

95/I–495 Springfield Interchange project, though not officially designated ‘‘at-risk,’’
167

was required to begin submitting Financial Plans due to rising costs, even though

the total cost of the project is still well under $1.0 billion. None of the other 12 identified active major projects have thus far experienced significant cost or schedule deviations.

SR 210/FOOTHILL FREEWAY ADDITIONAL FTE

Question. The FHWA budget lists the FTE requirements for mega project oversight; however, the SR 210/Foothill Freeway, CA project has no staff listed for fiscal

year 2004. Given that all mega projects will receive improved oversight, why then

are no FTE requested for this particular project?

Answer. The SR 210/Foothill Freeway project is on schedule and within budget;

therefore, no Financial Plans and annual updates, and hence additional FTEs to

provide project oversight, are required for this project. With a substantial portion

of the project already completed, the California Division office is able to conduct

adequate oversight of this major project with existing staff.

ENVIROMENTAL STREAMLINING

Question. The budget requests $20.8 million to support transportation research

dealing with environmental streamlining which focuses on long-term and preemptive measures designed to streamline the environmental impact review process and

procedures. What environmental streamlining measures have been implemented

thus far and what measures are being researched that would lead to greater environmental streamlining efforts in the future? Please provide a detailed breakdown

of how the requested $20.8 million will be spent.

Answer. FHWA has been pursuing environmental streamlining measures on multiple fronts, some national in scope, some regional or State-specific in scope. These

measures implement Congressional direction from Section 1309 of TEA–21, and

have been implemented in the context of Executive Order 13274 and FHWA’s Vital

Few performance planning effort. The following describes some of FHWA’s accomplishments to-date.

Solidifying Interagency Partnerships

Field level environmental summits.—The FHWA Eastern, Southern, and Western

Resource Centers held regional conferences, bringing together representatives from

Federal, State, and local transportation, planning, and resource agencies, local governments, Metropolitan Planning Organizations (MPOs), transportation and environmental organizations, tribes, and consultants to discuss relevant issues and identify opportunities for improvement. Results of the summits were distributed via the

Successes in Streamlining Monthly Newsletter (September 2002). The sharing of solutions and integration of efforts found within each regional conference advances

streamlining through an emphasis on process improvements.

Interagency training on environmental streamlining.—The Federal interagency

workgroup has collaborated in organizing a series of environmental streamlining

workshops aimed at getting field staff of each Federal agency aligned with the national agenda. FHWA sponsored a multi-agency workshop in 1999 and agency-specific workshops with the U.S. Army Corps of Engineers (2001), Environmental Protection Agency (2002) and Fish and Wildlife Services/National Oceanic and Atmospheric Administration (2003). These workshops have been a good forum for sharing

the national vision, identifying issues that cause interagency conflict, and sharing

innovative practices from around the country. Furthermore, they have promoted the

concepts of coordination and process efficiencies in the environmental review of

transportation projects.

Institutionalizing Dispute Resolution

Partnership with Institute for Environmental Conflict Resolution (IECR).—The

1998 Environmental Policy and Conflict Resolution Act created IECR, which is part

of the Morris K. Udall Foundation. IECR helps Federal agencies and other involved

parties manage and resolve Federal environmental, natural resource, and public

lands disputes by providing services such as case consultation, conflict assessment,

process design, facilitation, and mediation. FHWA partnered with IECR to meet the

mandate set forth in Section 1309(c) of TEA–21 to create dispute resolution procedures as part of a national environmental streamlining initiative. FHWA and IECR

have been working effectively together since 1999 to develop and implement the four

components of the dispute resolution system, described below. The dispute resolution system is intended to assist the agencies to quickly and effectively focus on the

pertinent project issues, save time, and avoid the costs of potential litigation.

Roster of qualified neutral facilitators.—As part of the FHWA/IECR collaborative

partnership, a transportation roster was created that is comprised of dispute resolu-
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tion professionals with experience in NEPA and transportation projects. The roster

is managed by the U.S. Institute for Environmental Conflict Resolution, with financial support by FHWA to help cover administrative costs. These professionals can

provide services such as conflict assessment, facilitation of interagency partnering

agreements, design of conflict management processes, and mediation of disputes.

Project sponsors contact IECR to access the transportation roster, and then negotiate contracts and pay for the costs of the transportation roster members’ services

directly. Recently, FHWA and transportation sponsors have used the transportation

roster to provide facilitators for three of the priority projects designated under Executive Order 13274.

Guidance on interagency conflict management.—This FHWA guidance offers a

range of optional tools agencies can use to manage conflicts and resolve disputes

during the transportation project development and environmental review processes.

It also constitutes the key reference document used in the interagency workshops

described below.

Interagency conflict management workshops.—The FHWA dispute resolution system includes a series of customized facilitated interagency workshops in each of the

10 standard Federal regions. The workshops were developed during 2002 and will

be held from May to December 2003. Skills gained at the workshops will help practitioners from the various agencies to better identify environmental review issues, negotiate time frames and work through disagreements using interest based negotiating.

Supporting State Environmental Streamlining Efforts

American Association of State Highway and Transportation Officials (AASHTO)

‘‘Center for Environmental Excellence.’’—AASHTO launched the Center in 2002 with

technical and financial assistance provided by FHWA. The Center’s mission is to assist AASHTO’s member organizations with implementing environmental stewardship into their various practices and procedures, and promoting innovative streamlining of the project delivery process. AASHTO expects that the results of this assistance will be beneficial to State transportation agencies and also supportive of

FHWA’s work in protecting and enhancing the environment.

Individual State environmental streamlining initiatives.—FHWA has partnered

with well over half of the State departments of transportation in advancing their

own environmental streamlining efforts. Notable examples include Florida’s Efficient Transportation Decisionmaking effort, and Texas’ I–69 interagency partnering

effort.

Environmental Streamlining Research.—The funds requested in fiscal year 2004

to support transportation research dealing with environmental streamlining (ES)

will be used for the following activities:

Assistance to State and Field Office Initiatives

—Support for State DOT ES efforts

—AASHTO Center for Environmental Excellence

—FHWA field office initiatives to enhance interagency coordination

National ES Initiatives

—Dispute resolution facilitation and training

—Performance evaluation systems and studies

—Integrated approaches promotion & training

—Information sharing on ES

—Policy Research.

FTE DISTRIBUTION

Question. The FHWA budget requests 12 new FTE. Specifically where will these

new FTE be utilized?

Answer. The 12 new FTE that are requested in fiscal year 2004 will be utilized

as Mega-Project Oversight Managers to enhance major projects oversight and fulfill

FHWA’s commitment of having a dedicated oversight project manager on each

mega-project. They will: represent FHWA before other Federal agencies, State

Transportation Agencies (STA), local agencies, consultants, and contractors on all

project delivery and oversight issues; be responsible for overseeing the review and

approval of plans, specifications and cost estimates; and ensure that FHWA laws

and requirements, such as Buy America, Davis-Bacon minimum wage rates, Disadvantaged Business Enterprise and affirmative action requirements, records of materials and supplies, etc., are incorporated in Federal-aid construction contracts. The

table below provides a breakdown of the FTE Requirement for Active (and Future)

Major Projects.
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FISCAL YEAR 2004 FTE REQUIREMENT FOR ACTIVE (AND FUTURE) MAJOR PROJECTS

Projects Status Current Staffing

Level Fiscal Year 2004

I–80/San Francisco-Oakland Bay Bridge (East Span), CA ........................ Active ............ 1 1

SR 210/Foothill Freeway ............................................................................. Active ............ ........................ ........................

I–25/I–225 Southeast Corridor, CO ............................................................ Active ............ 1 1

New Haven Harbor Crossing, CT ................................................................ Active ............ ........................ 1

Miami Intermodal Center, FL ...................................................................... Active ............ ........................ 1

I–4/I–275 Tampa Interstate, FL ................................................................. Active ............ ........................ 1

New Mississippi River Bridge, IL-MO ......................................................... Active ............ ........................ 1

Central Artery/Ted Williams Tunnel, MA ..................................................... Active ............ 5 3

Central Texas Turnpike, TX ......................................................................... Active ............ 1 1

I–10/Katy Freeway, TX ................................................................................ Active ............ ........................ 1

I–95/Woodrow Wilson Bridge, MD .............................................................. Active ............ 2 2

I–95/I–495 Springfield Interchange, VA .................................................... Active ............ 1 1

I–64/Hampton Roads Third Crossing, VA .................................................. Active ............ ........................ 2

I–94/East-West Corridor, WI ....................................................................... Active ............ ........................ 1

New Ohio River Bridges, KY-IN .................................................................. Future ........... ........................ 1

I–94/Edsel Ford Freeway, MI ...................................................................... Future ........... ........................ 1

Mon/Fayette Expressway, PA ....................................................................... Future ........... ........................ 1

I–635/LBJ Freeway (West Section), TX ....................................................... Future ........... ........................ 1

I–405 Corridor/SR 509 and I–5/SR520/Alaskan Way Viaduct, WA ........... Future ........... ........................ 2

Totals ............................................................................................. ....................... 11 23

UPGRADING AND PROTECTING THE EXISTING INFORMATION RESOURCE MANAGEMENT

INFRASTRUCTURE

Question. As part of the LAE, Federal Highways anticipated upgrading and protecting the existing Information Resource Management infrastructure. What does

this anticipated upgrade involve and how much money will be required to specifically carry out this effort?

Answer. The anticipated upgrade includes: (1) establishment of a systematic replacement/refresh cycle for basic Information Resource Management (IRM) hardware; (2) additional contract services for IRM Security; and (3) upgrades and maintenance of IRM Security equipment. The total amount of money required to carry

out this consolidated effort is $2.9 million.

The first effort is establishment of a systematic replacement/refresh cycle for basic

IRM equipment, in particular, desktop computers, laptop computers, printers and

networks. The Federal Highway Administration (FHWA) is not seeking to upgrade

these categories of IRM hardware across the board. Rather, FHWA seeks to establish a standard replacement interval for each category of IRM hardware and then

to replace hardware items only when their interval has elapsed. FHWA requests

$1.2 million to carry out this effort.

The second effort is an increase in contract services for IRM Security. The additional contract services would be used to enable FHWA to complete certification and

accreditation activities by the Department of Transportation’s established deadline

of December 2005 as well as to develop and implement the initial components of

a continuous risk management process. FHWA requests $1.2 million to carry out

this effort.

The third effort is to upgrade and maintain IRM Security equipment. In particular, the effort would involve purchasing the automated tools, software upgrades

and associated maintenance necessary to actively look for, anticipate, and counteract threats and vulnerabilities before they are employed or exploited. These tools include, without limitation, intrusion detection systems, vulnerability scanners, incident response tools, incident tracking systems, anti-virus, file encryption, and secure

remote access. FHWA requests $500,000 to carry out this effort.

QUESTION SUBMITTED BY SENATOR ARLEN SPECTER

COMMERCIAL PASSENGER AIRCRAFT FUEL TANK SAFETY

Question. Mr. Secretary, I am advised that the Federal Aviation Administration

has worked recently with Foamex International, Inc. of Linwood, Pennsylvania on

identifying current fiscal year funding opportunities for important research concerning the safety of commercial passenger aircraft fuel tanks.
170

I was pleased to learn that Associate Administrator Charles Keegan and his staff

are drafting a Cooperative Research Development Agreement to conduct tests that

will help determine the effectiveness of using the company’s Safety Foam for safety

and security applications. Safety Foam is an advanced reticulated polyurethane

foam material, which can be installed inside aircraft fuel tanks and can act as a

3-dimensional fire screen that prevents fire propagation due to internal ignition of

fuel vapors.

Given the importance of maximizing the safety of such fuel tanks, I would appreciate your providing the Subcommittee with an update as to the timetable for entering into the Cooperative Agreement with Foamex International, the amount of fiscal

year 2003 funds the agency is prepared to devote to this critical research, and any

other relevant information on this specific subject you would like to share with us.

Answer. Working with Foamex International, the FAA has developed a Cooperative Research Development Agreement. The agreement was sent to Foamex for their

signature on June 13, 2003.

The FAA has set aside $100,000 in fiscal year 2003 aircraft safety funds to support tests and evaluations to determine the potential effectiveness of the foam for

commercial aviation applications.

At a June 10, 2003, meeting of fuel system and foam experts, including representatives from Foamex and others in the private sector, the FAA developed the preliminary proposal for a series of tests to explore the foam’s feasibility in mitigating the

effects of a simulated crash of an airplane and the spillage of a large amount of fuel.

Foamex and FAA technical personnel have met to discuss and design a test plant.

The parts necessary for the test have been ordered. Since they are rather unique

and need to be specially fitted, the first ‘‘water only’’ test won’t take place until midOctober.

QUESTIONS SUBMITTED BY SENATOR SAM BROWNBACK

SHORT LINE RAILROADS

Question. As I mentioned in my opening remarks, a particular concern that should

be near the heart of many of us in this room is the fate of short line local freight

railroads. These short lines account for roughly half the rail miles in Kansas. These

lines gather tens of thousands of carloads of grain and start them on their way

across the country and for export abroad.

However, government disincentives forced the prior owners of these light density

lines to neglect investment in the infrastructure, and now the weight of loaded railroad cars are growing ever heavier. This has forced many of these light density lines

to abandon operations. From 1980 to 1990 Kansas lost 862 miles of railroad to abandonment. From 1990 to 2000, Kansas lost 1,157 miles. In the last 2 years we have

lost 357 miles.

In Kansas, when railroads go out of business it is very bad for highways. For example, Harper County, Kansas recently lost rail service and the increase in heavy

trucks as a result does so much damage to the roads that the government can no

longer afford to pave them—instead the once paved roads are being turned into unpaved gravel roads.

The Kansas DOT estimates that short line railroads, by removing heavy trucks

from the highway, save roughly 17 cents in highway damage for every mile that a

truck would otherwise travel. Seventeen cents a mile in Kansas amounts to

$50,000,000 per year that K-DOT estimates are saved by the continued existence

of these lines.

It seems to me Mr. Secretary that these numbers in terms of cost savings for our

highway system are compelling. The more traffic we can get onto local railroads the

less it costs to maintain our highways, not to mention the immeasurable cost in jobs

and opportunities to communities that lose rail service.

Last Congress I supported legislation S. 1220 along with my colleagues Sen. Specter and Sen. Hollings that would have made $350 million per year available to help

preserve freight service on these lines. What similar plans, if any, does the administration have to address the desperate need in every rail served State to preserve

short line railroads?

Answer. The Administration has not proposed a new grant program as contained

in S. 1220. There exists now a loan and loan guarantee program, the Railroad Rehabilitation and Improvement Financing (RRIF) Program, that offers financial assistance to meet these needs.
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S. 788 CENTURY OF FLIGHT ACT

Question. While the aviation industry is currently suffering and revenue for the

Airport and Airway Trust Fund has decreased recently, the FAA forecasts that

growth in the airline industry is expected to return to near normal levels. If these

forecasts are true, demand for air travel will require expansion of air traffic services. In an industry that is currently suffering, we must act now to provide the

needed assistance and vision where we are currently lacking.

This is precisely why I introduced along with Senator Hollings, S. 788, the Second

Century of Flight Act. The purpose of this bill is to ensure that the United States

continues to lead the world in aeronautics and aviation safety, technology, and efficiency. Additionally, this bill aims to create a better trained U.S. aerospace workforce, through support for technical colleges and other educational institutions. And

of particular importance, this bill would facilitate the coordination of U.S. research

efforts, and increase focus on directing government research towards usable products that enhance safety, are environmentally sound, and increase efficiency.

I am pleased that my Colleagues on the Commerce Committee agreed to three of

the four titles of S. 788, in the FAA Reauthorization bill we passed out of the Committee. These titles include provisions that create a national office to coordinate

aviation and aerospace research activities with the U.S. Government and encourages public-private cooperation; create a national office to focus on a next generation

air traffic management system; and establishes educational incentives to train the

next generation of aeronautics engineers and mechanics.

Mr. Secretary, I am sure you are aware of the importance of these issues, not only

in Kansas, but across the United States. I would like you to comment on your commitment to these issues and specifically, your support of the initiatives in S. 788.

Answer. The Department of Transportation (DOT) is very aware of the importance

of the issues you raise and have actively initiated efforts to better support the U.S.

position in aerospace research and development. DOT has formed a Joint Planning

Office (JPO) comprised of the Federal Aviation Administration (FAA), Department

of Defense, Transportation Security Administration, Department of Commerce, and

National Aeronautics and Space Administration to focus on development of our next

generation air traffic management system. The FAA leads the team. We are also

establishing a high-level policy committee to guide this effort that will be chaired

by the Secretary of Transportation. The Secretary will establish the Policy Committee in the summer of 2003. The next steps are to establish advisory committees

for this activity, to coordinate a framework for the initiative through the five participating agencies and departments, and begin drafting the national plan.

QUESTIONS SUBMITTED BY SENATOR ROBERT C. BYRD

COMPETITIVE SOURCING

Question. Last year, the Federal Aviation Administration announced that it is

considering plans to privatize up to 2,700 air traffic control jobs at 58 of FAA’s 61

Automated Flight Service Stations (AFSS) around the country. These jobs are critical to the safety of the traveling public, and I believe that the Department of Transportation should be more careful about handing these important functions over to

the private sector. This country learned a valuable lesson about entrusting public

safety responsibilities to private companies when we discovered security failures at

our airports, which required Congress to place those responsibilities in the hands

of the Transportation Security Administration. Apparently, the Department has not

learned anything from this experience.

I am concerned that the FAA is acting under pressure from the White House to

implement the President’s competitive sourcing initiative. OMB scores agencies on

how well they comply with the President’s Management Agenda. Agencies are encouraged to submit management plans to the OMB, which incorporate the competitive sourcing quotas outlined in the President’s budget.

It is my understanding that these competitive sourcing plans, once they are submitted to the OMB for approval, can be released to the public at the discretion of

the agency heads. If the Congress is to appropriate substantial funding for private

sector employment opportunities, I expect that you will first provide Congress, and

in particular this Committee, with a copy of any management plans or competitive

sourcing proposal that the Department of Transportation submits to the OMB.

When do you expect to submit a competitive sourcing plan to OMB, and how soon

can you make that plan available to this Committee?

Answer. FAA prepared a competitive sourcing plan for Automated Flight Service

Stations that was submitted to the Department of Transportation on June 19, 2002.
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As a result of recent changes to OMB Circular A–76 and the President’s Management Agenda, FAA is in the process of updating the plan again. The agency will

provide the Committee a copy of the revised FAA competitive sourcing plan when

it is complete.

Question. How can you explain to the American people the willingness of the FAA

to take flight safety out of the hands of dedicated public servants and put hand it

over to private companies that are only dedicated to maximizing profits?

Answer. Automated Flight Service Stations (AFSS) do not engage in the separation of aircraft. Their duties primarily support the general aviation community by

providing weather briefings, processing flight plans, assisting lost pilots, and initiating search and rescue operations. These functions are performed at separate facilities throughout the United States and Puerto Rico. (The three AFSS in Alaska have

been excluded from the study.) Each year the FAA spends over $500 million to support this function. Since the competitive sourcing study of the AFSS is a public/private competition, not a privatization, the existing government employees will have

a chance to compete for and win their work. So it will not automatically go to the

private sector. Whoever wins the competition, public or private, will be accountable

for their performance through performance metrics and incentives. FAA believes

that it is possible to pursue ways of decreasing costs while improving service

through the use of OMB Circular A–76.

QUESTIONS SUBMITTED BY SENATOR RICHARD J. DURBIN

FISCAL YEAR 2004 FUNDING REQUEST FOR AMTRAK

Question. Why did the Administration only include $900 million for Amtrak in the

fiscal year 2004 budget when this level of funding will send the company into insolvency?

Answer. The fiscal year 2004 request was a request with a message. That message is that the Administration is unwilling to support ever-increasing levels of appropriations for the current, broken business model of providing intercity passenger

rail service in this country. Until the changes to intercity passenger rail service are

developed and agreed upon as part of the authorization process, the Administration

is not willing to discuss funding intercity passenger rail service at a level above

$900 million.

THE ADMINISTRATION’S VISION FOR INTERCITY PASSENGER RAIL

Question. The Bush Administration’s vision for our Nation’s intercity passenger

rail system would separate the train operations from the infrastructure management on the northeast corridor. The United Kingdom failed when it tried this model.

Can you give me specifics as to how your model for the northeast corridor differs

from the failed British model?

Answer. The Administration has carefully observed the rail privatization initiative

in the United Kingdom and believes that the strategy for intercity passenger rail

reform in this country will reflect the lessons that can be learned from the United

Kingdom’s experience. The primary lesson is that the Administration’s plan will

avoid the conflict between infrastructure owner and train operator inherent in the

U.K. model. The public will continue to own the infrastructure with a strong say

in how it is maintained and operated. The same public entity, a compact of the

Northeast Corridor States, will also determine who operates over this infrastructure.

Question. In your vision for Amtrak’s reauthorization, you call for private operators to run Amtrak’s long distance routes. Can you name for me a company that

is willing to operate one of these routes without subsidy? Do you think the freights

will agree to allow multiple private operators to run passenger trains on their

tracks?

Answer. The Department’s proposal does not envision private sector companies

volunteering to operate intercity trains at a loss. The States would put together the

financial package for each train they believe is important enough to warrant the

State’s support. To the extent such a train would not cover its operating expenses

from the fare box, then it would be up to the States to identify the source or sources

of operating assistance. With further regard to private operators, the Department

does not envision multiple operators on the same rail route except in very close

proximity to stations and terminals where routes come together.

Question. Do you think the States have the money to pay for the operating costs

to run the long distance trains as the Administration is suggesting in its plan? Considering that the Federal Government created the long distance routes and that
173

these routes run through multiple States, why should these costs be shifted to the

States? The Federal Government created the Federal highway system which runs

through multiple States, yet you are not asking for the States to cover the operating

costs for those highways.

Answer. The Administration is well aware of the financial challenges facing the

States. For that reason, the Administration’s proposal envisions a reasonable transition time to permit the States to identify which services are important to them and

sources of funds to provide needed financial assistance. The expectation that the

Federal Government does not provide operating assistance is consistent with the

Federal role in highways and transit; States and localities assume responsibility for

operating costs for these forms of transportation.

SMALL COMMUNITY AIR SERVICE

Question. Is the Department working with small communities to help attract and

retain passenger air service? In what ways? This becomes more urgent as carriers

terminate service to smaller communities due to the financial crisis in the airline/

aviation industry.

Answer. The Department recognizes that small communities have been affected

by the financial crisis in the airline industry. The Department has two programs

specifically designed to help small communities with their air services. First, under

the Essential Air Service (EAS) program, over 700 communities are guaranteed to

receive at least a minimum level of air service. Of those, the Department currently

subsidizes carriers to serve 135 communities nationwide, 33 of which are in Alaska.

Since September 11, 2001, the Department has received over 50 notices from carriers to terminate the last service at the community, most of them triggering a firsttime EAS subsidy. The Department has ensured that these communities continue

to receive air service as we seek replacement carriers.

Second, the Department administers the Small Community Air Service Development Pilot Program. This program was established under the AIR–21 legislation

and is a new program designed to help small communities address problems related

to inadequate air service and high airfares. Under the legislation, the Department

may make grant awards to a maximum of 40 communities each year, although no

more than 4 may be from any one State. This program is unique in that it provides

communities the flexibility to design their own solutions to their air service problems and to seek Federal financial support to help them implement their plans.

For fiscal year 2002, the first year that funds were available, Congress appropriated $20 million for this program. The program was very popular in fiscal year

2002 with the Department receiving 180 applications. Grant awards were made to

40 communities using all of the funds available. Many of these grants have already

led to new or improved services at the selected communities, including Fort Smith,

Arkansas; Daytona Beach, Florida; Augusta, Georgia; Hailey, Idaho; Lake Charles,

Louisiana; Meridian, Mississippi; Taos, New Mexico; Akron/Canton, Ohio; Rapid

City, South Dakota; Charleston, West Virginia; and Rhinelander, Wisconsin. In February 2003, Congress appropriated $20 million for this program for fiscal year 2003.

The Department solicited proposals from interested communities on April 29. Proposals were due June 30 and are being reviewed.

OVERSEAS REPAIR FACILITIES

Question. The Administrator has been petitioned by the Transportation Trades

Department of the AFL–CIO and its member unions for an immediate suspension

of repairs performed on U.S. aircraft at overseas maintenance facilities. The petition

cites potential threats to safety and security as well as lax government oversight.

Do you have plans to either suspend these repairs or more fully study this issue

in the near future? Would you support Federal legislation?

Answer. The Federal Aviation Administration (FAA) agrees that our national security posture was dramatically altered from the tragic events of September 11,

2001. All transportation agencies collectively identified ways to improve their security plans and immediately set about incorporating changes necessary to strengthen

those deficient areas. The Transportation Security Administration (TSA) is beginning to study security requirements for both foreign and domestic repair stations.

The FAA will support and work with the Homeland Security Department’s TSA in

this area.

There are no plans to revoke any foreign repair station certificates. The AFL–CIO

requested that FAA revoke foreign repair station certificates. This would greatly reduce the availability of certified repair stations and severely affect the aviation industry. Under the proposed AFL-CIO scenario the only option for air carriers, both

foreign and domestic, operating U.S. registered aircraft would be to have mainte-
174

nance performed in the United States by domestic repair stations. This would set

up a chain of events that would create scheduling difficulties and reduce the number of revenue-producing flights.

The FAA would not support additional Federal legislation in these areas. The

FAA currently has the authority to perform surveillance, oversight, and enforcements as appropriate on foreign repair stations.

SUBCOMMITTEE RECESS

Senator SHELBY. We wish you the best of health and we will recess the subcommittee to the call of the Chair.

Secretary MINETA. Thank you very much, Mr. Chairman.

Senator SHELBY. Thank you.

[Whereupon, at 11:37 a.m., Thursday, May 8, the subcommittee

was recessed, to reconvene subject to the call of the Chair.]
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DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND RELATED AGENCIES APPROPRIATIONS FOR

FISCAL YEAR 2004

TUESDAY, MAY 20, 2003

U.S. SENATE,

SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS,

Washington, DC.

The subcommittee met at 10:11 a.m., in room SD–138, Dirksen

Senate Office Building, Hon. Richard C. Shelby (chairman) presiding.

Present: Senators Shelby, Specter, Murray, and Byrd.

DEPARTMENT OF THE TREASURY

OFFICE OF THE SECRETARY

STATEMENT OF HON. JOHN SNOW, SECRETARY

ACCOMPANIED BY TERESA MULLET RESSEL, ACTING ASSISTANT SECRETARY, MANAGEMENT AND BUDGET

OPENING STATEMENT OF SENATOR RICHARD C. SHELBY

Senator SHELBY. Good morning. The committee will come to

order.

I would like to welcome John Snow, Secretary of the Department

of the Treasury. Thank you, Mr. Secretary, for appearing before the

subcommittee today to discuss the fiscal year 2004 budget request

for the Department of the Treasury. I look forward to learning

about the new leadership you bring to the Department as well as

the resources necessary to carry out the responsibilities at the Department.

The Department of the Treasury has undergone significant

changes since the transfer of the majority of its law enforcement

bureaus and related functions to the newly created Department of

Homeland Security and the Department of Justice. In the midst of

those changes, the Department still maintains the key role in Government as economic policymaker, financial manager, and revenue

collector. That is no small task, especially now as the country seeks

economic recovery, job creation, and comprehensive tax reform and

relief.

The Department has also created a new Bureau, the Alcohol and

Tobacco Tax and Trade Bureau, and also anticipates consolidating

the Office of Inspector General and the Inspector General for Tax
176

Administration. I am interested in learning, Mr. Secretary, more

about those plans.

As the threat of terrorism continues, finding ways to combat

money laundering and other terrorist financing tools is an important role for the Department. It is vital to our ongoing

counterterrorism efforts that we know what resources the Department will need to combat such nefarious activities.

Treasury’s budget request for fiscal year 2004 is $11.408 billion,

which includes $21.9 million for the activities of the Office of Foreign Asset Control, $57.5 million for the Financial Crimes Enforcement Network, and $5.3 million to increase the counterterrorism

activities of the Internal Revenue Service’s (IRS) Criminal Investigations Unit.

These three bureaus within Treasury form part of the backbone

of our ongoing fight against terrorist financing. Recent attacks in

Saudi Arabia, Morocco, and Israel have shown it is important that

we maintain a coordinated focus and provide the necessary resources to ensure that our combined efforts to disrupt terrorism financing are persistent and effective.

Turning an eye toward the more traditional functions of Government, I want to briefly touch on the $10.4 billion request for the

IRS that was discussed at length at a prior subcommittee hearing.

The IRS’ ongoing business system modernization efforts will require $429 million in the year 2004. The subcommittee appreciates

the efforts that continue to go into this massive upgrade that we

hope will improve the speed, timeliness, and accuracy of IRS administration of the tax system.

I am aware, Mr. Secretary, that last year’s efforts encountered

a hiccup of sorts. However, I am interested in hearing how the Department is working with the IRS to get back on track and ensure

that schedule and cost setbacks do not become common occurrences.

While the IRS’ traditional role is to implement and enforce our

tax laws, it has also been charged with administering the Earned

Income Tax Credit. The budget proposes a number of changes to

that program because of the high level of fraud associated with the

program’s administration. Each year, the IRS makes approximately—Mr. Secretary, listen to this number. Each year, the IRS

makes approximately $9 billion in erroneous Earned Income Tax

Credit payments—$9 billion. This is a direct and permanent loss

to American taxpayers because it is virtually impossible to recapture these payments once they have been made.

To implement the EITC Task Force recommendations, the Department is requesting $100 million to address the problems associated with the current program administration that results in overpayments. Eliminating erroneous payments and ensuring the proper administration of this program are certainly goals with which I

completely agree.

In conclusion, Mr. Secretary, I believe this is a straightforward

budget that includes a number of important reforms and efforts at

modernization. I appreciate that it will take time for the Department to adjust to the realignment of offices to the Department of

Homeland Security and the Department of Justice. Mr. Secretary,
177

I am confident that you have the opportunity to emerge stronger

and more focused than ever.

I want to thank you for being here today, and I look forward to

your testimony and the question period.

Senator Murray.

STATEMENT OF SENATOR PATTY MURRAY

Senator MURRAY. Thank you, Mr. Chairman.

I want to welcome Secretary Snow back to the subcommittee.

Over the years, he has testified both in public and private capacities on a variety of transportation issues, and I have to say I am

tempted to ask him about how we can enhance Amtrak’s profitability or how we can improve management of our air traffic control but, rather, I will focus on Treasury issues this morning: the

Earned Income Tax Credit, foreign sales corporations, and the Administration’s plans in Iraq.

Let me start with EITC because I am concerned about the President’s plan to spend $100 million to target low-income families and

possibly deny them this critical tax credit.

The EITC is designed to help the working poor. It is probably the

most targeted means-tested tax benefit in the entire Federal code.

It was started by President Ford, and it was greatly expanded

under President Reagan. While many working families are eligible

to receive it, as many as 25 percent or more of those eligible families do not even apply for it. We should be taking steps to allow

more eligible families to get the help they need, but I think the

President’s proposal goes the other way. It has the potential to

throw many honest eligible families off the rolls by putting a complex paperwork burden on families who are already struggling. It

could also have a chilling effect on many families who may be intimidated upon receiving an official notice from the IRS questioning their eligibility.

We are told the goal is to minimize fraud, and I think we all

agree that is an important and appropriate goal. Tax fraud by any

taxpayer should never be tolerated. It is a disservice to every other

family that works hard and plays by the rules. But I think there

are many unanswered questions about whether the President’s

plan would meet that goal or whether it will end up purging many

families who need it from the program.

I have asked questions about this on a number of occasions, and

I haven’t gotten clear answers, and so I hope Secretary Snow is

prepared to answer questions in detail today.

On the most basic level, I would like to know if targeting the

working poor is the most effective use of $100 million or if there

are other places where we can get more bang for the buck in reducing tax fraud. It is estimated that hundreds of billions of dollars

in tax revenue never come in every year because of tax cheats and

people who underreport their true income. Will the Treasury reap

the greatest benefits by clamping down on the working poor or on

multimillionaires and their tax attorneys who use questionable

means to dodge taxes?

This subcommittee and our companion subcommittee in the

House have not gotten straight answers. The IRS claims this is a

balanced effort, balanced between fighting fraud and boosting par-
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ticipation for eligible families. That sounds good. However, the vast

majority of the $100 million goes to increased enforcement, while

only $13 million goes to increased outreach. That doesn’t sound

very balanced to me.

I would also like to know if the Treasury Department through

the IRS will have a formal public comment period before it publishes the pre-certification rules. Will the Administration evaluate

the impact of its pilot project on working poor families before it expands this initiative to 2 million families nationwide? We have

been told that the Administration plans to require the study, but

we don’t know if the Administration and the subcommittee will

have the results in hand before the initiative is launched. I hope

Secretary Snow will be able to answer those questions this morning.

Another issue that concerns me is the Administration’s support

for repealing the Extraterritorial Income (ETI) Exclusion Act of

2000 in response to a World Trade Organization dispute with the

European Union. ETI, previously known as Foreign Sales Corporation, provides a tax break to U.S. exporters who employ American

workers. ETI creates and sustains jobs for American workers. According to a recent study, exporters that benefit from the ETI may

employ as many as 3.5 million American workers, including more

than 100,000 in Washington State.

I am very concerned that the Administration has thrown up a

white flag on this issue. The Administration’s actions could give the

Europeans a green light to threaten $4 billion in retaliatory tariffs

against American agricultural and manufacturing exports. If we

proceed with the Administration’s white-flag approach, we will give

Europe a tremendous competitive advantage and will hurt American workers.

I have written to the U.S. Trade Representative about this, but

I still have not received a response, and I hope the Secretary will

have more to say about this important economic policy and tax

issue.

Finally, I will ask several questions about U.S. efforts in Iraq. I

am anxious to hear from the Secretary regarding international participation in the effort to rebuild Iraq. We have all seen the news

reports that the effort to rebuild Iraq could cost up to $600 billion

over the next decade. The Administration’s budget request is silent

on these costs, and we have been told there will not be another

supplemental funding request this year. I hope the Secretary can

give the subcommittee and the full Appropriations Committee

greater information about this issue.

I am curious about the Administration’s latest thinking on international participation in the effort to rebuild Iraq. In particular,

what role does the Administration see for the United Nations and

countries that did not join the coalition forces in Iraq? Several Administration officials have given the Appropriations Committee

very general responses to that question. I hope the Secretary will

be more forthcoming with this subcommittee on the Administration’s current position.

Finally, I will have questions for the Secretary regarding the Administration’s views on contracts negotiated by Saddam Hussein’s

regime. I understand there are numerous high-profile examples of
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Saddam’s business dealings, some of which were agreed to with the

specific objective of undermining international economic sanctions

placed on the regime. I believe these contracts should be set aside.

The new Iraqi Government should not be burdened with Saddam’s

business dealings. I hope the Administration agrees with me on

this issue, and I hope we can work together to ensure that no U.S.

taxpayer assistance is ever used to reward Saddam’s business partners, those who actively worked to undermine economic sanctions

on Saddam Hussein.

So, Mr. Secretary, again, I welcome you here today and I look

forward to your testimony and a good dialogue this morning as we

move forward to craft our bill for the coming fiscal year.

Thank you, Mr. Chairman.

Senator SHELBY. Senator Byrd.

Senator BYRD. Mr. Chairman, I thank you and I thank the ranking member for your comments. I will save my time for questions.

Thank you.

Senator SHELBY. Mr. Secretary, we welcome you to the committee. Your written statement will be made part of the record in

its entirety. You may proceed as you wish.

STATEMENT OF SECRETARY JOHN SNOW

Secretary SNOW. Thank you very much, Mr. Chairman, Senator

Murray, Senator Byrd. It is a great pleasure to be here today and

to have this opportunity, with Acting Assistant Secretary Teresa

Ressel, to be with you to discuss the Treasury Department’s fiscal

year 2004 budget request. I will make a brief oral statement and

ask, Mr. Chairman, that my full formal statement be included in

the record.

You hit on the fundamental issue we face in a management

sense in your good opening comments, because it is clear that with

the creation of the Department of Homeland Security, the Treasury

Department has undergone the most significant transformation in

its long history. And the recent divestiture of most of the Treasury’s law enforcement bureaus has created an opportunity—I think

a very important opportunity and one we want to make the most

of—to refocus on our core mission. This core mission would in my

view encompass the following things:

First, creating jobs for economic growth, security, promoting economic security, jobs, and growth. That broad category of things is

something that the Treasury Department I think has to be terribly

focused on.

Another broad category of things that the Department needs to

be focused on is ensuring that the tax system is effectively administered and is fair for all taxpayers.

And, finally, the Treasury Department has a critically important

mission in focusing on fighting the financial war against terrorism.

The budget proposal which we have submitted for fiscal year

2004 totals $11.408 billion. We have provided the committee with

a detailed breakdown and justification for this request. I would like

to take the opportunity here this morning to highlight three areas

of particular importance.

First, going to the primary mission, developing and implementing policies to provide economic security, jobs, and growth for
180

the American people. Of course, this mission is embodied in, among

other things, the President’s plan for Jobs and Growth, which is

pending before both bodies of the Congress. The goals of the Jobs

and Growth plan are to stimulate consumer spending, promote investment by individuals and businesses that will lead to economic

growth and job creation, and deliver critical assistance to unemployed citizens. The fact is we are in a recovery, but it is too slow.

As a result, too many Americans don’t have work.

Second, Treasury is working to ensure that the U.S. tax system

is fair for all Americans. That is a critically important part of what

Treasury is all about. A cornerstone of Treasury’s mission is helping citizens meet their tax responsibilities while maintaining the

fairness of the system and respecting individual taxpayer rights, a

matter that was touched on in the opening statements as well.

Of course, this mission is mainly the responsibility of the Internal Revenue Service (IRS), the biggest single part of the Treasury

Department. IRS is responsible for collecting most of the revenues

of the United States Government.

Thirdly, as is increasingly becoming apparent, I think, and as

you mentioned, Mr. Chairman, in your opening comments, Treasury serves a critical role in fighting the financial war on terrorism.

This work touches on several of Treasury’s core functions and involves many of our jurisdictions, our offices, and our departments.

Treasury implements the financial war on terrorism through a

number of mechanisms, including a new Executive Office of Terrorist Financing and Financial Crime, which will work with the

International Affairs Terrorist Financing Task Force and with the

office devoted to critical infrastructure protection in the Office of

Domestic Finance. So this war on terrorist finance cuts through a

number of different divisions of Treasury.

Finally, I would like to add that the Treasury Department continues to use the five elements of the President’s Management

Agenda as a guide to achieving our key priorities in accomplishing

the Department’s overall mission.

PREPARED STATEMENT

Let me say in closing here that I look forward to working with

you, Mr. Chairman, with members of the committee, and your staff

as we move in fiscal year 2004 to maximize Treasury’s resources

to see that we are doing the best job we can in the interests of the

American people. I am hopeful that together we can work to make

the Department a model of good management and good service to

the American people.

And, with that, I thank you again for the opportunity to be here

and look forward to trying to respond to your questions.

[The statement follows:]

PREPARED STATEMENT OF JOHN SNOW

Chairman Shelby, Ranking Member Murray, and members of the Committee, I

appreciate the opportunity to discuss Treasury’s fiscal year 2004 budget request.

With the creation of the Department of Homeland Security, Treasury has undergone the most significant transformation in its 214-year history. The recent divesti-
181

1The United States Customs Service, the United States Secret Service, the Federal Law Enforcement Training Center, a portion of the Bureau of Alcohol, Tobacco and Firearms, and the

Office of Enforcement.

ture of a majority of Treasury’s law enforcement bureaus and related functions 1 has

provided an opportunity for Treasury to refocus its core missions. Treasury continues to fill a crucial role in economic policy making, international economic development, the financial war on terrorism, tax administration, banking and financial

markets, and the government’s financial management.

The budget proposal for fiscal year 2004 totals $11.408 billion. I am committed

to rooting out ineffective programs and will continue the challenge begun in the fiscal year 2003 budget process for each Treasury bureau to carefully examine their

operations to improve efficiency and effectiveness.

We have provided the Committee with a detailed breakdown and justification for

Treasury’s fiscal year 2004 budget request. I would like to take the opportunity

today to just highlight four areas of focus for fiscal year 2004:

—Providing economic security, jobs, and growth,

—Ensuring the tax system is fair for all through a comprehensive compliance effort,

—Serving a critical role in the financial war against terrorism, and

—Maintaining the integrity of our Nation’s financial systems and safeguarding

our Nation’s currency.

PROVIDING ECONOMIC SECURITY, JOBS, AND GROWTH

Treasury’s primary focus is on developing and implementing policies to provide

economic security, jobs, and growth for the American people. This mission is embodied in the President’s Plan for Jobs and Growth. Its goals are to encourage consumer spending that will continue to boost the economic recovery; promote investment by individuals and businesses that will lead to economic growth and job creation; and deliver critical help to unemployed citizens. The President’s proposal

would: speed up the 2001 tax reductions to increase the pace of the recovery and

job creation; encourage job-creating investment in America’s businesses by ending

the double taxation of dividends and giving small businesses incentives to grow; and

provide help for unemployed Americans, creating new re-employment accounts to

help displaced workers get back on the job.

ENSURING THE TAX SYSTEM IS FAIR FOR ALL THROUGH A COMPREHENSIVE COMPLIANCE

EFFORT

A cornerstone of Treasury’s mission is helping our citizens meet their tax responsibilities, while maintaining the fairness of the tax system for all and respecting

taxpayer rights. This is mainly the responsibility of the Internal Revenue Service,

which collects most of the revenue needed to operate government. This responsibility entails:

—Meeting the annual demands related to processing over 2.6 billion tax-related

documents,

—Sending out over 95 million tax refunds,

—Providing quality service on taxpayer phone calls, email and walk-in assistance

concerning tax law and account-specific questions, and

—Maintaining a balanced and comprehensive enforcement presence.

The fiscal year 2004 budget provides $133 million of new funding to focus resources and staffing toward the most significant areas of non-compliance, resulting

in more examinations of high-income taxpayers and businesses.

Another proposal for fiscal year 2004 permits private collection agencies (PCAs)

to support the IRS’ collection efforts while affording full protection of taxpayer

rights, allowing the IRS to devote resources to more complex enforcement and collection issues. PCAs are currently used by 42 state tax authorities and by other large

federal programs. By eliciting the assistance of PCAs, the IRS should eventually be

able to handle more collection cases at an earlier stage in the process—before the

accounts become stale and non-collectible.

The fiscal year 2004 budget strives to improve the effectiveness of the Earned Income Tax Credit (EITC) program by ensuring that benefits go to those who qualify

for them. The EITC program is aimed at rewarding those who work and helping

families out of poverty. However, in 1999, between 27 and 32 percent of EITC

claims—or between $8.5 billion and $9.9 billion—were paid in error. Congress has

recognized this by providing a separate appropriation that has been used for EITC

enforcement.
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As a result, the fiscal year 2004 budget requests an additional $100 million to

begin a new strategy for improving the EITC program. The IRS will begin to use

an integrated approach to address potential erroneous claims by identifying cases

that have the highest likelihood of error before they are accepted for processing and

before any EITC benefits are paid. A key part of this strategy is to begin certifying

taxpayers for the EITC. The IRS will seek to minimize the burdens on taxpayers

by using existing databases and other sources of information to verify eligibility in

advance. This integrated approach is designed to provide far greater assurance that

EITC payments go to the individuals who qualify for the credit, without sacrificing

the goals of the EITC program.

Fiscal year 2003 and fiscal year 2004 are key transition years for IRS core systems modernization efforts, as the foundation of our Nation’s tax system is beginning to be replaced, building a bridge to provide interactive and improved customer

service. The fiscal year 2004 budget provides $429 million for the continuation of

the Service’s modernization effort in re-engineering business processes and developing new business systems to replace the antiquated and obsolete system.

In fiscal year 2003 and fiscal year 2004, IRS will roll out the first two phases of

a multi-year effort to replace the main taxpayer database. This new database will

provide accurate tax account answers on a real-time basis, enabling IRS to develop

new approaches to simultaneously improve tax collection and taxpayer assistance.

As a partial result of the transfer of nearly 70 percent of the Office of Inspector

General account to the Department of Homeland Security and the Department of

Justice, the fiscal year 2004 budget proposes a consolidation of the Inspector General services at Treasury, the Office of Inspector General and the Inspector General

for Tax Administration. While retaining those specific functions outlined in the Restructuring and Reform Act of 1998 (RRA98), the combined Inspector General for

Treasury will be responsible for providing oversight to the remaining Treasury bureaus.

SERVING A CRITICAL ROLE IN THE FINANCIAL WAR AGAINST TERRORISM

The campaign to stop the financing of terrorism is a top priority for this Administration and this Department. Treasury continues to play a critical role in this vital

effort. This work touches on several of Treasury’s core functions, and involves many

of our jurisdictions, offices and departments.

Treasury implements these functions through a number of mechanisms. Treasury

serves as Chair of the interagency Policy Coordinating Committee, which is responsible for coordinating the day-to-day development and implementation of policies to

combat terrorist finance. We have also just created an Executive Office of Terrorist

Financing/Financial Crime under the Treasury Deputy Secretary, which will work

with the International Affairs Terrorist Financing Task Force and with the deputation devoted to critical infrastructure protection and strengthening U.S. legal and

regulatory protections against terrorist finance in the Office of Domestic Finance.

Treasury continues to play a critical role in the law enforcement and regulatory

communities’ fight against terrorist finance through the Financial Crimes Enforcement Network (FinCEN), the Office of Foreign Assets Control (OFAC) and the Internal Revenue Service Criminal Investigation Division (IRS–CI). These entities will

report to, and in the case of IRS–CI work collaboratively with, the newly created

Executive Office of Terrorist Financing/Financial Crime.

The Financial Crimes Enforcement Network (FinCEN) fosters interagency and

global cooperation and serves as a link between the law enforcement/intelligence

communities and financial institutions and regulators in fighting domestic and

international financial crime. Their strategic analyses of domestic and worldwide

money laundering developments, trends, and patterns provide U.S. policymakers a

platform on which important decisions concerning terrorist threats can be made.

The fiscal year 2004 budget provides FinCEN an additional $6.8 million for administering additional requirements mandated by the USA PATRIOT Act of 2001 and

subsequent regulatory requirements, including expanding the Bank Secrecy Act

(BSA) to new industries, and accelerates efforts to enable electronic filing of BSA

data more efficiently through the Patriot Act Communications system.

Through the FinCEN, Treasury continues to support the FBI’s Terrorism Financing Operations Section, the Policy Coordinating Committee Action Group on Terrorist Financing, and the National Money Laundering and Terrorist Financing

Strategy of 2002 (formerly the National Money Laundering Strategy).

The Office of Foreign Assets Control administers and enforces the U.S. government’s economic sanctions and embargo programs against targeted foreign governments and groups that pose threats to the national security, foreign policy, or economy of the United States. Since September 2001, Treasury’s Office of Foreign Assets
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Control has frozen over $36 million in terrorist assets in U.S. financial institutions.

OFAC’s designation and asset blocking process has served as the spearhead of the

President’s financial war on terrorism.

The Internal Revenue Service Criminal Investigation (IRS–CI) Division specializes in analyzing complex financial information and determining whether that information is in violation of tax laws, money laundering laws, and the Bank Secrecy

Act. In addition, IRS–CI is heavily involved with the Joint Terrorism Task Forces

(JTTFs), Operation Green Quest and similar partnerships focused on disrupting and

dismantling terrorist financing. In particular, IRS–CI is focused on preventing the

abuse of charities by those who support terrorism.

The coordination of Treasury’s multi-faceted efforts to combat terrorist financing

and other financial crimes, both within the United States and abroad, will be led

by the newly created Executive Office of Terrorist Financing/Financial Crimes. This

Office, in coordination with offices within the Treasury and other government agencies, will work to reduce the risk that the domestic and international financial systems are being misused by criminals and terrorists, and using these same systems

to identify, block and dismantle sources of financial support for terror, money laundering, and other criminal activities.

This new office works side by side with the International Affairs Task Force on

Terrorist Financing (TFTF), which was established shortly after September 11th to

track and monitor countries’ efforts to combat the financing of terrorism and to devise strategies to build an international coalition. The TFTF helps coordinate international designation of terrorists, which has resulted in a global total of $124.9 million in terrorist assets being blocked. The TFTF coordinates Treasury’s anti-terrorist

financing efforts in the international financial institutions, multilateral forums such

as the G–7 and G–20, and bilaterally with other finance ministries.

MAINTAINING THE INTEGRITY OF OUR NATION’S FINANCIAL SYSTEMS AND

SAFEGUARDING OUR NATION’S CURRENCY

In fiscal year 2004, Treasury continues its responsibility to maintain the integrity

of our Nation’s financial systems and safeguard our Nation’s currency.

The Financial Management Service will continue to improve the quality of Federal financial management, fully implement debt management services operations,

modernize Government-wide accounting and reporting infrastructure, and progress

toward an all-electronic Treasury financial system.

The Bureau of the Public Debt will continue its management and support of the

applications and systems used to conduct Federal borrowing and debt accounting operations, re-enforcing its mission of providing high quality customer service to investors in Treasury securities. Public Debt’s customers range from individuals with

small amounts to invest, to the largest financial institutions, as well as the more

than 200 Government trust funds.

The Office of the Comptroller of the Currency serves as the Administrator of National Banks, chartering new banking institutions only after investigation and due

consideration of charter applications and supervising existing national banks

through the promulgation of rules and regulations for the guidance of national

banks and bank directors.

The Office of Thrift Supervision charters, regulates and examines Federal thrifts,

cooperates in the examination and supervision of State-chartered thrifts and reviews

applications of State-chartered thrifts for conversion to Federal thrifts. They also review applications for the establishment of branch offices.

The activities of the United States Mint and the Bureau of Engraving and Printing are vital to the health of our Nation’s economy. These agencies share the responsibility for ensuring that sufficient volumes of coin and currency are consistently

available to carry out financial transactions in our economy. They are also responsible for manufacturing cash products that not only foster domestic pride, but also

promote respect and confidence in the world’s most accepted currency.

The United States Mint receives no appropriation and, under its Public Enterprise

Fund, operates in a business-like fashion that enables it to respond to the needs of

retail commerce. In addition to producing a reliable supply of circulating coinage—

including the newly designed coins of the 50 State Quarters® Program—the United

States Mint will continue to fulfill its mission to produce the Nation’s commemorative coins, medals, bullion coins, and other numismatic items, as well as its mission

to protect the Nation’s precious metals and other assets at Fort Knox and at other

United States Mint facilities.

The Bureau of Engraving and Printing is in the process of redesigning our Nation’s paper currency to counter the trend of computer generated counterfeiting.

Building on past security features, the new design, known as NexGen, may begin
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circulation in the $20 note as early as fall 2003, with the $50 and $100 notes to

follow 12 to 18 months later.

FOUNDATION FOR SUCCESS—THE PRESIDENT’S MANAGEMENT AGENDA

We continue to use the five elements of the President’s Management Agenda as

a guide to achieving Treasury’s key priorities, and accomplishing the overall mission

and goals of the Department.

For fiscal year 2002 and 2003, many of Treasury’s accomplishments in implementing the President’s Management Agenda were in the area of expanded electronic government. Specific efforts included:

—The Internal Revenue Service has made significant progress towards achieving

the Congressional goal of having 80 percent of all tax and information returns

filed electronically by 2007. In fact, as of May 9, nearly 43 percent of all returns

were filed electronically. During 2002, IRS partnered with the Free File Alliance, a consortium of private sector companies, to provide free Internet filing

of 2002 Federal tax forms for most taxpayers. IRS has also provided

functionality to allow taxpayers to check the status of their refund on the web.

—In fiscal year 2002, the Financial Management Service issued 73 percent of all

payments (666 million of 919 million) by electronic funds transfer. FMS also collected 79 percent ($1.8 trillion of $2.27 trillion) of all federal receipts electronically.

—In 2002, the Bureau of Public Debt introduced the Treasury Direct system, by

which retail investors can purchase electronic Series I inflation-indexed savings

bonds. This is the first step toward the Bureau’s goal to convert all savings

bond holdings to paperless form.

Treasury has also set the standard as the best in the government for improved

financial performance, with all of its bureaus now closing their financial statements

within 3 days after the close of each month and issuing audited fiscal year 2002

consolidated financial statements within 45 days after the end of each year.

CONCLUSION

Mr. Chairman, while I have served as Treasury Secretary for only a short time,

I have already been deeply impressed by the intelligence, professionalism and dedication of the people with whom I have worked. This is especially true during these

challenging times.

I look forward to working with you, Mr. Chairman, as well as members of the

Committee and your staff, as we move into fiscal year 2004 to maximize Treasury’s

resources in the best interest of our country. I am hopeful that together we can

work to make this Department a model for management and service to the American people.

Thank you again for the opportunity to present the Department’s budget today.

I would be pleased to answer your questions.

Senator SHELBY. Thank you, Mr. Secretary.

RESTRUCTURING TREASURY

Mr. Secretary, you are a new Secretary, relatively new—not new

to Washington, though—at a Department that has undergone substantial institutional change since passage of the Homeland Security Department. With the transfer of the majority of Treasury’s

law enforcement missions, how has the Department reprioritized

its other functions to better focus on its core missions? And how is

that focus translating into the budget request and the DO modernization study?

Secretary SNOW. The restructuring of the Treasury Department

as a result of the creation of the Department of Homeland Security

and the transfer of so many of our enforcement functions has

changed the Department in some fundamental ways, and those

changes are reflected in our budget, Mr. Chairman. We have lost

over 30,000 people, so we are a smaller Department. We have reduced the budget by over $3.5 billion. And while the Department

is smaller as a result of the Homeland Security transfers and the
185

transfer to Justice of a part of our functions, I think we are more

focused. I think we have the ability because of this restructuring

to put more concentrated effort on economic policy, which I think

is a core part of what the Department does. That is really the central mission, as I see it.

Secondarily, of course, the direct responsibilities of the IRS bulk

are much greater now. This will give me much more opportunity

to focus on the effectiveness and fairness of IRS implementation.

Finally, terrorist finance, I see that as the third major area. I

think our budget this year, Mr. Chairman, reflects those priorities

very much.

Senator SHELBY. Mr. Secretary, I know you have lost a number

of employees to Homeland Security, but you still have thousands

of employees. Roughly, how many do you have?

Secretary SNOW. Well, we have a little over 100,000 employees,

most of whom are in the IRS. The IRS is about 90 percent, I would

say, of the people in the Department today.

PRESIDENT’S TAX PACKAGE

Senator SHELBY. I want to ask you a number of questions. The

President’s tax package included a proposal to eliminate the dividend tax, and the Senate followed suit by including a short-term

elimination. What we have done, I think, overall has made investment a better choice for all Americans.

Mr. Secretary, if investment is critical to our economy, which I

think we both believe it is, does it make any sense to penalize investment with an unnecessary tax like the dividend tax?

Secretary SNOW. Well, not in my view.

Senator SHELBY. Not in mine either.

Secretary SNOW. I am a strong advocate of lowering the taxes on

dividends.

Senator SHELBY. How does repealing the dividend tax help to restore investor confidence in our securities markets, which we desperately need to do? And what effect does it have on the ability of

individuals to rationalize risk in the markets? And, lastly, what effect will that have on corporate governance? Because on the Banking Committee we have had testimony that that could change the

way a lot of companies operate.

Secretary SNOW. I think the dividend proposal is one of the most

far-reaching and significant in recent tax policy because it will

lower the cost of using equity capital. Today, the Tax Code is tilted

because of the lower cost of debt capital towards greater reliance

on debt capital. As a result, the debt-to-equity ratios in American

companies are higher than they otherwise would be. So a first effect of the proposal would be to lower the cost of equity capital, encourage greater use of equity capital, and, thus, change the debtto-equity ratios to be more conservative.

One major benefit of that is more conservative debt-to-equity ratios makes our firms less vulnerable, less stretched, during periods

of economic downturn.

Senator SHELBY. It makes them stronger in a way, doesn’t it?

Secretary SNOW. It does, Mr. Chairman.
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EARNED INCOME TAX CREDIT

Senator SHELBY. I just want to get into the Earned Income Tax

Credit for just a minute. The earned income tax credit compliance

effort has experienced problems since its inception. We know that.

I am interested in making sure that the initiative works properly.

We want to make sure that it works for the people that it was intended to help, but I see no rationale for not pushing reform to

eliminate the errors in payments to people who don’t qualify or if

there is an overlapping qualification, you know, a double hit, because if we are going to have a program such as the Earned Income

Tax Credit, it ought to be run right. And $9 billion, perhaps more,

erroneous payments, there is no excuse for that in any situation,

and I want to make sure that you have the money to put the software together or whatever you have to have to run this program

right for the people who are receiving it but right for the taxpayers

who are paying for it.

Secretary SNOW. Well, I appreciate that very much, and the

numbers you cited in your opening statement are the very numbers

that look to us to be about right; misapplication of funds are roughly one-third of the whole program.

But this is not an effort to do anything other than make sure

that the benefits are made available to the right people and made

available in a way that doesn’t have us coming back with postaudit assessments and after-the-fact reviews and withholdings.

Senator SHELBY. If there are people out there, as Senator Murray mentioned in her opening statement, that aren’t getting it but

would qualify for it, reaching out to them and letting them know

about it would make sense. You could pay for that additional 25

percent of people who are not getting it, as I heard in her testimony, by eliminating the mistakes and the fraud in the program.

Secretary SNOW. Mr. Chairman, that is our approach: to avoid

what must appear to many people to be after-the-fact harassment,

because we got it wrong in the first place.

I look at this in a very straightforward way: Get it right the first

time, reduce the errors, and the system will function much better.

People will have much more confidence in it if we get the criteria

set right.

Senator SHELBY. I think this should be one of your top priorities.

I hope it will be. That kind of money, it makes no sense to waste.

Secretary SNOW. Right.

EXECUTIVE OFFICE FOR TERRORIST FINANCING AND FINANCIAL

CRIMES

Senator SHELBY. Mr. Secretary, what is the mission of the newly

created Executive Office of Terrorist Financing and Financial

Crimes?

Secretary SNOW. This is to give us, Mr. Chairman, a more coherent and stronger point of attack on financial crimes, money laundering, and those sorts of things. We think that this new office will

be organized to carry on these activities with more focus and be

more effective.

Senator SHELBY. How does this interface with the other bureaus

within Treasury that are tasked with similar missions?
187

Secretary SNOW. There is a close coordination between the Office

of Foreign Asset Control (OFAC), which deals with the foreign assets and the designation of banks and financial institutions that

are engaged in illicit activities, and the Financial Crimes Enforcement Network (FinCEN). They are coordinated.

Senator SHELBY. OFAC.

Secretary SNOW. OFAC and FinCEN and the IRS Criminal Investigations. It is sort of a matrix, but there is a coordination

among them. And our General Counsel, David Aufhauser, serves as

the sort of quarterback for these functions to make sure they are

all well coordinated.

Senator SHELBY. Mr. Secretary, do you believe that the Department of Homeland Security has taken too much of what you have

to fight financial crimes, investigating other crime? Or do you think

you will have the resources?

Secretary SNOW. Mr. Chairman, I think we have all the tools

that we had before in terms of the enforcement powers—the PATRIOT Act, other legislative tools, and OFAC—that we need. I

think we will need to rely from time to time on other agencies,

though, to do the actual on-the-ground enforcement and maybe

some of the investigative work.

Senator SHELBY. Thank you, Mr. Secretary.

Senator Murray.

EARNED INCOME TAX CREDIT (EITC)

Senator MURRAY. Thank you, Mr. Chairman.

Mr. Secretary, let me go back to the EITC because I have some questions on that. I understand that you are requesting $100 million and 650 FTEs in 2004 to launch this initiative. It is estimated

that 25 percent of eligible families do not participate in this program, and only $13 million of the amount you are requesting is targeted on bringing those eligible families into the program. Your agency has claimed as much as $9 billion in the EITC over- payments annually, but there is likely to be between $10 and $12

billion in payments that would be made if all working poor families

were eligible.

I am curious why your agency is requesting so much additional

funding to eliminate the overpayments and such a paltry additional

amount to address the underpayments.

Secretary SNOW. Senator, we are requesting the funds that we

think are appropriate to put in place the sort of processes that will

address all the problems and address them effectively. The biggest

problem is this criteria problem.

Senator MURRAY. It seems to me there are two problems. There

is the problem in payments that are made that shouldn’t have

been, but there is also the problem in reaching out to the working

families, 25 percent of the eligibles, who are not. Correct?

Secretary SNOW. Right. Let me ask Ms. Ressel, who has been

working this issue very closely, to respond on that.

Ms. RESSEL. I think you are correct that there are two issues,

and it is important to not overlook the first one. If you think about

it in two parts, the first important part is to find eligible recipients.

We have tried to work analytically with the people who are responsible for putting together this package; it is my understanding that
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this is the first year of a 2- or 3-year plan on what we need to do

with EITC.

Analytically, when you look at the investments of the $100 million, the designers of the program tried to invest a certain amount

of money into the infrastructure for the technology to make sure

that the people who were eligible and didn’t have an income problem could be matched through the technology and never have to

audit them again.

Then in parallel, it is my understanding that IRS was trying to

work with the United Way and do an outreach program for military families.

Senator MURRAY. Okay. Let me go into that, because there is

only $13 million for the outreach part, and I want to try and understand, Mr. Secretary, what your strategy is in reaching out to these

working poor families to advertise, in media outlets, I assume it is,

that working poor families are likely to see.

I have a copy with me this morning of CQ Today, which was

from Friday, May 16th. It is Congressional Quarterly’s online daily

newsletter, and it has a nice picture of Senator Nickles on the front

here talking about the dividend tax surviving the Senate. And in

it is an ad on the earned income tax credit.

Now, the CQ, to get it you pay a subscription of $2,430 a year.

I think it is made free to some Capitol Hill offices, but it is mostly

a newsletter that is targeted to lobbying firms and Government relations offices. And I don’t understand how the use of money to advertise in this is going to help outreach to poor families who are

devoting 20 percent of their annual income to subscribe to this.

Ms. RESSEL. We do not know when that happened, but we will

ask the IRS to respond to you. We do know from our briefing in

preparation for today that a number of the agencies included welfare-to-work, Health and Human Services, Annie E. Casey Foundation funds, that we have worked——

Senator MURRAY. Well, is this part of the funds that you are

using for outreach?

Ms. RESSEL. I don’t know. We will find out and get back to you.

Senator MURRAY. Well, if you could tell me precisely how much

taxpayer money has gone into lobbying Congress——

Ms. RESSEL. For that one.

Senator MURRAY [continuing]. As this appears to be, rather than

to outreach of that outreach money, I would like to know the answer to that.

Ms. RESSEL. We will find out.

Senator MURRAY. Okay. Let me also ask about the comment period, because 2 weeks ago IRS testified to our companion subcommittee in the House of Representatives that there would be a

formal public comment period on this new process and draft forms

would be required to be filled out by working poor families. And

that makes sense since the IRS customarily has a public comment

period for any major changes in procedures and forms.

However, we are now told that you may be planning to send out

these forms within a few months and that no formal public comment period has been announced in the Federal Register. So I need

to know, Mr. Secretary, whether the agency is changing their mind,
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if there is going to be a public comment period, and how that will

be done.

