GAO

United States General Accounting Office

Report to the Congress

March 2001 SUPPORTING 

CONGRESSIONAL 

OVERSIGHT

Framework for 

Considering 

Budgetary 

Implications of 

Selected GAO Work

GAO-01-447

Page 1 GAO-01-447 Supporting Congressional Oversight

Contents

Letter 7

Appendixes Appendix I: Opportunities to Reassess Objectives of

Federal Programs 12

Reduce the Number of Carrier Battle Group Expansions and

Upgrades 14

Limit Commitment to Production of the F-22 Fighter Until

Operational Testing is Complete 16

Reassess the Army’s Comanche Helicopter Program 19

Eliminate or Retask Dedicated Continental Air Defense Units 22

Reassess the Army’s Crusader Program 24

Reassess the Need for the Selective Service System 26

Eliminate U.S. Contributions to Administrative Costs in Rogue 

States 28

Continue Oversight of the International Space Station and Related 

Support Systems 30

Corporatize or Divest Selected Power Marketing Administrations 32

Monitor Department of Energy’s Strategic Computing Initiative and 

Supercomputer Utilization 36

Rescind Clean Coal Technology Funds 38

Terminate Land-Exchange Programs 40

Defer Fish and Wildlife Service’s Acquisition of New Lands 42

Deny Additional Funding for Commercial Fisheries Buyback 

Programs 44

Terminate or Significantly Reduce the Department of 

Agriculture’s Market Access Program 46

Eliminate the Pulsed Fast Neutron Analysis Inspection System 49

Restructure Amtrak to Reduce or Eliminate Subsidies 51

Adequacy of Management Controls and Affordability of the Coast

Guard Deepwater Project 54

Eliminate Cargo Preference Laws to Reduce Federal 

Transportation Costs 56

Improve Fairness of Medicaid Matching Formula 58

Reassess Medicare Incentive Payments in Health Care Shortage

Areas 60

Develop Comprehensive Return-to-Work Strategies for People With 

Disabilities 63

Revise Benefit Payments Under the Federal Employees’

Compensation Act 66

Increase Congressional Oversight of PBGC’s Budget 73
Contents

Page 2 GAO-01-447 Supporting Congressional Oversight

Revise VA’s Disability Ratings Schedule to Better Reflect Veterans’ 

Economic Losses 75

Repeal the Davis-Bacon Act 77

Tax Interest Earned on Life Insurance Policies and Deferred 

Annuities 80

Further Limit the Deductibility of Home Equity Loan Interest 82

Appendix II: Opportunities to Redefine Beneficiaries of

Federal Programs 84

Reduce the Risk Assumed by Export-Import Bank Programs 86

Recover Power Marketing Administrations’ Costs 89

Reduce Department of Energy’s Contractors’ Separation Benefits 93

Exempt Department of Energy’s Operating Contractors from 

Certain State Taxes 95

Increase Nuclear Waste Disposal Fees 97

Recover Federal Investment in Successfully Commercialized

Technologies 99

Revise the Mining Law of 1872 101

Coordinate Federal Policies for Subsidizing Water for Agriculture 

and Rural Uses 103

Lowering the Sugar Program’s Loan Rate To Processors 106

Recapture Interest on Rural Housing Loans 108

Require Self-Financing of Mission Oversight by Fannie Mae and 

Freddie Mac 110

Increase Aircraft Registration Fees to Enable the Federal Aviation 

Administration to Recover Actual Costs 112

Limit Eligibility for Federal Emergency Management Agency Public 

Assistance 114

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 

Greatest Flood Loss 116

Eliminate Flood Insurance for Certain Repeatedly Flooded 

Properties 118

Charge Beneficiaries for Food Inspection Costs 120

Implement Risk-Based Meat and Poultry Inspections at USDA 122

Prevent States from Using Illusory Approaches to Shift Medicaid 

Program Costs to the Federal Government 124

Design New Payment System So That Medicare Does Not Overpay 

for Home Health Care 127

Share the Savings From Bond Refundings 129

Implement a Service Fee for Successful Non-Temporary Assistance 

for Needy Families (TANF) Child Support Enforcement 

Collections 131
Contents

Page 3 GAO-01-447 Supporting Congressional Oversight

Improve Reporting of DOD Reserve Employee Payroll Data to 

State Unemployment Insurance Programs 133

Discontinue Veterans’ Disability Compensation for Nonservice

Connected Diseases 136

Increase Cost Sharing for Veterans’ Long-Term Care 138

Limit Enrollment in Veterans Affairs Health Care System 140

Prevent Delinquent Taxpayers From Benefiting From Federal 

Programs 142

Target Funding Reductions in Formula Grant Programs 144

Adjust Federal Grant Matching Requirements 149

Limit the Tax Exemption for Employer-Paid Health Insurance 152

Repeal the Partial Exemption for Alcohol Fuels from Excise 

Taxes on Motor Fuels 154

Index Excise Tax Bases for Inflation 156

Increase Highway User Fees on Heavy Trucks 158

Impose Pollution Fees and Taxes 160

Appendix III: Opportunities to Improve the Efficiency of 

Federal Programs 162

Consolidate Military Exchange Stores 166

Assign More Air Force Bombers to Reserve Components 169

Reorganize C-130 and KC-135 Reserve Squadrons 172

Eliminate Unneeded Naval Materials and Supplies Distribution 

Points 174

Acquire Conventionally Rather than Nuclear-Powered Aircraft 

Carriers 176

Improve the Administration of Defense Health Care 179

Reassess the Most Cost-Effective Ways for VA and DOD to Share 

Health Care Resources 181

Continue Defense Infrastructure Reform 183

Limit Funding for Procurement of Antiarmor Weapons 188

Improve State Department Business Processes 190

Streamline U.S. Overseas Presence 193

Reduce the Costs of the Rural Utilities Service’s Electricity 

and Telecommunications Loan Programs 196

Consolidate or Eliminate Department of Energy Facilities 198

Improve Oversight of Superfund Administrative Expenditures to 

Better Identify Opportunities for Cost Savings 201

Reassess Federal Land Management Agencies’ Functions and

Programs 203

Increase Flexibility in ATSDR’s Health Assessment Process to 

Better Meet EPA’s Needs in Evaluating Superfund Sites 206
Contents

Page 4 GAO-01-447 Supporting Congressional Oversight

Pursue Cost-Effective Alternatives to NOAA’s Research/Survey

Fleet 208

Increase Federal Revenues Through Water Transfers 211

Strengthen Controls Over Crop Insurance Claims 213

Consolidate Common Administrative Functions at USDA 215

Further Consolidate Farm Service Agency County Offices 217

Revise the Marketing Assistance Loan Program to Better Reflect 

Market Conditions 219

Reduce FHA’s Insurance Coverage 221

Merging USDA and HUD Single-Family Insured Lending Programs 

and Multifamily Portfolio Management Programs 223

Consolidate Homeless Assistance Programs 225

Improve Department of Transportation’s Oversight of its University 

Research 227

Apply Cost-Benefit Analysis to Replacement Plans for Airport 

Surveillance Radars 229

Close, Consolidate, or Privatize Some Coast Guard Operating 

and Training Facilities 231

Improve FAA Oversight and Enforcement to Ensure Proper Use 

of General Aviation Airport Land and Revenue 233

Convert Coast Guard Support Officer Positions to Civilian Status 235

Consolidate Student Aid Programs 237

Create a Single Federal Agency to Administer a Unified Food 

Inspection System 239

Convert Public Health Service Commissioned Corps Officers to 

Civilian Status 241

Control Provider Enrollment Fraud in Medicaid 243

Adjust Medicare Payment Allowances to Reflect Changing 

Technology, Costs, and Market Prices 245

Increase Medicare Program Safeguard Funding 249

Continue to Reduce Excess Payments to Medicare+Choice 

Health Plans 253

Modify the New Skilled Nursing Facility Payment Method to Ensure 

Appropriate Payments 256

Implement Risk-Sharing in Conjunction With Medicare Home Health 

Agency Prospective Payment System 258

Improve Social Security Benefit Payment Controls 260

Simplify Supplemental Security Income Recipient Living 

Arrangements 262

Reduce Federal Funding Participation Rate for Automated Child

Support Enforcement Systems 264
Contents

Page 5 GAO-01-447 Supporting Congressional Oversight

Obtaining and Sharing Information on Medical Providers and

Middlemen May Reduce Improper Payments to Supplemental 

Security Income Recipients 266

Reassess Unneeded Health Care Assets Within the Department 

of Veterans Affairs 268

Reducing VA Inpatient Food and Laundry Service Costs 271

Consolidate Asset Forfeiture Programs at the Departments of 

Justice and Treasury 273

Replace the 1-Dollar Note With a 1-Dollar Coin 275

Eliminate Pay Increases After Separation in Calculating Lump-Sum 

Annual Leave Payments 277

Increase Fee Revenue From Federal Reserve Operations 279

Recognize Up-front the Costs of Long-Term Space Acquisitions 281

Improper Benefit Payments Could Be Avoided or More Quickly

Detected if Data From Various Programs Were Shared 284

Require Corporate Tax Document Matching 286

Improve Administration of the Tax Deduction for Real Estate Taxes 287

Increase Collection of Returns Filed by U.S. Citizens Living Abroad 289

Increase the Use of Seizure Authority to Collect Delinquent Taxes 291

Increase Collection of Self-employment Taxes 293

Increase the Use of Electronic Funds Transfer for Installment 

Tax Payments 295

Reduce Gasoline Excise Tax Evasion 297

Improve Independent Contractor Tax Compliance 299

Expand the Use of IRS’ TIN-Matching Program 301

Appendix IV: Options Listed by Budget Function 303

Appendix V: Explanation of Conventions Used to 

Estimate Savings and Revenue Gains 309

Appendix VI: Options Not Updated for This Report 310

Appendix VII: GAO Contacts and Staff Acknowledgments 312
Page 6 GAO-01-447 Supporting Congressional Oversight
Page 7 GAO-01-447 Supporting Congressional Oversight

United States General Accounting Office

Washington, D.C. 20548

Comptroller General

of the United States

Letr

March 9, 2001

To the President of the Senate and

the Speaker of the House of Representatives

As the United States enters a new century, the 107th Congress and the new 

administration face an array of challenges and opportunities to enhance the 

performance and accountability of the federal government and to position 

our country for the future. Our recently issued Performance and 

Accountability Series described those challenges and opportunities in 

(1) a governmentwide summary, (2) separate reports on 21 departments 

and agencies, and (3) a companion volume focusing on government 

operations and programs which our work has identified as “high risk” 

because of their greater vulnerabilities to waste, fraud, abuse, and 

mismanagement.1

 This report complements that series by providing a 

framework for considering the budgetary implications of certain program 

reform options discussed in past GAO work but not yet addressed or 

enacted. While this report is not intended to represent a complete summary 

of possible options, it does provide specific examples that demonstrate the 

programmatic and fiscal oversight needed as we enter the new millennium.

As we have noted in recent testimonies,2

 current budget surpluses offer an 

opportunity to consider tax cuts, debt reduction, and/or spending increases 

after years of fighting annual budget deficits. However, while the 10-year 

budget projections look better, the longer-term projections look worse 

largely due to higher expected health care costs. This serves to reinforce 

the importance of addressing the fiscal and economic long-term challenges 

arising from our Medicare and Social Security programs. Importantly, the 

availability of budget surpluses does not diminish the government’s 

responsibility to exercise continued vigilance over on-going federal 

programs. Rather, newfound surpluses provide the opportunity to shape 

the government of the 21st century by moving beyond a preoccupation with 

annual budget deficits and undertaking a fundamental reexamination of the 

legacy of existing activities and processes.

1

Performance and Accountability Series (GAO-01-241 through GAO-01-263, January 2001).

2

Managing in The New Millennium: Shaping a More Efficient and Effective Government for 

the 21st Century (GAO/T-OCG-00-9, Mar. 29, 2000) and Long-Term Budget Issues: Moving 

from Balancing the Budget to Balancing Fiscal Risk (GAO-01-385T, Feb. 6, 2001). 
Page 8 GAO-01-447 Supporting Congressional Oversight

To assist the Congress, we have developed an oversight framework that is 

intended to allow the Congress to systematically address the goals, scope 

and approaches for delivering these on-going programs. This report 

contains over 100 examples of program reforms and revisions presented 

within this oversight framework that are based on key findings from 

selected past GAO audits and evaluations. Specifically, the following three 

areas provide one potential framework for congressional oversight:

• Reassess objectives: Options for reconsidering whether to terminate or 

revise services and programs because goals have been achieved, have 

been persistently not met, or are no longer relevant due to changing 

conditions. (Appendix I)

• Redefine beneficiaries: Options for revising formulas or eligibility rules 

or improved targeting of benefits or fees. (Appendix II)

• Improve efficiency: Options to address program execution problems 

through consolidation, reorganization, improving collections methods, 

or attacking high risk activities. (Appendix III)

Since 1994, we have prepared annual reports similar to this product but 

focused principally on presenting our work solely in a budgetary context. 

In order to continue to assist congressional budget and appropriations 

committees in identifying approaches to reduce federal spending or 

increase revenues, we also have (1) organized all of the examples in the 

first three appendixes by budget function in appendix IV, and (2) included a 

specific option with each example that allows it to be placed within a 

budgetary context. Where possible, budgetary savings estimates provided 

by the Congressional Budget Office (CBO) or the Joint Committee on 

Taxation (JCT) are presented. The conventions used by CBO and JCT to 

estimate budgetary savings are dexcribed in appendix V.

The specific options described in each example are not intended to suggest 

the only way to address some of the significant problems identified in our 

reviews of federal programs and activities. Each example presents only one 

of many possible options available to the Congress, and including a specific 

option in this report does not mean that we endorse it or that the chosen 

option is the only or the most feasible approach. 
Page 9 GAO-01-447 Supporting Congressional Oversight

Lastly, appendix VI lists 16 examples and related options from our March 

20003

 report that are not included in this report. These options were not 

updated because (1) the option was fully or substantially acted upon by the 

Congress or the cognizant agency, (2) the option was no longer relevant 

due to environmental changes or the recency of our work, or (3) the 

Congress or the cognizant agency chose a different approach to address the 

issues discussed in the option. We will continue to monitor many of these 

areas to assess whether underlying issues are ultimately resolved based on 

the actions taken.

Each example in this report includes a listing of relevant GAO reports and 

testimonies and a GAO contact. Although we derived the examples in this 

report from our existing body of work, there are similarities between the 

specific options presented in this report and other proposals. For example, 

some options contained in this report have also been included in CBO’s 

annual spending and revenue options publication,4

 House and Senate 

Budget Resolution proposals, and the President’s annual budget 

submission.

We are sending copies of this report to the Chairmen and Ranking Members 

of the House and Senate Budget Committees; the Chairmen and Ranking 

Members of the Appropriations committees and relevant subcommittees; 

the Chairmen and Ranking Members of the Senate Committee on 

Governmental Affairs and the Committee on Finance; and to the Chairmen 

and Ranking Members of the House Committee on Government Reform 

and the Committee on Ways and Means. Copies will be made available to 

others upon request.

This report was prepared under the direction of Paul L. Posner, Managing 

Director, Strategic Issues, who may be reached at (202) 512-9573. Specific 

questions about individual options may be directed to the GAO contact 

3

Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal Year 2001

(GAO/OCG-00-8, Mar. 31, 2000).

4

Congressional Budget Office, Budget Options (March 2000).
Page 10 GAO-01-447 Supporting Congressional Oversight

listed with each option. Major contributors to this report are listed in 

appendix VII.

David M. Walker

Comptroller General

of the United States
Page 11 GAO-01-447 Supporting Congressional Oversight
Page 12 GAO-01-447 Supporting Congressional Oversight

Appendix I

Opportunities to Reassess Objectives of Apendxies

Federal Programs ApendxiI

This appendix describes options that fall under the first theme within our 

framework, which focuses on the objectives of federal programs or 

services. These options offer opportunities to periodically reconsider a 

program’s original purpose, the conditions under which it continues to 

operate, and whether its cost-effectiveness is appropriate. Our work 

suggests three decision rules that illustrate this strategy.

• Programs can be considered for termination if they have succeeded in 

accomplishing their intended objectives or if it is determined that the 

programs have persistently failed to accomplish their objectives.

• Programs can be considered for termination or revision when 

underlying conditions change so that the original objectives may no 

longer be valid.

• Programs can be reexamined when cost estimates increase significantly 

above those associated with original objectives, when benefits fall 

substantially below original expectations, or both.

For example, the Comanche helicopter is intended to replace the Vietnamera scout and attack helicopters that the Army considers incapable of 

meeting its existing or future requirements. However, real and probable 

development cost increases, uncertain operating and support cost savings, 

questions about the role of the Comanche compared to other more 

affordable Army helicopters, deferral of the production decision, and 

current defense budgets raise questions about the cost/benefits of this 

program. 

Reassess Objective Reduce the Number of Carrier Battle Group Expansions and Upgrades 

(050)

Limit Commitment to Production of the F-22 Fighter Until Operational 

Testing is Complete (050)

Reassess the Army’s Comanche Helicopter Program (050)

Eliminate or Retask Dedicated Continental Air Defense Units (050)

Reassess the Army’s Crusader Program (050)

Reassess the Need for the Selective Service System (050)

Eliminate U.S. Contributions to Administrative Costs in Rogue States (150)

Continue Oversight of the International Space Station and Related Support 

Systems (250)

Corporatize or Divest Selected Power Marketing Administrations (270)

Monitor Department of Energy’s Strategic Computing Initiative and 

Supercomputer Utilization (270)

Rescind Clean Coal Technology Funds (270)
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 13 GAO-01-447 Supporting Congressional Oversight

Terminate Land-Exchange Programs (300)

Defer Fish and Wildlife Service’s Acquisition of New Lands (300)

Deny Additional Funding for Commercial Fisheries Buyback Programs 

(300)

Terminate or Significantly Reduce the Department of Agriculture’s Market 

Access Program (350)

Eliminate the Pulsed Fast Neutron Analysis Inspection System (400)

Restructure Amtrak to Reduce or Eliminate Subsidies (400)

Adequacy of Management Controls and Affordability of the Coast Guard 

Deepwater Project (400)

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs 

(400)

Improve Fairness of Medicaid Matching Formula (550)

Reassess Medicare Incentive Payments in Health Care Shortage Areas 

(570)

Develop Comprehensive Return-to-Work Strategies for People With 

Disabilities (600)

Revise Benefit Payments Under the Federal Employees’ Compensation Act 

(600)

Increase Congressional Oversight of PBGC’s Budget (600)

Revise VA’s Disability Ratings Schedule to Better Reflect Veterans’ 

Economic Losses (700)

Repeal the Davis-Bacon Act (800)

Tax Interest Earned on Life Insurance Policies and Deferred Annuities 

(Receipt)

Further Limit the Deductibility of Home Equity Loan Interest (Receipt)
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 14 GAO-01-447 Supporting Congressional Oversight

Reduce the Number of 

Carrier Battle Group 

Expansions and 

Upgrades 

Aircraft carrier battle groups are the centerpiece of the Navy’s surface 

force and significantly influence the size, composition, and cost of the fleet. 

The annualized cost to acquire, operate, and support a single Navy carrier 

battle group is about $2 billion (in fiscal year 2000 dollars) and is likely to 

increase as older units are replaced and modernized. The Navy has several 

costly ongoing carrier-related programs: a nuclear-powered Nimitz-class 

carrier, the Ronald Reagan (CVN-76), is being built and the Navy plans to 

begin building the last carrier of this class in fiscal year 2001; the formal 

design process for the next generation of carriers, called the CVX class, 

began in 1996; the lead ship of the 10-ship Nimitz-class began its 3-year 

refueling complex overhaul in 1998 and subsequent class refuelings will 

follow about every 3 years; AEGIS destroyers are being procured and the 

next generation of surface combatants is being designed; and carrier-based 

aircraft are expected to be replaced/upgraded by a new generation of strike 

fighters and mission support aircraft throughout the next decade.

Our analysis indicates that there are opportunities to use less costly 

options to satisfy many of the carrier battle groups’ traditional roles 

without unreasonably increasing the risk that U.S. national security would 

be threatened. For example, one less costly option would be to rely more 

on increasingly capable surface combatants, such as cruisers, destroyers, 

or frigates, for overseas presence and crisis response. If the Congress 

chose to retire one aircraft carrier, the CVN-70, and one active air wing in 

2005, the following savings could be achieved.

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Reassess Objectives 
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 15 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Navy Carrier Battle Groups: The Structure and Affordability of the Future 

Force (GAO/NSIAD-93-74, Feb. 25, 1993).

Cruise Missiles: Proven Capability Should Affect Aircraft and Force 

Structure Requirements (GAO/NSIAD-95-116, Apr. 20, 1995).

Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 

Nuclear-Powered Carriers (GAO/NSIAD-98-1, Aug. 27, 1998).

Navy’s Aircraft Carrier Program: Investment Strategy Options 

(GAO/NSIAD-95-17, Jan. 1, 1995). 

Aircraft Acquisition: Affordability of DOD’s Investment Strategy 

(GAO/NSIAD-97-88, Sept. 8, 1997).

Surface Combatants: Navy Faces Challenges Sustaining Its Current 

Program (GAO/NSIAD-97-57, May 21, 1997).

GAO Contact Henry L. Hinton, Jr., (202) 512-5140

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from 2001 plan

Budget authority 70 170 290 900 1,930

Outlays 20 80 180 610 1,290
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 16 GAO-01-447 Supporting Congressional Oversight

Limit Commitment to 

Production of the F-22 

Fighter Until 

Operational Testing is 

Complete

The fiscal year 2001 Defense Appropriations Act provided funds for lowrate initial production of 10 F-22 aircraft, but prohibited award of a fully 

funded contract until DOD meets requirements specified in the Act. The 

Act also provided funds for advance procurement for 16 F-22s planned for 

procurement in fiscal year 2002. DOD plans to procure 24 aircraft in fiscal 

year 2003, and begin full-rate production of 36 aircraft per year beginning in 

fiscal year 2004.

In several reports over the last 6 years, GAO concluded that DOD should 

minimize commitments to F-22 production to 6 to 8 aircraft a year until 

completion of Initial Operational Test and Evaluation, now planned for the 

second quarter of fiscal year 2003. Buying production articles before they 

can be adequately tested can result in buying systems that require 

significant, and sometimes costly, modifications to achieve satisfactory 

performance; accepting less capable systems than planned; and deploying 

substandard systems to combat forces. Also, deferring a substantial 

increase in production rates until completion of Initial Operational Test and 

Evaluation will reduce the amount of needed production funding 

committed, which may be an attractive option to maintain the aircraft 

procurement budget and overall defense budget within congressional 

targets. Conversely, lower production rates could increase average 

procurement cost over the life of the program and, if the Air Force 

maintains its current plan to procure 331 production aircraft, lead to 

difficulties in completing the production program within the congressional 

cost limitation.

Low-rate initial production is planned to begin at 10 aircraft in fiscal year 

2001. To avoid the acceleration of production until completion of Initial 

Operational Test and Evaluation, low-rate initial production should be 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Account Aircraft Procurement, Air Force (57-3010)

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 17 GAO-01-447 Supporting Congressional Oversight

maintained at no more than 10 aircraft a year through fiscal year 2003. If 

the Congress were to restrict funding to no more than 10 aircraft for 2002 

and 2003, and then proceed with the planned acceleration of production to 

16 aircraft in fiscal year 2004, 24 aircraft in 2005 and 36 aircraft in fiscal 

year 2006, the following budget savings could be achieved during the next 5 

years.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Defense Acquisitions: Recent F-22 Production Cost Estimates Exceeded 

Congressional Limitation (GAO/NSIAD-00-178, Aug. 15, 2000).

Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal 

Year 2001 (GAO/OCG-00-8, Mar. 31, 2000).

F-22 Aircraft: Development Cost Goal Achievable If Major Problems Are 

Avoided (GAO/NSIAD-00-68, Mar. 14, 2000).

Defense Acquisitions: Progress in Meeting F-22 Cost and Schedule Goals 

(GAO/T-NSIAD-00-58, Dec. 7, 1999).

Fiscal Year 2000 Budget: DOD’s Procurement and RDT&E Programs 

(GAO/NSIAD-99-233R, Sep. 23, 1999).

Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal 

Year 2000 (GAO/OCG-99-26, Apr. 16, 1999).

Defense Acquisitions: Progress of the F-22 and F/A-18E/F Engineering and 

Manufacturing Development Programs (GAO/T-NSIAD-99-113, Mar. 17, 

1999).

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from 2001 plan

Budget authority 874 2,534 1,486 -784 -662

Outlays 157 823 1,554 235 -365
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 18 GAO-01-447 Supporting Congressional Oversight

F-22 Aircraft: Issues in Achieving Engineering and Manufacturing 

Development Goals (GAO/NSIAD-99-55, Mar. 15, 1999). 

1999 DOD Budget: DOD’s Procurement and RDT&E Programs 

(GAO/NSIAD-98-216R, Aug. 14, 1998).

F-22 Aircraft: Progress of the Engineering and Manufacturing Development 

Program (GAO/T-NSIAD-98-137, Mar. 25, 1998).

F-22 Aircraft: Progress in Achieving Engineering and Manufacturing 

Development Goals (GAO/NSIAD-98-67, Mar. 10, 1998).

Aircraft Acquisition: Affordability of DOD’s Investment Strategy 

(GAO/NSIAD-97-88, Sep. 8, 1997).

F-22 Restructuring (GAO/NSIAD-97-100BR, Feb. 28, 1997).

Tactical Aircraft: Concurrency in Development and Production of F-22 

Aircraft Should Be Reduced (GAO/NSIAD-95-59, Apr. 19, 1995).

Weapons Acquisition: Low-Rate Initial Production Used to Buy Weapon 

Systems Prematurely (GAO/NSIAD-95-18, Nov. 21, 1994).

Tactical Aircraft: F-15 Replacement Is Premature As Currently Planned 

(GAO/NSIAD-94-118, Mar. 25, 1994).

 GAO Contact Allen Li, (202) 512-4841
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 19 GAO-01-447 Supporting Congressional Oversight

Reassess the Army’s 

Comanche Helicopter 

Program

In 1983, the Army began the Comanche helicopter program with the intent 

of replacing the Vietnam-era scout helicopter. However, what started off as 

a replacement for Vietnam-era helicopters has changed over time to a hightechnology attack and reconnaissance helicopter. Since 1983, the program 

has been restructured five times and is still in development. The first four 

program restructures addressed concerns over affordability and changing 

requirements and led to reduced planned procurement quantities, delayed 

development and production decisions, and increased unit costs. Although 

the Army touts the Comanche as the quarterback of the digital battlefield 

and the centerpiece of its aviation modernization strategy, questions 

remain over the need for the program, the future role of unmanned aerial 

vehicles in collecting battlefield information, the level of technical risk 

remaining in the program, and its affordability. 

Some defense observers contend that unmanned aerial reconnaissance 

vehicles promise to enhance the fighting potential of the battlefield 

commander by providing immediate information about the disposition of 

enemy troop positions. Although light attack missions are part of the 

Army’s plan for the Comanche, its lethality is now expected to rival or 

surpass that of the Apache—the Army’s premiere attack helicopter. In 

addition, as the Army reduces its total helicopter fleet, it plans to increase 

the combat capabilities of the remaining fleet. For example, the Army is 

arming its scout helicopter, the Kiowa, and modifying 227 basic model 

Apaches with the Longbow system, which includes the fire control radar 

and an upgraded Hellfire missile. These actions, collectively, tend to blur 

the distinction in roles among the Army’s helicopter fleet.

As the Army’s concept for the Comanche grew over time, overall program 

costs have also grown. Total program acquisition cost is estimated at 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense 

Account Research, Development, Test and 

Evaluation, Army (21-2040)

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 20 GAO-01-447 Supporting Congressional Oversight

approximately $48 billion, with an estimated program unit cost of about 

$40 million as of June 2000. Even though the program is now in engineering 

and manufacturing development, many technical risks have been identified 

but not yet fully addressed. In addition, the program schedule is optimistic 

and unnecessarily concurrent. Because of the level of technical risks and 

the concurrent schedule, the Army’s planned start of Comanche production 

is likely to be deferred. For all of these reasons, future cost growth is likely. 