Secretary SNOW. Senator, that is really a matter for Mark

Everson, the new Commissioner, to——

Senator MURRAY. Doesn’t your agency determine whether there

is a formal comment period?

Secretary SNOW. Yes, but as I was saying, he will have the lead

on this. At this point, to my knowledge, no decision has been made

about the notice or its publication. The new Commissioner wants

to have a little time on the ground to review the initiative before

he moves forward or we move forward with the notice.

I would say we would expect to have something fairly soon, but

we have not set a date yet.

Senator MURRAY. Will there be a formal comment period? That

is a pretty important issue when we are dealing with thousands of

forms that are going to families that have never been vetted before.

Secretary SNOW. I don’t know that we have reached a conclusion

on that yet. I would want to hear the IRS Commissioner’s recommendation.

Senator MURRAY. Could we get an answer back to the committee

on that, please?

Ms. RESSEL. Sure. We will give you an answer. But I would like

to talk to the IRS Commissioner first.

Senator MURRAY. Okay. I understand.

Well, I will tell you that last month the Acting IRS Commissioner assured me that your agency would be getting a thorough

evaluation of the impact of this new process on EITC participation

before you expand your effort to 2 million working poor households,

and I want to ask again: Will your agency be getting a thorough

evaluation on the impact of this process before we expand it to 2

million households?

Secretary SNOW. I think there is a major effort underway, an

outreach program, to hear from taxpayers and taxpayer groups.

Certainly we will want to draw broadly on taxpayer responses on

this.

Senator MURRAY. Mr. Secretary, what we want to know is

whether there will be information on the impact to the working

families before we broaden this out to 2 million families and have

a complete disaster—or maybe a complete success. Are you going

to look at it first, as we were told originally, or not?

Secretary SNOW. Senator, yes, this matter is being studied pretty

carefully, and I understand there is a pilot program underway

right now.

Senator MURRAY. That was our understanding. There was a pilot

program; we would look at the results of that before we expanded

it to 2 million people. I am concerned now that before we ever look

at the results, determine whether or not there was complete confusion on a sentence or a pause or a question or anything, that we

then send it out to 2 million people and exacerbate a problem that

we could solve by doing a pilot project.

Secretary SNOW. Senator, let me say, we are not going to put this

out until we have great confidence that it will work.
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EXTRATERRITORIAL INCOME (ETI)

Senator MURRAY. Okay. Well, we will be following this very

closely. I agree with you we need to find tax fraud, but I also think

we need to do it correctly; otherwise, we are going to create problems for a subset of people in this country that I don’t think is very

fair.

Let me move to another question. On April 1st, I sent a letter

to the United States Trade Representative Bob Zoellick expressing

my serious concerns regarding the Administration’s support for

simply repealing the Extraterritorial Income Exclusion Act of 2000

in response to a dispute with the European Union. I could have

sent this letter just as easily to you. I know that international tax

policy is part of your Department’s responsibility. And I am very

concerned that the Administration is proposing to leave U.S. exporters and U.S. workers at a severe disadvantage to our foreign

competitors.

The Administration’s position on the FSC/ETI issue is a job killer

for my home State of Washington and the Nation, in my estimation. Given your background and your short tenure in the Administration, I would just like to hear your views on the issues and

find out if the Administration is going to continue to support a full

repeal of the ETI. Or do you have any comments on the various

legislative proposals that are before us on this?

Secretary SNOW. Well, Senator, that is a matter we are beginning to get into with real earnestness. The President has made it

clear that he would like to see legislation this year to deal with the

World Trade Organization (WTO) issue. We are facing sanctions

from WTO, sizable sanctions, unless we show progress on the issue.

We are intent on trying to be helpful in moving a legislative vehicle. The cornerstone of it, though, must be something that is WTOcompliant, and from our point of view, doesn’t prejudice American

businesses. So we——

Senator MURRAY. In your opinion, should we just back off? I am

hearing some of the Administration just say we should just back

off and surrender our export incentives. Is that your opinion?

Secretary SNOW. Senator, I don’t want to offer a premature view

on our position. What I want to do is see legislation that will protect the interests of American businesses and avoid anything that

is prejudicial to American businesses, while getting legislation

through so we are WTO-compliant.

We have tried various things, two or three series of adaptations

to try and get compliance; and they have all been found to be noncompliant. I think this time it is very important that we get compliance. But through our Office of Tax Policy, we are engaged in

a serious and far-reaching set of discussions with American business to make sure we can come up with the very best set of proposals, and until we are a little further down the road with those

discussions and those analyses, I think it would be inappropriate

for me to say what precise form the legislation should take. But we

are getting closer to the point where we are going to have to do

that.

Senator MURRAY. I thank you, Mr. Secretary. I know my time is

up. I just think it is really important that we do not back off and
191

surrender. I hear people saying they don’t want a trade war. Well,

I think it is the Europeans who have declared a trade war on this

country, and I think we need to push back and find a solution because it is so important to so many people who have jobs in this

country and depend on this.

Thank you, Mr. Chairman.

Senator SHELBY. Senator Byrd.

STATEMENT OF SENATOR ROBERT C. BYRD

Senator BYRD. Thank you, Mr. Chairman.

Mr. Snow, we have had very good relations in the past.

Secretary SNOW. Thank you.

Senator BYRD. And I look forward to working with you. I compliment you on being the new Secretary. You follow a line that goes

back to the very beginning of the Republic, and, of course, the first

Secretary was Alexander Hamilton, probably the greatest of all.

And you will recall that he died on July 11, 1904—he died on July

12, 1904—1804, as a result of a duel with Aaron Burr, which took

place the day before, on July 11, at Weehawken, New Jersey. And

he lived through the night with excruciating pain, with his dear

wife and seven little children around him, crying. He died on the

12th. A great Secretary. A great Secretary of the Treasury.

I just recall those things about Hamilton because I once wrote a

paper on the great enigma, Aaron Burr. I won’t go into that at this

point except there was a good side of Aaron Burr. Of course, we

know about the dark side. But there was a good side. He had a

daughter named Theodosia, whom he revered, and, of course, she

idolized her father, Aaron Burr.

PRIVATE COLLECTION AGENCIES

But so much for that. The IRS seemed determine to hire private

debt collection agencies to pursue delinquent taxpayers. Did you

know that the Romans did that also? Yes, the Romans tried that.

And you may recall the latafundia. The latafundia gathered up

farms, and the little farmers in Appenines migrated into the cities

and joined the mob seeking free bread and theaters. Anyhow, it

didn’t work so well with the Romans, nor did the letting out of the

taxes, the tax collectors. You might do well to go back and review

the experiences of the Romans, out of the Roman Republic.

Two pilot projects—now we will get back to our own Republic,

and this is a Republic. Two pilot projects in 1996 and 1997 were

authorized by Congress to test the private collection of tax debt.

The 1996 pilot flopped so badly that the 1997 project was canceled.

Contractors used aggressive collection techniques and failed to protect the security of sensitive taxpayer information.

Even if privacy guarantees are built into the law, the IRS does

not have enough personnel to monitor the work of contractors and

to enforce privacy protections for taxpayers. In an age when private

protections are under assault and identity theft is rising at a headspinning rate, turning the duties of taxpayer collections over to private firms with limited accountability to the American people is

just plain nuts.

If the President’s budget does not request adequate funds, Mr.

Secretary, for the IRS to do what is inherently a governmental job,
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why is the Department not asking this subcommittee for more

money? Why are you risking the privacy rights of the American

taxpayers on a scheme that had already failed when the Department could simply request more money to hire additional IRS personnel to track delinquent taxpayers? So why is the subcommittee

not being asked for more money for that purpose?

Secretary SNOW. Senator, I think the answer is that the Department felt that the resources of these very talented IRS agents could

better be used on the more complex cases than the simpler cases

that involve acknowledged obligations. That is what the private collection people will focus on. The so-called low-hanging fruit of the

system will lead to a better use of the scarce resources of the Internal Revenue Service.

Senator BYRD. So, in essence, you are suggesting, I suppose, that

it is cheaper to contract out those services.

Secretary SNOW. More effective, I think is the way I would put

it, Senator. We have a new Commissioner at the IRS. Actually, he

has come from OMB. Prior to that, he had been in the private sector. Mark Everson——

Senator BYRD. You won’t hold that against him, will you?

Secretary SNOW. No, I won’t. I have talked with Mark about this.

He in a sense is being held by his own petard here because as an

OMB person he helped to structure the budget of the Department

of the Treasury. Now he is going to be forced to live with his own

policies.

But he is convinced, Senator, that the budget that has been requested will allow for more effective enforcement of the Code and

more effective collection of the revenues and be fairer to the taxpayers.

Now, Mark and I have scheduled a weekly meeting. We are going

to continue to review this matter. We are going to continue to be

open-minded and review this private collection activity. Ms. Ressel

has told me about the mistakes that were made in the past that

you have talked about here. If this isn’t going to work, we will be

the first to tell you that it doesn’t work. The experience last time

around was one that we need to benefit from, use to our advantage,

and not make the mistakes of the past.

But, Senator, if we need more resources, I will be the first to tell

you. If this project doesn’t produce results, we will be the first to

tell you as well.

Senator BYRD. The National Treasury Employees Union cites a

cost analysis put together last September by former IRS Commissioner Charles Rossotti, and that analysis said that if the Congress

would appropriate an additional $296 million to hire additional IRS

compliance staff, the agency could collect $9.5 billion in tax debts

annually. That is $32 for every taxpayer dollar spent compared to

$3 for every $1 paid to a debt collection agency.

This is a study performed by the Bush Administration, and if we

are looking for the best value for the American taxpayer, why

should the Administration be advocating a proposal that costs more

and does less to protect the privacy rights of taxpayers?

Secretary SNOW. Senator, Ms. Ressel is much closer to this because she wrestled with these issues in coming up with this budg-
193

et. She is the principal, the CFO of the Department. So, Teresa, I

am going to ask you to give the Senator the response.

Ms. RESSEL. Senator Byrd, your comment about the ratio is correct: Mr. Rossotti had asserted that it was about 30:1 if the revenue collection is done inside the agency——

Senator BYRD. Yes.

Ms. RESSEL [continuing]. And that if you use the collection agencies, that it would be a much different ratio.

My understanding of this proposal is that it will be for the simpler cases. From listening to Commissioner Everson’s testimony before you the week before last was that his big theme was that if

you were to add additional resources to the IRS—and that might

be something that Mark thinks he needs and he will work out with

Secretary Snow for 2005—that they would not be used for this particular issue.

And so it is my understanding that that is the rationale that

they used. It may not make sense at all when you look at the ratios, but no matter how many resources you may add to the IRS

incrementally, there will always be something that they can’t cover.

If you used that logic, then perhaps that is where the Commissioner and the IRS team basically look at this. They look at this

as a very low-end issue relative to covering an item that, even if

you added an additional $1 billion, that they wouldn’t dedicate the

money to this. That is my understanding of the situation and the

way they looked at the resources, sir.

Senator BYRD. Mr. Secretary, my time is up, but I have to say

that I am very, very suspicious of the privatization scheme. It

seems to be stretching pretty much across the board with the Administration. Congress needs to oversee it very, very carefully, and

we will be watching and listening for the record that you intend

to make here and for the information that you will follow up with

to this subcommittee on this subject.

Secretary SNOW. Mr. Chairman, those are fair comments; we will

keep you well advised on this. If it doesn’t pan out the way we hope

it will, we will be the first to acknowledge that. We have to acknowledge that in the past this didn’t work out very well, and

there are some reservations this time. We are hopefully going to

make a success of it, and learn the lessons of the past. But if we

don’t, I commit to you we will acknowledge that.

Senator BYRD. Very well. Thank you, Mr. Secretary.

Senator SHELBY. Senator Specter.

STATEMENT OF SENATOR ARLEN SPECTER

Senator SPECTER. Thank you very much, Mr. Chairman.

Mr. Secretary, welcome to this subcommittee on your first appearance since being sworn in.

Secretary SNOW. Thank you.

ECONOMY

Senator SPECTER. Unanimously approved, that is a pretty good

start with the United States Senate.

Mr. Secretary, we are on the verge, as you know, of passing a

tax cut, and one of the questions which is asked of me continuously

as I travel through my State is the impact on the economy. What
194

is the likelihood that there will be a significant benefit? And we

know that we have a $10 trillion economy. Over a 10-year period

with inflation, it comes to about $140 trillion. The President advocated a $726 billion tax cut. I supported that. The House came in

at $550 billion, the Senate at $350 billion. And I supported the

President because I think it is worth a try. And he has formulated

the plan, and I think we ought to give his leadership a try at what

he has.

There have been a lot of contentions that there is a lot of posturing on all sides, one group playing to its base on one line, et

cetera, and it has been one of the most contentious issues that I

have seen in my tenure in the United States Senate.

Vice President Cheney was on hand to break a 50/50 tie on one

of the amendments, and then he had to sit around for 2 hours

while the managers’ report was structured. This was the first time

I saw a Vice President sit in a Senator’s chair.

Senator Byrd, I have to question—I should have come to you—

whether that was appropriate. Anybody who sits in a Senator’s

chair besides the Senator would get a fast escort by the Sergeantat-Arms out of the chair. A Member of the House was in last week,

sat down, and it was almost as if he was in the electric chair, he

got up so fast when he was prompted.

But I mention the Vice President to demonstrate how close it is.

You are a Ph.D. in economics as well as an L.L.B. and a corporate

executive of great standing, and now Secretary of the Treasury.

What is the best articulation that this tax cut at any figure—at the

$350 billion figure, which it appears to be—will have a significant

impact on lifting up the economy?

TAX CUT

Secretary SNOW. Senator, the economy is in a recovery, but it is

a weak recovery. The tax plan that I hope comes out of a conference soon will, in my view, give the economy a lift for a couple

of reasons:

One, it will put more disposable income in consumers’ pockets.

As people have more money in their pockets, they tend to spend

more.

This has a particularly important effect on small business because so many small businesses pay their taxes through the individual tax return—23 million of them—and those 23 million businesses will become more profitable because of the tax plan. As businesses become more profitable, they become more inclined to make

capital expenditures. Our economy is weak is on the capital expenditure side, yet we have consumers staying pretty strong. We

have a strong housing market. It is the business expenditures for

capital and expansion that have been weak. Small business is the

principal engine. So I would say that more money in people’s pockets and making small business more profitable will lead to more

spending and expansion.

There is also that provision immediately giving small businesses

another $75,000 a year of free cash flow. That will be helpful.

Then I would go to the dividend side and say that is important

as well. To lower the costs on paying out equity capital makes equity capital more attractive, which should help the stock market.
195

We are now an investor society with half of the American households owning equities. A rising stock market will buoy the spirits

of the American consumers and businesses.

I think this plan is well calculated to lift the growth rates of the

economy by as much as one percentage point this year and another

close to one next year, taking us from the sort of anemic 1.6 growth

rates that we have today to growth rates that are up in the mid

3’s. Once we get to the mid 3’s, then we begin to move back up towards a full employment economy.

Senator SPECTER. If the cut had been or were to be $726 billion

instead of $350 billion, what greater percentage increase would

that project?

Secretary SNOW. The way the Congress has structured the provisions in the package, it seems to be moving through both the House

and the Senate. It is front-loaded in the sense that it has a lot of

the impact that the bigger package would but it has a shorter period of time, and there are sunsets, which will have early-year impacts. In fact, in some ways it has been front-loaded to have more

impacts in the early years. So for 2003 and 2004, the way it is

structured, I think in both the House and the Senate, could have

more impact in the early years than the initial package.

Senator SPECTER. So you are saying the $726 billion would not

necessarily have given a greater boost?

Secretary SNOW. I don’t think it would have had a discernibly

greater boost in the early years. I think it would have a greater

boost for economic growth over the full period. Sure, the bigger, the

better, as far as I am concerned, Senator. The way it has been

structured, I think you will get most of the benefits, even though

the numbers have come down. But I think to get the full benefits,

it will be incumbent to come back in a couple of years and move

those dates out. The tax provisions that sunset in 2005, and so on,

I think should be made permanent, or at least added years to

them.

PRIVATIZATION OF TAX COLLECTIONS

Senator SPECTER. Mr. Secretary, I would pick up just for a moment on what Senator Byrd said about privatization of collection.

I opposed an amendment which would have prohibited the Treasury Department from going to private collection agencies because

I think it is a matter that you ought to decide. We ought not to

micromanage your Department on that particular matter. But I

have a concern that a private collection agency may engage in tactics which a governmental agency would not. It is analogous to a

quasi-judicial function. Some private collection agencies do things

which really ought not to be done. They may be within the letter

of the law and sometimes they are not even there; whereas, a governmental agency is going to have a little different perspective, try

to collect debts but do so in a fair way. So I urge you to keep a

close watch on that particular aspect.

I do share a concern with the power of the Federal Government

and the Department of Justice and their Civil Division, and you

have got a lot of lawyers in the Treasury Department, and you are

a lawyer yourself, as some of us are on this panel. There would be

good reason to think you would have enough muscle, skill, and ex-
196

pertise to do the collections. But if you are determined not to, take

a close look at the practices the collection agencies use.

Let me ask as my final question—I am under a minute now— as to the $133 million to expand efforts to enforce fair compliance

among high-income taxpayers and businesses. What do you expect

there?

Secretary SNOW. Senator, this is a matter that I intend to spend

a lot of time on with Mark Everson, the new IRS Commissioner.

What we expect is that high-income people and businesses will be

held to the same tough-minded enforcement standards that the

populace at large is. Over time, the clever tax avoidance schemes

have become more and more complicated, more and more involved,

and require more skilled and dedicated efforts to penetrate them.

This is an effort to make sure we penetrate those clever tax avoidance schemes that are used by corporations and high-income people

in a purposeful way and make sure that they are paying their fair

share of the tax burden as well.

And on your prior point, I am in total agreement with what you

and Senator Byrd said. We are going into the private collection activity wary of the risks, concerned about the potential problems

that you and Senator Byrd alluded to, and committed to doing our

very best to avoiding them. But if they are unavoidable, if they materialize, then we are going to be the first to say this doesn’t work

and this is the wrong way to go.

FLAT TAX

Senator SPECTER. Mr. Secretary, let me ask you a question for

the record, which is an involved question, which I would appreciate

your study and response to, and that is on a flat tax proposal. The

Senate passed a resolution to push ahead with our Finance Committee and our Joint Economics Committee with analysis of a flat

tax. And the model most frequently cited is the Hall-Rabushka

model, two professors at Stanford.

Secretary SNOW. Right.

Senator SPECTER. And I believe the flat tax has never really been

considered. I put a bill in back in the spring of 1995, and others

have proposed it, and I would be interested to see a study—I was

about to say ‘‘a serious study,’’ but I know any study you do will

be serious. And let us respond to this subcommittee with what you

think, because there is an occasion, after all the problems we are

having with the tax cut, and we are nibbling at the edges and barely doing that, it is time we really gave a serious line of analysis.

And I would appreciate it if you would undertake that, Mr. Secretary, for your Department.

Secretary SNOW. We will do that, Senator, and get back to you

on that.

Senator SPECTER. Thank you, Mr. Secretary.

Thank you, Mr. Chairman.

ECONOMY

Senator SHELBY. Mr. Secretary, I want to talk to you a little bit

about the economy. We have the largest economy in the world. I

believe the Japanese is second and the German economy is number

three. Is that correct, sir?
197

Secretary SNOW. That is right, yes, sir.

Senator SHELBY. The Japanese economy is sputtering along.

They have deep problems, as we both know, in the banking sector

that they have not really addressed.

The German economy is the locomotive of Europe, has been and

probably will be. I saw the other day where it had gone into a recession, the numbers. Is that correct, sir?

Secretary SNOW. Yes, Senator, it is. They reported negative

growth rates for two quarters in a row.

Senator SHELBY. What is the status of the Japanese economy? Is

it growing or is it sputtering, but is it growing?

Secretary SNOW. It is growing, but modestly. I have just returned

from meetings with the G–7 and had a bilateral discussion with

Minister Shiokawa, the Finance Minister of Japan. He indicated

that they would have positive growth for their fiscal year, which

begins April 1, but that it would be in all likelihood less than 1

percent.

Senator SHELBY. Our economy seems to be uneven all across the

country. It depends, in my State of Alabama, we have got counties

with 3 percent unemployment, 3.5, 4, and then we have some much

higher.

Secretary SNOW. Right.

Senator SHELBY. But I see that around America.

Secretary SNOW. Yes, I agree. It is uneven.

Senator SHELBY. How do you see our economy growing? We are

in the second quarter of the calendar year now. Will it pick up in

your estimation, in your judgment, remarkably so? And I am not

talking about a hot economy. I am talking about a movement toward an economy where people are hiring again, where managers

have confidence that they are going to sell their products and so

forth. Do you think that we will pick up by the fourth quarter of

this year?

Secretary SNOW. Senator, I think we are in a recovery with many

elements of a stronger recovery in place: low interest rates and

high productivity, evidence in the first quarter that corporate profitability is returning, and of a very good housing market, which has

helped offset some of the adverse effects of the stock market.

Senator SHELBY. Without the housing market, without low inflation and low interest rates, the economy wouldn’t be where it is

today, would it?

Secretary SNOW. Absolutely. Those have been keys to our success, and the consumer who has stayed in the game continues to

be quite engaged in spending money.

I think, Senator, that the elements are there for a good recovery

in the second half. I think the tax plan, if it gets adopted here soon,

will be a real plus and will add to the growth rates. I would look

to growth rates in the fourth quarter getting back up towards

where they should be.

Senator SHELBY. Two and a half percent?

Secretary SNOW. Two and a half to 3 percent could well be the

number.

Senator SHELBY. A 2.5 percent growth rate, although we would

like it higher, would be an improvement.
198

Secretary SNOW. A very marked improvement—that is that 1

percent pick up that I said I think is in the cards for us.

Senator SHELBY. I saw where the 10-year bond, I believe, closed

yesterday at 3.50?

Secretary SNOW. Lowest in 40 or 45 years.

Senator SHELBY. Now, that bodes well for people who are refinancing their home, their businesses, and so forth, does it not?

Secretary SNOW. It absolutely does. Therefore, if we can get these

low interest rates and some pickup in aggregate demand, I think

the economy could begin to make a nice, strong recovery. I would

also mention, Mr. Chairman, the fact that corporate America,

which in the late 1990s was expanding a lot, growing, merging, and

so on——

Senator SHELBY. Created a lot of capacity.

Secretary SNOW. Created a lot of excess capacity, and we have

excess capacity hanging over a number of industries today. We

have corporate America leaning out its costs and becoming much

more productive, learning to do more with less. That is hurting us

on the employment numbers. But when the aggregate demand

picks up, I think our corporate sector is poised to have much higher

profitability, and as they get higher profitability, then I think we

are going to see the expansions begin.

Senator SHELBY. Mr. Secretary, we have talked about this before,

with another hat on, as Chair of the Banking Committee. We are

very concerned about investor confidence, the erosion of investor

confidence in our capital markets.

Secretary SNOW. Right.

Senator SHELBY. We have a new SEC Chairman, Bill Donaldson,

that I have great confidence in at this point in time. But I don’t

see the investor confidence returning to the marketplace yet, yet

we know that approximately 100 million Americans, more or less,

are investing, directly and indirectly, in our capital markets—

bonds, stocks, and so forth, through pension funds, through 401(k)’s

and everything else.

If people don’t have confidence in the corporate sector, in our accounting profession and so forth, how do you turn that around?

Secretary SNOW. Senator, I think that corporate behaviors are

changing in a very positive way. With your work on the Banking

Committee, and the new legislation that came through there in the

wake of the corporate scandals—the changes in the New York

Stock Exchange and in Nasdaq rules—the fact is that virtually

every corporation in America has gone through a self-analysis to

determine whether it is living to the highest standards of corporate

governance.

I think the corporate sector is getting its own house in order.

That needs to continue with the corporate sector taking the responsibility for making sure its conduct is of the highest order.

Senator SHELBY. That honesty and ethics matter, right?

Secretary SNOW. That honesty and ethics are at the core of

things. I would add a thought on the dividend proposal. If something like the President’s dividend proposal is adopted and we go

to zero tax on dividends, I think it would have far-reaching effects

on corporate behavior.

Senator SHELBY. I asked you that question earlier.
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Secretary SNOW. You did, and I am going to get back to it now.

Companies that pay dividends have to earn cash, they can’t pay

dividends through financial manipulation. They have got to do it

the old-fashioned way. We still have laws against counterfeiting.

What will happen in a world in which dividends aren’t taxed the

way they are today is that companies will pay more dividends. As

the investors see companies pay more dividends, they are going to

reward dividend-paying companies. That will encourage companies

to do the right things: to focus on free cash flow, to manage their

businesses for the investors so they can pay dividends, and then

dividends will become a much bigger part of the story of corporate

America.

As that happens, I think it will go a long way to restoring confidence in corporate behaviors. I think it could lead, Mr. Chairman,

to a dramatic change in corporate behavior.

Senator SHELBY. And the way people look at stocks, right?

Secretary SNOW. And then the way people look at stocks, exactly.

ACCOUNTING PROFESSION AND CAPITALISM

Senator SHELBY. How important, Mr. Secretary, is the accounting profession to all of us, the capital markets, the publicly traded

stocks? How important?

Secretary SNOW. They are the bedrock foundation of our confidence and trust, and capitalism really rests on trust. Investors

can’t dig into the numbers. They have got to trust the people who

do the numbers. Trust is absolutely at the center of a well-functioning market economy. There is a huge responsibility that the accounting profession has as the guardian of the numbers, the

custodians of that fundamental trust.

Senator SHELBY. And once it is lost, it is hard to get back.

Secretary SNOW. Senator, that is what we are experiencing

today. One reason I think our markets are suffering today, and are

so much less buoyant, is that trust has been eroded. It takes time

to build back trust. What you have done in the Congress I think

is very helpful. What the Securities and Exchange Commission

(SEC) is doing under Chairman Donaldson is very helpful. I think

now what the corporate sector is doing and what the oversight

board will do will help restore trust.

But I think we need to be clear that trust has really been put

in peril, been jeopardized. I am convinced one of the reasons this

economy isn’t performing better is just that. In fact, in Europe, the

G–7 Ministers have some of these same problems in their corporate

sector. Now they are beginning to look at what you did in the

Banking Committee and say we need rules on corporate governance

like those rules to restore trust, to create a foundation of trust.

GLOBAL ECONOMIES

Senator SHELBY. Secretary, lastly, for this round, if the Japanese

economy is sputtering along, the German economy is in recession,

and we are so interdependent on trade both ways, if they continue

to sputter, that has an effect on us. How do you view their economies—I know you look at it; you have to—to be picking up? Or

would you rather save that?
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Secretary SNOW. No, I would like to answer that. One of the

themes that I have been taking to the G–7 countries is the need

for our interdependence. Our prosperity depends on yours, and

yours depends on ours. We are working hard to get the American

economy to grow faster, and you need to grow faster, too. Your

growth rates are even lower than ours. Your growth rates are

about half of ours and your productivity rates are much lower.

Can’t we come together in a consensus that promoting economic

growth is in all of our interests?

I am pleased to say, that in Germany, the Schroeder administration is now pushing some major tax reforms. In France they are

pushing some significant pension reforms. In Japan, of course,

banking reforms are a major theme and deregulation of some of

their retail and other things. It is more than monetary and fiscal

policy, as important as they are. Well-functioning economies also

look at the microeconomic characteristics and create open and free

flow of resources and make sure that things like their pension

plans don’t exact too large a burden on the total fiscal situation of

the country.

I am encouraged that Germany, Japan, and France are taking

seriously this need for growth and are addressing these fundamental problems. But they are looking to us, too, Mr. Chairman.

Senator SHELBY. But isn’t the U.K. economy one of the best in

Europe?

Secretary SNOW. The U.K. economy is probably the best major

economy. Canada continues to perform pretty well. But as you said,

Japan is viewed as the engine of Asia and Germany as the engine

of Europe, and they are both sputtering.

Senator SHELBY. Thank you.

Senator Murray.

ECONOMIC SANCTIONS AGAINST IRAQ

Senator MURRAY. Mr. Secretary, Iraq has been under international economic sanctions now for more than a decade. The sanctions have stopped numerous business deals from going forward.

These business deals were negotiated by Saddam Hussein’s government, and some of these deals were blatantly negotiated to undermine the sanctions regime.

Can you tell us what the Administration’s position is on these

business deals that were negotiated by Saddam Hussein’s regime?

And does the Administration believe the new Iraqi Government

should be bound by Saddam Hussein’s commitments?

Secretary SNOW. Well, the Administration is very much of the

view that the sanctions should be lifted, the oil sanctions should be

lifted, and the general sanctions should be lifted to allow the Iraqi

economy to get back on its feet. It is very important, I think, to recognize just how much damage the Saddam regime did to the people

of Iraq. The economic institutions of that country were hollowed

out and significantly undermined during that regime. The standard

of living of the country fell. They had negative growth rates for

nearly two decades. What we are dealing with in Iraq today, in

terms of the rebuilding and reconstruction, are not the results of

a 3-week conflict, but really nearly three decades of mismanagement and misrule.
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We are hopeful that our—and Treasury is very much, Senator,

involved in this effort with a number of advisers over there right

now looking at the question of setting up a central bank. Iraq has

not had a central bank. Their central bank was really an apparatus

of the dictator’s regime. They haven’t had a private banking system—they had a command-and-control banking system.

They don’t have a budget. They haven’t had a budget in any

number of years. They don’t have a set of national account statements, and they have a fairly chaotic currency.

There is an enormous amount of this foundational work to be

done.

Senator MURRAY. But what I specifically wanted to find out from

you was whether the new Iraqi Government should be bound by

Saddam Hussein’s commitments, and let me give you an example.

Saddam Hussein’s government negotiated a deal with Airbus to

purchase five aircraft, and they paid a $10 million deposit to Airbus for that aircraft. And I want to know whether the Administration believes that Iraq’s new government should honor Saddam’s

Airbus purchase. And if not, will the Administration call upon Airbus to return the $10 million to Iraqi people?

Secretary SNOW. Senator, I think that is really a question that

ought to go to the State Department. I am not really knowledgeable enough on the treatment of those issues.

Senator MURRAY. Well, but I understand you were just at the G–

8 conference in Europe, and I am certain you discussed some of

these issues over there. Was there any talk about these commitments that had been made and how to—whether or not we should

be demanding that that money be returned?

Secretary SNOW. There was discussion of the issue of the debt.

There was a discussion of how to deal with the debt going forward.

Iraq has very heavy debt obligations, estimated at $80, $90, to well

over $120 billion in an economy that is, of course, very small relative to that. So those debt levels aren’t sustainable.

The G–7 Ministers decided that we needed to look at that situation. We recognized that debt repayments cannot be expected for

some considerable period of time, and we agreed to take measures

to quantify that debt. There is a group called the Paris Club, which

is the significant creditor nations of the world, that meets in Paris

and has a process for working through sovereign debt that is large

relative to its sustainability. And the Paris Club has been asked to

assess the situation and come up with suggestions on what should

be done with regard to that debt.

The Ministers asked the International Monetary Fund (IMF) to

do an assessment of the non-Paris Club debt—debt that comes

from parts of the world that are not members of the Paris Club—

Central Europe, for instance. The IMF has begun that.

The debt issue was clearly on the table. I think there is a recognition that a lot of that debt is going to have to be reworked one

way or another.

Senator MURRAY. Well, can you answer the question specifically

about contracts that had been made? Airbus is just one example of

a number of business deals that were negotiated by the regime,

and I just think Congress would be very troubled to see U.S. funds
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to reward those who supported Saddam Hussein and worked to undermine economic sanctions.

Secretary SNOW. Senator, yes, I see where you are coming from.

That issue did not come up at the G–7 Ministers conference.

Senator MURRAY. Let me just ask you, can you assure this subcommittee that U.S. funds will not be used to honor business deals

negotiated by Saddam Hussein’s regime?

Secretary SNOW. Senator, I think that really is a question for

Colin Powell, the Secretary of State. I am not in a position to respond. I am sorry.

REBUILDING IRAQ

Senator MURRAY. All right. Well, again, let me go back to some

of the other issues that you must have discussed at the Ministers

meeting. One of the issues of concern to the Appropriations Committee is the anticipated long-term costs of rebuilding Iraq. We

have been told that there will not be another supplemental request

for Iraq this year. And if you could, share with us what the Administration’s latest thinking is on the participation of the United Nations and other countries that did not join the coalition in the Iraqi

rebuilding efforts. And did you discuss this issue with your G–8 colleagues over the weekend?

Secretary SNOW. Well, as I mentioned, we discussed the debt

issue, which is an important issue for the rebuilding of Iraq. We

did discuss a donor conference and set in motion some steps to set

up a donor conference later this year, which I think can be important.

We also talked about the vesting of the assets of the Saddam regime so that they could be made available for the benefit of the

Iraqi people. Assets of Saddam and the regime are found in the

banking system and financial system of a number of countries

around the world. The United States has taken a lead in getting

countries to go after those assets, and in effect, seize those assets,

and then make those assets available to the Iraqi people for the rebuilding process.

The United States vested, pursuant to a Presidential Executive

order, about $1.7 billion of Iraqi assets that had been held in our

banking system. By vesting, I mean we seized them in the name

of the Iraqi people for the rebuilding of Iraq, and for the benefit

of the Iraqi people.

There are maybe another couple of billion dollars around, maybe

more, and we would like to make sure that money is seized and

made available for the benefit of the Iraqi people as well. So that

subject was discussed, and there was broad agreement on the part

of the Ministers that they would pursue that same strategy that we

have pursued.

Senator MURRAY. Can you give this committee any estimate of

what the Administration hopes the international community will

contribute to Iraq?

Secretary SNOW. I don’t think we have an estimate of that. I

think that, just as in Afghanistan, there will be a good response.

I think the response there was close to a billion dollars, $900 million. Iraq is bigger and has bigger problems, so I would hope the

donor fund would be even larger.
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But I think we have to recognize that the principal source of

funding for Iraq for the future will be the Iraqi oil monies. The

sooner that the oil flows can resume, the better. Iraq, unlike Afghanistan, is an inherently very wealthy country if those oil resources are put to good uses.

So I am hopeful that the oil will flow soon and that the volumes

will come up back to the old levels.

Senator MURRAY. The estimates on the oil flow are that it is

going to take a while.

Secretary SNOW. I think it will take some time. I am not an expert on that, but I see no reason from what I know about it that

it can’t get back up to 2.5 million barrels a day.

Senator MURRAY. So in your discussions over the weekend, did

you sense that the donor conference was something that would be

accepted and we would see contributions from——

Secretary SNOW. Yes, I did, very much so.

TAX BILL

Senator MURRAY. Let me ask just one final question, Mr. Chairman, on the Republican tax bill in the Senate that just passed last

week. There is a provision that taxes Americans who are working

overseas by $35 billion, and I supported the Breaux amendment

that tried to strike that provision from the bill because I think that

when American workers go abroad, they are ultimately followed by

exports from the United States to the benefit of our workers who

are here at home. And I wanted to find out from you whether you

supported that $35 billion tax increase on Americans working

abroad. And do you believe this provision will reduce U.S. exports?

Secretary SNOW. Well, that was not in the original proposal that

we sent to the Congress. It found its way into the Senate Finance

bill, I am told, to create an offset. The offset allowed the legislation

to move forward within the $350 billion budget constraint that was

established through negotiations among the various Senators.

Senator MURRAY. I know how it got there. I was just wondering

whether you supported it.

Secretary SNOW. I don’t think we have taken a position on it. We

saw it as an accommodation to make possible the passage of the

legislation. I am told that there is very little prospect of it surviving a conference.

Senator MURRAY. Thank you very much, Mr. Secretary, Mr.

Chairman.

Senator SHELBY. Senator Byrd.

DEFICITS

Senator BYRD. Thank you, Mr. Chairman.

Secretary Snow, during your recent appearance on May 11 on

‘‘Meet the Press,’’ you differentiated between deficits during times

of full employment and deficits during times of under-employment.

You suggested that, depending on the state of the economy, deficits

are sometimes good, sometimes bad.

On the other hand, the Administration has advocated a belief

that tax cuts are good no matter what the state of the economy or

the Federal budget may be.
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In 2001, the Administration said that we need tax cuts during

times of full employment. In 2003, the Administration said we need

tax cuts during times of under-employment. In 2001, it said we

need tax cuts because of budget surpluses. In 2003, it said we need

tax cuts because of budget deficits.

How do you sleep at night?

Under what economic and budget conditions would this Administration not advocate tax cuts?

Secretary SNOW. Well, Senator——

Senator BYRD. I understand we are going to have them every

year now. It is going to be a perennial thing.

Secretary SNOW. I think, Senator, that given the level of the tax

bite in the United States, that a good case can be made for tax

rates that are lower than the tax rates that will result from this

round of tax relief.

Senator BYRD. You are not answering my question.

Secretary SNOW. Well, I am getting to it, though, Senator.

Senator BYRD. It takes a long time.

Secretary SNOW. I don’t mean to do that. The tax rates, as I recall, back in 1992 were about, on the high end, 31 percent; in 1986,

they were 28 percent. I don’t see anything wrong with trying to get

tax rates somewhat lower and somewhat flatter. Obviously, there

is a point at which further lowering of taxes will not serve the longterm interests of the economy, but we are a long way from that,

I think.

Senator BYRD. But in the context of news reports that this Administration will seek new tax cuts every year, are there any circumstances, as far as you can envision, in which the Administration would view tax cuts to be risky or unwise?

Secretary SNOW. Well, Senator, what I think the news talked

about was the fact that some of the tax relief that has been provided will be expiring. Therefore, there will be a need to go back

and address that in the out-years. I think even under the Senate

proposal that is being talked about now, some of those tax reductions will expire in 2005 and 2006. If they are good tax policy—and

I think they are—then it is important to come back and make sure

they are a permanent part of the Tax Code.

So I think clearly there is going to be need for further tax legislation in the years ahead.

Senator BYRD. But not necessarily tax cuts?

Secretary SNOW. Well, the legislation that would deal with those

problems would be legislation to avoid tax increases, because there

would be a series of tax increases going into effect. I am not aware

of any proposals that are currently being contemplated by the Administration for tax cuts. I think we are focusing all our attention

now on getting this package through the Congress.

Senator BYRD. Temporary tax cuts are being advocated by the

President. It results from using reconciliation. But is there any

level of deficit that this Administration would view as excessive?

The Administration has said there is no particular line in the sand

with regard to how high the Nation’s budget deficits can grow before they would begin to worry the Administration. The OMB Director reiterated this belief last January when he said that budget

deficits at 3 percent of GDP were nothing to hyperventilate about.
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Yet the European Union not only requires its member states to

keep their budget deficits below 3 percent of GDP, but the European Union Ministers can punish member states for breaking those

deficit limits. Either the European Union places too much emphasis on budget deficits, or we place too little.

To what level would the deficit have to grow before the Administration would begin to hyperventilate? His word. The person who

used that word, he is not necessarily the author of it, but he is not

going to be around very long.

Secretary SNOW. Well, Senator, obviously, our view is that deficits are unwelcome. We don’t like deficits. We want to get back into

balance, and the sooner the better.

But these deficits are manageable in the sense that they are not

large relative to our earning power. They are not large relative to

our Gross Domestic Product (GDP). Importantly, they are coming

down with time. They will be around 3 percent this year, 3.5, coming down over time to well under 1 percent. I think if the receipts

that would come back into the Treasury were properly accounted

for, you would be in balance within this budget cycle.

Senator BYRD. So you don’t see hyperventilation as something

that is imminent?

Secretary SNOW. No, I don’t, Senator.

Senator BYRD. Too bad. I don’t know what my little granddaughter and great-granddaughters will think about this. But you

and I will probably not be around.

Secretary Snow, in recent weeks, the President has reiterated his

belief that the best way to address the deficit and move toward a

balanced budget is to encourage economic growth. I believe you

said on ‘‘Meet the Press’’ that ideal growth would be 3.5 to 4 percent. But even though the OMB is projecting economic growth for

2004 at a healthy 3.6 percent, budget deficits over $300 billion are

still projected for that year.

Assuming the President’s policies are enacted into law, how fast

does the economy have to grow, would you say, in order to finance

the President’s budget and tax cut proposals?

Secretary SNOW. Senator, if we can get the economy up to the

3.5, 4 percent level, we will put millions of people back to work.

That is, I think, the first priority. We have a fiscal deficit, but we

also have a jobs deficit today. I think the immediate priority is focusing on that jobs deficit—that growth deficit.

I am confident as we get this economy rolling again that the fiscal deficit will come down. It will come down because there will be

more government tax receipts as more workers pay income taxes,

as small businesses expand and pay additional income taxes, and

as corporate profits rise. But we also have to watch spending. It is

a combination of good economic policies to keep the economy strong

that brings in more government receipts and good, reasonable tight

spending controls. If we do that, Senator, I am convinced that we

will have deficits that are modest, which will recede with time, and

will not cause any adverse effects on interest rates or private capital formation.

We can never be indifferent to deficits. They really do count. But

the real concern about deficits is that they will raise interest rates,

crowd out private capital, and slow long-term growth rates. In all
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honesty, Senator, I don’t think that is a current concern. Our interest rates are at their lowest level in 40 or 45 years. But I am with

you 100 percent on the need to be extraordinarily watchful of longterm deficits that get built into the financial fabric of the country.

That we have to avoid at all costs.

DEBT LIMIT

Senator BYRD. My time is past expiring. During your May 11 appearance on ‘‘Meet the Press,’’ Tim Russert asked you if the Congress should vote to lift the debt ceiling before approving any new

tax cuts. And you responded, ‘‘No, no, the two are really different.’’

And yet with a $340 billion to $400 billion deficit projected for the

current fiscal year and an even higher deficit projected for the next

fiscal year, the United States will have to borrow money to pay for

any new tax cuts. That is a budgetary fact, a kind of very, very

plain one.

Unless we raise the debt limits, how can the Treasury Department borrow the money to pay for the President’s proposed tax

cuts?

Secretary SNOW. Well, Senator, lifting the debt ceiling is an immediate and important issue. It is something that I really urge the

Senate to do, and do before the recess because we are running up

against the limits that we have. But my point to Mr. Russert was

that the debt of the United States is the product of a number of

decisions that have been made in prior years having to do with our

entitlement programs, spending programs, and so on. It is not directly connected with this year’s tax proposal.

Senator BYRD. Finally, if I may just end this line of questioning,

and my time is running out. You said during your May 11th appearance on ‘‘Meet the Press’’ that the recession would have been

a lot deeper, it would have been a lot harsher, it would have been

a lot worse but for those 2001 tax reductions that the President

was behind.

Absent a Dickensian ‘‘Ghost of Christmas Future’’ that visits the

Treasury Department in the dead of night and shows you the future of tax cuts past, how does the Administration know what

would have happened had there been no 2001 tax cuts? With so

many unknown variables to which you refer in an $11 trillion economy, how do we know that those tax cuts had any real effect at

all?

Secretary SNOW. Senator, the best answer I can give you is my

own experience in business and seeing where the economy was

heading in the last half of 2000 and in 2001. I will never forget sitting in my office in Richmond, Virginia, when the reports of the

CSX transportation subsidiaries came in: the railroad car loadings

way down, the barge loadings way down, the truck loadings way

down, ocean container shipping way down, the logistic business

way down. I called the heads of these businesses and I said, ‘‘There

must be something wrong, and we need to meet and talk about

this.’’ ‘‘No,’’ they said, ‘‘these are the numbers.’’ They were confirmed in August and they were confirmed in September.

I remember going, Senator Byrd, to a business summit meeting

that the President-elect called with business leaders and economists and academics in Austin, Texas, in January of 2001. There
207

was a roundtable discussion about the economy and the outlook,

and when it was my turn, I was very straightforward. I said, ‘‘Mr.

President, you are inheriting a recession, and it is going to be a

deep one unless action is taken soon to deal with it.’’

So, Senator, I really do feel that the action that the Congress

took in 2001 headed off what could have been a very serious, very

deep-seated recession.

In fact, the industrial sector fell to 20- or 30-year lows in terms

of output levels during that period. It was a deep, deep fall-off in

economic activity, and the industrial sector is still working its way

through those issues.

I recognize what you are saying. Economics isn’t an exact

science, but my own personal experience complements what little

I know about economics to suggest that those 2001 tax reductions

were very important.

Senator BYRD. And helped to lead to gargantuan deficits.

Secretary SNOW. Senator, if the economy hadn’t begun to come

back as it did, government receipts probably would have been even

lower. Government receipts have really been down from where they

were back at the end of the 1990s. There has been a dramatic falloff in government receipts, tied to, I think, primarily the weakening of the economy.

Senator BYRD. Thank you.

TERRORIST FINANCING

Senator SHELBY. Thank you, Senator Byrd.

Mr. Secretary, the Office of Foreign Assets Control (OFAC) is the

Department’s lead agency for identifying terrorist financing and denying terrorist groups access to financial markets. What efforts

have been made to garner the commitment of other nations to participate in this effort, in other words, to get a handle on the terrorist groups’ access to financial markets?

Secretary SNOW. Senator, we are engaged in extensive efforts to

do just that, led primarily under the broad direction of David

Aufhauser who I mentioned earlier. But we have a major outreach

program with dozens and dozens of countries with whom we share

intelligence, coordinate information, and work in a coordinated way

to try and interdict these flows. OFAC has done a number of designations of foreign banks. Once those designations are made, the

bank can no longer have dealings with the United States banking

system. We coordinate those activities with the foreign finance

ministries and enforcement people. There have been a significant

amount of assets seized from bank accounts of people who we suspect of terrorist activities or supporting terrorist activities.

So it is a major and a full-time effort.

Senator SHELBY. The French, are they cooperating?

Secretary SNOW. Yes, Senator——

Senator SHELBY. And to what extent?

Secretary SNOW. We have had discussions with the French about

the need to be part of this. They have committed to using their official banking system and enforcement authorities to trace and track

the illicit funds that finance terrorism.

Actually, Senator, we have good, broad-based support for these

initiatives.
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Senator SHELBY. Does that include Cyprus?

Secretary SNOW. I would have to check the list.

Senator SHELBY. And a lot of the Middle Eastern countries, including Jordan.

Secretary SNOW. Right.

Senator SHELBY. Mr. Secretary, a lot has been written about

seized Iraqi funds. You recently called upon all nations, Mr. Secretary, to join the U.S., and your words were ‘‘find, freeze, and return Iraqi money for the Iraqi people and their future.’’

Given that Saddam Hussein’s wealth has been estimated to be

anywhere between $2 billion and $40 billion, recovering this money

will certainly help in the rebuilding of Iraq. However, given that

a number of countries and private entities around the world have

laid claim to a portion of those assets, if not all, how is your request to return this money to the Iraqi people being received overseas?

Secretary SNOW. I think it depends a lot on who we are talking

to. But among the G–7, it has been very well received, and I will

submit to you for the record an assessment——

Senator SHELBY. We would like that.

Secretary SNOW. Yes, I will submit to you our assessment of the

levels of cooperation and the obstacles we are running into.

Senator SHELBY. Obviously, you are trying to marshal the assets,

right?

Secretary SNOW. Exactly.

Senator SHELBY. So what role are you playing from Treasury in

trying to stabilize the economy there and assist in the rebuilding

of the country? And I will start with the monetary system.

Secretary SNOW. Right. Mr. Chairman, there is a far-reaching effort underway involving the Treasury Department. We have a team

of people over there right now, headed up by Peter McPherson, a

former Deputy Secretary of Treasury and a former head of USAID.

Senator SHELBY. A very able man.

Secretary SNOW. A very able fellow, took a leave of absence from

Michigan State University where he is the president. He has assembled a good team of people from the Treasury Department. We

have also asked the IMF for assistance on these monetary and financial issues, and the World Bank to do assessments of needs as

well.

I think the first task is to get a banking system up and going,

a payment system. Mr. McPherson is in regular contact with us on

those efforts: a payment system, a banking system, and a sound

currency.

Senator SHELBY. How is your $20 bill program working?

NEW $20 BILL

Secretary SNOW. That $20 bill program I think is going to be a

great success. It is going to make counterfeiting a lot harder. I was

pleased to be able to unveil that $20 bill here with Chairman

Greenspan a week or so ago. It got a lot of attention. It is really

going to be an advance in our currency.

Senator SHELBY. Are the merchants there accepting it with open

arms in the souks and so forth? That is important.
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U.S. CURRENCY CIRCULATION IN IRAQ

Secretary SNOW. It is. Mr. Chairman, the U.S. dollar is playing

quite a role in the Iraqi world now. The Saddam dinar, which we

hope can be eliminated soon——

Senator SHELBY. Why has it not been eliminated?

Secretary SNOW. Well, because there isn’t an alternative currency yet, but I hope it can be eliminated soon. Mr. McPherson and

his team, with local Iraqi finance advisers, are looking at that

question. Ultimately the currency really ought to be determined by

the Iraqi people. But it would be our view that the sooner they can

end the Saddam dinar, the better.

There are also so-called Swiss dinars in circulation that come

from the north.

Senator SHELBY. How does that work? Are they denominated or

tied to the Swiss franc or what?

Secretary SNOW. No. They took the name because apparently the

person who got the contract was Swiss, although it was a British

company.

Senator SHELBY. That prints the money?

Secretary SNOW. That prints the money. An English company got

the contract to print the money, but the person who negotiated it

was a Swiss, so they called it a Swiss dinar, apparently.

We have the Swiss dinars in circulation, and we have the Saddam dinars, which have depreciated enormously. Their official exchange rate, if you are a member of the Saddam family, was something like 5 or 6 or 7 or 8 to the dollar. Their current market exchange rate is 3,000 to the dollar.

Senator SHELBY. But the fact that they are even still circulating

or have some value is interesting, isn’t it?

Secretary SNOW. Well, as I said, I am not happy about that. I

think the sooner the new currency is put in place, the better. In

the interim, the U.S. dollar is playing an important role. It is found

in lots of shops and is being used quite readily.

ESTABLISHMENT OF A CENTRAL BANK IN IRAQ

Senator SHELBY. Are you going to be involved, directly or indirectly, as the Treasury Secretary in recommending the formation

of a central bank, an independent central bank for Iraq?

Secretary SNOW. Yes, we will.

Senator SHELBY. That will be independent of the political arena?

Secretary SNOW. Yes, yes. In fact, Mr. McPherson and his team,

working with John Taylor, the Under Secretary for International

Affairs, and others in Washington, are giving close attention to the

question of what the new central bank should look like, what a private set of banking institutions would look like, what the national

accounts should look like, what the budget should look like, and

what the currency should look like.

But, ultimately, Mr. Chairman, I think those decisions need to

be made by the Iraqi people. In the interim, we can get these institutions set up and going and, hopefully, create a good, strong financial foundation for the country going forward.
210

Senator SHELBY. Would the strong, financial foundation obviously be predicated on the underlying assets of the country such as

the oil?

Secretary SNOW. Yes, it would. I think the management of the

oil operations of Iraq is absolutely critical to their long-term economic well-being.

Senator SHELBY. Mr. Secretary, I know it will take investment

and modernization of the oil fields, which are vast, huge there, but

some people have been talking about how Iraq could pump 5 or 6

million barrels a day of oil—maybe not yet, but down the road,

after a lot of investment, of course.

Secretary SNOW. Right. Exactly. Well, next to Saudi Arabia——

Senator SHELBY. Second largest oil reserves in the world.

Secretary SNOW. Second largest oil reserves in the world, with

huge potential.

Senator SHELBY. And a relatively small population.

Secretary SNOW. Yes. It is a wealthy country if its resources are

managed well.

Senator SHELBY. And allocated.

Secretary SNOW. And allocated properly.

Senator SHELBY. Senator Murray.

ECONOMY

Senator MURRAY. I don’t have any other questions at this time.

I just want to say I was—I don’t know if I share your rosy scenario

on the economy. My State is really reeling. We have lost 70,000

jobs in the last 2 years. Our unemployment is at over 7 percent.

Our State legislature has a $2.7 billion deficit they don’t know how

they are going to deal with, and one out of nine Washingtonians

don’t have health care today. And I am not sure this tax cut is

going to help too many of the people I represent. So I would love

to say you are right on the rosy economy scenario that you presented to us, but I tell you, I hope this Administration is looking

west because we are really struggling.

Secretary SNOW. Well, Senator, I don’t want to sound too rosy.

I recognize that with our unemployment rate rising, with so many

fewer people working today, we have some serious economic problems to deal with. But I do think the foundations have been put

in place, with low interest rates, no inflation, high productivity,

and lower costs of production for a pretty good recovery once demand comes back. I would dearly love to see those growth numbers

get up to those higher levels that I talked about so that your unemployment rate can come down and the unemployment rate nationally can come down. The clear fact is we are way underperforming

the potential of this economy. The consequence of that is lots of

people’s lives are adversely affected; lots of people who would have

work don’t have work.

Senator MURRAY. I just hope you pay attention to the West because we are hurting.

Secretary SNOW. Thank you. I will do that. Thank you.

Senator SHELBY. Senator Byrd.
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BYRD AMENDMENT

Senator BYRD. Thank you, Mr. Chairman. And thank you for

being so patient and fair. And thank you, Mr. Secretary and Ms.

Ressel.

Well, Mr. Secretary, you know my concerns about what is happening in the steel industry. American steel companies have been

devastated by wave after wave of unfairly subsidized and belowcost foreign steel imports. Just yesterday, I believe it was, these

waves claimed another victim as Weirton Steel filed Chapter 11

bankruptcy protection.

I hope, as everyone does in the northern panhandle of West Virginia, that Weirton emerges from bankruptcy in a stronger, more

competitive position. But two of the programs that the company

may rely on to get back on its feet—namely, the emergency steel

loan guarantee program and the Continued Dumping and Subsidy

Offset Act—have been targeted for elimination by the Administration.

The Administration has sought to eliminate the steel loan guarantee program, rescinding $97 million in available fund from fiscal

year 2003 and requesting zero dollars for fiscal year 2004.

Moreover, the Continued Dumping and Subsidy Offset Act, which

I created in 2000, was found to be in non-compliance with World

Trade Organization rules. That ruling by a WTO panel is shortsighted, wrongheaded, and dumb. When it ruled against the Byrd

amendment, the WTO challenged the right of the United States

Congress to distribute Government funds as the Congress sees fit.

National unemployment figures for April showed manufacturing

jobs continuing to decline. Factory payrolls have fallen for 33 consecutive months. Listen to that. Factory payrolls have fallen for 33

consecutive months. Over 3 years. Many of those industrial jobs

have disappeared forever. We need to take steps now to protect

those jobs that we have left and to encourage new growth in manufacturing, and steel jobs are at the core of this effort.

Now, you know my concerns, as I said. When we met in January,

we talked about the steel industry and how it was important to so

many other sectors of this economy. This Administration continues

to advocate policies that would pull the rug from underneath the

steel industry as it works to restructure again and to regain its

market share. It wants to eliminate the emergency steel loan guarantee program, which I created. Actually, it is giving me a bad

cramp in my leg right now. It got me out of bed this morning, that

cramp in my leg. I wouldn’t be a very good swimmer.

But it wants to eliminate the emergency steel loan guarantee

program. It wants to repeal the Byrd amendment and exempt product after product from the Section 201 tariffs. It seems that the

only thing that American industrial workers can count on receiving

under this Administration is a pink slip.

Now, here is my question. With regard to the Byrd amendment,

last February the President recommended the repeal of the continued dumping and subsidy offset—that is the Byrd amendment—in

his fiscal year 2004 budget request. This is the law with overwhelming bipartisan support—overwhelming bipartisan support

that allows import duties to be distributed to U.S. producers who
212

are injured by unfair trade to help them invest in their companies

and workers.

On May 6th, the U.S. Trade Representative said in its statement

on the Byrd amendment before a WTO arbitrator, ‘‘Unlike other

elements of the budget, the repeal of the Byrd amendment is not

tied to the end of the fiscal year and, in particular, it is not intended to be included in the appropriations act.’’ This recent statement by the U.S. Trade Representative is flatly inconsistent with

the President’s budget request of February 3.

Now, contrary to its earlier proposal, the Administration has

made a 180-degree turn and declared that the repeal of the Byrd

amendment was never intended to be included in an appropriations

bill.

If the Administration’s position is that the Byrd amendment

should not be repealed, why has the Administration not submitted

a budget amendment to the Congress that reverses its earlier recommendation?

Secretary SNOW. Senator, I do not know.

Senator BYRD. That is an honest answer.

Secretary SNOW. Yes. But I will seek to get an answer to that

question for you, quickly.

Senator BYRD. Well, it is my understanding that the Inspector

General of the Department of Homeland Security is completing a

report which will show that the U.S. Customs Service has failed to

collect approximately $90 million under the Byrd amendment. U.S.

law requires the Federal Government to collect those duties, and

yet, reportedly, it has failed to collect $90 million.

Up until a short time ago, that responsibility was part of your

Department. Why has the Customs Service been unable to comply

with these laws enacted to provide legitimate remedies against unfair trade? Why didn’t the Treasury Department pursue those lost

revenues?

Secretary SNOW. Senator, I am not really familiar with this

whole issue. I understand that the study is being completed. Treasury has lost that enforcement responsibility under the transfers to

the Department of Homeland Security. I am not on top of that

issue in a way to be able to give you an informed answer.

Senator BYRD. Well, the Treasury Department retains control of

many of the key provisions of the Tariff Act of 1930, of which my

amendment is a part. With all respect, you are the Administration’s point man on economic and fiscal policy. Everyone else has

been shown the door. The erosion of the Nation’s manufacturing

sector, including steel, is one of the key elements of our economic

weakness. Playing a bureaucratic shell game is simply unacceptable.

As the Administration’s voice on economic policy, would you tell

the committee whether the Administration believes that it is important to provide support to our manufacturing businesses

through this key initiative?

Secretary SNOW. Senator, as you know, I have had a long involvement with steel and served on the board of one of these companies, who very much supported your efforts on behalf of steel, applauded you for doing so. Given that service, I am told that I need

to recuse myself from direct answers to questions like that. But
213

Ms. Ressel will respond for us. Teresa? She didn’t know that was

coming.

Ms. RESSEL. I need to apologize. I was working hard on making

sure that we were correct on the last answer, so I need you to repeat the question. I apologize.

Secretary SNOW. Do we support manufacturing in steel?

Ms. RESSEL. We have to get back to you. I am sorry. I don’t

know.

Senator SHELBY. Mr. Secretary, could you do that for the record?

Secretary SNOW. Yes, we will.

Ms. RESSEL. We do have an answer to your previous question,

sir, about the uncollected antidumping—the $90 million question.

Basically, the original people who were supposed to do that audit

were the Treasury IG, and now that responsibility has been

transitioned to the Homeland Security IG.

It is our understanding that, for example, in 2002, $48 million

of one particular case is under protest. Basically what we have got

is a reconciliation system set up where Treasury’s Inspector General will turn that information over to Clark Kent Ervin, who is

the Acting IG for Homeland. He is doing a complete reconciliation.

We can have those numbers ready for you within a very short period of time. They are closing that out.

I don’t know that you will ultimately get a complete reconciliation this year because Customs is saying that they are not going

to continue to do collection until all of the open issues have been

cleared relative to the protests that the actual importers are eligible to do. That is our understanding of that one. If you want a

briefing or any additional information, we would be happy to provide that, sir.

Senator BYRD. Very well. Mr. Secretary, the subcommittee will

welcome further responses on this matter, and as you have indicated, you will have something further to report to the committee.

Thank you.

Secretary SNOW. Yes, we will, Senator.

Senator BYRD. Thank you, Mr. Chairman.

Senator SHELBY. Thank you, Senator Byrd.

ADDITIONAL COMMITTEE QUESTIONS

Mr. Secretary, I have a number of questions that I would like to

submit to you for the record dealing with your office, the Secretary

of the Treasury, and we would appreciate that they be in promptly.

Secretary SNOW. We would be happy to respond, Mr. Chairman.

Senator SHELBY. Senator Murray, do you have any other questions?

Senator MURRAY. No, Mr. Chairman. Thank you.

[The following questions were not asked at the hearing, but were

submitted to the Department for response subsequent to the hearing:]

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

DEPARTMENTAL OFFICES

Question. The Inspector General and Tax Administration has traditionally been

a watchdog over the IRS—an agency in need of constant oversight. The budget proposes to consolidate this office with the Office of Inspector General (OIG) at the De-
214

partment of Treasury. What benefits will be derived from the proposed consolidation

and what will the impact be if the consolidation does not happen?

Answer. The benefit derived by consolidating the Office of the Inspector General

(OIG) and the Inspector General for Tax Administration (TIGTA) would be a reduction in overall cost of Inspector General operations. In the post Homeland Security

divestiture environment, Treasury incurs duplicative overhead by maintaining both

offices which are being paid by the taxpayers with little added benefit. Thus the impact of not consolidating the offices would be the inefficient use of taxpayer money.

The OIG was established in 1988 and TIGTA was created 10 years later to provide dedicated independent oversight to the Internal Revenue Service and related

entities. Both offices have the following responsibilities:

—Conduct and supervise audits and investigations.

—Provide leadership and coordination.

—Promote economy, efficiency, and effectiveness in programs and operations.

—Prevent and detect fraud and abuse in programs and operations.

—Provide a means for keeping the Secretary and the Congress fully and currently

informed about problems and operations.

Last year, upon the creation of the Department of Homeland Security (DHS) a

significant amount of the OIG’s responsibilities and budget was transferred to DHS

and the Department of Justice (DoJ). This coincided with the transfer of the U.S.

Secret Service, the U.S. Customs Service, and the Federal Law Enforcement Training Center’s move to DHS and most of the bureau of Alcohol, Tobacco and Firearms’

move to DoJ.

Since a substantial portion of OIG was transferred to DHS and DoJ respectively,

it makes good business sense to consolidate the balance of the Office of the Inspector

General with the Office of the Inspector General for Tax Administration, eliminating

duplication by creating a more efficient and effective operation in accordance with

the mission of both offices.

Question. The fiscal year 2003 Treasury bill established a fund for a Treasurywide Financial Statement Audits Program. Why are these funds requested in the

Departmental Offices’ budget rather than the Inspector General’s budget?

Answer. The funds are in the Departmental Offices budget because the Inspector

General looks to the Department or its bureaus to pay for financial statement audits

performed by contractors. That is, the audit costs should be by the entity being audited (i.e., the Department and its bureaus), not by the Inspector General. The Inspector General only funds the audit work it actually performs; much of the audit

work is performed by contractors.

Prior to fiscal year 2003, audit funding for the appropriated Treasury bureaus was

decentralized and funding needs varied from year to year depending on who was

conducting the audit (i.e., IG, GAO, or a private firm). This resulted in contracting

delays and a fragmented approach to the overall financial statement audit. For fiscal year 2003, Treasury obtained the centralized funding, which has greatly alleviated the funding and contracting problems experienced in previous years.

Centralizing the funding and procurement responsibility for these audits has

streamlined the process, consolidated the audit work with fewer contractors, enabled

greater audit efficiencies, and enhanced the timeliness and consistency of awarding

financial statement audit contracts throughout the Department. Further, it has

eliminated audit funding uncertainties we previously experienced from year-to-year

caused by the mid-year shifting of audit funding responsibilities from the General

Accounting Office to the Department and from the Office of Inspector General to the

Department’s bureaus. These enhancements also help the Department to maintain

its leadership role in accelerated financial and performance reporting.

Question. The Office of Foreign Assets Control is the Department’s lead agency

for identifying terrorist financing and denying terrorist groups access to financial

markets. What efforts have been made to garner the commitment of other nations

to participate in this effort?