As development and production costs increase, the Comanche’s share of 

the Army’s overall aviation budget also increases. For example, the 

Comanche’s share of the total projected Army aviation budget of 

$3.3 billion for fiscal year 2008 is expected to be about 64 percent, when its 

annual production costs would be over $2 billion. The Army’s most recent 

aviation modernization plan recognizes that, because of the likelihood of 

continuing funding constraints, the start of new helicopter development 

programs has been deferred and some older helicopter fleets will be 

retired. In addition, other helicopter fleets will be selectively recapitalized 

to extend their service lives, increase their performance capabilities, and 

reduce their operating and support costs.

Given real and probable Comanche acquisition cost increases, the likely 

deferral of the production decision, and likelihood of continuing 

constraints on the Army aviation budgets, the Comanche program will 

continue to have a negative impact on other Army aviation programs and 

needs for the foreseeable future. As a result, the Congress may wish to 

reassess the costs and benefits of continuing the Comanche helicopter 

program. If the Congress elected to terminate the program, the following 

savings would be achieved.

Five-Year Savings

Source: Congressional Budget Office.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from 2001 plan

Budget authority 410 762 944 1,371 1,483

Outlays 224 563 770 913 1,182
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 21 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Defense Acquisitions: Comanche Program Cost, Schedule, and 

Performance Status (GAO/NSIAD-99-146, Aug. 24, 1999).

Comanche Helicopter: Testing Needs To Be Completed Prior to Production 

Decisions (GAO/NSIAD-95-112, May 18, 1995). 

Army Aviation: Modernization Strategy Needs To Be Reassessed 

(GAO/NSIAD-95-9, Nov. 21, 1994). 

Comanche Helicopter: Program Needs Reassessment Due To Increased 

Unit Cost and Other Factors (GAO/NSIAD-92-204, May 27, 1992). 

GAO Contact Jack L. Brock, Jr., (202) 512-6204
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 22 GAO-01-447 Supporting Congressional Oversight

Eliminate or Retask 

Dedicated Continental 

Air Defense Units

The continental air defense mission evolved during the Cold War to detect 

and intercept Soviet bombers attacking North America via the North Pole. 

The force that carries out that mission is within the North American 

Aerospace Defense Command (NORAD), which is a joint U.S. and 

Canadian command. At the beginning of fiscal year 1998, the force 

consisted of 150 primary aircraft (Air National Guard F-15 and F-16 aircraft 

in 10 dedicated units of 15 aircraft per unit, which stand alert for NORAD). 

The Air Force budgeted about $333 million in fiscal year 1998 to operate 

and support the continental air defense force. During fiscal year 1999, the 

Air Force reduced the number of dedicated continental air defense aircraft 

by 90 aircraft from 150 to 60. The Air Force budgeted $208.4 million for 

these 60 aircraft in fiscal year 2001. 

The states of the former Soviet Union do not pose a significant threat of a 

bomber attack on the continental United States. Further, internal problems 

within Russia and other former Soviet Union countries have extended the 

time it would take them to return to previous levels of military readiness 

and capabilities. Reflecting these changing realities, the Chairman of the 

Joint Chiefs of Staff determined in 1993 that because the United States no 

longer needed a large, dedicated air defense force, this force could be 

significantly reduced or eliminated. 

Since the threat of a Soviet-style air attack against the United States has 

largely disappeared, the air defense force now focuses its activities on air 

sovereignty missions. These missions provide surveillance and control of 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense 

Accounts Operation and Maintenance, Air National 

Guard (57-3840)

Operation and Maintenance, Air Force 

(57-3400)

National Guard Personnel, Air Force 

(57-3850)

Military Personnel, Air Force (57-3500)

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Reassess Objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 23 GAO-01-447 Supporting Congressional Oversight

territorial airspace, including activities such as assisting aircraft in distress 

or intercepting aircraft as part of antidrug smuggling efforts. However, 

active and reserve general-purpose and training forces could perform this 

mission because they (1) have comparable or better aircraft, (2) are located 

at or near existing air defense bases, and (3) have pilots who possess 

similar skills or who could acquire the necessary skills used by air defense 

and air sovereignty pilots. If the remaining four dedicated air defense units 

were eliminated or the mission retasked to other units, the following 

savings could be achieved.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Continental Air Defense: A Dedicated Force Is No Longer Needed

(GAO/NSIAD-94-76, May 3, 1994).

GAO Contact Henry L. Hinton, Jr., (202) 512-5140

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from 2001 plan

Budget authority 132 273 281 290 298

Outlays 108 242 272 280 293
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 24 GAO-01-447 Supporting Congressional Oversight

Reassess the Army’s 

Crusader Program

The Army plans to invest about $10 billion dollars to develop and procure 

the Crusader self-propelled howitzer and its resupply vehicle to be used by 

the Army’s rapidly deployable and forward-deployed forces. The Crusader 

artillery system originated in the 1980s as part of a broader program to 

modernize the Army’s armored forces. The system’s five key performance 

requirements call for improved performance over the Paladin—the Army’s 

existing self-propelled howitzer. 

The Crusader program has experienced a number of problems that have 

delayed its development by 12 to 18 months, and a number of technical 

uncertainties remain. The system’s weight has grown to over 100 tons 

calling into question its deployability. Moreover, the Army Chief of Staff 

recently concluded that the Army needs to be able to respond more quickly 

to contingencies and that the forces of the future need to be more mobile 

and quickly deployable and require a much smaller logistics support 

structure. To accomplish these goals, the Army plans to transition from 

large and heavy armored systems to lighter, smaller, more fuel efficient, and 

more reliable systems with common chassis. This transition will require a 

substantial investment in new combat vehicles, which is not fully reflected 

in the Army’s current outyear spending plans. To fund these new 

requirements, the Army will need to reduce its planned spending on 

traditional large and heavy armored systems, such as the Crusader 

Program, or make other funding tradeoffs. 

The Army has proposed changes to the Crusader artillery system to make it 

more affordable and relevant to the future warfighter. The new program is 

expected to reduce the planned procurement quantity, change the armor, 

and cut the system’s weight to about 90 tons. However, there are still 

questions about the system’s deployability even if the Army achieves its 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Accounts Research, Development, Test, and 

Evaluation, Army (21-2040)

Spending type Discretionary

Budget subfunction 051/Department of Defense-Military

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 25 GAO-01-447 Supporting Congressional Oversight

weight reduction goals. Additionally, the Army plans to field the future 

combat system about the same time as it fields the Crusader. This system is 

expected to have greater capability than the Crusader and to fully meet the 

Army’s transition needs. 

Given the Crusader’s high acquisition cost, deployability questions, 

changing requirements, and the need to fund the transition that is occurring 

in combat vehicles, the Congress may wish to terminate this program. If the 

Congress elected to terminate the program, the following savings would be 

achieved. 

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Army Armored Systems: Meeting Crusader Requirements Will Be A 

Technical Challenge (GAO/NSIAD-97-121, June 6, 1997). 

Army Armored Systems: Advanced Field Artillery System Experiences 

Problems With Liquid Propellant (GAO/NSIAD-95-25, Nov. 2, 1994).

GAO Contact Jack L. Brock, Jr., (202) 512-6204

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from 2001 plan

Budget authority 243 474 498 596 931

Outlays 140 351 437 472 620
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 26 GAO-01-447 Supporting Congressional Oversight

Reassess the Need for 

the Selective Service 

System 

No one has been drafted since 1973 and the advent of the all-volunteer 

force. Since 1980, after the Soviet invasion of Afghanistan, males between 

the ages of 18 and 26 have continued registering with the Selective Service 

System for a potential draft in the event a national emergency occurs. 

However, it would still require congressional action to actually draft 

anyone into the military. A return to a military draft seems unlikely even 

under the current recruiting difficulties the military services are facing. 

One reason for this is that the recruiting shortfalls represent only a minute 

percentage of the over 13 million males of draft age and it would be very 

difficult to ensure a fair and equitable draft to cover such shortfalls. The 

likelihood of the United States engaging in a manpower-intensive conflict in 

the future is very remote, so alternative approaches to a draft could be 

devised to fill personnel needs. 

Supporters of continuing registration maintain that it is a relatively 

inexpensive insurance policy in case the government underestimates the 

threat level the U.S. military may face in a future contingency. Supporters 

also contend that registration maintains the link between the military and 

society-at-large and reinforces the notion that citizenship involves an 

obligation to the nation. They also maintain that it would ensure a fair and 

equitable draft if it needed to be reinstated in the future. Nevertheless, it 

was estimated in 1997 that it would take a little more than a year and cost 

about $23 million (or about 1 year’s appropriation) to bring the Selective 

Service System back from a “deep standby” status. If Congress chose to 

terminate the Selective Service System, the following savings could be 

achieved.

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees VA, HUD, and Independent Agencies

Primary agency Department of Defense

Accounts Selective Service System (90-0400)

Spending type Discretionary

Budget subfunction 054/Defense-related activities

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 27 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Selective Service: Cost and Implications of Two Alternatives to the Present 

System (GAO/NSIAD-97-225, Sept. 10, 1997).

GAO Contact Henry L. Hinton, Jr., (202) 512-5140

FY02 FY03 FY04 FY05 FY06

Savings from 2001 plan

Budget authority 12 24 24 24 24

Outlays 9 20 24 24 24
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 28 GAO-01-447 Supporting Congressional Oversight

Eliminate U.S. 

Contributions to 

Administrative Costs in 

Rogue States

Organizations of the United Nations system, such as the United Nations 

Development Program, fund projects in countries that are legislatively 

prohibited from receiving U.S. funding under the Foreign Assistance Act of 

1961, as amended. The list of countries varies over time but has included 

Afghanistan, Burma, Cuba, Iran, Iraq, Libya, Serbia, and Syria. To comply 

with the legislation, the Department of State withholds from its voluntary 

contributions to United Nations organizations the U.S. share of funding for 

projects in these countries. 

However, State does not withhold administrative expenditures associated 

with the operation of field offices in these countries. Consequently, a 

portion of the U.S. contribution still goes to states prohibited from 

receiving U.S. funds. We did not attempt to calculate the total amount that 

the United States contributes to all United Nations organizations for 

administrative expenses in rogue states. However, in 1998 GAO estimated 

that the amount for one United Nations organization, the United Nations 

Development Program, was about $600,000. 

State has indicated that it would not, as a matter of policy, withhold U.S. 

contributions to United Nations organizations for administrative expenses 

in these countries. State believes the legislative restriction invites 

politicization and contradicts the principle of universality for participating 

in United Nations organizations.

Savings may be achieved if the State Department were to include field 

office administrative costs when calculating the amount of U.S. 

Authorizing committees Foreign Relations (Senate)

International Relations (House)

Appropriations subcommittees International Operations (Senate and 

House)

Primary agency State Department

Account International Organizations and Programs 

(72-1005)

Spending type Discretionary

Budget subfunction 151/International development and 

humanitarian assistance

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 29 GAO-01-447 Supporting Congressional Oversight

withholdings for all United Nations organizations that are subject to 

section 307 of the Foreign Assistance Act of 1961. Although CBO agrees 

savings may be achieved, it cannot develop on estimate for this option until 

a specific proposal is identified.

Related GAO Products International Organizations: U.S. Participation in the United Nations 

Development Program (GAO/NSIAD-97-8, Apr. 17,1997).

Multilateral Organizations: U.S. Contributions to International 

Organizations for Fiscal Years 1993-95 (GAO/NSIAD-97-42, May 1, 1997).

GAO Contact Susan S. Westin, (202) 512-4128
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 30 GAO-01-447 Supporting Congressional Oversight

Continue Oversight of 

the International Space 

Station and Related 

Support Systems

In December 1998, the National Aeronautics and Space Administration 

(NASA) accomplished a significant step in its construction of the 

International Space Station (ISS): coupling the first two elements of the 

station in orbit. More recently, the first permanent crew boarded the ISS. 

Notwithstanding these noteworthy achievements, there appears to be no 

abatement in the number of challenges NASA will face in the years to 

come. Recent GAO studies have focused on (1) the increasing cost of 

building the space station, (2) uncertainties regarding costs of operating 

space station, and (3) the impact of Russia not meeting its commitments as 

a partner. Specifically, NASA has estimated that the annual cost to operate 

the ISS will average $1.3 billion, or $13 billion over a 10-year mission life. 

However, this estimate does not include all funding requirements, such as 

(1) costs associated with necessary upgrades to combat component 

obsolescence, (2) end-of-mission costs to either extend or decommission 

the ISS, and (3) a variety of supports costs (space shuttle flights, personnel, 

space communications, etc.) that are currently shown in other portions of 

NASA’s budget. Similarly, Russia’s ongoing problems in funding its share of 

the station’s construction costs—problems which delayed delivery of the 

first major Russian-funded component—have raised questions about its 

ability to continue to support operations costs during and after assembly. 

As an outgrowth of that uncertainty, NASA initiated a program to design 

and build a contingency propulsion module in case Russia fails to provide 

the propulsion capability.

ISS will impose significant demands on future budgets that warrant 

continued congressional oversight. Even before NASA’s recent 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Science (House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

Primary agency National Aeronautics and Space 

Administration

Account Multiple

Spending type Discretionary

Budget subfunction 252/Space flight, research, and supporting 

activities

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 31 GAO-01-447 Supporting Congressional Oversight

acknowledgment of significant ISS cost increases, evidence of 

congressional concern was apparent in the National Aeronautics and Space 

Administration Authorization Act of 2000. The act requires GAO to verify 

NASA’s accounting of certain cost limitations the act imposes on the ISS 

and related space shuttle operations. However, other areas would also 

benefit from congressional oversight. For example, in addition to ongoing 

NASA efforts to resolve human capital shortfalls in the space shuttle 

program, critical decisions also need to be made on whether to develop 

new launch capabilities to support resupply activities now being done by 

the space shuttle. The recent removal of the X-33 program from 

consideration as a potential candidate for the agency’s $4.5 billion Space 

Launch Initiative illustrates the challenges that NASA faces in developing 

the advanced technologies needed to achieve that resupply capability, and 

to do so at a significantly lower cost. Overall, continued congressional 

oversight also helps ensure that NASA’s other priorities are not sacrificed to 

fund ISS operations. Because specific reduction options have not been 

proposed, CBO is unable to estimate cost savings.

Related GAO Products Space Shuttle: Human Capital and Safety Upgrade Challenges Require 

Continued Attention (GAO/NSIAD/GGD-00-186, Aug. 15, 2000).

Space Station: Russian-Built Zarya and Service Module Compliance With 

Safety Requirements (GAO/NSIAD-00-96R, Apr. 28, 2000).

Space Transportation: Status of the X-33 Reusable Launch Vehicle Program 

(GAO/NSIAD-99-176, Aug. 11, 1999).

Space Station: Russian Commitment and Cost Control Problems 

(GAO/NSIAD-99-175, Aug. 17, 1999).

Budget Issues: Budgetary Implications of Selected GAO Work for Fiscal 

Year 2001 (GAO/OCG-00-8, Mar. 31, 2000).

Space Station: Cost to Operate After Assembly Is Uncertain

(GAO/NSIAD-99-177, Aug. 6, 1999).

Space Station: Status of Russian Involvement and Cost Control Efforts 

(GAO/T-NSIAD-99-117, Apr. 29, 1999).

GAO Contact Jack L. Brock, Jr., (202) 512-4841
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 32 GAO-01-447 Supporting Congressional Oversight

Corporatize or Divest 

Selected Power 

Marketing 

Administrations

The federal government began to market electricity after the Congress 

authorized the construction of dams and established major water projects, 

primarily in the 1930s to the 1960s. The Department of Energy’s (DOE) 

power marketing administrations (PMAs)—Bonneville Power 

Administration, Southeastern Power Administration, Southwestern Power 

Administration, and Western Area Power Administration—market 

primarily wholesale power in 33 states produced at large, multiple-purpose 

water projects. Our March 1998 report identified options that the Congress 

and other policymakers can pursue to address concerns about the role of 

three PMAs—Southeastern, Southwestern, and Western—in emerging 

restructured markets or to manage them in a more business-like fashion. 

Our work has demonstrated that, although federal laws and regulations 

generally require that the PMAs recover the full costs of building, 

operating, and maintaining the federal power plants and transmission 

assets, in some cases federal statutes and DOE’s rules are ambiguous about 

or prohibit the recovery of certain costs. For fiscal years 1992 through 1996, 

the federal government incurred a net cost of $1.5 billion from its 

involvement in the electricity-related activities of Southeastern, 

Southwestern, and Western. We also reported that the appropriated and 

other debt that is recoverable through the PMAs’ power sales totaled about 

$22 billion at the end of fiscal year 1997 and included nearly $2.5 billion in 

irrigation costs. In addition, our work has demonstrated that the 

availability of federal power plants to generate electricity has been below 

that of nonfederal plants because the federal planning and budgeting 

processes do not always ensure that funds are available to make repairs 

when needed. 

Our March 1998 report outlines three general options to address the federal 

role in restructuring markets: (1) maintaining the status quo of federal 

ownership and operation of the power generating projects, (2) maintaining 

the federal ownership of these assets but improving how they operated (an 

example of which is reorganizing the PMAs to operate as federally-owned 

Authorizing committees Energy and Natural Resources (Senate)

Resources (House)

Primary agency Department of Energy

Spending type Direct

Framework theme Reassess Objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 33 GAO-01-447 Supporting Congressional Oversight

corporations), and (3) divesting these assets. Under the third option, 

divesting the PMAs and federal power assets would eliminate the 

government’s presence in a commercial activity and, depending on a 

divestiture’s terms and conditions and the price obtained, could produce 

both a net gain and a future stream of tax payments to the Treasury. 

Corporatization or divestitures of government assets have been 

accomplished recently in the United States and also overseas, and 

corporatization could serve as an interim step toward ultimate divestiture. 

Our March 1997 report concluded that divesting the federal hydropower 

assets would be complicated but not impossible. Such a transaction would 

need to balance the multiple purposes of the water project as well as other 

claims on the water. 

CBO estimates that divesting the federal hydropower assets for 

Southeastern, Southwestern and Western would result in the savings 

shown below. The estimate assumes that the divestiture would not occur 

for 2 years and is based on the net present value of outstanding debt for the 

Southeastern, Southwestern, and Western PMAs. Terms established in 

legislation would significantly change the estimate. Although the foregone 

receipts result in a loss of revenue in 2004 and 2005, it is mitigated by the 

large receipts from divestiture in 2004 and by the savings in discretionary 

spending.

Five-Year Savings

Source: Congressional Budget Office.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from 2001 plan

Budget authority 0 0 0 630 645

Outlays 0 0 0 334 638
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 34 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Budget Issues: Effective Oversight and Budget Discipline Are Essential—

Even in a Time of Surplus (GAO/T-AIMD-00-73, Feb. 1, 2000).

Potential Candidates for Congressional Oversight (GAO/OGC-00-3R, Nov. 1, 

1999).

Federal Power: The Role of the Power Marketing Administrations in a 

Restructured Electricity Industry (GAO/T-RCED/AIMD-99-229, June 24, 

1999).

Federal Power: PMA Rate Impacts by Service Area (GAO/RCED-99-55, 

Jan. 28, 1999).

Federal Power: Regional Effects of Changes in PMAs’ Rates 

(GAO/RCED-99-15, Nov. 16, 1998).

Power Marketing Administrations: Repayment of Power Costs Needs 

Closer Monitoring (GAO/AIMD-98-164, June 30, 1998).

Federal Power: Options for Selected Power Marketing Administrations’ 

Role in a Changing Electricity Industry (GAO/RCED-98-43, Mar. 6, 1998).

Federal Electricity Activities: The Federal Government’s Net Cost and 

Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept. 19, 1997).

Federal Power: Issues Related to the Divestiture of Federal Hydropower 

Resources (GAO/RCED-97-48, Mar. 31, 1997).

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Direct spending

Savings from 2001 funding level

Budget authority 0 0 5,100 -607 -618

Outlays 0 0 5,100 -607 -618
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 35 GAO-01-447 Supporting Congressional Oversight

Power Marketing Administrations: Cost Recovery, Financing, and 

Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept. 19, 1996).

Federal Power: Recovery of Federal Investment in Hydropower Facilities 

in the Pick-Sloan Program (GAO/T-RCED-96-142, May 2, 1996).

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 36 GAO-01-447 Supporting Congressional Oversight

Monitor Department of 

Energy’s Strategic 

Computing Initiative 

and Supercomputer 

Utilization

In 1997, the Department of Energy (DOE) had about 17 percent of the 

world’s supercomputing capacity and it has tripled its capacity since then. 

While seven DOE labs have multiple supercomputers, the largest are 

associated with the Accelerated Strategic Computing Initiative which is 

intended to develop a “virtual test” capability that, in the absence of 

nuclear testing, can be used to simulate performance of nuclear weapons. 

From fiscal years 1994 through 1997, DOE spent about $300 million 

purchasing 35 supercomputers and about $526 million to operate them. 

Since fiscal year 1998, DOE has spent an estimated $257 million to acquire 

additional supercomputers, most of them associated with the Strategic 

Computing Initiative. 

In fiscal year 1997, DOE used only about 59 percent of its available 

supercomputer capacity and was missing opportunities to share 

supercomputer resources. Further, the largest supercomputers—those 

justified as needed to run very large programs across hundreds or even 

thousands of processors to solve the largest problems in a reasonable 

period of time—were seriously underutilized. Less than 5 percent of the 

jobs run on those supercomputers used more than one-half of the 

supercomputers available processors. DOE also lacked an investment 

strategy to assure that supercomputer acquisitions were fully justified and 

represented the best use of funds among competing priorities. 

The Congress may wish to require DOE to develop an investment process 

that considers, among other factors, the utilization rate of existing 

supercomputers and the possibility of sharing resources among labs. 

Authorizing committees Energy and Natural Resources (Senate)

Energy and Commerce (House)

Armed Services (House)

Appropriations subcommittees Energy and Water Development

(Senate and House)

Interior and Related Agencies (Senate and 

House)

Primary agency Department of Energy

Account Multiple

Spending type Discretionary 

Budget subfunction Multiple

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 37 GAO-01-447 Supporting Congressional Oversight

Alternatively, if the Congress elected to terminate the program, the 

following savings could be achieved. 

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Nuclear Weapons: DOE Needs to Improve Oversight of the $5 Billion 

Strategic Computing Initiative (GAO/RCED-99-195, June 28, 1999).

Information Technology: Department of Energy Does Not Effectively 

Manage Its Supercomputers (GAO/RCED-98-208, July 17, 1998).

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from 2001 funding level

Budget authority 786 786 786 786 786

Outlays 511 747 786 786 786
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 38 GAO-01-447 Supporting Congressional Oversight

Rescind Clean Coal 

Technology Funds

Since its beginning in 1985, the Department of Energy’s (DOE) Clean Coal 

Technology Program has received $2.75 billion in appropriated funds. The 

purpose of the program is to provide cost-sharing assistance to industrysponsored projects that demonstrate innovative technologies for using coal 

in a highly efficient, environmentally sound, and economically 

competitively manner. DOE funds up to 50 percent of project costs and the 

nonfederal participants fund the balance. In total, 40 projects have been 

completed or are currently active, and 10 projects have been terminated or 

withdrawn. A number of the clean coal technology demonstration projects 

have experienced problems and difficulties in meeting cost, schedule, and 

performance goals. DOE has extended deadlines several times on some 

projects to allow their sponsors to restructure the projects, find suitable 

alternative project sites, and obtain financing commitments to make the 

projects economically viable.

From April 1995 through October 1998, the Congress rescinded 

$441 million of this program’s budget authority that represented 

unobligated funds associated with projects that had been terminated or 

restructured. At the beginning of October 1999, the program had about 

$410 million of budget authority that was not obligated to any project. Of 

these funds, $186 million represented budget authority which could not be 

used (was deferred) until after fiscal year 2000. DOE’s current estimate of 

unobligated funds at the end of fiscal year 2004 is about $129 million. 

However DOE expects that this amount will be reduced to $34 million after 

$95 million is transferred to another fossil R&D program. This transfer is 

reflected in DOE’s fiscal year 2001 budget request. DOE believes the 

remaining $34 million is needed for program management costs through 

Authorizing committees Energy and Natural Resources (Senate)

Science (House)

Appropriations subcommittees Interior and Related Agencies (Senate and 

House)

Primary agency Department of Energy

Account Clean Coal Technology (89-0235)

Spending type Discretionary

Budget subfunction 271/Energy supply

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 39 GAO-01-447 Supporting Congressional Oversight

fiscal year 2007. If however, projects are completed ahead of schedule or 

discontinued, this $34 million could be considered for rescission. 

CBO would provide no savings for such a rescission due to the differing 

assumptions CBO and DOE have about the spending patterns of the Clean 

Coal Technology Fund.

Related GAO Products Clean Coal Technology: Status of Projects and Sales of Demonstrated 

Technology (GAO/RCED-00-86R, Mar. 9, 2000).

Fossil Fuels: Lessons Learned in DOE’s Clean Coal Technology Program

(GAO/RCED-94-174, May 26, 1994).

Fossil Fuels: Improvements Needed in DOE’s Clean Coal Technology 

Program (GAO/RCED-92-17, October 30, 1991).

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 40 GAO-01-447 Supporting Congressional Oversight

Terminate 

Land-Exchange 

Programs

The Bureau of Land Management (BLM) and the Forest Service have long 

used land exchanges—trading federal lands for lands that are owned by 

corporations, individuals, or state or local governments—as a tool for 

acquiring nonfederal land and conveying federal land. By law, for an 

exchange to occur, the estimated value of the nonfederal land must be 

within 25 percent of the estimated value of the federal land, the public 

interest must be well served, and certain other exchange requirements 

must be met. Recognizing the importance of land exchanges in 

supplementing the federal funds that were available for purchasing land the 

Congress, in 1988, passed legislation to facilitate and expedite land 

exchanges. Since then, BLM and the Forest Service have acquired about 

1,500 square miles of land through land exchanges.

Several fundamental issues create significant problems in the use of land 

exchanges. For instance, in 1998, the cognizant Inspectors General 

identified exchanges in which lands were inappropriately valued and the 

public interest was not well served. Also, although current law does not 

authorize BLM to retain or use proceeds from selling federal land, BLM 

sold federal land and retained the sales proceeds in escrow accounts. 

Further, BLM did not track these sales proceeds in its financial 

management system. At least some of BLM’s and the Forest Service’s 

continuing problems may reflect inherent underlying difficulties associated 

with exchanging land—rather than buying and selling land for cash. In 

most circumstances, cash-based transactions would be simpler and less 

costly.

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House)

Resources (House)

Appropriations subcommittees Interior and Related Agencies (Senate and 

House)

Primary agencies Department of the Interior

Department of Agriculture 

Account Multiple

Spending type Discretionary

Budget subfunctions 302/Conservation and Land Management

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 41 GAO-01-447 Supporting Congressional Oversight

While both agencies have taken steps to improve their land-exchange 

programs, the many controversies and problems associated with their 

programs reflect, in part, the difficulties and inefficiencies inherent in these 

exchange programs. On the basis of these difficulties and inefficiencies, the 

Congress may wish to consider directing both agencies to terminate their 

land-exchange programs. CBO was unable to develop a savings estimate 

for this option. 

Related GAO Product BLM and the Forest Service: Land Exchanges Need to Reflect Appropriate 

Value and Serve the Public Interest (GAO/RCED-00-73, June 22, 2000).

GAO Contact Barry T. Hill, (202) 512-9775
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 42 GAO-01-447 Supporting Congressional Oversight

Defer Fish and Wildlife 

Service’s Acquisition of 

New Lands

The Fish and Wildlife Service has increased its land holdings through 

acquisitions with appropriated and nonappropriated funds and by 

accepting donated land from nonfederal entities or transferred land that 

other federal agencies have acquired. It has a goal of annually acquiring 

land for refuges as it identifies acquisition opportunities or new areas of 

biological value. Over the last 30 years it has established more than 200 

refuges and acquired about 63 million acres of land for the national wildlife 

refuge system. While the Service does not have an estimate of the number 

of acres remaining to complete the refuge system, it did have estimates for 

144 refuges as of fiscal year 1998. For these, the Service plans showed that 

about 2.8 million acres were still to be acquired with about $3.8 billion in 

appropriated funds.

The Service continues to acquire land even though it has an almost 

$2 billion backlog of operations and maintenance needs. It focuses on 

acquiring lands—to meet its land protection mission—but has not 

adequately considered whether funds will be available for future 

operations and maintenance expenses. For example, in its fiscal year 2001 

budget request, the Service requested a much larger increase for land 

acquisition (116 percent or about $60 million) than it did for refuge 

operations and maintenance (8 percent or nearly $20 million). For fiscal 

year 2000, in comparison, the Service had requested a 53 percent increase 

for land acquisition and about 11 percent for refuge operations and 

maintenance. 

Acquiring additional holdings, while a current backlog of operations and 

maintenance needs continues to increase, could potentially exacerbate 

Authorizing committees Environment and Public Works (Senate)

Resources (House)

Appropriations subcommittees Interior and Related Agencies (House and 

Senate)

Primary agency Department of the Interior

Account Land Acquisition (14-5020)

Resource Management (14-1611)

Spending type Discretionary

Budget subfunction 303/Recreational Resources

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 43 GAO-01-447 Supporting Congressional Oversight

long-term budgetary pressures and contribute to further deterioration of 

the existing program. If the Congress chose to address this growing 

problem, one approach would be to withhold all funding for additional land 

acquisitions for 5 years, so that the Fish and Wildlife Service can focus on 

improving its stewardship responsibilities. CBO estimates that deferring 

Fish and Wildlife land purchases for 5 years would result in the following 

savings. 

Five-Year Savings

Note: This estimate is only for savings from deferring land acquisition costs, and does not account for 

any changes in operations and maintenance expenditures.

Source: Congressional Budget Office.

Related GAO Products Fish and Wildlife Service: Agency Needs to Inform Congress of Future 

Costs Associated With Land Acquisitions (RCED-00-52, Feb. 15, 2000).

Fish and Wildlife Service: Agency Needs to Inform Congress of Future 

Costs Associated With Land Acquisitions (T-RCED-00-89, Feb. 15, 2000).

GAO Contact Barry T. Hill, (202) 512-3841

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 124 127 130 133 136

Outlays 50 94 121 130 133
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 44 GAO-01-447 Supporting Congressional Oversight

Deny Additional 

Funding for 

Commercial Fisheries 

Buyback Programs

Fish populations in many commercial fisheries are declining, resulting in a 

growing imbalance between the number of vessels in fishing fleets and the 

number of fish available for harvest. In response to this growing imbalance, 

the federal government has provided $140 million since 1995 to purchase 

fishing permits, fishing vessels, and related gear from fishermen, thereby 

reducing the capacity of fishermen to harvest fish. Generally, the 

government designed these purchases, called buybacks, to achieve 

multiple goals, such as reducing the capacity to harvest fish, providing 

economic assistance to fishermen, and improving the conservation of fish. 

Coastal states issue permits and develop and enforce regulations for fishing 

in waters that are near their shores. In areas outside state jurisdiction, the 

National Marine Fisheries Service (NMFS) within the Department of 

Commerce is responsible for issuing permits and developing and enforcing 

regulations for harvesting fish. Because excessive fishing capacity has been 

a continuing problem in many fisheries, several additional buybacks have 

been proposed that, if implemented, would be in excess of $250 million. 

GAO found that buyback programs in three fisheries we evaluated removed 

from 10 to 24 percent of their respective fishing capacities. However, the 

experiences of these three cases demonstrate that the long-term 

effectiveness of buyback programs depends upon whether previously 

inactive fishermen or buyback beneficiaries return to the fishery. For 

example, while 79 boats were sold in the New England buyback, 62 

previously inactive boats have begun catching groundfish since the 

buyback. In addition, several buyback participants purchased boats with 

buyback funds and returned to the fishery. Long-term effectiveness of 

buyback programs may also depend on whether fishermen have incentives 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Resources (House)

Appropriation committees Commerce, Justice, State, and the 

Judiciary (Senate and House)

Primary agency Commerce

Accounts Operations, research, and facilities 

(13-1450)

Spending type Discretionary

Budget subfunction 306/Other natural resources

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 45 GAO-01-447 Supporting Congressional Oversight

to increase remaining fishing capacity in a fishery. Importantly, buyback 

programs by themselves do not address the root cause of excess fishing 

capacity, that being the ongoing incentives fishermen have to invest in 

larger or better equipped fishing vessels in order to catch fish before 

someone else does. 

The problems of past buyback programs should be addressed as part of the 

design of any future programs. Given the experiences of buyback programs 

to date—both in terms of their limited effects on reducing fishing capacity 

and in terms of their inability to effectively address the root causes of overfishing—one option the Congress may wish to consider is denying 

additional funding for proposed programs until these fundamental 

weaknesses are resolved. CBO cannot develop a savings estimate without a 

more specific proposal .

Related GAO Product Commercial Fisheries: Entry of Fishermen Limits Benefits of Buyback 

Programs (GAO/RCED-00-120, June 14, 2000).

GAO Contact Jim Wells, (202) 512-3841
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 46 GAO-01-447 Supporting Congressional Oversight

Terminate or 

Significantly Reduce 

the Department of 

Agriculture’s Market 

Access Program

The Market Access Program is an export promotion program operated by 

the Foreign Agricultural Service of the Department of Agriculture. The 

$90 million program subsidizes the promotion of U.S. agricultural products 

in overseas markets. Through a cost-sharing arrangement, the program 

helps fund overseas promotions conducted by U.S. agricultural producers, 

cooperatives, exporters, and trade associations. About three-quarters of 

the program budget supports generic promotions, with the remaining funds 

supporting brand-name promotions.

Beginning in fiscal year 1993, Congress directed that changes be made to 

the program in order to increase the emphasis on small businesses, 

establish a graduation limit, and certify that program funds supplement, not 

supplant, private sector expenditures. Between fiscal years 1994 and 1997, 

program reforms resulted in increases to the number of small businesses 

participating in the program as well as small businesses’ share of program 

funds. In addition, in 1998, the Foreign Agricultural Service prohibited 

direct and indirect assistance to large companies for brand-name 

promotions unless the assistance was provided through cooperatives and 

certain associations. The Service also implemented a 5-year graduation 

requirement for brand-name promotional activities but waived this 

requirement for cooperatives. As a result, $5 million of promotional 

activities by cooperatives for brand-name products remained eligible for 

program funding. 

Questions remain about the overall economic benefits derived from the 

Market Access Program. Estimates of the program’s macroeconomic 

impact developed by the Foreign Agricultural Service are overstated and 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House)

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate)

Rural Development, Agriculture, and 

Related Agencies (House)

Primary agency U.S. Department of Agriculture

Account Commodity Credit Corporation (12-4336)

Spending type Discretionary

Budget subfunction 351/Farm income stabilization

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 47 GAO-01-447 Supporting Congressional Oversight

rely on a methodology that is inconsistent with Office of Management and 

Budget cost/benefit guidelines. In addition, the evidence from market-level 

studies is inconclusive regarding program impact on specific commodities 

in specific markets. Furthermore, it is difficult to ensure that funds for 

promotional activities are in addition to private sector expenditures 

because it is hard to determine what would have been spent in the absence 

of program funds.

The Conference Report on the Omnibus Consolidated and Emergency 

Supplemental Appropriations Act of 1999 directed the Secretary of 

Agriculture to submit a report that, among other things, estimates the 

economic impact of the Market Access Program, analyzes the costs and 

benefits of the program in a manner consistent with government 

cost/benefit guidelines, and evaluates the additional spending of 

participants and additional exports resulting from the program. In its 

report, the Foreign Agricultural Service plans to combine the results of an 

external review of a sample of promotional programs with a study of 

overall program impact. Unless the report provides convincing evidence 

that the program has a positive economic impact, results in increased 

exports that would not have occurred without the program, and 

supplements and does not supplant private sector expenditures, the 

Congress might choose to terminate the program or significantly reduce its 

funding. CBO estimates the following savings could be achieved if the 

Market Access Program is terminated.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Agricultural Trade: Changes Made to Market Access Program, but 

Questions Remain on Economic Impact (GAO/NSIAD-99-38, Apr. 5, 1999).

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 5 73 90 90 90

Outlays 5 73 90 90 90
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 48 GAO-01-447 Supporting Congressional Oversight

U.S. Agricultural Exports: Strong Growth Likely, but U.S. Export 

Assistance Programs’ Contribution Uncertain (GAO/NSIAD-97-260, 

Sept. 30, 1997).

Agricultural Trade: Competitor Countries’ Foreign Market Development 

Program (GAO/T-GGD-95-184, June 14, 1995).

Farm Bill Export Options (GAO/GGD-96-39R, Dec. 15, 1995).

International Trade: Changes Needed to Improve Effectiveness of the 

Market Promotion Program (GAO/GGD-93-125, July 7, 1993).

U.S. Department of Agriculture: Improvements Needed in Market 

Promotion Program (GAO/T-GGD-93-17, Mar. 25, 1993).

GAO Contact Loren Yager, (202) 512-4128
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 49 GAO-01-447 Supporting Congressional Oversight

Eliminate the Pulsed 

Fast Neutron Analysis 

Inspection System

One type of technology under development for detecting explosives and 

narcotics is a pulsed fast neutron analysis (PFNA) inspection system. 

PFNA is designed to directly and automatically detect and measure the 

presence of specific materials (e.g., cocaine) by exposing their constituent 

chemical elements to short bursts of subatomic particles called neutrons. 

U.S. Customs Service, Department of Defense (DOD), and Federal Aviation 

Administration (FAA) officials do not believe that the current PFNA system 

would meet their operational requirements because it is too expensive (at 

least $10 million per unit to acquire) and too large for operational use in 

most ports of entry or other sites.

Operational testing at a land port was originally due to begin by the end of 

1999 at an estimated cost of $5 million to $8 million. However, Customs 

delayed the decision to fund testing until after it reviews a safety study due 

in December 2000 on PFNA’s potential radiation effects on humans and 

cargo. Also, test costs have risen to an estimated $12.3 million. Most of 

DOD’s share of $2.7 million has been spent for modifying and installing 

hardware but the vendor, Ancore Corporation, estimated that another 

$3 million is needed to complete the work. In addition, Ancore wants 

Customs to provide the remaining estimated $6.6 million for preparing the 

test site and conducting the 4-month test. Since Congress did not 

appropriate funds to Customs for testing PFNA, Customs officials said they 

would have to find the $6.6 million within existing fiscal year 2001 and 2002 

appropriations, which could delay acquisition of other approved 

inspections systems. Separately, FAA has spent $2.5 million and most of 

$3 million in fiscal year 1999 and 2000 funds, respectively, to modify PFNA 

software for its own testing purposes. Congress appropriated $6 million in 

fiscal year 2001 for FAA to continue PFNA development.

Authorizing committees Multiple

Appropriations subcommittees Multiple

Primary agency Multiple

Account FAA—Research, Engineering and 

Development (69-8108)

Spending type Discretionary

Budget subfunction 402/Air Transportation

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 50 GAO-01-447 Supporting Congressional Oversight

Eliminating PFNA—a system that the agencies do not want—would result 

in the following savings for FAA. Since no funds are budgeted or 

appropriated to Customs for PFNA, there would be no savings for Customs 

but there could be opportunity costs associated with not having other more 

desirable assets.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Terrorism and Drug Trafficking: Testing Status and Views on Operational 

Viability of Pulsed Fast Neutron Analysis Technology (GAO/GGD-99-54, 

Apr. 13, 1999).

GAO Contact Laurie E. Ekstrand, (202) 512-8777

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 6 6 6 6 6

Outlays 3 5 6 6 6
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 51 GAO-01-447 Supporting Congressional Oversight

Restructure Amtrak to 

Reduce or Eliminate 

Subsidies

The National Railroad Passenger Corporation (Amtrak) is the operator of 

the nation’s intercity passenger rail service. As a private corporation, it 

operates trains in 45 states, serving more than 21 million riders annually. 

Like major national intercity passenger rail systems outside the United 

States, Amtrak receives government support. Since 1971, the federal 

government has provided over $23 billion in operating and capital 

assistance to Amtrak. In 2000, the railroad lost $943 million.1

 In 1994, at the 

request of the administration, and later at the direction of the Congress, 

Amtrak pledged to eliminate the need for federal operating subsidies by the 

end of 2002.

Amtrak has made relatively little progress in reducing its need for federal 

operating subsidies. For example, in fiscal year 2000, Amtrak reduced its 

need for operating subsidies by $5 million, substantially less than its plan 

for reducing the need for operating subsidies by $114 million for the year. 

Overall, in the past 6 years (fiscal years 1995 to 2000), Amtrak has reduced 

its need for operating subsidies by only $83 million. It must make an 

addition $282 million in progress in the next 2 years to achieve the goal of 

being free of operating subsidies. Given its lack of overall progress, it will 

be difficult for Amtrak to eliminate the need for federal operating subsidies 

by the end of 2002. 

The Amtrak Reform and Accountability Act of 1997 generally prohibits 

Amtrak from using federal funds for operating expenses after 2002. If 

Amtrak is not operationally self-sufficient by then, the act provides for the 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency National Railroad Passenger Corporation

Account Multiple

Spending type Discretionary

Budget subfunction 401/Ground Transportation

Framework theme Reassess objectives

1

Subject to audit.
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 52 GAO-01-447 Supporting Congressional Oversight

Congress to consider restructuring of the national passenger rail system 

and the liquidation of Amtrak. Several options are available to the 

Congress. For instance, the Congress could retain intercity passenger rail 

in much the same form as it is today, which would likely require increased 

subsidies over current levels to meet both operating expenses and billions 

of dollars in unmet capital needs. Or the Congress could restructure 

intercity passenger rail service, focusing on high-density corridors, which 

would most likely require continued federal assistance. Alternatively, if 

Amtrak is liquidated and not replaced, then federal subsidies would be 

eliminated. Eliminating federal subsidies for Amtrak by the end of 2002 

would result in the following savings. If Amtrak was not replaced, the 

public benefit of having intercity passenger rail as an alternative travel 

choice would disappear. CBO estimates that the following savings could be 

achieved if the Amtrak subsidy is eliminated. While CBO agrees that 

savings could be achieved by limiting Amtrak service to high-density 

corridors, they could not estimate the savings until a specific proposal is 

identified.

Five-Year Savings 

Source: Congressional Budget Office.

Related GAO Products Intercity Passenger Rail: Decisions on the Future of Amtrak and Intercity 

Passenger Rail Are Approaching (GAO/T-RCED-00-277, Sept. 26, 2000).

Intercity Passenger Rail: Amtrak Will Continue to Have Difficulty 

Controlling Its Costs and Meeting Capital Needs (GAO/RCED-00-138, 

May 31, 2000).

Intercity Passenger Rail: Amtrak Needs to Improve Its Accountability for 

Taxpayer Relief Act Funds (GAO/RCED/AIMD-00-78, Feb. 29, 2000).

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 0 521 521 521 521

Outlays 0 208 521 521 521
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 53 GAO-01-447 Supporting Congressional Oversight

Intercity Passenger Rail: Amtrak Faces Challenges in Improving Its 

Financial Condition (GAO/T-RCED-00-30, Oct. 28, 1999).

Intercity Passenger Rail: Amtrak’s Progress in Improving Its Financial 

Condition Has Been Mixed (GAO/RCED-99-181, July 9, 1999).

Intercity Passenger Rail: Issues Associated With a Possible Amtrak 

Liquidation (GAO/RCED-98-60, Mar. 2, 1998).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 54 GAO-01-447 Supporting Congressional Oversight

Adequacy of 

Management Controls 

and Affordability of the 

Coast Guard 

Deepwater Project

The Coast Guard is planning what is potentially the largest acquisition 

project in its history—the Deepwater Capability Replacement Project. This 

effort involves replacing or modernizing the agencies’ 92 ships and 209 

aircraft. To date, Congress has authorized the Coast Guard over 

$116 million to enable three competing industry consortiums to design the 

deepwater systems. The estimated project cost could total $10 billion or 

more over the next 20 years. In October 1998, we reported that the Coast 

Guard needed to more thoroughly address the project’s justification and 

affordability. The Coast Guard responded by more thoroughly documenting 

the justification for the project. Although the Coast Guard is addressing 

many of our earlier concerns, numerous uncertainties still exist, including 

the project’s affordability and the adequacy of management controls in 

place to oversee the project. 

These challenges must be addressed both before and after the Coast Guard 

awards a contract for its Deepwater system in January 2002. Currently, the 

agency’s initial estimate that the project may cost about $500 million 

annually over 20 years would consume more than the agency now spends 

for all capital projects and leave little funding for other critical capital 

needs. In addition, a key uncertainty surrounding the Deepwater Project 

involves the contracting approach the Coast Guard plans to use to procure 

ships and aircraft. This approach, which calls for awarding a contract to 

one system integrator for a period that could reach 20 or more years, has 

never been used on a procurement of this size or complexity. Because of 

the uniqueness of this approach, the large dollars involved, and the 

importance of this approach in shaping the future of the Coast Guard, the 

Authorizing committees Commerce, Science, And Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Accounts Acquisition, Construction, and 

Improvements (69-0240)

Spending type Discretionary 

Budget subfunction 403/Water transportation

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 55 GAO-01-447 Supporting Congressional Oversight

agency’s planned contracting strategy requires a carefully thought-out and 

well-documented acquisition plan. 

CBO cannot provide a savings estimate for this option because the 

Deepwater Project has not yet been funded.

Related GAO Products Coast Guard: Budget Challenges for 2001 and Beyond

(GAO/T-RCED-00-103, Mar. 15, 2000).

Coast Guard: Strategies for Procuring New Ships, Aircraft, and Other 

Assets (GAO/T-RCED-99-116, Mar. 16, 1999).

Coast Guard: Key Budget Issues for Fiscal Years 1999 and 2000

(GAO/T-RCED-99-83, Feb. 11, 1999).

Coast Guard’s Acquisition Management: Deepwater Project’s Justification 

and Affordability Need to Be Addressed More Thoroughly

(GAO/RCED-99-6, Oct. 26, 1998).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 56 GAO-01-447 Supporting Congressional Oversight

Eliminate Cargo 

Preference Laws to 

Reduce Federal 

Transportation Costs

Cargo preference laws require that certain government-owned or financed 

cargo shipped internationally be carried on U.S.-flagged vessels. Cargo 

preference laws are intended to guarantee a minimum amount of business 

for the U.S.-flagged vessels. These vessels are required by law to be crewed 

by U.S. mariners, are generally required to be built in U.S. shipyards, and 

are encouraged to be maintained and repaired in U.S. shipyards. In 

addition, U.S.-flag carriers commit to providing capacity in times of 

national emergencies. 

The effect of cargo preference laws has been mixed. These laws appear to 

have had a substantial impact on the U.S merchant marine industry by 

providing an incentive for vessels to remain in the U.S. fleet. However, 

because U.S.-flagged vessels often charge higher rates to transport cargo 

than foreign-flagged vessels, cargo preference laws increase the 

government’s transportation costs. For fiscal years 1989 through 1993, four 

federal agencies—the Departments of Defense, Agriculture, Energy, and 

the Agency for International Development—were responsible for more 

than 99 percent of the government cargo subject to cargo preference laws. 

Cargo preference laws increased these federal agencies’ transportation 

costs by an estimated $578 million per year in fiscal years 1989 through 

1993 over cost of using foreign-flagged vessels. If the laws were eliminated, 

the following savings could be achieved.

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Multiple

Primary agency Multiple 

Accounts Multiple 

Spending type Discretionary 

Budget subfunction 403/Water transportation

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 57 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Management Reform: Implementation of the National Performance 

Review’s Recommendations (GAO/OCG-95-1, Dec. 5, 1994).

Maritime Industry: Cargo Preference Laws—Their Estimated Costs and 

Effects (GAO/RCED-95-34, Nov. 30, 1994).

Cargo Preference: Effects of U.S. Export-Import Cargo Preference Laws on 

Exporters (GAO/GGD-95-2BR, Oct. 31, 1994).

Cargo Preference Requirements: Objectives Not Significantly Advanced 

When Used in U.S. Food Aid Programs (GAO/GGD-94-215, Sept. 29, 1994).

GAO Contact John H. Anderson, Jr., (202) 512-2834

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 307 377 442 432 449

Outlays 261 352 416 422 443
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 58 GAO-01-447 Supporting Congressional Oversight

Improve Fairness of 

Medicaid Matching 

Formula

The Medicaid program provides medical assistance to low-income, aged, 

blind, or disabled individuals. The federal government and the states share 

the financing of the program through an open-ended matching grant 

whereby federal outlays rise with the cost and use of Medicaid services. 

The federal share of the program costs varies inversely with state per 

capita income. Consequently, high-income states pay a larger share of the 

benefits than low-income states. By law, the federal share can be no less 

than 50 percent and no more than 83 percent. 

Since 1986, we have issued numerous reports and testimonies that identify 

ways in which the fairness of federal grant formulas could be improved. 

With respect to Medicaid, we believe that the fairness of the matching 

formula in the open-ended program could be improved by replacing the per 

capita income factor with four factors—the number of people living below 

the official poverty line, the total taxable resources of the state, cost 

differences associated with the demographic composition of state 

caseloads, and differences in health care costs across states—and by 

reducing the minimum federal share to 40 percent. These changes could 

reduce federal reimbursements by reducing the federal share in states with 

the most generous benefits, the fewest low-income people in need, lower 

costs and greater ability to fund benefits from state resources. These 

changes could redirect federal funding to states with the highest 

concentration of people in poverty and the least capability of funding these 

needs from state resources. 

Authorizing committees Finance (Senate)

Energy and Commerce (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services

Account Grant to States for Medicaid

(75-0512)

Spending type Direct

Budget subfunction 551/Health care services

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 59 GAO-01-447 Supporting Congressional Oversight

To illustrate the savings that could be achieved from changes in the 

Medicaid formula, CBO estimates that if the minimum federal share were 

reduced to 40 percent, the following savings could be achieved.

Five-Year Savings

Note: CBO assumes that the federal share for the District of Columbia would remain at 70 percent.

Source: Congressional Budget Office.

Related GAO Products Medicaid Formula: Effects of Proposed Formula on Federal Shares of State 

Spending (GAO/HEHS-99-29R, Feb. 19, 1999).

Medicaid Matching Formula: Effects of Need Indicators on New York’s 

Funding (GAO/HEHS-97-152R, June 9, 1997).

Medicaid: Matching Formula’s Performance and Potential Modifications

(GAO/T-HEHS-95-226, July 27, 1995).

Medicaid Formula: Fairness Could Be Improved (GAO/T-HRD-91-5, Dec. 7, 

1990).

GAO Contact William J. Scanlon, (202) 512-7114

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the CBO baseline

Budget authority 7,010 7,640 8,370 9,150 10,010

Outlays 7,010 7,640 8,370 9,150 10,010
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 60 GAO-01-447 Supporting Congressional Oversight

Reassess Medicare 

Incentive Payments in 

Health Care Shortage 

Areas

The Medicare Incentive Payment program was established in 1987 amid 

concerns that low Medicare reimbursement rates for primary care services 

cause access problems for Medicare beneficiaries in underserved areas. 

The program pays physicians a 10 percent bonus payment for Medicare 

services they provide in areas identified by the Department of Health and 

Human Services as having a shortage of primary care physicians. In 1997, 

bonus payments paid from the Medicare Supplemental Medical Insurance 

trust found amounted to over $90 million. 

This program, however, may not be the most appropriate means of 

addressing medical underservice:

• The need for this program may have changed; since 1987 the Congress 

generally increased reimbursement rates for primary care services and 

reduced the geographic variation in physician reimbursement rates. In 

addition, recent surveys of Medicare beneficiaries who have access 

problems, including those who may live in underserved areas, generally 

cite reasons other than the unavailability of a physician—such as the 

cost of services not paid by Medicare—for their access problems.

• The relatively small bonus payments most physicians receive—a median 

payment of $341 for the year in 1996—are unlikely to have a significant 

impact on physician recruitment and retention.

• Specialists receive most of the program dollars, even though primary 

care physicians have been identified as being in short supply, while 

shortages of specialists, if any, have not been determined. 

Authorizing committees Finance (Senate)

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services

Account Federal Supplemental Insurance Trust Fund 

Account (20-8004)

Spending type Direct

Budget subfunction 571/Medicare

Framework theme Reassess objectives 
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 61 GAO-01-447 Supporting Congressional Oversight

• The program provides no incentives or assurances that physicians 

receiving bonuses will actually treat people who have problems 

obtaining health care.

• Health Care Financing Administration oversight of the program also has 

limitations that allow physicians and other providers to receive and 

retain bonus payments claimed in error.

The Department has acknowledged problems in the program and agrees 

that making incentive payments to specialists in urban areas appears to be 

unnecessary. The Department has stated that it is clear that certain 

structural changes to this program are necessary to better target incentive 

payments to rural areas with the highest degree of shortage. 

If the Congress determines that this program is not an appropriate vehicle 

for addressing medical underservice, then termination is a reasonable 

option. However, if it is decided to continue the program, then the 

Congress could consider reforms that clarify the program’s intent and 

better structure the program to link limited federal funds to intended 

outcomes. For example, if the program’s intent is to improve access to 

primary care services in underserved rural areas, the bonus payments 

should be limited to physicians providing primary care services to 

underserved populations in rural areas with the greatest need. Better 

targeting of the payments and evaluations would also be needed to provide 

assurances that the payments are achieving their intended outcomes.

The savings estimate that follows assumes that the Congress eliminates the 

additional 10 percent payment for services delivered in urban and rural 

HPSAs beginning in fiscal year 2001.

Five-Year Savings

Note: Estimate includes HMO interaction and is net of Medicare Part B premium effects.

Source: Congressional Budget Office.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 80 95 100 105 110

Outlays 80 95 100 105 110
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 62 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Physician Shortage Areas: Medicare Incentive Payments Not an Effective 

Approach to Improve Access (GAO/HEHS-99-36, Feb. 26, 1999).

Health Care Shortage Areas: Designations Not a Useful Tool for Directing 

Resources to the Underserved (GAO/HEHS-95-200, Sept. 8, 1995).

GAO Contact William J. Scanlon, (202) 512-7114
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 63 GAO-01-447 Supporting Congressional Oversight

Develop 

Comprehensive 

Return-to-Work 

Strategies for People 

With Disabilities

The Social Security Administration (SSA) operates the Disability Insurance 

(DI) and Supplemental Security Income (SSI) programs—the nation’s two 

largest federal programs providing cash benefits to people with disabilities. 

For fiscal year 2000, DI outlays are estimated as over $54 billion and SSI 

outlays as about $32 billion dollars. SSA data show that between 1989 and 

1990, the size of the working-age disabled beneficiary population increased 

65 percent, from about 4.5 million to 7.5 million. Such growth has raised 

concerns that are compounded by the fact that less than one-half of 

1 percent of DI beneficiaries ever leave the disability rolls by returning to 

work. 

We found that return-to-work strategies and practices may hold potential 

for improving federal disability programs by helping people with 

disabilities return to productive activity in the workplace and, at the same 

time, reducing benefit payments. Our analysis of practices advocated and 

implemented by the private sector in the United States and by social 

insurance programs in Germany and Sweden revealed three common 

strategies in the design of their return-to-work programs: intervene as soon 

as possible after an actual or potentially disabling event to promote and 

facilitate return-to-work, identify and provide necessary return-to-work 

assistance and manage cases to achieve return-to-work goals, and structure 

cash and medical benefits to encourage people with disabilities to returnto-work. 

In line with placing greater emphasis on return-to-work, we recommended 

that the Commissioner of SSA develop a comprehensive return-to-work 

strategy that integrates, as appropriate, earlier intervention, earlier 

identification and provision of necessary return-to-work assistance for 

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Social Security Administration 

Account Federal Disability Insurance Trust Fund 

(20-8007)

Supplemental Security Income Program 

(20-0406)

Spending type Direct

Budget subfunction Multiple

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 64 GAO-01-447 Supporting Congressional Oversight

applicants and beneficiaries, and cash and medical benefits that make 

work more financially advantageous. SSA has recently taken steps to 

improve work outcomes, including increasing access to private vocational 

rehabilitation providers and awarding cooperative agreements to 12 states 

to develop integrated services to assist beneficiaries return-to-work. 