Answer. Since September 11, 2001, the Office of Foreign Assets Control (OFAC)

has worked with other nations and the United Nations to garner their commitment

to participate in efforts to identify terrorist financing and deny terrorist groups and

their support networks access to financial markets and from having dealings with

persons in U.N. member states. Over the last 2 years, OFAC has led or participated

in more than 20 trips, held bi-lateral meetings with delegations from a dozen countries and representatives from the United Nations and has responded to more than

100 requests for terrorist financing information from more than 50 countries.

OFAC’s effort to garner international support to combat terrorist financing has:

—Encouraged several countries, particularly in the Middle East region, to adopt

new measures and/or strengthen existing legislation to increase regulatory over-
215

sight over charities, other charitable fundraisers and domestic financial institutions in order to prevent their exploitation by terrorist fundraisers.

—Laid the groundwork in several countries for the creation of an OFAC-like administrative sanctions implementing agency and the adoption of new legal authorities to implement administrative freeze and blocking orders pursuant to

U.N. obligations.

—Increased compliance efforts by international banking authorities and assisted

more than 50 nations with implementing and maintaining asset freeze orders

pursuant to U.N. obligations.

—Negotiated international procedures and guidelines which have been adopted by

the G–7 working group on terrorist financing and the U.N. 1267 Committee.

—Provided investigative and analytic assistance to countries in Europe and the

Middle East to pursue known supporters of terrorism and to exploit new leads

to identify and isolate terrorist financiers and financial networks.

—Worked with countries in Europe, Southeast Asia and the Middle East, including Saudi Arabia, to jointly designate terrorists and their support networks.

FINCEN

Question. The USA PATRIOT Act requires FinCEN to implement a number of

regulatory requirements.

What is the current status of the implementation of these various provisions?

Answer. Because the Patriot Act not only requires the issuance of rules, but also

provides new tools for combating new threats as they arise, and establishes ongoing

processes for sharing information, there is no one terminal point for Patriot activities—rather, full utilization of the Patriot Act is an ongoing process (i.e., Sections

311, 314, 361). In terms of reports, FinCEN has issued all the required reports to

date; there are reports due in the future relating to whether there are gaps that

need to be filled (i.e., Section 324). In terms of rules, FinCEN has to complete the

issuance of anti-money laundering program rules, and the final correspondent banking rules.

Question. One of the crucial concepts behind many of these requirements is that

the right people see the right information at the right time to prevent terrorists

from attacking us again. What steps are you taking to ensure that this is indeed

happening and that this vigilance is sustained over the long haul?

Answer. FinCEN is very actively following trends and patterns in the movement

of illicit funds and publishes advisories and reports to alert law enforcement and

the financial and regulatory communities. In addition to the requests FinCEN receives from law enforcement for assistance in researching and analyzing data to

support investigations, it is providing law enforcement with proactive cases.

FinCEN also established a new program under Section 314 of the USA PATRIOT

Act that allows law enforcement to query financial institutions, through FinCEN,

regarding subjects of money laundering or terrorist financing investigations. This

program is providing law enforcement with timely and valuable information about

investigative subjects, as well as providing opportunities for coordinating investigations. Lastly, FinCEN’s Office of Intelligence Liaison (OIL) was established in late

1999, with the goal to identify, through BSA data, clues or leads for law enforcement on possible terrorist-related finances and activities. The analytical products of

this office, since its establishment, have contributed to numerous intelligence and

law enforcement efforts both proactively and in support of investigations already in

progress.

INTERNAL REVENUE SERVICE

Question. The Earned Income Tax Compliance effort has experienced some problems since its inception. What is your suggestion on how to solve this perennial

problem?

Answer. Although the Earned Income Tax Credit (EITC) has been successful in

lifting millions of low-income taxpayers and their children out of poverty, the EITC

program has experienced persistent noncompliance. The IRS attempts to balance enforcement activities with education and outreach programs so that only those taxpayers entitled to the EITC receive it.

The President’s Fiscal Year 2004 Budget requested an additional $100 million to

begin a new strategy for improving the EITC program. The IRS will address potential erroneous claims by identifying cases that have the highest likelihood of error

before they are accepted for processing and before any EITC benefits are paid. A

key part of this strategy is to begin certifying taxpayers in advance for the EITC.

The IRS recently announced additional details and refinements of this initiative.

The initiative will specifically:
216

—reduce the backlog of pending EITC examinations to ensure that eligible taxpayers whose returns are being examined receive their refunds quickly,

—minimize burden and enhance the quality of communications with taxpayers by

improving the existing audit process,

—encourage eligible taxpayers to claim the EITC by increasing outreach efforts

and making the requirements for claiming the credit easier to understand,

—ensure fairness by refocusing compliance efforts on taxpayers who claimed the

credit but were ineligible because their income was too high, and

—pilot a certification effort to substantiate qualifying child residency eligibility for

claimants whose returns are associated with a high risk for error.

Below is a press release from the Commissioner:

Taxpayers to Receive Advance Child Tax Credit This Summer

IR–2003–68, May 28, 2003

(Revised June 30 to change mailing dates for notices to check recipients)

Related Fact Sheet: FS–2003–13

Washington.—Beginning the last week of July, eligible taxpayers who claimed the

Child Tax Credit on their 2002 tax returns will automatically receive an advance

payment of the 2003 increase in this credit, the Treasury Department and Internal

Revenue Service announced today.

Taxpayers will not have to take any action to get this advance payment of up to $400 per qualifying child. The Treasury Department and IRS will perform all the

calculations and automatically mail a notice and a check to each eligible taxpayer.

‘‘The only thing the taxpayer needs to do is cash the check,’’ said Mark W.

Everson, IRS Commissioner. ‘‘If you qualify, we will send you a notice. There’s no

need to call, no need to apply, no need to fill out another form. The IRS will do

all the work. A few days after the notice, you will get the check.’’

The checks—an advance payment of the 2003 increase in the Child Tax Credit—

will be based on the child tax credit claimed on the taxpayer’s 2002 tax return. The

Jobs and Growth Tax Relief Reconciliation Act of 2003 increased the maximum child

tax credit for 2003 to $1,000 per child, up from $600 for tax year 2002. The law

further instructed the Treasury Department to provide the difference—up to $400

per child—as an advance payment to each eligible taxpayer this summer.

The Treasury Department will issue about 25 million of these checks this year,

beginning with three principal mailings on July 25, Aug. 1 and Aug. 8. Taxpayers

who filed returns after April 15—for example, those with automatic extensions—will

receive their advance payments after the IRS processes their returns. They should

not make any change to their 2002 returns or remittances based on an expectation

of an advance payment check.

The IRS will send notices to taxpayers on July 22, July 29 and Aug. 5, informing

them of their advance payment amount. The IRS urges taxpayers to hold on to

these notices for their 2003 tax returns. They will need to take the advance payment into account when determining the amount of their child tax credit on the

2003 tax return.

Taxpayers who are not eligible for the advance payment may still qualify for the

increased child tax credit of up to $1,000 when they file the 2003 tax return next

year. For instance, a taxpayer who did not have a child in 2002, but had one in

2003, would not receive an advance payment but may qualify for the full $1,000

credit on the 2003 tax return.

More information is available in answers to frequently asked questions on the IRS

website at www.irs.gov.

Question. The IRS is planning to use private debt collectors to collect billions of

dollars owed in taxes. What steps will the IRS take to oversee private collectors as

well as safeguard taxpayers’ privacy?

Answer. The IRS would establish an oversight group with responsibility for managing case referrals, monitoring and evaluating PCA performance, monitoring interactions with taxpayers, and reviewing and approving PCA invoices. The oversight

group would be required to monitor a statistically valid number of taxpayer contacts

by each PCA to evaluate taxpayer treatment and adherence to IRS approved procedures. A manual review of PCA activity on taxpayer accounts would be performed

to ensure compliance with approved IRS procedures and overall quality of case handling. A full on-site audit of each PCA by the IRS oversight group would be performed on a regular basis and would be in addition to ongoing quality-control and

taxpayer protection monitoring.

The PCA would be responsible for ensuring that each employee who has access

to taxpayer account information has completed the appropriate background investigation and non-disclosure forms. The PCA would be required to submit verification
217

1 In determining whether to suspend a contract, the IRS would consider the severity and frequency of valid complaints for a PCA (whether related to one or more employees).

of the required background investigation and copies of the non-disclosure forms to

the IRS at least 20 days before the employee is permitted to access taxpayer information. In addition, the IRS would adopt tracking procedures developed during the

1996–1997 pilot program to ensure that no PCA employee would be granted access

to the IRS work site or taxpayer data until he/she successfully completed a satisfactory background determination. These procedures were very successful during the

pilot. The IRS’ oversight of PCAs would be similar in many respects to the IRS’

oversight of its own employees. For example, the IRS audit system logs for indications of improper accesses to taxpayer information. The IRS also performs oversight

of employee work for quality and appropriateness of taxpayer interactions.

PCAs would be required to provide a large amount of information to the IRS, as

well as access to various systems, to facilitate IRS oversight. This would include:

—detailed Operational Management Information Systems (MIS) reports,

—telephone Service Level reports,

—audits of employee access to IRS taxpayer data,

—access to PCA collection system for auditing purposes,

—remote telephone monitoring access to authorized IRS personnel,

—PCA employee tracking information,

—PCA employee quality review monitoring evaluations,

—PCA Operational Plans, and

—PCA Business Continuation Plans.

To make certain the IRS promptly hears, evaluates and addresses taxpayer complaints, a PCA would be required to provide to taxpayers, orally and in writing, information on how to report a complaint with the IRS. Any complaint received by

the IRS from a taxpayer would immediately be provided to the PCA. If a PCA were

to receive a complaint directly from the taxpayer, the PCA would be required to immediately forward the complaint to the IRS.

Upon receipt of a complaint from the IRS or directly from a taxpayer, a PCA

would be required to immediately cease collection activity on the account in question

and provide to the IRS, by the close of business on the following business day, a

copy of its records on the account and any other information relevant to the complaint. The PCA would not be permitted to resume collection activity on the account

until IRS resolved the problem and provided the PCA written authorization to resume work. Failure by the PCA to cease collection activity on the account would result in IRS recalling the account from the PCA and, if appropriate, the termination

of the PCA’s contract.

A PCA also would be required to investigate the complaint and provide a complete

report to the IRS within 10 business days of receiving the complaint. The report

would include a description of all actions taken to resolve the situation and steps

put in place to ensure there are no future occurrences of similar situations.

If a complaint is validated, the PCA would be required to remove the offending

employee from the IRS account and take all necessary steps to ensure the employee

no longer has any access to taxpayer information. In addition, the PCA’s bonus and

inventory would be reduced, and the PCA would be subject to a penalty. The IRS

could choose to suspend all contract activity for the PCA either permanently or until

the IRS has determined, at its discretion, that the PCA had taken appropriate corrective actions to prevent further complaints.1 The IRS’ determination that a complaint was valid would not be subject to review.

If a potential statutory violation is identified, the IRS also would notify the Treasury Inspector General for Tax Administration (TIGTA). TIGTA may investigate the

complaint, depending on the circumstances and seriousness of the complaint. If

TIGTA initiates a formal investigation of the complaint, the PCA would be required

to cooperate fully with the investigation and coordinate its own management efforts

with the IRS and TIGTA. TIGTA would provide a report of its investigation to the

IRS Contracting Officer after concluding the investigation.

Question. A Treasury Inspector General for Tax Administration report states that

IRS deposited some tax refunds into unauthorized bank accounts.

Explain how this mistake could have happened.

Answer. Several factors contributed to the control weaknesses we identified.

—Instructions for completing the United States Individual Income Tax Return

(Form 1040) do not require taxpayers to take any preventive steps.—Specifically,

the instructions do not require taxpayers to void the direct deposit fields if they

do not use the fields (e.g., lining through the direct deposit fields on the tax

return rather than leaving them blank) to ensure the fields cannot be manipulated subsequent to the filing of the tax return. Furthermore, IRS reports indi-
218

cate that approximately 48 percent of paper filed tax returns are prepared on

a computer using tax preparation software packages. When these tax returns

are printed, the direct deposit fields are left blank for those taxpayers who elect

to receive a paper check tax refund. As with the hand-written paper Forms

1040, the direct deposit fields on these tax returns can be altered. —Tax return processing controls are inadequate.—There are no controls in place

to minimize the risk of, or identify potential instances of, employee impropriety

via direct deposit in the areas that receive and open tax returns, review the tax

returns for completeness, and input the information from tax returns into IRS

computers. —Procedures do not provide IRS employees with sufficient guidance.—Procedures

were not developed and distributed to those employees who work in the areas

that receive and open tax returns, review the tax returns for completeness, and

input the information from tax returns into IRS computers informing them of

the need to identify and refer cases with potentially unauthorized direct deposits to the TIGTA Office of Investigations. —When working refund inquiries, IRS employees did not consider the possibility

of this type of employee impropriety.—Employees in those functions that assist

taxpayers who do not receive their refunds were not required to consider the

possibility of employee impropriety when evaluating tax refund inquiries that

involve direct deposits.

Question. How many checks were deposited into these unauthorized accounts?

Answer. TIGTA has identified one case to date whereby an employee altered

paper filed tax returns to divert, via direct deposit to personal bank accounts, approximately $32,600 in tax refunds from multiple taxpayers for 2 tax years. The tax

refunds stolen ranged from $2,252 to $8,133.

This employee worked at a Submission Processing Site. From on or about February 28, 2000, to and including April 28, 2000, and again from on or about February 20, 2001, to and including April 30, 2001, this employee altered tax returns

to include direct deposit account information that was not requested or authorized

by the taxpayers. The purpose of the alterations was to divert the taxpayers’ refunds to bank accounts belonging to and controlled by the employee.

The employee was successfully prosecuted.

Question. What steps has the IRS taken to make sure this does not happen again?

Answer. TIGTA alerted IRS executives on June 25, 2002, to the control weaknesses in the processing of paper filed tax returns that provide opportunities for tax

refunds claimed on paper filed tax returns to be directly deposited to bank accounts

that were not authorized by the taxpayers. As a result of this alert, IRS management added this risk as a reportable condition to the tax processing Annual Assurance Process memorandum. In addition, IRS management implemented a number

of corrective actions including developing and issuing guidance in response to audit

recommendations made during the course of our review.

IRS management agreed with the recommendations presented in our report and

is planning to take corrective action. Specifically, the 2003 instructions for completing Form 1040 will be changed to tell taxpayers to line through the direct deposit fields on the tax return if they are not requesting a direct deposit of a refund

check. In addition, Submission Processing procedures will be changed to instruct

Code and Edit function employees to line through this section if a taxpayer fails to

follow the instructions. Also, the IRS will contact the software developers and request that they modify their programs so that the fields do not appear or cannot

be altered if a taxpayer wishes to receive a paper refund check. These changes will

be effective for Tax Year 2003.

Question. The IRS has an obligation under Title 31 (i.e., compliance and enforcement of non-bank financial institutions). Is the IRS adequately funded for its Title

31 functions and operations and the critical support that the Detroit Computing

Center provides to FinCEN?

Answer. The Small Business/Self-Employed (SB/SE) operating division of IRS is

responsible for the non-bank financial institution (NBFI) compliance examinations

for Title 31. In fiscal year 2003, SB/SE expanded the Anti-Money Laundering (AML)

program to include over 30 AML groups across the country. Significant training resources were expended to ensure that the newly reassigned Revenue Agents (RAs)

were properly trained to conduct the Title 31 compliance examinations and to refer

potential criminal cases to IRS-Criminal Investigation, if warranted. IRS efforts to

incorporate increased compliance responsibility due to the numerous regulations

prompted by the USA Patriot Act more than doubled the number of NBFI compliance examinations conducted during fiscal year 2003. However, the Achieving Balanced Levels of Enforcement (ABLE) initiative under the Fiscal Year 2004 Budget

Submission, if funded, would allow IRS to increase Title 31 compliance examination
219

coverage and enforcement responsibilities. This initiative would provide additional

Revenue Agents to implement selected provisions, i.e., section 352, of the USA PATRIOT Act and to expand overall Title 31 compliance examination coverage given

the increasing focus on money laundering within the related non-bank financial institutions.

The Business Systems Development (BSD) staff at the Detroit Computing Center

(DCC) performs programming and maintenance for the Currency and Banking Retrieval System (CBRS). CBRS is a large database, encompassing all Bank Secrecy

Act (BSA) forms, the CBRS query system, sub-systems, and various other entities.

There is an overall need to retool the CBRS to provide flexibility to meet the increasing complex research and data analysis needs of law enforcement. Treasury,

FinCEN, and IRS are in discussion on the best approaches to this modernization.

Regardless of the future retooling, IRS must keep pace with the new regulations

issued under the USA PATRIOT Act. Form revisions and new forms required by the

USA PATRIOT Act must be added to the current database for immediate use. These

changes may require changes to the magnetic or electronic systems or building new

systems to handle the additional volume.

SUBCOMMITEE RECESS

Senator SHELBY. Mr. Secretary, we appreciate your appearance

here today. We know you are busy, and we appreciate your candor

with the committee and look forward to working with you in the

future.

Secretary SNOW. Thank you very much.

Senator SHELBY. Our meeting is in recess.

[Whereupon, at 12:23 p.m., Tuesday, May 20, the subcommittee

was recessed, to reconvene subject to the call of the Chair.]

(221)

DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND RELATED AGENCIES APPROPRIATIONS FOR

FISCAL YEAR 2004

THURSDAY, MAY 22, 2003

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

The subcommittee met at 10:46 a.m., in room SD–138, Dirksen

Senate Office Building, Hon. Patty Murray presiding.

Present: Senators Campbell, DeWine, and Murray.

DEPARTMENT OF TRANSPORTATION

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION

STATEMENT OF JEFFREY W. RUNGE, M.D., ADMINISTRATOR

OPENING STATEMENT OF SENATOR PATTY MURRAY

Senator MURRAY. Good morning. With the concurrence of the

Chair, I am going to open up this committee hearing this morning.

Welcome to all our guests, and I will do my opening statement.

First of all, I want to commend our Chairman, who I understand

will be here shortly, for once again holding a very special hearing

to focus on our highway safety challenges. I hope we will call this

hearing every year to continue to aggressively monitor the progress

of the Department of Transportation in reducing the number of accidents and fatalities on our highways.

Unfortunately, the news since our last hearing on this topic has

not been good. The latest data shows that for calendar year 2002

at least 42,850 people died on our Nation’s highways. That is the

highest number since 1990 and it represents an increase in the

number of fatalities for the fourth successive year.

Almost 18,000 of these fatalities had their root cause in drunk

driving. That is an increase of 3 percent from just last year and

marks the third year in a row of increases in alcohol-related highway deaths. These statistics show that the Department of Transportation has missed its stated performance goal for highway safety, a goal that it testified to in last year’s hearing.

I think that all of us on this panel will agree that this record is

unacceptable and must be reversed. We know what is required to

reduce death on our highways. We know what law enforcement

methods work and we know what works to change driver behavior.

What we do not know is whether we, as a Nation, have the will
222

to force citizens to stop driving aggressively and to stop driving

drunk. And we do not know yet if the Federal Government has the

will to commit the necessary resources to change that deadly behavior.

When the lives of Americans are threatened by a danger we take

action. We did it after September 11th by dramatically improving

airport security. Drunk and aggressive driving poses another threat

to all Americans and it is one where we can make a real difference

if we are willing to make a commitment.

Each month more than 3,000 people die on our highways. That

is an astounding figure and we can reduce it if we make a commitment. I would like to see the same commitment to highway safety

as we put on airport safety because we can make a difference and

save lives.

Earlier this week the Bush Administration unveiled its

‘‘SAFETEA’’ reauthorization proposal. The administration claims

the bill will double the amount of money spent on safety in comparison to the 6-year period covered by the TEA–21 law.

However, a review of the details of the administration’s proposal

reveals that roughly half of this funding is committed to efforts to

construct safer highways. And while the construction of safer highways unquestionably saves lives, there does not appear to be anywhere near that level of growth committed towards programs designed to change driver behavior.

Last week, I participated with Mothers Against Drunk Driving

in the commemoration of the 15th anniversary of the worst drunk

driving accident in our history. A drunk driver struck a school bus,

killing 24 schoolchildren. I met with a few of the parents of those

victims as well as a student who survived that crash. I am sorry

the entire subcommittee could not participate in that event. I think

it would have served as a stark reminder to all of us that each day

roughly 49 individuals die as a result of drunk driving in this country.

Given these facts, I am concerned that the President’s transportation budget does not adequately address the challenge that we

face. For the second year in a row the budget proposes to cut funding for the impaired driving program in NHTSA’s operations budget. Together, the Chairman and I served to increase rather than

decrease funding for this program in last year’s appropriations bill,

and I hope that we will do the same again this year.

Also, while the administration is proposing a new $50 million initiative to reduce drunk driving in those States with the worst

record, the legislation eliminates $150 million in existing programs

that are targeted on drunk driving.

Moreover, the administration’s new drunk driving grant program

gives little direction to the States on how specifically these funds

ought to be spent. Recently, the GAO reported that NHTSA has not

required much by way of accountability on the part of States in

using Federal funds to actually advance highway safety. I think we

need to be very suspicious of initiatives that seek to attack the

drunk driving problem by sharing revenue with the States with no

strings attached.

I must also point out that the President’s budget, for the second

year in a row, eliminates the funding for the targeted paid adver-
223

tising initiatives that this committee championed. One of those initiatives, the ‘‘Click It or Ticket’’ program, is targeted on improving

seatbelt use. Last year, we started another paid media initiative

entitled ‘‘You Drink, You Drive, You Lose’’. Both of these initiatives

are eliminated in the President’s budget.

I hope here again that we can work together with the other

members of the subcommittee to continue our leadership in this

area whether the administration wants to join us or not.

And finally, I have to say that I am very pleased that Annette

Sandberg, our new Federal Motor Carrier Safety Administrator, is

here with us today. She and I have worked well together in the

past and I look forward to working with you again.

The safety challenges in the motor carrier industry are no different than they are with the average driver. We need to make

sure that truck drivers buckle up, drive safely, and drive responsibly. Ms. Sandberg’s experience as the former chief of Washington

State’s Highway Patrol makes her uniquely qualified to lead the

Federal Motor Carrier Safety Administration.

At this time, I will turn it over to Senator Campbell for an opening statement. And I just would let you know that I have an

amendment up on the floor that I am managing right now. I have

to leave and hope to come back. I do have questions that I will submit for the record if I get caught and cannot return.

PREPARED STATEMENT

But I do think this is a critical hearing. I think the topic of this

discussion is absolutely important and I want to work with all of

you to make sure that we address these important safety issues.

[The statement follows:]

PREPARED STATEMENT OF SENATOR PATTY MURRAY

I commend you, Mr. Chairman for once again holding a special hearing to focus

on our highway safety challenges. I hope we will call this hearing every year to continue to aggressively monitor the progress of the Department of Transportation in

reducing the number of accidents and fatalities on our highways.

Unfortunately the news since our last hearing on this topic has not been good.

The latest data indicate that for calendar year 2002, at least 42,850 people died on

our Nation’s highways. That is the highest number since 1990, and it represents an

increase in the number of fatalities for the fourth successive year. Almost 18,000

of these fatalities had their root cause in drunk driving. That’s an increase of 3 percent from just last year and marks the third year in a row of increases in alcoholrelated highway deaths. These statistics bear show that the Department of Transportation has missed its stated performance goal for highway safety, a goal that it

testified to in last year’s hearing. I think that all of us on this panel would all agree

that this record is unacceptable, and must be reversed.

We know what is required to reduce death on our highways. We know what law

enforcement methods work, and what works to change driver behavior. What we

don’t know is whether we as a Nation have the will to force citizens to stop driving

aggressively and to stop driving drunk. And we don’t yet know if the Federal Government has the will to commit the necessary resources to change that deadly behavior.

When the lives of Americans are threatened by a danger, we take action. We did

it after the tragic events of September 11th by dramatically improving airport security. Drunk and aggressive driving poses another threat to all Americans, and it’s

one where we can make a real difference if we are willing to make a commitment.

Each month, more than 3,000 people die on our highways. That’s an astounding figure, and we can reduce it if we make a commitment. I’d like to see the same commitment on highway safety as we’ve put on airport safety, because we can make

a difference and save lives.
224

Earlier this week, the Bush Administration unveiled its so-called ‘‘SAFETEA’’ Reauthorization proposal. The Administration claims the bill will double the amount

of money spent on safety in comparison to the 6-year period covered by the TEA–

21 law. However, a review of the details of the Administration’s proposal reveals

that roughly half of this funding is committed to efforts to construct safer highways.

While the construction of safer highways unquestionably saves lives, there doesn’t

appear to be anywhere near that level of growth committed toward programs designed to change driver behavior.

Last week, I participated with Mothers Against Drunk Driving in the commemoration of the fifteenth anniversary of the worst drunk driving accident in our history. A drunk driver struck a school bus, killing 24 schoolchildren. I met with the

parents of the victims as well as a student that survived the crash. I am sorry the

entire Subcommittee could not participate in that event. I think it would have

served as a stark reminder to all of us that each day roughly 49 individuals will

die as a result of drunk driving in this country.

Given these facts, I’m concerned that President’s transportation budget does not

adequately address the challenge we face. For the second year in a row, the budget

proposes to cut funding for the impaired driving program in NHTSA’s operation’s

budget. Together Mr. Chairman, you and I served to increase rather than decrease

funding for this program in last year’s Appropriations Bill. I hope we will do the

same again this year. Also, while the Administration is proposing a new $50 million initiative to reduce drunk driving in those States with the worst record, the legislation eliminates $150

million in existing programs that are targeted on drunk driving. Moreover, the Administration’s new drunk driving grant program gives little direction to the States

on how specifically these funds ought to be spent.

Recently the GAO reported that NHTSA has not required much by way of accountability on the part of States in using Federal funds to actually advance highway safety. I think we need to be very suspicious of initiatives that seek to attack

the drunk-driving problem by sharing revenue with the States with no strings attached.

I must also point out that the President’s budget, for the second year in a row,

eliminates the funding for the targeted paid advertising initiatives that this Committee championed. One of those initiative—the ‘‘Click It Or Ticket’’ program—is

targeted on improving seatbelt use. Last year, we started another paid media initiative entitled ‘‘You Drink—You Drive—You Lose.’’ Both of these initiatives are eliminated in the President’s budget. I hope here again we can work together with the

other members of the Subcommittee to continue our leadership in this area whether

the Administration wants to join us or not.

Finally, I am pleased that Annette Sandberg, our new Federal Motor Carrier

Safety Administrator, is here with us today. The safety challenges in the motor carrier industry are no different than they are with the average driver. We need to

make sure that truck drivers buckle up, drive safely and drive responsibly. Ms.

Sandberg’s experience as the former Chief of Washington State’s Highway Patrol

makes her uniquely qualified to lead the motor carrier safety agency.

Thank you Mr. Chairman.

PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY

Senator MURRAY. Senator Shelby has submitted a statement

which he would like included for the record.

[The statement follows:]

PREPARED STATEMENT OF SENATOR RICHARD C. SHELBY

Good Morning. The Subcommittee will come to order. I want to thank each of the

witnesses for being here today to discuss fiscal year 2004 highway safety initiatives.

As we approach Memorial Day, one of the most dangerous weekends for highway

travel, I cannot think of a better time to discuss what I believe is a very important,

yet all too often overlooked issue.

Last year, 43,000 people died on our Nation’s highways and roughly 18,000 of the

deaths were in alcohol-related crashes. Just as troubling is the fact that 4.5 million

people visit the emergency room each year as a result of a motor vehicle accident.

As the leading cause of death in the United States for Americans ages 1 to 35, I

believe that this problem has reached epidemic proportions.

Much like the medical community treats cancer or heart disease, we need to develop a plan to research and enact effective, data driven programs to reduce the

number of highway fatalities.
225

I am struck, however, by the lack of scientific method or comprehensive rational

approach to combating drunk and drugged driving, to increasing seatbelt use in

those demographics that under-perform the national average, or to changing dangerous behavior where we can identify it and isolate it.

Dr. Runge, as a physician you can not possibly subscribe to doing the same thing

for an extended period of time if the patient did not improve—you would discontinue

treatments that didn’t work, prescribe treatments that did work, and try new treatments for conditions that you could identify and diagnose. That is all I am asking

you to do here—identify, diagnose, and treat. We must start saving lives.

This year, the Department of Transportation has declared safety to be its No. 1

priority for its current budget request and for its reauthorization proposal,

SAFETEA as well. Highway deaths have increased every year for the past 4 years

and alcohol-related deaths increased for the third consecutive year, and I agree that

there is no greater priority than reversing these alarming trends.

When I look at this budget proposal, I see no new initiatives that help us improve

our poor highway safety record. The data tells me that what we are doing is not

working, and it is preposterous to believe that we can continue to do the same thing

each year and expect a different result. Too many lives are lost while many States,

with NHTSA’s approval, use their safety grants to use bobble-head dolls, key chains

and air fresheners to get the message out without any results. It is beyond me how

these trinkets are increasing seat belt usage or deterring impaired driving. I support

State flexibility, but trinkets don’t save lives. We must change our course if we expect to reduce the carnage on our Nation’s highways.

The Administration’s goal is to reach a 78 percent usage rate by the end of 2003.

However, the budget proposes nothing specific to further increase usage rates and

despite the remarkable success of the Click It or Ticket mobilizations, NHTSA has

never requested specific funding for the program. It may not be a silver bullet, but

I am not aware of another program that is as effective as these campaigns in increasing seat belt usage. To me, that goal rings hollow unless the budget justification outlines the steps we must take to achieve a 78 percent usage rate. This budget

does not meet that test.

On the other hand, we are making modest improvement in large truck crashes

which continued to decline this year, but much more needs to be done. I think that

the data derived from the large truck crash causation study will provide an important blueprint to guide FMCSA in the future.

The Federal Motor Carrier Safety Administration was granted additional authorities with the enactment of the Motor Carrier Safety Improvement Act. FMCSA has

a major new management challenge at hand to fully implement the new entrant

program, and the first year will be the most difficult in identifying the riskiest operators and monitoring their safety records. I urge FMCSA to work with stakeholders

and State enforcement authorities to coordinate and implement the new entrant

program. I also encourage you to look into the possibility of designating a Federal

tiger team to augment the efforts of the States to investigate the carriers who pose

the greatest risks.

Again, I will say that I am disappointed by what I perceive to be a lack of innovative and creative thinking to allow our government to improve highway safety numbers. I appreciate that the responsibility to make our highways safer does not rest

solely with your two agencies. In fact, everyone who gets behind the wheel shares

some accountability.

Nevertheless, it is important for all agencies within the Department to work together to identify strategies for improvement and implement programs that are effective. If programs have reached a plateau or outlived their usefulness, then we

must create and implement new approaches. We cannot sit idly by and hope that

highway safety will spontaneously improve.

I look forward to hearing the testimony and am hopeful you will provide additional insight that will prove more promising than what I have seen so far.

Senator MURRAY. Senator Campbell?

STATEMENT OF SENATOR BEN NIGHTHORSE CAMPBELL

Senator CAMPBELL [presiding.] Thank you, Madame Chairman.

I will submit my opening statement for the record and just associate myself with your comments.

It is rather ironic that—maybe ironic is not even the proper

word—but we have killed more people on American highways than

we did in Iraq during the same time frame we have been involved
226

in that engagement, and people do not seem to get excited. When

one serviceman tragically loses his life in Iraq, we see it on the

headlines of every newspaper in America. During that same time

frame, as I mentioned, in Iraq, we have lost so many Americans.

I know that we are trying to focus at the State and Federal level

on trying to improve devices in the car. We have done it with seatbelts. We have done it with airbags and a number of other things.

We are certainly trying, by the highway bills we have passed and

the appropriations, to improve the surfaces and the conditions on

which people drive and that is great. But I think that we are really

not doing as good a job as we could on, as Senator Murray said,

on changing the behavior of drivers.

I know some States are taking on, as an example, the use of

cellphones and other distractions that have proven to be distracting

to a point of increased accidents because of their use. And I know

we have dealt with alcohol-related deaths a great deal. And we

have done it, I think, an awful lot through the penalty side of the

equation. To me we are not doing enough on the side of the equation that requires better training and better education to change

that behavior.

So I have about three or four other questions I would also like

to ask, but will yield to Senator DeWine if he has an opening statement and then we will go ahead and take testimony.

Senator DEWINE. I have no opening statement. I will have questions.

Senator CAMPBELL. We welcome Dr. Jeffrey Runge, the Administrator of the National Highway Traffic Safety Administration, Ms.

Annette Sandberg, who I understand used to be a State

Patrolwoman and I was very delighted to hear that. I am sure she

brings a great deal of on-the-ground experience to her job as the

Acting Administrator of the Federal Motor Carriers Safety Administration. Ms. Wendy Hamilton, the President of Mothers Against

Drunk Driving. And finally, to Mr. Chuck Hurley, the Vice President of the National Safety Council and Executive Director of the

Airbag and Seatbelt Safety Campaign.

Why don’t we just start in that range. If Dr. Runge would like

to start. We will take the comments from all of you before we ask

some questions.

STATEMENT OF JEFFREY W. RUNGE, M.D.

Dr. RUNGE. Senator Campbell, Senator DeWine, thank you very

much for a chance to appear this morning, along with my colleagues from the FMCSA and MADD and the National Safety

Council.

This group has spent many hours collaborating on ways to improve highway safety over the years. The fiscal year 2004 budget

request is intended to build on successes we have had in the past,

as well as address growing national safety priorities.

Over the last 35 years, the fatality rate has been reduced on our

Nation’s highways from 5.5 fatalities per 100 million vehicle miles

traveled (VMT) to its present rate of 1.5 per million VMT. This represents significant progress.

Our programs support Secretary Mineta’s departmental goal to

reduce this number to 1.0 by 2008. We have an interim target for
227

2004 of 1.38 fatalities per 100 million VMT. This will be a very

challenging target, based on the current trends.

In order to reach these targets, we need the full cooperation of

our sister agencies in the administration, of Congress, of State legislatures, and indeed, the will of the Nation.

Under our reauthorization bill, we will use our appropriated

grant funds to encourage States to use funds where they can be

most effective, as States must share in the accountability with us.

Our proposed fiscal year 2004 budget of $665 million is performance-based, with clear goals and effectiveness measures, and it emphasizes our five priorities: increasing safety belt use, decreasing

impaired driving, vehicle rollover, vehicle compatibility, and traffic

records and data improvement. I will talk briefly about each priority, but they are interrelated and their solutions, in many ways,

are common.

Safety belt use is our most effective tool in reducing death and

injury on the highways. It cuts the risk of death in a crash in half.

But you have to wear it. The good news is that belt use reached

75 percent last year, which is a record. But the bad news is that

25 percent of Americans involved in a motor vehicle crash who did

not buckle their safety belts resulted in 6,800 preventable deaths

and 170,000 hospitalizable injuries. This failure to wear seatbelts

cost Americans $20 billion, mostly in medical costs and lost productivity.

Our national target for next year is 79 percent belt use. Reaching

that would save 1,000 lives a year and prevent more than 28,000

injuries. If we reach a 90 percent usage, we will see 4,000 more

lives saved every year. This is not a dream. More than 90 percent

belt use has been achieved in California, Washington, Hawaii, and

Puerto Rico. We know what is required for States to achieve these

high levels—primary belt laws, strict enforcement, public education, using paid media and earned media, and our high-profile

law-enforcement programs, such as ‘‘Click It or Ticket’’.

We conducted a highly effective ‘‘Click It or Ticket’’ program in

eight southeastern States in 2001. In 2002, we conducted a similar

campaign in 30 States, involving media saturation and highly visible enforcement. In the 10 States that completely adopted our

model, belt use increased an average of 9 percentage points, with

Vermont experiencing a 19 percentage point increase and West Virginia a 15 percentage point increase.

We are now in the middle of our 2003 ‘‘Click It or Ticket’’ national campaign. With the help of this committee, we have national

‘‘Click It or Ticket’’ advertising going on as we speak. This year, 43

States, D.C., and Puerto Rico chose to join the campaign.

But for high visibility enforcement campaigns to work fully,

States must have standard safety belt laws. But only 18 currently

have them. In fiscal year 2004, NHTSA’s budget proposes a new,

primary safety belt incentive grant program that we expect to result in more States enacting primary belt laws.

Regarding impaired driving, preliminary data for 2002 show an

estimated 17,970 people dying in alcohol-related crashes, which is

42 percent of total traffic deaths. Alcohol traffic deaths are down

25 percent since 1988, but are 3 percent higher than in 2001. Our
228

target for 2004 is to reduce the rate of alcohol traffic deaths to 0.53

per 100 million VMT from our 0.64 that we experienced last year.

This will not be done by doing business as usual. We need to

focus resources on where they are most needed, encourage States

that are doing a good job to keep it up, and to help those States

that are not to begin to do a good job.

So, in addition to focusing highly visible law enforcement campaigns in 2004, we are proposing a grant program that will provide

additional resources to those States that have particularly severe

impaired driving problems.

Rollovers account for less than 5 percent of all vehicle crashes,

but one-third of vehicle fatalities. In 2002, 10,000 people died in

the United States in rollover crashes, up nearly 5 percent from the

previous year. Light trucks, including SUVs and pickups, are most

at risk. We began rating vehicles in 2001 for their likelihood of rollover, which correlates closely with experience in real world crashes.

The National Academy of Sciences recently evaluated our rollover

ratings and found them valuable and accurate, but reported that

ratings could be better if we evaluated vehicles in a dynamic rollover test that measures performance in emergency steering.

NHTSA’s fiscal year 2004 budget proposes to implement that

change.

The U.S. fleet has changed dramatically in the last 20 years, producing mismatches between trucks and cars, and while light trucks

and vans account for 38 percent of all registered vehicles, they are

involved in about half of all two-vehicle crashes involving passenger cars. About 80 percent of the deaths occur in passenger

cars. Since light trucks are half of all new vehicle sales today, we

cannot delay action to address this problem. Regarding traffic records, our budget request includes $10 million to enable us to update NHTSA’s crash causation data, last

generated in the 1970’s. A lot has changed since then—vehicles,

traffic patterns, numbers and types of vehicles, on board technologies, and driver demographics. Therefore, we are requesting

support for a new traffic records and data improvement program

in the States that will provide money where it is needed to support

State traffic records.

My final point, we are proposing to restructure our highway safety grants to make the program simpler, smarter, and more effective. We are simplifying the grant delivery system by reducing the

number of programs and increasing States’ flexibility to use the

grant funds.

PREPARED STATEMENT

Mr. Chairman, this concludes my statement. In closing, I would

like to thank the committee for its support of our programs in the

past. I look forward to working with you in the future.

Senator CAMPBELL. Thank you.

[The statement follows:]

PREPARED STATEMENT OF JEFFREY W. RUNGE, M.D.

Mr. Chairman and members of the Committee: I welcome the opportunity to appear before you to discuss our country’s priority highway and motor vehicle safety

issues that are administered by the National Highway Traffic Safety Administration

(NHTSA). My staff and I look forward to working with this committee in addressing
229

these issues of great national importance. Today I am pleased to appear with my

fellow highway safety colleagues.

In these uncertain times, the American public is looking to the highest levels of

government for assurance of its safety. The President has pledged that the safety

and security of our citizens is this Nation’s highest priority. To that end, the Secretary of Transportation has established transportation safety as the Department’s

number one priority. NHTSA is pledged to solving the highway safety issues confronting this Nation. NHTSA’s fiscal year 2004 budget request of $665 million will help us build on

past successes to address highway safety. The paramount highway safety goal within the Department is to reduce the fatality rate on our Nation’s roadways to no

more than 1.0 fatality for every 100 million vehicle miles traveled (VMT) by 2008.

This is not just a NHTSA goal; it is a goal of the entire Department of Transportation. Our fiscal year 2004 budget request reflects the resources NHTSA needs if

we are to attain this goal, along with the help of our DOT colleagues, the States,

and the many non-Governmental organizations that are partners in this effort.

Motor vehicle crashes are responsible for 95 percent of all transportation-related

deaths and 99 percent of all transportation-related injuries. They are the leading

cause of death for Americans ages 2–33. The total number of highway fatalities has

been increasing slightly since 1998, while the rate per vehicle miles traveled has

decreased. Preliminary estimates for 2002 indicate that an estimated 42,850 people

were killed on America’s roads and highways, up 1.7 percent from 2001. The fatality

rate per 100 million vehicle miles traveled (VMT) remained unchanged at 1.51, according to these estimates. Collectively, we have much work to do since the Department has established a performance goal of no more than 1.38 fatalities per 100 million VMT by the end of fiscal year 2004.

Traffic injuries in police-reported crashes decreased by four percent in 2002. This

is excellent news. But we still are faced with the overwhelming fact that, during

that same year, nearly 3 million people were injured in these crashes. The average

cost for a critically injured survivor is estimated at $1.1 million over a lifetime. This

figure does not even begin to reflect the physical and psychological suffering of the

victims and their families.

Traffic crashes are not only a grave public health problem for our Nation, but also a significant economic problem. Traffic crashes cost our economy $230.6 billion in

2000, or 2.3 percent of the U.S. gross domestic product. This translates to an average of $820 for every person living in the United States. Included in this figure is

$81 billion in lost productivity, $32.6 billion in medical expenses, and $59 billion in

property damage. If safety is our number one priority, our Nation must become

more aware of the deaths of nearly 43,000 Americans, the cost of these deaths, and

the solutions. Given increased mobility estimates and the likely increase in miles

traveled, a failure to improve the fatality rate will result in more than 50,000 Americans killed annually by 2008.

Consequently, our fiscal year 2004 budget request of $665 million is a performance-based budget with clear goals and measures. In addition, the budget is established around two major performance-based programs: Vehicle Safety and Traffic Injury Control. Program budgets are grouped under their corresponding goals for more

efficient use of resources and more accurate performance measurement in meeting

each goal. The budget includes measurable performance targets and outputs that

clearly demonstrate not only how, but also how well, the budgetary resources are

expended.

Before discussing the highlights of our program, I want to describe briefly the restructuring we are proposing for highway safety grants. The fiscal year 2004 budget

consolidates all highway traffic safety grant resources provided by TEA–21 ($447

million) within NHTSA. This includes $222 million of resources for the Sections 157

and 163 grant programs formerly appropriated in the Federal Highway Administration’s budget. NHTSA has administered these funds since their creation; the fiscal

year 2004 budget merely proposes that those same funds be appropriated directly

to NHTSA.

The grant award process under TEA–21 was very complex and time consuming

for the States, and resulted in increased administrative overhead that could otherwise be applied to safety programs. It contained eight programs with various qualification and administrative requirements. NHTSA wants to simplify the system by

reducing the number of programs and streamlining the process to qualify for, and

administer, grant funds. NHTSA is also tying additional Section 402 funds to a

State’s highway safety performance, based on performance measures that are

aligned with the national highway safety goals. Last week, the Administration released its proposal to reauthorize the surface transportation programs. These reforms are outlined in that proposal.
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PROGRAM HIGHLIGHTS

Deaths and injuries can be prevented by building on the proven success of existing programs and, when indicated, developing new programs and evaluating their

effectiveness. Within the two broad program areas, our programmatic emphasis for

fiscal year 2004 focuses on five priority areas: safety belt and child restraint use,

impaired driving, vehicle rollover, vehicle compatibility and traffic records/data collection. We have set up internal Integrated Project Teams (IPTs) in four of these

areas to examine the issues and recommend solutions. The teams have recently concluded their work and have developed recommendations for the agency to pursue.

Recently, the Secretary reiterated his commitment to implementing a balanced program focused on the 3 Es of Injury Prevention—engineering, enforcement, and education. The IPTs’ work reflects the program strategies and options needed to

produce such a balanced effort. My statement will address each of these.

Safety Belt and Child Restraint Use

Safety belt use cuts the risk of death in a crash in half. The good news is that

in 2002, safety belt use in the United States reached 75 percent—an all-time high.

All 50 States, the District of Columbia, and Puerto Rico had child passenger safety

laws, and 49 States had adult safety belt laws in effect. As of October 2002, eighteen

States, the District of Columbia, and Puerto Rico had primary safety belt laws in

effect, meaning that drivers and passengers can be cited for failure to wear a safety

belt. The remaining States, except New Hampshire, had laws preventing police from

issuing a citation unless another traffic law was broken. These are referred to as

secondary laws. New Hampshire continues to have no adult safety belt law. We are

pleased to report that, due to immense effort and a successful partnership among

government, safety groups, and African-American interest groups, safety belt use

among African-Americans increased to 77 percent, a level above that of the general

population, and an eight percentage-point increase since 2000. Belt use among those

living in rural areas increased to 73 percent in 2002, a five percentage-point gain.

However, the bad news is that despite these success stories, we continue to have

entrenched and intractable problems that continue to challenge us. Most notably,

during 2002, the 25 percent of passenger vehicle occupants who failed to use safety

belts cost themselves and America 6,800 preventable deaths and 170,000 preventable injuries, resulting in $18 billion in medical costs, lost productivity, and other

injury-related expenses.

Our safety belt use target for 2003 is 78 percent, and our 2004 target is 79 percent nationwide. These targets are optimistic but achievable. Based on the National

Occupant Protection Use Survey (NOPUS) data for 1994–2001, the agency estimates

that each year approximately 8.5 percent of non-safety belt users have converted to

being regular belt users. Continuing to convert this percentage each year becomes

increasingly more difficult because, as the conversion occurs, the hard-core nonusers become a higher proportion of the remaining non-users. If we are successful

in meeting the 2004 target, an estimated 1,000 more lives would be saved and

28,000 more injuries prevented.

Most passenger vehicle occupants killed in motor vehicle crashes continue to be

totally unrestrained. If we were to achieve a national 90 percent belt use, nearly

4,000 additional lives would be saved each year. This usage rate is not only possible,

it can be exceeded. For example, in 2002, Hawaii achieved a 90.4 percent use rate,

Puerto Rico a 90.5 percent use rate, California a 91.1 percent use rate, and Washington State a 92.6 percent use rate. To achieve these high use targets in the remaining States, NHTSA will need to continue to employ a combination of education,

enforcement, and engineering strategies to raise belt use, particularly among the

most at risk populations.

States achieve high levels of belt use through enacting primary safety belt laws,

strict enforcement of existing laws, public education using paid and earned media,

and high profile law enforcement programs, such as the Click it or Ticket campaign.

Highway safety research and our continuing evaluation of our programs have demonstrated that an intensive, high visibility traffic enforcement program significantly

increases safety belt use.

NHTSA has supported high visibility enforcement for the last decade, following

a model that was developed in several States in the early 1990s. With funding authorized under TEA–21 and with support from this Committee, these campaigns

have grown tremendously, saving thousands of lives. Following a highly effective

Click It or Ticket program in eight southeastern States in 2001, the agency undertook a similar campaign involving media saturation and highly visible enforcement

in 30 States in May 2002. In a study of ten States that completely adopted the

model, safety belt use was shown to increase an average of nine percentage points,
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with one State—Vermont—experiencing a 19 percentage-point increase, followed by

West Virginia with a 15 percentage-point increase.

We are in the midst of carrying out the 2003 Click It or Ticket national campaign.

This year, 43 States, the District of Columbia, and Puerto Rico qualified for grant

funds to support Click It or Ticket campaigns. This year, Congress provided funding

for NHTSA to purchase $10 million of national advertising that will further enhance

the benefit of these State and local enforcement campaigns. These ads are currently

playing. In addition, the occupant protection program includes demonstrations of

new strategies for increasing belt use among high-risk, low-use groups, such as pickup truck drivers, minorities, and teens. Support for the high visibility enforcement

campaigns, together with resources to support paid and earned media and new

strategies for reaching high-risk groups, will contribute to achieving our 2003 target

and prepare for further gains in coming years.

In fiscal year 2004, NHTSA plans to continue to encourage States to embrace the

Click It or Ticket campaign and to begin investigating strategies to assist States

with integrating high visibility enforcement into their ongoing routine enforcement.

NHTSA has proposed a new primary safety belt law incentive grant program that

is expected to result in additional States upgrading their laws, and a performancebased safety belt use rate grant program for States to encourage them to make

progress on raising safety belt use. In 2002, States with primary safety belt laws

averaged 80 percent use, 11 percentage points higher than those with secondary

laws. We are hopeful that by rewarding States for enacting primary safety belt laws

or achieving 90 percent use rates, fatalities and injuries in those States will decline.

As an additional inducement, we are proposing that the States receiving such incentive awards be permitted to apply those funds to highway safety infrastructure

projects contained in the State’s Integrated Highway Safety Improvement Program.

In addition, the agency will utilize the results of our high-risk group demonstration

programs to develop educational programs and materials that are intended to increase use among these populations.

We will continue these high profile programs in fiscal year 2004 because they succeed in reminding the motoring public that using safety belts and child safety seats

saves lives, and create an added incentive to wear belts for those who currently

break the law. We are serious about reducing the yearly financial toll to America

from the failure to wear safety belts.

In addition to our success in raising safety belt use, we have made steady

progress in getting more children restrained. Restraint use by young children rose

to unprecedented levels in 2002. In 2002, NHTSA’s NOPUS survey showed that the

rate for child restraint use was 99 percent for infants (under 12 months), 94 percent

for toddlers (1–3 years), and 83 percent for children ages 4–7. Our 2002 estimates

indicate that fatalities among children ages 0–7 years continued to decline, reaching

another historic low. Unfortunately, these data also show an increase in highway

deaths for children 8–15 years. The number of occupant fatalities for children in this

age range rose by nearly nine percent over 2001.

To comply with the Transportation Recall Enhancement, Accountability, and Documentation (TREAD) Act’s goal of reducing deaths and injuries by 25 percent among

4- to 8-year-olds by 2006, NHTSA published a five-year strategic plan in a report

to Congress in June 2002, focusing on improving consumer awareness, booster seat

safety benefits, and the enforcement of booster seat laws, as well as a study on the

overall effectiveness of booster seats. A November 5, 2002, final rule established a

consumer information program to rate child restraints on ease-of-use. The fiscal

year 2004 New Car Assessment Program (NCAP) budget request will support child

safety seat Ease-of-Use ratings for over 90 percent of the child safety seats on the

market. These ratings will be published annually in a brochure and on the Internet,

starting this spring.

Impaired Driving

Impaired driving rates have decreased for drivers of all age groups involved in

fatal crashes over the past decade, with drivers 25 to 34 years old experiencing the

greatest decrease, followed by drivers 16 to 20 years old. However, our 2002 estimates indicate that alcohol-related fatalities rose for the third consecutive year. Preliminary 2002 data indicate that an estimated 17,970 people died in alcohol-related

crashes (42 percent of the total fatalities for the year), and even though this is a

25 percent reduction from the 23,833 alcohol-related fatalities in 1988, it is an increase of 3 percent over 2001. We must reduce these statistics even further through

more aggressive programs that deter impaired driving.

NHTSA’s target for 2004 is to reduce the rate of alcohol related fatalities to 0.53

per 100 million VMT from the current 2002 actual rate of 0.64.
232

In 2003, the agency is encouraging States to adopt high-profile law enforcement

programs, combined with paid and earned media saturation. These programs will

combine a high level of sustained enforcement with intense enforcement mobilizations around the July 4 and December holiday periods. As with the Click It or Ticket campaign, these programs will use both paid and earned media to alert the public

about the increased risk of arrest if they fail to observe highway safety laws. In fiscal year 2002, Congress provided $11 million for paid media and $1 million for evaluation in support of these programs. NHTSA is working intensely with 13 States

on this type of high visibility, enforcement-focused campaign. The first of these campaigns was in December 2002 through early January 2003. We are currently collecting the data from these States to determine the overall success of this mobilization on the numbers of deaths and injuries. We appreciate the support of Congress

in enhancing these law enforcement campaigns.

In fiscal year 2003, we are also continuing to support State activities to upgrade

impaired driving laws. Currently, 39 States, the District of Columbia, and Puerto

Rico have enacted laws making it unlawful for a driver to operate a motor vehicle

with a blood alcohol concentration (BAC) of .08 percent, up from 28 this time last

year. In addition, all States and the District of Columbia now have zero tolerance

laws setting the illegal BAC limit at no higher than .02 for drivers under age 21.

We will continue to urge strong State legislation as a framework for an effective impaired driving program. In addition, NHTSA is conducting a range of demonstration

programs to develop strategies for upgrading prosecution and adjudication processes, and improving impaired driver records systems to track repeat offenders.

NHTSA’s fiscal year 2004 impaired driving program will continue to focus on

highly sustained and periodic law enforcement campaigns, together with implementing improvements to the prosecution, adjudication, and records systems. We

will also be developing additional strategies based in part on what we learn from

the You Drink & Drive. You Lose. campaign results. For fiscal year 2004, the agency has proposed a State grant program that will focus resources on a small number

of States with high alcohol-related crashes. The grant program will include support

for States to conduct detailed reviews of their impaired driving systems by a team

of experts and assist them in developing a strategic plan for improving programs,

processes, and reducing impaired driving-related fatalities and injuries. This year,

we have begun implementing recommendations from the Criminal Justice Summit

on Impaired Driving held in November 2002. These include training and legal advice in the prosecution and adjudication of DWI cases, and working with licensing

and criminal justice authorities to close legal loopholes. NHTSA will also focus on

the increasing rates of motorcycle fatalities, particularly since 37 percent of all motorcycle fatalities are alcohol-related. Finally, in addition to the enforcement campaign and grant program, in fiscal year 2004 we will continue to focus on the most

at-risk populations such as youth, 21–34-year-olds, and repeat offenders, and conduct more studies on finding vehicle-based solutions for impaired driving behavior

including using the National Advanced Driving Simulator. These studies will be

used to refine agency countermeasures and regulatory initiatives.

NHTSA believes that continued nationwide use of sustained high-visibility enforcement, encouraging States to adopt proven remedies and paid and earned media

campaigns, together with the targeted State grant program and support activities,

will lead to a resumption of the downward trend in alcohol-related fatalities that

we experienced over the past decade.

Vehicle Rollover

Rollovers account for less than five percent of all passenger vehicle crashes, but

one-third of passenger vehicle occupant deaths. In 2002, an estimated 10,626 people

died in the United States in rollover crashes, up 4.9 percent from 10,130 in 2001.

This type of crash accounts for less than five percent of all passenger vehicle crashes, but one-third of passenger vehicle occupant deaths. Light trucks (particularly

pickup trucks and sport utility vehicles) have a rollover rate significantly higher

than passenger cars because light trucks have higher centers of gravity and are

more prone to rollover during certain handling maneuvers. Fatalities in rollover

crashes involving pickup trucks and sport utility vehicles accounted for 53 percent

of the estimated increase in highway fatalities for 2002. Since light trucks account

for an increasing portion of total light vehicle sales, deaths and injuries in rollover

crashes will become a greater safety problem unless something changes.

One step we have taken (beginning in 2001) is to rate vehicles in our New Car

Assessment Program (NCAP) for their propensity to rollover. Our NCAP ratings are

based on the vehicle’s static stability factor, which is calculated based on the height

of the vehicle’s center of gravity and its track width. These rollover ratings correlate

very closely with experience in real-world crashes. The lowest rated, one-star vehi-
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cles in our rollover NCAP have a 40 percent chance of rollover per single vehicle

crash compared to a 10 percent chance for vehicles with the highest five-star rating.

The National Academy of Sciences independently evaluated our rollover NCAP ratings and found that our current ratings are valuable and accurate, but suggested

the ratings could be even better if we also evaluated vehicles in a dynamic rollover

test that measures how vehicles perform in emergency steering conditions. We have

proposed to adopt this change, consistent with Congress’s direction in the TREAD

Act, and our fiscal year 2004 budget includes $1.9 million to implement this change

in the 2004 model year. We believe this combined rollover rating will help us understand the real-world rollover experience and thereby give the American public a

more useful piece of information for choosing a new vehicle.

Our experience in rating vehicles for rollover shows that vehicles differ significantly. For instance, sport utility vehicles receive from one star to four stars for rollover resistance. Pickup trucks range from one star to three stars. We want to make

sure that people who are choosing to drive sport utility vehicles and pickup trucks

have the information that will allow them to choose the ones less prone to roll over.

While we would like to prevent rollovers from happening in the first place, we

recognize that some rollover crashes will occur. Thus, we must also consider other

actions that will help reduce deaths and injuries in rollover crashes. We expect to

announce proposed upgrades of our door lock requirements and our roof crush

standard in fiscal year 2004. Finally, we are considering a proposal to reduce ejections through windows.

However, there is another step that we need to emphasize for improved safety in

rollovers—one that can be taken today with no changes whatever to vehicles. We

can significantly reduce deaths and injuries in rollover crashes if we can get more

Americans to use the safety belts that are in their vehicles today. Most people killed

in rollovers are ejected totally or partially from the vehicle. Safety belts can prevent

nearly all of these ejections. Safety belts are 80 percent effective in preventing

deaths in rollovers involving light trucks and 74 percent effective in rollovers involving passenger cars.

Vehicle Compatibility

The vehicle fleet has changed dramatically in the last 20 years, and these changes

have given rise to an unprecedented vehicle mismatch in vehicle-to-vehicle crashes.

Of course, vehicle compatibility has been a concern for longer than the past 20

years, but the earlier concerns about compatibility among different vehicles on the

road were primarily related to differences between large and small cars, and the primary difference was simply the mass of the vehicles. However, more recently, the

rising popularity of light trucks, vans, and SUVs has made the problem substantially more complex. Now, in addition to differences in vehicle mass, we must address inherent design differences, including disparities in vehicle height, geometry,

and vehicle stiffness. The fleet average weight of light passenger vehicles that was

approximately 3,000 pounds in 1990 is almost 4,000 pounds today. Similar changes

are occurring in front-end heights and stiffness. The average initial stiffness of light

trucks is about twice that of passenger cars. This increases the risk of death and

injury to occupants in certain passenger vehicles when they interact with the more

aggressive ones.

While light trucks and vans (LTVs) account for 38 percent of all registered vehicles, they are involved in approximately half of all fatal two-vehicle crashes involving passenger cars. In these collisions, about 80 percent of the fatalities are passenger car occupants. We need to address this problem now since LTVs constitute

half of all new vehicle sales.

An Integrated Project Team from offices within the agency has been addressing

this issue. I expect to publish that team’s recommendations for public comment in

the very near future. This team has identified some ways in which the safety features of a struck vehicle may be improved to better protect the occupants in a crash

with a more aggressive vehicle and measures to reduce the aggressiveness of striking vehicles. The safety problems associated with vehicle compatibility are complex

and will need focused research and other efforts to solve them.

The greatest problem in vehicle compatibility occurs when an LTV strikes a passenger car in the side. In the near term, we expect to propose a significant upgrade

to our side impact protection standard. While improving upon the protection already

provided to the chest and pelvis in our side impact standard, this upgrade will also

add a measure of head protection to our side impact standard, because our data

show that head injury is a serious risk in side crashes. We will also explore the idea

of adding different sized dummies to our side impact standard.

I am also happy to tell you that NHTSA is not the only party that is trying to

address compatibility. Vehicle manufacturers have acknowledged that they also
234

have a responsibility to address this issue. Manufacturers have formed their own

working groups to develop recommendations for some voluntary actions that can be

taken to improve vehicle compatibility. These manufacturers have committed to developing initial recommendations by late spring. In addition, the government of

Japan has committed to share test data and other information with NHTSA on the

issue of vehicle compatibility. With this international cooperation, the American

people will get a much quicker response to the problem of vehicle compatibility than

if NHTSA were to address this issue by itself.

Traffic Records/Data Collection

Crash Causation Data

NHTSA’s fiscal year 2004 budget request includes a proposal to enable us to update our crash causation data, last generated comprehensively in the 1970s. Vehicle

design, traffic patterns, numbers and types of vehicles in use, on-board technologies,

and lifestyles have changed dramatically in the last 30 years. Old assumptions

about the causes of crashes may no longer be valid. Since the agency depends on

causation data to form the basis for its priorities, we must ensure that this data

is current and accurate. We have requested $10 million to perform a comprehensive

update of our crash causation data that will allow us to target our efforts for the

next decade on the factors that are the most frequent causes of crashes on American

roads.

NHTSA has in place an infrastructure of investigation teams that will enable us

to perform the study efficiently and accurately. These teams are currently performing a similar study for large, commercial truck crashes and are adept at gathering evidence from the crash scenes, the hospital, and from victim and witness

interviews. Their findings will guide the agency’s programs in crash avoidance, including vehicle technologies, as well as human factors.

State Traffic Records

Reliable, valid, and comprehensive crash data are the backbone of all efforts to

improve highway safety. Accurate problem identification is vital if the highway safety community is to understand the scope and extent of their crash issues. Problematic to this is the fact that States are under increasing budgetary constraints that

severely impact their ability to maintain or improve their Traffic Records System

(TRS) data. Due to personnel reductions, law enforcement agencies in many States

now maintain data only on fatal and severe injury crashes as opposed to crashes

of all severities. Deficiencies in States’ TRS data negatively impact national databases including the Fatality Analysis Reporting System, General Estimates System,

National Driver Register, Highway Safety Information System, and Commercial

Driver License Information System, as well as State data used to identify local safety problems. In fiscal year 2004, NHTSA is requesting an additional $50 million for

a new Traffic Records/Data Improvement Program in the States. The new initiative

will provide incentive grants to States to support improved TRS data. In addition

to police reports, emergency medical services, driver licensing, vehicle registration,

and citation/court data provide essential information not available elsewhere. All

would be improved by this program. Accurate State TRS data are critical to identifying local safety issues, applying focused safety countermeasures, and evaluating

the effectiveness of countermeasures.

Mr. Chairman, this concludes my statement. I would like to thank the Committee

for its continued steadfast support of our programs. I look forward to working with

you, as well as my partners appearing today to testify, in developing a strong and

productive performance-based, results-oriented, safety program that will provide national leadership through effective and efficient programs. I would be pleased to answer any questions.
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FEDERAL MOTOR CARRIER SAFETY ADMINISTRATION

STATEMENT OF ANNETTE SANDBERG, ACTING ADMINISTRATOR

Senator CAMPBELL. Ms. Sandberg.

By the way, your complete written testimony will be included in

the record. If anyone on the panel wants to abbreviate, feel free to

do so.

Ms. SANDBERG. Thank you, sir.

Good morning, Mr. Chairman and members of the committee.

Thank you for the opportunity to appear before you today to discuss the Federal Motor Carrier Safety Administration’s initiatives

in fiscal year 2004. I want to thank you for your support and the

resources you have provided to our agency since our creation in

1999.

Fatalities and crashes involving large trucks have declined 4

years in a row. This is significant progress. However, we know we

can make our highways even safer.

Accordingly, a goal of the Bush Administration is to improve

safety and to reduce the number of accidents and deaths on our

highways. Fulfilling this goal is Secretary Mineta’s top priority. I,

too, share this priority.

DOT’s current highway safety goal is to reduce the fatality rate

by 41 percent by the year 2008. This equates to a rate of 1 fatality

per 100 million vehicle miles traveled.

The Federal Motor Carrier Safety Administration has a goal that

is part of the overall Department goal. The Federal Motor Carrier

Safety Administration’s goal is a rate of 1.65 commercial vehicle

crash fatalities per 100 million miles of truck travel. Achieving our

goal will be challenging, as commercial vehicle miles of travel is increasing at a rate faster than passenger car miles of travel.