Moreover, the Congress recently passed The Ticket to Work and Work 

Incentives Improvement Act of 1999, which contains provisions, among 

others, to safeguard medical coverage for workers with disabilities, 

enhance VR services for beneficiaries, and demonstrate the effectiveness 

of allowing working beneficiaries to keep more of their earnings. We 

acknowledge the importance of the new legislation and of SSA’s initiatives 

to improve work opportunities. However, these efforts would have greater 

impact if benefits were structured to give beneficiaries greater impetus to 

use VR services and attempt work, and if return-to-work assistance were 

provided earlier in the decision-making process. We believe that substantial 

savings could be achieved if SSA were to develop such a program. 

However, such savings would be offset by program costs and any net 

savings would depend on the program’s participation rate. CBO could not 

estimate this option because no specific proposals are provided.

Related GAO Products Social Security Disability: Other Programs May Provide Lessons for 

Improving Return to Work Efforts (GAO/T-HEHS-00-151, Jul. 13, 2000).

Social Security Disability: Multiple Factors Affect Return to Work 

(GAO/T-HEHS-99-82, Mar. 11, 1999).

Social Security Disability Insurance: Multiple Factors Affect Beneficiaries’ 

Ability to Return to Work (GAO/HEHS-98-39, Jan. 12, 1998).

Social Security: Disability Programs Lag in Promoting Return to Work 

(GAO/HEHS-97-46, Mar. 17, 1997).

People With Disabilities: Federal Programs Could Work Together More 

Efficiently to Promote Employment (GAO/HEHS-96-126, Sept. 3, 1996).

SSA Disability: Return-to-Work Strategies From Other Systems May 

Improve Federal Programs (GAO/HEHS-96-133, July 11, 1996).

SSA Disability: Program Redesign Necessary to Encourage Return to Work 

(GAO/HEHS-96-62, Apr. 24, 1996).
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 65 GAO-01-447 Supporting Congressional Oversight

GAO Contact Barbara D. Bovbjerg, (202) 512-7215
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 66 GAO-01-447 Supporting Congressional Oversight

Revise Benefit 

Payments Under the 

Federal Employees’ 

Compensation Act 

Federal workers who are disabled as a result of a work-related injury are 

entitled to tax-free workers’ compensation benefits under the Federal 

Employees’ Compensation Act (FECA). Several GAO reviews have 

identified ways in which benefit payment policies can be revised to better 

address eligibility and/or need or to bring FECA benefits more in line with 

other federal and state workers’ compensation laws.

Basing FECA Compensation 

on Spendable Earnings

For almost all totally disabled individuals, FECA benefits are 66-2/3 percent 

of gross pay for beneficiaries without dependents and 75 percent of gross 

pay for beneficiaries with at least one dependent. We reported that nearly 

30 percent of the more than 23,000 beneficiaries included in our analyses 

received FECA compensation benefits that replaced more than 100 percent 

of their estimated take-home pay. Another 40 percent of these beneficiaries 

received FECA benefits that were between 90 and 99 percent of their takehome pay. Benefit replacement rates tended to be higher for beneficiaries 

who (1) received higher amounts of pay before they were injured, (2) were 

injured before 1980, (3) received the FECA dependent benefit, and (4) lived 

in states that had an income tax.

Workers’ compensation program analysts are reluctant to take a position 

on what the “correct” level of workers’ compensation benefits should be, 

leaving that matter to the judgment of legislators. According to a 1985 

Workers Compensation Research Institute report, legislators in many states 

must walk a fine line between benefits that are high enough to provide 

adequate income, but not so high as to discourage an employee’s return to 

work when he or she is no longer disabled. The 1972 Report of the National 

Commission on State Workmen’s Compensation Laws recommended that 

Authorizing committees Labor and Human Resources (Senate)

Education and the Workforce (House)

Appropriations subcommittees Labor, Health and Human Services, and 

Education (Senate and House)

Primary agency Department of Labor

Account Multiple

Spending type Direct/Discretionary

Budget subfunction 609/Other income security

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 67 GAO-01-447 Supporting Congressional Oversight

workers’ weekly benefits should replace at least 80 percent of their 

spendable weekly earnings, subject to a state’s maximum weekly benefit. 

Six states use a percentage of spendable weekly earnings (ranging from 

75 to 80 percent) rather than a percentage of gross wages as the basis for 

computing compensation benefits. Spendable earnings (take-home pay) 

are computed by taking an employee’s gross pay at the time of injury and 

subtracting Social Security taxes and federal and state income taxes. Taxes 

are based on published tax withholding tables, given an employee’s actual 

exemptions and a standard deduction.

If the Congress judges that current FECA benefits are so high as to 

discourage employee’s return to work, it could consider changing the 

current FECA benefit structure from one that bases compensation on gross 

pay to one that bases compensation on spendable earnings. The following 

savings estimates assume that the new FECA benefit formula would equal 

80 percent of spendable earnings. The CBO estimates below assume that 

changes in benefits would be made prospectively. Additional savings could 

be achieved if changes were made to affect individuals who were already 

receiving FECA benefits. Fewer savings would be achieved if a higher 

percentage of spendable earnings were used as the basis for computing 

FECA benefits.

Five-Year Savings

Source: Congressional Budget Office.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from the 2001 funding level

Budget authority 3 8 22 36 51

Outlays 3 8 22 36 51
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 68 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Revising Benefits for 

Retirement Eligible 

Beneficiaries

Retirement eligible federal workers who continue to be disabled as a result 

of a work-related injury could receive tax-free workers’ compensation 

benefits under FECA for the remainder of their lives that would generally 

be greater than amounts these workers would receive as retirement 

benefits. FECA benefits are 75 percent of salary for a disabled employee 

with a dependent; Civil Service Retirement System benefits for a 55-year 

old employee with 30 years of service are 56 percent of salary. We reported 

that 60 percent of the approximately 44,000 long-term FECA beneficiaries 

were at least age 55, the age at which some federal employees are eligible 

for optional retirement with unreduced retirement benefits. Proponents for 

changing FECA benefits for older beneficiaries argue that an inequity is 

created between federal workers who retire normally and those who, in 

effect, “retire” on FECA benefits. Opponents of such a change argue that 

reducing benefits would break the implicit promise that injured workers 

have exchanged their right to tort claims for a given level of future benefits.

We identified two prior proposals for reducing FECA benefits to those who 

become eligible for retirement. One would convert compensation benefits 

received by retirement-eligible disabled workers to retirement benefits. 

However, this approach raises complex issues related to the tax-free nature 

of workers’ compensation benefits and to the individual’s entitlement to 

retirement benefits. The second proposal would convert FECA benefits to 

a newly established FECA annuity, thus avoiding the complexity of shifting 

from one benefit program to another. 

To reduce benefits for retirement-eligible FECA beneficiaries, the Congress 

could consider converting from the current FECA benefit structure to a 

FECA annuity. The following savings estimate assumes that such an 

annuity would equal two-thirds of the previously provided FECA 

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Direct spending

Savings from the CBO baseline

Budget authority 10 20 20 21 21

Outlays 10 20 20 21 21
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 69 GAO-01-447 Supporting Congressional Oversight

compensation benefit, and that the annuity would begin following the 

disabled individual’s eligibility for retirement benefits. The CBO estimate 

assumes that changes in benefits would be made prospectively. Additional 

savings could be achieved if changes were made to affect individuals who 

were already receiving FECA benefits.

Five-Year Savings

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

FECA Cases Involving Third 

Parties

FECA authorizes federal agencies to continue paying employees their 

regular salaries for up to 45 days when they are absent from work due to 

work-related traumatic injuries. In cases in which third parties are 

responsible for employees’ on-the-job injuries (e.g., dog bites or 

automobile-related injuries), the Department of Labor may require that 

employees pursue collection actions against these parties. However, based 

on current interpretations of FECA by the Employees’ Compensation 

Appeals Board and a federal appeals court, the federal government has no 

legal basis to obtain refunds from third parties for the first 45 days of 

absence from work (called the continuation-of-pay (COP) period). 

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from the 2001 funding level

Budget authority 2 4 10 17 24

Outlays 2 4 10 17 24

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Direct spending

Savings from the CBO baseline

Budget authority 5 10 10 10 10

Outlays 5 10 10 10 10
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 70 GAO-01-447 Supporting Congressional Oversight

Recoveries from third parties continue to be allowed for payments of 

compensation benefits following the COP period and for medical benefits.

Based on the current interpretation of FECA, employees can receive 

regular salary payments from their employing agencies and 

reimbursements from third parties—in effect, a double recovery of income 

for their first 45 days of absence from work due to an injury for which a 

third party was responsible. We recommended that the Congress amend 

FECA to expressly provide for refunds of amounts paid as COP when 

employees receive third party recoveries. CBO estimates that the following 

savings could be achieved if the Congress redefined COP so that it could be 

included in amounts employees are required to reimburse the government 

when they recover damages from third parties.

Five-Year Savings

Source: Congressional Budget Office.

*Savings of less than $500,000.

Comparability of FECA and 

Other Compensation Laws

We identified three major ways in which FECA differs from other federal 

and state workers’ compensation laws, each of which results in relatively 

greater benefits under FECA. First, FECA authorizes maximum weekly 

benefit amounts that are greater than those authorized by other federal and 

state workers’ compensation laws. As of January 1, 1995, maximum 

authorized weekly FECA benefits were equal to $1,274: 75 percent of the 

base salary of a GS-15, step 10. The maximum weekly benefit authorized 

under the other workers’ compensation laws was $817 in Iowa. FECA also 

authorizes additional benefits for one or more dependents equal to 8.33 

percent of salary. Only seven states authorize additional benefits for 

dependents, ranging from $5 to $10 per week per dependent, with total 

benefits not exceeding maximum authorized benefit amounts. Finally, 

FECA provides eligible workers who suffer traumatic injuries with their 

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from the 2001 funding level

Budget authority * * 1 1 2

Outlays * * 1 1 2
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 71 GAO-01-447 Supporting Congressional Oversight

regular salary for a period not to exceed 45 days. Compensation benefits 

for wage loss begin on the 48th day, after a 3-day waiting period. All other 

federal and state workers’ compensation laws provide for a 3- to 7-day 

waiting period following the injury before paying compensation benefits. In 

either case, if employees continue to be out of work for extended periods 

of time ranging from 5 to 42 days, depending on the jurisdiction, retroactive 

benefits to cover the waiting period would be paid. 

Reducing FECA’s authorized maximum weekly benefit to make it 

comparable to other compensation laws would have little effect on 

compensation costs because very few federal workers receive maximum 

benefits. However, eliminating augmented compensation benefits for 

dependents and placing a 5-day waiting period immediately following the 

injury, and before the continuation of pay period, would produce the 

following savings, as estimated by CBO. 

Five-Year Savings

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

*Savings of less than $500,000.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from the 2001 funding level

Budget authority 2 3 8 8 9

Outlays 2 3 8 8 9

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Direct spending

Savings from the CBO baseline

Budget authority 6 6 * * *

Outlays 6 6 * * *
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 72 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Federal Employees’ Compensation Act: Percentages of Take-Home Pay 

Replaced by Compensation Benefits (GAO/GGD-98-174, Aug. 17, 1998).

Federal Employees’ Compensation Act: Issues Associated with Changing 

Benefits for Older Beneficiaries (GAO/GGD-96-138BR, Aug. 14, 1996).

Workers’ Compensation: Selected Comparisons of Federal and State Laws 

(GAO/GGD-96-76, Apr. 3, 1996).

Federal Employees’ Compensation Act: Redefining Continuation of Pay 

Could Result in Additional Refunds to the Government (GAO/GGD-95-135, 

June 8, 1995).

GAO Contact Carlotta C. Joyner, (202) 512-6806
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 73 GAO-01-447 Supporting Congressional Oversight

Increase Congressional 

Oversight of PBGC’s 

Budget

The Pension Benefit Guaranty Corporation (PBGC) insures the benefits of 

43 million participants against default of their employer-sponsored defined 

benefit pension plans. Established in 1974 as a self-financing government 

corporation, PBGC’s primary responsibility is to assume administration of 

underfunded plans that either terminate or become insolvent. In fiscal year 

1999, about 215,000 retirees received over $902 million in benefit payments 

from PBGC. To carry out its operations, PBGC relies heavily on the services 

of contractors whose headquarters and field employees account for almost 

half of its workforce.

PBGC is self-financing in that it receives no general revenues. Its operating 

budget of $160 million is financed with funds from two sources: 

(1) insurance premiums paid by plan sponsors and (2) trust assets. 

However, the portion of its budget allocated to administrative expenses has 

been subject to a statutory limitation since 1985. The Congress revised this 

limitation on two occasions to provide PBGC more flexibility to address 

workload increases that followed several large pension plan failures. These 

revisions exempted from any limitation all expenses incurred in connection 

with the termination and management of pension plans and provided PBGC 

with discretion to determine which functions and activities qualified as 

such. Over time, PBGC has expanded the range of activities and functions 

classified as nonlimitation expenses and currently uses these resources to 

fund nearly all of its operations. This has resulted in a steep increase in 

PBGC’s nonlimitation budget from $29 million in fiscal year 1989 to 

$149 million in fiscal year 1999. During this period, PBGC’s limitation 

budget decreased from $40 million to $11 million. Thus, by fiscal year 1999, 

only 75 federal employees were funded out of PBGC’s limitation budget, 

Authorizing committees Labor and Human Resources (Senate)

Education and the Workforce (House)

Appropriation committees Labor, Health and Human Services, and 

Education (Senate and House)

Primary agency Department of Labor

Accounts Pension benefit guaranty corporation fund 

(16-4204)

Spending type Direct/Discretionary

Budget subfunction 601/General retirement and disability 

insurance

Framework theme Reassess Objective
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 74 GAO-01-447 Supporting Congressional Oversight

which receives shared OMB and congressional review and approval. The 

remaining 1,359 employees were funded out of PBGC’s nonlimitation 

budget, which is primarily subject to review and approval by OMB rather 

than the Congress.

We recently reported that PBGC’s failure to strategically manage its longerterm contracting needs, as well as weaknesses in its contractor selection 

and oversight processes, could result in the corporation paying too much 

for procured services. We also noted that PBGC’s budget structure provides 

it with substantial flexibility to use nonlimitation funds that are not directly 

subject to congressional review and approval. This budgetary treatment 

shields most corporation spending for administration and operations from 

congressional scrutiny, creating a potentially favorable environment for 

management weaknesses. 

As a means of strengthening its oversight over PBGC’s budget and 

operations, the Congress could act to restrict the range of activities to be 

supported by nonlimitation funds. This, however, would likely require a 

similar increase in PBGC’s limitation budget in which the Congress has 

direct appropriations oversight. Thus, more of PBGC’s spending for 

operational activities and functions would fall within the normal 

congressional appropriations process. Although this approach would not 

necessarily reduce PBGC’s administrative spending initially, strengthened 

oversight could result in management improvements, more efficient use of 

funds, and slower spending growth in the future. CBO was unable able to 

estimate savings from this option without a more specific proposal.

Related GAO Product Pension Benefit Guaranty Corporation: Contracting Management Needs 

Improvement (GAO/HEHS-00-130, Sept. 18, 2000).

GAO Contact Cynthia M. Fagnoni, (202) 512-7215
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 75 GAO-01-447 Supporting Congressional Oversight

Revise VA’s Disability 

Ratings Schedule to 

Better Reflect 

Veterans’ Economic 

Losses

The Department of Veterans Affairs’ (VA) disability program is required by 

law to compensate veterans for the average loss in earning capacity in 

civilian occupations that results from injuries or conditions incurred or 

aggravated during military service. Veterans with such service-connected 

disabilities are entitled to monthly cash benefits under this program even if 

they are working and regardless of the amount they earn. The amount of 

compensation received is based on disability ratings that VA assigns to the 

service-connected conditions. In fiscal year 1998, VA paid about $17 billion 

in compensation to about 2.2 million veterans for these service-connected 

disabilities. 

The disability ratings schedule that VA currently uses is still primarily 

based on physicians’ and lawyers’ judgments made in 1945 about the effect 

service-connected conditions had on the average individual’s ability to 

perform jobs requiring manual or physical labor. Although the ratings in the 

schedule have not changed substantially since 1945, dramatic changes have 

occurred in the labor market and in society. The results of an economic 

validation of the schedule conducted in the late 1960s indicated that ratings 

for many conditions did not reflect the actual average loss in earnings 

associated with them. Therefore, it is likely that some of the ratings in the 

schedule do not reflect the economic loss experienced by veterans today. 

Hence, the schedule may not equitably distribute compensation funds 

among disabled veterans. 

The Congress may wish to consider directing VA to determine whether the 

ratings for conditions in the schedule correspond to veterans’ average loss 

in earnings due to these conditions and adjust disability ratings 

accordingly. Generally accepted and widely used approaches exist to 

statistically estimate the effect of specific service-connected conditions on 

veterans’ average earnings. These estimates could be used to set disability 

Authorizing committees Veterans’ Affairs

Appropriations subcommittees VA, HUD, and Independent Agencies

Primary agency Department of Veterans Affairs

Account Compensation and Pensions (36-0153)

Spending type Direct

Budget subfunction 701/Income security for veterans

Framework theme Reassess Objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 76 GAO-01-447 Supporting Congressional Oversight

ratings in the schedule that are appropriate in today’s socioeconomic 

environment. The cost to collect the data to produce these estimates was 

projected to be between $5 million and $10 million, which would be a small 

fraction of the over $17 billion VA pays in disability compensation to 

veterans annually. Any savings associated with this option would depend 

on how the new disability schedule alters payments to beneficiaries. A 

reexamination of the disability schedule could find that some conditions 

are overpaid while others may require increased payments. CBO is unable 

to estimate any costs or savings that could result because a specific 

proposal for revising the disability ratings schedule has not been presented.

Related GAO Product VA Disability Compensation: Disability Ratings May Not Reflect Veterans’ 

Economic Losses (GAO/HEHS-97-9, Jan. 7, 1997).

GAO Contact Stephen P. Backhus, (202) 512-7101
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 77 GAO-01-447 Supporting Congressional Oversight

Repeal the 

Davis-Bacon Act 

The Davis-Bacon Act requires that workers on federally funded or federally 

assisted construction projects be paid wages at or above levels determined 

by the Department of Labor to be prevailing in an area. The current dollar 

threshold for projects covered by Davis-Bacon is $2,000, an amount that 

has not changed since 1935. Critics of the act believe that it inflates federal 

construction costs because the wage rates set are actually higher than 

those prevailing in an area. Supporters say it sets a basic responsibility for 

federal construction contractors to pay wages typical in an area, not lower 

wage rates in order to receive a contract. They also argue that savings from 

lower wage rates would be offset by the higher total project costs from the 

use of less productive labor and also from government revenue losses as a 

result of reduced tax collections. 

In 1979, GAO expressed major concern about the accuracy of the wage 

determinations and the impact of the inaccurately high wage rates on 

federal construction costs. Since that time, Labor has made changes that 

have improved the administration of the Davis-Bacon Act and made it less 

likely that the wage rates would be artificially high. For example, Labor has 

revised its criteria to require that 50 percent, rather than 30 percent, of the 

workers included on survey projects must receive the same wage for that 

rate to be considered the prevailing wage. This made it less likely that the 

collectively bargained wage rate in an area would be used to set the 

prevailing wage and, as of 1995, less than 30 percent of all of Labor’s wage 

determinations were set in that way. In 1996, Labor also implemented 

recommendations to reduce the potential for its wage determinations to be 

based on erroneous wage data. There is still an absence of current data, 

though, on the accuracy of wage rates set. 

Authorizing committees Labor and Human Resources (Senate)

Education and the Workforce (House)

Appropriations subcommittees Multiple

Primary agency Department of Labor 

Accounts Multiple

Spending type Discretionary/Direct 

Budget subfunctions Multiple

Framework theme Reassess objectives
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 78 GAO-01-447 Supporting Congressional Oversight

Without making any assumptions about the accuracy of prevailing wage 

rates, but considering other factors such as recordkeeping duties required 

under the act, CBO concluded that Davis-Bacon inflates construction costs. 

On that basis, CBO has noted that repealing the Davis-Bacon Act or raising 

the threshold for projects it covers would allow appropriators to reduce 

funds spent on federal construction. In addition, either action would 

increase the opportunities for employment of less skilled workers. 

However, such changes would lower the earnings of some construction 

workers. If the Congress were to repeal the act, CBO estimates that the 

following savings could be achieved.

Five-Year Savings

Note: Spending authority includes budget authority, as well as obligation limitations from certain trust 

funds.

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Davis-Bacon Act: Labor’s Actions Have Potential to Improve Wage 

Determinations (GAO/HEHS-99-97, May 28, 1999)

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from the 2001 funding level

Spending authority 1,140 1,140 1,140 1,140 1,140

Outlays 250 655 900 1,080 1,170

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Direct spending

Savings from the 2001 funding level

Budget authority 20 20 20 20 20

Outlays -10 15 20 20 20
Appendix I

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Federal Programs

Page 79 GAO-01-447 Supporting Congressional Oversight

Davis-Bacon Act: Labor Now Verifies Wage Data, but Verification Process 

Needs Improvement (GAO/HEHS-99-21, Jan. 11, 1999)

Information Regarding the Davis-Bacon Act (GAO/HEHS-97-30R, Oct. 30, 

1996).

Information Regarding Davis-Bacon Wage Determinations (GAO/HEHS-96-

177R, July 17, 1996).

Davis-Bacon Act: Process Changes Could Address Vulnerability to Use 

Inaccurate Data in Setting of Prevailing Wage Rates (GAO/T-HEHS-96-166, 

June 20, 1996).

Davis-Bacon Act Job Targeting Programs (GAO/HEHS-96-15R, June 3, 

1996).

Davis-Bacon Act: Process Changes Could Raise Confidence That Wage 

Rates Are Based on Accurate Data (GAO/HEHS-96-130, May 31, 1996).

Changes to the Davis-Bacon Act Regulations and Administration 

(GAO/HEHS-94-95R, Feb. 7, 1994).

The Davis-Bacon Act Should Be Repealed (GAO/HRD-79-18, Apr. 27, 1979).

GAO Contact Cynthia M. Fagnoni, (202) 512-7215
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 80 GAO-01-447 Supporting Congressional Oversight

Tax Interest Earned on 

Life Insurance Policies 

and Deferred Annuities

Interest earned on life insurance policies and deferred annuities, known as 

“inside buildup,” is not taxed as long as it accumulates within the contract. 

Although the deferred taxation of inside buildup is similar to the tax 

treatment of income from some other investments, such as capital gains, it 

differs from the policy of taxing interest as it accrues on certain other 

investments, such as certificates of deposit and original issue discount 

bonds. 

Not taxing inside buildup may have merit if it increases the amount of 

insurance coverage purchased and the amount of income available to 

retirees and beneficiaries. However, the tax preference given life insurance 

and annuities mainly benefits middle- and upper-income people. Coverage 

for low-income people is largely provided through the Social Security 

System, which provides both insurance and annuity protection. 

The Congress may wish to consider taxing the interest earned on life 

insurance policies and deferred annuities. The table below reflects JCT’s 

estimated savings from this option, effective taxable years beginning after 

December 31, 2001. Investment income from annuities purchased as part of 

a qualified individual retirement account would be tax-deferred until 

benefits were paid.

Five-Year Revenues

Note: JCT provided its revenue estimates in billions of dollars.

Source: Joint Committee on Taxation.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service 

Spending type Direct

Framework theme Reassess objectives

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain 11.4 23.2 23.8 24.5 25.2
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 81 GAO-01-447 Supporting Congressional Oversight

Related GAO Product Tax Policy: Tax Treatment of Life Insurance and Annuity Accrued Interest 

(GAO/GGD-90-31, Jan. 29, 1990).

GAO Contact James R. White, (202) 512-9110
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 82 GAO-01-447 Supporting Congressional Oversight

Further Limit the 

Deductibility of Home 

Equity Loan Interest 

The term home equity borrowing or financing is usually applied to 

mortgages other than the original loan used to acquire a home or to any 

subsequent refinancing of that loan. Interest is deductible on up to $100,000 

of home equity indebtedness and $1 million of indebtedness used to acquire 

a home. Home equity financing is not limited to home-related uses and can 

be used to finance additional consumption by borrowers. 

Use of mortgage-related debt to finance nonhousing assets and 

consumption purchases through home equity loans could expose 

borrowers to increased risk of losing their homes should they default. 

Equity concerns may exist because middle- and upper-income taxpayers 

who itemize primarily take advantage of this tax preference, and such an 

option is not available to people who rent their housing. 

One way to address the issues concerning the amounts or uses of home 

equity financing would be to limit mortgage interest deductibility up to 

$300,000 of indebtedness for the taxpayer’s principal and second residence. 

Assuming an effective date of taxable years beginning after December 31, 

2001, JCT estimates that this option would generate the following revenues.

Five-Year Revenues

Note: JCT provided its revenue estimates in billions of dollars.

Source: Joint Committee on Taxation.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Department of the Treasury

Spending type Direct

Framework theme Reassess objectives

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain 2.8 4.1 4.5 4.9 5.4
Appendix I

Opportunities to Reassess Objectives of 

Federal Programs

Page 83 GAO-01-447 Supporting Congressional Oversight

Related GAO Product Tax Policy: Many Factors Contributed to the Growth in Home Equity 

Financing in the 1980s (GAO/GGD-93-63, Mar. 25, 1993).

GAO Contact James R. White, (202) 512-9110
Page 84 GAO-01-447 Supporting Congressional Oversight

Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs ApendxiI

The second theme within our framework focuses on the intended 

beneficiaries for federal programs or services. The Congress originally 

defines the intended audience for any program or service based on some 

perception of eligibility and/or need. To better reflect and target 

increasingly limited resources, these definitions can be periodically 

reviewed and revised. Our body of work suggests four decision rules that 

illustrate this strategy.

• Formulas for a variety of grant programs to state and local governments 

can be revised to better reflect the fiscal capacity of the recipient 

jurisdiction. This strategy could reduce overall funding demands while 

simultaneously redistributing available grant funds so that the most 

needy receive the same or increased levels of support. 

• Eligibility rules can be revised, without altering the objectives of the 

program or service. 

• Fees can be targeted to individuals, groups, or industries that directly 

benefit from federal programs. Also, existing charges can be increased 

so that the direct beneficiaries share a greater portion of a program’s 

cost. 

• Tax preferences can be narrowed or eliminated by revising eligibility 

criteria or limiting the maximum amount of preference allowable.

For example, at a time when federal domestic discretionary resources are 

constrained, better targeting of grant formulas offers a strategy to bring 

down federal outlays by concentrating reductions on wealthier localities 

with fewer needs and greater capacity to absorb cuts. Federal grant 

formulas could be redesigned to lower federal costs by disproportionately 

reducing federal funds to states and localities with the strongest tax bases 

and fewer needs, as shown in our option on formula grants. 

Redefine Beneficiaries Reduce the Risk Assumed by Export-Import Bank Programs (150)

Recover Power Marketing Administrations’ Costs (270)

Reduce Department of Energy’s Contractors’ Separation Benefits (270)

Exempt Department of Energy Operating Contractors from Certain State 

Taxes (270)

Increase Nuclear Waste Disposal Fees (270)

Recover Federal Investment in Successfully Commercialized Technologies 

(270)

Revise the Mining Law of 1872 (300)

Coordinate Federal Policies for Subsidizing Water for Agriculture and Rural 

Uses (300)
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 85 GAO-01-447 Supporting Congressional Oversight

Lowering the Sugar Program’s Loan Rate To Processors (350)

Recapture Interest on Rural Housing Loans (370)

Require Self-Financing of Mission Oversight by Fannie Mae and Freddie 

Mac (370)

Increase Aircraft Registration Fees to Recover Actual Costs (400)

Limit Eligibility for Federal Emergency Management Agency Public 

Assistance (450)

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 

Greatest Flood Loss (450)

Eliminate Flood Insurance for Certain Repeatedly Flooded Properties (450)

Charge Beneficiaries for Food Inspection Costs (550)

Implement Risk-Based Meat and Poultry Inspections (550) 

Prevent States from Using Illusory Approaches to Shift Medicaid Program 

Costs to the Federal Government (550)

Design New Payment System so that Medicare Does Not Overpay for Home 

Health Care (570)

Share the Savings From Bond Refundings (600)

Implement a Service Fee for Successful Non-Temporary Assistance for 

Needy Families (TANF) Child Support Enforcement Collections (600)

Improve Reporting of DOD Reserve Payroll Data to State Unemployment 

Insurance Programs (600)

Discontinue Veterans’ Disability Compensation for Non-Service Connected 

Diseases (700)

Increase Cost Sharing for Veterans’ Long-Term Care (700)

Limit Enrollment in Veterans Affairs Health Care System (700)

Prevent Delinquent Taxpayers from Benefiting from Federal Programs 

(800)

Target Funding Reductions in Formula Grant Programs (800)

Adjust Federal Grant Matching Requirements (800)

Limit the Tax Exemption for Employer-Paid Health Insurance (Receipt)

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 

Motor Fuels (Receipt)

Index Excise Tax Bases for Inflation (Receipt)

Increase Highway User Fees on Heavy Trucks (Receipt)

Impose Pollution Fees and Taxes (Receipt)
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 86 GAO-01-447 Supporting Congressional Oversight

Reduce the Risk 

Assumed by ExportImport Bank Programs

The U.S. Export-Import Bank (Eximbank) was created to facilitate exports 

of U.S. goods and services by offering a wide range of financing at terms 

competitive with those of other governments’ export financing agencies. 