The Motor Carrier’s performance-based budget is consistent with

the goals and programs established in SAFETEA, the administration’s reauthorization proposal. Our fiscal year 2004 request focuses resources in several critical areas.

One of these areas is our New Entrant Program. As directed by

Congress, the New Entrant Program will require that new car carriers undergo a safety audit within their first 18 months of operation. New entrants represent a significant commercial motor vehicle safety risk. Statistics show new carriers are less likely to know

and to comply with Federal safety standards.

Our fiscal year 2004 budget request includes resources for a Federal/State partnership to implement the New Entrant Program.

Forty-six States are committed to working with us, in full or in

part, to conduct new entrants safety audits. We believe that the

Federal/State partnership will yield significant benefits.

Another area for investment is hazardous materials transportation. Each day more than 800,000 hazardous material shipments

cross the United States, 94 percent of which travel by highway.
236

Our goal is to achieve a 20 percent reduction in truck-related

HAZMAT incidents by the year 2010. We will accomplish this goal

through targeted enforcement and compliance efforts, including the

implementation of a permitting program for certain carriers of extremely hazardous materials.

In partnership with the States, we propose to expand inspection

efforts at the northern border with an emphasis on increased roadside inspections at remote border crossings. Inspecting commercial

motor vehicles transporting hazardous materials will be a priority

with emphasis on driver’s license checks and vehicle screening for

explosives. We anticipate that the program will yield more inspections of Canadian vehicles, more inspections of vehicles transporting HAZMAT, and an increased inspection presence at the U.S.

and Canadian border crossings.

Southern border safety also remains a priority for our agency.

The fiscal year 2002 Appropriations Act required that the DOT Inspector General verify that a number of statutory conditions be met

before the U.S./Mexican border could order to long haul commercial

traffic. The Federal Motor Carrier Safety Administration has met

these requirements.

Currently, the border remains closed due to a ruling of the 9th

Circuit Court of Appeals. The administration is considering appropriate next steps. Meanwhile, our agency is ready now to ensure

the safety of border operations and will be ready whenever the border opens.

Another area of investment is the Commercial Drivers License

Grant Program. We propose increasing the CDL grant funding in

fiscal year 2004 to improve State control and oversight of licensing

and third-party testing facilities to detect and prevent fraudulent

testing and licensing activities, and to support the transfer of Mexican and Canadian driver conviction and disqualification data from

the States to the Federal Motor Carrier Safety Administration’s

central depository.

FMCSA is concerned about the increasing number of consumer

household goods complaints. The FMCSA receives thousands of

complaints annually about household goods carriers. In our fiscal

year 2004 budget request, FMCSA requested additional staff to enhance our ability to pursue enforcement against these abusive carriers.

Finally, it is crucial that the Federal Motor Carrier Safety Administration institute a number of medical certification programs

in the fiscal year 2004, including an establishment of a medical review board, the certification of medical examiners, and the pilot

programs on medical waivers and exemptions. Establishment of the

registry would respond to the National Transportation Safety

Board, which issued eight safety recommendations in September,

2001, recommending that FMCSA establish more comprehensive

standards for qualifying medical providers and conducting medical

qualification exams.

PREPARED STATEMENT

I look forward to working with this subcommittee to advance our

mutual goal of improving safety on our Nation’s highways, and

would be happy to answer any questions that you may have.
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Thank you very much.

[The statement follows:]

PREPARED STATEMENT OF ANNETTE SANDBERG

Good morning, Chairman Shelby, Ranking Member Murray, and Senators. Thank

you for this opportunity to discuss plans for the Federal Motor Carrier Safety Administration (FMCSA) in fiscal year 2004. The ongoing support provided by this

Committee has enabled FMCSA to make significant progress on several safety

fronts, including increased safety enforcement and compliance, as well as enhanced

border safety operations. Though we have seen fatalities in crashes involving trucks

reduced for four years in a row, clearly there is more that needs to be done. My

commitment is to improve commercial motor vehicle safety by bringing greater efficiency and effectiveness to FMCSA’s programs and activities as reflected in the Administration’s fiscal year 2004 budget submission, and as envisioned by Congress

when the agency was created. This budget is consistent with the goals and programs

established in the Administration’s reauthorization proposal, the Safe, Accountable,

Flexible, and Efficient Transportation Equity Act of 2003 (SAFETEA), released on

May 14.

The Department recognizes that a collaborative effort among agencies is needed

to significantly reduce the fatality rate on our Nation’s highways. The DOT highway

safety goal is to reduce the fatality rate by 41 percent by 2008. This equates to a

rate of one fatality per 100 million vehicle-miles-traveled. To achieve the DOT goal,

FMCSA, along with the National Highway Traffic Safety Administration and the

Federal Highway Administration, set goals within their respective programs to contribute to meeting the Department-wide target. FMCSA’s targeted contribution to

the DOT goal is set at a rate of 1.65 commercial vehicle crash fatalities per 100 million miles of truck travel by 2008. Achieving our goal will be a particular challenge,

as commercial vehicle miles of travel have been growing at a faster rate than passenger car miles of travel. On average, over the past 15 years, truck and bus travel

has increased by 3.4 percent annually while passenger car travel increases have

been running at 2.8 percent. This trend is projected to continue.

I believe that our success will be driven by how well we target our resources at

safety problems. To do this effectively, we must use the multiple data sources available to us. FMCSA is a data-driven, performance-based organization. This makes

the timely collection of complete data a critical goal for us. Our programs and activities will be focused on reliable and timely data upon which to base our policy and

programmatic decision-making and allocation of our operational resources. Our performance-based approach will enable us to accomplish three critical objectives: 1)

achieve dramatic improvements in commercial motor vehicle safety; 2) ensure that

resources are directed toward activities with the potential for the greatest safety impact; and 3) develop information that demonstrates the value of the government’s

investment in safety.

FMCSA’s fiscal year 2004 budget request has been structured to strengthen the

linkage between resources and accomplishment of these objectives. We have integrated our budget and performance information, framed around the achievement of

objectives in several critical areas.

NEW ENTRANT PROGRAM

Let me begin by outlining a critical area for investment, FMCSA’s New Entrant

Program. As Congress set out in the Motor Carrier Safety Improvement Act of 1999,

a new entrant program to bring motor carriers into compliance with safety regulations at the onset of operations can improve safety. These new entrants, numbering

40,000–50,000 annually, represent a significant commercial motor vehicle safety

risk. Our fiscal year 2004 budget request includes resources for a Federal-State

partnership effort to implement the New Entrant Program.

Overseeing and supporting the conduct of safety audits, establishing baseline

data, and implementing a program of regular data collection to assess the progress

of the New Entrant Program will enable FMCSA to fulfill the statutory mandate

to improve new entrant safety performance. This program will also meet the requirements set out in Section 350 of the fiscal year 2002 DOT Appropriations Act

as a precondition to opening the Southern border to Mexican commercial vehicles.

We know already that 46 States will work with us, in full or in part, to conduct

new entrant safety audits. These States have agreed to provide approximately 195

of the estimated 262 State and Federal personnel needed to audit the 40,000 to

50,000 new entrants per year. The State personnel will be either new hires or be

reassigned from other law enforcement duties. In fiscal year 2003, these individuals
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are supported through Motor Carrier Safety Assistance Program grant funds. Contracted safety auditors will be used to make up the balance of staff needed. We also

plan to hire 32 full-time Federal staff to cover program oversight, including management, review, and approval of the safety audits. We believe this Federal-State partnership will yield significant results by placing funds in the hands of those closest

to the new entrant population, while maintaining appropriate Federal support and

oversight.

HAZMAT SAFETY AND SECURITY

Another area where resources are needed is in the transportation of hazardous

materials. Each day, there are more than 800,000 shipments of HAZMAT in the

United States, 94 percent of which move by highway. We have established a goal

of a 20 percent reduction in truck-related hazardous materials incidents by 2010,

as measured from the baseline of 2000. We plan to accomplish this through targeted

enforcement and compliance efforts.

First, our request includes funds for a HAZMAT permitting program for certain

carriers of extremely hazardous materials, as required by Congress. This program

will ensure that carriers of these dangerous materials have implemented safety and

security measures. FMCSA anticipates issuing 2,700 HAZMAT permits in fiscal

year 2004.

Second, a program to enhance commercial motor vehicle safety and security at the

northern border is being proposed. In partnership with the States, we propose to

expand current inspection efforts at the northern border with an emphasis on conducting additional roadside inspections at or near the more remote border crossings.

The highest priority will be given to inspecting commercial motor vehicles transporting HAZMAT, with emphasis on driver license checks and vehicle screening for

explosives. It is anticipated that 200,000 HAZMAT vehicle inspections will be performed at the northern border in 2004 by the State inspectors hired under this program.

Third, FMCSA will continue its base program of hazardous materials regulatory

compliance and outreach and education. For example, responding to the events of

September 11, FMCSA contacted nearly 42,000 hazardous materials carriers and

conducted nearly 31,000 Security Sensitivity Visits. FMCSA has since launched a

program of ‘‘Security Contact Reviews’’ to maintain a high level of vigilance within

the industry. Funds requested will enable FMCSA to integrate Security Sensitivity

Visits into compliance review activities conducted by our field offices.

SOUTHERN BORDER ENFORCEMENT

Southern Border safety activities remain a high priority for FMCSA. In the fiscal

year 2002 Appropriations Act, Congress established requirements for opening the

U.S.-Mexico border to long-haul commercial traffic. One of these requirements was

that the DOT Inspector General must verify that all statutory conditions have been

satisfied. As DOT Inspector General Ken Mead reported in March, FMCSA has met

these requirements, including the hiring and training of enforcement personnel and

the establishment of inspection facilities and safety procedures at the southern border. Because of our actions, Secretary Mineta was able to certify that the Department had met the requirements of Section 350 providing a basis for the President

to lift the moratorium on granting operating authority for Mexican carriers to operate within the interior of the United States.

Currently, the border remains closed due to the 9th Circuit Court ruling that

DOT had not conducted the appropriate, in-depth environmental analysis for certain

rules designed to satisfy the Congressional requirements. The Court held that the

environmental assessment that the agency prepared was inadequate, and that

FMCSA should have prepared an Environmental Impact Assessment and Clean Air

Act Conformity Analysis. The Administration filed an en banc appeal of the decision

to the 9th Circuit on March 10, which was denied. The Administration is considering appropriate next steps in responding to the ruling. Meanwhile, FMCSA is

ready now, and will be ready whenever the border is opened, to ensure the safety

of border operations. At present, border inspectors and auditors are conducting inspections and safety audits on commercial zone carriers. Border safety investigators

are assisting other FMCSA staff in conducting compliance reviews to maintain their

skills, as well as conducting compliance reviews on commercial zone carriers. Additionally, border safety investigators have been deployed to do additional inspections

at the border.
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COMMERCIAL DRIVERS LICENSE (CDL) GRANTS

Improving the accuracy and completeness of driver history records is key to enhanced safety. The driver’s license is the main form of personal identification in the

United States. Ensuring positive identification license holders is dependent upon a

diverse set of security technologies. Particularly in the transport of hazardous materials, States need current driver licensing technology for security purposes. Grants

under this program will allow States to enhance this technology.

We are proposing increased CDL grant funding in fiscal year 2004 to accomplish:

1) improving State control and oversight of State licensing agency and third party

testing facilities; 2) developing management control practices to detect and prevent

fraudulent testing and licensing activities; 3) supporting State efforts to conduct Social Security Number and Immigration and Naturalization Service number

verification for CDLs; and 4) maintaining the central depository of Mexican and Canadian driver convictions in the United States, the disqualification of unsafe Mexican and Canadian drivers, and the notification of Mexican and Canadian authorities

of convictions and/or disqualifications.

Together, these activities will add to the variety of driver’s license technologies

for safety and security, as well as enhancing our ability to identify problem drivers.

HOUSEHOLD GOODS ENFORCEMENT

I am sure that the Chairman and Senators of this Subcommittee, as well as your

Senate colleagues, have noticed an increase in the number of constituent complaints

regarding unscrupulous household goods carriers. The letters we receive, as well as

the calls coming into the FMCSA hotline, have been increasing. FMCSA receives

thousands of consumer complaints annually. Currently, the Agency has three fulltime commercial investigators devoted to the Household Goods Enforcement and

Compliance program and has budgeted for more in fiscal year 2004 to expand enforcement of the Federal Motor Carrier Commercial Regulations.

While the household moving industry as a whole performs over a million successful moves annually, a small group of unscrupulous people scattered over a handful

of States has used this industry to defraud unsuspecting consumers of their hardearned money. The complaints from the American moving public have reached significant proportions. FMCSA has gathered data to define how, when, and where to

focus a limited number of requested resources to inoculate the public against these

predators.

These resources will establish a more visible enforcement program through increased investigations, and a more robust outreach effort to reduce the number of

consumer complaints filed against household goods carriers and brokers. Our efforts

will also be aimed at increasing consumer awareness to allow the public to make

better-informed decisions before they move across State lines.

FMCSA also proposes to conduct an extensive study of existing Household Goods

Dispute Settlement Programs and alternative arbitration programs in the household

goods moving industry. We need this critical information to determine the extent

of the challenge, to determine effective strategies and countermeasures, and to

evaluate the effectiveness of these programs in resolving loss and damage disputes

and claims between shippers and carriers.

Household goods carriers operating in interstate commerce are required to have

or participate in an arbitration program as a condition of their registration with

FMCSA. The arbitration programs must comply with the requirements of 49 U.S.C.

14708, and the carrier must submit to binding arbitration upon a shipper’s request

for cargo damage or loss claims of $5,000 or less. Seventy-five percent of the complaints we receive pertain to loss and damage claims. FMCSA believes this study

is necessary to determine what changes are needed to assist the moving industry

in establishing effective arbitration programs to resolve loss and damage disputes.

Currently, FMCSA does not have adequate data or records to evaluate effectively

the arbitration programs in the moving industry. We are hopeful that this study will

provide a future roadmap to better address household goods complaints.

REGULATORY DEVELOPMENT

Regulatory Development is the cornerstone of FMCSA’s compliance and enforcement process. This is an area where greater attention and resources are needed to

promulgate all mandated regulations to ensure program performance will not be

compromised. For this reason, we are proposing to dedicate funds to our regulatory

development program and have already implemented a defined operating procedure

to further accelerate our efforts.
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I recently issued a directive to the agency establishing a revised process by which

our agency will develop regulations. This directive is modeled on the procedures

used in other Federal agencies. It promotes staff collaboration, establishes early regulatory evaluation and analysis, while setting out clear milestones. The new process

is designed to improve both the quality and timeliness of our rulemakings. It is

team-based and designed to build agency consensus through early involvement by

senior managers. Staff has been instructed that all FMCSA rulemakings should immediately begin to follow the new procedures set forth in the order.

The new process is already being put to use as FMCSA responds to a Writ of

Mandamus. As you may know, on November 26, 2002, the DOT Secretary and

FMCSA were served with a Petition for a Writ of Mandamus for Relief from Unlawfully Withheld Agency Action. Citizens for Reliable and Safe Highways (CRASH),

Parents Against Tired Truckers (PATT), Teamsters for a Democratic Union (TDU),

and Public Citizen filed the Petition. The Petition seeks a court order directing DOT

to promulgate six regulations. In February 2003, the FMCSA, through a settlement

agreement, committed to a timetable for completing these rules (referred to as the

Mandamus rules). The Hours-of-Service rule was among them. FMCSA published

the Final Rule on Hours-of-Service in the Federal Register on April 28, 2003. The

effective date is June 27, 2003, with a compliance date of January 4, 2004. This

time period is needed to train 8,000 enforcement officers, update FMCSA computer

systems and manuals, and to educate the industry.

MEDICAL PROGRAMS

We will use our funds to examine alternative regulatory programs. Congress provided FMCSA with authority to establish exemption and pilot programs under strict

safety controls. We now operate a vision exemption program where applications

total more than 60 per month. We are approached routinely to consider other alternative programs to our safety regulations. These resource intensive programs require a consistent funding stream to operate successfully with ample oversight and

over multiple years.

Among the projected uses for regulatory development funding are the establishment of a medical review board and the creation of a national medical examiner registry. The medical review board will provide expert medical opinion and advice to

the agency as we update our medical qualifications requirements. Expert medical

advice will help us to supplement the experience of our staff and enhance our medical program.

The medical examiner registry will permit FMCSA to provide more comprehensive

information on medical practitioners to drivers and carriers. It will also help disseminate information to physicians regarding medical policies and requirements relevant to the physical qualifications of commercial drivers. This is an essential step

to upgrade the quality of CDL driver medical qualification exams. With the registry,

we will be able to better monitor the quality and practices of medical examiners.

A certification process will ensure that medical examiners are qualified to perform

driver physical exams. Establishment of a medical registry would respond to the National Transportation Safety Board, which issued eight safety recommendations in

September 2001 requesting that FMCSA establish more comprehensive standards

for qualifying medical providers and conducting medical qualification exams.

ORGANIZATIONAL EXCELLENCE

Finally, I would like to speak to FMCSA’s organizational capacity. Many lessons

have been learned during these first three formative years. The agency has experienced the traditional growing pains of a new organization, but has also had to grapple with some nontraditional ones as well. The rapid rate at which new programmatic and management responsibilities came to the agency could not have been

predicted. These new activities, like the opening of the U.S.-Mexico border and Security Sensitivity Visits, exacted a toll on both FMCSA and FHWA’s administrative

capacities. Each agency was inundated with ever-increasing workloads and heightened performance expectations.

The agency now finds itself at a critical juncture in its organizational development. It is poised to meet the challenges of the President’s Management Agenda

through human capital management, improved financial performance, competitive

sourcing, performance based budgeting, and E-government. However, the agency’s

administrative and information technology infrastructures are in need of additional

resources to support its workload and continue to focus on improved safety performance. Our request in fiscal year 2004 will enable FMCSA to procure the necessary

administrative and information technology resources at competitive market rates.
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CONCLUSION

Thank you Mr. Chairman, Ranking Member Murray, and Senators of the Subcommittee for this opportunity to present my plans for the Federal Motor Carrier

Safety Administration. I believe that your continued investment in the agency will

be rewarded by improved data collection, reporting, analysis, and most importantly,

higher levels of safety on our Nation’s highways. I look forward to working with you

to achieve our mutual goals and would be happy to answer any questions you may

have.
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NONDEPARTMENTAL WITNESSES

STATEMENT OF WENDY J. HAMILTON, NATIONAL PRESIDENT, MOTHERS AGAINST DRUNK DRIVING

Senator CAMPBELL. Ms. Hamilton?

Ms. HAMILTON. Good morning. I am Wendy Hamilton, the National President of Mothers Against Drunk Driving.

It is an honor to be here today testifying on DOT’s fiscal year

2004 request and MADD’s priorities for the reauthorization of

TEA–21. We look forward to working with this committee to develop transportation policies that save lives and prevent injuries on

our Nation’s highways.

I would like to take a moment to thank Chairman Shelby and

Ranking Member Murray for their commitment to reduce traffic

crashes and injuries and fatalities.

In DOT’s fiscal year 2003 budget, this subcommittee dedicated

increased funding to NHTSA’s impaired driving program and

began a historic effort by funding paid media to publicize law-enforcement mobilizations designed to increase seatbelt use and reduce alcohol impaired driving.

Senator Shelby and Senator Murray, your efforts mark the beginning of what MADD hopes will be a renewed National, State

and local effort to reverse the deadly trend on our Nation’s highways.

For the third consecutive year, alcohol-related traffic deaths have

increased. Early statistics show that last year nearly 18,000 people

were killed and hundreds of thousands more were injured in these

crashes. Alcohol-involved crashes accounted for an overwhelming

46 percent of all fatal injury costs.

Unfortunately, the data speaks for itself. The Nation, including

its political leaders, has become complacent in this effort. Lack of

funding for effective behavioral traffic safety programs and minimal resources for law-enforcement officers to enforce existing laws

are a major part of the problem.

Last week, MADD released its new Federal plan for the reauthorization of TEA–21. On that day, we heard from members of the

Senate who expressed their firm commitment to move the Nation

in the right direction. MADD sincerely thanks Senator Murray,

Senator DeWine, Senator Lautenberg, and Senator Dorgan for

their participation in this event and their leadership to reduce traffic death and injury.

Today, MADD is asking Congress and the administration to

adopt MADD’s research-based plan. I would like to submit our plan

for the record and I believe that you have all received copies of

this.

Senator CAMPBELL. It will be included in the record.

[The information follows:]
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Ms. HAMILTON. MADD’s plan establishes a national traffic safety fund of $1 billion annually. Under this fund, MADD recommends

dedicating increased funding for highly visible law enforcement activities.

The ‘‘Click It or Ticket’’ national law enforcement mobilization

campaign has been very successful in increasing seatbelt usage. We

know that sobriety checkpoints are one of the most effective tools

this Nation has to stop impaired driving, and that they are especially effective when coupled with media campaigns that raise the

visibility of these efforts.

Thanks to this committee, funds were dedicated in fiscal year

2003 to conduct these mobilizations. Why then has NHTSA not requested any funding to continue this lifesaving effort?
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I would like to thank Senator DeWine and Senator Lautenberg

for introducing legislation today that would provide substantial

funding for enforcement efforts to stop drunk driving and increase

seatbelt use. If enacted, this bill will save lives.

MADD also recommends dedicating increased behavioral funding

for State efforts to improve traffic safety. While NHTSA’s funding

appears to have increased dollars for behavioral funding, this is not

the case. Only a percentage of this funding will be spent specifically on behavioral safety since States are able to use much of this

funding for roadway construction and highway safety projects.

Though NHTSA continuously states that reducing alcohol-related

traffic fatalities is a top priority, the fiscal year 2004 budget request simply does not support these claims.

MADD was shocked to learn that the impaired driving programs

merit less than one page out of DOT’s 378-page SAFETEA proposal. SAFETEA actually decreases funding for alcohol-impaired

programs by 67 percent. The only funding specifically allocated for

impaired driving is $50 million. The overwhelming majority of safety funding in the SAFETEA proposal is budgeted in the new Highway Safety Improvement Program which is really dedicated to

roadway construction safety projects. This specific construction

safety program receives an overwhelming 117 percent increase.

While construction safety is important, the DOT itself, along

with the GAO, recognizes that human behavior not roadway environment is overwhelmingly seen as the most prevalent contributing

factor to crashes. To compare DOT’s recreational trails program,

funded at $60 million in fiscal year 2004, it receives 20 percent

more funding than the impaired driving grants program. It appears, from a budget standpoint, that keeping recreational trails

safe for a small population of users is even more important to DOT

than keeping all highway users safe from impaired drivers. Again

why?

MADD’s plan calls for greater accountability controls to ensure

that Federal funds are being used in a strategic and coordinated

manner. Recently the GAO, at the request of Senator Dorgan, released a detailed report detailing the management and use of Federal highway safety funds. GAO concluded and ‘‘NHTSA’s oversight

of highway safety programs is less effective than it could be, both

in ensuring the efficient and proper use of Federal funds and in

helping the States achieve their highway safety goals.’’

GAO’s report shows that in the face of rising traffic deaths more

Federal oversight and guidance is needed for the expenditure of

Federal safety dollars to ensure that these funds are spent on effective behavioral programs. This is fiscal responsibility.

MADD is urging Congress to strongly encourage States to enact

proven traffic safety laws, such as a national primary safety belt

standard and high risk driver standards. MADD knows that the

best defense against a drunk driver is a seatbelt. As NHTSA proposes, States should be given financial incentives to enact primary

belt laws.

However, States that do not enact this lifesaving measure after

3 years should lose Federal highway construction funds.
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MADD also calls for the enactment of a national standard to

combat higher risk drivers. While higher risk drivers are a small

portion of the problem, they pose a significant threat to motorists.

Again, we thank Senator Lautenberg and Senator DeWine for introducing legislation today that targets this dangerous population.

If enacted, this bill would close loopholes to ensure that repeat and

high blood alcohol concentration offenders do not continue to slip

through the cracks.

This priority is one that has personal meaning to me. On September 19th, 1984, a high BAC driver caused the head-on collision

that killed my 32-year-old sister, Becky and my 22-month-old nephew, Timmy. The crash occurred at 1:50 p.m. on a beautiful Wednesday afternoon filled with sunshine. Three hours after that crash,

the offender tested at a .16 blood alcohol concentration and police

pulled four empty bottles of alcohol from his vehicle.

This Nation lacks a clear coordinated solution to reduce impaired

driving fatalities. Maintaining the status quo or, even worse, decreasing resources dedicated to fighting drunk driving will not reverse this deadly trend. The reauthorization provides the best

chance, a historic opportunity to provide adequate behavioral safety funding to ensure that these funds are being used effectively and

to enact laws that will save lives.

PREPARED STATEMENT

I urge Congress to adopt MADD’s proposal and create safer roads

for all Americans. Thank you and I welcome the opportunity to answer questions.

[The statement follows:]

PREPARED STATEMENT OF WENDY J. HAMILTON

Good Morning. My name is Wendy Hamilton and I am the National President of

Mothers Against Drunk Driving. I am honored to be here today to testify on the

Department of Transportation’s (DOT) fiscal year 2004 budget request and MADD’s

priorities for the reauthorization of the Transportation Equity Act for the 21st Century (TEA–21). We look forward to working with the Committee to develop transportation policies that provide appropriate funding and employ effective, aggressive

countermeasures to prevent injuries and save lives on our Nation’s roads.

I would like to take this opportunity to thank Chairman Shelby and Ranking

Member Murray for their commitment to reduce traffic crash fatalities and injuries.

In DOT’s fiscal year 2003 budget Senator Shelby and Senator Murray dedicated increased funding to the National Highway Traffic Safety Administration’s (NHTSA)

impaired driving program, and began a historic effort by funding paid media to publicize law enforcement mobilizations designed to increase seat belt use and reduce

alcohol-impaired driving. Senator Shelby and Senator Murray—MADD’s 2 million

members and supporters thank you for your dedication and leadership to highway

safety. Your efforts mark the beginning of what MADD hopes will be a renewed national, State and local effort to reverse the deadly trend on our Nation’s highways.

ADMINISTRATION OUTLINES HIGHWAY SAFETY AS A PUBLIC HEALTH CRISIS; HOWEVER,

FUNDING REQUESTS DO NOT ADEQUATELY ADDRESS PROBLEM

According to DOT, motor vehicle crashes are responsible for 95 percent of transportation sector deaths and 99 percent of all transportation-related injuries within

the United States as well as the leading cause of death for people ages 4 through

33. In 2002, an estimated 42,850 people died on the Nation’s highways, up from

42,116 in 2001.

This alarming amount of injury and death on our Nation’s roadways creates a tremendous drain on the Nation’s economy. Economic losses due to motor vehicle

crashes cost the Nation approximately $230.6 billion each year, an average of $820

for every person living in the United States.
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DOT’s announcement of preliminary 2002 fatality estimates calls for ‘‘better State

laws that address the causes of the problem and stricter enforcement.’’ But DOT’s

fiscal year 2004 request and its reauthorization proposal cut funding for behavioral

safety initiatives, even while DOT’s own research demonstrates that human behavior is overwhelmingly the leading factor in death and injury on our Nation’s roads.

ALCOHOL-RELATED TRAFFIC FATALITIES ON THE RISE FOR THIRD CONSECUTIVE YEAR

For the third consecutive year, alcohol-related traffic deaths have increased. Preliminary statistics show that nearly 18,000 people were killed and hundreds of thousands more were injured in these crashes just last year. That’s 49 deaths and hundreds of injuries day in and day out. Alcohol-involved crashes accounted for 21 percent of nonfatal injury crash costs, and an overwhelming 46 percent of all fatal injury crash costs. In order to reverse this trend, the Nation cannot maintain the status quo and expect a different result.

Last week at a national news conference, MADD commemorated the 15-year anniversary of the worst drunk driving crash in U.S. history—the Kentucky Bus Crash.

On May 14, 1988, 27 people—24 children and 3 adults—were killed and 30 others

were injured coming home from a church outing. They were victims of a repeat

drunk driving offender, behind the wheel of his pickup driving on the wrong side

of the road. He had a blood alcohol concentration of .24—three times the illegal limit

today in Kentucky and the majority of all other States and DC.

The Kentucky Bus Crash was heard around the world because 27 perished and

30 others were injured in an instant. But tragically, one by one, over the past 15

years, the equivalent to 10,400 Kentucky Bus Crashes have occurred in our country

as nearly 281,000 Americans have been killed and millions of others have been injured in alcohol-related traffic crashes since that tragic day.

Unfortunately, the data speaks for itself: the Nation—including its political leaders—has become complacent in this effort. Drunk drivers continue to slip through

cracks in the system. Weak laws, lack of funding for effective traffic safety programs

and minimal resources for law enforcement officers to enforce existing laws are all

part of the problem. There is no coordinated effort at the national, State and local

level to combat this public health problem. Additionally, drunk driving is still often

treated as a minor traffic offense rather than what it really is—the most frequently

committed violent crime in our country.

MADD’S SAFETY PLAN: PUTTING RESEARCH INTO PRACTICE

Last week MADD released its new Federal plan for the reauthorization of Federal

traffic safety programs. In conjunction with MADD’s announcement, we heard from

Members of the Senate who expressed firm commitment to move the Nation in the

right direction. MADD sincerely thanks Senator Patty Murray, Senator Frank Lautenberg, Senator Mike DeWine and Senator Byron Dorgan for their participation in

this event and for their leadership to reduce traffic death and injury.

Today, MADD is asking Congress and the Administration to ensure that highway

safety is a cornerstone of the reauthorized TEA–21. And they can do so by embracing MADD’s research-based reauthorization plan. MADD’s plan would:

—Establish a National Traffic Safety Fund (NTSF)—$1 billion annually—to provide a major infusion of dedicated Federal funds to support State and national

traffic safety programs, enforcement and data improvements;

—Under the NTSF:

—dedicate increased funding for States and local communities to expand highly

visible law enforcement activities to reduce impaired driving and increase

seat belt use, including national enforcement mobilizations supported by paid

media;

—dedicate significantly increased funding for State efforts to improve traffic

safety by implementing data-driven programs;

—Create stricter accountability controls to ensure that Federal funds are being

used in a strategic and coordinated effort at both the State and Federal level;

—Encourage States to enact priority traffic safety laws, such as primary seat belt

enforcement, higher-risk driver and open container standards.

I want to briefly talk in more detail about MADD’s reauthorization priorities.

Funding is key to the success of national, State and local traffic safety programs

to reduce drunk driving. But in the year 2001, while traffic crashes cost taxpayers

$230 billion, the Federal government spent only $522 million on highway safety and

only one-quarter of that was used to fight impaired driving. Compared to the financial and human costs of drunk driving, our Nation’s spending is woefully inadequate

to address the magnitude of this problem.
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Establishing a National Traffic Safety Fund would give those on the front lines

an increased, ongoing and reliable funding stream for national, State and local highway safety programs. MADD recommends an annual $1 billion dedicated fund for

traffic safety programs. We know that for every dollar spent on effective highway

safety programs about $30 is saved by society in the reduced costs of crashes. This

would be a wise investment.

States must have additional resources if they are expected to reach their highway

safety goals. Section 402, State and Community Highway Safety grants, provides

funding to States to support highway safety programs designed to reduce traffic

crashes and resulting deaths, injuries, and property damage. TEA–21 authorized

$163 million in fiscal year 2003 for Section 402 grants. MADD recommends a substantial increase in Section 402 funding to help States reach their highway safety

goals. Of the $1 billion annually, MADD recommends $425 million for the reauthorized Section 402.

Although alcohol is a factor in 42 percent of all traffic deaths, only 26 percent of

all highway safety funding available to the States through TEA–21 is spent on alcohol-impaired driving countermeasures. Too often highway safety funding made

available to the States is used for other programs that may not save as many lives

or prevent as many injuries as priority traffic safety programs. It is critical that

these funds are spent on data-driven programs that include comprehensive impaired

driving and seat belt initiatives.

The National Traffic Safety Fund would also be used to expand States’ well-publicized law enforcement activities to curb drunk driving and increase seat belt use.

These law enforcement resources would support training, over-time, technology and

paid advertising throughout the year. Additionally, funds would be available for

three highly visible national impaired driving and seat belt law enforcement mobilizations.

These law enforcement activities should utilize, when possible, frequent and highly visible sobriety checkpoints. These are among the most effective tools used by law

enforcement to deter impaired driving. We know through research and real world

experience that sobriety checkpoints save lives. The CDC found that sobriety checkpoints can reduce impaired driving crashes by 18 to 24 percent. These checkpoints

are especially effective when coupled with media campaigns that raise the visibility

and awareness of drunk driving enforcement efforts in the community with the bottom line goal of deterring impaired driving before it happens.

Without significant increases in the level of funding for these critical safety programs, the current deadly trend will continue to worsen.

But it is just as important to know where the money is going and how it is being

spent. That is why MADD is asking Congress to hold States and the National Highway Traffic Safety Administration accountable for the expenditure of Federal highway safety funds. Our goal is not to make their jobs more difficult. It is to recognize

that political pressures and ‘‘flavor of the month’’ traffic safety issues can influence

how dollars are spent. If DOT’s primary goal is to reverse the current trend, it is

time to create a more consistent process that ensures the efficient and proper use

of Federal funds to help the Nation achieve its highway safety goals.

MADD also urges Congress to strongly encourage States to enact proven traffic

safety laws, such as a national primary seat belt enforcement standard. According

to NHTSA, for every percentage point increase in seat belt usage, 280 lives can be

saved. MADD knows that the best defense against a drunk driver is a seat belt. The

fact is, of those killed in alcohol-related traffic crashes, 76 percent were not wearing

their seat belt. Had they been, a significant portion of them would be alive today.

Drunk drivers typically do not buckle up, nor do they make sure their passengers

are properly restrained. The sad fact is that two-thirds of children killed in alcoholrelated crashes are passengers driven by an impaired driver. We also know that

seat belt use for children generally decreases the more impaired a driver becomes.

MADD calls for the establishment of a national primary seat belt standard. States

would be eligible for ‘‘jumbo’’ financial incentives for three years. States that have

not enacted this lifesaving measure after three years would lose Federal highway

construction funds.

MADD also calls for the enactment of a national standard to combat ‘‘higher-risk

drivers.’’ ‘‘Higher-risk drivers’’ are defined as repeat offenders, those with BACs of

.15 or higher, or persons caught driving on a suspended license when the suspension

is a result of a prior DUI offense.

This priority is one that has personal meaning for me. On September 19, 1984,

a high BAC driver caused the head-on collision that killed my 32-year-old sister

Becky and my 22-month old nephew Timmy. Three hours after the crash, the offender tested at a .16 BAC. Police pulled four empty bottles of alcohol from his vehicle.
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While higher-risk drivers are a small portion of the population, they pose a significant threat to innocent motorists. On a typical weekend night, only one percent

of drivers have a BAC of .15 or higher, but high BAC drivers were involved in over

one-half of all alcohol-related traffic deaths in 2000. And, about one-third of all drivers arrested or convicted of DUI are repeat offenders. Clearly, we need leadership

from Congress and the Administration to encourage States to act now to get this

most dangerous segment of the driving public off of our roads.

MADD is backing research-based solutions to address the higher-risk driver

through what we call: Restrictions, Restitutions and Recovery. Restrictions include

mandatory sentencing, strict licensing and vehicle sanctions such as immobilization

and ignition interlock devices. Restitution includes payment to victims and to the

community by offenders. Recovery focuses on efforts to address the offender’s substance abuse and addiction. States that do not enact comprehensive higher-risk

driver legislation would lose Federal highway construction funds.

Lastly, MADD calls on Congress to enact a national ban on open containers in

the passenger compartment of motor vehicles. Open container laws separate the

consumption of alcohol from the operation of a vehicle. A common-sense measure,

banning open containers in the passenger compartment of a vehicle will decrease

the likelihood that drinking and driving will occur. One NHTSA study found that

States with open container laws have lower rates of alcohol-related fatalities, while

another study conducted by the Stanford University Institute for Economic Policy

Research found that, controlling for other variables, open container laws had a significant effect on reducing fatal crash rates (by over 5 percent).

The Kentucky Bus Crash reminds us that for every loss and for every tragic death

and injury there is untold suffering and emotion. That said, MADD is committed

to advocating research-based and proven-effective countermeasures to prevent others from having to experience what the families of these victims have suffered.

It’s not about feel good. It’s about doing what is right, and doing what will most

effectively save lives. That is what drives our agenda, and that is what is behind

our proposals for the reauthorization of TEA–21.

NHTSA’S FISCAL YEAR 2004 BUDGET PROVIDES INADEQUATE RESOURCES AND LITTLE

GUIDANCE TO REACH HIGHWAY SAFETY GOALS

In the Fiscal Year 2004 Budget in Brief, NHTSA states that it is ‘‘committed to

pursuing an aggressive safety agenda’’ and that ‘‘[b]ehavioral safety initiatives will

be directed to increasing safety belt use and deterring impaired driving, which are

central to achieving the Department’s traffic fatality goal.’’ While NHTSA’s funding

request appears to have increased monies for behavioral funding, this is not the

case. In fact, the fiscal year 2004 request is less than the fiscal year 2003 request.

This is because the fiscal year 2004 request includes $222 million of TEA–21 resources for the Sections 157 and 163 grant programs formerly appropriated in the

Federal Highway Administration budget. NHTSA has always administered these

funds and is now requesting receipt of this funding directly. This apparent increase

is really no increase at all, just a shifting of grant funds.

The current fiscal year 2004 request for behavioral funding is $516,309,000, but

once Sections 157 and 163 monies are subtracted the amount is lowered to

$294,309,000. The fiscal year 2004 request is actually $234,000 less than the fiscal

year 2003 request.

Additionally, only a percentage of this funding will be spent on behavioral safety

since States are able to use this funding for roadway safety/highway construction

projects.

One of NHTSA’s primary fiscal year 2004 goals is to reduce the rate of alcoholrelated highway fatalities per 100 million vehicle miles traveled (VMT) to 0.53. In

its Budget in Brief, NHTSA states the following:

‘‘The 2003 target of .53 per 100 million VMT, if met, will result in a reduction

of alcohol-related fatalities to 15,600 . . . It will be a challenge to meet this target

by the end of 2003. The agency is implementing new programs in 2003 that should

begin to see positive results by the end of the year. Even though NHTSA should

begin to see results in 2003, the agency still may not be able to achieve the target

without the States and communities enacting and, more importantly, enforcing

strong alcohol laws and reforming their individual impaired driving control systems.’’

However, it is not clear from the fiscal year 2004 budget what these new programs are and where the money is coming from to continue them. NHTSA’s fiscal

year 2004 budget request clearly does not reflect the severity of the impaired driving problem. While NHTSA’s fiscal year 2004 budget states that ‘‘Protecting vehicle
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occupants and deterring impaired drivers are among the major ways we are able

to reduce death and injury,’’ the level of funding for impaired driving countermeasures is utterly insufficient. For example, the Impaired Driving Division budget

request is significantly lower than fiscal year 2002 enacted levels (10,926,000 fiscal

year 2004 request compared with 13,497,000 fiscal year 2002 enacted). NHTSA

states that ‘‘Aggressive actions are needed to expand focus on several key high-risk

populations, including underage drinkers, 21–34 year olds, and repeat offenders,’’

but seeks fewer resources to reach these goals.

Under ‘‘Anticipated Fiscal Year 2003 Accomplishments’’ NHTSA recognizes that

‘‘Two nationwide law enforcement mobilizations (July and December) will be conducted,’’ bolstered by a national media public service advertising campaign. The

‘‘Click It or Ticket’’ national law enforcement mobilization campaign has been highly

successful at increasing seat belt usage. Thanks to the Senate, funds were dedicated

in the fiscal year 2003 budget to conduct similar national mobilizations to reduce

alcohol-impaired driving deaths and injuries. However, NHTSA does not request

any funding to continue this effort.

Additionally, NHTSA’s State & Community Highway Safety Program drastically

reduces funds available to States for impaired driving initiatives. NHTSA’s fiscal

year 2004 request provides a $50 million impaired driving grant program to only

a subset of States to demonstrate the effectiveness of a comprehensive approach to

reducing impaired driving and for identifying causes of weakness in a State’s impaired driving control system. This funding level is $100 million less than funds

available to States in fiscal year 2003 for impaired driving improvements.

While NHTSA continuously states that reducing alcohol-related traffic fatalities

is a top priority, the fiscal year 2004 budget request does not support these assertions.

ADMINISTRATION’S ‘‘SAFETEA’’ PROPOSAL CUTS ALCOHOL-IMPAIRED DRIVING FUNDING

AND INCENTIVES, LACKS BEHAVIORAL SAFETY FUNDING

MADD was dismayed to learn that impaired driving control programs merit less

than one page out of the 378 page U.S. Department of Transportation (DOT) surface

transportation proposal. DOT’s proposal, ‘‘SAFETEA,’’ falls woefully short of real

‘‘safety’’ for America’s roadways and includes an inadequate response to this urgent

national problem.

‘‘SAFETEA’’ decreases funding for alcohol-impaired programs by 67 percent. The

proposal recommends an impaired driving program of only $50 million, far less than

current funding levels and clearly not enough to reverse this deadly trend. In fiscal

year 2003, TEA–21 authorized $150 million for alcohol-impaired driving countermeasures and also contained requirements for States to enact repeat offender and

open container laws. If States failed to pass these alcohol-impaired driving laws

then a percentage of their Federal construction funds were transferred. Not only

does ‘‘SAFETEA’’ cut impaired driving funding to $50 million, it also does not include any incentives to States to enact alcohol-impaired driving laws.

In comparison, DOT’s Recreational Trails Program (RTP)—$60 million in fiscal

year 2004—receives 20 percent more funding than the Impaired Driving Grants Program. The RTP program provides funds to develop and maintain recreational trails

for motorized and non-motorized recreational trail users. It appears, at least from

a budget standpoint, that keeping recreational trails safe for a small population of

users is even more important to DOT than keeping all highway users safe from impaired drivers.

The overwhelming majority of ‘‘safety’’ funding in the ‘‘SAFETEA’’ proposal is

budgeted in the new ‘‘Highway Safety Improvement Program’’ (HSIP), which is really a highway construction project program. In 2004 alone, $1 billion is allocated to

the HSIP program. These funds are to be used for ‘‘safety improvement projects,’’

defined below.

‘‘A safety improvement project corrects or improves a hazardous roadway condition, or proactively addresses highway safety problems that may include: intersection improvements; installation of rumble strips and other warning devices; elimination of roadside obstacles; railway-highway grade crossing safety; pedestrian or

bicycle safety; traffic calming; improving highway signage and pavement marking;

installing traffic control devices at high crash locations or priority control systems

for emergency vehicles at signalized intersections, safety conscious planning and improving crash data collection and analysis, etc.’’

While these are all important activities, DOT itself recognizes that human behavior, not roadway environment, is overwhelmingly seen as the most prevalent factor

in contributing to crashes. The General Accounting Office (GAO) released a report
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in March 2003 that reconfirms this premise after surveying data, experts and studies focusing on factors that contribute to motor vehicle crashes. Given that behavioral factors account for the majority of traffic crashes, it is difficult to understand

the vastly disproportionate funding levels for behavioral versus roadway construction safety programs and why DOT allows a significant portion of the behavioral

funds to be used to augment even more roadway construction spending.

While NHTSA continuously states that reducing alcohol-related traffic fatalities

is a top priority, the Administration’s ‘‘SAFETEA’’ proposal does not support these

claims.

INCREASED RESOURCES ARE REQUIRED TO SIGNIFICANTLY REDUCE HIGHWAY DEATHS

AND INJURIES

Research demonstrates that certain programs and initiatives will significantly reduce traffic deaths and injuries. In order to implement these programs and initiatives, increased resources are needed. The reauthorization of Federal highway safety

programs provides the vehicle to obtain more resources to combat this public health

problem. MADD urges Congress to consider the merits of each traffic safety program

based upon their ability to reduce or prevent alcohol-related traffic fatalities.

MADD’s goal is to ensure that Federal traffic safety dollars are spent on effective

programs and that States pass basic laws to combat alcohol-impaired driving.

NHTSA’s traffic safety budget is wholly inadequate. Faced with the highest num- ber of highway fatalities since 1990, and a cost to America’s economy of over $230.6

billion annually, the agency’s budget request should reflect the growing need for

more resources rather than maintain the status quo. Currently, the Federal government’s funding for traffic safety programs does not reflect the importance of this

public health crisis. The reauthorization of TEA–21 offers Congress the opportunity

to review and reallocate funds to traffic safety.

GAO REPORT HIGHLIGHTS DEFICIENCIES IN OVERSIGHT OF HIGHWAY SAFETY

INITIATIVES

Recently the General Accounting Office (GAO) released a report detailing the

management and use of Federal highway safety programs and funding. GAO concluded the following:

‘‘ . . . NHTSA’s oversight of highway safety programs is less effective than it

could be, both in ensuring the efficient and proper use of Federal funds and in helping the States achieve their highway safety goals.’’

GAO’s report shows that Federal oversight of State spending on highway safety

programs has been inadequate in the face of rising traffic deaths and that NHTSA

has not been consistently monitoring how funds are being used. GAO also found

that NHTSA has no consistent policy for conducting State reviews or improvement

plans. As a result, some regional offices conduct reviews as infrequently as every

two years, while others conduct them only when a State requests one. This clearly

enables some States to slip through the cracks. For example, the report found that

the rate of alcohol-related traffic deaths rose in 14 States between 1997 and 2001;

in seven of those States, the rate was higher than the national average, but only

one of the seven States had a NHTSA improvement plan. The GAO also found that

seat belt use was declining in some States that didn’t have NHTSA improvement

plans.

The GAO report also reveals how States use some of their highway ‘‘safety’’ funding. States that did not meet either the open container or the repeat offender requirements in TEA–21 has a percentage of funds transferred from their Federal

highway construction program to their Section 402 highway safety grants program.

However, States were also able to allocate transferred funds to highway construction projects under the Federal Highway Administration’s (FHWA) Hazard Elimination Program (HEP). An overwhelming 69 percent of the transferred funds were

used by States for construction anyway projects anyway, the GAO reported.

The GAO report demonstrates that more Federal oversight and guidance is needed for the expenditure of Federal highway safety funds to ensure that these funds

are spent on effective behavioral programs. Clearly there are legitimate areas of

public health and safety in which the Federal government should be involved in setting standards. Similar to airline safety, highway safety warrants Federal government involvement. In this country we have a national highway system. Families

should be protected from the consequences of impaired driving whether they are

driving through Alabama, Washington or North Dakota. Impaired drivers do not

recognize state boundaries. Drunk driving is a national problem and it demands a

national solution.
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CALL TO ACTION: NATION’S LEADERS MUST PROVIDE A ROADMAP

However, our Nation lacks a clear, coordinated national and state solution to reduce impaired-driving deaths and injuries. Congress now has the opportunity to

dedicate proper funding to address this public health epidemic, and to ensure proper

use of these funds. While continued research efforts are critical in order to identify

new and improved methods to deter drunk driving, there are many proven, research-based strategies that are not being used to reverse the current deadly trend.

These strategies can and must be employed to make progress in the effort.

MADD urges Congress to provide adequate funding to NHTSA , and to require

NHTSA to develop a roadmap for itself and the States to significantly reduce alcohol-related deaths and injuries. The Nation is waiting for short-term, immediate

strategies such as high-visibility enforcement efforts and sobriety checkpoints to

turn this trend around, as well as long-term strategies that will ensure our safety

on America’s roadways for years to come. Our Nation can no longer afford the current state of inaction on this issue.

Today, we are at a historic crossroads as Congress takes up the multi-billion dollar reauthorization of TEA–21 that will shape transportation policy for the rest of

this decade and beyond. Maintaining the status quo, or worse, decreasing resources

dedicated to fighting drunk driving will not reverse this deadly trend. This is our

best chance to ensure adequate highway safety funding, to ensure that these funds

are being used effectively, and to enact laws that will keep drunk drivers from getting behind the wheel. I urge Congress to adopt MADD’s proposal and create safer

roads for all Americans. Thank you.

Senator CAMPBELL. Thank you. Mr. Hurley.

STATEMENT OF CHARLES HURLEY, VICE PRESIDENT, NATIONAL

SAFETY COUNCIL

Mr. HURLEY. Thank you, Senators. I am Chuck Hurley, Vice

President of the National Safety Council’s Transportation Safety

Group and Executive Director of the Airbag and Seatbelt Safety

Campaign.

Much of the recent progress in highway safety is a direct result

of the leadership of this committee. Chairman Shelby’s support of

‘‘Click It or Ticket’’, Senator Murray’s support of ‘‘Click It or Ticket’’, and the support that the committee has given to paid ads has

been instrumental. In fact, people are alive across this country because of the work the committee has done in recent years. Other

States certainly on the committee are also involved in this

progress.

Regarding the administration, we want to applaud the administration’s focus on belt use, and specifically the $100 million fund

that Dr. Runge, we give him credit for getting that in the budget.

We believe that that will entice a number of more States.

I am proud to say, and Senator Durbin will probably say when

he gets here, that Illinois this week became the 19th State plus the

District of Columbia and Puerto Rico to get a primary belt law.

That makes right at 59 percent of the population of the United

States covered by belt law, which is a good start. We need to get

that to 100 percent.

Again, to emphasize how important belt use is, if we could get

the country to where Washington State has proven we can go—and

as Dr. Runge said, the other Western States and Puerto Rico as

well—we could save upwards of 4,000 lives a year by getting belt

use up to the level of most developed countries in the world.

Belt use and drunk driving are not just two other highway safety

priorities. They are fundamental to the progress we hope to

achieve.
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I would also like to commend the performance of the Federal

Motor Carrier Safety Administration for its 4-year record of reductions, the 3.5 percent reduction I think in fatalities since last year,

and also the provisions for traffic records and data collection in the

budget as well.

Regarding MADD, the Nation owes MADD an extraordinary debt

of gratitude. I have been with the National Safety Council a long

time, have lobbied the U.S. Senate before MADD. Senator Pell introduced a bill in the late 1970’s, a very modest bill, got no hearing

whatsoever.

With MADD’s first national press conference in October, 1980

things began to change. Without MADD, we would not have had

President Reagan’s Drunk Driving Commission. We would not have

had a drinking age of 21. We would not have had most administrative license revocation laws. We would not have had the .08 law.

And we probably would still be losing 27,000 lives a year. Equally

importantly, the victims of this violent crime would have no place

to turn. So, again MADD is owed an extraordinary debt of gratitude.

Regarding law enforcement, it is hard to overstate the role that

they play in highway safety. I know a number of us, Wendy and

I, really consider law enforcement to be every day heroes. Out

there all day long, late at night, stopping people not knowing what

is in that car. A good example was this week at the checkpoint and

the launch here in the District of ‘‘Click It or Ticket’’, where at

10:00 in the morning they stopped a suspected drunk driver on Nebraska Avenue that was so drunk at 10:00 in the morning that he

passed out and was taken away in an ambulance.

The work law enforcement does every day is extraordinary. We

ask them to do some of our toughest jobs, but none tougher than

pulling kids out of cars and knocking on doors late at night. A

number of them have said that they would rather give out 1,000

tickets than have to do that again.

Regarding the budget, we at the National Safety Council have a

sincere concern that the budget in key areas is simply not adequate. Wendy Hamilton of MADD raised the issue of the paid ads.

That is critical, I think, to make further progress in this country

on both belts and alcohol. The fact that it is not in the budget is

very concerning to us.

It has been said that people who admire law and sausage have

watched neither being made. The same probably extends to budgets. I am not sure how it was not put in the budget but we hope

that this committee will put it back.

We also are concerned, again, that there is simply not enough

funding for drunk driving efforts. As Wendy Hamilton indicated,

for the proposed funding to be higher for recreational trails than

for drunk driving programs in this country to us makes no sense

whatsoever and we hope this committee will seek to address that.

In the exhibits attached to my statement we have tried, at the

Airbag and Seatbelt Safety Campaign to put what has proven to

work into your hands in exhibits. We hope that that will be made

a part of the record.

The one exhibit I would like to draw your attention to is one of

our favorite charts. This is exhibit D, I believe. It is on the left-
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hand side, the last attachment on the left-hand side. It shows how

important paid advertising is and how important high visibility enforcement is.

You can see with the green line of serious and fatal covered injuries and the red line of observed driver belt use in North Carolina,

where Dr. Runge and I would like to be, you can see that real

progress began really with the Operation Buckle Down Program.

As you drive belt use over 80, the serious and fatal injuries drop

very substantially.

At 75 percent we have virtually every low risk driver in the Nation buckled up. But that is a daytime rate. That is when belt use

is observed.

In contrast to that, the high risk drivers, specifically teenagers,

their belt use in fatal crashes is only 36 percent. The belt use their

teen passengers is only 23 percent. And it is not really until you

get to high visibility enforcement that you do pick up the high risk

drivers.

In addition, in North Carolina the Booze It and Lose It Program

was able, through highly visible enforcement and paid ads, just as

we are recommending to the committee, that took an already good

program in North Carolina and cut the rate of intoxicated drivers

at nighttime checkpoints in half.

High visibility enforcement works. We strongly support its inclusion in the budget.

If Senator Durbin were here I am sure he would want to also

point out that with Illinois’ enactment of the primary belt law this

week that they are looking very much forward to the administration’s proposal where they would qualify for a maximum grant of

$31,280,000. I believe they would be the first success story of this

proposal. We would strongly support any effort to get Illinois that

money.

They also passed probably the Nation’s best racial profiling law,

a booster seat bill, a passenger restriction on graduated licensing

intermediate stage drivers as well, and have really become a model

for the Nation.

PREPARED STATEMENT

Finally, I would like to thank the funders of the campaign, without whom our work would not be possible, the automobile manufacturers, the airbag suppliers and one major insurer.

We would, I think, all be delighted to respond to questions that

the Senators might have. Thank you.

[The statement follows:]

PREPARED STATEMENT OF CHARLES HURLEY

Mr. Chairman and members of the Subcommittee, thank you for inviting us to

testify before you about a very important issue, highway safety. I am Chuck Hurley,

Vice President of the Transportation Safety Group at the National Safety Council

and Executive Director of its Air Bag & Seat Belt Safety Campaign.

Allow me to express our thanks for the leadership of the Subcommittee—Senators

Shelby and Murray—for the support you have provided for the efforts of NHTSA

and the Campaign to increase seat belt use. The resources you have made available

have helped to save lives and prevent injuries.
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HISTORY/CAMPAIGN’S PHILOSOPHY

In July 1996, an alarming trend was emerging: people—most of them children—

were being killed by air bags. Pressure to overturn the mandate for driver and passenger side air bags—proven life savers for properly restrained adults—was mounting. As one million new passenger air bag equipped vehicles entered the fleet every

month, a coalition of interested parties, primarily funded by the auto manufacturers, formed what is now the Air Bag & Seat Belt Safety Campaign, which celebrated

its seventh anniversary yesterday.

Our goal was to save lives by informing the public of the steps they could take

to maximize the benefits and minimize the risks of air bags, and to increase seat

belt use. A close examination of the child air bag fatalities revealed a chilling

trend—these children were almost all unbuckled or incorrectly restrained in the

front seat.

Seat belt use is the key to maximizing the lifesaving benefits of air bags and to

reducing the staggering number of people killed and injured in crashes every year.

The Campaign is focused on increasing seat belt and child safety seat use in addition to continuing to promote air bag safety. The Campaign’s work is grounded on

a fundamental principle—to employ only strategies tested and proven to work. As

such, communications are used to support interventions proven effective in getting

people to buckle up.

At recent and current levels of belt use, the only interventions proven effective

in significantly increasing seat belt and child restraint use are strong laws and

highly visible enforcement. The three key elements of the Campaign’s strategy are

to enact strong safety belt laws, enforce those laws to the fullest extent of the law

and to educate the public.

PRIMARY BELT LAWS

Achieving the country’s current 75 percent belt use rate has been remarkable considering that we are building on a foundation of weak State seat belt laws. Only

18 States and the District of Columbia have strong, primary enforcement laws

which allow a vehicle to be stopped and the driver and/or passengers ticketed solely

for not wearing a safety belt. Secondary laws, which require the vehicle to be

stopped for another violation before issuing a seat belt ticket, are more suggestions

than they are laws.

The Campaign has been active in 25 States pursuing stronger seat belt laws with

successes in seven States. We have been involved with every State that has passed

a primary enforcement law since 1997. When we started, 37.5 percent of the U.S.

population was covered by primary laws. Today, that figure stands at 54 percent.

This increase represents an additional 51 million people now covered by these lifesaving measures.

ENFORCEMENT MOBILIZATIONS

The centerpiece of the Campaign is the Click it or Ticket Mobilization—a twice

yearly, 50-State seat belt and child passenger safety enforcement drive. The Mobilization is sponsored by the Campaign in partnership with the National Highway

Traffic Safety Administration, the National Transportation Safety Board, the International Association of Chiefs of Police, Mothers Against Drunk Driving, the National Sheriffs Association, the National Organization of Black Law Enforcement

Executives and with the support of more than 1,000 businesses and community organizations.

Just last week, we were delighted to be joined by so many members of the Administration, including Transportation Secretary Norman Mineta, NHTSA Administrator Jeff Runge, M.D., and Surgeon General Richard Carmona, M.D., as we kicked

off the Click it or Ticket Mobilization. This is the first Mobilization to be supported

by significant national and State advertising, with funding sponsored by the leadership of this Subcommittee.

The Click it or Ticket enforcement push runs from May 19 to June 1. During the

Mobilization, the message to teens and young adults—in the TV and radio ads, in

schools, in internet chat rooms, and at enforcement zones near where young people

congregate—is to use a seat belt or risk getting a ticket.

The purpose is not to give out more tickets, it is to increase belt use, save lives,

and prevent injuries.

The Click it or Ticket Mobilization replicates a highly effective seat belt enforcement example that is based on a model developed in Canada where high visibility

enforcement has resulted in belt use rates that exceed 90 percent.
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The first statewide implementation of the Click it or Ticket model, including paid

advertisements that supported the enforcement, came in North Carolina in 1993.

Belt use immediately jumped 15 percentage points in three weeks and remains

above 80 percent in the State. This sTEP (selective Traffic Enforcement Program)

model combines periodic waves of stepped up enforcement of seat belt and child passenger safety laws with aggressive publicity highlighting the enforcement. The program aims to deliver the message that law enforcement will be ticketing seat belt

and child passenger safety law violators.

The Air Bag & Seat Belt Safety Campaign created the first nationwide Mobilization in May 1997, with 1,000 law enforcement agencies from all 50 States participating. Now, after 12 Mobilizations, the number of participating agencies has

climbed to more than 12,500, representing hundreds of thousands of law enforcement officers nationwide, and reaching 99 percent of the U.S. population.

The fact that there continues to be such strong participation and leadership from

our Nation’s law enforcement in the Mobilizations is a clear demonstration of their

commitment to saving lives. We ask our police to do the toughest jobs, but none

tougher than pulling dead children out of vehicles, and knocking on doors late at

night to inform family members they’ve lost a loved one to a traffic crash. We are

honored to work with police throughout the year, but especially during these Mobilizations.

In the 6 years since the Mobilizations began:

—Child fatalities from traffic crashes have dropped by 20 percent.

—Restraint use among toddlers has jumped dramatically from 60 to 94 percent

and among infants, ages 0–1 from 85 to 99 percent. Restraint use for children

ages 4 to 7 is 83 percent.

—Adult seat belt use has risen from 61 percent to 75 percent—the highest use

rate ever—with 39 million more Americans buckling up.

—The rate of child-related airbag fatalities has declined 94 percent.

SUCCESS OF PAID ADVERTISING

In the early days of the Mobilizations, there was a heavy emphasis on earned

media. Working with others, we were able to generate extensive coverage about the

job that our law enforcement was doing to ensure our safety. However, it became

evident to us that to continue to achieve gains in national seat belt use rates, the

element of paid advertising needed to be added to the equation.

Young people in particular are least likely to buckle up and least likely to be impacted by earned media because they tend to not watch or read the news. To reach

them with an enforcement message (research shows that those who refuse to buckle

up are likely to change their behavior with the threat of a ticket and not from a

public education message), we needed paid advertising to assure targeted messaging. By targeting paid advertisements to their demographic, we directly let them

know that if they won’t buckle up to save their lives, they should do so to avoid

a ticket.

In May 2001, high-visibility enforcement was coupled with paid advertising in

eight southeastern States with remarkable success. The Campaign partnered with

NHTSA’s Region IV office in Atlanta to implement the first multi-state seat belt use

enforcement program. The Campaign invested $500,000 in paid advertisements

throughout the region as the individual States purchased an additional $3.25 million worth of paid media.

As a result of this program, safety belt use increased in the region by nine percentage points. Sustaining belt use at that rate would have produced a savings of

650 lives and $950 million in economic costs. This increase represented an additional 4.5 million people buckling up!

The success of Region IV was followed up with an additional 12-State pilot program in May 2002. With the assistance of this Subcommittee, $8 million was earmarked in NHTSA’s budget to expand on previous successes and determine if the

program would work in other parts of the country.

Once again, the program worked and lives were saved. While there were 12 States

that received specific funding through the earmark, additional States also participated in high-visibility enforcement activities with their own funds. In total, 23

States and the District of Columbia used the Click it or Ticket slogan with paid advertisements. Another 14 States used a non-Click it or Ticket slogan with paid advertisements.

With so many States implementing varying programs, NHTSA was able to extensively evaluate the effectiveness of these projects. States that fully implemented the

Click it or Ticket model with paid advertising saw an average increase of 8.6 percentage points in seat belt use. That was compared to States that diverged slightly
259

from the model, with some paid advertising and States that diverged from full implementation with no paid advertising. The latter two categories of States saw an

increase in belt use of 2.7 percentage points and 0.5 percentage points, respectively.

Congress followed up this past February with another earmark to support the Mobilization that is happening right now across the country. In the Omnibus fiscal

year 2003 Appropriations bill, $10 million was earmarked for a national paid advertising campaign to support the current seat belt Mobilization.

Through the leadership of this Subcommittee, as well as other groups like MADD,

this same strategy has been extended to include impaired driving mobilizations. We

are pleased to be able to partner with MADD in our mutual goal of reducing fatalities through enforcement strategies that are proven to work.

The Campaign continues to believe that paid advertising is an essential element

in the national effort to increase existing belt use rates. Research has shown that

further educational appeals to non-belt users will produce little or no change in behavior.

The 2001 Report of a National Seat Belt Summit, a gathering of more than 45

national leaders in early 2001, concluded the following: ‘‘Catchy slogans and public

service campaigns alone are not the answer. Public policies must support strong

State belt-use laws, encourage effective enforcement of those laws, and provide the

resources necessary to carry out these activities.’’ The Report called for expansion

of ‘‘highly visible and effective enforcement programs, supported by coordinated paid

advertising . . .’’

MOVING FORWARD

Given all of the data that is available, we request that the Subcommittee continue

to earmark substantial funding to purchase national and State paid advertising to

support three Mobilizations in fiscal year 2004. By providing funding to purchase

national paid media the country can take the necessary steps to achieve the goals

of higher seat belt use, and improved traffic safety.

We are still studying the Administration’s highway reauthorization and funding

proposals. We applaud the Administration’s emphasis on seat belt use and primary

seat belt use laws. We specifically support the $100 million in incentive grants to

States that have or will enact primary belt use laws.

On behalf of the National Safety Council, let me state that we do not believe there

is adequate funding in the Administration’s reauthorization proposal for drunk driving or the other important state highway safety programs.