Eximbank is to absorb risks that the private sector is unwilling or unable to 

assume. Higher-risk markets, such as the Newly Independent States of the 

Former Soviet Union, constitute a relatively small share of the Eximbank’s 

total financing commitments yet absorb a relatively large share of its 

subsidy costs. From fiscal years 1996 to 2000, Eximbank used an average of 

about $816 million of its credit subsidy appropriation to support an average 

of about $12 billion in export financing commitments (loans, loan 

guarantees, and insurance). Eximbank’s congressional mandate is to 

supplement, not compete with, private capital. Thus it provides financing in 

a wide variety of markets, including more markets in higher-risk categories 

than those of any of its major competitors. 

The level and scope of the risks of the Eximbank’s programs could be 

reduced by several means, such as placing a ceiling on the maximum 

subsidy rate allowed in Eximbank programs, reducing or eliminating 

program availability offered in high-risk markets, and offering less than 

100-percent risk protection. These changes would have only a slight effect 

on the overall level of U.S. exports supported with Eximbank financing. 

However, these options raise several trade and foreign policy issues that 

decisionmakers would need to address before making any changes in the 

Eximbank’s programs. Eximbank officials noted that these options could 

undermine U.S. government efforts to provide support in some higher-risk 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees Foreign Operations (Senate)

Foreign Operations, Export Financing, and 

Related Programs (House) 

Primary agency U.S. Export-Import Bank

Account Export-Import Bank Loans Program 

Account (83-0100)

Spending type Discretionary

Budget subfunction 155/International financial programs

Framework theme Redefine beneficiaries 
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 87 GAO-01-447 Supporting Congressional Oversight

markets, such as the Newly Independent States of the Former Soviet 

Union, that exhibit promising long-term potential.

The specific level of savings resulting from these program changes would 

be dependent on several factors, including the willingness of exporters and 

participating banks to absorb increased costs and risks, and the reaction of 

foreign export credit agencies. Based on average obligations over the last 

5 years, CBO estimates that the following program subsidy savings could 

be achieved if Eximbank provided only short-term cover in higher-risk 

markets.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products U.S. Export-Import Bank: Issues Raised by Recent Market Developments 

and Foreign Competition (GAO/T-NSIAD-99-23, Oct. 7, 1998).

Export-Import Bank: Key Factors in Considering Eximbank 

Reauthorization (GAO/T-NSIAD-97-215, July 17, 1997).

Export-Import Bank: Options for Achieving Possible Budget Reductions

(GAO/NSIAD-97-07, Dec. 20, 1996).

Foreign Affairs: Perspectives on Foreign Affairs Programs and Structures

(GAO/NSIAD-97-6, Nov. 8, 1996).

Export Finance: Comparative Analysis of U.S. and European Union Export 

Credit Agencies (GAO/GGD-96-1, Oct. 24, 1995).

Export Finance: The Role of the U.S. Export-Import Bank

(GAO/GGD-93-39, Dec. 23, 1992).

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 317 317 317 317 317

Outlays 71 198 246 278 290
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 88 GAO-01-447 Supporting Congressional Oversight

GAO Contact Susan S. Westin, (202) 512-4128
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 89 GAO-01-447 Supporting Congressional Oversight

Recover Power 

Marketing 

Administrations’ Costs 

Four of the Department of Energy’s (DOE) power marketing 

administrations (PMA)—Bonneville Power Administration, Southeastern 

Power Administration, Southwestern Power Administration, and Western 

Area Power Administration—market primarily wholesale power in 33 

states produced at large, multiple-purpose water projects. Except for 

Bonneville, these PMAs receive annual appropriations to cover operating 

and maintenance (O&M) expenses and, if applicable, the capital investment 

in transmission assets.1

 Federal law requires the PMAs to repay these 

appropriations as well as the power-related O&M and the capital 

appropriations expended by the operating agencies generating the power.

Current monitoring activities do not ensure that the federal government 

recovers the full cost of its power-related activities from the beneficiaries 

of federal power. The full cost of the power-related activities—which are to 

be recovered under current legislation and DOE policy—include all direct 

and indirect costs incurred by the federal government in producing, 

transmitting, and marketing federal power. Neither DOE nor the Federal 

Energy Regulatory Commission, which reviews the PMAs’ rate proposals, 

is effectively monitoring the rate-making process and the amounts due and 

repayments made to ensure their accuracy, completeness, and timeliness. 

Unrecovered power-related costs relate to (1) Civil Service Retirement 

System (CSRS) pensions and postretirement health benefits, (2) life 

insurance benefits, (3) certain workers’ compensation benefits, and 

(4) interest on some of the federal appropriations used to construct certain 

projects. The full magnitude of the under-recovery of power-related costs is 

unknown. Until an effective monitoring system is implemented, the federal 

Authorizing committees Energy and Natural Resources (Senate)

Resources (House)

Primary agency Department of Energy

Spending type Direct

Framework theme Redefine beneficiaries

1

In 1974, the Congress stopped providing Bonneville with annual appropriations and instead 

provided it with a revolving fund maintained by the Treasury; however, Bonneville remains 

responsible for repaying its debt prior to 1974 and debt stemming from appropriations 

expended by the operating agencies on power-related expenses.
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 90 GAO-01-447 Supporting Congressional Oversight

government will continue to be exposed to financial loss due to the underrecovery of power-related costs. 

The federal government is also incurring other substantial net costs 

annually—the amount by which the full costs of providing electric power 

exceed the revenues from the sale of power—from the electricity-related 

activities of the PMAs. Although the PMAs are generally required to recover 

all costs, favorable financing terms and the lack of specific requirements to 

recover certain costs have resulted in net costs to the federal government 

because these PMAs’ electricity rates do not recover all costs that are to be 

repaid through the sale of power. It is important to note that the PMAs were 

generally following applicable laws and regulations applying to the 

recovery of costs; however, in some cases, federal statutes and an 

applicable DOE order are ambiguous about or prohibit the recovery of 

certain costs.

In part because the PMAs sell power generated almost exclusively from 

hydropower, are not required to earn a profit, and do not fully recover the 

government’s costs in their rates, they are generally able to sell power more 

cheaply than other providers. Southeastern, Southwestern, and Western 

sold wholesale power to their preference customers, such as public entities 

and rural cooperatives, from 1990 through 1995, at average rates from 40 to 

50 percent below the rates nonfederal utilities charged. If the PMAs were 

authorized to charge market rates for power in conjunction with federal 

restructuring legislation, some preference customers who now purchase 

power from the PMAs at rates that are less than those available from other 

sources would see their rates increase. However, we have reported that 

slightly more than two-thirds of the preference customers, which are 

located in varying portions of 29 states, that purchased power directly from 

Southeastern, Southwestern, and Western would experience small or no 

rate increases—increases of one-half cent per kilowatt hour or less—if 

those PMAs charged market rates. 

The Congress and/or the Secretary of Energy may wish to consider 

directing the PMAs to more fully recover power-related costs or revising 

DOE’s policy on high-interest debt repayment. We have recommended a 

number of specific actions aimed at enhancing DOE’s oversight. For 

example, changes could be implemented to recover the full costs to the 

federal government of providing postretirement health benefits and 

pensions for current employees and operating agency employees engaged 

in producing and marketing the power sold by the PMAs. We and CBO 

agree that several PMAs have begun to address some of these actions. The 
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 91 GAO-01-447 Supporting Congressional Oversight

Congress has the option of requiring the PMAs to sell their power at market 

rates to better ensure the full recovery of the appropriated and other debt 

that is recoverable through the PMAs’ power sales. This debt totaled about 

$22 billion at the end of fiscal year 1997 and included nearly $2.5 billion in 

irrigation costs that are to be recovered through the PMAs’ power sales. 

This option would likely also lead to more efficient management of the 

taxpayers’ assets. 

Although CBO agrees that savings would occur if the PMAs were directed 

to fully recover power-related costs or set their power at market rates, it 

cannot develop an estimate for this option until a specific proposal is 

identified.

Related GAO Products Congressional Oversight: Opportunities to Address Risks, Reduce Costs, 

and Improve Performance (GAO/T-AIMD-00-96, Feb. 17, 2000).

Federal Power: The Role of the Power Marketing Administrations in a 

Restructured Electricity Industry (GAO/T-RCED/AIMD-99-229, June 24, 

1999).

Federal Power: PMA Rate Impacts, by Service Area (GAO/RCED-99-55, 

Jan. 28, 1999).

Federal Power: Regional Effects of Changes in PMAs’ Rates

(GAO/RCED-99-15, Nov. 16, 1998).

Power Marketing Administrations: Repayment of Power Costs Needs 

Closer Monitoring (GAO/AIMD-98-164, June 30, 1998).

Federal Power: Options for Selected Power Marketing Administrations’ 

Role in a Changing Electricity Industry (GAO/RCED-98-43, Mar. 6, 1998).

Federal Electricity Activities: The Federal Government’s Net Cost and 

Potential for Future Losses (GAO/AIMD-97-110 and 110A, Sept. 19, 1997).

Federal Power: Issues Related to the Divestiture of Federal Hydropower 

Resources (GAO/RCED-97-48, Mar. 31, 1997).

Power Marketing Administrations: Cost Recovery, Financing, and 

Comparison to Nonfederal Utilities (GAO/AIMD-96-145, Sept. 19, 1996).
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 92 GAO-01-447 Supporting Congressional Oversight

Federal Power: Outages Reduce the Reliability of Hydroelectric Power 

Plants in the Southeast (GAO/T-RCED-96-180, July 25, 1996).

Federal Power: Recovery of Federal Investment in Hydropower Facilities 

in the Pick-Sloan Program (GAO/T-RCED-96-142, May 2, 1996).

Federal Electric Power: Operating and Financial Status of DOE’s Power 

Marketing Administrations (GAO/RCED/AIMD-96-9FS, Oct. 13, 1995).

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 93 GAO-01-447 Supporting Congressional Oversight

Reduce Department of 

Energy’s Contractors’ 

Separation Benefits 

Since 1993, the Department of Energy has spent about $900 million to 

provide benefits to contractor employees separated in workforce 

restructuring and downsizing efforts at its facilities. Most of the contractor 

workers separated during fiscal years 1997 and 1998 received benefits 

under DOE’s workforce restructuring program. While DOE generally 

offered its separated contractor employees a large range of benefits, the 

value of the benefits varied widely, primarily because of the differences in 

the benefits packages among sites and in the employees’ length of service 

and base pay. These benefit packages are reasonably consistent with the 

types of benefits offered by public and private employers. However, the 

benefit formulas in some of DOE’s workforce restructuring plans, such as 

those determining voluntary separation benefits and extended medical 

coverage, potentially allow more generous benefits than those offered for 

federal civilian employees. The Congress could act to bring separation 

benefits in line with benefits provided to federal employees. CBO estimates 

such action would result in the following savings.

Five-Year Savings

Source: Congressional Budget Office.

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Energy and Water Development (Senate 

and House)

Primary agency Department of Energy

Account Multiple

Spending type Discretionary

Budget subfunction Multiple

Framework theme Redefine beneficiaries

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 3 3 3 3 3

Outlays 3 3 3 3 3
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 94 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Department of Energy Workforce Reductions: Community Assistance 

Could Be Better Targeted (GAO/RCED-99-135, May 7, 1999).

Department of Energy: Value of Benefits Paid to Separated Contractor 

Workforce Varied Widely (GAO/RCED-97-33, Jan. 23, 1997).

GAO Contacts Bob Robinson, (202) 512-3841

Ms. Gary L. Jones, (202) 512-3841
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 95 GAO-01-447 Supporting Congressional Oversight

Exempt Department of 

Energy’s Operating 

Contractors from 

Certain State Taxes

The federal government is exempt from paying certain state taxes, such as 

gross receipts and use taxes. However, the Department of Energy’s (DOE) 

contractor-operated laboratories and production plants, although wholly 

government-owned and dedicated exclusively to government programs, are 

subject to such taxes. Because DOE has fully reimbursable contracts with 

its operating contractors, DOE is, in effect, paying these taxes. The 

amounts reimbursed can be significant. For example, in fiscal years 1997 

through 1999, DOE’s contractors were reimbursed an average of 

$75 million for gross receipts, sales, and/or use taxes. If the Congress chose 

to designate DOE operating contractors as “instrumentalities of the federal 

government,” the following savings could be achieved. Such action would 

make the contractors immune from state taxation and thereby eliminate 

this expense.

Five-Year Savings

Source: Congressional Budget Office.

Authorizing committees Armed Services (Senate and House)

Energy and Natural Resources (Senate)

Energy and Commerce (House)

Appropriations subcommittees Energy and Water Development (Senate 

and House)

Interior and Related Agencies (Senate and 

House)

Primary agency Department of Energy

Account Multiple

Spending type Discretionary

Budget subfunction Multiple

Framework theme Redefine beneficiaries

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 80 82 83 85 86

Outlays 52 77 83 84 86
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 96 GAO-01-447 Supporting Congressional Oversight

Related GAO Product Energy Management: DOE Controls Over Contractor Expenditures Need 

Strengthening (GAO/RCED-87-166, Aug. 28, 1987).

GAO Contacts Bob Robinson, (202) 512-3841

Ms. Gary L. Jones, (202) 512-3841
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 97 GAO-01-447 Supporting Congressional Oversight

Increase Nuclear Waste 

Disposal Fees

Utilities pay a fee to the Nuclear Waste Fund to finance the development of 

storage and permanent disposal facilities for high-level radioactive wastes. 

The amount of this fee has not changed since 1983, making the fund 

susceptible to future budget shortfalls. To help ensure that sufficient 

revenues are collected to cover increases in cost estimates caused by price 

inflation, the Congress should amend the Nuclear Waste Policy Act of 1982 

to direct the Secretary of Energy to automatically adjust for inflation the 

nuclear waste disposal fee that utilities pay into the Nuclear Waste Fund. If 

the fee were indexed to inflation, CBO estimates the following additional 

receipts could be expected.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Status of Actions to Improve DOE User-Fee Assessments (GAO/RCED-92-

165, June 10, 1992).

Changes Needed in DOE User-Fee Assessments (GAO/T-RCED-91-52, 

May 8, 1991).

Changes Needed in DOE User-Fee Assessments to Avoid Funding Shortfall

(GAO/RCED-90-65, June 7, 1990).

Authorizing committees Energy and Natural Resources (Senate)

Energy and Commerce (House)

Resources (House)

Primary agency Department of Energy

Spending type Direct

Framework theme Redefine beneficiaries

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Added receipts 15 29 44 58 72
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 98 GAO-01-447 Supporting Congressional Oversight

GAO Contacts Bob Robinson, (202) 512-3841

Ms. Gary L. Jones, (202) 512-3841
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 99 GAO-01-447 Supporting Congressional Oversight

Recover Federal 

Investment in 

Successfully 

Commercialized 

Technologies

The Department of Energy (DOE) and the private sector are involved in 

hundreds of cost-shared projects aimed at developing a broad spectrum of 

cost-effective, energy-efficiency technologies that protect the environment, 

support the nation’s economic competitiveness, and promote the increased 

use of oil, gas, coal, nuclear, and renewable energy resources. In June 1996, 

we reported that DOE generally does not require repayment of its 

investment in technologies that are successfully commercialized. Our 

review identified four DOE programs that require industry repayment if the 

technologies are ultimately commercialized. The offices in which we 

focused most of our work planned to devote about $8 billion in federal 

funds to cost-shared projects over their lifetime, of which about $2.5 billion 

is subject to repayment.

Our June 1996 report discussed the advantages and disadvantages of 

having a repayment policy and pointed out that many of the disadvantages 

can be mitigated by structuring a flexible repayment requirement with the 

disadvantages in mind. It also discussed the types of programs and projects 

that would be the most appropriate or suitable for repayment of the federal 

investment. 

Because opportunities exist for substantial repayment in some of DOE’s 

programs, requiring repayment under a flexible policy would allow the 

government to share in the benefits of successfully commercialized 

technologies that could amount to hundreds of millions of dollars. The 

potential for repayment can be illustrated by assuming that if only 50 

percent of the funds planned for projects that are currently not subject to 

Authorizing committees Energy and Natural Resources (Senate)

Science (House)

Energy and Commerce (House)

Appropriations subcommittees Energy and Water Development (Senate 

and House)

Interior and Related Agencies (Senate and 

House)

Primary agency Department of Energy

Account Multiple

Spending type Discretionary

Budget subfunction Multiple

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 100 GAO-01-447 Supporting Congressional Oversight

repayment lend themselves to repayment, and if about 15 percent of 

research and development funds result in commercialized technologies 

(which DOE officials say is about average), then about $400 million could 

be repaid to the federal government. However, repayment provisions would 

only apply to future technology development projects not yet negotiated 

with industry. CBO estimates that this option would have no effect on 

receipts in the next 5 years because of the time lag between research and 

commercialization.

Related GAO Product Energy Research: Opportunities Exist to Recover Federal Investment in 

Technology Development Projects (GAO/RCED-96-141, June 26, 1996).

GAO Contacts Bob Robinson, (202) 512-3841

Jim Wells, (202) 512-3841
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 101 GAO-01-447 Supporting Congressional Oversight

Revise the Mining Law 

of 1872

The Mining Law of 1872 allows holders of economically minable claims on 

federal lands to obtain all rights and interests to both the land and the 

hardrock minerals by patenting the claims for $2.50 or $5.00 an acre—

amounts that do not necessarily reflect the market value of such lands 

today. Since 1872, the federal government has patented more than 3 million 

acres of mining claims (an area about the size of Connecticut), and some 

patent holders have reaped huge profits by reselling their lands. For 

example, lands that had been appraised at between $14.4 million and 

$47.1 million in 1988 would have generated only about $16,000 for the 

federal government in 1989 if the claims were patented. Furthermore, 

miners do not pay royalties to the government on hardrock minerals they 

extract from federal lands. In 1990, hardrock minerals worth at least 

$1.2 billion were extracted from federal lands, while known and 

economically recoverable reserves of hardrock minerals remaining on 

federal lands were estimated to be worth almost $64.9 billion.

Among the options that are available are to prohibit the issuance of new 

patents, require the payment of fair market value for a patent, or otherwise 

modify the requirements for patenting. Legislation could also be enacted to 

impose royalties on hardrock minerals extracted from federal lands. As one 

possible option, if the Congress adopted a 5-percent royalty on net smelter 

returns, CBO estimates that he following receipts would be gained.

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House)

Resources (House)

Primary agencies Department of the Interior

Department of Agriculture

Spending type Direct

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 102 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Mineral Royalties: Royalties in the Western States and in Major MineralProducing Countries (GAO/RCED-93-109, Mar. 29, 1993).

Natural Resources Management Issues (GAO/OCG-93-17TR, Dec. 1992).

Mineral Resources: Value of Hardrock Minerals Extracted From and 

Remaining on Federal Lands (GAO/RCED-92-192, Aug. 24, 1992).

Federal Land Management: The Mining Law of 1892 Needs Revision

(GAO/RCED-89-72, Mar. 10, 1989).

GAO Contacts Bob Robinson, (202) 512-3841

Barry T. Hill, (202) 512-3841

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Offsetting Receipts 4 5 5 5 5
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 103 GAO-01-447 Supporting Congressional Oversight

Coordinate Federal 

Policies for Subsidizing 

Water for Agriculture 

and Rural Uses

Federal water programs to promote efficient use of finite water resources 

for the nation’s agricultural and rural water systems have developed 

inconsistencies that may cause the programs to work at cross-purposes. In 

1995, as many as eight different federal agencies administered 17 different 

programs in the area of rural water and wastewater systems. In the area of 

irrigation, the multiplicity of programs and approaches has allowed for 

inconsistencies and potentially counterproductive outcomes.

To improve the effectiveness and efficiency of federal water programs, the 

Congress could consider several options to reduce duplication or 

inconsistencies, including: 

Collecting the Full Costs of 

Subsidized Federal Water 

for Large Farms 

Because of the Reclamation Reform Act of 1982, as amended, some farmers 

have reorganized large farming operations into multiple, smaller 

landholdings to be eligible to receive additional federally subsidized 

irrigation water. The act limits to 960 the maximum number of owned or 

leased acres that individuals or legal entities (such as partnerships or 

corporations) can irrigate with federal water at rates that exclude interest 

on the government’s investment in the irrigation component of its water 

resource projects. However, due to the definition of the term “farm,” the 

flow of federally subsidized water to land holdings above the 960 acre-limit 

has not been stopped, and the federal government is not collecting 

revenues to which it is entitled under the act. 

Phasing Out the Double 

Subsidies for Crops

The use of federally subsidized water to produce federally subsidized crops 

results in the government paying double subsidies. According to the 

Department of the Interior, between 1976 and 1985, an average of 38 

percent of the acreage served by the Bureau of Reclamation nationwide 

was used to produce crops that are also eligible for subsidies through the 

Department of Agriculture’s commodity programs. Estimates of the cost of 

federal water subsidies vary but are substantial. The Department of the 

Authorizing committees Energy and Natural Resources (Senate) 

Resources (House)

Primary agency Department of the Interior 

Spending type Direct

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 104 GAO-01-447 Supporting Congressional Oversight

Interior estimated that irrigation subsidies used to produce subsidized 

crops throughout the 17 western states totaled $203 million in 1986; the 

Bureau of Reclamation placed the figure at $830 million. 

Accelerating the Repayment 

of Water Project 

Construction Costs

By the end of fiscal year 1990, after receiving water from the Central Valley 

Project (CVP) in California’s Central Valley Basin for over 40 years, 

irrigators had repaid only $10 million, 1 percent, of the over $1 billion in 

construction costs that they owe the federal government. In 1986, the 

Congress required irrigators and other users to pay their share of the 

federal investment in CVP by 2030. While construction costs ultimately may 

be recovered by 2030, the dollars that eventually flow to the Treasury could 

be worth much less than if they had been repaid sooner. The Congress may 

wish to accelerate the repayment schedule. 

Fully Recovering the 

Federal Investments in 

Rural Water Systems

Under the current repayment criteria, approximately $454 million of the 

federal investment in the Pick-Sloan Basin Program (a comprehensive plan 

to manage the water and hydropower resources of the Missouri River 

basin) is unrecoverable. A portion of Pick-Sloan’s completed facilities was 

intended for use with irrigation facilities that have not been completed and 

are no longer considered feasible. In addition, as the overall federal 

investment in the other aspects of the completed hydropower facilities 

increases because of changes such as renovations and replacements, the 

amount of the federal investment that is unrecoverable will increase. 

Changing the terms of repayment to recover any of the $454 million 

investment would require congressional action. Similar to previous 

congressional action concerning the program, the Congress could direct 

the Western Area Power Administration to recover the investment through 

power revenues and to take action to minimize any impact on power rates.

Phasing Out the Interest 

Subsidies for Irrigators

Estimates of the current cost of federal water subsidies are substantial. For 

example, the Department of the Interior reported that irrigation subsidies 

throughout the 17 western states totaled $534 million in 1986, while the 

Bureau of Reclamation placed the cost at $2.2 billion. Estimates differ 

because of different definitions of an irrigation subsidy, different interest 

rates used to calculate the subsidies, and different methods for 

compounding unpaid interest. Much has changed in the West since the 

subsidies were established in 1902, and it is not known whether the 

subsidies are still warranted or whether irrigators could pay more of the 

cost of the water delivered.
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 105 GAO-01-447 Supporting Congressional Oversight

CBO cannot estimate savings for these options without further 

information.

Related GAO Products Rural Water Projects: Federal Assistance Criteria (GAO/RCED-98-204R, 

May 29, 1998).

Rural Development: Patchwork of Federal Water and Sewer Programs Is 

Difficult to Use (GAO/RCED-95-160BR, Apr. 13, 1995).

Federal Power: Recovery of Federal Investment in Hydropower Facilities 

in the Pick-Sloan Program (GAO/T-RCED-96-142, May 2, 1996).

Water Subsidies: Impact of Higher Irrigation Rates on Central Valley Project 

Farmers (GAO/RCED-94-8, Apr. 19, 1994).

Natural Resources Management Issues (GAO/OCG-93-17TR, Dec. 1992).

Reclamation Law: Changes Needed Before Water Service Contracts Are 

Renewed (GAO/RCED-91-175, Aug. 22, 1991).

Water Subsidies: The Westhaven Trust Reinforces the Need to Change 

Reclamation Law (GAO/RCED-90-198, June 5, 1990).

Water Subsidies: Basic Changes Needed to Avoid Abuse of the 960-Acre 

Limit (GAO/RCED-90-6, Oct. 12, 1989).

GAO Contacts Bob Robinson, (202) 512-3841

Barry T. Hill, (202) 512-3841
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 106 GAO-01-447 Supporting Congressional Oversight

Lowering the Sugar 

Program’s Loan Rate 

To Processors

The sugar program, administered by the U.S. Department of Agriculture 

(USDA), guarantees domestic cane sugar and beet sugar producers 

(growers and processors) a minimum price for sugar, which during the past 

year has been about three times the world market price. The sugar program 

supports domestic sugar prices by offering loans to sugar processors at a 

rate established by law: 18 cents per pound for raw cane sugar and 22.9 

cents per pound for refined beet sugar, with the sugar serving as collateral 

for these loans. The program has allowed processors to forfeit their sugar 

to the federal government instead of repaying their loans—which they are 

likely to do if domestic sugar prices fall below the level of the loan rate plus 

certain costs that processors would no longer incur if they forfeited. To 

minimize the likelihood of forfeitures, a direct cost to taxpayers, the sugar 

program has maintained artificially high sugar prices by using a tariff-rate 

quota to restrict the amount of sugar that can be imported at a low tariff 

duty. 

The sugar program increases users’ costs. The program’s costs depend on 

the world price of sugar and tend to be higher when the difference between 

the domestic and the world price is greater. GAO estimated that the 

program cost domestic sweetener users about $1.5 billion in 1996 and 

about $1.9 billion in 1998 (in 1999 dollars). The program’s costs were higher 

in 1998 because the world price dropped while the domestic price 

remained about the same. The sugar program also added to the federal 

government’s costs in fiscal year 2000. USDA spent $54 million to purchase 

sugar on the domestic market to help maintain prices and prevent sugar 

loan forfeitures in May and June 2000. USDA also took possession of about 

950,000 tons of sugar valued at about $380 million that processors have 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House)

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Accounts Commodity Credit Corporation Fund 

(12-4336)

Spending type Direct

Budget Subfunction 351/Farm income stabilization

Framework theme Redefine beneficiary
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 107 GAO-01-447 Supporting Congressional Oversight

forfeited instead of repaying their sugar loans. The sugar program has an 

additional effect on government costs because the government purchases 

sugar and sugar-containing products for food assistance programs, 

consumption by the military, and other purposes.

The Congress and the USDA may want to take steps to gradually lower the 

loan rates and increase the tariff-rate quota accordingly to reduce the costs 

of the sugar program to both sugar users and the government. For example, 

if the Congress lowered the loan rates for cane and beet sugar by two cents 

per pound each, government savings might accrue in two ways. The lower 

loan rates would reduce the likelihood of loan forfeitures and the resulting 

lower market price for sugar would reduce the amount the government 

spends for sugar and sugar-containing products that it buys for government 

feeding programs, consumption by the military, and other purposes. 

While CBO agrees that this proposal could lead to savings, they are not able 

to estimate specific savings at this time. 

Related GAO Products Sugar Program: Supporting Sugar Prices Has Increased Users’ Costs While 

Benefiting Producers (GAO/RCED-00-126, June 9, 2000).

Sugar Program: Changing the Method for Setting Import Quotas Could 

Reduce Cost to Users (GAO/RCED-99-209, July 26, 1999).

Sugar Program: Impact on Sweetener Users and Producers

(GAO/T-RCED-95-204, May 24, 1995).

Sugar Program: Changing Domestic and International Conditions Require 

Program Changes (GAO/RCED-93-84, Apr. 16, 1993).

GAO Contact Lawrence J. Dyckman, (202) 512-5138
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 108 GAO-01-447 Supporting Congressional Oversight

Recapture Interest on 

Rural Housing Loans 

The Housing Act of 1949, as amended, requires the USDA’s Rural Housing 

Service (RHS) to recapture a portion of the subsidy provided over the life 

of direct housing loans it makes when the borrower sells or vacates a 

property. The rationale being that because taxpayers paid a portion of the 

mortgage, they are entitled to a portion of the property’s appreciation.

Because recapture is not mandated when homes are refinanced, RHS’ 

policy allows borrowers who pay off direct RHS loans but continue to 

occupy the properties to defer the payments for recapturing the subsidies. 

As of July 31, 1999, RHS’ records showed that about $140 million was owed 

by borrowers who had refinanced their mortgages but continue to occupy 

the properties. RHS does not charge interest on the amounts owed by these 

borrowers. 

Legislative changes could be made to allow RHS to charge market rate 

interest on recapture amounts owed by borrowers to help recoup the 

government’s administrative and borrowing costs. CBO’s estimate of the 

savings for this option is presented on a net present value basis as required 

by the Federal Credit Reform Act of 1990. Actual savings could differ 

depending on how this proposal would affect the rate at which homes are 

sold.

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees Agriculture, Rural Development, Food and 

Drug Administration, and Related Agencies 

(Senate and House)

Primary agency Department of Agriculture

Account Rural Housing Insurance Fund (12-2081)

Spending type Direct

Budget subfunction 371/Mortgage credit

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 109 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Product Rural Housing Programs: Opportunities Exist for Cost Savings and 

Management Improvement (GAO/RCED-96-11, Nov. 16, 1995).

GAO Contact Stanley J. Czerwinski, (202) 512-7631

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 45 0 0 0 0

Outlays 45 0 0 0 0
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 110 GAO-01-447 Supporting Congressional Oversight

Require Self-Financing 

of Mission Oversight by 

Fannie Mae and 

Freddie Mac

The Congress established and chartered the Federal National Mortgage 

Association (Fannie Mae) and the Federal Home Loan Mortgage 

Corporation (Freddie Mac) as government-sponsored enterprises. These 

enterprises are privately-owned corporations chartered to enhance the 

availability of mortgage credit across the nation. The Congress also 

charged the Department of Housing and Urban Development (HUD) with 

mission oversight responsibility for the enterprises, which includes 

ensuring that housing goals established by HUD result in enhanced housing 

opportunities for certain groups of borrowers.

Other federal organizations responsible for regulating governmentsponsored enterprises are financed by assessments on the regulated 

entities. However, HUD’s mission oversight expenditures are funded with 

taxpayer dollars from HUD’s appropriations. Accordingly, HUD’s capability 

to strengthen its enterprise housing mission oversight may be limited 

because resources that could be used for that purpose must compete with 

other priorities. For example, HUD’s capacity to implement a program to 

verify housing goal data, which would necessarily involve a commitment of 

additional resources, may be limited.

Requiring Fannie Mae and Freddie Mac to reimburse HUD for mission 

oversight expenditures would not only result in the savings shown below 

but would also enable HUD to strengthen its oversight activities. 

Authorizing committee Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittee VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Department of Housing and Urban 

Development

Accounts Office of Federal Housing Enterprise 

Oversight, Salaries and Expenses (86-

5272)

Spending type Direct

Budget subfunction 371/Mortgage credit

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 111 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Federal Housing Enterprises: HUD’s Mission Oversight Needs to Be 

Strengthened (GAO/GGD-98-173, July 28, 1998).

Government-Sponsored Enterprises: Advantages and Disadvantages of 

Creating a Single Housing GSE Regulator (GAO/GGD-97-139, July 9, 1997). 

Government-Sponsored Enterprises: A Framework for Limiting the 

Government’s Exposure to Risks (GAO/GGD-91-90, May 22, 1991).

GAO Contact Thomas J. McCool, (202) 512-8678

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2000 funding level

Budget authority 10 10 10 10 10

Outlays 10 10 10 10 10
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 112 GAO-01-447 Supporting Congressional Oversight

Increase Aircraft 

Registration Fees to 

Enable the Federal 

Aviation 

Administration to 

Recover Actual Costs

In 1977, the Congress amended the Federal Aviation Act and identified 

three categories of aircraft owners—U.S. citizens, resident aliens, and U.S.-

based foreign companies—that may register aircraft in the United States. 

To register an aircraft, an eligible owner submits a $5 fee. As of the end of 

fiscal year 1999, 355,518 aircraft were registered in the United States. In 

fiscal year 1999, 54,329 certificate registrations were issued.

In 1993 we reported that the Federal Aviation Administration (FAA) was 

not fully recovering the cost of processing aircraft registration applications 

and estimated that, by not increasing fees since 1968 to recover costs, FAA 

had foregone about $6.5 million in additional revenue. To recover the costs 

of services provided to aircraft registrants, we have recommended that 

FAA increase its aircraft registration fees to more accurately reflect actual 

costs. The FAA plans to complete changes to its aircraft registration 

registry system by mid 20001. Per the Drug Enforcement Assistance Act, 

FAA will coordinate these changes with the Drug Enforcement Agency and 

the U.S. Customs Service and if the agencies approve the changes, FAA will 

prepare legislation for congressional approval for a rate increase for 

registration fees.

If the FAA recovers the full cost of processing aircraft registration 

applications, the following additional revenue could be achieved.

Five-Year Savings

Source: Congressional Budget Office.

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Primary agency Department of Transportation

Spending type Direct

Framework theme Redefine beneficiaries

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Added receipts 1 1 1 1 1
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 113 GAO-01-447 Supporting Congressional Oversight

Related GAO Product Aviation Safety: Unresolved Issues Involving U.S.-Registered Aircraft

(GAO/RCED-93-135, June 18, 1993).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 114 GAO-01-447 Supporting Congressional Oversight

Limit Eligibility for 

Federal Emergency 

Management Agency 

Public Assistance

The Federal Emergency Management Agency’s (FEMA) Public Assistance 

Program helps pay state and local governments’ costs of repairing and 

replacing eligible public facilities and equipment damaged by natural 

disasters. Many private nonprofit organizations, such as schools, hospitals, 

and utilities are also eligible for assistance. Over the years, regulations and 

policies implementing legislation under the program reflect an increasingly 

expansive approach to federal disaster assistance. The cost of the program 

has increased dramatically in recent years, but a number of options 

identified by program officials in FEMA’s 10 regional offices, if 

implemented, could reduce program costs. Among the options 

recommended most strongly were placing limits on the appeals process; 

eliminating eligibility for some facilities that generate revenue, lack 

required insurance, or are not delivering government services; and limiting 

the impact of codes and standards (e.g., upgrade only disaster-damage 

portions of structures, better define who has the authority to adopt and 

approve codes and standards, and limit the time period for adopting new 

codes). FEMA has taken action to address some of these options. For 

example, FEMA has reduced the number of appeals for program decisions 

from three to two, it has clarified certain policies and criteria to make 

eligibility determinations less subjective, and work is continuing on the 

applicability of building codes and standards for upgrades. However, FEMA 

has not addressed some other identified options, such as eliminating 

eligibility for all private nonprofit organizations—many of which are 

revenue-generating facilities such as utilities, hospitals, and universities—

or eliminating funding for publicly-owned recreational facilities (e.g., boat 

docks, piers, golf courses, etc.) which generate portions of their 

operational revenue through user fees, rents, admission charges, or similar 

fees. 

Authorizing committees Environment and Public Works (Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees VA, HUD and Independent Agencies 

(Senate and House)

Primary agency Federal Emergency Management Agency

Account Disaster Relief Fund (58-0104)

Spending type Discretionary

Budget subfunction 453/Disaster relief and insurance

Framework theme Redefine beneficiaries 
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 115 GAO-01-447 Supporting Congressional Oversight

Although increased disaster activity is a factor in rising program costs, 

changes in the amount and types of assistance provided and recipients 

eligible for assistance have also been a factor. Revising eligibility of these 

types of facilities for assistance funding could reduce program costs. 

According to FEMA, however, such a change would require legislative 

action by the Congress. Therefore, the Congress may wish to consider 

directing FEMA to develop and propose legislation to eliminate eligibility 

for all private nonprofit organizations. CBO estimates that eliminating 

eligibility for all private nonprofit organizations would yield the following 

savings.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Disaster Assistance: Information on Federal Costs and Approaches for 

Reducing Them (GAO/T-RCED-98-139, Mar. 26, 1998).

Disaster Assistance: Improvements Needed in Determining Eligibility for 

Public Assistance (GAO/RCED-96-113, May 23, 1996).

Disaster Assistance: Improvements Needed in Determining Eligibility for 

Public Assistance (GAO/T-RCED-96-166, Apr. 30, 1996).

GAO Contact JayEtta Z. Hecker, (202) 512-8984

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 26 26 27 27 28

Outlays 0 6 13 20 24
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 116 GAO-01-447 Supporting Congressional Oversight

Eliminate the Flood 

Insurance Subsidy on 

Properties That Suffer 

the Greatest Flood 

Loss

The National Flood Insurance Program is not actuarially sound because 

about a third of the 4.1 million policies in force are subsidized. Federal 

Insurance Administration officials estimate that total premium income 

from subsidized policyholders is currently about $500 million less than it 

would be if these rates had been actuarially based and participation had 

remained the same. According to a Federal Insurance Administration 

official, if true actuarial rates were charged, insurance rates on currently 

subsidized policies would need to rise, on average, slightly more than 

twofold (to an annual average premium of about $1,500). Significant rate 

increases for subsidized policies, including charging actuarial rates, would 

likely cause some owners of properties built before the publication of the 

Flood Insurance Rate Map to cancel their flood insurance. However, the 

ultimate cost or savings to the federal government would depend on the 

actions of property owners. If these property owners, who suffer the 

greatest flood loss, cancelled their insurance and subsequently suffer 

losses due to future floods, they could apply for low-interest loans from the 

Small Business Administration or grants from FEMA, which would 

increase the overall cost to the federal government. 

FEMA received a May 1999 contractor’s study concerning the economic 

effects of eliminating subsidized rates and in June 2000, the agency 

transmitted the study to the Congress with recommendations for reducing 

the subsidy. According to FEMA, it is analyzing the impacts of specific 

alternatives for carrying out the recommendations, as well as working with 

stakeholders to refine and develop a comprehensive strategy to help it 

decide how to implement the study’s recommendations. Some of the 

recommendations for reducing the subsidy depend on legislative change. In 

light of the potential savings associated with addressing this issue, FEMA 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees VA, HUD and Independent Agencies 

(Senate and House)

Primary agency Federal Emergency Management Agency

Account National Flood Insurance Fund (58-4236)

Spending type Mandatory

Budget subfunction 453/Disaster relief and insurance

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 117 GAO-01-447 Supporting Congressional Oversight

should develop and advance legislative options for eliminating the National 

Flood Insurance Program’s subsidy for properties that are more likely to 

suffer losses. 

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program (GAO/T-RCED-00-23, Oct. 27, 1999).

Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program (GAO/T-RCED-99-280, Aug. 25, 1999).

Flood Insurance: Financial Resources May Not Be Sufficient to Meet 

Future Expected Losses (GAO/RCED-94-80, Mar. 21, 1994).

GAO Contact JayEtta Z. Hecker, (202) 512-8984

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Net increase in offsetting receipts

Budget authority 0 0 0 0 0

Outlays (net increased receipts) 43 129 175 178 180
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 118 GAO-01-447 Supporting Congressional Oversight

Eliminate Flood 

Insurance for Certain 

Repeatedly Flooded 

Properties

Repetitive flood losses is one of the major factors contributing to the 

financial difficulties facing the National Flood Insurance Program. A 

repetitive-loss property is one that has two or more losses greater than 

$1,000 each within any 10-year period. Approximately 43,000 buildings 

currently insured under the National Flood Insurance Program have been 

flooded on more than one occasion and have received flood insurance 

claims payments of $1,000 or more for each loss. These repetitive losses 

account for about 36 percent of all program claims historically (currently 

about $200 million annually) even though repetitive-loss structures make 

up a very small portion of the total number of insured properties—at any 

one time between 1 to 2 percent. The cost of these multiple-loss properties 

over the years to the program has been $2 billion. Under its repetitive-loss 

strategy, the Federal Insurance Administration intends to target for 

mitigation the most flood-prone repetitive-loss properties, such as those 

that are currently insured and have had four or more losses, by acquiring, 

relocating or elevating them. These properties (about 10,000) are 

responsible for at least $65 million of the $200 million in insurance claims 

estimated to be paid annually for repetitive-loss properties. 

One option that would increase savings would be for FEMA to consider 

eliminating flood insurance for certain repeatedly flooded properties. 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees VA, HUD and Independent Agencies 

(Senate and House)

Primary agency Federal Emergency Management Agency

Account National Flood Insurance Fund (58-4236)

Spending type Mandatory

Budget subfunction 453/Disaster relief and insurance

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 119 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Note: Savings estimate assumes that coverage would be denied after the fourth loss of at least 1,000 

dollars in any 10-year period.

Source: Congressional Budget Office.

Related GAO Products Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program (GAO/T-RCED-00-23, Oct. 27, 1999).

Flood Insurance: Information on Financial Aspects of the National Flood 

Insurance Program (GAO/T-RCED-99-280, Aug. 25, 1999).

GAO Contact JayEtta Z. Hecker, (202) 512-8984

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 0 0 0 0 0

Outlays 63 68 73 79 85
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 120 GAO-01-447 Supporting Congressional Oversight

Charge Beneficiaries 

for Food Inspection 

Costs

User fees—charges individuals or firms pay for services they receive from 

the federal government—are not new but have begun to play an 

increasingly important role in financing federal programs, particularly 

since the Balanced Budget Act of 1985. In general, federal food inspection 

agencies have charged user fees only to beneficiaries of premarket reviews, 

such as the grading of grain and other commodities for quality. Federal 

food inspection agencies generally do not charge user fees or fully cover 

the cost of services provided for (1) compliance inspections of meat, 

poultry, domestic foods and processing facilities to ensure adherence to 

safety regulations, (2) import inspections and export certifications to 

ensure that food products in international trade meet specified standards, 

and (3) standards setting and other support services essential to these 

functions. OMB Circular A-25, User Charges, states that user fees should be 

charged to cover the full cost of federal services when the service recipient 

receives special benefits beyond those received by the general public. 

USDA’s Food Safety and Inspection Service (FSIS) provides a special 

benefit to meat and poultry slaughter and processing plants that 

incidentally benefits the general public.

Historically, federal food inspection agencies recover through user fees 

only about $400 million of the $1.6 billion they spend annually to inspect, 

test, grade, and approve agricultural commodities and products. Federal 

appropriations fund the remaining 75 percent of these agencies expenses. 

Overall, federal food inspection agencies could recover an additional 

$700 million each year from the beneficiaries of food-related inspection and 

testing services through user fees. For example, CBO estimates the 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House) 

Energy and Commerce (House)

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate)

Agriculture (House) 

Primary agency Department of Agriculture 

Accounts Multiple

Spending type Discretionary

Budget subfunction 554/Consumer and occupational health and 

safety

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 121 GAO-01-447 Supporting Congressional Oversight

following savings could be achieved if meat and poultry inspections were 

funded through user fees instead of appropriations.

Five-Year Savings

Note: This estimate assumes the policy will become effective October 1, 2001. This analysis excludes 

egg inspection costs, Grants-to-States, and Special assistance for State Programs from the user fee 

program. This estimate assumes that only 50 percent of fees will be collected in the first year because 

of industry opposition and administrative delays.

Source: Congressional Budget Office.

Related GAO Products Food Safety: Opportunities to Redirect Federal Resources and Funds Can 

Enhance Effectiveness (GAO/RCED-98-224, Aug. 6, 1998).

Food-Related Services: Opportunities Exist to Recover Costs by Charging 

Beneficiaries (GAO/RCED-97-57, Mar. 20, 1997).

Food Safety and Quality: Uniform Risk-based Inspection System Needed to 

Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992).

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 322 645 645 645 645

Outlays 322 645 645 645 645
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 122 GAO-01-447 Supporting Congressional Oversight

Implement Risk-Based 

Meat and Poultry 

Inspections at USDA

Foodborne illness in the United States is extensive and expensive. 

Foodborne diseases cause about 76 million illnesses, 325,000 

hospitalizations, and 5,000 deaths annually. In terms of medical costs and 

productivity losses, foodborne illness costs the nation between $7 billion 

and $37 billion annually, according to USDA’s estimates.

USDA’s meat and poultry inspection system does not efficiently and 

effectively use its resources to protect the public from foodborne illness. 

USDA’s system is hampered by inflexible legal requirements and relies on 

outdated, labor-intensive inspection methods. Under current law, each of 

the over 8 billion livestock and bird carcasses slaughtered annually must be 

inspected. Further, USDA’s Food Safety and Inspection Service (FSIS) 

states that current law requires it to inspect each of the approximately 

6,000 processing plants at least once during each operating shift. While 

these inspections consume most of FSIS’ budget ($712 million and 9,700 

staff-years), they are unable to detect microbial contamination, such as 

listeria, E. coli, and salmonella. While USDA has increased its microbial 

testing, inspectors still rely on their sense of sight, smell, and touch to 

make judgments about disease conditions, contamination, and sanitation. 

Legislative revisions could allow FSIS to emphasize risk-based inspections. 

Much of the funding used to fulfill current meat and poultry inspection 

activities could be redirected to support more effective food safety 

initiatives, such as or increasing the frequency of inspections at high-risk 

food plants. CBO agrees that this option could potentially yield savings, but 

cannot develop an estimate until specific proposals are identified.

Authorizing committees Agriculture, Nutrition, and Forestry (Senate) 

Agriculture (House) 

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate) 

Agriculture (House)

Primary agency Department of Agriculture

Accounts Food Safety and Inspection Service

Spending type Discretionary

Budget Subfunction 554/Consumer and occupational health and 

safety

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 123 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Food Safety: Opportunities to Redirect Federal Resources and Funds Can 

Enhance Effectiveness (GAO/RCED-98-224, Aug. 6, 1998).

Food Safety: Risk-Based Inspections and Microbial Monitoring Needed for 

Meat and Poultry (GAO/RCED-94-192, Sept. 26, 1994).

Food Safety and Quality: Uniform Risk-based Inspection System Needed to 

Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992).

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 124 GAO-01-447 Supporting Congressional Oversight

Prevent States from 

Using Illusory 

Approaches to Shift 

Medicaid Program 

Costs to the Federal 

Government

We raised a concern that in fiscal year 1993, Michigan, Texas, and 

Tennessee used illusory financing approaches to obtain about $800 million 

in federal Medicaid funds without effectively committing their share of 

matching funds. Under these approaches, facilities that received increased 

Medicaid payments from the states, in turn, paid the states almost as much 

as they received. Consequently, the states realized increased revenue that 

was used to reduce their state Medicaid contributions, fund other health 

care needs, and supplement general revenue funding. For the period from 

fiscal year 1991 to fiscal year 1995, Michigan alone reduced its share of 

Medicaid costs by almost $1.8 billion through financing partnerships with 

medical providers and local units of government. Our analysis of 

Michigan’s transactions showed that even though legislation curtailed 

certain creative financing practices, the state was able to reduce its share 

of Medicaid costs at the expense of the federal government by $428 million 

through other mechanisms. 

The practices that involve payments to state-owned facilities have been 

restricted by (1) the Omnibus Budget Reconciliation Act of 1993 provisions 

that limit such payments to unreimbursed Medicaid and uninsured costs 

and (2) the Balanced Budget Act of 1997 provisions that further limit 

Medicaid payments to state psychiatric hospitals. However, states can 

continue to make payments to local government-owned facilities, including 

payments that exceed costs, and have the facilities return the payments to 

the states. States are not required to justify the need for increased 

reimbursements, nor is the Health Care Financing Administration required 

Authorizing committees Finance (Senate)

Energy and Commerce (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services 

Account Grant to States for Medicaid

(75-0512)

Spending type Direct

Budget subfunction 551/Health care services

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 125 GAO-01-447 Supporting Congressional Oversight

to verify that moneys are used for the purpose for which they were 

obtained.

We believe that the Medicaid program should not allow states to benefit 

from illusory arrangements and that Medicaid funds should only be used to 

help cover the costs of medical care incurred by those medical facilities 

that provide the care. We believe the Congress should enact legislation to 

minimize the likelihood that states can develop arrangements whereby 

providers return Medicaid payments to the states, thus effectively reducing 

the state’s share of Medicaid funding. This legislation should prohibit 

Medicaid payments that exceed costs to any government-owned facility. 

Savings are difficult to estimate for this option because national data on 

these practices are not readily available. In addition, Medicaid spending is 

influenced by the use of waivers from federal requirements, which allows 

states to alter Medicaid financing formulas. Future requests and use of 

waivers by states are uncertain. 

Related GAO Products Medicaid: State Financing Schemes Again Drive Up Federal Payments

(GAO/T-HEHS-00-193, September 6, 2000).

Medicaid: Managed Care and Individual Hospital Limits for 

Disproportionate Share Hospital Payments (GAO/HEHS-98-73R, Jan. 28, 

1998).

Medicaid: Disproportionate Share Payments to State Psychiatric Hospitals

(GAO/HEHS-98-52, Jan. 23, 1998).

Medicaid: Disproportionate Share Hospital Payments to Institutions for 

Mental Disease (GAO/HEHS-97-181R, July 15, 1997)

State Medicaid Financing Practices (GAO/HEHS-96-76R, Jan. 23, 1996).

Michigan Financing Arrangements (GAO/HEHS-95-146R, May 5, 1995).

Medicaid: States Use Illusory Approaches to Shift Program Costs to the 

Federal Government (GAO/HEHS-94-133, Aug. 1, 1994).

Medicaid: The Texas Disproportionate Share Program Favors Public 

Hospitals (GAO/HRD-93-86, Mar. 30, 1993).
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 126 GAO-01-447 Supporting Congressional Oversight

GAO Contact William J. Scanlon, (202) 512-7114
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 127 GAO-01-447 Supporting Congressional Oversight

Design New Payment 

System So That 

Medicare Does Not 

Overpay for Home 

Health Care

Between 1990 and 1997, Medicare spending for home health care rose at an 

annual rate of 25.2 percent, making it one of Medicare’s fastest growing 

benefits. By 1997, home health care consumed about $1 of every $11 of 

Medicare outlays, or about $17.8 billion. Evidence indicates that at least 

some of the spending is attributable to inappropriate billings and 

unnecessary care. To begin to control spending, the Balanced Budget Act of 

1997 (BBA) mandated a prospective payment system (PPS), which will be 

implemented on October 1, 2000. The PPS will pay a fixed, pre-determined 

rate for each 60-day episode of care. The rate will be varied by a case-mix 

adjustment method that aims to adequately pay for patients with high 

services needs, yet not overpay for others with lower needs. Designing this 

mechanism requires detailed information, some of which is not yet 

available, about services and beneficiary characteristics. Currently, there 

are large unexplained variations in patients’ needs and services provided. 

For example, in 1996, Medicare beneficiaries in one region of the country 

received more than twice as many home health visits on average as 

beneficiaries in another region. Also, the absence of standards for when a 

home health visit is needed, what services constitute a visit, or how long a 

visit lasts hinder these efforts. However, more information is being 

collected and will be useful in improving the PPS.

Until necessary information on home health standards is available and the 

large variations in home health use are better understood, the potential still 

exists for Medicare to pay excessively for the services delivered to 

beneficiaries. That is, if the PPS rate is set too high relative to the actual 

Authorizing committees Finance (Senate) 

Energy and Commerce (House)

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance 

Trust Fund (20-8004)

Spending type Direct

Budget subfunction 571/Medicare

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 128 GAO-01-447 Supporting Congressional Oversight

cost of providing services, the PPS rate could provide a windfall for some 

home health agencies, thereby reducing the incentive for providers to be 

efficient. Consequently, limits should be placed on the profits that agencies 

can earn under the new PPS. 

These limits can also discourage agencies from stinting on needed care in 

order to boost profit margins. That is, without profit limits, agencies could 

receive a payment for an episode of care, reduce services below what the 

same payment amount had previously purchased, and pocket the 

difference. Medicare would not be able to effectively challenge these 

service reductions because there are no standards for what constitutes 

necessary home health care. With profit limits, the agencies have less 

incentive to cut needed services because they would not be able to keep all 

of the excess revenue.

Once sufficient information is available to establish criteria for necessary 

home health care and refine case-mix adjustments, profit limits could be 

removed. An improved PPS would better target payments to reward 

providers for delivering care efficiently and protect Medicare from 

overpaying for home health care services.

Related GAO Product Medicare: Better Information Can Help Ensure That Refinements to BBA 

Reforms Lead to Appropriate Payments (GAO/T-HEHS-00-14, Oct. 1, 1999).

GAO Contact William J. Scanlon, (202) 512-7114
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 129 GAO-01-447 Supporting Congressional Oversight

Share the Savings 

From Bond Refundings

During the 1970s and early 1980s, HUD administered programs to develop 

housing for low-income households using various types of financing 

arrangements and long-term Section 8 rental housing assistance contracts. 

While some properties were financed by loans and grants from HUD, 

others were financed by bonds issued by state and local housing finance 

agencies. During the late 1970s and early 1980s, the cost to finance housing 

development rose to unprecedented levels. In response, HUD authorized 

higher Section 8 rental assistance payments to cover the higher bond 

financing costs, first in 1980 and then in 1981. Since then, as interest rates 

declined, many state and local housing finance agencies have refunded the 

bonds they issued and issued new bonds at lower interest rates. This action 

has generated substantial savings for the state agencies. These savings 

represent the difference between the amounts needed to repay the original 

bonds and the lower amounts needed to repay the new bonds. Agencies 

typically use these savings to provide affordable housing in their states. 

In 1999, GAO reported that HUD had not issued clear guidance on when 

state agencies are required to share the savings associated with bond 

refundings with the federal government. The need for clearer guidance 

specifically relates to state agency compliance with the bond refunding 

provisions in an October 1992 amendment to Section 1012 of the McKinney 

Act. The amendment was unclear as to whether the states were required to 

share the savings from bond refundings with the federal government for all 

properties covered by Section 8 rental assistance contracts that were 

entered into from 1979 through 1984. In the absence of clear guidance from 

HUD, GAO found that some state agencies have shared the savings from 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Department of Housing and Urban 

Development

Account Housing Certificate Fund (86-0319)

Spending type Discretionary/Direct

Budget subfunction 604/Housing assistance

Framework theme Redefine beneficiares
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 130 GAO-01-447 Supporting Congressional Oversight

bond refunding for such properties with the federal government while 

other agencies have retained the savings. 

Legislative changes could be made to clarify the Congress’ intent that state 

agencies should be required to share bond refunding savings with the 

federal government for all properties covered by Section 8 rental assistance 

contracts entered into from 1979 through 1984. CBO agrees that there 

could be savings but does not have nationwide data to quantify the savings 

amount.

Related GAO Product Multifamily Housing: HUD Missed Opportunities to Reduce Costs on Its 

Uninsured Section 8 Portfolio (GAO/RCED-99-217, July 30, 1999).