Thank you, Mr. Chairman, and I would be pleased to respond to any questions

the Subcommittee might have.

[CLERK’S NOTE.—Attachments to Mr. Hurley’s prepared statement will be retained in subcommittee files.]

Senator CAMPBELL. Thank you. I have a few and I am going to

bounce around a little bit here. Maybe I will just go ahead, since

you were the last one who spoke, Mr. Hurley.

You mentioned some of the highway funding going to perhaps

other things. What is your view on transportation money, highway

money, going to bike trails and hiking trails and so on?

Mr. HURLEY. We support that obviously, and we also support the

safety-related construction. It does save lives. But most of the

SAFETEA road construction would see benefits over a 20- to 30-

year period.

As Wendy Hamilton of MADD has said, if we want to reduce the

FARS right now, the best way to do it is the things that are recommended in high visibility enforcement. It is an unfortunate fact

that priorities do have to compete in the highway bill. But for recreational trails to be funded at a higher level than drunk driving,

we think, is a hugely misplaced set of priorities.

Senator CAMPBELL. Thank you.

As you know, we went from a huge surplus in just about 20

months now to who knows, maybe a $350 billion deficit in the next

10 years. I think a lot of things are going to be in competition for

the existing dollars, as you probably know.
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Ms. Sandberg, did I hear you say there are 800,000 shipments

of HAZMAT a day in the United States?

Ms. SANDBERG. Yes, sir.

Senator CAMPBELL. Do you have a figure for the number that are

involved in accidents?

Ms. SANDBERG. I do not have that, but I can get it for the record.

[The information follows:]

Only 15–20 trucks transporting hazardous materials are involved in an accident

each day. In the majority of these crashes (84 percent), there is no leakage of hazardous materials.

Senator CAMPBELL. If you would supply that I would appreciate

it. I was one person that was not thrilled at all about the movement of the hazardous material to Yucca, Nevada. One of the reasons was a lot of it was going to go through the city in my State

which is Denver, or on rail down what is called Glenwood Canyon

besides a river that supplies something like seven States. It is part

of the Colorado system. We were really concerned about that. I

would be interested in knowing that number.

Let me skip to maybe something else now and I will probably get

in trouble for bringing this up, but the Federal Motor Carrier Safety Administration is reviewing and about to change their hours of

service proposal. I am not sure if we have got the availability of

resources to carry at the rulemaking and to conduct what the Congress has mandated. Would either one of you like to, Dr. Runge or

Ms. Sandberg, like to comment on that?

Ms. SANDBERG. The changes in the hours of service rule?

Senator CAMPBELL. Yes.

Ms. SANDBERG. Yes. Actually, we recently made those changes

after a number of years of deliberation. Actually, we had over

53,000 comments.

The changes in the rules, in working with our partners at the

States who do most of the enforcement, the main group is the Commercial Vehicle Safety Alliance, has indicated that they feel that

the new rules are going to be easier to enforce because they move

truck drivers more towards a 24-hour clock.

What it requires is that driver have 10 hours off. They can work

14 consecutive hours. Once they go on the clock, those hours start

consecutively so that they cannot take breaks and build their work

day into 20 or 24 work days.

Senator CAMPBELL. They can work 14, but not drive 14.

Ms. SANDBERG. No, they are only allowed to drive 11 of that 14.

So that moves them more towards a 24-hour clock, which helps law

enforcement look at their log books and determine exactly how

much they have been working and able to enforcement that.

We also have a follow-on rulemaking that will occur within the

next year or so which is to shore up one of the areas that has been

a concern of the enforcement community, and that is the documents that drivers are required to keep as part of their log book.

So that it shows restaurant receipts and those kinds of things.

So we are working on trying to shore up the areas where enforcement has told us that there are some concerns.

Senator CAMPBELL. I never was a supporter of that, either. You

probably know that. I do not know if you have ever driven much

in the 18-wheelers, but I have. And I can tell, knowing from some
261

people who have done it, that faking log books is not all that difficult. It has been done for years. Even before there was log books

there were things called clocks that they used to keep. Not difficult

at all to fake those things.

So I hope it works. I know the ATA is supporting these rule

changes, the American Trucking Association. But all I hear from

drivers themselves is that it is going to be bad. It is going to really

cut into their ability to make a living. It is going to clog the highways with more trucks that have to make up the shipping for the

ones that have to be parked.

I have heard it from truck stop owners, literally all kinds of people thinking that the hours of service are going to be more detrimental than helpful. I hope they will be helpful.

But there is something else that has been on my mind lately.

And this is probably where I am going to get in trouble with AARP

and a few other senior groups. That is the way the regs work now,

if you have a truck that is over 26,000 pounds gross vehicle weight

you have to have a license. You have to have a CDL, different levels.

But there are vehicles out there, big RVs, 45 feet long. They can

go legal limit now 45 feet. Some of them gross 40,000 pounds. That

is big vehicle. And they can tow a 20-foot trailer, too. And a lot of

the people that are buying those great big beautiful motor homes,

that are very expensive as you might guess, are people that summer where it is nice in the summer and they go where it is nice

in the winter. That means they are going back and forth twice a

year from Wisconsin to Florida or from maybe Oregon to Yuma, Arizona, where there are thousands upon thousands of RVs every

winter.

I guess the good news of that is that they are only driving it

twice a year. But that is also the bad news, they are only driving

it twice a year. Because these vehicles are much bigger than most

of the lower levels of the guys who have to have CDLs that are professional drivers and have to go through training and do all this

other stuff, I am wondering what your reaction is to the view, at

least in some circles, the people that drive these great big RVs

ought to also be required to have some kind of training or special

licenses, because they have got air brakes, they have got diesel engines, they have everything that the tracks have on them. And yet

they do not have to comply with anything.

Ms. SANDBERG. We have not, at the Motor Carrier Administration, specifically looked at requiring commercial drivers licenses for

these types of vehicles. Right now our focus has been on commercial motor vehicles, which is trucks and buses.

Senator CAMPBELL. They are not going to be commercial drivers.

They do not haul anything except their family and their toys. But

I am thinking from a safety standpoint and a training standpoint

because a lot of them—one thing about the truck drivers, they are

out there 8 or 10 hours a day driving the things. But the people

during the big RVs are not. They drive them from A to B and then

they park them for months.

Ms. SANDBERG. Clearly from a training standpoint, and I will

have to put on my NHTSA hat here from when I was over at

NHTSA, one of the things that we always looked at is that any
262

time somebody moves to a different type of vehicle, they should

have some type of training. I think we were speaking before the

hearing about people that buy a motorcycle and how helpful it is

if they have some motorcycle training before they get on that motorcycle.

The same with some of the training regimes that we have

worked on in NHTSA with States to look at young drivers and

making sure that they are appropriately trained before they get behind the wheel of that car, whether it be through graduated drivers

license programs or other types of education.

I am not aware of any studies looking specifically at RVs and

drivers that have not driven that large of a vehicle before.

MOTORCYCLE FATALITIES

Senator CAMPBELL. From a legislative standpoint, there is the

low of possibility and the law of probability. It is possible we could

make some kind of a law or rule about training but the probability,

knowing what kind of a buzz saw that would cause with the senior

groups, it is probably not going to happen. But it is just something

for thought.

Since you brought up something that is of particular interest to

me, as you know, and that is motorcycles and motorcycle safety, I

read recently that the number of deaths on motorcycles has gone

up quite a bit in this last year. Have you done, Dr. Runge, studies

on who it is that is dying? Age group, training, something along

that nature.

Dr. RUNGE. Yes, Senator Campbell. As a matter of fact, when we

look at the increase in deaths on the highways over the last year,

a goodly proportion of that increase was due to an increase in motorcycle fatalities. Fortunately, this past year the increase has

dampened a bit, but we still saw about a 3 percent increase in motorcycle fatalities year to year. As you suggest, the largest number

of those is in the 50- to 59-year-old age group.

However, we still have a tremendous problem with impaired

riding. Although just under 40 percent of motorcycle crashes are alcohol-related, it should be pointed out that even at lower levels of

alcohol, riding a motorcycle becomes more difficult. I think there

are right brain functions, activities that are second nature to a

rider, such as handling a curve and looking peripherally, that do

not do well.

Senator CAMPBELL. People who drive automobiles and drinking

are impaired. People to drive motorcycles and drink are just plain

crazy.

Dr. RUNGE. Thank you for pointing that out.

We are addressing this. We do have a $656,000 request in the

fiscal year 2004 budget particularly related to programs for motorcycle riders. We are interested in training. We just developed a motorcycle safety plan, which I hope you have had a chance to take

a look at, that we sent over in December. We would like to begin

to implement the recommendations in that plan in the coming fiscal year.

This is an area where our stakeholders and our customers have

very strong feelings about what should be done. We developed our
263

plan in concert with them. We hope that kind of collaboration can

continue.

HIGH VISIBILITY ENFORCEMENT FOR IMPAIRED DRIVING

Senator CAMPBELL. In my view, the education and training certainly is more acceptable than more and more penalties which

sometimes work and sometimes do not. We talk about alcohol-related crashes. My dad was an alcoholic. And over the years, I came

to believe that all that tragedy and stuff that alcoholism causes, it

is a form of sickness. Sometimes more and more penalties do not

stop a person that has a sickness. They do it anyway.

I might also note with interest that the people who are dying, the

highest percent that are dying on motorcycles now are the 50 to 60,

you said. It would be my guess they were people who did not ride

their whole life. Mom said they could not have one when they were

young. Now mom is gone and they have got some money. And they

saw that movie, Easy Rider, and they know they can do it. And

they are too macho to take any dang training and so they have got

to get on there and they buy some hundred thousand dollar killer

and get out there and get hurt. But thank you for those numbers.

I think I had one other question before I ask Senator DeWine for

his input. This ‘‘Click It or Ticket’’ campaign that was talked about,

considering that has been rather successful, is there anything in

the wind or being suggested that we might use something along

that line for impaired driving or alcohol-related accidents?

Dr. RUNGE. Yes, sir, we currently do that. In fact, Mr. Hurley

and Ms. Hamilton have gone on record as supporting high visibility

enforcement with us. Mr. Hurley mentioned the ‘‘Booze It & Lose

It’’ campaign that was successful in North Carolina. This committee, in fact, appropriated right around $10 million

for a high visibility national advertising campaign this year, which

we will kick off in about 4 weeks. In the alcohol area, we want to

replicate those successes that have been achieved with seatbelts.

EMERGENCY VEHICLE SENSORS

Senator CAMPBELL. Thank you. Maybe one last question, and you

might not have an answer to this because it came to me kind of

accidentally.

There are so many noises out there driving now, distractions and

noises. Radios, soundproof cars to drown out some of those noises,

and older drivers that may have some hearing problems. I was recently told about a sensor that has been developed that can be put

in commercial vehicles or personal vehicles that indicate when an

emergency vehicle is near. I did not know how it senses it.

I was thinking, you know, we have got those things that you put

on your bumper where deer can sense that you are near through

some kind of a sound they can hear. So maybe it is related to that.

Are you aware of any kind of a pilot program that is being developed? I heard of one that is being developed in Colorado, by the

way, in Summit County. A program is being developed that would

tell you if police cars are coming? And I do not mean radar units.

Something to keep you out of trouble.

Dr. RUNGE. I am not aware of that, but we will be happy to

check into it and get back to you.
264

1More information is available at www.mysafetycase.com.

2More information is available at www.eviewsinc.com.

3Palmer, J. ‘‘Air-fed Deer Whistles Scientifically Tested.’’ UConn News, University of Connecticut Office of University Communications, November 19, 2002. 4Peterson, D.D. and Boyer, D.S. (1975). ‘‘Feasibility Study of In-vehicle Warning Systems.’’

DOT HS–801 569.

[The information follows:]

EMERGENCY VEHICLE CRASH AVOIDANCE TECHNOLOGIES

According to NHTSA statistics, in 1997 approximately 15,000 emergency vehicles

were involved in traffic crashes, 75 percent of which are attributable to the other

driver not yielding to the emergency vehicle. For emergency vehicles to safely respond to calls, they need systems that attract the attention of other drivers and elicit an appropriate response, specifically creating a clear path through which the

emergency vehicle can travel. To accomplish this goal, many organizations operate

sirens when responding to critical situations. However, with enhanced soundproofing in vehicles and increased capabilities of in-vehicle sound systems, there is

newfound concern that sirens are not heard, thereby contributing to crashes with

emergency vehicles.

To remedy this issue, numerous inventors have developed technologies to provide

enhanced information of emergency vehicle travel to other drivers. These devices are

probably similar to the one being tested in Colorado. Some systems use wireless

transmitters to send warning signals from the emergency vehicle to a transmitter

in vehicles nearby. Other systems use acoustic sensors to pick up sirens and amplify

them inside the vehicle. For example, Safety Cast, consists of a mobile transmitter

designed to broadcast messages from emergency vehicles to other vehicles in the

area. The Safety Cast consists of a two-mode alert: a tone followed by a message

detailing the situation. Promoters of the product state that with this design drivers

will be able, ‘‘. . . to make a much more planned and safer decision on how to respond’’ to emergency vehicles.1 Another recent design, the Emergency Vehicle Early

Warning Safety Systems (E-Views),2 delivers directional information of emergency

vehicle location with signs mounted on traffic signal mast arms. The Keio University in Japan has also designed a siren detection system that provides warning information to drivers when an external microphone detects sirens. (These systems operate on a different principle than air-fed deer whistles which were mentioned in

the Congressional question. Contrary to popular beliefs, a recent study from the

University of Connecticut found the whistles to be ‘‘acoustically ineffective.’’ 3)

Previous NHTSA research found that the costs of achieving effective in-vehicle

emergency vehicle warning systems far outweighed the benefits.4 The systems need

to overcome significant technical hurdles to make the devices reliable under harsh

driving environments and to minimize presenting drivers with distracting or annoying false alarms. However, advancing in-vehicle technology could prove to make

such interventions cost-effective. In order to determine effectiveness, extensive research would need to address the following issues:

—System compatibility with all sirens implemented in the United States;

—Infrastructure requirements;

—Interface design, intended to not only gains the attention of drivers but promotes the most appropriate response;

—Maintenance requirements and system reliability;

—System state requirements, e.g., does the driver need to have the radio on, etc.

Senator CAMPBELL. Thank you. I have no further questions. Senator DeWine, did you have some questions?

Senator DEWINE. Mr. Chairman, thank you very much. Let me

first just say that I am sure that Chairman Campbell would not

charge you anything for his great quote about those who drink and

ride motorcycles, if you want to use that. You would not charge

them anything would you, Senator, about your great quote about

those who drink and drive motorcycles? They could probably use

that.

Senator CAMPBELL. Yes, you can use it. They are either crazy or

suicidal.
265

BUDGET REDUCTIONS IN IMPAIRED DRIVING PROGRAM

Senator DEWINE. I think that is a great quote.

Doctor, let me ask you, we have talked about the cuts in the alcohol programs. They cut, I believe, $110 million in the safety incentives to prevent operation of motor vehicles by intoxicated persons,

Section 163, $40 million cut in the alcohol impaired driving countermeasures incentive grants. We have talked a little bit about

those.

But you are not saying that those are not effective programs, are

you?

Dr. RUNGE. If I could just frame this issue, Senator DeWine, this

is one of these unfortunate issues of timing where we have reauthorization, and the budget moving through simultaneously. But, it

is worth reflecting on the philosophy behind this reauthorization.

Those monies that you just spoke of were formerly in the Federal

Highway Administration’s budget, but were administered by

NHTSA.

What we are trying to do with reauthorization is to put the responsibility where it belongs, and the ability to deal with it where

it belongs. And that is in the States.

The State alcohol-related fatality rates go from a low of 0.29 fatalities per 100 million vehicle miles traveled in Utah to 1.27, 31⁄2

times that much, in South Carolina. We have, in the past, painted

a very broad brush across this entire country. That has not been

shown to be effective. There are pockets in this country where it

is very dangerous to drive.

The reauthorization proposal brings the funds that formerly were

in the Federal Highway Administration budget over to NHTSA in

a combined 402 program that gets the money into the States with

performance incentives. That is, the State’s goals will be aligned

with the national goals. In order to qualify for incentive funds,

States will need to implement programs with their money—and the

same money is there, it is level funded—they will have to apply

those funds, instead of buying key chains and bobble-headed dolls.

They will have to spend money where it belongs, which is in highvisibility enforcement and in dealing with the repeat offender and

the chronic alcohol-user who gets behind the wheel of a car.

That is the philosophy behind this, and that is the basis of our

fiscal year 2004 budget proposal.

Over the course of 6 years, there is a decrease in the funding

that is specifically for alcohol from about $14.7 million to right

around $11 million. However, that does not include the 402 funds

that are still there, which we want to be applied to tackle the problem.

We are setting up incentives that will require States to do that,

and giving them best practices which you all have paid for. We

know what works. We know what is there. Getting the States to

do it is a real challenge.

In Tennessee, they reduced alcohol fatalities with a double-digit

effectiveness with ‘‘Checkpoint Tennessee’’. But, when the money

went away, that money that you are speaking of, the program went

away. That cannot happen anymore. We have got to hold States accountable for the money that they spend on these issues.
266

REAUTHORIZATION PROPOSAL EFFECT ON IMPAIRED DRIVING PROGRAM

Senator DEWINE. I want to make sure I understand, and I am

going to take some more time to study your proposal. I have looked

at it already, but we are not going to resolve this obviously today.

I will be in contact with you personally about this. But I want to

make sure I initially understand what you are telling me.

You are not telling me that you are transferring money away

from this overall anti-drunk driving prevention or education program. Is that what you are telling me?

Dr. RUNGE. That is correct. What we have done with reauthorization is to take seven or eight different grant programs and combine

them into a single 402 program. Plus, we added a $50 million program that is specifically for alcohol programs in those States with

the worst impaired driving problems. That $50 million is not meant

to be spread all over the entire country.

There are 12 States that, if they just got themselves to the national average, the result would be that we would be 80 percent of

the way to our goal. We have got to get into those States and, first

of all, evaluate them, find out what is going on in there, and then

give them some special resources to pull themselves up by their

boot straps, because right now, what we are doing is not working.

That is the $50 million program that is being talked about. The

rest of the grant programs are in a combined 402 program, with

a level-funded formula program, as well as a well-funded incentive

piece on top of that, so that States who meet those goals can get

additional resources.

Senator DEWINE. Would anybody on the panel like to comment

on that? Mr. Hurley or Ms. Hamilton?

Ms. HAMILTON. We have information that we will be happy to

submit to the panel. The highway safety performance grant—there

are three pockets of money. The State and community grants, the

402, is $162 million. That is down $3 million from the year before.

That is a loss in funding.

There is performance grants of $175 million, which can be given

to the States to be used on alcohol-impaired countermeasures, but

it gives the States the option of using that money for highway safety improvement programs.

As we saw from the GAO report, that is what happened in the

majority of the times in the previous program where they were allowed to use that money for hazard elimination. It is just the same

thing, a new game, and basically a shell game.

Again, previously in TEA–21, there was $150 million that went

to the States each year to deal with impaired driving programs. It

is only $50 million now. That is $100 million loss. And it is only

going to 12 States.

There needs to be money. I agree with Dr. Runge, there are

States out there that it is more deadly to drive in than others.

They need to have funding to do it, using it on effective research

based programs that have shown to work and save lives and prevent injuries. But they also need to provide money to States so that

they can sustain the level of performance and perhaps benefit even

more.
267

DIVERTING IMPAIRED DRIVING FUNDS

Senator DEWINE. Doctor, what about the argument? And you can

argue whether or it is good policy or not. But is she correct? Is Ms.

Hamilton correct when she is saying that States could actually,

under your proposal, divert the money to highway construction?

You can argue that is good or bad, but is that true?

Dr. RUNGE. The programs that she is talking about were incentive grant programs for repeat offenders, and required States to

meet four or five criteria to receive funding. Those funds can also

be spent partly on road hazard elimination in the States that meet

those eligibility criteria.

Therefore, it should not change the ratio significantly.

Senator DEWINE. You are saying they could do it before and they

can do it again?

Dr. RUNGE. That is right. Let me back up for a second and talk

about an underpinning of this program. Every State would be required to submit a comprehensive highway safety plan under the

reauthorization proposal. The plan will have stakeholders that will

be defined by regulation, but it will be people like MADD and lawenforcement, as well as the road builders and others in the State

DOT, who will, based on each State’s data, determine where their

safety problems are.

There is no need for Utah to have largess for alcohol programs.

But there is a tremendous need for South Carolina, Louisiana,

Montana, South Dakota, Arizona, Wyoming, and others with very

high impaired driving-related fatality rates, to devote significant

portions to reducing impaired driving.

U.S. DOT will take it very seriously when a State submits a comprehensive highway safety plan, whether or not the data truly represent how they intend to spend their money. The flexibility that

we give States also enables them to spend a good portion of their

hazard elimination money on behavioral programs if their State

data indicates that it is needed.

We are putting a tremendous amount of eggs in the basket of

each State’s traffic records and data improvement, which is why we

also have $50 million in our proposed fiscal year 2004 budget to

help States shore up their State traffic data, so that we can pinpoint where the problems are occurring.

STATE DATA ACCOUNTABILITY

Senator DEWINE. Let me play off that for a moment. My home

State of Ohio has begun to do a pretty good job in listing the most

hazardous intersections and stretches of highway. We do it statistically. We do it in ranking order. Some States are doing that. Few

States, based on my experience at least, in what I have seen, are

doing both a ranking and then putting their money where their

ranking is.

In past highway bills, we have paid lip service to that. We have

said oh, that is a good thing. You should do that. We have not put

much teeth behind that. And we have not insured, in the highway

bills, that significant money would go to that.

I would like your comments on that because I am very interested, frankly, as we write a new highway bill, that we do that. It
268

seems to me that when we are talking about putting highway dollars—I am beyond frankly what we are talking about here today,

but this is your area of highway safety—that what we should be

doing is figuring out where we can save the most lives for the most

dollars and at least taking part of the general highway construction

dollars and saying okay, we are going to find the 50 or the 100

most dangerous places in Indiana or Ohio our Maine, and let us

go deal with them every year. And let us figure out where we can

get the most bang for the buck or save most lives for the buck. But

we have not really been doing that consistently across the country.

Now what you are talking about doing it frankly is on a fairly—

with all due respect I think it is the right thing to do—but it is

on a fairly small dollar amount when we are talking about the dollars we are dealing with here.

I am talking about doing it on big highway bill and doing it with

some serious dollars, I mean big dollars.

Do you want to comment on that? It seems to me that the good

news I am hearing from what you are saying is that the studies

you are talking about doing, and the $50 million you are talking

about doing, certainly is a start at least in trying to compile the

data that the States will need to be able to come up with that information.

Dr. RUNGE. Thank you. I think you are exactly right.

In the past, there has been lip service played to accountability.

The A in SAFETEA is accountability.

A lot depends on a State’s comprehensive highway safety plan,

and a lot depends on their ability to gather traffic data and to acquire it in a way that is scientifically legitimate.

With respect to where those problems are, it may not just be

where, it is also the who, what, when, and where of the issue, the

whole epidemiology of the problem. Some States do a great job of

defining that. Low velocity highways with high crash fatalities may

not need road design. They may need just higher seatbelt use and

less impaired driving.

We will strive to make sure that those data are acquired and

that States are held accountable for that highway safety plan.

Also, in the reauthorization bill there is a billion dollar highway

safety core program in Federal highways. A State’s share of that

can be spent—100 percent of it can be spent on data improvements

if the State needs it. It can be spent on hazard elimination. It can

be spent on behavioral programs. It can be spent on alcohol programs and belt programs.

We are trying to give States the flexibility to spend their money

where it needs to go. You are exactly right. A lot depends on how

we define that safety plan and how the U.S. DOT is able to insist

that the money be spent in a way that, in fact, does address the

highway safety problem.

I hope we have the committee’s support for that accountability.

FLEXIBILITY AND ACCOUNTABILITY

Senator DEWINE. The key, it seems to me, we are all for flexibility, but it is clear from your comments earlier you are for flexibility but you are also for accountability.

Dr. RUNGE. Yes sir.
269

Senator DEWINE. You talked about key chains and other things

that you do not seem to think amount to a whole lot, and I would

happen to agree with you.

I go back to my experience as Lieutenant Governor of Ohio, and

one of the areas where I was in charge was highway safety. We

looked at things that mattered and some things that frankly did

not matter.

So how we strike the right balance of allowing States to pick and

choose what is appropriate for their State but also give them the

guidance to move forward and to try to target things that do, in

fact, matter is the key I think.

Ms. Hamilton?

Ms. HAMILTON. Senator, flexibility is important to the States. We

understand that they are struggling with this and they are very

concerned about MADD’s proposal. However, we saw in the past

that that money is going for hazard elimination programs.

What you talked about before, what is going to save the most

lives most quickly is, quite frankly, the bill that you introduced

today with Senator Lautenberg for enforcement on belt and alcohol

prevention programs to give law enforcement the resources that

they need for the next 6 years and the paid advertising to let people know that impaired driving and seatbelt usage is important.

We can build better roads. We can design safer cars. But unless

we develop safer drivers, we are not going to make any kind of a

dent in this problem. And we have got to take the time right now

to put the resources into behavioral safety programs that we know

are effective. We have 30 years of research and data from NHTSA,

from all over this country and the world, in fact, that tells us what

works, enforcement.

Senator DEWINE. Mr. Chairman, if I could just make one additional comment. I know I have gone over my time. But just to

make sure everyone understands at least this one Senator’s position.

I believe that the money we are talking about today, frankly,

should primarily be going for education issues and behavioral

modification issues and the things that Ms. Hamilton is talking

about.

The highway construction and the hazardous changes in construction that I was talking about, I think, should come out of the

big bill that we are talking about, and the bill that frankly we will

be, I hope, writing later this year. I think a bigger percentage of

that bill should be absolutely dedicated to focusing on trying to

eliminate the hazards on the highway.

I think we do not put enough of that into targeting what matters

on our highways. And I think what the doctor is talking about is

it makes sense to spend some money to get the data and allow

every State to have some assistance to get the data to make those

intelligent decisions, but then take money out of our big bill and

focus that money on the things that really do, in fact, matter.

Let us go into every State. Every State has got them. Every

State has got the dangerous intersections. Why in the world do we

keep waiting until we get the fifth or sixth fatality when we know,

and everyone in the community knows, this is a bad intersection.

Everyone in the community knows this is a bad curve. Highway pa-
270

trol can tell you. You go into the Xenia, Ohio highway patrol post,

they can tell you the bad intersections. They can tell you where

there is going to be a bad accident. They can tell you it is going

to come. Now when it is going to come, but it is going to come.

Why do we wait? It is just absolutely crazy.

Mr. HURLEY. Senator, first, I want to thank you for your leadership on highway safety, your support for MADD, and specifically

your support for high visibility enforcement.

On the accountability issues, which is critical, and it is a very

complicated bill. We are still studying it. But it does appear to be

an overall flat funding of highway safety with very serious concerns

about reduced funding in key areas that we have talked about.

We support the idea of performance partnerships with the States

of accountability and the rest of that. However, NHTSA, without

a change in the statute, gave up plan approval 4 or 5 years ago.

The General Accounting Office report that Senator Dorgan just

asked for and received had some very serious comments about that.

I would hope that this could be a part of the record, as well.

The best States probably do not need plan approval. The worst

States probably need more than plan approval. There has to be a

whole consideration of performance partnerships with the States

that really has not occurred yet. I am hopeful that we can get into

that with the leadership at DOT because the current system does

not seem to be working all that well. Thank you.

Senator DEWINE. Mr. Chairman, thank you very much.

Senator CAMPBELL. Thank you.

ADDITIONAL COMMITTEE QUESTIONS

We have no further questions from the members that are here.

However, Senator Shelby does have some. Rather than asking

them for him and getting them all confused, I will submit those to

you in writing. If you could answer them in writing.

And I think Senator Murray may also have some questions.

[The following questions were not asked at the hearing, but were

submitted to the Department and witnesses for response subsequent to the hearing:]

QUESTIONS SUBMITTED TO THE NATIONAL HIGHWAY TRAFFIC SAFETY

ADMINISTRATION

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

Question. The positive effects of the ‘‘Click It or Ticket’’ mobilizations to increase

seatbelt usage rates are undeniable. According to NHTSA’s evaluation, seatbelt

usage increased by 8.6 percent. In the Omnibus Appropriations Act this Committee

again set aside funds for these mobilizations and directed NHTSA to expand this

approach to target alcohol-related driving, which we are all concerned about. With

the demonstrated success of the program, why isn’t funding specifically identified

in your budget proposal to continue these campaigns in 2004?

Answer. NHTSA intends to continue the ‘‘Click It or Ticket’’ and ‘‘You Drink &

Drive. You Lose.’’ mobilizations in 2004 and beyond. For the last 5 years, funding

has been provided through the Sec. 157 Incentive/Innovative Grant Program, authorized under TEA–21. NHTSA utilized most of the Innovative grant funds awarded to the States to support the semi-annual mobilizations.

The momentum and commitment for the mobilizations reached an all time high

this year with 43 States, DC, and Puerto Rico adopting the ‘‘Click It or Ticket’’

model in May 2003. Early in 2003, the Agency solicited input from the Governors

Highway Safety Association and the highway safety offices of the 50 States, the District of Columbia, and Puerto Rico regarding their future plans to conduct the mobi-
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lizations. The responses indicated a solid commitment to continue the mobilizations

through Section 402 apportionments or other funding mechanisms. Thus, NHTSA

did not specifically earmark grant funds to the States for this purpose. The President’s fiscal year 2004 budget request rolls $112 million of what was Section 157

funding in fiscal year 2004 into a consolidated Highway Safety Grant program. This

proposal is also reflected in SAFETEA, the administration’s reauthorization proposal. This proposal eases the grant administration burden of the States while providing the same level of resources as previously to fund these programs.

The Department’s SAFETEA reauthorization proposal also includes special performance-based incentive grant programs under Section 402 as incentive for State

progress in both reducing impaired driving and increasing safety belt use.

Question. The Department’s goal for highway-related fatalities in 2004 is 1.38 per

100 million vehicle miles traveled. The budget indicates that the two major reasons

for the lack of significant progress in reducing overall highway-related fatalities can

be directly attributed to motorcycles and pedestrians. The budget, however, appears

to assume a steady rate among these groups and a necessity to focus on passenger

cars and light trucks. What specific actions will the Department undertake to address and to reduce the number of fatalities among motorcycles and pedestrians in

particular?

Answer. NHTSA’s fiscal year 2004 budget addresses the action items in the

NHTSA ‘‘Motorcycle Safety Program’’ document released in January 2003 and the

‘‘National Agenda for Motorcycle Safety’’ developed in collaboration with motorcycle

safety partners.

A new fiscal year 2004 initiative will address a concern that motorcycle-training

programs accommodate all those who seek training. NHTSA plans to work with

identified State rider education and training programs to develop and implement

long-range strategic plans to make training available for all those who need it and

in a timely fashion. NHTSA will continue research on motorcycle lighting as a

means to improve motorcyclist conspicuity and will continue research on motorcycle

braking systems.

Additionally, NHTSA will: conduct research on crash avoidance skills; conduct research on motorcyclists conspicuity; support projects to reduce impaired riding by

developing and testing activities that may include peer-to-peer efforts, social norm

models, enforcement efforts, and motorcycle impoundment; and collect and analyze

motorcycle crash, injury, and fatality data and compare motorcyclists who successfully completed formal rider training to those who have not to determine any difference in crash involvement.

Pedestrian crashes are addressed through a combination of public information,

legislation, enforcement, engineering, and outreach strategies. NHTSA will: fund

competitive demonstration projects designed to involve the law enforcement community to improve pedestrian safety; develop a community guide to tackle the challenges of implementing comprehensive pedestrian safety programs; explore the feasibility of developing and disseminating a school crossing guard curriculum; and develop community-level Safe Routes to School workshops to increase pedestrian safety around schools.

NHTSA will also disseminate tools to encourage communities to promote safe

walking. Non-traditional partners, such as smart growth coalitions or local government commissions, will be identified and encouraged to incorporate pedestrian safety into their organizations’ missions. NHTSA will continue its partnership with the

Federal Highway Administration to incorporate infrastructure improvements with

behavioral safety principles.

Question. The NHTSA budget proposes a new initiative to award discretionary

grants to States to demonstrate the effectiveness of a comprehensive approach to

reducing impaired driving. Could you explain how this program is different from the

old program in terms of scope, distribution of dollars and more importantly, how it

is an improvement over the old program?

Answer. The SAFETEA proposal would make $50 million available each year for

discretionary grants to a certain number of States with high rates of alcohol-related

fatalities and/or high total numbers of alcohol-related fatalities. These discretionary

grants would fund programmatic activities specified by NHTSA and agreed to by the

recipient States. These activities would be of proven effectiveness, e.g., well-publicized and high-intensity enforcement of impaired driving violations. Thus, under

the proposal, NHTSA would annually direct $50 million to States with the greatest

need for improvement in the impaired driving arena, and would see to it that those

States spend the money in ways most likely to succeed in moving the impaired driving numbers down.

Under TEA–21, the only State grant funds, which had to be spent on impaired

driving programs, were the Section 410 alcohol incentive grant funds, which totaled
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$40 million in fiscal year 2003. The States that received these funds already had

good legislative and programmatic infrastructure for combating impaired driving,

because these laws and programs were needed to qualify for funding. Additional

funds were awarded to States that enacted .08 BAC laws. However, these funds

could be spent on any highway construction or highway safety program, not just impaired driving. Additionally, of the $337 million that SAFETEA would provide in Section 402 basic formula and performance grants in fiscal year 2004, all but $25 million resulting from safety belt use rate performance would be available for impaired driving

programs if States choose to allocate for that purpose. SAFETEA thus gives States

great latitude in directing resources to address priority problems, including impaired driving.

HIGHWAY SAFETY INITIATIVES

Question. Dr. Runge, your opening statement says that NHTSA has ‘‘pledged to

solve the highway safety issues confronting this Nation.’’ However, other than consolidating some grant programs and a new accounting of other grant programs, I

see no new, innovative programs included in this budget or in reauthorization proposal that would convince me that NHTSA is on the way to solving the highway

safety issues confronting this Nation.

What specifically in this budget is going to make significant strides in improving

safety?

Answer. The Department’s reauthorization proposal offers more than consolidation of grants. The two performance based grant programs, the General Performance

Grant Program and the Safety Belt Performance Grant Program would encourage

States to take actions on strengthening their highway safety programs and implementing laws to increase safety belts and to deter impaired driving. The proposal

will also help States with high alcohol-related fatalities receive much needed support to improve their alcohol programs. The proposal calls for NHTSA to develop

and facilitate a coordinated and comprehensive EMS infrastructure by designating

NHTSA as the lead agency for EMS.

Another component of the reauthorization proposal is to conduct a national motor

vehicle crash causation survey. The survey will collect much needed, real-world

crash causation data to identify and understand motor vehicle crash factors that are

integral to developing crash-preventing countermeasures. The proposal will also authorize NHTSA to institute an International Cooperative Safety Program to exchange research and educational programs that are beneficial to NHTSA in carrying

out its mandate to reduce motor vehicle injuries and fatalities. Further, the proposal

provides incentive grants to the States to improve their traffic record data, which

will benefit the local, State, and Federal transportation-related agencies in identifying their transportation safety problems and evaluating their programs and countermeasures.

HIGHWAY SAFETY GRANT FUNDING LEVELS

Question. I am concerned that much of this ‘‘increase’’ in funding for highway

safety is merely the shifting of funds from Highways to NHTSA. I have expressed

this to the Secretary and still believe that we need more information to conduct a

proper analysis.

Dr. Runge, how much of NHTSA’s increase is actually new money?

Answer. NHTSA’s proposed total funding for grants to States in fiscal year 2004 is $447 million. That is identical to the amount of funds provided to the States

under TEA–21 in fiscal year 2003.

SAFETY BELTS

Question. With respect to seat belt usage, Dr. Runge, you have said, ‘‘we have a

model that works. For every 1 percent increase in belt use, we get $800 million in

economic costs saved, 2.8 million more people buckling up, 276 lives saved, and reduce the severity of 6,400 moderate to critical injuries.’’

Dr. Runge, given the clear benefits of increasing seat belt usage rates, why does

the fiscal year 2004 budget exclude specific funding for ‘‘Click It or Ticket’’ Campaigns in the States when I am not aware of any program that has been more effective at getting people to buckle up?

Answer. ‘‘Click It or Ticket’’ has indeed proven effective in increasing safety belt

use. NHTSA intends to continue the ‘‘Click It or Ticket’’ mobilizations in 2004, and

beyond. Early in calendar year 2003, the Agency solicited input from the Governors

Highway Safety Association and the highway safety offices of the fifty States, the

District of Columbia, and Puerto Rico. Given the commitment to continuing the mo-
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bilizations that was expressed, NHTSA does not believe that it is necessary to earmark grant funds to the States for this purpose. Also, the Agency’s intent is to focus

a significant portion of research and development (Section 403) funds to support the

two mobilizations through program development, technical assistance, and evaluation initiatives.

Question. Is there an initiative in the budget that will work as well or better than

the mobilizations?

Answer. Given the proven success of conducting high visibility enforcement campaigns and the expressed commitment from State Highway Safety Offices to continue the national mobilization strategy, NHTSA plans ongoing support for the

‘‘Click It or Ticket’’ mobilizations. However, the Agency also plans to work with

States on the development of a variation on the model that involves continuous

high-visibility enforcement operations (24 hours a day, 7 days per week).

Through additional incentive funds proposed in the Department’s SAFETEA reauthorization submission, NHTSA will continue support for ‘‘Click It or Ticket’’ mobilizations during fiscal year 2004. At the same time, States that have experienced the

full benefit of the ‘‘Click It or Ticket’’ approach will be encouraged to move toward

a continuous high-visibility enforcement model. Several States with the highest use

rates, including California and Washington, have had success with this approach.

In 2004, States will be conducting one safety belt mobilization in May, an impaired driving crackdown in December, and the States will conduct high visibility

enforcement mobilizations throughout the summer months.

IMPAIRED DRIVING

Question. The preliminary National Highway Traffic Safety Administration

(NHTSA) data estimates 17,970 deaths last year due to crashes involving alcohol—

that’s about 500 more than in 2001 and represents 42 percent of all traffic fatalities.

This number is too high and we must take action.

Dr. Runge, can you tell me what NHTSA is doing this year to focus on the problem of impaired driving and further what specifically the budget propose to reduce

the number of impaired drivers and related accidents in the future?

Answer. NHTSA’s 2004 goal is to reduce alcohol-related fatalities to no more than

0.53 alcohol-related fatalities per 100 million vehicle miles traveled (VMT). To

achieve the goal, NHTSA will work with States to develop a plan for maximizing

general deterrence through high visibility law enforcement, while also maintaining

attention to effective specific deterrence programs for dealing with offenders.

NHTSA demonstration programs in both the safety belt and impaired driving

areas have proven that highly visible enforcement, coupled with paid and earned

media, is an extremely effective general deterrent strategy. Nearly all States have

agreed to pursue both sustained (year-long) high-visibility impaired driving enforcement, as well as periodic enforcement crackdowns during July and December 2003.

Sustained enforcement will continue in 2004, with States conducting high visibility

enforcement operations according to their own schedules throughout the summer

months and a coordinated national crackdown in December.

Media directed at high-risk groups is critical to the success of these enforcement

efforts. States and the District of Columbia have agreed to utilize the national ‘‘You

Drink & Drive. You Lose.’’ theme, which reminds motorists that if they drive while

impaired, they will be arrested. In 2003, Congress provided the agency with $12

million to support paid advertising to supplement State efforts during these periods

and to evaluate the efforts.

The Agency believes that this unprecedented level of coordinated national law enforcement and associated media coverage will be effective in creating deterrence to

drinking and driving and will change behavior. The Agency is currently conducting

an evaluation of the effect of paid media and sustained enforcement on impaired

driving.

To ensure longer-term progress, the Agency will also encourage sustained, highly

visible enforcement and continue to advance the areas of prevention, intervention,

and treatment. Long-term success will be dependent on people making informed

choices about drinking and driving and getting treatment to resolve substance abuse

problems.

Question. The NHTSA budget proposes a new initiative to award discretionary

grants to States to demonstrate the effectiveness of a comprehensive approach to

reducing impaired driving.

Dr. Runge, could you explain how this program is different from the old program

in terms of scope, distribution of dollars and more importantly, how it is an improvement over the old program?
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Answer. The SAFETEA proposal would make $50 million available each year for

discretionary grants to certain States with high rates of alcohol-related fatalities

and/or high total numbers of alcohol-related fatalities. These discretionary grants

would fund programmatic activities specified by NHTSA and agreed to by the recipient States. These activities would be of proven effectiveness, e.g., well-publicized

and high-intensity enforcement of impaired driving violations. Thus, under the proposal, NHTSA would annually direct $50 million to States with the greatest need

for improvement in the impaired driving arena, and would ensure that those States

spend the money in ways most likely to succeed in moving the impaired driving

numbers down.

Under TEA–21, the only State grant funds, which had to be spent on impaired

driving programs were the Section 410 alcohol incentive grant funds, which totaled

$40 million in fiscal year 2003. The States that received these funds already had

good legislative and programmatic infrastructure for combating impaired driving,

because these laws and programs were needed to qualify for funding. Additional

funds were awarded to States that enacted .08 BAC laws. However, these funds

could be spent on any highway construction or highway safety program, not just impaired driving.

Additionally, of the $337 million that SAFETEA would provide in Section 402

basic formula and performance grants in fiscal year 2004, all but $25 million resulting from safety belt use rate performance would be available for impaired driving

programs if States choose to allocate for that purpose. SAFETEA thus gives States

great latitude in directing resources to address priority problems, including impaired driving.

CHILD SAFETY SEATS

Question. For the past several years, the Committee has provided funding for

child safety seat campaigns. These campaigns have been very successful at increasing the proper use of child safety seats while we developed the second generation

of child safety seats, which are now accompanied by LATCH systems in all new passenger vehicles to allow for easier installation and safer car seats.

One of the reasons this campaign has been so successful is due to the broad base

of support coming from State and local public safety community, community activists, and private industry. Without this coalition of support it is difficult to imagine

that the campaign would have had the effect of continued decreases in child fatalities.

Question. Dr. Runge, is this a model that can be used in other areas that need

improvement?

Answer. The success of the child passenger safety campaign has clear and compelling implications for its utility as a model in other program areas. NHTSA recognizes the transferable nature of this model to other highway safety programs and

has already taken numerous steps to incorporate similar strategies in ongoing and

future efforts.

In the early years of the campaign, the model focused solely on child occupant restraints. NHTSA and partners, such as the Air Bag & Seat Belt Safety Campaign

(ABSBSC), were able to build on the momentum created in child passenger safety

in particular the hazard posed to front seated children by airbags and transfer the

effort to occupant protection issues for all ages. Over the years, what began as ‘‘Operation ABC (America Buckles Up Children)’’ evolved into an endeavor that included

teen and adult restraint use as well. This model was also used as the basis for what

is known now as the ‘‘Click It or Ticket/Operation ABC’’ campaign, which is also

demonstrating considerable gains in safety belt use.

The model is being refined even further in the area of Impaired Driving. NHTSA

and partners, such as Mothers Against Drunk Driving (MADD), embarked on the

NHTSA-led ‘‘You Drink, You Drive. You Lose.’’ campaign in fiscal year 2003. Here

again, the State and local public safety community, community activists, law enforcement, key advocacy groups, and private industry are coming together to address a public health concern and implement strategies to overcome this problem.

OCCUPANT PROTECTION

Question. The Committee has supported NHTSA’s efforts to increase seat belt

usage among target populations whose usage rates are well below the national average. We know that safety belt usage among teens and young adults is lower than

the national average.

Dr. Runge, what is NHTSA doing to identify and reach out to these and other

target populations?
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Answer. NHTSA is conducting a variety of focused outreach and demonstration

programs to increase safety belt use among high-risk groups. One important strategy for NHTSA is continuing the long-standing partnerships with minority organizations to increase safety belt use within these communities. Examples of these partnerships include: The National Council of Negro Women; The National Latino Children’s Institute; The Hispanic American Police Command Officers Association; The

Bureau of Indian Affairs; and The National Asian Pacific American Families

Against Substance Abuse.

Successful outreach to the African American community was exemplified in a recent meeting of African American leaders cosponsored by Secretary Mineta and Dr.

Dorothy Height, Chair of the National Council of Negro Women, for the purpose of

reviewing the success of the Blue Ribbon Panel to Increase Seat Belt Use Among

African Americans and laying out plans for next steps. The 2002 National Occupant

Protection Usage Survey (NOPUS) showed an 8 percentage point increase in African

American safety belt use since the Panel’s findings were released in 2000.

In the Hispanic community, families are being educated about the importance of

safety belt use through child passenger safety venues. Culturally sensitive educational materials and curricula have been developed, and an infrastructure of certified child passenger safety technicians and fitting stations will soon be implemented in Hispanic neighborhoods.

In 2001, NHTSA awarded teen safe driving demonstration grants in Pennsylvania, Maryland, Minnesota, and Washington. This program focuses on common

high-risk behaviors for youth 15–20 years of age, including lack of safety belt use,

impaired driving, and speed. NHTSA also tailored the May 2003 ‘‘Click It or Ticket/

Operation ABC’’ mobilization to teens, reaching out to high schools around the Nation to encourage students to buckle up. NHTSA is also: conducting research into

the effectiveness of Graduated Driver’s Licensing in reducing teen injuries and fatalities in motor vehicle crashes; researching innovative and model programs to increase teen safety belt use; and conducting focus groups to develop effective messaging and strategies to reach teens.

Question. How are the programs being received in these communities?

Answer. Preliminary results from the four Teen Safe Driving Demonstration Programs administered by NHTSA suggest that the strategies implemented are well received and hold promise to increase the awareness of young people about high risk

driving behaviors and increase safety belt use.

For example, in the Spokane, Washington, Teen Safe Driving initiative, law enforcement officers visit high schools and conduct ‘‘Room to Live’’ presentations on

risky driving behavior for teens—speeding, lack of safety belt use, and impaired

driving. Results from the 500 students that evaluated this portion of the program

include: 97 percent of students thought the program was effective; 98 percent of the

students thought other students would benefit from the program; 91 percent of the

students felt that safety belts were more important to them after the presentation;

and there was a 29 percent increase in the number of students who said they would

wear their safety belt all the time.

Preparing communities for interventions to increase safety belt use through education and direct involvement in the planning and implementation of programs is

key to building consensus and positive reception by the community. In the teen

demonstration grants awarded by NHTSA in 2001, letters were sent to families,

schools were notified, press events were held, and young people were (and are) directly involved in the development and implementation of the program. This has resulted in support for the program goals, strong partnerships, and successful collaboration. In fact, the cities involved in the Minnesota Teen Safe Driving Initiative

jointly won the League of Minnesota Cities Achievement Award in Public Safety for

their initiative.

Successful strategies identified in these demonstration grants, as well as findings

from current research by NHTSA to identify effective and promising strategies to

reach teens, will be documented and promoted as effective strategies for use by

other States.

Question. If 75 percent of rollovers are unbelted, is it possible to focus on occupants who are at greater risk of being in a rollover accident as a target population?

Answer. NHTSA believes that it is possible to focus safety belt program efforts

on drivers of vehicles that are more likely than others to be involved in rollover

crashes. In fiscal year 2001 and 2002, the Agency awarded two demonstration

projects to test strategies for increasing belt use in sport utility vehicles (SUV) and

pickup trucks. Early results from these demonstrations appear encouraging. Occupants of these vehicles are over-represented in rollover crashes. Preliminary results

from the Virginia and Colorado demonstration sites highlight the benefit of these

projects. Virginia’s ‘‘Buckle Up Now’’ demonstration project, which focused on the
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southern counties of the State, saw safety belt usage increase from 61 to 77 percent

following introduction of the campaign.

The pickup truck demonstration projects in Florida and South Dakota made significant strides in increasing safety belt usage among pickup truck occupants. Florida reported a 16-percentage point increase—from 33 to 49 percent. Best practices

guides based on findings from these projects will be published in fiscal year 2004.

SHARE THE ROAD

Question. How do NHTSA and FMCSA coordinate with regard to the ‘‘Share the

Road’’ education program, and how do you believe that program can be made more

effective?

Answer. As directed by TEA–21, NHTSA provided FMCSA with funding to support the ‘‘Share the Road’’ program. This program is executed by FMCSA. With the

transfer of funds, FMCSA provides NHTSA with an overview of program activities.

FMCSA also coordinates program activities through the Share the Road Coalition

and intermittent notification of issues as they arise during the fiscal year.

Recently, GAO completed a report on the effectiveness of the ‘‘Share the Road’’

program and how to improve the program delivery. GAO provided recommendations

on improving the effectiveness of the ‘‘Share the Road’’ program. The DOT agrees

with the GAO’s recommendations.

QUESTIONS SUBMITTED BY SENATOR PATTY MURRAY

Question. Dr. Runge, when the Federal Government has tried to get the States

to enact meaningful safety laws, it has taken two approaches. In some instances,

like the Minimum Drinking Age Act and the 0.08 law, we have withheld highway

construction funds from States that don’t pass the law. In other instances, we have

provided incentive payments to get the States to make safety improvements. The

record is clear, when we sanction highway construction funds, all the States eventually comply. When we provide incentive payments, the record is quite mixed.

NHTSA’s own data show that seat belt use increases as much as 15 percent in

States that have primary seat belt laws on the books. Currently, 18 States and the

District of Columbia have primary seat belt laws in effect, including my own State

of Washington. Yet, your 2004 budget request includes $100 million for a new primary belt incentive grant program. This program is designed to encourage the remaining 32 States to pass a primary seat belt law.

Why did NHTSA choose to create an incentive grant program rather than a penalty program to get States to enact primary seat belt laws? Given the lives that can

be saved as a result of these laws, doesn’t this safety requirement call out for universal compliance?

Answer. NHTSA believes incentives have a greater opportunity to be effective because the fiscal landscape has changed. Many States are facing huge fiscal challenges. NHTSA dialog with State legislative and executive offices during last year

has indicated their desire to keep incentive programs in the reauthorization. The

Agency believes that the proposed incentive for enacting a primary safety law—five

times the State’s fiscal year 2003 allocation for Section 402—is significant enough

to create impetus for law changes in States that are searching for financial help in

almost every program.

Question. What specific examples can you provide us to demonstrate that States

are more likely to pass safety legislation when the Federal Government provides incentive funding?

Answer. The Section 410 Alcohol-Impaired Driving Countermeasures Grant program was amended by the Intermodal Surface Transportation Equity Act (ISTEA)

to provide financial incentives to States for the development of improved laws and

programs to deal with impaired driving. Many States actively pursued enacting new

or improved laws to reduce drinking and driving, such as administrative license revocation (ALR), .02 BAC laws for under age 21 drivers, and .08 BAC laws. During

the ISTEA authorization (1991–1997):

—Eight States enacted .08 BAC laws.

—Thirty-four States plus enacted .02 BAC laws for drivers under age 21 (25 enacted before the passage of the NHS sanction provision in 11/95).

—Ten States enacted ALR laws.

ISTEA also established an innovative occupant protection law incentive grant

phase of Section 153, which authorized 3 years of incentive grants, beginning fiscal

year 1992, for States with both a safety belt and a motorcycle helmet use law.

—Ten States took legislative action to enact a conforming safety belt or motorcycle helmet law during the incentive phase (fiscal year 1992-fiscal year 1994).
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—Seven States adopted new safety belt laws: Nebraska, North Dakota, West Virginia, Vermont, Massachusetts, South Dakota, and Kentucky.

—Two States, Ohio and Connecticut, amended their existing safety belt use laws

to remove unacceptable air bag exemptions.

—For the seven States which enacted new safety belt laws and the one State

which enacted a motorcycle helmet law during the Section 153 incentive phase,

increased belt and helmet use rates following the enactment of these laws resulted in a combined savings of about 140 lives, 2,400 moderate to serious injuries, and nearly $220 million.

—Twenty-five of 27 eligible jurisdictions chose to participate in the grant program. Thirty-six million dollars in grants leveraged $52 million dollars in

matching funds to increase safety programs and compliance with occupant protection and motorcycle helmet laws.

NHTSA believes significant incentives will work again because the fiscal landscape has changed dramatically in the past 2 years. Many States are facing huge

fiscal challenges. The dialog between NHTSA and State legislative and executive offices in the past year has been increasingly about incentives remaining in the current authorization. A fivefold Section 402 amount incentive for passing a primary

safety law is significant enough, NHTSA believes, to create law changes in States

that are searching for economies in every program.

MOTORCYCLE FATALITY INCREASES

Question. Dr. Runge, motorcycle deaths have gone up every year since 1997 and

the deaths of older cyclists have been rising for an even longer period of time. The

early estimates for 2002 indicate that the overall number of motorcycle fatalities increased by 3 percent over 2001. And while the number of fatalities for younger riders decreased, for riders over the age of 50, there was an astounding 24 percent

jump in the number of motorcyclists killed.

To what do you attribute the increase in the number of motorcycle fatalities and

why has there been a spike in the number of older rider fatalities?

Answer. Three major changes have occurred to impact the motorcycle crash problem: the number of registered motorcycles has increased, the average age of riders

has increased, and motorcycle helmet usage has decreased.

Motorcycle sales have increased for 10 consecutive years, resulting in more motorcycles on the highways, thereby increasing exposure. Many of these motorcycles

have larger engine displacement.

The average age of a motorcycle operator in 1998 was 38.1 years compared to 33.1

years in 1990, 28.5 years in 1985, and 26.9 years in 1980. Motorcycle ownership by

age illustrates that more individuals over the age of 50 are purchasing motorcycles.

Ownership for those age 50 years and over in 1998 was 19.1 percent compared to

10.1 percent in 1990, 8.1 percent in 1985, and 5.7 percent in 1980 (Motorcycle Industry Council data).

According to the National Occupant Protection Use Survey, motorcycle helmet use

has decreased from 71 percent in 2000 to 58 percent in 2002. Reduced helmet use,

impaired riding, especially riders with high blood alcohol concentrations, and speeding are risk factors that have affected the number of motorcyclists killed in traffic

crashes.

Question. In last year’s bill, we provided additional funding for training and crash

avoidance skills. How have you put these funds to use?

Answer. In fiscal year 2003, the Committee increased the motorcycle program

budget by $300,000 with the instruction that these additional funds be used to improve crash avoidance skills and motorcyclist conspicuity.

To improve crash avoidance skills, NHTSA is entering into a cooperative agreement with the Motorcycle Safety Foundation to ensure that the appropriate crash

avoidance skills are incorporated into revised curricula and are updated as needed.

Motorcyclist training will reflect these changes as appropriate.

To improve motorcyclist conspicuity, NHTSA is planning research to determine if

daytime running lamps on passenger cars affect the motorcycle visibility in the traffic mix. Additionally, NHTSA will conduct research to determine if modulating

headlamps on motorcycles increases the visibility and recognition of a motorcycle in

the traffic mix.

NHTSA’S PAID ADVERTISING PROGRAM

Question. Dr. Runge, over the last few years, this subcommittee provided funding

for paid media to support the highly successful ‘‘Click It or Ticket’’ program. In fact,

the national ads for this program have been running this month during the seat
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belt mobilization campaign. This year, we expanded the program to include national

media for the drunk driving mobilizations that will occur in July and December.

Dr. Runge and Mr. Hurley, what kind of feedback have you been getting about

the ‘‘Click It or Ticket’’ ads?

Answer. It is clear the ad campaign was successful. Anecdotal feedback relating

to the frequency of the ads and recall of the campaign message by the public was

extremely positive. Further, preliminary research indicates that the campaign

moved all key indicators among the core audience of adult drivers and, more importantly, those most at risk, males age 18–34.

Among all drivers surveyed, recall of the special effort by police to ticket drivers

for safety belt violations increased from 47 percent in the pre-media survey to 75

percent on May 29, when post-campaign surveys were conducted. Among males age

18–34, recall of the enforcement campaign increased from 49 percent prior to the

campaign to 78 percent after the campaign. This level of recall is significantly higher than after the 2002 campaign. A majority (50 percent) of drivers said police in

their community were doing more to enforce their State’s safety belt laws over the

past 4 to 6 weeks. This is up from 32 percent prior to the campaign. Forty-six percent of men age 18–34 said police in their community were doing more to enforce

their State’s safety belt laws over the past 4 to 6 weeks. This is up from 33 percent

among this audience prior to the enforcement effort.

Among all drivers, the percentage of those saying they would be likely to receive

a ticket if they did not wear their safety belt increased from 56 percent prior to the

campaign to 62 percent after the campaign. This is the highest percentage of drivers

who perceived themselves as likely to receive a ticket we have reached in the history of this campaign.

Twenty-nine percent of drivers correctly identified, without being prompted, ‘‘Click

it or Ticket’’ as the name of the special effort by police to ticket drivers for safety

belt violations. Forty-two percent of men age 18–34 correctly identified, without

being prompted, ‘‘Click it or Ticket’’ as the name of the special enforcement effort.

Question. Dr. Runge, given the demonstrated effectiveness of this program, why

didn’t your 2004 budget proposal include funding for paid media to continue these

campaigns?

Answer. NHTSA intends to continue the ‘‘Click It or Ticket’’ and ‘‘You Drink &

Drive. You Lose.’’ mobilizations in 2004, and beyond. Early in calendar year 2003,

the Agency solicited input from the Governors Highway Safety Association and the

highway safety offices of the 50 States, the District of Columbia and Puerto Rico

to gauge their support continuing the paid media initiative. Given the solid commitment to continuing the mobilizations that was expressed, NHTSA does not believe

that it is necessary to earmark grant funds to the States for this purpose. States

can use their existing grant funds to support these efforts.

Question. This will be the first year that national media will be used for the

drunk driving mobilization efforts in July and December.

Dr. Runge, can you assure us that NHTSA is putting the same level of effort into

the media campaign for the drunk driving mobilizations as you did with the seat

belt mobilizations? Can we expect the Department to have a national kick-off for

the drunk driving media campaign similar to what was held at the National Press

Club a few weeks ago for the seat belt mobilizations?

Answer. In fiscal year 2003 Congress provided an additional $11 million appropriation to NHTSA to support paid advertising for the ‘‘You Drink & Drive. You

Lose.’’ crackdown. With this additional funding, the Agency produced an advertisement, focusing on high visibility enforcement, which will be aired nationally June

20 through July 13. In addition, the Agency has purchased advertising time in 13

States that have either high alcohol-related fatality numbers or rates to saturate

their media markets during the same time. The Department conducted a national

press event on June 19 to raise awareness of the motoring public that the ‘‘You

Drink & Drive. You Lose.’’ national crackdown will take place over three weekends

surrounding the July 4th holiday. At that event, NHTSA unveiled the national advertisement reinforcing the message that law enforcement will be out in force looking for impaired drivers. In addition to Departmental representatives, potential

speakers for the event include members of the law enforcement community, Mothers

Against Drunk Driving, and an offender in the high-risk age group (e.g., ages 21–

34) who has served jail time for impaired driving. To drive this message home, the

location for the press event will likely be a booking facility at a local police department.
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INCREASE OF ALCOHOL-RELATED FATALITIES

Question. Alcohol-related fatalities increased for the third year in a row to nearly

18,000 deaths in 2002—and this is just the early estimate. Last year, Senator Shelby and I fought to increase the funding for the NHTSA’s impaired driving program

in NHTSA’s Operations and Research account. We were successful in providing a

36 percent increase over the President’s 2003 request. I was disappointed that your

2004 budget request cut the funding for NHTSA’s impaired driving program by 25

percent.

Dr. Runge, I’ll ask the same question that I asked you last year, why did you decide to cut the funding for your impaired driving program at a time when alcoholrelated fatalities are increasing?

Answer. The funding request for fiscal year 2004 has not decreased and remains

essentially level compared with the Agency’s fiscal year 2003 request. NHTSA’s fiscal year 2004 impaired driving program will continue to focus on highly sustained

and periodic law enforcement campaigns, together with implementing improvements

to the prosecution, adjudication, and records systems. For fiscal year 2004, the

Agency has proposed a State grant program that will focus resources on a number

of high risk States with high alcohol-related crashes. Targeted use of resources to

sustain high visibility enforcement and encouragement of States to adopt proven

remedies should revive the downward trend in alcohol-related fatalities that the Nation experienced over the last decade.

Question. NHTSA also administers grant programs to the States for various alcohol-impaired driving countermeasures through the Section 402 State and Community Formula Grant program. A few weeks ago, Secretary Mineta testified before

this subcommittee and stated that the 2004 request includes $148 million for impaired driving programs and that the funds will be used to increase the number of

highly visible sobriety checkpoints and other State highway patrol programs. In reviewing your 2004 budget, it appears that only $50 million is specifically targeted

for State grants on impaired driving initiatives.

Would you outline for us how much funding is specifically directed toward impaired driving programs? For example, how much money will be spent on high visibility enforcement efforts? Answer. The SAFETEA proposal would direct $50 million each year to initiatives

to curb impaired driving through discretionary grants to a limited number of States

with high rates of alcohol-related fatalities or high total numbers of alcohol-related

fatalities. The discretionary grants would fund programmatic activities specified by

NHTSA and agreed to by the recipient States. These activities would be of proven

effectiveness, e.g., well-publicized and high-intensity enforcement of impaired driving violations. Additionally, of the $337 million that SAFETEA would provide in

Section 402 basic formula and performance grants in fiscal year 2004, all but the

$25 million resulting from safety belt use rate performance would be available for

impaired driving. SAFETEA thus gives all States greater latitude in directing resources to address priority problems, including high visibility impaired driving enforcement efforts.

NHTSA’S OVERSIGHT OF STATE SAFETY PROGRAMS

Question. Dr. Runge, the second word in the administration’s SAFETEA proposal

stands for ‘‘accountable.’’ Yet, the recent report released by the General Accounting

Office draws the conclusion that NHTSA has been inconsistent in holding the States

accountable for their highway safety programs. The GAO reported that NHTSA’s

use of management reviews varied from region to region and that the regional offices have made limited and inconsistent use of improvement plans. While some

States may do a good job at meeting their safety objectives, it is clear that others

may benefit from greater input and guidance from NHTSA.

How specifically does your SAFETEA proposal improve the accountability of State

highway safety programs? Does any part of your SAFETEA proposal withhold Federal funding from States that fail to meet stated safety goals?

Answer. The SAFETEA proposal would improve the accountability of State highway safety programs because it would allocate the majority of funds to States based

on specific measures of their performance in achieving safety improvements and improved outcomes. In fiscal year 2004, $100 million would go to States that succeeded

in enacting primary safety belt laws, or that achieved belt use rates of 90 percent

or higher. Another $50 million would be distributed only to States that succeeded

in achieving low or improved rates of total motor vehicle fatalities, alcohol-related

fatalities, and/or motorcyclist, pedestrian, and bicyclist fatalities. Another $25 million would go only to States that achieved high or improved safety belt use rates.

Fifty million dollars would be distributed to a limited number of States that agree
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to conduct assessments of their programs and carry out impaired driving programs

that include specified performance elements. Beginning in fiscal year 2005, States

that fail to enact primary safety belt laws or achieve 90 percent safety belt use without such a law would transfer 10 percent of their highway safety improvement program funds to their Section 402 highway safety program.