GAO Contact Stanley J. Czerwinski, (202) 512-7631
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 131 GAO-01-447 Supporting Congressional Oversight

Implement a Service 

Fee for Successful 

Non-Temporary 

Assistance for Needy 

Families (TANF) Child 

Support Enforcement 

Collections

The purpose of the Child Support Enforcement Program is to strengthen 

state and local efforts to obtain child support for both families eligible for 

Temporary Assistance for Needy Families (TANF) and non-TANF families. 

The services provided to clients include locating noncustodial parents, 

establishing paternity, and collecting ongoing and delinquent child support 

payments. From fiscal year 1984 through 1998, non-TANF caseloads and 

costs rose about 500 percent and 1200 percent, respectively. While states 

have the authority to fully recover the costs of their services, states have 

exercised their discretion and charged only minimal application and 

service fees. Thus, they are doing little to recover the federal government’s 

66 percent share of program costs. In fiscal year 1998, for example, state 

fee practices returned about $49 million of the estimated $2.1 billion spent 

to provide non-TANF services. 

Since 1992, we have reported on opportunities to defray some of the costs 

of child support programs. Based on this work, we believe that mandatory 

application fees should be dropped and that states should be mandated to 

charge a minimum percentage service fee on successful collections for 

non-TANF families. Congressional action is necessary to put such a 

requirement in place. Application fees are administratively burdensome, 

and a service fee would ensure that families are charged only when the 

service has been successfully performed. The costs recovered from such a 

service fee would be determined by the percentage rate set by the 

Congress. For example, CBO estimates that if the Congress set the service 

fee at 5 percent for each successful non-TANF child support collection, the 

federal government could recover $2 billion in 5 years. The following 

savings assume states would be able to implement this option beginning 

October 1, 2001.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Department of Health and Human Services 

Account Family Support Payments to States 

(75-1501)

Spending type Direct

Budget subfunction 609/Other income security

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 132 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Note: Estimate assumes that all fees collected are split between the federal and state government at 

the administrative cost match rate: 66 percent federal and 34 percent state.

Source: Congressional Budget Office.

Related GAO Products Child Support Enforcement: Effects of Declining Welfare Caseloads Are 

Beginning to Emerge (GAO/HEHS-99-105, June 30, 1999).

Welfare Reform: Child Support an Uncertain Income Supplement for 

Families Leaving Welfare (GAO/HEHS-98-168, Aug. 3, 1998).

Child Support Enforcement: Early Results on Comparability of Privatized 

and Public Offices (GAO/HEHS-97-4, Dec. 16, 1996).

Child Support Enforcement: Reorienting Management Toward Achieving 

Better Program Results (GAO/HEHS/GGD-97-14, Oct. 25, 1996).

Child Support Enforcement: States’ Experience with Private Agencies’ 

Collection of Support Payments (GAO/HEHS-97-11, Oct. 23, 1996).

Child Support Enforcement: States and Localities Move to Privatized 

Services (GAO/HEHS-96-43FS, Nov. 20, 1995).

Child Support Enforcement: Opportunity to Reduce Federal and State 

Costs (GAO/T-HEHS-95-181, June 13, 1995).

GAO Contact Diana S. Eisenstat, (202) 512-7215

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the CBO baseline

Budget authority 430 470 510 550 600

Outlays 430 470 510 550 600
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 133 GAO-01-447 Supporting Congressional Oversight

Improve Reporting of 

DOD Reserve 

Employee Payroll Data 

to State 

Unemployment 

Insurance Programs

The Congress established the national unemployment insurance (UI) 

system in the 1930s to provide partial income assistance to many 

temporarily unemployed workers with substantial work histories. Today, 

UI is the major federal program providing assistance to the unemployed. 

Many workers covered by the UI system are also among the 1.1 million 

personnel participating in the National Reserve forces (Army National 

Guard, Army Reserve, Naval Reserve, Marine Corps Reserve, Air National 

Guard, Air Force Reserve, and the Coast Guard Reserve).

Most UI claimants are required to report the income they receive while in 

the Reserves so that state UI programs can reduce their benefits 

accordingly. Our analysis of benefit and Reserve data from seven states 

shows that some Reserve personnel are receiving improper benefit 

payments from state UI programs. In the seven states in our analysis, we 

estimate that UI claimants who were active participants in the Reserve 

failed to report over $7 million in Reserve income in fiscal year 1994. This 

led to UI benefit overpayments of approximately $3.6 million, of which 

federal trust fund losses were about $1.2 million. We expect that the federal 

and state trust fund losses from all UI programs are much greater because 

the seven states we reviewed account for only 27 percent of all reservists.

State officials cited various reasons why claimants may not be reporting 

their Reserve income while receiving UI benefits. According to state 

officials, the claimants may not understand their reporting responsibilities, 

are often not specifically informed of these responsibilities, and may have 

incentives not to report all Reserve income—incentives that are amplified 

by the states’ limited ability to detect nonreporting. 

The Defense Department and the Department of Transportation’s Coast 

Guard have recently acted to ensure that reservists are reminded of their 

responsibility to report income from reserve activity to state UI agencies. 

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Department of Labor 

Account Unemployment Trust Fund (20-8042)

Spending type Direct 

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 134 GAO-01-447 Supporting Congressional Oversight

All reservists now receive an annual notice with their leave and earnings 

statements reminding them of their duty to disclose their affiliation and any 

Reserve related earnings when filing an UI claim. In addition, the Labor 

Department has issued a directive to all state employment security 

agencies to ensure that they inform prospective and continuing UI benefit 

claimants of their responsibility to report Reserve related income.

These actions should improve general reservist compliance with state UI 

program income reporting requirements. However, to detect unreported 

Reserve income, the most frequently suggested alternative by federal and 

state officials would be to require the Department of Defense (DOD) to 

report Reserve payroll and personnel data to states on a quarterly basis, as 

private-sector employers are required to do, to permit verification of 

claimant income on a regular basis. DOD has stated that it will develop an 

action plan to provide such data to the state UI programs. However, 

completion of this plan has been delayed because of other competing 

agency priorities and a recognition that the task was more complex than 

originally envisioned.

It is important to note that the nonreporting of claimant income appears to 

be a broader problem involving all UI claimants who were former federal 

civilian and military employees, rather than just those participating in the 

Reserves. Officials from many of the state programs we analyzed reported 

general difficulties in monitoring reported income from claimants who 

were former federal employees.

If DOD was required to report Reserve payroll and personnel data to states 

on a quarterly basis, CBO estimates that the following savings would result 

from the reduction in overpayments.

DOD originally agreed with this recommendation and made initial efforts to 

develop an action plan to implement it. However, it now reports that, given 

its effort to ensure any action taken be cost-effective and commensurate 

with potential savings, it does not intend to take further action to respond 

to this recommendation. According to DOD, 13 states effectively exempt 

reserve wages from any unemployment insurance payment offset, and 

there could be significant costs associated with providing automated data 

on the earnings of part-time reservists. We do not agree that 

implementation costs would necessarily outweigh savings. We found 

millions of dollars in unemployment insurance overpayments for just 7 

states and 27 percent of the reservists, which would likely lead to even 
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 135 GAO-01-447 Supporting Congressional Oversight

greater levels of overpayments for the remaining states that offset reservist 

wages.

Five-Year Savings

Note: Unemployment Insurance trust fund receipts are dependent on prior year benefit outlays. CBO 

estimates that, in addition to savings, this option would have the effect of reducing trust fund receipts in 

the out years.

Source: Congressional Budget Office.

Related GAO Product Unemployment Insurance: Millions in Benefits Overpaid to Military 

Reservists (GAO/HEHS-96-101, Aug. 5, 1996).

GAO Contact Sigurd R. Nilsen, (202) 512-7215

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the CBO baseline

Budget authority 13 14 14 14 15

Outlays 13 14 14 14 15

Reduction in receipts 0 1 3 6 8

Net effect on deficit 13 13 11 8 7
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 136 GAO-01-447 Supporting Congressional Oversight

Discontinue Veterans’ 

Disability 

Compensation for 

Nonservice Connected 

Diseases

In fiscal year 1999, the Department of Veterans Affairs (VA) paid about 

$18 billion in compensation to about 2.3 million veterans for serviceconnected disabilities. A disease or injury resulting in disability is 

considered service-connected if it was incurred or aggravated during 

military service. No causal connection is required. In 1989, GAO reported 

on the U.S. practice of compensating veterans for conditions that were 

probably neither caused nor aggravated by military service. These 

conditions included diabetes, chronic obstructive pulmonary disease, 

arteriosclerotic heart disease, and multiple sclerosis. In 1993, GAO 

reported that other countries were less likely to compensate veterans when 

diseases are unrelated to military service, when the relationship of the 

disease to military service could not be established, or for off-duty injuries 

such as those that happen while on vacation. 

The Congress may wish to reconsider whether diseases neither caused nor 

aggravated by military service should be compensated as serviceconnected disabilities. In 1996, the Congressional Budget Office (CBO) 

reported that about 230,000 veterans were receiving about $1.1 billion in 

disability compensation payments annually for diseases neither caused nor 

aggravated by military service. If disability compensation payments to 

veterans with nonservice connected, disease-related disabilities were 

eliminated in future cases, CBO estimates that the following savings would 

apply.

Authorizing committees Veterans Affairs (Senate and House)

Appropriations subcommittee VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Department of Veterans Affairs 

Account Compensation and Pensions (36-0153)

Spending type Direct

Budget subfunction 701/ncome security for veterans

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 137 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Note: These estimates take into account an increase in DOD retirement pay. 

Source: Congressional Budget Office.

Related GAO Products VA Disability Compensation: Disability Ratings May Not Reflect Veterans’ 

Economic Losses (GAO/HEHS-97-9, Jan. 7, 1997).

Disabled Veterans Programs: U.S. Eligibility and Benefit Types Compared 

With Five Other Countries (GAO/HRD-94-6, Nov. 24, 1993).

VA Benefits: Law Allows Compensation for Disabilities Unrelated to 

Military Service (GAO/HRD-89-60, July 31, 1989).

GAO Contact Stephen P. Backhus, (202) 512-7101

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 70 219 379 582 733

Outlays 65 207 365 580 728
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 138 GAO-01-447 Supporting Congressional Oversight

Increase Cost Sharing 

for Veterans’ LongTerm Care

State veterans’ homes recover as much as 50 percent of the costs of 

operating their facilities through charges to veterans receiving services. 

Similarly, Oregon recovers about 14 percent of the costs of nursing home 

care provided under its Medicaid program through estate recoveries. Many 

other states also conduct estate recoveries. In contrast, in fiscal year 1998, 

the Department of Veterans Affairs (VA) offset less than one-tenth of 1 

percent of its costs through beneficiary copayments. 

Potential recoveries appear to be greater within the VA system than under 

Medicaid. Home ownership is significantly higher among VA hospital users 

than among Medicaid nursing home recipients, and veterans living in VA 

nursing homes generally contribute less toward the cost of their care than 

do Medicaid recipients, allowing veterans to build larger estates. 

In the Veterans’ Millenium Health Care and Benefits Act of November 30, 

1999, Congress required VA to increase cost sharing for those veterans 

without service-connected disabilities who use nursing home care. To 

implement this requirement, VA may wish to establish cost sharing rules for 

such care by (1) adopting cost-sharing requirements similar to those 

imposed by most state veteran’s homes and (2) implementing an estate 

recovery program similar to those operated by many states under their 

Medicaid programs. If VA recovered either 25 or 50 percent of its costs of 

providing nursing home and domiciliary care to veterans with non service 

connected disabilities through a combination of cost-sharing and estate 

recoveries, the savings shown in the following table would apply, as 

estimated by CBO.

Authorizing committees Veterans Affairs (Senate and House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Department of Veterans Affairs 

Account Medical Care (36-0160)

Spending type Discretionary

Budget subfunction 703/Hospital and medical care for veterans

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 139 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products VA Aid and Attendance Benefits: Effects of Revised HCFA Policy on 

Veterans’ Use of Benefits (GAO/HEHS-97-72R, Mar. 3, 1997).

VA Health Care: Better Data Needed to Effectively Use Limited Nursing 

Home Resources (GAO/HEHS-97-27, Dec. 20, 1996).

VA Health Care: Potential for Offsetting Long-Term Care Costs Through 

Estate Recovery (GAO/HRD-93-68, July 27, 1993).

VA Health Care: Offsetting Long-Term Care Cost By Adopting State 

Copayment Practices (GAO/HRD-92-96, Aug. 12, 1992).

GAO Contact Stephen P. Backhus, (202) 512-7101

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Option: Recovery of 25 percent of costs

Budget authority 527 544 562 579 597

Outlays 527 544 562 579 597

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Option: Recovery of 50 percent of costs

Budget authority 1,057 1,090 1,126 1,161 1,198

Outlays 1,057 1,090 1,126 1,161 1,198
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 140 GAO-01-447 Supporting Congressional Oversight

Limit Enrollment in 

Veterans Affairs Health 

Care System

The Department of Veterans Affairs (VA) health care system was initially 

established to meet the special care needs of veterans injured during 

wartime and those wartime veterans permanently incapacitated and 

incapable of earning a living. Although all veterans were eligible for 

hospital care, most veterans were eligible for only limited outpatient 

services. 

Recently enacted legislation expands eligibility for health benefits to make 

all veterans eligible for comprehensive inpatient and outpatient services, 

subject to the availability of resources. The legislation also requires VA to 

establish a system of enrollment for VA health care benefits and establishes 

enrollment priorities to be applied within appropriated resources. The 

lowest priority for enrollment are veterans with no service-connected 

disabilities and incomes that place them in the discretionary care category. 

However, VA does not currently provide the Congress the type of 

information on VA’s workload that would enable it to make informed 

judgments about which portion of VA’s workload to fund. For example, it 

provides the Congress little data on the extent to which its resources are 

used to provide services to service-connected veterans, to veterans with 

low incomes, and to veterans with higher incomes. Without information on 

the extent to which VA resources are used to provide services to veterans 

in the priority categories established under the new law, the Congress lacks 

the basic information needed to guide decisions about what portion of VA’s 

workload to fund. 

GAO found that about 15 percent of veterans with no service-connected 

disabilities who use VA medical centers have sufficiently high incomes that 

would place them in the lowest priority category under the new patient 

Authorizing committees Veterans Affairs (House and Senate)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(House and Senate)

Primary agency Department of Veterans Affairs

Account Medical Care (36-0160)

Spending type Discretionary

Budget subfunction 703/Hospital and medical care for veterans

Framework theme Redefine beneficiaries 
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 141 GAO-01-447 Supporting Congressional Oversight

enrollment system. The Congress could consider funding the VA health 

care system to cover only the expected enrollment of veterans in higher 

priority enrollment categories, such as veterans with service-connected 

disabilities and veterans without the means to obtain public or private 

insurance to meet their basic health care needs. CBO estimates that doing 

so would produce the savings shown in the following table.

Five-Year Savings

Source: Congressional Budget Office.

Related GAO Products VA Health Care: Issues Affecting Eligibility Reform Efforts

(GAO/HEHS-96-160, Sept. 11, 1996).

VA Health Care: Opportunities for Service Delivery Efficiencies Within 

Existing Resources (GAO/HEHS-96-121, July 25, 1996).

VA Health Care: Approaches for Developing Budget-Neutral Eligibility 

Reform (GAO/T-HEHS-96-107, Mar. 20, 1996).

VA Health Care: Opportunities to Increase Efficiency and Reduce Resource 

Needs (GAO/T-HEHS-96-99, Mar. 8, 1996).

VA Health Care: Issues Affecting Eligibility Reform (GAO/T-HEHS-95-213, 

July 19, 1995).

GAO Contact Stephen P. Backhus, (202) 512-7101

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 488 565 559 554 548

Outlays 483 561 555 550 544
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 142 GAO-01-447 Supporting Congressional Oversight

Prevent Delinquent 

Taxpayers From 

Benefiting From 

Federal Programs

The federal government’s operations are funded primarily through tax 

revenue collected from the nation’s taxpayers. In fiscal year 1999, the 

federal government, through the Internal Revenue Service (IRS), collected 

nearly $1.9 trillion in federal tax revenue to finance government operations. 

However, while most taxpayers comply with their tax obligation, a 

significant portion of taxpayers do not. Over time, this has led to unpaid 

taxes, penalties, and interest, which totaled about $231 billion at the end of 

fiscal year 1999. Of this amount, the IRS estimates that only $21 billion, or 

about 9 percent, will be collected.

A significant number of taxpayers, both individuals and businesses, who 

owe the federal government billions of dollars in delinquent taxes receive 

significant federal benefits and other federal payments. In addition to 

Social Security Administration benefit payments, federal civilian 

retirement payments, and federal civilian salaries, payments on federal 

contracts and Small Business Administration loans are also provided to 

these delinquent taxpayers. Currently, federal law does not prevent 

businesses or individuals from receiving federal payments or loans when 

they are delinquent in paying federal taxes.

The Office of Management and Budget’s (OMB) Circular A-129 provides 

policies for the administration of federal credit programs. These policies 

specifically direct agencies to determine whether applicants are delinquent 

on any federal debt, including tax debt, and to suspend the processing of 

credit applications if applicants have outstanding tax debt until such time 

as the applicant pays the debt or enters into a payment plan. Unfortunately, 

these policies have not been effective in preventing the disbursement of 

federal dollars to individuals and businesses with delinquent taxes. On 

October 5, 2000, the House Committee on Government Reform voted 

unanimously to approve HR 4181, “The Debt Payment Incentive Act of 

2000.” The provisions of this bill are designed to enhance Federal debt 

collection by providing an incentive for debtors to pay delinquent taxes, 

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 143 GAO-01-447 Supporting Congressional Oversight

and prohibits delinquent taxpayers from being able to obtain Federal 

contracts and certain Federal financial assistance. This bill could serve as 

an incentive for delinquent taxpayers seeking federal assistance to fulfill 

their tax obligations, thus improving overall compliance and reducing the 

federal government’s balance of uncollectible tax assessments. CBO cannot 

score this option until a specific proposal is developed. 

Related GAO Products Debt Collection: Barring Delinquent Taxpayers From Receiving Federal 

Contracts and Loan Assistance (GAO/T-GGD/AIMD-00-167, May 9, 2000).

Unpaid Payroll Taxes: Billions in Delinquent Taxes and Penalty 

Assessments Are Owed (GAO/AIMD/GGD-99-211, Aug. 2, 1999).

Tax Administration: Billions in Self-Employment Taxes Are Owed

(GAO/GGD-99-18, Feb. 19, 1999).

GAO Contacts Steven J. Sebastian, (202) 512-3406

James R. White, (202) 512-9110
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 144 GAO-01-447 Supporting Congressional Oversight

Target Funding 

Reductions in Formula 

Grant Programs 

Many federal grant programs with formula-based distribution of funds to 

state and local governments are not well targeted to jurisdictions with high 

programmatic needs but comparatively low funding capacity. As a result, it 

is not uncommon that program recipients in areas with greater wealth and 

relatively lower needs may enjoy a higher level of services than that which 

is available in harder pressed areas. Alternatively, these wealthier areas can 

provide the same level of services but at lower tax rates than harder 

pressed areas.

At a time when federal discretionary resources are increasingly 

constrained, better targeting of formula-based grant awards offers a 

strategy to bring down federal outlays by concentrating reductions in 

wealthier localities with comparatively fewer needs and greater capacity to 

absorb the cuts. At the same time, redesigned formulas could hold 

harmless the hardest pressed areas that are most vulnerable. For example, 

three entitlement programs—Medicaid, Foster Care, and Adoption 

Assistance—reimburse approximately 55 percent of eligible state spending 

with the federal share ranging from a minimum of 50 to a maximum of 

83 percent depending on the per capita income of the state. There are a 

variety of ways in which budgetary savings could be achieved to improve 

the targeting of these programs, including:

• Reduce the minimum federal reimbursement rate to below 50 percent. 

This example would focus the burden of the reduced federal share on 

those states with the highest per capita income. To the extent that per 

capita income provides a reasonable basis for comparing state tax 

bases, this example would require states with the strongest tax bases to 

shoulder the burden of a reduced federal share.

Authorizing committees Multiple

Appropriations subcommittees Multiple

Primary agencies Multiple

Accounts Multiple

Spending type Discretionary/Direct

Budget subfunctions Multiple

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 145 GAO-01-447 Supporting Congressional Oversight

• Reduce federal reimbursement rates only for those states with 

comparatively low program needs and comparatively strong tax bases. 

Under this example, the matching formula could be revised to better 

reflect the relative number of people in need, geographic differences in 

the cost of services, and state tax bases. Under the revised formula, 

states with comparatively low need and strong tax bases would receive 

lower federal reimbursement rates while states with high needs and 

weak tax bases would continue to receive their current reimbursement 

percentage. This example would focus the burden of a reduced federal 

share in those states with the lowest need and the strongest ability to 

fund program services from state resources.

Many other formulas used to distribute federal grant funding do not 

recognize the differential fiscal capacities of states to provide benefits from 

their own resources. Moreover, many of these formulas have not been 

reassessed for years or even decades. One option that would realize 

budgetary savings in nonentitlement programs such as these would be to 

revise the funding formula to reflect the strength of state tax bases. A new 

formula could be calibrated so that funding is maintained in states or local 

governments with weak tax bases, to maintain needed program services, 

but reduced in high tax base states, to realize budgetary savings. Examples 

of these types of formula grant programs include the following.

• Federal Aid Highways: This program, the largest non-entitlement 

formula grant program, allocates funds among the states based on their 

historic share of funding. This approach reflects antiquated indicators of 

highway needs, such as postal road miles and the land area of the state. 

• Title III, Older Americans Act: This program is intended to address the 

needs of individuals with high economic and social needs, yet the 

funding formula allots funding based on all elderly, regardless of their 

needs.

• Community Development Block Grant: This program allocates funds 

among local governments based on housing age and condition, 

population, and poverty, and does not include a factor recognizing local 

wealth or fiscal capacity. For example, Greenwich, Connecticut 

received five times more funding per person in poverty in 1995 than that 

provided to Camden, New Jersey, even though Greenwich, with per 

capita income six times greater than Camden, could more easily afford 

to fund its own community development needs. This disparity is due to 

the formula’s recognition of older housing stock and population and its 

exclusion of fiscal capacity indicators.
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 146 GAO-01-447 Supporting Congressional Oversight

An option that illustrates the potential savings from targeting formula grant 

programs is a 10 percent reduction in the aggregate total of all close-ended 

or capped formula grant programs exceeding $1 billion.2

 Since fiscal year 

1999, the dollar value for programs exceeding this threshold has included 

about 80 percent of the dollars for such programs. The savings achieved 

through this option, as estimated by CBO, could serve as a benchmark for 

overall savings from this approach but should not be interpreted as a 

suggestion for across-the-board cuts. Rather, as the above examples 

indicate, the Congress may wish to determine specific reductions on a 

program-by-program basis, after examining the relative priority and 

performance of each grant program.

Five-Year Savings

Source: Congressional Budget Office.

Five-Year Savings

Source: Congressional Budget Office.

2

In the transportation function, several very small, close-ended grants could not be easily 

isolated in the baseline and these are included in the estimate.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from the 2001 funding level

Budget authority 2,809 4,071 4,071 4,071 4,071

Outlays 1,654 4,896 6,404 6,971 7,302

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Direct spending

Savings from the CBO baseline 

Budget authority 5,660 5,737 5,724 5,676 5,682

Outlays 483 869 1,195 1,995 2,036
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 147 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Formula Grants: Effects of Adjusted Population Counts on Federal 

Funding to States (GAO/HEHS-99-69, Feb. 26, 1999).

Medicaid Formula: Effects of Proposed Formula on Federal Shares of State 

Spending (GAO/HEHS-99-29R, Feb. 19, 1999).

Welfare Reform: Early Fiscal Effect of the TANF Block Grant

(GAO/AIMD-98-137, Aug. 22, 1998).

Public Housing Subsidies: Revisions to HUD’s Performance Funding 

System Could Improve Adequacy of Funding (GAO/RCED-98-174, 

June 19,1998).

School Finance: State Efforts to Equalize Funding Between Wealthy and 

Poor School Districts (GAO/HEHS-98-92, June 16, 1998).

School Finance: State and Federal Efforts to Target Poor Students

(GAO/HEHS-98-36, Jan. 28, 1998).

School Finance: State Efforts to Reduce Funding Gaps Between Poor and 

Wealthy Districts (GAO/HEHS-97-31, Feb. 5, 1997).

Federal Grants: Design Improvements Could Help Federal Resources Go 

Further (GAO/AIMD-97-7, Dec. 18, 1996).

Public Health: A Health Status Indicator for Targeting Federal Aid to States

(GAO/HEHS-97-13, Nov. 13, 1996).

School Finance: Options for Improving Measures of Effort and Equity in 

Title (GAO/HEHS-96-142, Aug. 30, 1996). 

Highway Funding: Alternatives for Distributing Federal Funds

(GAO/RCED-96-6, Nov. 28, 1995).

Ryan White Care Act of 1990: Opportunities to Enhance Funding Equity

(GAO/HEHS-96-26, Nov. 13, 1995).

Department of Labor: Senior Community Service Employment Program 

Delivery Could Be Improved Through Legislative and Administrative 

Action (GAO/HEHS-96-4, Nov. 2, 1995).
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 148 GAO-01-447 Supporting Congressional Oversight

GAO Contact Paul L. Posner, (202) 512-9573
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 149 GAO-01-447 Supporting Congressional Oversight

Adjust Federal Grant 

Matching 

Requirements

Intergovernmental grants are a significant part of both federal and state 

budgets. From the first annual cash grant under the Hatch Act of 1887, the 

number of grant programs rose to more than 900 in 2000 with outlays of 

$284 billion, about 16 percent of total federal spending. Grants serve many 

purposes beyond returning resources to taxpayers in the form of state 

services. For example, grants can serve as a tool to supplement state 

spending for nationally important activities. However, if states use federal 

grant dollars to reduce (i.e., substitute for) their own spending for the aided 

program either initially or over time, the fiscal impact of federal grant 

dollars is reduced. 

Public finance experts suggest that grants are unlikely to supplement 

completely a state’s own spending, and thus some substitution is to be 

expected in any grant. Our review of economists’ recent estimates of 

substitution suggests that every additional federal grant dollar results in 

less than a dollar of total additional spending on the aided activity. The 

estimates of substitution showed that about 60 cents of every federal grant 

dollar substitutes for state funds that states otherwise would have spent.

Our analysis linked substitution to the way in which most grants are 

designed. For example, many of the 87 largest grant programs did not 

include features, such as state matching and maintenance-of-effort 

requirements, that can encourage states to use federal funds as a 

supplement rather than a replacement for their own spending. While not 

every grant is intended to supplement state spending, proponents of grant 

redesign argue that if some grants incorporated more rigorous 

maintenance-of-effort requirements and lower federal matching rates, then 

fewer federal funds could still encourage states to contribute to 

approximately the same level of overall spending on nationally important 

Authorizing committees Multiple

Appropriations subcommittees Multiple

Primary agency Multiple

Account Multiple

Spending type Discretionary/Direct

Budget subfunction Multiple

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 150 GAO-01-447 Supporting Congressional Oversight

programs. Critics of this approach argue that such redesign would put a 

higher burden on states because they would have to finance a greater share 

of federally aided programs.

The savings that could be achieved from redesigning grants to increase 

their fiscal impact would depend on the nature of the design changes and 

state responses to those changes. For example, faced with more rigorous 

financing requirements, states might reduce or eliminate their own 

financial support for the aided activity. The outcome will be influenced by 

the tradeoff decisions that the Congress makes to balance the importance 

of achieving each program’s goals and objectives against the goal of 

encouraging greater state spending.

We were unable to precisely measure the budgetary impact of inflationadjusted maintenance-of-effort requirements because current state 

spending levels are not reported consistently. However, it was possible to 

estimate the impact of changes in the matching rates on many close-ended 

federal grants. For example, many such grants do not require any state or 

local matching funds. The federal share of these programs could be 

reduced modestly, for example from 100 percent to 90 percent, a reduction 

unlikely to discourage states from participating in the program. CBO 

estimates that the introduction of a 10 percent matching requirement on 

some of the largest federal discretionary grant programs that are currently 

100 percent federally funded, and a corresponding 10 percent reduction 

from the appropriated grant levels, would result in the savings shown 

below. If such a change in match rates were combined with inflationadjusted maintenance-of-effort requirements, states that choose to 

participate in the program would have to maintain the same or increase 

levels of program spending in order to receive federal funding.