CRASH CAUSATION

Question. NHTSA’s 2004 budget includes the first $10 million installment of your $60 million proposal to update the 30-year-old Tri-Level Study on motor vehicle

crash causation. The motor vehicle crash causation study is expected to commence

at the completion of the truck crash causation study that has been funded through

the Federal Motor Carrier Safety Administration but conducted by NHTSA over the

last 3 years. The 2003 Conference Report directed NHTSA to have the CDC’s National Center for Injury Prevention and Control evaluate the adequacy of the crash

causation research design.

Dr. Runge, given that the motor vehicle crash causation study is expected to use

the same methodology as the truck crash causation study, would it make sense to

see the results of the CDC evaluation before moving ahead with the motor vehicle

crash causation study?

Answer. The Large Truck Crash Causation Study (LTCCS) design and implementation was thoroughly reviewed by a knowledgeable Transportation Research Board

(TRB) committee. Most of the TRB recommendations were incorporated into the

LTCCS study. Those that are applicable to the upcoming National Motor Vehicle

Crash Causation Survey (NMVCCS) will be included in its design. In response to

the specific direction in the 2003 Conference Report, the National Highway Traffic

Safety Administration (NHTSA) has prepared a written description of the Large

Truck Crash Causation Study sample design. It details the sampling process, as

well as providing a description of the practical application of this design into field

operations. This report is being provided to CDC for review. The results of the CDC

evaluation will be taken into consideration.

NHTSA’S ‘‘CHECKPOINT STRIKEFORCE’’ CAMPAIGN

Question. Dr. Runge, last June, your agency launched a sobriety checkpoint blitz

called ‘‘Checkpoint Strikeforce’’ which was the first border-through-border law enforcement effort to deter drunk driving in the mid-Atlantic region. The program,

which utilized sobriety checkpoints, law enforcement saturation patrols and public

awareness campaigns, began just before the Fourth of July and ended in January

this year.

What can you tell us about the results of ‘‘Checkpoint Strikeforce’’ to date?

Answer. The first phase of NHTSA Region III’s ‘‘Checkpoint Strikeforce’’ program

ran from July 4, 2002, through January 4, 2003. The five States (Delaware, Maryland, Pennsylvania, Virginia, West Virginia) and the District of Columbia collectively conducted 720 sobriety checkpoints at which they contacted over 406,000 motorists and made 1,775 arrests for driving while under the influence (DWI) of alcohol. Overall, more than 3,000 enforcement actions (e.g., citations, arrests) were

taken, including 77 arrests for felony charges.

Analysis of public attitude and awareness survey data is continuing. In Virginia,

for example, it is estimated that the ‘‘Checkpoint Strikeforce’’ message reached more

than 2 million viewers through television news stories, and 4 million print impressions were made through newspapers and other print media. Surveys showed that

71 percent of Virginians ‘‘strongly support’’ checkpoints and 82 percent believe

checkpoints are a ‘‘useful tool in keeping drunk drivers off the road.’’

The ultimate objective of ‘‘Checkpoint Strikeforce’’ is to deter impaired driving and

reduce crashes, injuries, and fatalities. Analysis of crash and fatality data is incomplete. However, preliminary results suggest that alcohol-related fatalities are down

in four of the six States, compared to the comparable period the year before.

Question. Are you planning a similar effort in any other region?

Answer. A similar effort is underway across the Nation, with every State, the District of Columbia, and Puerto Rico participating to some degree. The Campaign is

called ‘‘You Drink & Drive. You Lose.’’ although some States use different terminology to describe the program of sustained impaired driving enforcement, punctuated by periodic high-intensity crackdowns with heavy publicity. For example, Illinois and Washington call their Campaigns ‘‘Drive Hammered, Get Nailed.’’ The sustained enforcement component of the Campaign is patterned on ‘‘Checkpoint

Strikeforce’’, but with a higher degree of intensity. In addition, ‘‘You Drink & Drive.

You Lose.’’ also relies on the State highway safety offices to coordinate the schedule

of the agencies’ special operations so that there is a public perception that the
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stepped up enforcement occurs continually. Although all States have numerous law

enforcement agencies participating, NHTSA’s attention in 2003 is focused on 13

Strategic Evaluation States (Alaska, Arizona, California, Florida, Georgia, Louisiana, Mississippi, Montana, New Mexico, Ohio, Pennsylvania, Texas, and West

Virginia) that have high rates and/or numbers of alcohol-related fatalities. A nationwide advertising campaign is being enhanced in those 13 States with statewide television and radio advertisements, and their enforcement, public awareness and crash

data are being monitored to assess the program’s effectiveness.

COORDINATED GOVERNMENTAL EFFORT TO FIGHT DRUNK DRIVING

Question. Dr. Runge, roughly one-third of all drivers arrested or convicted for

DUIs or DWIs were repeat offenders. These individuals are over-represented in fatal

crashes and less likely to be influenced by education or legal sanctions. Given that

these hard-core drinkers are probably the toughest individuals to reach, it seems

that there ought to be a coordinated governmental effort to reach them. Last year,

we directed NHTSA to work with the Attorney General’s office to identify the best

strategies to reduce plea bargaining and to make sure that impaired driving convictions are applied in a consistent manner. Beyond that, I think it is important that

we look at the public health aspects of this problem to make sure that people are

getting the treatment that they need. I know that you spoke to the National Institute on Alcohol Abuse and Alcoholism in February about how your two agencies

might work together on this very challenging problem.

What can you tell us about NHTSA’s collaboration with the Department of Justice

and the Department of Health and Human Services on drunk driving initiatives?

Answer. NHTSA collaborates regularly with both the Department of Justice and

the Department of Health and Human Services on initiatives that can reduce impaired driving.

At the Department of Justice, NHTSA works closely with the Office of Juvenile

Justice and Delinquency Prevention (OJJDP) and the Bureau of Justice Assistance

(BJA) to support and expand the use of youth courts and impaired driving courts

throughout the country. In addition, representatives of the Department of Justice

participated in NHTSA’s 2002 Criminal Justice Summit and agreed to support its

recommendations.

At the Department of Health and Human Services, NHTSA works closely with a

number of agencies, including the Substance Abuse and Mental Health Services Administration (SAMHSA), National Institute on Alcohol Abuse and Alcoholism

(NIAAA), the Centers for Disease Control and Prevention (CDC), and the Office of

the Surgeon General, regarding a range of programs that focus primarily on prevention, intervention, and treatment. In addition, this spring, NHTSA, SAMHSA, and

NIAAA co-sponsored a meeting of experts in alcohol research and the criminal justice system, to consider viable treatment options.

TOP PRIORITIES FOR NHTSA AND FMCSA’S SAFETY REGULATORY AGENDA

Question. Ms. Sandberg and Dr. Runge, Americans all across the country rely on

your two agencies to establish strong safety regulations to ensure that our trucks

and cars are safe and that their drivers operate their vehicles in a safe and sober

manner.

What are your top three priorities for safety rules in the coming year that you

think will achieve the most for highway safety?

Answer. NHTSA’s top three priorities for safety rules for fiscal year 2004 are:

Upgrade Side Impact Requirements for Light Vehicles.—NHTSA is engaged in extensive research and rulemaking activities for an upgrade of FMVSS No. 214, Side

Impact Protection. Side crashes killed 9,048 light vehicle occupants and injured

773,000 in 2001. This upgrade will address new safety issues arising out of the significant changes in the U.S. side crash environment in recent years due to the increase in light trucks, vans, and multipurpose passenger vehicles and is a first step

in addressing compatibility, one of the Administrator’s priorities. Most importantly,

the upgrade adds a vehicle-to-pole impact test simulating real world side crashes

to rigid narrow objects.

Improved Rear Impact Occupant Protection.—NHTSA estimates that each year

272,088 occupants of vehicles struck in the rear by another vehicle receive whiplash

injuries. Although whiplash injuries may be of a relatively minor in severity, they

entail large societal costs, estimated at $1.76 billion for rear impact whiplash. To

reduce the frequency and severity of injuries in rear-end and other collisions, the

Agency is developing rulemaking actions to upgrade its head restraint and seating

system standards. It is important to protect occupants in the rear seats from those

in the front seats without increasing the injury risk to those in the front. NHTSA
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believes that with adequate head restraints and energy management, both goals can

be met. In the near term, a final rule on FMVSS No. 202, Head Restraints and Notice of Proposed Rulemaking on FMVSS No. 207, Seating Systems will be published.

Rollover Protection.—Approximately 275,000 light vehicles are involved in rollover

crashes each year. Rollover crashes are especially lethal; although they comprise

only 4 percent of crashes, they account for almost one-third of light vehicle occupant

fatalities and more than 60 percent of SUV fatalities. Rollover crashes cause approximately 10,000 fatalities and 27,000 serious injuries each year. Based on testing

and analysis, NHTSA is preparing a final notice to announce dynamic rollover ratings to include in the NCAP rollover consumer information program. In addition,

the Agency plans to publish a notice in fiscal year 2004 to upgrade FMVSS No. 216,

Roof Crush Resistance.

NHTSA EFFORTS TO IMPROVE SUV SAFETY/REDUCING ROLLOVERS AND AGGRESSIVITY

Question. Dr. Runge, in February, you testified before the Commerce Committee

on your agency’s efforts to improve the safety of Sport Utility Vehicles. Your testimony pointed out that the rate of rollover fatalities for SUVs is almost three times

the rate of passenger cars and rollover crashes represent 32 percent of passenger

vehicle occupant fatalities.

The TREAD Act required NHTSA to develop a dynamic rollover test by November, 2002 but this deadline has not been met. When precisely will this final rule

be completed?

Answer. The Notice of Proposed Rulemaking for NCAP Rollover Resistance Ratings using both Static Stability Factor and dynamic maneuver tests in accordance

with the TREAD Act was published October 7, 2002. We expect to publish this Final

Rule in the late summer of 2003.

Question. There is also the issue of the aggressivity of SUVs—when an SUV

crashes with a passenger car, there are 16 driver fatalities in a passenger car for

every one driver fatality in the SUV. You assigned an Integrated Project Team to

evaluate aggressivity and incompatibility in multi-vehicle crashes.

What is your timetable for developing rules to improve the safety features of the

passenger car and to reduce the aggressiveness of larger vehicles such as SUVs?

Answer. NHTSA’s plans to improve passenger car safety and reduce the aggressiveness of larger vehicles are described in the Compatibility Integrated Project

Team report that has been placed in Docket NHTSA–2003–14623. The initiative to

improve passenger car safety is focused on side impact protection. A proposal to upgrade Federal motor vehicle safety standard No. 214, ‘‘Side impact protection,’’ is

now being developed, with an expected publication in late calendar year 2003.

Rulemaking to reduce the aggressiveness (i.e., improve vehicle compatibility) of

larger vehicles will not be initiated until some near-term research is completed. Although analyses and studies conducted to date have retrospectively demonstrated

several vehicle characteristics that appear to have considerable promise for establishing compatibility requirements, the Agency has yet to demonstrate that any of

these characteristics can prospectively be measured in a vehicle crash test and the

level of compatibility be quantified. A comprehensive crash test program is being

pursued in an effort to determine whether vehicles of comparable mass, but with

considerably differing aggressiveness characteristics, produce quantifiable differences for occupants of the struck vehicle. If differences can be quantified, NHTSA

will seek to identify countermeasures for potential establishment of compatibility requirements. The Agency expects to complete this testing and analysis in about a

year, and then make a determination on whether to initiate a rulemaking effort.

Question. Have you considered using the New Car Assessment Program to determine how well passenger cars fare when struck by a larger vehicle?

Answer. Yes. NHTSA is pursuing this as part of the vehicle compatibility effort,

which includes assessment of a number of proposed crash test barriers. When

NHTSA is able to develop metrics and requirements that reflect the compatibility

of a particular vehicle, the Agency will then investigate whether or not testing with

these alternative crash barriers would provide useful consumer information, and if

so, how to best convey that information to the public so that they can utilize it in

their purchasing decisions.

STEPS NHTSA IS TAKING TO IMPROVE VEHICLE BLIND SPOTS

Question. Dr. Runge, the April issue of Consumer Reports includes a dramatic

chart showing the blind spots in four different vehicle categories, from passenger sedans to minivans, SUVs and pickup trucks. The blind spots are far larger than

many motorists believe, putting especially smaller kids in the greatest danger. Indeed, a 5′1′′ woman driving a Chevrolet Avalanche has a 50 foot blind spot in back
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of her. Even a 5′9′′ man has a 30 foot blind spot in the Avalanche. It is estimated

that as many as 58 children were killed last year because they were rolled over by

a vehicle that was backing up and unaware that they were there.

What kind of data does NHTSA have on these types of non-crash, non-traffic incidents that many times have grave safety implications? If your agency doesn’t collect

this data, why not?

Answer. About 2 years ago, NHTSA began efforts to gather data relating to nontraffic, non-crash vehicle safety hazards—a process that, for a variety of reasons,

can be difficult. Following the successful completion of a pilot study of 1997 death

certificates, a more broad based program was instituted to review 1998 death certificates, as well as other data and information sources such as academic research, various health-related databases, and news sources. By the end of this summer,

NHTSA expects to publish a comprehensive interim report on its non-traffic, noncrash research efforts, including those focusing on deaths and injuries resulting

from vehicles backing up. NHTSA has reviewed about 60 percent of the 1998 death

certificates it has received. The Agency has identified 49 vehicle-backing deaths in

those death certificates. Of the 49 deaths identified, 23 of the victims were 4 years

old or younger, and 22 were 60 years old or older, with 19 of these older than 70.

However, it should be noted that the death certificate data does not indicate whether there was a ‘‘blind spot’’ on the striking vehicle.

Question. What, if any, kind of testing has NHTSA done on backup warning devices already on the market to determine which work best in detecting a small child,

for example, in the vehicle’s blind spot?

Answer. In 1994, NHTSA published a report evaluating electronic rear object detection systems for large trucks. The results of the testing indicated that the devices

have difficulty consistently detecting many critical objects. They had a limited area

of coverage, which helps to reduce irrelevant warnings, but as a result, their ability

to detect moving pedestrians may be limited. Although NHTSA has not performed

any recent testing, the technologies currently in use for passenger vehicles would

be expected to have some of the same limitations as those studied previously. Although NHTSA is aware that a number of manufacturers offer some type of electronic backing aid, they characterize these technologies as parking aids and not as

collision warning or pedestrian warning devices, in part, due to the current limitations of the technology. Such limitations include the likelihood that these devices

could produce many false alarms to non-threatening objects. False alarms are likely

to reduce the effectiveness of the warning by making drivers less responsive when

there is a real collision threat.

BLUE RIBBON COMMISSION ON HIGHWAY SAFETY

Question. The administration’s SAFETEA proposal includes a total of $7 million

over 6 years for a National Blue Ribbon Commission on Highway Safety. The purpose of this safety commission is to study the Nation’s highway safety needs and

to make recommendations on how to reduce highway fatalities. The final report of

the Commission would be delivered as late as February 1, 2009.

I’d like the entire panel to answer this question. Given what we know about the

benefits of seat belts, tough drunk driving laws, and strong vehicle safety standards,

why do we need 6 years and $7 million to study a problem to which we already

know the solutions?

Answer. The focus of the Commission would be more than studying individual solutions to highway safety problems. The intent of this initiative is to have a shared

effort by the administration, Congress, and the public to raise the level of concern

regarding highway safety to the forefront of the public health issues. The level of

discussion and awareness such as a Commission would engender, has yet to be generated, even in response to the fact that almost 43,000 Americans are killed each

year on our highways. The Agency believes that it is appropriate that innovative

policies and organizational perspectives be taken, resulting in a higher level of

awareness and commitment to provide appropriate resources to implement the needed strategies.

Question. Isn’t this Commission just an excuse to put off meaningful action on the

safety remedies that we already know work?

Answer. Reducing the number of highway-related fatalities is a continuing challenge. The Agency does not intend to put off meaningful action on proven safety

remedies. The proposed doubling of funds for highway safety in SAFETEA indicates

a significant investment to implement the proven safety remedies. However, the

Agency believes that it should move forward to develop new strategies to address

issues of hardcore drunk-drivers and non-users of safety belts and motorcycle helmets. The Commission would provide a unique opportunity to involve all interested
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parties, including Federal, State, and local agencies, and other public and private

sectors, to discuss the possible solutions and strategies to such issues.

QUESTIONS SUBMITTED TO THE FEDERAL MOTOR CARRIER SAFETY ADMINISTRATION

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

Question. The Motor Carrier budget proposes $9 million to implement a Northern

Border Truck Safety Grant program for HAZMAT inspections. However, the budget

states that an emphasis will be placed on conducting additional roadside inspections

at or near the more remote border crossing locations. Could you explain how exactly

the Northern Border Truck Safety Grant program will be implemented and what

kinds of inspections will be conducted? Additionally, what is the long-term goal of

this new program?

Answer. FMCSA intends to develop a formula-based allocation with a small discretionary set-aside modeled after the Motor Carrier Safety Assistance Program

(MCSAP). FMCSA has many years of experience working with the southwest Border

States in targeting the border enforcement funds to maximize effectiveness and efficiency in meeting the mandates of Congress and the administration. The variety of

situations in the Border States, the unique issues with their cross-border partners,

the characteristics of the ports of entry, types of cargo being transported and inspection regimes, have provided us with the knowledge and experience to effectively allocate the majority of the border enforcement funds on a formula basis. The formula

will be developed through rulemaking.

If authorized, we would continue to distribute the funds according to the priorities

and criteria established and published in the Code of Federal Regulations. The

amounts available would be based on documented needs, the unique circumstances,

and information provided within the individual State’s funding request. The FMCSA

and States have worked cooperatively to meet Congressional mandates and optimize

the level of enforcement and compliance activities conducted with the limited funds

available for border enforcement programs. To date, all of the States that have applied for funding have been allocated part of the available funds.

We anticipate the States will request funds for additional inspection activities,

primarily on commercial motor vehicles transporting hazardous materials, and to

develop communications with Federal inspections agencies in the Bureau of Customs and Border Protection and the Transportation Security Administration (TSA).

The overall goal of this program is to ensure that State commercial motor vehicle

inspection agencies along the Canadian border have sufficient resources to ensure

that drivers and commercial motor vehicles, especially those transporting hazardous

materials, are safe and secure from the threat of terrorist acts through increased

inspections and enhanced communications with Federal security agencies.

Question. The FMCSA budget proposes a total of $33 million for implementation

of the new entrant program. Given that there are approximately 50,000 new entrants every year, how many audits does the Department actually expect to conduct

if this program is fully funded?

Answer. The FMCSA expects to conduct approximately 40,000 new entrant audits

per year.

Question. If we cannot expect to conduct an audit of every new entrant, what consideration has been given to phasing in the program or setting up some sort of criteria for prioritizing these new entrants that will be audited?

Answer. The FMCSA has established a new entrant implementation plan that

meets the statutory language and ensures that an audit be conducted on every new

entrant within 18 months of beginning operation. New entrant audits are scheduled

based on the date of the carrier’s registration to ensure the 18-month deadline is

met.

The FMCSA took aggressive action prior to publication of the Interim Final Rule

to ensure the program could begin full implementation in fiscal year 2003. Prior to

the implementation of the rule, the agency issued a press release and established

New Entrant Program information on its website. FMCSA’s National Training Center established an aggressive training schedule to offer opportunities to Federal and

State personnel who will conduct the safety audits under the program. In fiscal year

2003, our budget provided 100 percent High Priority MCSAP funds in the amount

of $2 million to 34 States to begin implementing the program. The funds may be

used to hire additional staff and to train the staff designated to conduct the audits.

Forty-six States have signed onto the program. The agency also delivered the

FMCSA Field Operations Training Manual to each FMCSA Division Administrator

on April 10, 2003, with instructions to provide a copy to their MCSAP counterpart
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and to meet and discuss the program with them. FMCSA stands ready to conduct

the audits now.

FMCSA believes that it has taken all appropriate actions to fully implement the

program. Our goal is to get the most exposure so that we can positively impact safety and make any adjustments prior to full funding in 2004. To phase in the program

over time would serve only to delay conducting audits on carriers, thus posing an

increased risk to the public. FMCSA believes that the safety benefits of the program

are great and that the more carriers it visits, the greater the potential for the Agency to reduce the number of commercial motor vehicle crashes, injuries, and fatalities.

Question. The FMCSA budget proposes $16.2 million for implementation of the

New Entrant program and an additional $17 million in MCSAP funding for the

same, for a total of $33 million. Since only 46 States have agreed to participate,

what is the proposed Federal-State funding split? Specifically, how will the additional MCSAP money be distributed and how will the Federal share be used?

Answer. In January 2003, FMCSA anticipated that 30 percent of the States would

participate in the New Entrant program. While 46 States indicate that they will

participate, they are participating at differing levels. The $17 million will be distributed to the States based on their level of participation and financial need. Some

States have indicated that they will handle all new entrant audits given the appropriate Federal funding, while some have indicated that they will strive to participate to the extent they are able. Legislative authority and personnel ceilings are two

issues many States must address prior to full commitment. The current amounts

contained in the President’s budget reflect anticipated participation of State efforts

to conduct new entrant safety audits.

The Federal share will be used to hire 32 Federal positions for the management,

oversight, and quality control of the New Entrant audit program, as well as to hire

private contractors to conduct the new entrant audits.

Question. FMCSA is responsible for implementation of HAZMAT rules and regulations following implementation of the Patriot Act. To date, what steps have been

taken to comply with these requirements?

Answer. On May 5, 2003, TSA published an Interim Final Rule in the Federal

Register that implemented the background check provisions of the USA PATRIOT

Act. TSA is developing the program to implement that regulation. Also on May 5,

FMCSA issued a companion regulation prohibiting States from issuing, renewing,

transferring, or upgrading a commercial driver’s license (CDL) with a hazardous

materials endorsement unless TSA has first conducted a background records check

of the applicant and determined that the applicant does not pose a security risk

warranting denial of the hazardous materials endorsement.

Question. Are Household Goods operators required to submit to any specific certification process through FMCSA or other regulatory agency?

Answer. All household goods applicants are required to certify that they are fit,

willing and able to provide the specialized service necessary to transport household

goods. This assessment of fitness includes the applicant’s general familiarity with

the Federal Motor Carrier Commercial Regulations for household goods transportation.

In addition, all applicants must certify that they will offer a dispute settlement

or arbitration program to resolve loss and damage disputes on collect-on-delivery

shipments. Applicants must ensure willingness to acquire the protective equipment

and trained operators necessary to perform household goods movement. In its decision letter granting the carrier authority to operate in interstate commerce, FMCSA

advises applicants that an arbitration program is required.

Question. How many Hazardous Materials incidents occur each year?

Answer. DOT collects hazardous materials incident data in two different ways.

FMCSA compiles data on trucks carrying hazardous materials involved in crashes

in the Motor Carrier Management Information System (MCMIS) through reports of

police officers responding to the crash. RSPA requires carriers to report unintentional releases of hazardous materials in transportation, which is defined as an ‘‘incident.’’ RSPA uses these data to extract ‘‘serious’’ incidents, which include releases

resulting in the closure of a major transportation artery, a fatality or injury, the

evacuation of 25 or more people, and other major impacts to the transportation system.
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HAZARDOUS MATERIAL TRUCK CRASHES AND RELEASES, PAST 5 YEARS REPORTED TO FMCSA

Year Crashes Crash w/ Release

1998 ........................................................................................................................................ 2,977 589

1999 ........................................................................................................................................ 3,527 500

2000 ........................................................................................................................................ 2,271 380

2001 ........................................................................................................................................ 1,891 297

2002 ........................................................................................................................................ 1,577 202

Source: MCMIS.

HAZARDOUS MATERIALS HIGHWAY INCIDENTS, PAST 5 YEARS REPORTED TO RSPA

Year Incidents Serious

Incidents 1

1998 ........................................................................................................................................ 13,110 356

1999 ........................................................................................................................................ 15,008 456

2000 ........................................................................................................................................ 15,129 463

2001 ........................................................................................................................................ 15,825 487

2002 ........................................................................................................................................ 13,514 2 453

Source: Hazardous Materials Information System, RSPA.

1 Serious Incident Defined by RSPA in 2002.

2 Estimate—Data are incomplete.

Question. How do NHTSA and FMCSA coordinate with regard to the ‘‘Share the

Road’’ education program, and how do you believe that program can be made more

effective?

Answer. In fiscal year 2003, Congress earmarked $500,000 to be transferred from

the National Highway Traffic Safety Administration (NHTSA) to the Federal Motor

Carrier Safety Administration (FMCSA) for the Share the Road program. Once

FMCSA provides NHTSA with a spending plan for the funds, the monies will be

transferred. FMCSA partners with NHTSA on a steering team on the Share the

Road Coalition, and communicates regularly to discuss issues as they arise throughout the year.

To improve the effectiveness of Share the Road, the FMCSA has broadened the

program’s scope to include all highway users and has identified specific target audiences that offer the highest opportunity for safety improvement. Education and outreach materials are being developed and tested to evaluate effectiveness. Future

plans to increase the effectiveness of the Share the Road program include distributing those projects considered most effective throughout the country via FMCSA

field staff and State and industry partners, and by making them available to community safety advocates concerned with truck safety issues. In response to recent

GAO recommendations, the Agency plans to develop a Share the Road program

planning document and conduct comprehensive program reviews to identify opportunities for improvement.

Question. The new entrant program appears to be the primary new initiative in

the Motor Carrier budget. The budget proposes $33 million for implementation of

this program.

(a) Ms. Sandberg, it is my understanding that there are approximately 50,000

new entrants every year. How many audits does the Motor Carrier Administration

expect to conduct at this level of funding?

(b) If we cannot expect to conduct an audit of every new entrant, what consideration have you given to phasing-in the program or to establishing some sort of criteria for prioritizing those new entrants that will be audited?

Answer. (a) The FMCSA expects to conduct approximately 40,000 new entrant audits per year.

(b) The FMCSA has established a new entrant implementation plan that meets

the intent of the statutory language and will ensure that an audit is conducted on

every new entrant within 18 months of beginning operation. New entrant audits are

scheduled based on the date of the carrier’s registration to ensure the 18-month

deadline is met.

The FMCSA took aggressive action prior to publication of the Interim Final Rule

to ensure the program could begin full implementation in fiscal year 2003. Prior to

the implementation of the rule, the Agency issued a press release and established

New Entrant Program information on its website. FMCSA’s National Training Center established an aggressive training schedule to offer opportunities to Federal and

State personnel who will conduct the safety audits under the program. In fiscal year
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2003, FMCSA’s budget provided 100 percent High Priority MCSAP funds in the

amount of $2 million to 34 States to begin implementing the program. The funds

may be used to hire additional staff and to train the staff designated to conduct the

audits. Forty-six States have signed onto the program. The agency also delivered the

FMCSA Field Operations Training Manual to each FMCSA Division Administrator

on April 10, 2003, with instructions to provide a copy to their MCSAP counterpart

and to meet and discuss the program with them. FMCSA stands ready to conduct

the audits now.

FMCSA believes that it has taken all appropriate actions to implement the program. Its goal is to get the most exposure for the program to impact positively on

safety and make any adjustments prior to full funding in 2004. To phase the program in over time would only serve to delay conducting audits on carriers, thus posing an increased risk to the public. We believe that the safety benefits of the program are great and that the more carriers we visit, the greater the potential to reduce the number of commercial motor vehicle crashes, injuries, and fatalities.

Question. Ms. Sandberg, what is the status of the Large Truck Crash Causation

Study, and when will you be sending a progress report to Congress?

Answer. Collection of field data on injury and fatal crashes involving large trucks

for the Large Truck Crash Causation Study will continue until the end of 2003. As

of May 2003, investigations had begun on 868 large truck crashes (with a goal of

investigating 1000 total crashes). Coding and quality control on all cases should be

completed by the middle of 2004. The full study database should be released to the

public by the end of 2004. Both FMCSA and NHTSA will be conducting multiple

analyses.

FMCSA will forward a letter report to Congress on the progress of the study and

the adjustments made to the study as a result of recommendations from the Transportation Research Board later this summer. In addition, FMCSA plans to issue a

report in the fall of this year with preliminary information on the data collected for

the study.

Question. An important part of the implementation of the New Entrant program

relies on the cooperation of the States to conduct safety audits. However, at this

time only 46 States have agreed to participate in the program.

Ms. Sandberg, how will the program be implemented in the remaining 4 States

and how does FMCSA propose to fund it?

Answer. FMCSA will be responsible for implementing the New Entrant program

where States cannot fully participate or choose not to participate. Currently,

FMCSA Safety Investigators are conducting safety audits in these four States and

others where there is a need. In fiscal year 2004, FMCSA is requesting $16 million

to support a Federal program to hire contractors to conduct new entrant audits. The

FMCSA anticipates that private entities will be conducting the audits on the new

entrant carriers in these four States and other States where 100 percent State participation is not available. In addition to the Federal program, there is also $17 million requested for grants to States to conduct audits.

Question. Ms. Sandberg, Motor Carriers recently issued a new Hours of Service

rule. While this rule increases by 1 hour the number of hours a driver may be on

the road, it also increases by 2 hours the number of required off-duty hours.

Could you explain how you believe this new rule is going to make our highways

safer?

Answer. The new science-based rule makes significant strides in providing commercial drivers a 24-hour work/rest schedule in line with the body’s circadian

rhythm. The longer off-duty time allows drivers to have more regular schedules and

increases the potential for quality sleep. This approach is consistent with fatigue

and sleep-related studies considered in development of the rule that indicate the

amount and quality of sleep a person receives has a strong influence on alertness.

The final rule helps to eliminate some of the worst aspects of daily rotating schedules and the compression of weekly on-duty time into a short portion of the workweek. This reduces the workday from 15 to 14 hours, replaces 8 off-duty hours with

10 off-duty hours, and, in particular, will not allow work breaks to extend the 14

hours on-duty time.

Question. Ms. Sandberg, your statement mentions the HAZMAT permitting program as required by Congress. It is not clear how much of the HAZMAT permitting

process has been turned over to the Transportation Security Administration at the

Department of Homeland Security and how much authority remains with the Motor

Carrier Administration.

I have been told that virtually all of that process has been turned over to TSA

while you are expected to support the contract to conduct the background investigations. Ms. Sandberg, can you clarify this for me?
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Answer. FMCSA has not turned over any aspect of the HAZMAT permitting process to TSA. This requirement comes out of the Hazardous Materials Transportation

Uniform Safety Act of 1990 and is separate from the background check requirements of the USA PATRIOT Act.

FMCSA has coordinated with TSA in developing the proposal for the permit program, however, FMCSA will oversee the permit application process and FMCSA

field staff will conduct investigations of companies applying for permits to determine

fitness. In fact, TSA is transferring funding for implementing a hazardous materials

permit program to FMCSA. Currently, FMCSA has submitted a Supplemental Notice of Proposed Rulemaking (SNPRM) to establish a safety permit program and require motor carriers transporting these materials to obtain a safety permit prior to

transporting these hazardous materials. The Office of Management and Budget

(OMB) is currently reviewing the SNPRM for Hazardous Materials Safety Permits.

Question. The March 2001, General Accounting Office report to Congress concluded that FMCSA oversight of the household goods moving industry and enforcement of the consumer protection regulations has been minimal since 1996. As a result of this vacuum, rogue movers have proliferated and are literally holding consumers’ possessions as ransom for addition payment.

(a) Ms. Sandberg, what is your plan to address this problem?

(b) How is the budget increase for household goods enforcement planning to be

used specifically for enforcement and investigation?

Answer. (a) FMCSA has taken a proactive approach by developing a comprehensive Household Goods (HHG) Outreach and Enforcement Program to focus on addressing consumer complaints and enforcing regulations on non-compliant carriers.

A HHG Program Manager has been hired to administer and implement the agency’s overall HHG Enforcement Program, as well as coordinate regulatory strike force

activities.

FMCSA has enhanced its enforcement program by developing enforcement criteria

to identify the most egregious HHG violators and to conduct enforcement strike

forces on targeted carriers. HHG carriers/brokers identified for investigation under

this process have demonstrated a continuous pattern of noncompliance with our

commercial regulations.

(b) The budget request supports a study on the moving industry dispute settlement programs for resolving loss and damage claims, and provide funding to hire

seven additional commercial investigators to conduct HHG investigations on the

most egregious violators of the commercial regulations.

QUESTIONS SUBMITTED BY SENATOR PATTY MURRAY

Question. Ms. Sandberg, your 2004 budget includes $9 million for the agency’s

regulatory development program. This funding will be used to establish a medical

review board and a national medical examiner registry in an effort to upgrade the

quality of commercial driver medical examinations nationally.

As you know, the FAA has its own program to ensure that pilots are medically

qualified. What input, if any, have you had from the FAA in developing this program?

Answer. FMCSA is conducting a planning analysis to identify a feasible set of

strategies to be used to develop and maintain a national registry of medical examiners and a program to certify all medical examiners that perform commercial driver

physical examinations. It will review the procedures that the FAA and other Federal

agencies use to certify medical examiners and investigate different approaches for

establishing a national database of medical examiners.

Question. When precisely can we expect this registry to be fully implemented?

Answer. Estimation of a precise implementation date for the registry of medical

examiners is complicated by uncertainties in designing a new program that is not

yet defined in a Notice of Proposed Rulemaking (NPRM). Until the agency has completed its planning analysis for the national registry and published a final rule, an

estimation of a full implementation date would be speculative.

Question. NHTSA’s 2004 budget includes the first $10 million installment of your

$60 million proposal to update the 30-year-old Tri-Level Study on motor vehicle

crash causation. The motor vehicle crash causation study is expected to commence

at the completion of the truck crash causation study that has been funded through

the Federal Motor Carrier Safety Administration but conducted by NHTSA over the

last 3 years. The 2003 Conference Report directed NHTSA to have the CDC’s National Center for Injury Prevention and Control evaluate the adequacy of the crash

causation research design.
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Ms. Sandberg, the Transportation Research Board has provided your agency with

a series of recommendations on the crash causation study. Which, if any, of TRB’s

recommendations have you decided not to implement?

Answer. FMCSA hired the Transportation Research Board to consult on the design and implementation of the Large Truck Crash Causation Study. The TRB

panel, consisting of experts from varying fields, met five times over the past 3 years.

A panel subcommittee met an additional two times to address several specific

issues. The TRB panel made many suggestions, but made only a few formal recommendations for the sample design, the data collection forms and data coding protocol. Numerous changes were incorporated into the LTCCS as a result of the TRB

suggestions. Of the formal recommendations, two were not implemented:

—‘‘Exclude two-axle straight trucks from the study to focus exclusively on larger

straight trucks and combination vehicles’’ (November 15, 2000, letter to

FMCSA). Since FMCSA regulates these vehicles, we need crash causation data

on crashes involving these vehicles.

—‘‘Study should collect more data on vehicle components, vehicle dynamics, brake

condition, measurement of skid marks, roadway geometry, and objective estimates of pre-crash speed’’ (December 4, 2001, letter to FMCSA). Collection of

some information on many of these elements is already part of the study. However, collection of more in-depth data would require complete reconstructions of

each crash and vehicle, which was not possible given the study resources, design, and timeline.

Question. Ms. Sandberg and Dr. Runge, Americans all across the country rely on

your two agencies to establish strong safety regulations to ensure that our trucks

and cars are safe and that their drivers operate their vehicles in a safe and sober

manner. What are your top three priorities for safety rules in the coming year that you

think will achieve the most for highway safety?

Answer. For FMCSA, the top three safety rules that will achieve the most for

highway safety are:

—Implementing the new driver hours-of-service rule to help minimize the number

of crashes due to large truck driver fatigue.

—Implementing the new entrant interim final rule to ensure that new motor carriers are in compliance with safety regulations at the onset of their operations.

—Developing a notice of proposed rulemaking that would merge the requirement

for driver medical certification with that of obtaining a commercial driver’s license (CDL). The 1999 Louisiana bus crash might have been avoided had such

a requirement been in place.

Question. Ms. Sandberg, your testimony refers to a revised process for the development of motor carrier safety regulations that is designed to improve both the

quality and timeliness of your agency’s rulemakings.

Why should we be convinced that these changes would result in greater motor

carrier safety? How much time will you be saving in the rulemaking process—are

we talking months or years?

Answer. FMCSA’s new Rulemaking Order, which was signed in January 2003, established for the first time a clearly defined process by which FMCSA can develop

its safety regulations. While it is difficult to predict specific time saved, I anticipate

that it will have a positive impact on both the quality and timeliness of our

rulemakings, as well as commercial motor vehicle (CMV) safety. In the legislation

that established the FMCSA, Congress placed special emphasis on the importance

of timely rulemaking as an important way to achieve reductions in the number and

severity of CMV crashes.

Question. This new process is designed to build consensus with senior managers

earlier in the rule’s development. Does this new process also include any sort of negotiated rulemaking process—similar to what the FRA uses with its Rail Safety Advisory Committee? Under what scenarios might you choose to use a negotiated rulemaking process where both industry and safety groups engage in the rule’s development?

Answer. The FMCSA has no standing advisory committee similar to FRA’s Rail

Safety Advisory Committee, which was formally established under the Federal Advisory Committee Act. However, FMCSA’s new rulemaking process provides for negotiated rulemaking. The Agency would use, and has used, this approach when there

are complex issues and there is sharp disagreement among the regulated parties

that cannot otherwise be resolved through the standard notice and comment approach to rulemaking. An example where the Agency has used this approach is the

recently published regulation on driver hours-of-service.

Question. Ms. Sandberg, just over a year ago, the Inspector General released a

report on your agency’s oversight of the Commercial Driver’s License (CDL) pro-
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gram. The principal findings of the IG’s report were as follows: first, CDL fraud is

a significant problem; second, that FMCSA needs to strengthen its oversight of

State CDL programs; and third, the FMCSA should use sanctions when necessary

to enforce compliance with CDL requirements.

(a) What specific steps has your agency taken to reduce CDL fraud and to

strengthen your oversight of the State CDL programs?

(b) Given what you know about the effectiveness of sanctions from your experience

as Deputy Administrator of NHTSA, has your agency withheld any highway funds

from States that have failed to correct significant CDL problems?

Answer. (a) Through a cooperative agreement with the American Association of Motor Vehicle Administrators, FMCSA is using an $8 million fiscal year 2002 supplemental appropriation to develop a 14-task effort to better detect and prevent

fraudulent activities within the State CDL programs. These tasks include activities

such as fraudulent document recognition training for State licensing agency staff,

uniform identification practices and documents, the development of best practices

for State and third party test examiners, and the conducting of a CDL Fraud Symposium in November 2002, where States shared information on efforts to detect and

prevent fraud.

FMCSA has strengthened and enhanced the CDL compliance and oversight program. A 3-year cycle of this enhanced CDL compliance process has just been completed where written administrative procedures and laws are reviewed and a complete ‘‘hands on’’ operational review is conducted to make sure that written procedures are being followed. Starting in 2002, a legal sufficiency review is being conducted on State CDL laws, statutes, and administrative procedures.

(b) No. To date, FMCSA has not withheld any Federal-aid highway funds from

any State in order to get significant CDL compliance problems and deficiencies corrected. While FMCSA has initiated the process to withhold funds in several States,

these States were able to correct the deficiencies before the funds were withheld.

The withholding of funds has been used as a last resort. The Agency has been successful in getting States to develop reasonable action plans and schedules to correct

deficiencies. Continued monitoring of these action plans has been instrumental in

correcting deficiencies within the agreed time period.

Question. Ms. Sandberg, when Secretary Mineta appeared before this subcommittee on May 8th, I asked him whether the Department intended to appeal the

Ninth Circuit’s decision regarding the U.S.-Mexico commercial vehicle border crossings. He stated that the administration was weighing its options as to whether the

decision should be appealed to the Supreme Court or alternatively, whether the Department should prepare the required environmental impact statement.

Which option has the administration decided to pursue?

Answer. FMCSA does not view seeking Supreme Court review of the Ninth Circuit decision and preparing an environmental impact statement (EIS) as mutually

exclusive options. Although the administration has not yet determined whether to

file a petition for review with the Supreme Court, FMCSA has solicited bids from

contractors for EIS preparation and expects to select a contractor within the next

30 days. Therefore, the Agency is taking the necessary steps to prepare an EIS regardless of whether the administration seeks further legal review of the Ninth Circuit decision.

Question. Despite the delay in opening the border, this subcommittee has funded

every penny you have requested to build up the inspection force and your oversight

capacity at the border. As a result, you currently have 43 percent of all of your

Motor Carrier Field Safety Enforcement personnel located at the U.S.-Mexican Border.

(a) Given the anticipated delay in the opening of the border because of this court

case, do you believe it still makes sense in terms of improving truck safety nationwide to have 43 percent of all of your truck safety enforcement personnel at the

Mexico border?

(b) Would you like this Committee to consider a temporary statutory waiver that

would allow you to move these safety enforcement personnel throughout the United

States?

Answer. (a) Federal staffing at the Southern Border is necessary to conduct inspections, safety audits, and compliance reviews on U.S. and Mexican carriers. With

80,000 distinct vehicles making over 4.3 million crossings a year, there is a need

for a significant Federal presence at border crossings. Although Border States have

an enforcement presence at crossings, the extended hours crossings are open, coupled with large crossing volumes, require a Federal presence. In addition, FMCSA

is responsible for conducting safety audits and compliance reviews for a large commercial zone population of carriers. Once the border is open, the added burden of

conducting reviews on long-haul carriers will be placed on the Federal staff.
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(b) The ability to efficiently and effectively deploy staff can be accomplished under

authorities FMCSA currently has available. Therefore, a statutory waiver is not necessary.

Question. Ms. Sandberg, the Motor Carrier Safety Improvement Act required that

your agency conduct safety reviews for each new entrant trucking firm within the

first 18 months after the trucking company begins operations. These new entrants,

which total anywhere from 40,000 to 50,000 a year, pose a significant commercial

motor vehicle safety risk. Your testimony indicates that 46 States have agreed to

either partially or fully conduct new entrant safety audits. Your 2004 budget requests $16.2 million along with $17 million in Motor Carrier Safety Assistance Program for the joint Federal and State efforts.

(a) Which States have not agreed to conduct new entrant safety audits and why

haven’t they agreed to do so?

(b) How, if at all, will these new entrant audits differ from the safety audits that

you conduct on trucking companies with existing operating authority?

Answer. (a) Delaware, the District of Columbia, Oregon, and Wyoming have indicated they will not participate in the new entrant program, due primarily to their

inability to staff the program at the State level.

(b) A new entrant safety audit is a requirement for all new motor carriers applying for a U.S. DOT number after January 1, 2003. The purpose of the safety audit

is to provide educational and technical assistance to the new entrant and gather

safety data needed to make an assessment of the new entrant safety performance

and the adequacy of its safety management controls. The motor carrier contact is

required to be conducted within the first 18 months of operations. It is non-enforcement oriented and will result in a pass/fail outcome based upon the motor carrier’s

overall safety management controls. If the carrier fails the safety audit, it must take

corrective actions or it will not be granted permanent operating authority.

A compliance review is an on-site investigation of the motor carrier’s compliance

with the Federal motor carrier safety and hazardous materials regulations and is

usually conducted on motor carriers that are determined to be higher risk. Higher

risk can be derived from data gathered regarding on-road performance, including inspections and crashes, as well as prior compliance reviews, complaints, and special

projects. Unlike safety audits, motor carriers are not required to undergo a compliance review as a condition of authority but are always subject to a compliance review, even during the initial 18 months of operation. Compliance reviews result in

a rating of satisfactory, conditional, or unsatisfactory, based upon the violations discovered during the investigation and the data gathered from on-road activity. If a

carrier is rated unsatisfactory, it must have the rating upgraded in order to avoid

an operations out-of-service declaration within 60 days of the compliance review for

private and for-hire carriers, and within 45 days for transporters of passengers and

placarded hazardous materials. The compliance review is a compliance monitoring

and enforcement event. The motor carrier and drivers are subject to fines and other

penalties for serious noncompliance with Federal safety and hazardous material violations.

Question. The Inspector General’s follow-up audit on the implementation of the

safety requirements at the U.S.-Mexico border includes a recommendation to use

safety auditors and investigators for the new entrant program while the border

opening is delayed due to the Ninth Circuit Court decision.

Do you intend to use these auditors and investigators to conduct new entrant

safety audits?

Answer. FMCSA is assessing the recommendations contained in the Inspector

General’s report on implementation of safety requirements at the U.S.-Mexico border and will respond formally to those recommendations in the very near future.

One of the issues we must consider in using border auditors and investigators for

new entrant audits is that we maintain an appropriate level of enforcement staff

at the border to ensure commercial zone safety.

QUESTIONS SUBMITTED TO MOTHERS AGAINST DRUNK DRIVING

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

Question. Mr. Hurley and Ms. Hamilton, have you analyzed the funding levels

proposed in the current budget and in the SAFETEA proposal?

Answer. The Department of Transportation’s fiscal year 2004 budget request and

‘‘SAFETEA’’ reauthorization proposal are woefully inadequate in terms of addressing the rising levels of alcohol-related traffic deaths in America.
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NHTSA Fiscal Year 2004 Budget.—NHTSA’s funding request appears to have increased monies for behavioral funding, however, this is not the case. The fiscal year

2004 request is significantly less than the fiscal year 2003 request. The fiscal year

2004 request includes $222 million of TEA–21 resources for the Sections 157 and

163 grant programs formerly appropriated in the Federal Highway Administration

budget. NHTSA has always administered these funds and is now requesting receipt

of this funding directly. This apparent increase is really no increase at all. The fiscal year 2004 request for behavioral funding is $516,309,000, however

when Section 157 and 163 monies are subtracted, the amount is reduced to

$294,309,000. The fiscal year 2004 request is a quarter of a million less than the

fiscal year 2003 request. Additionally, only a percentage of this funding is guaranteed for behavioral safety since States are able to use this funding for roadway safety/highway construction projects.

The levels of funding specifically for impaired driving countermeasures are re- duced in the fiscal year 2004 request. The fiscal year 2004 request provides a $50

million impaired driving grant program to a limited number of ‘‘problem’’ States to

demonstrate the effectiveness of a comprehensive approach to reducing impaired

driving and for identifying causes of weakness in a State’s impaired driving control

system. This funding level is $100 million less than funds available to States in fiscal year 2003 for impaired driving improvements.

Additionally, the NHTSA Impaired Driving Division budget request is signifi- cantly lower than fiscal year 2002 enacted levels ($10.9 million in fiscal year 2004

request compared with $13.5 million fiscal year 2002 enacted).

SAFETEA Proposal.—The administration’s ‘‘SAFETEA’’ proposal significantly decreases funding for alcohol-impaired programs (¥67 percent). SAFETEA proposes an impaired driving program totaling only $50 million, far less than current funding

levels. In fiscal year 2003, TEA–21 authorized $150 million for alcohol-impaired

driving countermeasures (impaired driving grants and .08 BAC incentives) and contained requirements for States to enact repeat offender and open container laws. If

States failed to pass these alcohol-impaired driving laws then a percentage of their

Federal construction funds were transferred. Not only does ‘‘SAFETEA’’ slash impaired driving funding to $50 million, it fails to include incentives to States to enact

effective alcohol-impaired driving countermeasures.

While the administration, the Department of Transportation and NHTSA claim

reducing alcohol-related traffic fatalities is a top priority, their fiscal year 2004

budget request and ‘‘SAFETEA’’ proposal fails to provide a coherent plan to address

the carnage caused by alcohol-impaired driving on America’s roadways.

Question. Ms. Hamilton, do you have any thoughts about Dr. Runge’s discussion

of NHTSA’s plans and would you propose to approach the problem differently?

Answer. MADD believes that Dr. Runge and NHTSA have a strong understanding

of what is needed to drive down the number of people killed and injured in alcoholrelated crashes. However, their fiscal year 2004 budget proposal and administration’s SAFETEA plan fails to provide adequate funding, fails to apply effective data

and science driven countermeasures, and fails to provide leadership to seriously address the increasing amount of death and injury due to alcohol-related traffic crashes.

MADD believes that progress will occur when adequate funding is provided for

traffic safety programs and when a commitment is made to put proven impaired

driving countermeasures, such as law enforcement mobilizations, into place. More

accountability is needed at the national, regional and State levels to ensure that

Federal funds are being used in a strategic and coordinated effort. Additionally,

States should be encouraged to enact priority traffic safety laws, such as primary

seat belt enforcement, and laws targeting higher-risk drivers (high BAC and repeat

offenders).

Question. Ms. Hamilton, this year NHTSA is running paid media in concert with

the impaired driving mobilizations. I am interested in knowing if MADD was involved at all in the development of these ads and how effective you believe they will

be in getting the message out?

Answer. MADD would like to thank Senator Shelby and Senator Murray for their

leadership in this area and for providing funds for these life-saving efforts. MADD

strongly supports the expansion of well-publicized law enforcement campaigns to

curb drunk driving and increase seat belt use. These law enforcement activities

should utilize frequent and highly visible sobriety checkpoints and/or saturation patrols. Research and field applications have shown these law enforcement activities

to be among the most effective tools used to deter impaired driving. The CDC found

that sobriety checkpoints can reduce impaired driving crashes by 18 to 24 percent.

Checkpoints are especially effective when coupled with media campaigns that raise

the visibility and awareness of alcohol-impaired driving enforcement efforts in the
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community with the objective of deterring impaired driving before it happens. Senate Bill 1139, introduced by Senator Mike DeWine and Senator Frank Lautenberg,

provides funding for increased enforcement efforts across the country and if enacted

will enhance the work of this committee and result in lives saved and injuries prevented.

MADD is pleased with the quality and content of the advertising developed for

this campaign. The first deployment of this campaign will occur from June 20 to

July 13, 2003. MADD believes that raising public awareness through a coordinated

national media campaign coupled with high visibility law enforcement (sobriety

checkpoints and/or saturation patrols) will be successful. Based on the success of the

Click-it-or-Ticket campaign and several demonstration sobriety checkpoint programs

these combined efforts have the greatest potential to save lives. However, it is vital

that DOT/NHTSA commit 100 percent to promote this program, and they can demonstrate this commitment by ensuring that national wire services cover the kick off

press event, by aggressively reaching out to diverse news outlets, by working closely

with law enforcement and traffic safety partners, and by evaluating results.

MADD was included in weekly NHTSA meetings that commenced approximately

4 weeks before the mobilization kickoff. MADD had occasional contact with NHTSA

during the campaign’s development did not participate in the development of the national ad. We would welcome more regular opportunities to work with NHTSA to

ensure that these campaigns are as successful as possible.

Question. The NHTSA budget proposes a new initiative to award discretionary

grants to States to demonstrate the effectiveness of a comprehensive approach to

reducing impaired driving. Ms. Hamilton and Mr. Hurley, I am interested in your

thoughts about this new discretionary grant program and how effective you both believe that it will be.

Answer. Sanctions are clearly the more effective approach to encourage States to

adopt proven highway safety laws. While incentive programs have had some success, it is clear that—particularly with alcohol-related traffic laws—penalties have

shown greater results than incentives. DOT estimates that the 21 Minimum Drinking Age (MDA) law has saved thousands of lives since the national standard was

put in place in 1984. A national zero tolerance standard for youth, adopted by Congress is 1995, was also successful in getting States to enact better laws for underage

drivers. Clearly the national .08 BAC standard, enacted in 2000, has been much

more effective than the TEA–21 incentive program. Under the incentive program,

only two States passed .08 BAC laws. Since the national .08 standard was enacted,

22 States have passed this important law.

In addition, DOT’s proposed grant program is flawed because it is only made

available to States with the worst alcohol-related incidents, leaving the rest of the

Nation with no access to these funds. And, the pot of money is not nearly as substantial as it should be to effect needed change.

QUESTIONS SUBMITTED BY SENATOR PATTY MURRAY

Question. This will be the first year that national media will be used for the

drunk driving mobilization efforts in July and December. Ms. Hamilton, what does

MADD hope that we will accomplish through these national ads and what kind of

contact has your organization had with NHTSA during the development of this

media effort?

Answer. MADD would like to thank Senator Shelby and Senator Murray for their

leadership in this area and for providing funds for these life-saving efforts. MADD

strongly supports the expansion of well-publicized law enforcement campaigns to

curb drunk driving and increase seat belt use. These law enforcement activities

should utilize frequent and highly visible sobriety checkpoints and/or saturation patrols. Research and field applications have shown these law enforcement activities

to be among the most effective tools used to deter impaired driving. The CDC found

that sobriety checkpoints can reduce impaired driving crashes by 18 to 24 percent.

Checkpoints are especially effective when coupled with media campaigns that raise

the visibility and awareness of alcohol-impaired driving enforcement efforts in the

community with the objective of deterring impaired driving before it happens. Senate Bill 1139, introduced by Senator Mike DeWine and Senator Frank Lautenberg,

provides funding for increased enforcement efforts across the country and if enacted

will enhance the work of this committee and result in lives saved and injuries prevented.

MADD is pleased with the quality and content of the advertising developed for

this campaign. The first deployment of this campaign will occur from June 20 to

July 13, 2003. MADD believes that raising public awareness through a coordinated
294

national media campaign coupled with high visibility law enforcement (sobriety

checkpoints and/or saturation patrols) will be successful. Based on the success of the

Click-it-or-Ticket campaign and several demonstration sobriety checkpoint programs

these combined efforts have the greatest potential to save lives. However, it is vital

that DOT/NHTSA commit 100 percent to promote this program, and they can demonstrate this commitment by ensuring that national wire services cover the kick off

press event, by aggressively reaching out to diverse news outlets, by working closely

with law enforcement and traffic safety partners, and by evaluating results.

MADD was included in weekly NHTSA meetings that commenced approximately

4 weeks before the mobilization kickoff. MADD had occasional contact with NHTSA

during the campaign’s development but did not participate in the development of

the national ad. We would welcome more regular opportunities to work with

NHTSA to ensure that these campaigns are as successful as possible.

Question. Ms. Hamilton, how would you assess the funding levels in NHTSA’s

budget that are directed toward reducing drunk driving?

Answer. NHTSA’s fiscal year 2004 budget request is woefully inadequate in terms

of addressing the rising levels of alcohol-related traffic deaths in America. NHTSA’s

testimony before the Committee gives the false impression that they have increased

monies for behavioral funding in their fiscal year 2004 budget request. However, a

detailed review of their proposal shows that this is not the case.

The fiscal year 2004 request proposes $516,309,000 for behavioral funding, however when Section 157 and 163 monies are subtracted the amount is reduced to

$294,309,000. The request includes $222 million of TEA–21 resources for the Sections 157 and 163 grant programs formerly appropriated in the Federal Highway

Administration budget, which NHTSA has always administered and is now requesting receipt of this funding directly. This apparent increase is really no increase at

all.

The fiscal year 2004 request is actually $250,000 less than the fiscal year 2003

request. Additionally, only a percentage of funding guaranteed for behavioral safety

since States are able to shift this funding to roadway safety/highway construction

projects. The levels of funding for impaired driving countermeasure programs administered by NHTSA are reduced in the fiscal year 2004 request. The NHTSA Impaired Driving Division budget request is significantly lower than fiscal year 2002

enacted levels ($10.9 million in fiscal year 2004 request compared with $13.5 million

fiscal year 2002 enacted).

NHTSA’s State & Community Highway Safety Program drastically reduces funds

available to States for impaired driving initiatives. The fiscal year 2004 request provides a $50 million impaired driving grant program to a limited number of ‘‘problem’’ States to demonstrate the effectiveness of a comprehensive approach to reducing impaired driving and for identifying causes of weakness in a State’s impaired

driving control system. This funding level is $100 million less than funds available

to States in fiscal year 2003 for impaired driving improvements.

Question. Ms. Hamilton and Mr. Hurley, how would you assess NHTSA’s oversight of State highway safety plans and what specific changes would you suggest

to improve their accountability?

Answer. In May 2003, the General Accounting Office released a report that determined NHTSA’s ‘‘performance based’’ approach to oversight of State and Community

Highway Safety Program expenditures by the States has not yielded measurable

safety benefits. GAO states that:

‘‘ . . . NHTSA’s oversight of highway safety programs is less effective than it

could be, both in ensuring the efficient and proper use of Federal funds and in helping the States achieve their highway safety goals.’’

Last year, members of this committee noted the disturbing increase in alcohol-related fatalities and questioned NHTSA’s pronouncements that it would intensify its

efforts to combat impaired driving. MADD shares the concerns raised by the GAO

and Congress regarding the lack of accountability for traffic safety programs under

TEA–21.

MADD asks Congress to hold the National Highway Traffic Safety Administration, the agency’s regional offices, and the States more accountable for the expenditure of Federal highway safety funds. Our goal is not to make their jobs more difficult. It is to recognize that political pressures and ‘‘flavor of the month’’ traffic

safety issues can influence how dollars are spent. DOT claims that its primary goal

is to reverse the current trend, but clearly it is time for Congress to create a more

consistent process that ensures the efficient and proper use of Federal funds to help

the Nation achieve its highway safety goals.

Some suggested changes include:
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—Establish three levels of accountability: (1) NHTSA must be held accountable—

i.e., how does NHTSA spend its research and evaluation funds, its demonstration project funds, and plan/create a strategy for use of other expenditures from

headquarters; (2) NHTSA Regional Offices must be held accountable—i.e., how

do the Regional Offices work to assist the States in reaching their goals; (3)

State highway safety offices must be held accountable, i.e., what kind of programs are States spending resources on—are they research based and do they

reflect the needs in that particular State.

—Establish a memorandum of understanding between the Regional Offices and

the State highway safety offices to clearly lay out the role of the regions and

the role of the States.

—Regional Offices (RO’s) should be more involved in the planning process with

the States. RO’s should assist the States with: problem identification, development of a data-driven State highway safety plan, setting States’ goals, and in

the selection of proven countermeasures/programs that will work to meet these

goals. RO’s need training and expertise to assist the States.

—State highway safety offices must create a highway safety plan that reflects the

needs in their States based on the data (i.e., if alcohol-related deaths are high

in a particular State, then that State’s highway safety plan should adequately

reflect the need to reduce alcohol-impaired driving with research-based, proven

solutions.)

—A more systematic approach should be used—as shown by the GAO—to ensure

that NHTSA and the RO’s use tools (i.e., Improvement Plans and High-Risk

designation) to improve State performance.

—NHTSA and the RO’s should provide the States with ‘‘best practices’’ training

and documents. NHTSA’s publications and website should be improved to reflect years of research in terms of what works and what does not work. A catalogue of research and resources should be available to the RO’s and to the

States.

—NHTSA must do a better job to ensure that proven, effective countermeasures

are being implemented. Decades of research is being ignored.

Question. Ms. Hamilton, as I mentioned, the Checkpoint Strikeforce project used

public awareness, saturation patrols and sobriety checkpoints. Which of these three

strategies do you believe is the most effective in deterring drunk driving?

Answer. Sobriety checkpoints and saturation patrols coupled with a public information and enforcement campaign have proven to be highly effective in deterring

impaired drivers. Research conducted both in the United States and abroad indicates that the use of sobriety checkpoints has been associated with substantial reductions in alcohol-related crashes. In addition, checkpoints can be instrumental in

the enforcement of other traffic safety laws such as zero tolerance for youth and

graduated licensing. The use of sobriety checkpoints is permitted in 41 States and

the District of Columbia; in other States the use of saturation patrols has been proven to be a successful strategy. The research seems to indicate that sobriety checkpoints, when done effectively, are the best enforcement tool because they deter impaired driving and have a broader reach than other enforcement methods.

As an example of the kinds of reductions that may be achieved with a large and

sustained program, the State of Tennessee conducted an intensive sobriety checkpoint effort combined with public awareness from April 1994 to March 1995. Nearly

900 checkpoints were conducted and more than 140,000 drivers were checked for alcohol impairment with nearly 800 DUI arrests. Analysis indicated a 20 percent reduction over the number of impaired driving fatal crashes that would have occurred

with no intervention. It was estimated that there was a reduction of 9 impaired

driving fatal crashes per month due to the influence of the checkpoint program,

amounting to more than 100 lives saved over the intervention period. A check of

five comparison States showed non-significant increases in impaired-driving-fatal

crashes over the same period.

Question. Overrepresentation of repeat offenders is a public health problem. Is

NHTSA collaborating with other agencies (DHHS) to address this problem? Any

thoughts?

Answer. MADD agrees that the crime of drunk driving involving ‘‘higher-risk’’

drivers is a major public health problem. Higher-risk drivers often are repeat offenders—people who repeatedly drive after drinking, especially with high blood alcohol

content (BAC). These drivers are particularly resistant to changing their behavior.

Most U.S. drivers convicted of driving while intoxicated have a .15 percent BAC or

higher. A driver at .15 BAC is over 300 times more likely to be involved in a fatal

crash. While an estimated 85 percent of drivers in alcohol-related fatal crashes don’t

have prior drunk driving convictions, those who do pose a substantially greater risk

of causing an alcohol-related crash.
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MADD believes that NHTSA should be working more actively with Federal agencies—health, justice and education—to address this serious problem. NHTSA should

not have to be prompted by Congress to utilize the best research, disciplines and

expertise to combat drunk driving. Recent evaluations of State efforts—including vehicle impoundment and forfeiture, license plate impoundment and tagging, and alcohol ignition interlock devices—demonstrate that a combination of proven measures

help deter higher-risk offenders. These measures, combined with other effective tactics including license suspension and alcohol assessment/treatment programs, provide a growing array of tools for managing higher-risk drivers. Embracing this research, MADD has developed a practical program for all 50 States. MADD’s Higher

Risk Driver Program calls for:

—Restricting vehicle operation by these offenders by suspending their licenses for

substantial periods, impounding or immobilizing their vehicles and requiring alcohol ignition interlock devices on their vehicles to prevent them from starting

if the offenders have been drinking.

—Requiring these offenders to make restitution to the community and drunk driving crash victims through fines and mandatory incarceration and financial restitution to crash victims.

—Promoting recovery programs for offenders with alcohol abuse problems through

mandatory alcohol assessment and treatment, intensive probation and attendance at victim impact panels.

Although most of the remedies in MADD’s plan are not new, they typically have

been implemented on a piecemeal basis, producing a system full of loopholes. Senate

Bill 1141 incorporates all of these solutions. This comprehensive approach if enacted

would reduce crashes caused by these high-risk drivers.

QUESTIONS SUBMITTED TO THE NATIONAL SAFETY COUNCIL

QUESTIONS SUBMITTED BY SENATOR RICHARD C. SHELBY

HIGHWAY SAFETY INITIATIVES

Question. Dr. Runge’s opening statement says that NHTSA has ‘‘pledged to solve

the highway safety issues confronting this Nation.’’ However, other than consolidating some grant programs and a new accounting of other grant programs, I see

no new, innovative programs included in this budget or in the reauthorization proposal that would convince me that NHTSA is on the way to solving the highway

safety issues confronting this Nation.

Mr. Hurley, from your perspective, do you think that the SAFETEA proposal will

be successful in reducing highway fatalities? If not, what, in your view, could be

done to improve the proposal to allow us to experience the greatest benefits?

Answer. I know that the administration’s intent is clearly to save lives, as demonstrated by their focus on primary belt laws and significant incentives to States

that enact such laws. We support the intent of this provision. However, SAFETEA

does not provide additional specific funding for high visibility enforcement of belt

and alcohol laws, as well as targeted funds for programs that support those enforcement initiatives. These funds need to be added to the proposal.

HIGHWAY SAFETY GRANT FUNDING LEVELS

Question. I am concerned that much of this ‘‘increase’’ in funding for highway

safety is merely the shifting of funds from Highways to NHTSA. I have expressed

this to the Secretary and still believe that we need more information to conduct a

proper analysis.

Mr. Hurley and Ms. Hamilton, have you analyzed the funding levels proposed in

the current budget and in the SAFE–TEA proposal?

Answer. The proposed $50 million in the administration budget for a 13-State

demonstration program should be placed in Section 403 and supplemented by $150

million along the lines proposed by the DeWine-Lautenberg bill, S. 1139. This would

provide adequate funding for the fundamentally important enforcement mobilizations for safety belts and alcohol.

SAFETY BELTS

Question. With respect to seat belt usage, Dr. Runge has said, ‘‘we have a model

that works. For every 1 percent increase in belt use, we get $800 million in economic costs saved, 2.8 million more people buckling up, 276 lives saved, and reduce

the severity of 6,400 moderate to critical injuries.’’
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Mr. Hurley, how prudent is it to eliminate funding for ‘‘Click It or Ticket’’ campaigns?

Given that it is the centerpiece of the Air Bag & Seat Belt Safety Campaign, I

am interested in hearing how you will move forward absent these federally driven

mobilizations and how effective you believe the campaign will be?

Answer. The funding for national paid advertising to support the ‘‘Click It or Ticket’’ and ‘‘You Drink and Drive. You Lose.’’ Campaigns is a direct result of the leadership of this subcommittee. We strongly support continued funding of these initiatives because they are proven to work. Since the Air Bag & Seat Belt Safety Campaign Mobilizations began in May 1997, belt use nationally has increased from 61

percent to 75 percent. As Dr. Runge has estimated, that means 39.2 million more

people buckling up and 3,864 lives saved each year. Until May of 2002, the Mobilizations primarily relied on earned media coverage by the news media to reach those

who continue to violate the belt and child restraint laws. In large part due to the

success of these Mobilizations, most people who listen to the news are now buckled.

It should be stressed that the 75 percent use rate, while representing remarkable

progress, is a daytime measurement. The 25 percent who still have not been reached

by previous Mobilizations are inherently high risk. They are literally twice as likely

to be in fatal crashes, which often occur late at night. The best proven way to reach

this highest risk group, particularly young males which includes many teenagers

and drunk drivers, is to target paid advertisements. These advertisements are focused on enforcement and targeted to the broadcast media they watch, which does

not often coincide with the evening news. The funds provided by this subcommittee

enabled NHTSA to do exactly that, in partnership with the States and the Air Bag

& Seat Belt Campaign. Eliminating these critical funds would not only end perhaps

the most proven effective initiative NHTSA has ever undertaken, but could well put

in jeopardy the hard won gains that have already been achieved. While the Campaign and law enforcement nationwide would continue to make best efforts at these

goals using earned media strategies, extensive research indicates that further

progress would be extremely difficult to achieve.

IMPAIRED DRIVING

Question. The NHTSA budget proposes a new initiative to award discretionary

grants to States to demonstrate the effectiveness of a comprehensive approach to

reducing impaired driving.

Ms. Hamilton and Mr. Hurley, I am interested in your thoughts about this new

discretionary grant program and how effective you both believe that it will be.

Answer. NHTSA’s initiative is likely to be effective in the 13 States that are included, but by definition, it is not likely to have much, if any, effect on the other

States and jurisdictions. This is exactly the kind of program NHTSA should conduct

as part of its Section 403 activities, but simply does not credibly address the national impaired driving problem. After 20 years of progress, impaired driving fatalities has increased in each of the last 3 years. This is an unmistakable trend requiring urgent national strategies such as those set forth in the DeWine-Lautenberg bill,

S. 1139.

CHILD SAFETY SEATS

Question. For the past several years, the Committee has provided funding for

child safety seat campaigns. These campaigns have been very successful at increasing the proper use of child safety seats while we developed the second generation

of child safety seats which are now accompanied by LATCH systems in all new passenger vehicles to allow for easier installation and safer car seats.

One of the reasons that this campaign has been so successful is due to the broad

base of support coming from State and local public safety community, community

activists, and private industry. Without this coalition of support it is difficult to

imagine that the campaign would have had the effect of continued decreases in child

fatalities.

Mr. Hurley, what is the Safety Council’s view of how to build upon the positive

results we are seeing in child occupant protection as well as how programs like this

can be targeted in other areas to safe lives on our roads?

Answer. Child passenger safety is a remarkable public health success story. Car

seat use, the vaccine for the leading risk kids face, was 2 percent when Tennessee

enacted the first mandatory use law in 1977. Now, it is nearly universal for infants,

excellent for toddlers, and still lagging in booster seat use. Leadership by this subcommittee, the National Transportation Safety Board, and many other public and

private organizations has made this possible. Correct use is one key part of this

issue. Kids don’t set the level of risk they face on the highway. Adults do that for
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them, hence the special obligation we all have to get it right. In less than 5 years,

the number of Certified Child Passenger Technicians has gone from a mere handful,

to more than 30,000 today. There are very few places in the United States where

correct use assistance is unavailable.

Having said that, it is essential to focus on two issues that sometimes get overlooked. Beginning with the air bag crisis of mid-1990’s, major efforts were undertaken to get kids properly restrained in the rear seat, where data indicated they

are 35 percent better protected, with or without a front passenger air bag. With the

advent of advanced air bag systems beginning in September 2003, there is a very

real concern that some of the hard won gains may be lost to the implied but false

message that is OK to put kids back in the front seat. It will take all of our collective efforts to re-imprint on a new generation of parents that proper restraint in the

back seat, where possible, is still the best advice. Second, there has been a 20 percent reduction in child passenger fatalities in the last 5 years. While correct use is

essential, it is critical to point out that most child passenger fatalities come not from

incorrect use, but rather non-use. The clear majority of child passenger fatalities are

completely unrestrained, far more often with unbelted drivers. And the leading risk

children face from drunk drivers is as passengers of the drunk driver themselves.

There is simply no excuse for these findings. The greatest proportion of the 20 percent reduction in child passenger fatalities has come from high visibility zero tolerance enforcement of seat belt, car seat, and drunk driving laws. Through the leadership of this subcommittee, we are very hopeful that funding will be provided to continue these lifesaving efforts.

QUESTIONS SUBMITTED BY SENATOR PATTY MURRAY

NHTSA’S INCENTIVE PROGRAM AND PRIMARY SEAT BELT LAWS

Question. When the Federal Government has tried to get the States to enact

meaningful safety laws, it has taken two approaches. In some instances, like the

Minimum Drinking Age Act and the 0.08 law, we have withheld highway construction funds from States that don’t pass the law. In other instances, we have provided

incentive payments to get States to make safety improvements. The record is clear,

when we sanction highway construction funds, all the States eventually comply.

When we provide incentive payments, the record is quite mixed. NHTSA’s own data

show that seat belt use increases as much as 15 percent in States that have primary

seat belt laws on the books. Currently, 18 States and the District of Columbia have

primary seat belt laws in effect, including my own State of Washington. Yet, the

2004 budget request includes $100 million for a new primary seat belt incentive

grant program. This program is designed to encourage the remaining 32 States to

pass a primary seat belt law.

Mr. Hurley, how confident are you that States will pass a primary seat belt law

as a result of this grant program?

Answer. We are very hopeful at the Air Bag & Seat Belt Safety Campaign that

the $100 million proposed by the administration will help, but not guarantee the

passage of more primary belt laws. The fiscal situation in most States has increased

their interest in incentives such as the one being proposed. In Illinois, where Campaign support was successful in helping Illinois to pass a primary law, the prospect

of significant Federal incentive funds was very helpful, but not the primary factor

for passage. In Florida, and Massachusetts, the funds increased the priority of the

issue, but were not in themselves sufficient to overcome opposition to primary belt

legislation. While we fully support the proposal, the National Safety Council also

supports highway trust fund sanctions in the final year of the upcoming reauthorization of the highway program.

MOTORCYCLE FATALITY INCREASES

Question. Motorcycle deaths have gone up every year since 1997 and the deaths

of older cyclists have been rising for an even longer period. The early estimates for

2002 indicate that the overall number of motorcycle fatalities increased by 3 percent

over 2001. And while the number of fatalities for younger riders decreased, for riders over the age of 50, there was an astounding 24 percent jump in the number of

motorcyclists killed.

Mr. Hurley, where do you think NHTSA should concentrate its efforts to improve

motorcycle safety?

Answer. The three areas where NHTSA should concentrate its efforts are: (1) defining through evaluation the contribution of repeal of helmet laws to the increased

fatalities by State and nationally, (2) defining through peer reviewed evaluation the
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extraordinary taxpayer subsidies to injured motorcyclists, such as the Harborview

study of 10 years ago that found the costs of caring for injured motorcyclists at 64

percent paid by the taxpayers, and (3) defining through evaluation and reducing

through enforcement the frequency of alcohol impaired motorcycle fatalities and injuries.

NHTSA’S PAID ADVERTISING PROGRAM

Question. Over the last few years, this subcommittee provided funding for paid

media to support the highly successful ‘‘Click It or Ticket’’ program. In fact, the national ads for this program have been running this month during the seat belt mobilization campaign. This year, we expanded the program to include national media

for the drunk driving mobilizations that will occur in July and December.

Dr. Runge and Mr. Hurley, what kind of feedback have you been getting about

the ‘‘Click It or Ticket’’ ads?

Answer. The feedback on the advertising has been overwhelmingly positive. The

Air Bag & Seat Belt Safety Campaign conducts both pre- and post-public opinion

surveys before and after each Mobilization. There is now tracking data spanning the

past 7 years.

Unaided recall of ‘‘Click It or Ticket’’ among all Americans jumped from 6 percent

in the pre-test to 28 percent after the Mobilization. (Unaided recall means respondents could say with no prompting that the seat belt enforcement effort they had

heard of was ‘‘Click It or Ticket’’ in an open end question.) Among the target audience of men 18–34, unaided recall of ‘‘Click It or Ticket’’ moved 30 percentage points

from the pre-survey of 12 percent to the post-survey of 42 percent.

More importantly, recall of the ad is linked to higher recall of key campaign success measures such as perceived likelihood of getting a ticket for not wearing a seat

belt and the perception that police are more aggressively enforcing seat belt laws.

For the first time, there was a statistically significant increase in the percentage

of men 18–34 who said their seat belt use had increased in the past 6 months. This

age group is one of the hardest to reach with this type of public health message,

according to researchers.

We also found clear evidence that cumulative advertising over repeated Mobilizations increases the overall effectiveness of the Mobilizations and the impact on key

campaign success measures. These measures were all higher in States where paid

advertising has run for consecutive years compared to States where paid advertising

ran only in May 2003.

It’s clear from this data that the ad campaign was effective in reaching and influencing our target audience.

NHTSA’S OVERSIGHT OF STATE SAFETY PROGRAMS

Question. The second word in the administration’s SAFETEA proposal stands for

‘‘accountable.’’ Yet, the recent report released by the General Accounting Office

draws the conclusion that NHTSA has been inconsistent in holding the States accountable for their highway safety programs. The GAO reported that NHTSA’s use

of management reviews varied from region to region and that the regional offices

have made limited and inconsistent use of improvement plans. While some States

may do a good job at meeting their safety objectives, it is clear that others may benefit from greater input and guidance from NHTSA.

Ms. Hamilton and Mr. Hurley, how would you assess NHTSA’s oversight of State

highway safety plans and what specific changes would you suggest to improve their

accountability?

Answer. The recent GAO report lays out very well the critical need for effective

oversight by NHTSA of federally funded State programs. It simply was a mistake

for NHTSA to unilaterally give up State plan approval. For the best performing

States, the plan approval process should be minimal, with the emphasis on how

NHTSA can best assist the achievement of excellence. For the middle tier States,

the plan approval should make sure that scarce funding is only spent on those

things proven to work. For the bottom performing States, there should be extensive

review of the State programs, beginning with the data. Where States are unwilling

or unable to meet reasonable objectives, there should be consideration of what other

delivery mechanisms can best meet critical needs.

COORDINATED GOVERNMENTAL EFFORT TO FIGHT DRUNK DRIVING

Question. Roughly one-third of all drivers arrested or convicted for DUIs or DWIs

were repeat offenders. These individuals are over-represented in fatal crashes and

less likely to be influenced by education or legal sanctions. Given that these hardcore drinkers are probably the toughest individuals to reach, it seems that there
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ought to be a coordinated governmental effort to reach them. Last year, we directed

NHTSA to work with the Attorney General’s office to identify the best strategies to

reduce plea bargaining and to make sure that impaired driving convictions are applied in a consistent manner. Beyond that, I think it is important that we look at

the public health aspects of this problem to make sure that people are getting the

treatment that they need. I know that NHTSA spoke to the National Institute on

Alcohol Abuse and Alcoholism in February about how the two agencies might work

together on this very challenging problem.

Mr. Hurley and Ms. Hamilton, do you have any thoughts you would like to add?

Answer. Perhaps the most critical piece missing in the current effort to reduce

drunk driving is now being implemented through the leadership of this subcommittee. The advent of national paid advertising to support coordinated enforcement will likely have substantial results. In North Carolina’s ‘‘Booze It and Lose It’’

Campaign in 1995, arrests of intoxicated motorists at nighttime checkpoints were

cut by more than half, to .87 percent. This remains one of the lowest levels ever

achieved in this country. The National Safety Council also fully supports MADD’s

Hard Core Drunk Driver Initiative.

BLUE RIBBON COMMISSION ON HIGHWAY SAFETY

Question. The administration’s SAFETEA proposal includes a total of $7 million

over 6 years for a National Blue Ribbon Commission on Highway Safety. The purpose of this safety commission is to study the Nation’s highway safety needs and

to make recommendations on how to reduce highway fatalities. The final report of

the Commission would be delivered as late as February 1, 2009.

I’d like the entire panel to answer this question. Given what we know about the

benefits of seat belts, tough drunk driving laws, and strong vehicle safety standards,

why do we need 6 years and $7 million to study a problem to which we already

know the solutions?

Isn’t this Commission just an excuse to put off meaningful action on the safety

remedies that we already know work?

Answer. The National Safety Council believes that most national commissions

have not delivered on their promise, requiring far more work and yielding few tangible results. One clear exception was President Reagan’s Drunk Driving Commission which consolidated what was known and proven to work, providing a blue print

for progress for the next 20 years. As Sen. Murray indicated, commissions are often

a convenient way of postponing critical decisions, rather that enabling real progress

to occur.

Much of what is necessary for reducing fatal and serious injuries on the highway

is known in the peer review literature. What is lacking is often the political will

to bring about progress. Commissions are a weak lever on political will. Before allowing such an initiative to go forward, thorough discussion and debate should take

place on the Commission’s precise leadership, membership, and scope. The Commission should also be strictly focused on only those efforts that have been proven to

work.

CONCLUSION OF HEARINGS

Senator CAMPBELL. So I appreciate you appearing here, and the

subcommittee is recessed. Thank you.

[Whereupon, at 11:58 a.m., Thursday, May 22, the hearings were

concluded, and the subcommittee was recessed, to reconvene subject to the call of the Chair.]
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DEPARTMENTS OF TRANSPORTATION, TREASURY AND GENERAL GOVERNMENT, AND RELATED AGENCIES APPROPRIATIONS FOR

FISCAL YEAR 2004

U.S. SENATE, SUBCOMMITTEE OF THE COMMITTEE ON APPROPRIATIONS, Washington, DC.

NONDEPARTMENTAL WITNESSES

[CLERK’S NOTE.—The following testimonies were received by the

Subcommittee on Transportation, Treasury and General Government, and Related Agencies for inclusion in the record. The submitted materials relate to the fiscal year 2004 budget request.

The subcommittee requested that public witnesses provide written testimony because, given the Senate schedule and the number

of subcommittee hearings with Department witnesses, there was

not enough time to schedule hearings for nondepartmental witnesses.]

PREPARED STATEMENT OF THE NATIONAL ASSOCIATION OF RAILROAD PASSENGERS

The National Association of Railroad Passengers is a non-partisan organization

funded by dues and contributions from approximately 16,000 individual members.

We have worked since 1967 to support improvement and expansion of passenger

rail, particularly intercity passenger rail. We strongly support Amtrak’s request for $1.812 billion in fiscal 2004. We recognize the constraints placed on your ability to find funding for all transportation

needs while forced to operate in an environment dominated by guaranteed spending

programs. Nevertheless, we believe the committee has an obligation to develop a

policy that puts more balance in the nation’s transportation system. Minor (or even

major) reductions in Amtrak’s route structure would not yield any meaningful savings for a couple of years but would drain energy—at Amtrak, on Capitol Hill, and

in the executive branch—away from the productive efforts David Gunn has initiated

to ‘‘reform’’ Amtrak from within.

One cannot overstate the importance of his efforts to get Amtrak to a ‘‘state of

good repair’’ for the first time ever. This effort—combined with capital improvements such as recent track work on the Chicago-St. Louis line and signal improvements on part of the Chicago-Detroit line—could produce very impressive ridership,

even before there are any results from the much-needed higher speed rail program

that we expect the authorizing committees to approve outside the regular appropriations process.

We appreciate that the Bush Administration’s request for $900 million is 73 percent higher than its $521 million request for fiscal year 2003, but this would be a

14 percent cut from what Amtrak received in fiscal year 2003, and is only half of

what Amtrak says it needs in fiscal year 2004. It has been said that $900 million

nonetheless represents an increase over ‘‘average’’ funding levels of the past ten

years—but Amtrak’s delicate financial situation today is a direct result of inadequate funding through much of that period, and Amtrak’s 2004 request of $1.812

billion is meant to start to make up for those past deficiencies. Looked at another

way, $900 million is 40 percent below the inflation-adjusted average for 1982–1984.
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1Primarily the result of restructuring the train to run at ‘‘passenger-friendly’’ rather than

‘‘freight-friendly’’ times.

More recently, between fiscal year 1997 and 2002, Amtrak averaged $1.1 billion

a year in federal funding, with much of that coming through the Taxpayer Relief

Act of 1997 (TRA), which provided Amtrak with $2.2 billion outside of the appropriations process.

PUBLIC WANTS MORE TRAVEL CHOICES, NOT FEWER

Although public support for passenger rail was well established before September

11, 2001, as reflected in polls discussed near the end of this statement, the 9/11 catastrophe focused and energized public interest in having more transportation

choices, not fewer, and thus in retaining and improving our national passenger rail

network.

Because of the combined impacts of the ‘‘airport hassle’’ factor and fear of flying,

people who formerly flew to avoid four-hour ground trips now accept ground trips

of about eight hours in order to avoid flying. Ironically, the majority of those trips

are by car even though plane travel remains far safer than driving. Where good

train service is offered in such markets, business is thriving even in the face of a

weak travel and tourism industry. The public—by its purchase of tickets—has

shown that it will ride conventional-speed services in large numbers in many markets. Such trains need not come anywhere near the speed of a TGV; they need only

be reasonably fast and reasonably frequent to be attractive to many travelers. This

is not to deny the importance of continuing to work towards world-class high speed

rail, particularly in longer corridors.

During the first seven months of Fiscal 2003 (October–April), the following services posted travel increases in the face of extraordinary weakness in the travel and

tourism markets. The percentages shown are increases in passenger-miles compared

with the year-earlier period. (The passenger-mile—one passenger carried one mile—

is the standard measure of intercity travel.)

—Chicago-Grand Rapids, ∂30.7 percent.

—New York-Pittsburgh Pennsylvanian, ∂21.1 percent. 1

—Boston-Portland Downeaster service, ∂12.5 percent.

—Pacific Surfliner (primarily San Diego-Los Angeles-Santa Barbara), ∂10.6 percent.

—Chicago-New Orleans City of New Orleans, ∂9.7 percent.

—San Joaquin Valley Service, ∂7.6 percent.

—New York-Charlotte Carolinian, ∂7.2 percent.

—Chicago-Carbondale Illini, ∂7.1 percent.

—Chicago-Quincy Illinois Zephyr, ∂6.7 percent.

—Sacramento Area-Bay Area-San Jose, ∂6.5 percent.

—Chicago-Seattle/Portland Empire Builder, ∂5.9 percent.

—Chicago-St. Louis, ∂5.8 percent.

Reflecting the relationship between an aging population and interest in alternatives to driving, the American Association of Retired Persons in its new ‘‘Public

Policies 2003’’ states: ‘‘Congress should support nationwide passenger rail service

that is integrated and coordinated with regional, state and local passenger rail [and

should] establish a dependable funding mechanism that insures continuing passenger rail service.’’

ANALYZING ROUTE FINANCIAL PERFORMANCE

DOT Inspector General Kenneth Mead, in February 27, 2002, testimony before a

House appropriations subcommittee, called operating grants needed for long-distance trains (what we call national network trains) ‘‘chump change’’ compared with

‘‘the annual capital subsidy required to continue operating’’ Northeast Corridor

trains. He said national network operating losses are only about 30 percent of NEC

capital requirements.

We offer the following comments about measurements:

First, the passenger mile—one passenger traveling one mile—is the standard

measure of intercity travel. Trip lengths vary widely and use of the passenger-mile

reflects that. Thus, subsidy per passenger-mile is a more meaningful way to measure the relative efficiency of Amtrak’s routes. To illustrate how results can differ,

the fiscal year 2001 data in the Amtrak Reform Council final report showed that

the Southwest Chief had the fifth best operating ratio but the fifth worst subsidy

per passenger. (Operating ratio—costs divided by revenues—is another good way to

measure economic performance.)
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Second, the absolute numbers that have been widely quoted, though they exclude

depreciation, are based on fully allocated costs (including, for example, a share of

the Amtrak CEO’s expenses) and thus exceed savings that might be realized by discontinuing a specific route.

Third, the Sunset Ltd. in particular has been hampered by exceedingly poor ontime performance, much of which is related to heavy track work on a largely singletrack railroad as Union Pacific has worked to eliminate deferred maintenance on

former Southern Pacific lines. There is hope for improvement. Union Pacific Chairman and CEO Dick Davidson, Railway Age magazine’s ‘‘Railroader of the Year,’’ is

quoted in their January issue saying, ‘‘We do want to be a good partner with Amtrak, and we’re doing our best to get our railroad upgraded on the Amtrak routes

and work with them to improve performance.’’

Finally, our Association strongly believes that the existing network is a skeletal

foundation, from which the system should grow, and that all the routes that

‘‘should’’ be discontinued—and some that should not have been—have already been

discontinued. Thus, the only purpose for ranking routes would be to identify where

special actions might be needed to improve performance, not to identify routes for

discontinuance.

We question the relevance of the planning process used to restructure the Northeast rail freight network in the 1970s. That network was dense and arguably

overbuilt, so that it was easy to take out many route miles without harming major

markets. The Amtrak network by contrast is skeletal. The ability to take out individual routes without collapsing the system is limited because of the interrelationships among the routes in terms of shared revenues (connecting passengers) and

shared costs (common facilities).

EXAMPLES OF IMPROVED EFFICIENCY AT ‘‘GUNN’S AMTRAK’’

Gunn and his key people have impressive knowledge specific to railroading and

to budget discipline, which appears to be paying off already.

One change visible to passengers is the now-consistent, dining-car requirement

that sleeping-car passengers sign their names and room numbers. Meals are included in the sleeping-car charge, but not in coach fares. Reinstitution of the signature process—and an audit (comparing dining car checks with passenger manifests)—aims to determine more accurately food/beverage revenues and costs and to

help eliminate abuse (e.g., coach passengers getting free meals).

Amtrak is fixing, scrapping or selling equipment that has been out of use, realizing that there is a cost to the indefinite storage of such equipment. Elderly, costlyto-maintain coaches have been kept in service (especially on the New York-Philadelphia ‘‘Clockers’’) while modern equipment that needed only minor repairs was sidelined; Amtrak is undertaking those minor repairs.

Amtrak is making good use of sizable inventories left over from previous projects

cut short by funding shortages. For example, Amtrak has found orange upholstery

to use when overhauling coaches with ratty old upholstery of the same color. The

end result may not be the color one would have chosen for the new century, but

it will be clean and new—and did not require any new purchase.

Amtrak is covering a lot of old carpeting with plastic, which is easier to clean and

doesn’t hold dirt, odor, or splashed coffee.

A new frequency—the 10th Acela Express on the New York-Boston run—was

added January 27 without increasing crew costs.

Amtrak’s organizational structure has been flattened by elimination of the Eastern and Western general manager positions, so that the seven divisional general superintendents now report directly to the vice president of operations.

Amtrak announced January 24 that it would close its Chicago call center, the

smallest of its three centers, at the end of December. Even if the number of agents

added at empty desks in Riverside and Philadelphia equals the number of agent positions eliminated in Chicago, Amtrak expects to save $3 million a year in management, facility and technology costs. Any net reduction of agents—such as might be

possible because of the continuing migration of business to the internet—would increase the savings.

APPENDIX I.—POLLS INDICATE PUBLIC SUPPORT FOR PASSENGER RAIL

Polls over the years have consistently shown public support for faster, more frequent, and reliable passenger trains, including two national polls last summer. A

poll conducted by CNN/Gallup/USA Today near the height of Amtrak’s June, 2002,

cash crisis (June 21–23) found that 70 percent of the public support continued Federal funding for Amtrak. Similarly, The Washington Post found that 71 percent of
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Americans support continued or increased federal funding for Amtrak (August 5,

2002, article reporting on July 26–30 poll).

An October 27, 1997, nationwide Gallup Poll sponsored by CNN and USA Today

asked whether ‘‘the federal government should continue to provide funding for the

cost of running Amtrak, in order to ensure that the U.S. has a national train service, or the federal government should stop funding Amtrak, even if that means the

train service could go out of business if it doesn’t operate profitably on their own.’’

Favoring continued funding were 69 percent of respondents, with 26 percent against

(and 6 percent other responses). State-specific polls also have been positive.

Wisconsin

A poll by Chamberlain Research Consultants of Madison, released by the Wisconsin Association of Railroad Passengers in June, 2002, indicated that

—77 percent of Wisconsin residents ‘‘support a nationwide system of passenger

trains with increased routes, frequencies, and shorter travel time.’’

—76.6 percent said they would use the trains if the planned nine-state Midwest

Regional Rail network becomes available to them.

—54.3 percent responded positively to this question: ‘‘If federal funding is available for improving intercity passenger rail services, Wisconsin may try to attract these rail improvement funds by pledging to pay for a portion of the

project with state money as we do now with highway and airport projects. Is

this something you favor, oppose, or neither favor nor oppose as a way to raise

money to develop passenger rail services in Wisconsin?’’

The survey, which was conducted over a week-and-a-half ending in mid-February,

took place as the future of Amtrak and the need for a nationwide rail passenger

service was being debated by Congress, and as Wisconsin state government wrestled

with its most serious financial crisis ever. More information is available at http:/

/www.wisarp.org.

Ohio

The Ohio State University Center for Survey Research (OSU–CSR) released a poll

(‘‘Tracking Ohio’’) on March 8, 2001, which found that 80 percent of Ohioans want

the state to develop passenger rail service. The following question produced a 74

percent positive response: ‘‘If Ohio had a modern, convenient and efficient passenger

rail network, do you think it would improve the quality of life in Ohio or would it

have no effect?’’ About two-thirds (65 percent) of respondents said state money

should be used to attract federal passenger-rail funding to Ohio, if such federal

funding were available. More than half (53 percent) said the best way to relieve

road traffic congestion is to ‘‘improve all forms of transportation including mass

transit and high-speed rail.’’ The statewide poll was conducted by telephone January

2–31, 2001, as part of the OSU–CSR’s monthly Buckeye State Poll. The margin of

sampling error was no more than ∂/¥4.3 percent.

New York

In 1998, the Marist College Institute for Public Opinion (Poughkeepsie) released

results of a poll it conducted of New York State registered voters regarding state

investment in intercity rail passenger service (trips longer than 75 miles one way).

Findings: 82 percent believed that having modernized intercity passenger train service is at least as important as having good highways and airports (of this figure,

12 percent felt rail service was even more important); 87 percent favored an increase in government spending for intercity passenger train service. The poll was

based on approximately 600 responses with a margin of error of no more than

∂/¥4 percent. It was commissioned by the Empire State Passengers Association

and the Empire Corridor Rail Task Force.

APPENDIX II.—BENEFITS OF AMTRAK AND PASSENGER TRAINS

In crowded corridors, passenger trains represent vital people-moving capacity and

help relieve air and road congestion. This benefit will grow over time as travel demand continues to grow while airport and highway construction face more intense

local opposition and ever-tighter limits on funding and sheer availability of land.

Amtrak is far safer than auto travel.

During inclement weather, Amtrak is safer and usually more reliable than airplanes and buses. Amtrak was the only thing going in the Northeast in the recent

President’s Day storm.

In most cities, Amtrak helps mass transit, downtown areas and transit-dependent

people by serving—and increasing the visibility and economic viability of—transitaccessible downtown locations. Amtrak feeds connecting passengers to transit. Amtrak shares costs with transit at joint-use terminals and on joint-use tracks. Positive
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impacts have been observed even in small cities with minimal Amtrak service.

Mayor John Robert Smith of Meridian, Miss., on Amtrak’s New York-Atlanta-New

Orleans run (one train per day in each direction), says property values have tripled

in recent years around the railroad station, site of a relatively new intermodal terminal.

By contrast, new airports intensify energy-inefficient suburban sprawl and stimulate auto-dependent development. This leads to the social costs of getting transitdependent people to work, or the need to address the consequences of their not

working.

Amtrak is important to those who cannot fly due to temporary or permanent medical problems, and to those for whom physical and financial considerations rule out

driving long distances, for example, seniors and students. (The editor of Frequent

Flier, forced by doctor’s orders to take the train to Florida, wrote a favorable column

about the trip.) Indeed, some of those medical problems have come about as a result

of flying.

Amtrak serves many communities where alternative transportation does not exist,

is not affordable or only serves different destinations. Trains can make intermediate

stops at smaller cities at minimum cost in energy and time. This is apparent in corridors—where benefits go to such cities as Jefferson City, Lancaster, Trenton, Kalamazoo, Wilmington, Bloomington/Normal and Tacoma. It also means, for example,

that the Empire Builder can stop at eight small cities in Washington (plus Seattle

and Spokane), 12 in Montana and seven in North Dakota without compromising the

train’s appeal to those riding between Chicago or Minneapolis and Seattle or Portland. Similarly, the California Zephyr serves five Colorado points (plus Denver) and

five points each in Iowa and Nebraska. Also, Amtrak serves 14 North Carolina

points.

Here is an example of long-distance travel that I encountered on the Southwest

Chief: a mother and her 14-month-old child rode from Garden City, Kansas, to Barstow, California. The family was moving to California; the husband was driving the

U-Haul; the wife and child were on the train ‘‘so the move would not be so traumatic’’ for the child. They did not consider the plane because they felt it would be

too cramped for the child. Also, airfare out of Garden City was prohibitive.

Amtrak is part carrier (like United and Greyhound) and part infrastructure. Thus

Amtrak provides important passenger-moving capacity, unlike airlines and bus companies. In much of the Northeast Corridor and a few other places, Amtrak is the

rail equivalent of the air traffic control system, airport authorities and airlines.

(Among the ‘‘other places’’: the Chicago terminal, part of the Chicago-Detroit line

and the track between Albany, New York, and the Massachusetts state line.) Elsewhere, Amtrak is the only carrier with legal access to freight railroads’ tracks—a

quid pro quo for relieving the railroads of their passenger-train obligations in 1971.

Amtrak’s national network trains are transportation ‘‘melting pots.’’ Intercity

travelers by all modes had an average annual income of $70,000. The comparable

figure for travelers on Amtrak’s national network trains is $51,000. [This is 1999

data inflated to 2002 and thus probably good for 2003 as well.] However, the majority of passengers on these trains ride coach. Surveys available to us six years ago

indicated that, for 30 percent of coach passengers traveling over 12 hours, average

income was less than $20,000 (for 11 percent, it is less than $10,000). Obviously,

most standard- and deluxe-room sleeping car passengers have considerably higher

incomes and pay much higher fares. Nonetheless, anyone who characterizes these

trains as land versions of cruise ships should try walking the coaches, especially at

night.

Trains, especially on longer trips, offer a form of social contact almost lost in this

country today—the opportunity to meet and relax with total strangers that one may

or may not ever see again.

Amtrak over much of its network enables one to enjoy gorgeous scenery in total

comfort. Some examples: the Connecticut and California coastlines, the Hudson

River in New York, the Colorado Rockies, the mountains of Vermont and northern

New Mexico, Glacier Park in Montana and West Virginia’s New River Gorge.

Amtrak uses only 79 percent of the energy airlines use to move a passenger a

mile, and only 22 percent of the energy general aviation uses (to do the same). This

statement is based on the following 2000 data from the Oak Ridge National Laboratory’s annual Transportation Energy Data Book (Edition 22, published September

2002) and available on-line: Amtrak—2,902 British thermal units per passengermile; Airlines—3,666; General aviation—12,975. Just two years earlier, in 1998,

Amtrak was at 2,441. Amtrak is much less polluting than airplanes. (Energy efficiency is a good proxy for air pollution.)

Thanks to a growing array of connecting buses available with train travel in a

single ticket transaction, Amtrak puts people on intercity buses who would not oth-
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erwise have considered using them. ‘‘Thruway’’ is Amtrak’s copyrighted name for

connecting buses that can be booked and ticketed through Amtrak’s reservation system. Thruways first developed in a big way in California, where the state underwrites an impressive network of dedicated, feeder buses. Elsewhere, depending on

the situation, Amtrak or the private bus companies themselves bears the financial

risks for many Thruway runs themselves.

APPENDIX III.—SUBSIDIES

Virtually all federal spending on highways is generated from user fees. However,

—Federal policy helps encourage states and local governments to spend primarily

on highways and aviation, where federal funds cover 50–80 percent of project

costs, and not on railroads, where federal funding generally is zero. —A total of $34 billion in 2001 highway spending came from non-user sources in all levels of government (while $10 billion in highway user payments went to

‘‘nonhighway purposes’’ (Table HF–10, Highway Statistics 2001).

—A mode-specific trust fund system insures massive continued investment in the

modes that are already dominant, regardless of whether they are the best solution for tomorrow’s transportation problems, and regardless of the needs of the

users paying those taxes. A large proportion of them are soon to be senior citizens who will place greater value on non-automobile travel choices.

—User fees clearly do not cover environmental and other external costs associated

with highways and aviation. The proportion of general funds covering FAA Operations grew by about $2 billion

from fiscal year 2002 to fiscal year 2003 and now represents about half of FAA Operations costs. As to airport construction is done through public rather than private

finance. The savings associated with financing an airport project with tax exempt,

government-backed bonds rather than with commercial loans sought directly by the

airlines is substantial. The various sources available to fund airports, like the modespecific trust fund system, fall into the category of reinforcing the dominance of

modes that are already dominant whether or not they offer the best solution for today’s transportation problems.

PREPARED STATEMENT OF THE PEOPLE FOR THE ETHICAL TREATMENT OF ANIMALS

(PETA)

Chairman Shelby, Ranking Member Murray, and Members of the Subcommittee:

People for the Ethical Treatment of Animals (PETA) is the world’s largest animal

rights organization, with more than 750,000 members and supporters. We greatly

appreciate this opportunity to submit testimony regarding the fiscal year 2004 appropriations for the Department of Transportation (DOT). Our testimony will focus

on chemical tests allowed or required by the DOT to be conducted on animals.

As you may know, the DOT requires hazardous materials to be categorized and

labeled for shipping. Traditionally, a chemical’s dermal corrosive potential has been

estimated by applying the substance to the shaved, abraded skin of animals. Fortunately, there are non-animal test methods that are just as effective. Human skin

equivalent tests such as EpiDermTM and EpiSkinTM have been scientifically validated and accepted in Canada, the European Union, and by the Organization for

Economic Cooperation and Development (OECD) (of which the U.S. is a key member) as total replacements for animal-based skin corrosion studies. Another non-animal method, CorrositexTM, has been approved by the U.S. Interagency Coordinating

Committee on the Validation of Alternative Methods. However, the DOT continues

to allow the use of animals in many skin corrosion studies, despite the availability

of data from validated, non-animal tests.

In 2000, PETA discovered that the DOT was using rabbits for corrosivity tests for

which, according to the agency’s own guidelines, CorrositexTM could have been used

instead. In 2001, at PETA’s urging, the DOT’s Office of Hazardous Materials Enforcement added language to its operation procedures requiring that DOT staff arranging for testing of materials ‘‘inform the prospective laboratory that you want

testing to be conducted using the CorrositexTM testing protocol, when testing using

animals is not required. Advise the laboratory that testing using animals is to be

conducted only when absolutely necessary.’’

We were glad to see that change in policy. However, CorrositexTM is not considered sufficient by the DOT to test all of the hazardous materials for which the agency requires corrosivity tests. According to the DOT’s policy, CorrositexTM can only

replace animal tests for organic and inorganic acids and bases as well as acid derivatives. PETA would like the agency to require the use of EpiDermTM and

EpiSkinTM so that all of the hazardous materials could be tested for corrosivity with
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non-animal methods. The cruel rabbit tests for corrosivity are no longer necessary

in any situation.

Secondly, to our knowledge, there is no DOT policy of enforcement to ensure that

only non-animal methods are used. Therefore, we are requesting that the subcommittee include report language ensuring that no funds for the DOT (including

salaries or expenses of personnel) may be used for the purpose of assessing data

from an animal-based test method when a non-animal test for the desired endpoint

has been validated and/or accepted by the OECD or its member countries.

ANIMAL TESTS CAUSE IMMENSE SUFFERING

Traditionally, the degree to which corrosive materials are hazardous has been

measured by the very crude and cruel method of shaving rabbits’ backs and applying the test substance to the animals’ abraded skin for a period of hours. As one

can imagine, when highly corrosive substances are applied to the backs of these animals who are not given any anesthetics or analgesics, the pain is excruciating.

THE RELIABILITY AND RELEVANCE OF ANIMAL TESTS TO HUMAN BEINGS IS

QUESTIONABLE

The assessment of damage to the rabbits’ skin is highly subjective and variable,

which limits the reproducibility of the animal test (which, unlike non-animal tests,

has never been scientifically validated). One study, which compared the results of

rabbit tests with real-world human exposure information for 65 chemicals, found

that the animal test was wrong nearly half (45 percent) of the time in its prediction

of a chemical’s skin damaging potential (Food & Chemical Toxicology, Vol. 40, pp.

573–92, 2002).

VALIDATED METHODS EXIST WHICH DO NOT HARM ANIMALS

Fortunately, non-animal test methods, such as EpiDermTM, EpiSkinTM, and

CorrositexTM, have been found to accurately predict chemical corrosivity without

harming animals. In fact, although the DOT continues to accept data from animal

tests, the agency specifically allows an exemption from animal testing for organic

and inorganic acids and bases as well as acid derivatives if CorrositexTM tests are

used instead. The DOT has the power to allow a similar exemption for EpiDermTM

and EpiSkinTM so that no animal tests would be required for any of DOT’s skin

corrosivity data needs.

EpiDermTM and EpiSkinTM are comprised of human-derived skin cells, which have

been cultured to form a multi-layered model of human skin. The CorrositexTM testing system consists of a glass vial filled with a chemical detection fluid capped by

a membrane, which is designed to mimic the effect of corrosives on living skin. As

soon as the corrosive sample destroys this membrane, the fluid below changes color

or texture. Users simply record the time it takes for the sample to break through

the membrane. Then, depending on their needs, they can assign the proper U.N.

Packing Group classification for DOT compliance, or use the data to substantiate

marketing claims.

NON-ANIMAL TEST METHODS SAVE TIME

Unlike animal testing that can take two to four weeks, CorrositexTM testing can

provide a Packing Group determination in as little as three minutes and no longer

than four hours.

THE DOT CONTINUES TO ALLOW THE USE OF ANIMALS

From materials obtained through the Freedom of Information Act, PETA learned

that the DOT itself has used rabbits to test the corrosivity of products whose labeling accuracy was questioned by a competitor.

Listed below are some of the products that the DOT has tested on animals.

Name of Product Results

Spoke Wheel Cleaner ................................................................ Full-thickness skin destruction.

Whitewall Cleaner ..................................................................... Full-thickness skin destruction.

Savage Acid .............................................................................. Full-thickness skin destruction.

Goodbye Graffiti ........................................................................ Full-thickness skin destruction.

Heavy Duty Spoke Wheel Cleaner ............................................. Full-thickness skin destruction.

Amazing Rust Stain Remover ................................................... Full-thickness skin destruction.

Oxalic Acid ................................................................................ Tissue necrosis.
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SUMMARY

The skin corrosivity of all the products listed above could—and should—have been

measured using CorrositexTM, EpiDermTM, or EpiSkinTM. There simply is no excuse

for causing this kind of suffering to animals when three fully validated non-animal

tests are available.

We therefore hereby request, on behalf of all Americans who care about the suffering of animals in toxicity tests, that you please include language in the report

accompanying the fiscal year 2004 Transportation, Treasury and General Government Appropriations bill stating that no funds for the DOT (including salaries or

expenses of personnel) may be used for the purpose of assessing data from an animal-based test method when a non-animal test for the desired endpoint has been

validated and/or accepted by the OECD or its member countries.

Thank you for your consideration of our request.

PREPARED STATEMENT OF THE COALITION OF NORTHEASTERN GOVERNORS

Dear Mr. Chairman: As the Subcommittee begins the fiscal year 2004 transportation appropriations process, the Coalition of Northeastern Governors (CONEG) is

pleased to share with the Subcommittee testimony on the fiscal year 2004 Transportation and Treasury Appropriations bill. The CONEG Governors commend the Subcommittee for its past support of funding for the nation’s highway, transit, and rail

systems. Although we recognize the extensive demands being made upon federal resources in the coming year, we urge the Subcommittee to continue the important

federal partnership role that is vital to strengthening the multi-modal transportation system. This system is a critical underpinning to the productivity of the Nation’s economy and the security and well-being of its communities.

First, the Governors urge the Subcommittee to fund the combined highway, transit and safety programs at levels that will continue the progress made over the last

several years to improve the condition and safety of the Nation’s highways, bridges

and transit systems. In both urban and rural areas, these infrastructure improvements are not only necessary for moving people, but are also critical for improving

the projected substantial growth of freight movements along the Nation’s surface

transportation system. The U.S. Department of Transportation’s 2002 Conditions

and Performance Report to Congress documented the improvements in the physical

condition of the nation’s highway, bridge and transit infrastructure as a result of

the federal-state investments made under the Transportation Equity Act for the

21st Century (TEA–21). It also found that a combined federal highway and transit

program of $53 billion annually is needed simply to maintain our Nation’s highways

and transit systems in the current conditions, and a program level of $74.8 billion

is needed to actually improve our Nation’s highways and transit systems.

Within the Transit program, the Governors strongly urge the Subcommittee to address the solvency of the mass transit account while maintaining the basic program

structure. Further, the Governors urge the Subcommittee to continue the traditional

80/20 federal/state match for the New Start Program and the Bus and Bus Facilities

Discretionary Grant Program. These programs have been instrumental in ensuring

that needed funds are invested to improve and extend transit services in both our

urban and rural communities.

Second, the Governors strongly urge the Subcommittee to provide at least $1.8 billion in fiscal year 2004 for intercity passenger rail. Intercity passenger rail is an

vital part of the Nation’s transportation system, particularly in the Northeast and

Mid-Atlantic region, where it provides essential mobility, enhances capacity of other

modes, and provides much needed redundancy to the Nation’s transportation system. This funding level is critically needed to maintain services and begin a program of essential investments in equipment and infrastructure to bring the system

back to a state of good repair for reliable service. The United States Department

of Transportation Inspector General has noted that over $1 billion in capital funds

is needed annually just to sustain the current intercity passenger rail system, regardless of who operates that system. The states are already major investors in the

current intercity passenger rail system, with the Northeast and Mid-Atlantic states

already investing over $4 billion in intercity passenger rail operations and infrastructure since 1991. A funding level of $1.8 billion in fiscal year 2004 will help provide a period of stability for intercity passenger and commuter rail operations while

the Congress, Administration and states work cooperatively to determine the future

of intercity passenger rail and Amtrak in the Nation’s transportation system.

Third, the Governors urge the Subcommittee to continue funding for investments

in Intelligent Transportation Systems (ITS). It is vital that the Nation’s transportation system maintain and enhance the capabilities made possible by investments
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in ITS. The densely populated Atlantic Coast region relies heavily on ITS to improve

operations every day on both highways and transit. The Northeast’s rural areas and

communities also benefit significantly from ITS investments. The region’s ITS systems, including those provided by TRANSCOM and the I–95 Corridor Coalition,

have demonstrated their critical role, both in the emergency management and recovery phases, when security demands put added pressure on the region’s transportation networks.

Fourth, safety on the Nation’s highways, transit and rail systems remains a priority of the Governors. The safety of the aging rail tunnels along the Northeast Corridor is a particular concern, and we urge the Subcommittee to fund life safety improvements for the Baltimore and New York tunnels. The Governors also support

maximum funding for the Railway-Highway Crossing Hazard Elimination Program.

As part of the federal-state partnership to correct hazardous conditions on the Nation’s highways, investments in highway-rail crossings can reduce injuries and

death from accidents even as they allow higher train speeds and increased reliability.

Fifth, the Governors urge the Subcommittee to provide sufficient funding for border crossing and gateway infrastructure projects, particularly those transportation

projects that are required to meet new federal security requirements.

Sixth, the Governors also support the President’s funding request of $20 million

for the Surface Transportation Board.

Finally, the Governors support continued federal investment in transportation research and development programs, particularly the Federal Railroad’s Next Generation High Speed Rail program. This program enhances safety and helps stimulate

the development of new technologies, which will benefit improved intercity rail service across the Nation.

The CONEG Governors thank you, Ranking Member Murray and the entire Subcommittee for the opportunity to share these priorities and appreciate your consideration of these requests.

PREPARED STATEMENT OF THE UNIVERSITY CORPORATION FOR ATMOSPHERIC

RESEARCH

On behalf of the University Corporation for Atmospheric Research (UCAR) and

the university community involved in weather and climate research and related

education, training and support activities, I submit this written testimony for the

record of the Senate Committee on Appropriations, Subcommittee on Transportation.

UCAR is a consortium of 66 universities that manages and operates the National

Center for Atmospheric Research (NCAR) and additional research, education, training, and research applications programs in the atmospheric and related sciences.

The UCAR mission is to support, enhance, and extend the research and education

capabilities of the university community, nationally and internationally; to understand the behavior of the atmosphere and related systems and the global environment; and to foster the transfer of knowledge and technology for the betterment of

life on earth. In addition to its member universities, UCAR has formal relationships

with approximately 100 additional undergraduate and graduate schools including

several historically black and minority-serving institutions, and 40 international

universities and laboratories. UCAR is supported by the National Science Foundation (NSF) and other federal agencies including the Federal Aviation Administration

(FAA).

The fiscal year 2004 budget request for the FAA should support the Administration’s and the country’s commitment to a safe, efficient, and modern aviation system. Weather research contributes to this commitment. In testimony before the

House Committee on Transportation and Infrastructure last month, Charles

Keegan, Associate Administrator for Research and Acquisitions for the FAA, stated,

‘‘weather continues to be a major safety factor for all types of aircraft. A recent estimate by the FAA identified weather as being responsible for 70 percent of flight

delays and approximately 40 percent of accidents. To mitigate the effects of weather,

the FAA’s Aviation Weather Research Program conducts applied research in partnership with a broad spectrum of the weather research and user communities with

a goal of transitioning advanced weather detection technologies into operational

use.’’ Leveraging the work of the research community, the FAA has made tremendous strides in understanding and mitigating severe weather on aviation. Current

research on turbulence, thunderstorm forecasting, oceanic weather, icing, and other

areas will result in even more savings, in lives and dollars.
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Regarding the fiscal year 2004 request for the FAA, I would like to comment on

accounts related to aviation weather research that fund the collaborative work of

researchers in universities and federal laboratories. These accounts are relatively

small in dollar amounts, but the work is potentially life saving for our Nation’s pilots and passengers.

FACILITIES AND EQUIPMENT

C. Overall Aviation Safety Improvement

1C01 Advanced Technology Development Prototyping

Within Advanced Technology Development Prototyping of the Facilities and Equipment section of budget, please add $5.5 million to continue the development

and implementation of a terrain-induced windshear alert system. This project would

be done in the Juneau, Alaska, area because of the complex terrain surrounding the

airport. The technology developed could lead to a National Terrain-Induced

Windshear and Turbulence Alerting System that would be installed in airports nation-wide to help prevent crashes like the one that occurred in 1991 on approach

to the Colorado Springs Airport. Work would include verifying the prototype alert

system and transferring the technology to FAA systems developers. I urge the Committee to provide $2.98 billion for Facilities and Equipment in fiscal year 2004 (the

same level as last year and a 2 percent increase over the President’s request), which

will fund a number of worthy programs, including the development and implementation of a terrain-induced, windshear alert system.

RESEARCH, ENGINEERING AND DEVELOPMENT (RE&D)

Those of us involved in aviation weather research are deeply concerned about the

fiscal year 2004 request for the FAA Research, Engineering and Development

(RE&D) budget. The total request for this budget is $100 million, $48 million less

than the final fiscal year 2003 appropriated amount and almost half the amount appropriated in fiscal year 2002. The Administration’s inadequate budget request will

reduce research in aviation weather by approximately one-third (over 30 percent),

and will result in the termination of a number of critical and potentially life-saving

projects. I urge the Committee to fund the FAA RE&D at $148 million in fiscal year

2004.

A12. Improve Efficiency of Air Traffic Control System

Eliminated from the RE&D line in the fiscal year 2004 budget request is line A

12. Improve Efficiency of Air Traffic Control System. While it is true that airline

delays are far less frequent due to the decrease in commercial airline traffic attributable to the economic slowdown and terrorist activities, the R&D that is now being

described as relevant only to efficiency clearly has as much to do with safety issues

as with delays. Research in the areas of severe convective weather, visibility hazards, wake turbulence, and oceanic weather would be eliminated under the current

plan. In order to make this appropriation, I ask that the Committee not transfer

funds from line A11. Improve Aviation Safety (see below). Moving money from one

line to the other will result simply in the same cuts to important aviation safety

R&D work. I urge the Committee to restore line A12 and fund Weather Research

Efficiency, at the very least, at the fiscal year 2003 appropriated level of $12.1 million.

A11. Improve Aviation Safety

Within line A11. Improve Aviation Safety, the Weather Research Safety program

funds many R&D projects including a focus on turbulence. Over half of all turbulence-related injuries are caused by turbulence in the vicinity of thunderstorms,

leading to $22 million fatalities, injuries and aircraft damages annually. Current research is focused on forecasting the location and duration of thunderstorms, work

that will be reduced or terminated if this budget is cut. The request for Weather

Research Safety is down $1 million from the fiscal year 2003 approved bill. Within

line A11, Improve Aviation Safety, I urge the Committee to provide Weather Research Safety, at the very least, the fiscal year 2003 appropriated level of $21.9 million.

On behalf of UCAR, as well as all U.S. citizens who take to the skies, I want to

thank the Committee for the important work you do for this country’s scientific research, training, and technology transfer. We understand and appreciate that the

Nation is undergoing significant budget pressures at this time, but a strong nation

in the future depends on the investments we make in Research and Development

today. We appreciate your attention to the recommendations of our community concerning the fiscal year 2004 FAA budget and we appreciate your concern for safety
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within the Nation’s aviation systems, particularly during this extraordinary time in

our Nation’s history.

PREPARED STATEMENT OF THE AMERICAN PUBLIC TRANSPORTATION ASSOCIATION

APTA is a nonprofit international association of over 1,500 public and private

member organizations including transit systems and commuter rail operators; planning, design, construction and finance firms; product and service providers; academic institutions; transit associations and state departments of transportation.

APTA members serve the public interest by providing safe, efficient and economical

transit services and products. Over 90 percent of persons using public transportation in the United States and Canada are served by APTA members.

INTRODUCTION

Mr. Chairman and members of the subcommittee, on behalf of the American Public Transportation Association (APTA), I thank you for this opportunity to address

the need for federal investment in public transportation programs under the Transportation, Treasury and Independent Agencies Appropriations bill for fiscal year

2004.

ABOUT APTA

APTA’s 1,500 public and private member organizations serve the public by providing safe, efficient, and economical public transportation service, and by working

to ensure that those services and products support national economic, energy, environmental, and community goals.

APTA member organizations include public transit systems and commuter railroads; design, construction and finance firms; product and service providers; academic institutions; and State associations and departments of transportation. More

than 90 percent of the people who use public transportation in the United States

and Canada are served by APTA member systems.

OVERVIEW

Mr. Chairman, throughout the United States, public transportation is undergoing

a renaissance. Steady increases in transit investment have dramatically improved

and expanded public transportation services, attracting record numbers of riders on

state-of-the-art systems in metropolitan, small urban and rural areas.

In a recent five-year period alone, public transportation use has increased by 22

percent—growing faster than vehicle miles and airline passenger miles traveled over

the same period. In 2001, Americans used public transportation 9.5 billion times—

the highest ridership level in 40 years.

Communities across the country are rehabilitating and expanding public transportation systems and constructing new ones. More than 550 local public transportation

operators currently provide services in 319 urbanized areas; 1,260 organizations provide public transportation in rural areas; and 3,660 organizations provide services

to the aging population and disabled individuals.

Through improved mobility, safety, security, economic opportunity and environmental quality, public transportation benefits every segment of American society—

individuals, families, businesses, industries and communities—and supports important national goals and policies.

At the same time, the growing problem of traffic congestion continues to choke

America’s roadways and constrain community and business development. Polls consistently show that most Americans view congestion as a serious problem that continues to grow every year. In April of 2003, APTA and the American Automobile

Association (AAA) released the results of a poll that showed 95 percent of Americans

said traffic congestion, including commutes to and from work, has grown worse over

the last three years. The poll also showed 92 percent of Americans said it was either

very important (71 percent) or somewhat important (21 percent) for their community to have both good roads and viable alternatives to driving.

FISCAL YEAR 2004 GOALS

Annual Federal appropriations for the Federal transit program have increased

significantly in each of the last 6 years under the Transportation Equity Act for the

21st Century (TEA–21). Federal funding increased from just under $4.4 billion in

fiscal year 1997 to $7.2 billion in fiscal year 2003, a 65 percent increase.

The stable and predictable growth in the Federal investment in TEA–21 led to

impressive results for transit. While service was expanded and improved, and rider-
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ship reached its highest level in 40 years, public demand for additional capital investment, new transit services, and improvements to existing systems continued to

grow. This demand for additional service and capital projects comes at a time when

many existing assets are nearing the end of their useful lives and need to be improved or replaced. Indeed, a 2002 American Association of State Highway and

Transportation Officials report estimates that $44 billion is needed annually to meet

current transit capital needs for new projects and improvements to existing systems.

APTA’s recommendations for TEA–21 reauthorization have been made available

to committee members and staff and they contain detailed funding and programmatic recommendations for the next 6 years. Most critically, APTA’s proposal

urges Congress to continue to grow the Federal investment in public transportation

to address critical national transportation needs, and to fund the Federal transit

program at no less than $8.1 billion in fiscal year 2004. We recognize that the Fiscal Year 2004 Budget Resolution assumes $7.3 billion

in funding for public transportation in fiscal year 2004. However, a provision in the

resolution granted authority to increase funding beyond that amount if Mass Transit Account (MTA) revenues exceed expected levels. Revenues accruing to the MTA

could be increased in a number of ways. These would include providing interest on

the balance of the MTA, particularly if outlays from the account were scored as they

are from the highway account; or if user fees were adjusted to account for inflation.

Therefore, we urge the committee to make every effort to set transit funding in excess of the level assumed in the Fiscal Year 2004 Budget Resolution, in order to

better address transit capital investment needs.

FEDERAL INVESTMENT IN PUBLIC TRANSPORTATION

The results of TEA–21 have been profound—more Americans have access to efficient, safe, and modern transit options than ever before. Federal investment in public transportation produces tangible assets in our communities that citizens can see

and use. These assets include light rail lines, buses for commuting, and transit stations that attract economic development because of convenient access to transportation options.

Investment in transit makes sense because it is in demand. Nationwide, many

systems are bursting at the seams, with the highest ridership in 40 years and a

huge backlog of capital improvements identified. In growing communities where

transit has not been a priority in the past, citizens are demanding new services and

capital projects. Public transportation supports a solid and growing economy by providing access to labor, decreasing time lost to congestion, and freeing highway and

road space for the movement of goods and people. Public transportation represents

an efficient use of scarce financial resources, because it helps to mitigate congestion

in densely populated areas and provides a mobility option to millions of Americans.

Public transportation represents an environmentally responsible transportation option because it uses less fuel and emits far less pollution per passenger than the

automobile. A recent report by economists Robert Shapiro and Kevin Hassett demonstrates that if Americans used public transportation for only 10 percent of their

daily travel needs, the United States could significantly reduce its dependence on

foreign oil.

INCREASED DEMAND

Growing demand nationwide for transit services shows the effectiveness of federal

investment. In a recent 5 year period, transit ridership grew 22 percent, greater

than the growth rate of highways and domestic air travel during the same time

frame. In that same time period Chicago’s MTA system saw ridership increase from

419 million trips to 450 million; in Dallas, ridership on the DART system rose from

52 million to 60 million; and in LaCrosse, Wisconsin, from 713,000 to 819,000.

Support for increased transit service remains high. In February 2003, Wirthlin

Worldwide Public Opinion Poll showed 81 percent of Americans support the use of

public funds for the expansion and improvement of public transportation; 56 percent

say the need to reduce traffic congestion has become more important over the last

5 years. The poll also stated 57 percent agree their community needs more public

transportation options, including 64 percent of urban residents, 59 percent of suburban residents, 51 percent of rural residents, and 55 percent of small-town residents.

This poll demonstrates that support for public transportation has increased dramatically not only in our biggest cities, but in smaller urban communities and rural

areas as well, where 40 percent of America’s rural residents have no access to public

transportation, and another 28 percent have substandard access. It is estimated

that rural America has 30 million non-drivers, including senior citizens, the disabled

and low-income families who need transportation options. According to a survey of
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APTA members, bus trips in areas with populations less than 100,000 increased

from 323 million to 426 million in a recent 5 year span.

Another focus of the support for transit service is in the area of security. During

the September 11th attacks, hundreds of thousands of citizens in New York and

Washington were able to evacuate those cities quickly and safely because of transit.

As long as security threats endanger our cities, transit serves an invaluable role as

a method of evacuation that will help get people out of harm’s way.

ECONOMIC IMPORTANCE

Investment in public transportation plays a key role in stimulating local economies and the national economy as a whole. Investment in transit infrastructure creates jobs. Transit-oriented development around transit stations stimulates construction, new business and housing which increases land value and property taxes.

Transit service provides employers with access to workers and workers with a way

to get to jobs.

Investment in transit creates jobs and significant economic growth outside of the

communities in which the systems are located. Optima Bus Corporation (formerly

Chance Coach), located in Wichita, Kansas, built a 125,000 square foot assembly

plant in 2000 and doubled its workforce. Optima builds buses and trolleys to be

used in systems around the country. The same is true for North American Bus Industries in Anniston, Alabama; Neoplan USA bus company in Lamar, CO; and MCI

Buses in Pembina, ND. These and many other companies supply goods and services

to the transit industry, employ workers and generate economic activity in their communities with TEA–21 resources.

Public transportation’s role in stimulating local economies is profound. According

to a Cambridge Systematics Inc. study, for every $10 spent on transit capital

projects, $30 in business sales is generated. Every $10 invested in transit operations

results in $32 in business sales. Each $1 billion in federal transportation invested

creates 47,500 jobs. As States and local governments struggle to find revenues, public transportation has provided a strong return on investment. In Dallas the taxable

value of properties located near its DART system increased 25 percent faster than

elsewhere in the metro area. In this area, the state of Virginia will reap $2.1 billion

in tax revenues as a result of transit investment over the next 7 years.

Another benefit of public transportation to a healthy economy is providing job access and reliability for an expanding labor pool. In cities large and small, businesses

and other service providers are choosing to locate or relocate in areas convenient

to public transportation. Transit systems are working with local businesses to provide transit passes and tax benefits to both employees and employers. Transit continues to provide a reliable, convenient option for employees who wish to avoid

crowded highways or who cannot afford to travel by car.

Indeed, public transportation plays a very specialized role in this aspect of economic growth and stability. With the help of public agencies in local communities,

transit helps low income workers who cannot afford other options stay productively

employed and off of welfare. A project in New Jersey provides passes and tickets

to welfare recipients for work-related travel. In Myrtle Beach, South Carolina, the

Pee Dee RTA coordinates with the county department of social services to run a 24

hour commuter service linking rural residents with jobs in the city. The Albuquerque transit department provides reduced rate transit service for low income

workers.

Further, savings as a result of transit are significant. Atlanta’s MARTA system

saved an estimated $2.2 billion over a 14-year period by providing motorists a public

transportation alternative. A study by the Texas Transportation Institute concludes

that a single year’s increase in automobile traffic requires 27 miles of freeway and

37 miles of principal streets in each city in America just to keep up. This is significant when considering urban rail systems can provide more capacity in a 100 foot

right-of-way than a 6 lane freeway, which requires three times as much space.

ENVIRONMENTAL FACTORS

Public transportation represents an effective way to improve air quality without

imposing new government mandates. According to a report released last summer by

economists Dr. Robert Shapiro of the Brookings Institution and Dr. Kevin Hassett

of the American Enterprise Institute, public transportation generates 95 percent

less carbon monoxide, 92 percent less volatile organic compounds, and about half as

much carbon dioxide and other pollutants per passenger mile than individuals in

private automobiles. The study also shows that public transportation already saves

more than 855 million gallons of gasoline and 45 million barrels of oil a year. This

is equivalent to the energy used to heat, cool, and operate one quarter of all Amer-
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ican homes annually, or half the energy used to manufacture every computer and

piece of electronic equipment in America every year.

The study also found that if one in ten Americans used public transportation regularly, U.S. reliance on foreign oil could be cut by more than 40 percent. This is

nearly equivalent to the amount of oil imported from Saudi Arabia annually. It reported that even small increases in transit use would help most of the 16 major cities that currently fail to meet EPA standards for carbon monoxide emissions; and

that transit is twice as fuel efficient as private vehicles for each passenger mile

traveled.

PRESIDENT’S BUDGET PROPOSAL

In February, the President’s fiscal year 2004 budget proposal was released. It

calls for a 6 percent increase in funding for the Department of Transportation, but

no increase in overall investment for public transportation. Prior to unveiling his

budget, the President identified his priorities for the Nation in the annual State of

the Union Address. These included revitalizing the Nation’s economy, reducing dependence on foreign sources of energy, helping the environment by investing in hydrogen powered vehicles and applying the compassion of America to solve disadvantaged American’s problems.

Public transportation assists in reaching each of these goals. Regarding the economy, 47,500 jobs are created by every $1 billion invested in the public transportation infrastructure. $30 million in private business sales are generated for every

$10 million invested in transit. Transit provides efficient access to labor and mitigates congestion so that goods may travel more freely.

With regard to reducing dependence on foreign sources of energy, public transportation reduces by millions of barrels the amount of oil that would otherwise be imported every year. In terms of the environment, public transportation produces less

pollution per rider than the automobile. It reduces the amount of volatile organic

compounds and nitrogen oxides that contribute to smog and illnesses related to polluted air such as asthma.

Public transportation is a compassionate way to address the mobility needs of millions of Americans. It provides transportation options to the disabled and those who

are unable to drive. It provides an inexpensive way for lower-income workers to

commute to work, allowing them to save money for their families that would otherwise be spent on driving expenses. It provides a safe way for the elderly to visit

the doctor or go to the grocery store.

APTA questions the Administration’s proposal to restructure a Federal transit

program that has worked so well in recent years. APTA’s recommendations for the

reauthorization of the Federal transit program build on the success of the current

program without eliminating any of the major elements of that program. We do not

believe that bus replacement and facility needs can be addressed by folding the discretionary bus program into the formula and fixed guideway programs. We support

retention of a distinct fixed guideway modernization program that helps improve the

efficiency of systems that often operate at capacity and serve large numbers of citizens in communities that depend on public transportation.

Further, APTA opposes the Administration’s proposal to reduce the Federal share

of new fixed guideway transit projects from 80 percent to 50 percent because we believe it would bias decisions on transportation investments that are made at the

local level. APTA believes that such decisions should be based on project merit and

local transportation needs, and not on the basis of the Federal share of transportation project costs. Communities that want to build rail and other fixed guideway

projects already make a substantial commitment of local resources for project construction under existing law. Further, to receive Federal funding for such projects,

the community must demonstrate to the Federal Transit Administration that it has

the local resources to operate and maintain the system once it is built. The full

funding grant agreement (FFGA) process protects against the funding of projects

that fail to provide good benefits to the community or do not have adequate local

funding for long-term operations. Good rail and other fixed guideway systems can

provide enormous benefits to a community, including a wide array of economic benefits, and they should be considered with other transportation investments in the

local transportation planning process on a level playing field.

We strongly believe that growth of the Federal investment in public transportation can help advance many of the Nation’s goals, and that freezing Federal funding for transit will erode purchasing power and increase the backlog of unmet transit capital needs. We urge the committee to fund the Federal transit program in fiscal year 2004 at no less than $8.1 billion.
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CONCLUSION

Public transportation can play a key role in meeting the goals of the Administration and Congress in providing economic development, energy dependence, transportation options for Americans who cannot afford to drive or are not able to, and preserving the environment. To do so it requires a commitment on the part of the Federal government in the form of increased predictable investment.

Mr. Chairman, we look forward to working with the Committee as it advances legislation to invest in national transportation infrastructure needs.

PREPARED STATEMENT OF THE CALIFORNIA INDUSTRY AND GOVERNMENT CENTRAL

CALIFORNIA OZONE STUDY (CCOS) COALITION

Mr. Chairman and Members of the Subcommittee: On behalf of the California Industry and Government Central California Ozone Study (CCOS) Coalition, we are

pleased to submit this statement for the record in support of our fiscal year 2004

funding request of $500,000 from the Department of Transportation (DOT) for

CCOS as part of a Federal match for the $9.1 million already contributed by California State and local agencies and the private sector.

Most of central California does not attain federal health-based standards for ozone

and particulate matter. The San Joaquin Valley is developing new State Implementation Plans (SIPs) for the federal ozone and particulate matter standards in the

2002 to 2004 timeframe. The San Francisco Bay Area has committed to update their

ozone SIP in 2004 based on new technical data. In addition, none of these areas attain the new federal 8-hour ozone standard. SIPs for the 8-hour standard will be

due in the 2007 timeframe—and must include an evaluation of the impact of transported air pollution on downwind areas such as the Mountain Counties. Photochemical air quality modeling will be necessary to prepare SIPs that are approvable

by the U.S. Environmental Protection Agency.

The Central California Ozone Study (CCOS) is designed to enable central California to meet Clean Air Act requirements for ozone State Implementation Plans

(SIPs) as well as advance fundamental science for use nationwide. The CCOS field

measurement program was conducted during the summer of 2000 in conjunction

with the California Regional PM10/PM2.5 Air Quality Study (CRPAQS), a major

study of the origin, nature, and extent of excessive levels of fine particles in central

California. CCOS includes an ozone field study, a deposition study, data analysis,

modeling performance evaluations, and a retrospective look at previous SIP modeling. The CCOS study area extends over central and most of northern California.

The goal of the CCOS is to better understand the nature of the ozone problem

across the region, providing a strong scientific foundation for preparing the next

round of State and Federal attainment plans. The study includes six main components:

—Developed the design of the field study,

—Conducted an intensive field monitoring study from June 1 to September 30,

2000,

—Developing an emission inventory to support modeling,

—Developing and evaluating a photochemical model for the region,

—Designing and conducting a deposition field study, and

—Evaluating emission control strategies for upcoming ozone attainment plans.

The CCOS is directed by Policy and Technical Committees consisting of representatives from Federal, State and local governments, as well as private industry. These

committees, which managed the San Joaquin Valley Ozone Study and are currently

managing the California Regional Particulate Air Quality Study, are landmark examples of collaborative environmental management. The proven methods and established teamwork provide a solid foundation for CCOS. The sponsors of CCOS, representing state, local government and industry, have contributed approximately $9.1

million for the field study. The Federal government has contributed $3,730,000 to

support some data analysis and modeling. In addition, CCOS sponsors are providing

$2 million of in-kind support. The Policy Committee is seeking Federal co-funding

of an additional $6.25 million to complete the remaining data analysis and modeling

and for a future deposition study. California is an ideal natural laboratory for studies that address these issues, given the scale and diversity of the various ground

surfaces in the region (crops, woodlands, forests, urban and suburban areas).

There is a national need to address national data gaps and California should not

bear the entire cost of addressing these gaps. National data gaps include issues relating to the integration of particulate matter and ozone control strategies. The

CCOS field study took place concurrently with the California Regional Particulate

Matter Study—previously jointly funded through Federal, State, local and private
316

sector funds. Thus, the CCOS was timed to enable leveraging the efforts of the particulate matter study. Some equipment and personnel served dual functions to reduce the net cost. From a technical standpoint, carrying out both studies concurrently was a unique opportunity to address the integration of particulate matter and

ozone control efforts. CCOS was also cost-effective since it builds on other successful

efforts including the 1990 San Joaquin Valley Ozone Study. Federal assistance is

needed to effectively address these issues. For fiscal year 2004, our Coalition is seeking funding of $500,000 from DOT

through highway research funds. DOT is a key stakeholder because Federal law requires that transportation plans be in conformity with SIPs. The motor vehicle emission budgets established in SIPs must be met and be consistent with the emissions

in transportation plans. Billions of dollars in Federal transportation funds are at

risk if conformity is not demonstrated for new transportation plans. As a result,

transportation and air agencies must be collaborative partners on SIPs and transportation plans. SIPs and transportation plans are linked because motor vehicle

emissions are a dominant element of SIPs in California as well as nationwide. Determining the emission and air quality impacts of motor vehicles is a major part

of the CCOS effort. In addition, the deposition of motor vehicle emissions and the

resulting ozone is a nationwide issue.

Thank you very much for your consideration of our request.

PREPARED STATEMENT OF THE AMERICAN PASSENGER RAIL COALITION

Chairman Shelby and Members of the Subcommittee on Transportation, Treasury

and General Government, thank you for the opportunity to present testimony on fiscal year 2004 appropriations for Amtrak and for rail safety, research and development programs under the Federal Railroad Administration (FRA). My name is Harriet Parcells and I am the Executive Director of the American Passenger Rail Coalition (APRC), a national association of railroad equipment suppliers and rail businesses. The American Passenger Rail Coalition (APRC) urges the Subcommittee to appro- priate $1.812 billion for Amtrak in fiscal year 2004. This is the level of funding Amtrak has stated is needed to operate the existing national passenger rail system and

to make crucial capital investments. Under the leadership of Amtrak President

David Gunn and the Amtrak Board of Directors, Amtrak has been taking critical

actions to stabilize and improve the national passenger rail network, reduce operating costs and bring a new candor and openness to Amtrak’s accounting and operations. A strong Federal appropriation in fiscal year 2004 is essential to Amtrak’s

ability to continue these successful actions and bring the national passenger rail

system into a good state of repair.

A modern, reliable and efficient national passenger rail system is in the mobility,

economic and national security interests of the country. In busy metropolitan corridors, intercity passenger rail offers a safe, cost-effective alternative to congested

highways and airports. For citizens of rural communities, Amtrak trains provide dependable and affordable mobility that is frequently the only convenient, all-weather

intercity public transportation available. Government investments in intercity passenger rail enhance national security as was demonstrated in the days and weeks

following the terrorist attacks of September 11, 2001. Investments in rail also yield

significant economic and environmental benefits for cities, States and the Nation.

Public opinion polls consistently show that Americans across all regions of the country, income and education levels, strongly support Federal government investment

in the national Amtrak system.

AMTRAK TRAINS ARE AN ATTRACTIVE TRAVEL CHOICE FOR MANY

Ridership on Amtrak trains rose steadily for 5 years, from fiscal year 1997–fiscal

year 2001, and reached 23.5 million riders in fiscal year 2001. Over the past 18

months, a weak economy, security concerns by the public since the September 11th

attacks and the war in Iraq and other factors, have adversely impacted travel on

air, rail and other modes and the travel sector of the economy overall. The fact that

Amtrak ridership dipped only slightly in fiscal year 2002 from the prior year’s ridership is a good indication of the public’s support and comfort with travel by rail. In

the first 5 months of fiscal year 2003 (October 2002–February 2003), travelers have

continued to select rail travel for many trips. Amtrak ridership has dipped 1.5 percent nationwide compared to fiscal year 2002. In the West, Amtrak ridership has

increased 4.3 percent compared to one year ago, with western corridor trains showing strong gains of 8 percent. California’s strong commitment to and investments

in improved passenger rail service over many years are paying off as growing num-
317

bers of people leave their cars behind and take the train to their destination. Ridership on Amtrak’s Surfliner service that operates between San Diego and Los Angeles is up 21 percent in the first 5 months of fiscal year 2003, compared to one year

ago. Ridership on the state’s Capitol Corridor and San Joaquin trains is also up,

8 percent and 5.5 percent, respectively. In March 2003, total Amtrak ridership was

up 2.3 percent over March 2002. Ridership gains have been helped by some travel

promotions Amtrak has run—as have the airlines—to attract travelers who are feeling the pinch of a weaker economy and anxieties about the possibility of future terrorist acts. Thus, Amtrak passenger revenues for the first 5 months of fiscal year

2003 are 12 percent below revenues one year earlier.

AMTRAK’S NEW LEADERSHIP FOCUSED ON STABILIZING THE RAIL NETWORK

Amtrak President David Gunn and the Amtrak Board of Directors have been taking actions over the past year to stabilize Amtrak’s finances, bring the passenger

railroad into a good state of repair, reduce operating costs and bring greater transparency to Amtrak’s finances. Under Mr. Gunn’s leadership, Amtrak’s management

structure has been streamlined to reduce costs and be more efficient. Amtrak has

largely exited the express freight business, which was losing money rather than

generating revenues for the railroad. Amtrak has embarked upon a program to repair wrecked rolling stock that has been out of service. Nearly 10 percent of Amtrak’s equipment was in need of wreck repair last year. As of the end of April 2003,

22 railcars will have been repaired to go back into service on routes around the

country.

CAPITAL FUNDING NEEDED TO ADDRESS CRITICAL INVESTMENT

Insufficient capital funding and Amtrak’s focus in recent years on achieving operating self-sufficiency, as mandated by Congress, resulted in deferral of investment

in important capital projects. Amtrak’s fiscal year 2004 request of $1.812 billion includes $1.04 billion to address critical capital needs. These needs include infrastructure investments on the Northeast Corridor that are crucial to operation of the highspeed Acela Express service and investments to continue to repair and return to

service rolling stock that has been sidelined. The remaining $768 million is needed

for operation of the national Amtrak system. Amtrak is pursuing a sound course

and APRC urges Congress to provide this critical funding to enable Amtrak to make

needed investments in the year ahead.

FEDERAL INVESTMENTS IN TRANSPORTATION SUPPORT ECONOMIC DEVELOPMENT

Federal investments in transportation infrastructure are vital to the economic

productivity of states and the nation. Every billion dollars invested in transportation

infrastructure projects generates approximately 42,000 jobs. These investments ripple through the economy, amplifying the economic benefits of the investment. Investments in intercity passenger rail will create new jobs, spur economic development and enhance the economic competitiveness of regions that invest in improved

passenger rail service.

The U.S. government has underinvested in passenger rail for years. The U.S. government invests only 1 percent of total transportation spending on intercity passenger rail each year. Other industrialized nations, with whom the United States

competes in the global market, by contrast, invest over 20 percent of total transportation capital spending in rail. It is time to reverse this pattern of underinvestment.

The returns to the Nation will be substantial.

RAIL BENEFITS RURAL AMERICA AS WELL AS METROPOLITAN CORRIDORS

The need for intercity passenger rail service in congested metropolitan corridors

is clear to most policy makers. What appears to be less appreciated is the value

intercity passenger rail service provides to small cities and communities across the

country. Yet, intercity passenger rail service is vital to the economic health of hundreds of America’s small cities and rural communities and the mobility of their citizens. Airlines have reduced or abandoned air service to many small cities, making

the role of intercity passenger rail even more important to the mobility of citizens

in these communities. Residents of Tuscaloosa and Anniston, AL, of Marshall and

Gainesville, Texas, of Rugby, Minot and Devils Lake, ND and hundreds of other

communities from coast to coast value and depend upon the passenger trains that

connect their communities to the rest of the Nation.
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RAIL CONTRIBUTES TO OTHER NATIONAL GOALS

Travel by passenger trains is energy-efficient, consuming about 38 percent less

energy (BTU’s) per passenger-mile than travel by commercial airline. Transportation is the only sector of the U.S. economy that consumes more oil today than it

did 20 years ago. U.S. dependence on imported oil has been rising and since 1997,

exceeds 50 percent of our daily petroleum use. Last year, the United States spent

$90 billion for imported oil. Investments in improved passenger rail service are a

sensible way to reduce the vulnerability created by the nation’s heavy and costly

dependence on imported oil. Lower energy consumption translates into benefits to

air quality. Investments in passenger rail help reduce harmful air pollutants and

contribute to state and community efforts to achieve healthy air quality.

In conclusion, APRC urges the Subcommittee to fully fund Amtrak’s request for $1.812 billion in fiscal year 2004 to enable Amtrak to continue down the path it is

pursuing to improve the reliability and quality of passenger rail service nationwide.

APRC also supports strong funding of rail safety and research and development programs under the Federal Railroad Administration.

Thank you Chairman Shelby and Members of the Subcommittee for the opportunity to provide this testimony on behalf of our rail business association.

PREPARED STATEMENT OF THE RAILWAY SUPPLY INSTITUTE, INC.

On behalf of the Railway Supply Institute (RSI), I offer the following comments

on Amtrak’s fiscal year 2004 appropriation request.

RSI is a trade association that represents the domestic railway supply industry.

Our members provide goods and services to the Nation’s freight and passenger railroads as well as to rail rapid transit systems. We are a $20 billion a year industry

employing some 150,000 people nationwide. RSI supports Amtrak’s request of $1.8 billion for fiscal year 2004 to operate the

current nationwide route structure and begin the process of stabilizing our nation’s

intercity railroad passenger system. In addition to allowing Amtrak to continue to

operate its network of intercity passenger trains, that amount will allow the railroad to begin the task of rebuilding wrecked equipment so it can be put back into

revenue service as well as beginning the process of rebuilding the Northeast Corridor infrastructure. RSI members will provide a significant portion of material

needs for the capital projects outlined in the Amtrak request. This will provide a

much-needed boost to an industry that has suffered through the recent economic

downturn.

As the Department of Transportation’s Inspector General has stated time and

again, the real problem with Amtrak is not management efficiency or the cost of

the route system but the burden of funding its infrastructure. Until Congress develops a way to address these infrastructure costs, cutting trains or attempting to extract management efficiencies will not achieve the desired results. RSI believes

David Gunn has demonstrated the ability to manage Amtrak effectively. He has

eliminated waste, reduced management levels, cut costs, brought fiscal responsibility to the railroad and improved Amtrak’s credibility.

Amtrak’s workable five-year capital investment plan is what Amtrak needs to become a good, solid, reliable passenger railroad. The railroad’s strategic plan will

bring Amtrak’s capital assets up to a state of ‘‘good repair’’ and maintain current

rail operations. To support the strategic plan, Amtrak proposes, and RSI supports,

that annual federal funding range from $1.8 million in fiscal year 2004 to under

$1.5 billion in fiscal year 2008 for the combined capital investment and operating

needs.

RSI does recognize the constraints of the appropriations process. In response to

this, we have developed a proposal that would create a Rail Finance and Development Corporation (RFDC). RFDC is designed, in part, to supplement federal appropriations for Amtrak by supporting the significant infrastructure costs that Amtrak

must address in the Northeast Corridor and other parts of the system. This supplemental funding source could significantly reduce the burden of the Appropriations

Committee and allow it to use its limited resources to maintain basic service levels

for rail passenger service. RFDC would be a private, non-profit, federally chartered

corporation similar to Fannie Mae, that would issue up to $50 billion in tax-credit

bonds over a six-year period for rail related infrastructure investments. Eligible investments would include higher speed intercity rail; rail access to ports intermodal

terminals and airports; increased freight rail capacity; short line infrastructure

needs; and rail line relocation. We have enclosed a white paper describing the RFDC

proposal and I ask that this statement and the White Paper be included in the

record.
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Until RFDC, or some other supplemental funding mechanism, becomes policy, we

urge the Senate Transportation Appropriations Subcommittee to provide the resources Amtrak needs to survive.

RSI looks forward to working with the Senate to create a long-term stable source

of funding for Amtrak and our nations freight railroad system.

PREPARED STATEMENT OF THE AIR TRAFFIC CONTROL ASSOCIATION, INC.

The Air Traffic Control Association, Inc. (‘‘ATCA’’), located in Arlington, Virginia,

USA is a professional association of forty-seven years’ standing dedicated to advancement in the science and profession of air traffic control and aviation safety.

Its membership is worldwide in scope, and represents all aspects of the air traffic

control discipline, from air traffic control specialists and airway facilities technicians

who operate and maintain the air traffic control system, to those individuals and

companies who develop, manufacture and provide the technology, equipment, and

services which support the system, to the citizens, government agencies, and airlines who use the system.

INTRODUCTION: THE CHANGED AVIATION MARKETPLACE

Immediately after September 11, 2001, most aviation experts predicted that the

market effects of the terrorist attacks on air transportation would be short lived,

and that conditions prevailing before those events—economic prosperity, increasing

demand, congestion and delay—would recur within 18 months or so. Although temporary depression in air transportation demand was anticipated, the aviation community admittedly did not foresee the lingering, intensifying economic doldrums,

global political instability and war to come. Certainly few, if any prognosticators envisioned air traffic would be so persistently and profoundly depressed that major

airlines and related aviation enterprises would today be struggling for their very existence.

Now, with the war against terrorism continuing and military action in Iraq just

winding down, and health concerns heightened, the aviation community is becoming

reconciled to the reality that sluggish air transportation market conditions likely

will prevail for some time. Airlines, airports and policy makers are adjusting perspectives, plans, programs, and expectations to suit new financial and operational

realities.

First among these realities is the stressed, and in some cases desperate financial

condition of commercial aviation. Income is down across the board. Fewer passengers are traveling at lower fares, meaning less ticket revenue for airlines and

concession income for airports. Fewer flights and smaller capacity aircraft mean reduced tax and user fee income for government and private air traffic service providers. And with airlines, airports and air traffic service providers in difficulty, aviation suppliers including travel agents, aircraft manufacturers, aviation technology

companies and airport construction firms are also suffering.

To make matters worse, aviation costs have not diminished proportionately, but

rather have remained constant or, like fuel prices, have increased. Airlines, air traffic service providers, and airports still must make payments on aircraft and other

capital equipment, pay rent, employee wages and benefits, and meet other contractual obligations. Moreover, as a result of the terrorist attacks, airlines, airports, air

traffic service providers, and government organizations must absorb significant additional costs of intensified and additional security measures. Since September 11,

2001, the airline industry alone reports having suffered a loss of $18 billion; they

expect 2003 losses to exceed $10 billion.

Consequently, virtually all aircraft operators are economizing in every way possible, reducing or rationalizing services, deferring capital expenditures, renegotiating labor agreements, freezing hiring, laying off workers, and selling or

mothballing aircraft. Many organizations, including major airlines, are regrouping,

reforming, reorganizing, realigning, or disappearing entirely through merger or

bankruptcy. Airlines are adjusting schedules, equipage, and even route structures

in an effort to match service to demand. Some carriers are switching to smaller capacity aircraft and maintaining or increasing frequency. Others are abandoning

hubs in favor of more point-to-point service. Many high-end and business travelers

are abandoning commercial service altogether, instead electing to use corporate and

fractional ownership aircraft or substituting telecommunications alternatives to

travel.

Air traffic service providers are doing all they can to economize in their own operations while continuing to provide equal or better service, and making system enhancements that will improve operating safety and efficiency. But after years of belt
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tightening and resource deprivation, there is precious little room in most air traffic

service organizations for significant additional efficiencies. A significant point to recognize is that even though the benefits of ATM system and interfacing aircraft enhancements will outweigh the costs in the long run, they do not come for free, and

there simply is precious little cash available—either in ATS provider or aircraft operator coffers—to invest today.

There is another aspect of the U.S. air transportation system that current events

should amplify—that the U.S. National Airspace System, in contrast to many other

national systems, is a ‘‘common’’ civil-military system. Its infrastructure and air

traffic controllers support our National Defense and Homeland Security aircraft as

well. This is but another reason that the ATM system must be sustained and upgraded to meet the challenge of a new era.

AVIATION SAFETY AND SECURITY IS A FEDERAL RESPONSIBILITY

Aviation—a critical segment of the Nation’s GNP and, even more important, enabler of U.S. tourism, commerce and industry—clearly is on the ropes. Now is not

the time to retrench and watch the Nation’s air transportation system—jewel of

U.S. ingenuity and free enterprise—disintegrate. Rather, the Federal government

must do all it can to preserve and strengthen U.S. aviation, especially in these difficult times. To that end, the Air Traffic Control Association urges the following.

First, it was necessary and appropriate for the Federal Government to provide financial relief to the Nation’s airlines, to help them weather the aftermaths of the

9/11 attacks and market impacts of the War on Terrorism and military action in

Afghanistan and Iraq. Although aviation was the vehicle, the 9/11 attacks were directed against the United States as a whole. Protecting the Nation against future

terrorism is the Federal Government’s responsibility, and the costs—be they for National Defense or Homeland Security purposes—should be borne by all Americans.

Nevertheless, airline passengers, aircraft operators, and airports are shouldering

the lion’s share of the costs of air transportation system security—from direct fees

for security, to aircraft and terminal modifications, to Airport and Airway Trust

Fund expenditures for security infrastructure improvements. And this at a time

when the entire aviation community is suffering disproportionately compared with

other segments of the economy from the negative market and financial consequences

of public fear and wartime disruptions to travel and tourism.

Because airport and airline security is an ongoing National and Homeland Defense function, security fees should be discontinued permanently, and the costs of

TSA screening activities, related equipment and construction instead paid for with

appropriations derived from the general fund. To use trust fund dollars for this purpose unfairly assesses passengers and shippers for the costs of safety and security

measures that benefit everyone. Protecting aircraft from hostile attack and takeover

such as we experienced in 2001 benefits the aircraft operator, the passengers and

crew and, no less importantly, people and property on the ground that could be impacted. Moreover, using the trust fund in this way mortgages U.S. aviation’s future

by depleting the fund without corresponding replenishment. The Association looks

forward to the announced plan of the Transportation Security Administration to establish a program whereby TSA would issue Letters of Intent (LOI) to reimburse

75 percent–90 percent of the costs of federally mandated security upgrades, to be

paid with appropriated funds.

FAA OPERATIONS APPROPRIATION SHOULD BE ‘‘RE-BASELINED’’

The Federal Government must rededicate itself to the mission of modernizing and

improving airport and airway infrastructure and technology. Modernization will enable air carriers and other aircraft operators to operate efficiently as well as safely

and securely during these difficult times, sustain the National Defense and Homeland Security mission, and prepare a robust, capable air transportation system for

the future.

The Administration is demonstrating its commitment to U.S. aviation by proposing to continue the FAA funding profile established by the Wendell H. Ford Aviation Investment and Reform Act for the 21st Century (AIR–21). That landmark legislation boosted Federal spending limits for air transportation infrastructure improvement, and established budgetary mechanisms to assure that appropriations

matched authorized levels. The Administration is seeking $7.5 billion per year in

fiscal year 2004 for FAA Operations, increasing over the authorization period at

least at the rate of inflation. For FAA Facilities and Equipment, the Administration

proposes $2.9 billion in fiscal year 2004, gradually increasing to $3.1 billion in fiscal

year 2007. And the Administration proposes to continue the current funding level

of $3.4 billion per year for Airport Grants. $100 million per year would be available
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for FAA Research, Engineering and Development. The Association believes that this

request understates the real needs of the FAA. Although it represents the Administration’s judgment of the proper apportionment of financial resources, we believe it

does so at the sacrifice of activities and programs that should not be further deferred.

The Air Traffic Control Association agrees with the Administration that continued

robust funding for air transportation operations and National Airspace System improvements is a national imperative. Public reliance on air transportation is strong

and increasing, and recent history shows that the occasional market dips coincident

with military action or economic recession tend to be temporary. When conditions

improve, the air transport market recovers rapidly. Immediately prior to the 9/11

terrorist attacks, aviation was experiencing unprecedented growth, with overcrowding and congestion clogging many major facilities. Current projections are that

aviation markets will recover to pre-9/11 conditions—including congestion and

delay—sometime in 2005–2006. Even with a brief hiatus in demand, the aviation

community will be hard pressed to progress sufficiently on needed capacity improvements in time to avoid a repeat of the near gridlock conditions prevailing during

the summer of 2001. Now is not the time to hesitate about moving on with modernization.

For the following reasons, therefore, the Air Traffic Control Association urges the

Congress to take a more proactive approach to funding operations and modernization of the National Airspace System than the Administration proposes. First, the

Administration’s fiscal year 2004 funding proposal (3.2 percent increase, less than

the rate of inflation) understates the real resource requirements of FAA’s Operations functions. FAA’s air traffic services, airway maintenance, and regulation and

certifications organizations already are debilitated by years of funding deprivation.

Because 95 percent of FAA’s Operations budget is dedicated to personnel and related costs, years of rate-of-inflation increases have barely covered the costs of mandatory pay increases for on-board staff and plant maintenance and have not addressed the backfill overtime costs associated with training controllers to deal with

new situations and systems. Almost no money has been available for projects and

activities necessary to prepare for future needs. FAA has barely begun the process

of hiring and training significant numbers of air traffic controller and airway facilities technician candidates to replace the ‘‘bubble’’ of employees eligible and expected

to retire. (The Administration is requesting $14 million to hire 300 controller candidates in fiscal year 2004, but because training a controller takes years and many

‘‘wash out’’ of the process, there are some who estimate that 1,000 per year is a

more realistic hiring goal.) Schedules for installation, check out, and training of

workers on new equipment and technologies are stretching out, delaying benefits

until the new items can be put into service. Less than maximum effort can be devoted to development and certification of new technologies. Efforts to devise capacity, efficiency, and safety enhancing air traffic procedures and operating techniques

are under resourced. And these chronic shortages are being exacerbated by diversion

of resources to satisfy post-9/11 security activities and requirements. Before FAA

can begin to survive on rate-of-inflation increases in its operations and maintenance

funding the financial base on which these increases are calculated must be increased substantially. ATCA therefore urges Congress to authorize and appropriate

Operations funding in fiscal year 2004 at least 15 percent over and above the Administration’s $7.5 billion estimate, or $9 billion.

PROTECT AIR TRAFFIC SYSTEM MODERNIZATION!

The Administration’s $2.9 billion per year request for FAA Facilities and Equipment authorization and appropriation falls far short of what is required to sustain

a really robust modernization and improvement effort. This amount is $100 million

less than the amount enacted in fiscal year 2002, and 2 percent less than the fiscal

year 2003 requested amount. But needs for F&E dollars have increased significantly

in since then. FAA must first of all sustain existing capability, which is becoming

ever more costly. Although much has been replaced, a significant portion of equipment and software in use today is operating well beyond its intended service life

and is therefore increasingly trouble prone and costly to repair or replace. Moreover,

in the aftermath of 9/11, significantly more of this legacy equipment will remain in

service and must be maintained indefinitely, for example, primary radars and geographically dispersed navigation aids and communications systems have renewed

value and need to be retained. Other items, many intended to meet joint security

and defense needs of FAA, DOD, and Homeland Defense, are being added to FAA’s

shopping cart. And F&E dollars also pay for the modernization of the Nation’s air

traffic control system. Most of these projects are well underway, requiring large cap-
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ital outlays. Disruptions due to budget adjustments are very costly, both in terms

of money and foregone operating benefits. And the F&E account also supports implementation of FAA’s Operational Evolution Plan (OEP), a 10 year rolling blueprint

for applying advanced technologies and other improvements to garner near term

safety, capacity and efficiency benefits. The most recent iteration of the OEP covering fiscal years 2004–2013 is estimated to cost $12.4 billion over the ten years—

up $1 billion over the fiscal years 2001–2010 version.

In 1998, the FAA estimated that modernization costs alone reflected in Version

3.0 of the NAS Architecture would be approximately $3 billion per year. Add to this

the annual costs of sustaining and refurbishing equipment in use—much of which

is now permanently off the decommissioning list, new National Defense and Homeland Security requirements, and the expanding price of the OEP, and it becomes

clear that the real necessary level of FAA funding for F&E in fiscal year 2004 and

the foreseeable future is more in the order of $4 billion per year. This is the amount

the Association urges Congress to authorize and appropriate.

In addition, the Association urges the Administration and Congress to assure that

dollars appropriated for NAS improvements are not diverted to other purposes. To

be specific, because NAS improvement projects are multi-year endeavors requiring

multi-year budgeting and financial management, annual rescission of unexpended

funds wreaks havoc with overall planning. Often, the ‘‘unexpended funds’’ are associated with worthwhile projects and activities already in motion, and do not represent overlooked or obsolete requirements. It would be helpful if this practice were

avoided. Or, alternatively, Congress might consider instituting a mechanism that increases the bottom line appropriation that compensates for earmarks rather than,

as presently occurs, broader based activities or programs being decreased. Second,

FAA prioritizes projects and activities with the objective of achieving the best result

for the entire air transportation system. Although legislators understandably are

concerned about aviation issues in their home districts, resisting the temptation to

earmark F&E funds for specific local projects would greatly benefit the entire system. Third, other aviation priorities such as the Essential Air Service Program

should be funded through the regular budget process, not through diversion of FAA

F&E dollars intended for NAS modernization. Each year hundreds of millions of

FAA F&E dollars redirected through these budget procedures—dollars that otherwise would have been applied to improving the safety, capacity and efficiency of the

NAS.

THE PROBLEM OF ASYNCHRONOUS IMPROVEMENTS

The promise of air traffic system modernization will not be realized, regardless

of the sufficiency of funding, without corresponding upgrade of aircraft technologies

that interface with the ATC system. At a recent Air Traffic Control Association symposium, one speaker estimated that the cost of equipping each commercial aircraft

to take advantage of new ATC technologies and procedures is approximately

$465,000. Avionics for business and general aviation aircraft are correspondingly expensive. Much of this equipage expense will be offset by the value to the aircraft

operator of efficiencies and flexibility derived from the new systems (e.g. fuel and

time savings from more direct routings, less holding, reduced delays, more operationally efficient altitudes.) FAA as the air traffic service provider also will derive

safety, efficiency and capacity benefits from implementation of modern systems, for

example reduced separation between aircraft thereby increasing airspace capacity,

or preventing collisions and improving traffic flow on the airport surface.

But no one will enjoy the maximum payback from modernization unless ATC improvements and aircraft upgrades take place contemporaneously, and all aircraft in

given airspace are comparably equipped. If new ATC system implementation lags

behind aircraft equipage, operators will have made an investment with no immediate payback. If the ATC system is equipped without corresponding aircraft capability, neither the users nor FAA will derive full benefits. And if ATC improvements

are made but only some aircraft are equipped for the new environment, airspace

must be segregated to allow those who are equipped to derive benefits while still

permitting those not so capable to continue operating and the underlying infrastructure must support both.

Universal aircraft equipage can be achieved in three ways. First, aircraft operators may be encouraged to equip voluntarily if the operating benefits are sufficient

to outweigh the cost. Second, disincentives may be imposed on operators that fail

to equip. For example, they may be foreclosed entirely from some environments,

subjected to less optimal operating conditions (e.g. sub-optimal routings, non-preferred altitude), or charged higher fees or taxes. A third alternative is for the Government to mandate minimum equipage for everyone.
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The first option—voluntary compliance—benefits everyone. But there are situations in which the cost/benefit ratio of a given improvement is positive for the entire

system, yet negative for a specific aircraft or fleet. In that case, a rational operator

may well choose not to invest. And cash poor operators—and today many of the Nation’s largest air carriers are in this category—may simply be unable to invest in

improved aircraft systems regardless of the potential compensating benefits. Using

the second option—operating restrictions—to coerce compliance is not a good choice

because such mechanisms work by degrading the operating environment for those

less advantaged, increasing their costs and as a result perpetuating the disparity.

Moreover, selective restrictions tend to disadvantage those who are least able to afford it, e.g. smaller commercial operators providing service to remote and underserved localities, and general aviation.

The third option, Government mandate, is the only 100 percent effective approach. But in the current economic environment, with the equivalent of one-third

the U.S. commercial airline fleet in mothballs and one quarter of commercial airline

capacity operating in bankruptcy, a mandate to equip with expensive new avionics

could precipitate or accelerate liquidation of major aviation companies. For reasons

stated previously in connection with aid to financially distressed airlines, the Air

Traffic Control Association urges the Administration and Congress to consider making updated aircraft avionics an integral part of federally funded NAS modernization projects. This approach assures that necessary technologies will reliably be deployed congruent with corresponding new FAA systems. And in this way, safety and

operating efficiency of the National air transportation system will be maximized

without risking widespread collapse of the aviation industry. We also would ask that

Members of transportation authorizing and appropriations committees collaborate

with their colleagues to enact legislation that would enable corresponding equipage

of military, homeland security and government aircraft.

AIRPORTS FUNDING NEEDS A BOOST

The Administration proposes to continue into the future the current AIR–21 annual amount of $3.4 billion for Airport Grants. This level of support should be increased.

The Airports Council International—North America estimates that the actual average annual cost of airport capital development for the years 2003–2006 has grown

to $15 billion. Although Federal AIP is not intended to pay all the capital costs of

airport improvements, since 2000 when AIR–21 was enacted, and especially since

the events of 9/11, airport need for federal funding has increased significantly. On

the one hand, because airport revenues are largely tied to traffic levels, income is

down drastically since the terrorist attacks and initiation of military action in Afghanistan and Iraq. On the other hand, costs are way up. Approximately two-thirds

of airport capital spending is for new runways and other facilities to accommodate

future growth. Most of this work already is underway, and contract requirements

including schedules of expenditures are firm. The other one third is used to preserve

existing infrastructure and maintain compliance with standards—also non-discretionary expenditure. Neither of these categories of expenses fluctuates downward

with traffic counts. Meanwhile, airports are facing significant new security costs

such as terminal modifications to accommodate large baggage screening machines,

stepped up grounds and terminal security including more personnel, and enhanced

access system technology. And, we foresee that increasing reliance on point-to-point

versus connecting passenger service will accelerate the need for improvements at

airports heretofore not anticipating significant growth. If Federal funding is continued only at the AIR–21 level, the national system of airports will continue to fall

behind the power curve. To support recovery of the air transport industry, the Federal Government must significantly increase—not merely continue—its contribution

toward expansion and improvement of the Nation’s airports.

AVIATION RESEARCH MUST BE REINVIGORATED

Fourth, and perhaps most important for the future of U.S. aviation, the level of

effort of FAA RE&D must be increased four- to five-fold—that is, $400 to $500 million per year.

The Administration proposes a funding amount of $100 million for this function.

This is $25 million less than the fiscal year 2003 enacted amount, and one half the

amount approved in fiscal year 2002. This funding trend reflects an alarming deterioration in commitment of the Federal Government to maintaining the United

States on the global forefront of aviation and aeronautical science and industry. The

Administration’s fiscal year 2004 proposal is paltry by any standard, and if approved as requested will sound the death knell for any notion of an independent
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FAA R&D capability related to air traffic control. (ATC efficiency research is ‘‘zeroed

out’’ in the fiscal year 2004 proposal.) In today’s ‘‘bottom line’’ business environment,

and especially with the economy in recession, private industry cannot be counted

on to fill the void.

If the United States is going to continue being the world leader in aviation and

aerospace technology, it is long past time to renew the Nation’s financial commitment to the government-sponsored research programs needed to make that happen.

This means multiplying by four or five times the amount of money now going each

year to FAA RE&D. It also means generously supporting all manner of research

being conducted by NASA as well. Although NASA’s activities cannot substitute for

a vigorous, well-funded FAA RE&D capability, in some areas of research it offers

expertise and research resources that increasingly complement those of FAA and

support FAA’s mission and objectives. However, the breadth of appropriate FAA

RE&D goes well beyond NASA and DOD’s interests, and should not be dismissed.

DEVELOPING A VISION OF THE FUTURE AIR TRANSPORTATION SYSTEM

Important for the future will be a Government-wide, interagency activity to coordinate aviation and aerospace requirements both existing and for the future, define research needs and applications for the next generation air traffic management

system, and assemble a unified budget report covering all aviation system funding

needs. Government-wide planning will allow various organizations to share knowledge and facilities, avoid duplication of effort, and leverage resources through joint

and cooperative activities. The Department of Transportation should lead the coordination activity, with the Departments of Defense, Commerce, and Homeland Security, and FAA and NASA participating. As part of this effort, FAA should undertake

to define the next generation air traffic management plan for the United States,

with involvement of all private sector aviation stakeholders, members of the public,

and government agencies with relevant missions.

Senate bill S. 788, the ‘‘Second Century of Flight Act’’, sponsored by Senators Hollings, Brownback, Rockefeller, Inouye, Cantwell and Kerry provides an excellent

framework for just such a Government-wide collaboration to enable the United

States to maintain its leadership in aeronautics and aviation. The bill would establish and fund in DOT an ‘‘Office of Aerospace and Aviation Liaison’’ to lead the

interagency coordination activity, and create in the FAA a ‘‘National Air Traffic

Management System Development Office’’ responsible for developing a next generation air traffic system plan for the United States in collaboration with other organizations having an aviation mission. S. 788 also would authorize for FAA RE&D expenditures $289 million in fiscal year 2004, $304 million in fiscal year 2005, and

$317 million in fiscal year 2006. These amounts are less than ATCA advocates, but

a good start nonetheless. The Air Traffic Control Association supports the principles

stated in S. 788, and urges Congress to enact the legislation.

CONCLUSION

Terrorism, war, and economic uncertainty have exacted a significant toll on air

transportation enterprises around the world, especially in the United States where

air carrier aircraft were hijacked to be the instruments of attack. Among sectors of

the Nation’s economy, aviation has paid more than its share of the price of those

sad events. The lasting financial and market impacts are presenting a serious challenge for the United States in maintaining a leadership role in air transportation

and aerospace technology, working together with other nations to achieve a safe, secure, efficient, capable, seamless global air transportation system. With the full support of the Administration and Congress, however, the United States can retain

rather than relinquish its stature in the world aviation community, and continue

to apply the fruits of its efforts in partnership with other nations toward the betterment of air transportation around the world.

To that end, the Air Traffic Control Association urges Congress to assure a robust

and reliable funding stream for operations, maintenance, and modernization of the

National Airspace System, and to initiate under the leadership of the Department

of Transportation and fully fund a government-wide Federal aviation and aerospace

research and development capability to support the air traffic management system

envisioned for the future. Together we must prepare for the future, rather than

react to the past.
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MATERIAL SUBMITTED SUBSEQUENT TO

CONCLUSION OF HEARINGS

[CLERK’S NOTE.—The following statement was not presented by

the publication date of Nondepartmental Statements, but was submitted to the subcommittee for inclusion in the record:]

PREPARED STATEMENT OF GERARD J. REIS, PRESIDENT, STRATEGIC TECHNOLOGY

ENTERPRISES, INC.

The committee has long recognized and maintained that cabin air quality is an

important safety issue for passengers and aircrew, and has pursued actions to support research, development, and implementation of measures that would advance

the capability to mitigate against the threats posed by biological and chemical contaminants. The committee’s interest in these issues is well placed, not only because

of the potential risks and dangers that passengers and aircrew may face during routine flight operations, but also because of the safety issues that may occur as consequences of terrorist activity. Particularly in light of the SARS outbreak, the entire

issue of cabin air quality, contamination, and decontamination has now taken on an

added dimension of significance and urgency.

The recent outbreak of SARS highlights the dangers that passengers and aircrew

may encounter from both intentional and unintentional release of biological and

chemical contaminants, particularly in an aviation or in-flight environment. Although SARS may be a relatively simple virus within the context of biological contaminants, its presence and cross-border transmission alerts us to the potential dangers that might accompany biological and chemical contamination of aircraft and

aviation assets.

In addition to the immediate dangers posed to passengers and aircrew, we must

consider the potential impacts that intentional release of biological and chemical

contaminants would have on the air transportation network and the airline industry. A contaminated or suspect-contaminated aircraft, filled with passengers, would

present significant challenges for the Federal Government and the various airport

authorities, and disruptions to the network. Further, there is not at present a system, procedure, or capability to process contaminated passengers and aircrew, nor

is there a system, procedure, or capability to decontaminate an aircraft and return

it to service. The committee understands these challenges and has actively pursued

the development of capabilities and systems to overcome the challenges and ensure

the safety of passengers and aircrew.

The Flight-100—Century of Aviation Flight Reauthorization Act as submitted

(H.R. 2115) directs the Administrator of the Federal Aviation Administration (in

Sec. 425) to perform, at a minimum, only three of the activities called for in the

report of the National Research Council (NRC) entitled ‘‘The Airliner Cabin Environment and the Health of Passengers and Crew.’’ The three activities specified in

the submission would involve study and analysis, which, albeit important, would not

prepare us to respond quickly and effectively to an intentional or unintentional release of biological and chemical contaminants. Nor would the provisions of the submitted draft legislation develop a system, procedure, or capability to process contaminated passengers and aircrew, or decontaminate an aircraft and return it to

service.

These are all serious deficiencies in the draft legislation. However, the safety of

passengers and aircrew, and the need to decontaminate passengers, aircrew, and

aircraft, were extensively discussed in the NRC report and in the FAA’s subsequent

response to the NRC recommendations. For example, the Airliner Cabin Environment Report Response Team of the FAA developed a series of recommended actions

to implement the recommendations in the NRC report. These recommended actions

were submitted to the FAA Administrator by the Associate Administrator for Regulation and Certification.
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1DOT 22–03, ‘‘Flight-100 FAA Authorization Proposal Charts New Century of Safer, More Efficient Aviation.’’ Office of Public Affairs, U.S. Department of Transportation, March 25, 2003. 2McDonnell, Gerald, George Grignal and Kathy Antloga. Dairy, Food and Environmental

Sanitation, November 2002, pp. 868–873.

A Chemical/Biological Threat Mitigation Proposal was developed within FAA as

a safety initiative that would address two compelling recommendations of the NRC

report. These two NRC recommendations, which are ignored in the draft legislation,

support a requirement to develop immediately a system, procedure, and capability

to process contaminated passengers and aircrew, and to decontaminate aircraft.

Technologies and capabilities are needed now to address cabin air quality and

chemical/biological threat mitigation, especially for decontaminating exposed passengers and crew and returning contaminated aircraft to service with minimum disruption to the air traffic network. The Chemical/Biological Threat Mitigation Proposal reflects this urgency. The strong recommendation was made for funding this

activity at $4.74 million in fiscal year 2004 and $6.36 million in fiscal year 2005.

However, despite the FAA’s public announcement1 that Flight-100 provides a substantial investment in safety research, Chemical/Biological Threat Mitigation is not

funded in the draft legislation. The committee should consider authorizing these

funds specifically for this safety program, in addition to the funds requested by the

Administration.

Given the quickly-changing and serious nature of terrorist threat conditions, the

deficiencies in capabilities that have been illustrated in the SARS outbreak and in

various preparedness exercises, and considering the set of dangers inherent in routine operations and encompassed in the subject of cabin air quality, there appears

to be more than a compelling, urgent need to fund Chemical/Biological Threat Mitigation.

As envisioned by FAA AVR, the technology and systems needed to perform decontamination are potentially common to cabin air quality functions. By funding Chemical/Biological Threat Mitigation, the committee would advance both cabin air quality and decontamination. In any case, a genuine safety need exists to put in place

capabilities that would address decontamination of passengers, crew, and aircraft.

We cannot afford to wait for an incident to begin development of these capabilities.

The impressive, demonstrated efficacy of Vaporized Hydrogen Peroxide (VHP) in

patented technologies developed by STERIS Corporation presents the aviation community with a proven-effective approach for mitigating both chemical and biological

threats, as well as potentially significant applications in cabin air quality for routine

operations. STERIS’s proprietary technologies have been universally recognized as

the standard in the pharmaceutical and health care industries for the past 10 years

as highly effective and economical systems for decontaminating and sterilizing both

environments and equipment. In addition, VHP technology can perform prophylaxis

decontamination without damaging the surfaces where the technology is employed

or items on those surfaces, including sophisticated electronic components. Further,

VHP has already demonstrated in two high profile anthrax contamination incidents

that its potential for application in biological decontamination situations is highly

significant.

Published reports of this technology’s efficacy are available and three are attached. These include ‘‘Vapor Phase Hydrogen Peroxide Decontamination of Food

Contact Surfaces,’’2 ‘‘Room Decontamination with Hydrogen Peroxide Vapor’’ and

‘‘Room Decontamination with Vaporized Hydrogen Peroxide (VHP®) for Environmental Control of Mouse Parvovirus.’’ These reports and other literature in the public domain illustrate the potential for near-immediate aviation safety applications.

The demonstrated performance of VHP®, particularly in challenging, complex

contamination situations, affords our Nation in general and the aviation community

in particular a well-developed technology that can be applied to aircraft safety

issues quickly and efficiently within the program described in the Chemical/Biological Threat Mitigation Proposal.
(i)

LIST OF WITNESSES, COMMUNICATIONS, AND

PREPARED STATEMENTS

Page

Air Traffic Control Association, Inc., Prepared Statement of the ........................ 319

American:

Passenger Rail Coalition, Prepared Statement of the ................................... 316

Public Transportation Association, Prepared Statement of the ................... 311

Bennett, Hon. Robert F., U.S. Senator from Utah, Statement of ........................ 46

Blakey, Marion C., Administrator, Federal Aviation Administration, Department of Transportation ........................................................................................ 1

Biographical Sketch of ..................................................................................... 12

Prepared Statement of ..................................................................................... 8

Questions Submitted to .................................................................................... 59

Statement of ...................................................................................................... 5

Brownback, Hon. Sam, U.S. Senator from Kansas:

Prepared Statement of ..................................................................................... 124

Questions Submitted by ................................................................................... 170

Statement of ...................................................................................................... 138

Byrd, Hon. Robert C., U.S. Senator from West Virginia:

Questions Submitted by ................................................................................... 171

Statement of ...................................................................................................... 191

California Industry and Government Central California Ozone Study (CCOS)

Coalition, Prepared Statement of the ................................................................. 315

Campbell, Hon. Ben Nighthorse, U.S. Senator from Colorado, Statements

of........................................................................................................................ 123, 225

Coalition of Northeastern Governors, Prepared Statement of the ...................... 308

Durbin, Hon. Richard J., U.S. Senator from Illinois, Questions Submitted

by......................................................................................................................... 69, 172

Grams, Todd, Chief Financial Officer, Internal Revenue Service, Department

of the Treasury ..................................................................................................... 73

Hamilton, Wendy J., National President, Mothers Against Drunk Driving ....... 242

Prepared Statement of ..................................................................................... 248

Questions Submitted to .................................................................................... 291

Hurley, Charles, Vice President, National Safety Council ................................... 254

Prepared Statement of ..................................................................................... 256

Questions Submitted to .................................................................................... 296

McLean, Donna, Assistant Secretary of Transportation for Budget, Department of Transportation ........................................................................................ 119

Mead, Kenneth M., Inspector General, Office of the Inspector General, Department of Transportation ................................................................................. 13

Prepared Statement of ..................................................................................... 16

Mikulski, Hon. Barbara A., U.S. Senator from Maryland, Questions Submitted by ............................................................................................................ 69, 111

Mineta, Norman Y., Secretary, Department of Transportation ........................... 119

Prepared Statement of ..................................................................................... 127

Statement of ...................................................................................................... 125
Page

ii

Murray, Hon. Patty, U.S. Senator from Washington:

Opening Statements of ........................................................... 3, 75, 121, 177, 221

Prepared Statement of ..................................................................................... 223

Questions Submitted by............................................. 63, 103, 276, 288, 293, 298

National Association of Railroad Passengers, Prepared Statement of the ......... 301

People for the Ethical Treatment of Animals (PETA), Prepared Statement

of the ..................................................................................................................... 306

Railway Supply Institute, Inc., Prepared Statement of the ................................. 318

Reis, Gerard J., President, Strategic Technology Enterprises, Inc., Prepared

Statement of ......................................................................................................... 325

Ressel, Teresa Mullet, Acting Assistant Secretary, Management and Budget,

Office of the Secretary, Department of the Treasury ........................................ 175

Runge, Jeffrey W., M.D., Administrator, National Highway Traffic Safety

Administration, Department of Transportation ................................................ 221

Prepared Statement of ..................................................................................... 228

Statement of ...................................................................................................... 226

Sandberg, Annette, Acting Administrator, Federal Motor Carrier Safety Administration, Department of Transportation ..................................................... 235

Prepared Statement of ..................................................................................... 237

Shane, Jeffrey N., Under Secretary for Policy, Office of the Secretary, Department of Transportation ........................................................................................ 29

Prepared Statement of ..................................................................................... 32

Questions Submitted to .................................................................................... 70

Shelby, Hon. Richard C., U.S. Senator from Alabama:

Opening Statements of .................................................................... 1, 73, 119, 175

Prepared Statement of ..................................................................................... 224

Questions Submitted by...................... 59, 70, 96, 150, 213, 270, 284, 291, 296

Snow, Hon. John, Secretary, Office of the Secretary, Department of the Treasury ......................................................................................................................... 175

Prepared Statement of ..................................................................................... 180

Statement of ...................................................................................................... 179

Specter, Hon. Arlen, U.S. Senator from Pennsylvania:

Question Submitted by ..................................................................................... 169

Statement of ...................................................................................................... 193

Stevens, Hon. Ted, U.S. Senator from Alaska:

Questions Submitted by ................................................................................... 102

Statement of ...................................................................................................... 148

University Corporation for Atmospheric Research, Prepared Statement

of the ..................................................................................................................... 309

Wenzel, Robert E., Acting Commissioner, Internal Revenue Service, Department of the Treasury ........................................................................................... 73

Prepared Statement of ..................................................................................... 78

Statement of ...................................................................................................... 76
(iii)

SUBJECT INDEX

DEPARTMENT OF THE TREASURY

INTERNAL REVENUE SERVICE

Page

Building on a Good Foundation .............................................................................. 78

Business Systems Modernization.................................................................. 87, 94, 113

Campus Consolidation ............................................................................................. 93

Compliance ............................................................................................................... 81

Continued Investment in Business Systems Modernization (∂65 Million and

0 FTE) ................................................................................................................... 83

Customer Service ..................................................................................................... 93

Earned Income Tax Credit ...................................................................................... 89

Electronic Filing ...................................................................................................... 85, 97

Excise Tax Calculation ............................................................................................ 102

Fiscal Year 2004 Resource Request ....................................................................... 80

Free File Initiative .................................................................................................. 86

Has the IRS Improved its Customer Service? ....................................................... 108

Impact of Unforeseen Costs on Staffing Levels ..................................................... 84

IRS:

Financial Management .................................................................................... 111

Free File Initiative ........................................................................................... 92

Modernization ................................................................................................... 109

On Privatizing Tax Collection ......................................................................... 111

Modernization .......................................................................................................... 99

Modifications to the IRS Restructuring and Reform Act of 1998 (RRA 98) ........ 85

Offers in Compromise .............................................................................................. 95

Private Collection Agencies .................................................................................. 88, 100

Public Employees Retirement Systems Ruling ..................................................... 102

Reinvestments .......................................................................................................... 82

Security ..................................................................................................................... 96

Should the IRS be Allowed to Use Private Collection Agencies (PCAs) to

Help Collect Delinquent Tax Debts? .................................................................. 104

Will the IRS Try to Increase Earned Income Tax Credit (EITC) Participation? ....................................................................................................................... 103

OFFICE OF THE SECRETARY

Accounting Profession and Capitalism .................................................................. 199

Byrd Amendment ..................................................................................................... 211

Debt Limit ................................................................................................................ 206

Deficits ...................................................................................................................... 203

Departmental Offices ............................................................................................... 213

Earned Income Tax Credit (EITC)..................................................................... 186, 187

Economic Sanctions Against Iraq ........................................................................... 200

Economy ...................................................................................................... 193, 196, 210

Ensuring the Tax System is Fair for All Through a Comprehensive Compliance Effort ............................................................................................................ 181

Establishment of a Central Bank in Iraq .............................................................. 209

Executive Office for Terrorist Financing and Financial Crimes .......................... 186

Extraterritorial Income (ETI) ................................................................................. 190

FinCEN ..................................................................................................................... 215

Flat Tax .................................................................................................................... 196

Foundation for Success—The President’s Management Agenda ......................... 184

Global Economies ..................................................................................................... 199
Page

iv

Internal Revenue Service ........................................................................................ 215

Maintaining the Integrity of Our Nation’s Financial Systems and Safeguarding Our Nation’s Currency ........................................................................ 183 New $20 Bill ............................................................................................................. 208

President’s Tax Package ......................................................................................... 185

Private Collection Agencies ..................................................................................... 191

Privatization of Tax Collections .............................................................................. 195

Providing Economic Security, Jobs, and Growth .................................................. 181

Rebuilding Iraq ........................................................................................................ 202

Restructuring Treasury ........................................................................................... 184

Serving a Critical Role in the Financial War Against Terrorism ........................ 182

Tax:

Bill ..................................................................................................................... 203

Cut ..................................................................................................................... 194

Terrorist Financing .................................................................................................. 207

U.S. Currency Circulation in Iraq .......................................................................... 209

DEPARTMENT OF TRANSPORTATION

Additional FTE’s ...................................................................................................... 154

Adoption of Safety Countermeasures ..................................................................... 156

Airline Industry Subsidies ...................................................................................... 148

Airport Competition ................................................................................................. 142

Amtrak ........................................................................................................ 126, 132, 133

Reform Proposal ............................................................................................... 150

Areas Currently Eligible for CMAQ Funding ........................................................ 160

ASR–11 ..................................................................................................................... 137

‘‘At-Risk’’ Mega Projects .......................................................................................... 166

Aviation .................................................................................................................... 131

Industry ............................................................................................................. 138

Related Research .............................................................................................. 139

Border Planning, Operation and Technology Program ......................................... 160

Colorado Blood-Alcohol Standards ......................................................................... 137

Commercial Passenger Aircraft Fuel Tank Safety ................................................ 169

Competitive Sourcing .............................................................................................. 171

Congestion Mitigation ............................................................................................. 159

Context Sensitive Solutions .................................................................................... 165

Ecosystem and Habitat Conservation Initiatives .................................................. 163

Environmental Streamlining .................................................................................. 167

FAA Operational Errors .......................................................................................... 142

Federal Aviation Administration Reauthorization ............................................... 132

Fiscal Year 2004 Funding Request for Amtrak .................................................... 172

FTE Distribution ..................................................................................................... 168

Highway:

Performance and Maintenance Initiative (IPAM) .......................................... 153

Reauthorization ................................................................................................ 129

Related Fatalities ............................................................................................. 152

Safety Initiatives .............................................................................................. 150

Hours of Service ....................................................................................................... 136

Improving Pavement Ride Quality ......................................................................... 153

Infrastructure and Performance Maintenance Initiative................................. 131, 150

Intelligent Vehicle Initiative ................................................................................... 155

Intersection Safety ................................................................................................... 158

Maritime Administration Title XI Program .......................................................... 141

Mega Projects Oversight ......................................................................................... 165

New Entrant Program ............................................................................................. 141

Overseas Repair Facilities ...................................................................................... 173

Patriot Act ................................................................................................................ 153

Pedestrian and Bicyclist Safety at Intersections .................................................. 158

Reauthorization of Surface and Aviation Programs ............................................. 126

Requirements for Amtrak to Receive Federal Subsidy ......................................... 153

S. 788 Century of Flight Act ................................................................................... 171

Ship Disposal ........................................................................................................... 151

Short Line Railroads ............................................................................................... 170

Small Community Air Service ................................................................................ 173

Sound Transit .......................................................................................................... 135

Southern Border ...................................................................................................... 148

SR 210/Foothill Freeway Additional FTE .............................................................. 167
Page

v

State:

Spending on Hazard Elimination Projects ..................................................... 157

Strategic Highway Safety Plans ...................................................................... 159

Strategic Highway Network .................................................................................... 165

The Administration’s Vision for Intercity Passenger Rail .................................... 172

Tracking of Hazardous Material ............................................................................ 149

Transit Reauthorization .......................................................................................... 147

Truck Monitoring ..................................................................................................... 148

Upgrading and Protecting the Existing Information Resource Management

Infrastructure ....................................................................................................... 169

FEDERAL AVIATION ADMINISTRATION

A Safer, Simpler, Smarter and More Business-like FAA ..................................... 11

ACE–IDS .................................................................................................................. 69

Aerospace Commission ............................................................................................ 63

AIP and Security Related Funding ........................................................................ 55

Air Traffic:

Control as a Commercial Activity ................................................................... 65

Modernization ................................................................................................... 68

Airport(s):

Improvement Program ..................................................................................... 66

Which Will Benefit from New Runways ......................................................... 70

Aviation Trust Fund Reductions ............................................................................ 63

Budget ....................................................................................................................... 9

Capacity .................................................................................................................... 7

Building ............................................................................................................. 49

Carrier Safety Oversight ......................................................................................... 64

Chief Operating Officer ........................................................................................... 63

Controller Retirements ............................................................................................ 63

Cost Accounting System .......................................................................................... 62

Environmental Review Process For:

Airport Projects ................................................................................................. 66

Capacity Projects .............................................................................................. 59

FAA’s Oversight of Foreign Repair Stations ......................................................... 58

Financial Management and Costs Control ............................................................ 7

Fiscal Year 2004 Budget Request .......................................................................... 5

Graphic Advisories for General Aviation Pilots .................................................... 67

Most Important Air Traffic Control Projects ......................................................... 54

Oceanic Air Traffic ................................................................................................... 61

Operational:

Efficiency in the NAS ....................................................................................... 69

Errors and Runway Incursions ....................................................................... 62

Evolution Plan .................................................................................................. 41

Oversight of Foreign and Domestic Repair Stations ............................................ 64

Performance-Based Pay System ............................................................................. 8

Reauthorization ........................................................................................................ 9

Proposal ............................................................................................................. 5

Repair Stations ........................................................................................................ 58

Revision of the Operational Evolution Plan .......................................................... 65

Rising Operating Costs ........................................................................................... 42

Safer, Simpler, Smarter .......................................................................................... 9

Safety ........................................................................................................................ 6

San Juan County’s Airspace Frequency ................................................................ 67

Status of the ASR–11 Radar and Stars ................................................................. 65

Wake Turbulence Research ..................................................................................... 62

Working Group on the Airline Industry’s Financial Crisis .................................. 69

FEDERAL MOTOR CARRIER SAFETY ADMINISTRATION

Additional Committee Questions ............................................................................ 284

Commercial Drivers License (CDL) Grants ........................................................... 239

HAZMAT Safety and Security ................................................................................ 238

Household Goods Enforcement ............................................................................... 239

Medical Programs .................................................................................................... 240

New Entrant Program ............................................................................................. 237

Organizational Excellence ....................................................................................... 240

Regulatory Development ......................................................................................... 239
Page

vi

Southern Border Enforcement ................................................................................ 238

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION

Additional Committee Questions ............................................................................ 270

Blue Ribbon Commission on Highway Safety ....................................................... 283

Budget Reductions in Impaired Driving Program ................................................ 265

Child Safety Seats ................................................................................................... 274

Coordinated Governmental Effort to Fight Drunk Driving ................................. 281

Crash Causation ...................................................................................................... 280

Diverting Impaired Driving Funds ........................................................................ 267

Emergency Vehicle:

Crash Avoidance Technologies ........................................................................ 264

Sensors .............................................................................................................. 263

Flexibility and Accountability ................................................................................. 268

High Visibility Enforcement for Impaired Driving ............................................... 263

Highway Safety:

Grant Funding Levels ...................................................................................... 272

Initiatives .......................................................................................................... 272

Impaired Driving ..................................................................................................... 273

Increase of Alcohol-Related Fatalities .................................................................... 279

Motorcycle:

Fatalities ........................................................................................................... 262

Fatality Increases ............................................................................................. 277

NHTSA Efforts to Improve SUV Safety/Reducing Rollovers and Aggressivity .. 282

NHTSA’s:

‘‘Checkpoint Strikeforce’’ Campaign ................................................................ 280

Oversight of State Safety Programs ............................................................... 279

Paid Advertising Program ............................................................................... 277

Occupant Protection ................................................................................................ 274

Program Highlights ................................................................................................. 230

Reauthorization Proposal Effect on Impaired Driving Program .......................... 266

Safety Belts .............................................................................................................. 272

Share the Road ........................................................................................................ 276

State Data Accountability ....................................................................................... 267

Steps NHTSA is Taking to Improve Vehicle Blind Spots .................................... 282

Top Priorities for NHTSA and FMCSA’s Safety Regulatory Agenda .................. 281

OFFICE OF THE INSPECTOR GENERAL

AIP Spending ........................................................................................................... 57

Aviation Safety ......................................................................................................... 28

Building Aviation System Capacity and More Efficient Use of Airspace to

Prevent a Repeat of the Summer of 2000 .......................................................... 26

Controller-In-Charge Program and Operational Errors ....................................... 56

General State of FAA .............................................................................................. 19

Making FAA a Performance-Based Organization Through Controlling Costs

in Operations and Major Acquisitions ................................................................ 22

Rising Operating Costs ........................................................................................... 42

Service to Small and Medium Sized Communities ............................................... 19

Stars and Other Programs’ Cost Growth ............................................................... 57

State of the Airline Industry .................................................................................. 17

Striking a Balance Between How Airport Funds Will Pay for Capacity and

Security Initiatives ............................................................................................... 27

OFFICE OF THE SECRETARY

Administration’s:

Position on Airline Aid ..................................................................................... 53

Representative .................................................................................................. 50

Airline Industry ....................................................................................................... 48

Business Travelers .................................................................................................. 47

FAA Management of Procurement ......................................................................... 70

Government Intervention ........................................................................................ 51

Post-9/11 Impact on Aviation Industry .................................................................. 44

Reimbursement to the Carriers .............................................................................. 40

Relief:

Package for Aviation Industry ......................................................................... 42

To the Airline Industry .................................................................................... 40
Page

vii

Role of the Office of the Secretary in FAA Matters .............................................. 70

Supplemental Appropriations Act .......................................................................... 45

The Future of the U.S. Aerospace Industry .......................................................... 71

TSA ........................................................................................................................... 48

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