Five-Year Savings

Source: Congressional Budget Office.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Discretionary spending

Savings from the 2001 funding level

Budget authority 2,161 2,722 2,722 2,722 2,722

Outlays 765 1,954 2,443 2,588 2,664
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 151 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Welfare Reform: Early Fiscal Effects of the TANF Block Grant

(GAO/AIMD-98-137, Aug. 22, 1998).

Federal Grants: Design Improvements Could Help Federal Resources Go 

Further (GAO/AIMD-97-7, Dec. 18, 1996).

Block Grants: Issues in Designing Accountability Provisions

(GAO/AIMD-95-226, Sept. 1, 1995).

GAO Contact Paul L. Posner, (202) 512-9573
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 152 GAO-01-447 Supporting Congressional Oversight

Limit the Tax 

Exemption for 

Employer-Paid Health 

Insurance 

The current tax treatment of health insurance—amounting to revenue 

losses of about $92 billion in 2000—gives few incentives to workers to 

economize on purchasing health insurance. Employer contributions for 

employee health protection are considered deductible, ordinary business 

expenses and employer contributions are not included in an employee’s 

taxable income. The same is true for a portion of the premiums paid by selfemployed individuals. Some analysts believe that the tax-preferred status 

of these benefits has contributed to the overuse of health care services and 

large increases in our nation’s health care costs. In addition, the primary 

tax benefits accrue to those in high tax brackets who also have above 

average incomes. 

Placing a cap on the amount of health insurance premiums that could be 

excluded—including in a worker’s income the amount over the cap—could 

improve incentives and, to a lesser extent, tax equity. Alternatively, 

including health insurance premiums in income but allowing a tax credit 

for some percentage of the premium would improve equity since tax 

savings per dollar of premium would be the same for all taxpayers. 

Incentives could be improved for purchasing low-cost insurance if the 

amounts given credits were capped. 

One specific option the Congress may wish to consider would be to tax all 

employer-paid health insurance, while providing individuals a refundable 

tax credit of 20 percent of premiums that they or their employers would 

pay, with eligible premiums capped at $500 and $200 per month for family 

coverage and individuals, respectively. 

JCT did not develop a revenue estimate for this option due to uncertainty in 

determining the amount of health insurance that would be purchased given 

a repeal of the employer exclusion.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 153 GAO-01-447 Supporting Congressional Oversight

Related GAO Product Tax Policy: Effects of Changing Tax Treatment of Fringe Benefits

(GAO/GGD-92-43, Apr. 7,1992).

GAO Contact James R. White, (202) 512-9110
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 154 GAO-01-447 Supporting Congressional Oversight

Repeal the Partial 

Exemption for Alcohol 

Fuels from Excise 

Taxes on Motor Fuels

The tax code partially exempts biomass-derived alcohol fuels—made from 

nonfossil material of biological origin—from excise taxes on motor fuels. 

The tax code also provides that income tax credits for alcohol fuel use may 

be claimed instead of the excise tax exemption. However, the credit is in 

almost all cases less valuable than the exemption and is rarely used. 

Tax incentives that encourage alternatives to fossil fuels might have merit if 

energy security or environmental benefits were realized. However, if 

alcohol fuel use was not subsidized it is unlikely that U.S. energy security 

or air quality would be significantly affected. Even with tax subsidies, 

alcohol fuels are not competitive in price with fossil fuels in most markets. 

In 1995, alcohol fuels accounted for less than 1 percent of total U.S. energy 

consumption. The incentives have not created enough usage to affect the 

likelihood of an oil price shock. Nor could their use be expanded enough to 

counter such a shock given existing production technologies. Use of 

oxygenated fuels such as ethanol-gasoline mixtures in motor vehicles 

generally produces less carbon monoxide pollution than does straight 

gasoline. However, the Clean Air Act Amendments of 1990 reduced the 

need for an ethanol subsidy by mandating the minimum oxygen content of 

gasoline in areas with poor air quality. The global warming effects of using 

ethanol are likely to be no better than, and could be worse than, those of 

gasoline. 

The Congress may wish to consider repealing the partial excise tax 

exemption and the alcohol fuels tax credit. The repeal could result in 

higher federal outlays for price support loan programs, but any increase in 

outlays probably would be much smaller than the estimated revenue 

increase. The excise tax exemption is currently scheduled to expire on 

October 1, 2008; the equivalent blender’s tax credit is scheduled to expire 

on January 1, 2008. The table below reflects JCT’s estimated savings from 

this option.

Authorizing committees Finance (Senate)

Ways and Means (Senate)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 155 GAO-01-447 Supporting Congressional Oversight

Five-Year Revenues

Note: JCT provided its revenue estimates in billions of dollars.

Source: Joint Committee on Taxation.

Related GAO Product Tax Policy: Effects of the Alcohol Fuels Tax Incentives (GAO/GGD-97-41, 

Mar. 6, 1997).

GAO Contact James R. White, (202) 512-9110

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain 0.5 0.7 0.7 0.7 0.7
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 156 GAO-01-447 Supporting Congressional Oversight

Index Excise Tax 

Bases for Inflation

Federal excise taxes are sometimes set at a fixed dollar amount per unit of 

taxed good. For example, alcoholic beverages are taxed at a set rate per 

gallon or barrel, with the rate varying for different types of beverages and 

differing concentrations of alcohol. When set in this manner, the real dollar 

value of the tax falls with inflation. 

The real dollar value of these taxes can be maintained over time if the tax is 

indexed for inflation or set as a percentage of the price of the taxed product 

or service. Tax policy issues would need to be considered, and 

administrative difficulties may be encountered, but they are not 

insurmountable. The Congress may wish to consider indexing excise tax 

rates for alcohol and tobacco. The table reflects JCT’s estimated revenue 

gains from this option with an effective date of December 31, 2001.

Five-Year Revenues

Note: JCT provided its revenue estimates in billions of dollars.

Source: Joint Committee on Taxation.

Related GAO Products Alcohol Excise Taxes: Simplifying Rates Can Enhance Economic and 

Administrative Efficiency (GAO/GGD-90-123, Sept. 27, 1990).

Tax Policy: Revenue Potential of Restoring Excise Taxes to Past Levels

(GAO/GGD-89-52, May 9, 1989).

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Redefine beneficiaries

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain 0.2 0.6 1 1.4 1.7
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 157 GAO-01-447 Supporting Congressional Oversight

GAO Contact James R. White, (202) 512-9110
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 158 GAO-01-447 Supporting Congressional Oversight

Increase Highway User 

Fees on Heavy Trucks

To develop and maintain highways, the government collects user fees 

including fuel taxes, a heavy vehicle use tax, an excise tax on truck and 

tractor sales, and an excise tax on heavy tires. In fiscal year 1999, about 

$35.1 billion was collected from general highway user taxes. For many 

years, questions have been raised concerning whether highway users, 

including owners of heavy trucks, pay taxes in proportion to the wear and 

tear that their vehicles impose on highway pavement. 

In 1982, the Congress passed the first major increase in federal highway use 

taxes since 1956 in order to increase highway revenues and to respond to a 

Federal Highway Administration (FHWA) report that heavy trucks 

underpaid by about 50 percent their fair share relative to the pavement 

damage that they caused. FHWA also reported that lighter trucks were 

overpaying by between 30 and 70 percent (depending on weight), and 

automobiles were overpaying by 10 percent. The 1982 tax increase required 

that that the ceiling for the heavy vehicle use tax be increased from $240 a 

year to $1,900 a year by 1989. In response to the concerns of the trucking 

industry about the new tax structure, the Congress again revised the 

system in the Deficit Reduction Act of 1984. Under the act, the ceiling for 

the heavy vehicle use tax was lowered from $1,900 to $550 a year. To ensure 

that this action was revenue neutral, the Congress raised the tax on diesel 

fuel from 9 cents to 15 cents per gallon. 

As GAO recommended in June 1994, FHWA conducted a cost allocation 

study. The study, released in August 1997, noted that the overall equity of 

highway user fees could be incrementally improved by implementing either 

a weight-distance tax or eliminating the existing $550 cap on the Heavy 

Vehicle Use Tax. However, the study made no recommendations; the 

administration continues to monitor highway user fees but plans no action 

unless the overall equity of highway user fees worsens. The Joint 

Committee on Taxation (JCT) estimates that removing the $550 cap on the 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Primary agency Department of Transportation

Spending type Direct

Framework theme Redefine beneficiaries
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 159 GAO-01-447 Supporting Congressional Oversight

Heavy Vehicle Use Tax, effective December 31, 2001, would result in the 

revenue gains shown in the table below.

Five-Year Revenues

Note: JCT provided its revenue estimates in billions of dollars.

Source: Joint Committee on Taxation.

Related GAO Product Highway User Fees: Updated Data Needed To Determine Whether All Users 

Pay Their Fair Share (GAO/RCED-94-181, June 7, 1994).

GAO Contact John H. Anderson, Jr., (202) 512-2834

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain 0.1 0.1 0.1 0.1 0.1
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 160 GAO-01-447 Supporting Congressional Oversight

Impose Pollution Fees 

and Taxes

User fees, cost reimbursement mechanisms, and pollution taxes could be 

designed as a way to control pollutants and harmful substances by 

preventing their further generation, thus supplementing regulatory efforts 

to meet the objectives of existing environmental laws. These mechanisms 

also produce significant revenues that could help defray the costs of 

administering environmental protection programs. We have identified 

several specific areas where fees and taxes might be effective, including, 

but not limited to (1) requiring states to collect permit fees on industrial 

and municipal dischargers to surface waters and (2) establishing a 

pollution tax on dischargers, based on volume, toxicity, or both. 

An example of a pollution fee which the Congress may wish to consider is 

an excise tax on toxic water pollutants. Savings below illustrate a tax on 

water pollution discharges whose rate increases with the toxicity of the 

discharges, effective on discharges of water pollutants made after 

December 31, 2001. Rates range from $0.65 per pound for the least toxic 

pollutant to $63.40 per pound for the most toxic pollutant. Over time, 

revenue from a pollution fee tax should decline because the intent of such a 

tax is to provide an incentive to reduce the amount of pollutants generated.

Five-Year Savings

Note: JCT provided its revenue estimates in billions of dollars.

Source: Joint Committee on Taxation.

Authorizing committees Finance (Senate)

Ways and Means (House)

Environment and Public Works (Senate)

Transportation and Infrastructure (House)

Primary agency Environmental Protection Agency

Spending type Direct

Framework theme Redefine beneficiaries

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain 0.2 0.3 0.2 0.2 0.2
Appendix II

Opportunities to Redefine Beneficiaries of 

Federal Programs

Page 161 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Environmental Protection: Implications of Using Pollution Taxes to 

Supplement Regulation (GAO/RCED-93-13, Feb. 17, 1993).

Hazardous Waste: Much Work Remains to Accelerate Facility Cleanups

(GAO/RCED-93-15, Jan. 19, 1993).

Drinking Water: Widening Gap Between Needs and Available Resources 

Threatens Vital EPA Program (GAO/RCED-92-184, July 6, 1992).

Water Pollution: Stronger Efforts Needed by EPA to Control Toxic Water 

Pollution (GAO/RCED-91-154, July 19, 1991).

Environmental Protection: Meeting Public Expectations With Limited 

Resources (GAO/RCED-91-97, June 18, 1991).

GAO Contacts Bob Robinson, (202) 512-3841

Dave Wood, (202) 512-3841
Page 162 GAO-01-447 Supporting Congressional Oversight

Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs ApendxiI

The third theme within our framework addresses how the program or 

service is delivered. This strategy suggests that focusing on the approach or 

delivery method can significantly reduce spending or increase collections. 

Our body of work suggests the following decision rules that illustrate this 

strategy.

• Reorganizing and consolidating programs or activities with similar 

objectives and audiences can eliminate duplication and improve 

operational efficiency.

• Using reengineering, benchmarking, streamlining, and other process 

change techniques can reduce the cost of delivering services and 

programs.

• Using performance measurement and generally improving the accuracy 

of available program information can promote accountability and 

effectiveness and reduce errors.

• Attacking activities at risk of fraud, waste, abuse, and mismanagement.

• Improving collection methods and ensuring that all revenues and debts 

owed are collected can increase federal revenues.

• Establishing market-based prices can help the government recover the 

cost of providing services while encouraging the best use of the 

government’s resources.

As an illustration of this theme, the Department of Veterans Affairs (VA) 

and the Department of Defense (DOD) provide health care services to more 

than 12 million beneficiaries and operate more than 700 medical facilities at 

a cost of about $34 billion annually. Over the past two decades, DOD and 

VA have entered into a sharing program that has yielded benefits in both 

dollar savings and qualitative gains, illustrating what can be achieved when 

the two agencies work together to identify where excess capacity and cost 

advantages exist. However, although VA and DOD continue to share 

resources to provide quality and cost-effective health care services, 

existing sharing agreements are not being taken full advantage of and 

additional sharing opportunities could be pursued. Long-standing barriers 

along with recent changes in how VA and DOD provide medical care have 

created confusion about the status of current agreements and present 

challenges for future collaboration and cost efficiencies. Given the 

changing health care environment, the criteria and conditions that make 

resource sharing a cost-effective option for the federal government need to 

be reviewed and strategies for sharing rethought. VA and DOD need to 

work together to determine an appropriate course of action to ensure that 

resource sharing opportunities are realized, and the Congress may wish to 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 163 GAO-01-447 Supporting Congressional Oversight

provide specific guidance clarifying the criteria, conditions, and 

expectations for VA and DOD collaboration. 

Improve Efficiency Consolidate Military Exchange Stores (050)

Assign More Air Force Bombers to Reserve Components (050)

Reorganize C-130 and KC-135 Reserve Squadrons (050)

Eliminate Unneeded Department of Navy Distribution Sites (050)

Acquire Conventionally Powered Aircraft Carriers (050)

Improve the Administration of Defense Health Care (050)

Reassess The Most Cost-Effective Ways For VA And DOD To Share Health 

Care Resources (050)

Continue Defense Infrastructure Reform (050)

Limit Funding for Procurement of Antiarmor Weapons (050)

Improve State Department Business Processes (150)

Streamline U.S. Overseas Presence (150)

Reduce the Costs of the Rural Utilities Service’s Electricity and 

Telecommunications Loan Programs (270)

Consolidate or Eliminate Department of Energy Facilities (270)

Improve Oversight of Superfund Administrative Expenditures to Better 

Identify Opportunities for Cost Savings (300)

Reassess Federal Land Management Agencies Functions and Programs 

(300)

Increase Flexibility in Preparing Health Assessments for Superfund Sites 

(300)

Pursue Cost Effective Alternatives to NOAA’s Research/Survey Fleet (300)

Increase Federal Revenues Through Water Transfers (300) 

Strengthen Controls Over Crop Insurance Claims (350)

Consolidate Common Administrative Functions at the Department of 

Agriculture (350)

Further Consolidate Farm Service Agency County Offices (350)

Revise the Marketing Assistance Loan Program to Better Reflect Market 

Conditions (350)

Reduce FHA’s Insurance Coverage (370)

Merging USDA and HUD Single-family Insured Lending Programs and 

Multifamily Portfolio Management Programs (370)

Consolidate Homeless Assistance Programs (370)

Improve Department of Transportation’s Oversight of its University 

Research (400)

Apply Cost-Benefit Analysis to Replacement Plans for Airport Surveillance 

Radars (400)

Close, Consolidate, or Privatize Some Coast Guard Facilities (400)
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 164 GAO-01-447 Supporting Congressional Oversight

Improve FAA Oversight of General Aviation Airport Land and Revenue 

(400)

Convert Coast Guard Support Officer Positions to Civilian Status (400)

Consolidate Student Aid Programs (500)

Create a Single Federal Agency to Administer a Unified Food Inspection 

System (550)

Convert Public Health Service Commissioned Corps Officers to Civilian 

Status (550)

Control Provider Enrolment Fraud in Medicaid (550)

Adjust Medicare Payment Allowances to Reflect Changing Technology, 

Costs, and Market Prices (570)

Increase Medicare Program Safeguard Funding (570)

Continue to Reduce Excess Payments to Medicare+Choice Health Plans 

(570)

Modify the Skilled Nursing Facility Payment Method to Ensure Appropriate 

Payments (570)

Implementing Risk-sharing in Conjunction with Medicare Home Health 

Agency Prospective Payment System (570)

Improve Social Security Benefit Payment Controls (600)

Simplify Supplemental Security Income Recipient Living Arrangements 

(600)

Reduce Federal Funding Participation Rate for Automated Child Support 

Enforcement Systems (600)

Obtaining and Sharing Information on Medical Providers and Middlemen 

May Reduce Improper Payments to Supplemental Security Income 

Recipients (600)

Reassess Unneeded Health Care Assets Within the Department of Veterans 

Affairs (700)

Reducing VA Inpatient Food and Laundry Service Costs (700)

Consolidate Asset Forfeiture Programs at the Departments of Justice and 

Treasury (750) 

Replace the 1-Dollar Note With the 1-Dollar Coin (800)

Eliminate Pay Increases After Separation in Calculating Lump-Sum Annual 

Leave Payments (800)

Increase Fee Revenue From Federal Reserve Operations (800)

Recognize Up-front the Costs of Long-Term Space Acquisitions (800)

Improper Benefit Payments Could be Avoided or More Quickly Detected if 

Data from Various Programs Were Shared (999)

Require Corporate Tax Document Matching (Receipt)

Improve Administration of the Tax Deduction for Real Estate Taxes 

(Receipt)

Increase Collection of Returns Filed by U.S. Citizens Living Abroad 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 165 GAO-01-447 Supporting Congressional Oversight

(Receipt)

Increase the Use of Seizure Authority to Collect Delinquent Taxes (Receipt)

Increase Collection of Self-employment Taxes (Receipt)

Increase the Use of Electronic Funds Transfer for Installment Tax 

Payments (Receipt)

Reduce Gasoline Excise Tax Evasion (Receipt)

Improve Independent Contractor Tax Compliance (Receipt)

Expand the Use of IRS’ TIN-Matching Program (Receipt)
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 166 GAO-01-447 Supporting Congressional Oversight

Consolidate Military 

Exchange Stores

Since 1968, studies by GAO, the Department of Defense (DOD), and others 

have concluded that financial benefits could be achieved through 

consolidation of military exchange stores into a single entity. The Office of 

the Secretary of Defense has proposed the integration of the Army/Air 

Force Exchange System (AAFES) with the Navy and Marine Corps 

exchange programs, and a task force commissioned to review this 

consolidation plan in 1996 concluded that a merger would result in annual 

recurring savings.

In January 1997 DOD advised its congressional oversight committees that it 

planned to continue studying options for integrating exchange functions, 

under the joint direction of the military departments. DOD stated that a 

more rigorous analysis was needed before judgments could be made on the 

optimal organizational structure. In April 1998, DOD awarded a contract to 

study consolidation. The contractor’s April 30, 1999, report presented three 

organizational options: (1) total consolidation, (2) integration of all support 

functions, such as shipping and receiving, with separate exchange front 

offices, and (3) maintenance of the status quo with best commercial 

practices implemented at the exchanges. Based on the contractor’s April 

1999 report, DOD projected at that time that total consolidation would take 

3 to 5 years to complete, require an investment of $391 million over that 

period (although one-time savings from the liquidation of excess inventory 

was expected to offset this investment), and produce 5-year savings of over 

$1 billion, based on annual recurring savings of about $206 million. 

However, rather than take action at that time, DOD continued its 

contracted study efforts through April 2000. At that time, Department 

officials decided that rather than pursue consolidation they should initiate 

a series of cooperative efforts to maximize efficiencies across the exchange 

services. On July 31, 2000, the services were instructed to submit 

Authorizing committees Armed Services (Senate and House)

Appropriation subcommittees Defense (Senate and House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary 

Budget subfunction 051/Department of Defense—Military

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 167 GAO-01-447 Supporting Congressional Oversight

implementation plans outlining a formal process with goals and timelines 

to achieve efficiencies within individual exchange services and collectively 

through cooperative efforts. The services were also instructed to report 

progress of their plans annually. To what extent these current efforts can 

produce savings comparable to those previously projected from 

consolidating exchange services’ operations is uncertain.

Another initiative is the Hybrid initiative, which DOD has been 

implementing since 1995. These BXMARTS—smaller versions of the larger 

stores, are operated by the exchanges and often located at bases scheduled 

for closure. The “hybrid” stores sell both hard goods normally found in a 

military exchange and the grocery-type goods associated with military 

commissaries. According to DOD officials, this initiative while not a new 

concept is based on a format started in Europe before 1995 where the 

services operated combined stores generally in remote cites, could also 

result in financial benefits, but DOD has not yet quantified the savings. 

Currently, there are 4 hybrids operating in the U.S. In addition, there are 14 

stores located in Europe that are variations of the combined model; 

commissaries and the exchange service operate these small stores. 

Although directed to report to Congress on the process of establishing 

BXMARTS in December 1999, DOD currently is not expected to complete 

its cost analysis and assessment of the initiative until January 2001.

In light of the potential savings involved concerning the consolidation of 

military exchanges, the Congress may wish to direct DOD to consolidate 

the Navy and Marine Corps exchange operations with the existing Air 

Force/Army exchange operations. CBO has estimated that consolidating 

into a single exchange system would yield the following savings.

Five-Year Savings

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 19 39 59 60 62

Outlays 14 33 52 58 60

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 168 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Excess Equipment for Former Castle AFB (BXMART) (GAO/NSIAD-98-

94R, Feb. 27, 1998). 

Morale, Welfare, and Recreation: Declining Funds Require DOD to Take 

Action (GAO/NSIAD-94-120, Feb. 28, 1994).

GAO Contact Henry L. Hinton, Jr., (202) 512-4300
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 169 GAO-01-447 Supporting Congressional Oversight

Assign More Air Force 

Bombers to Reserve 

Components

Bombers currently in the force (B-2s, B-1Bs, and B-52Hs) were initially 

designed and procured by the Department of Defense (DOD) primarily to 

meet nuclear war-fighting requirements. Since the end of the Cold War, 

DOD has placed increased emphasis on the role of bombers in future 

conventional conflicts while reducing the number of bombers significantly 

from a total of about 360 in 1989 to 208 bombers in fiscal year 2000. Senior 

DOD officials have said that DOD cannot afford all of the services’ stated 

requirements, and difficult decisions must be made regarding which 

investment programs to cancel so that DOD can develop and implement a 

long-term, sustainable recapitalization plan. 

The Air Force has 18 B-1Bs assigned to the Air National Guard—9 to the 

Kansas Air National Guard and 9 to the Georgia Air National Guard. No 

B-1Bs are currently assigned to Air Force Reserve units. Placing more 

B-1Bs in the reserve component (either the Air Force Reserve or the Air 

National Guard) could reduce the cost to operate the B-1B bomber force 

without adversely affecting day-to-day peacetime training or critical 

wartime missions or closing any bases. However, the availability of 

recruitable personnel in some locations limits where reserve component 

units can operate. 

B-1B reserve component units have training, readiness, and deployment 

requirements similar to active-duty B-1B units and are considered just as 

capable of carrying out operational missions as their active duty 

counterparts. Moreover, the cost to operate a reserve component unit is 

generally lower than for an active duty unit for several reasons. First, 

reserve component aircrews are more experienced than their active duty 

counterparts and require fewer flying hours to meet mission training 

requirements. Second, reserve component units employ fewer full-time 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Account Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Improve efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 170 GAO-01-447 Supporting Congressional Oversight

military personnel than active units. Additionally, because of the part-time 

manning of traditional reserve component units, there are fewer 

requirements for permanent and costly base infrastructure—such as family 

housing and base medical care facilities—necessary to support full-time 

active duty personnel and their families. 

Our analysis shows that the Air Force could select a variety of options if it 

were to place more B-1Bs in the reserve component. The cost savings 

would vary depending upon the option selected. If an 18 aircraft aircrew 

training squadron and 6 aircraft operational squadron were transferred to 

the reserve component, the following savings could be achieved.

Five-Year Savings

Related GAO Products Air Force Bombers: Moving More B-1s to the Reserves Could Save Millions 

Without Reducing Mission Capability (GAO/NSIAD-98-64, Feb. 26, 1998).

Air Force Bombers: Options to Retire or Restructure the Force Would 

Reduce Planned Spending (GAO/NSIAD-96-192, Sept. 30, 1996).

Embedded Computers: B-1B Computers Must Be Upgraded to Support 

Conventional Requirements (GAO/AIMD-96-28, Feb. 27, 1996).

B-1B Conventional Upgrades (GAO/NSIAD-96-52BR, Dec. 4, 1995).

B-1B Bomber: Evaluation of Air Force Report on B-1B Operational 

Readiness Assessment (GAO/NSIAD-95-151, July 18, 1995).

Air Force: Assessment of DOD’s Report on Plan and Capabilities for 

Evaluating Heavy Bombers (GAO/NSIAD-94-99, Jan. 10, 1994).

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 plan

Budget authority 0 23 94 170 201

Outlays 0 18 77 150 190

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 171 GAO-01-447 Supporting Congressional Oversight

Strategic Bombers: Issues Relating to the B-1B’s Availability and Ability to 

Perform Conventional Missions (GAO/NSIAD-94-81, Jan. 10, 1994).

Strategic Bombers: Adding Conventional Capabilities Will Be Complex, 

Time-Consuming, and Costly (GAO/NSIAD-93-45, Feb. 5, 1993).

Strategic Bombers: Need to Redefine Requirements for B-1B Defensive 

Avionics System (GAO/NSIAD-92-272, July 17, 1992).

Strategic Bombers: Updated Status of the B-1B Recovery Program

(GAO/NSIAD-91-189, May 9, 1991).

Strategic Bombers: Issues Related to the B-1B Aircraft Program

(GAO/T-NSIAD-91-11, Mar. 6, 1991).

GAO Contact Henry L. Hinton, Jr., (202) 512-5140
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 172 GAO-01-447 Supporting Congressional Oversight

Reorganize C-130 and 

KC-135 Reserve 

Squadrons

Currently, the majority of the Air Force’s C-130 and KC-135 aircraft are in 

the reserve component—that is, assigned to the Air Force Reserve and the 

Air National Guard. Typically, reserve component wings are organized in 

one squadron of 8 C-130 aircraft or 10 KC-135 aircraft. However, active Air 

Force wings flying the same aircraft are generally organized in two to three 

squadrons of 14 C-130 aircraft or 12 KC-135 aircraft. Given this 

organizational approach, reserve component C-130 and KC-135 aircraft are 

widely dispersed throughout the continental United States, Hawaii, and 

Alaska.

The Air Force could reduce costs and meet peacetime and wartime 

commitments if it reorganized its reserve component C-130 and KC-135 

aircraft into larger squadrons and wings at fewer locations. These savings 

would primarily result from fewer people being needed to operate these 

aircraft. For example, redistributing 16 C-130 aircraft from two 8-aircraft 

reserve wings to one 16-aircraft reserve wing could save about $11 million 

dollars annually. This reorganization could eliminate about 155 full-time 

positions and 245 part-time positions; the decrease in full-time positions is 

especially significant, since the savings associated with these positions 

represents about $8 million, or 75 percent of the total savings. Fewer 

people would be needed in areas such as wing headquarters, logistics, 

operations, and support group staffs as well as maintenance, support, and 

military police squadrons. 

There are several alternatives that could be developed to redistribute 

existing reserve component C-130 and KC-135 aircraft into larger 

squadrons. Sufficient personnel could be recruited for the larger 

squadrons, and most locations’ facilities could be inexpensively expanded 

to accommodate the unit sizes. Overall savings will depend on the 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Account Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 173 GAO-01-447 Supporting Congressional Oversight

organizational model selected, but each should produce savings to help 

make additional funding available for force modernization. The alternative 

that requires the most reorganizing would increase the squadron size to 16 

aircraft for the C-130 and 12 for the KC-135 by redistributing aircraft from 

13 C-130 squadrons and 5 KC-135 squadrons to other squadrons. The table 

below shows the potential savings from this option.

Five-Year Savings

Related GAO Product Air Force Aircraft: Reorganizing Mobility Aircraft Units Could Reduce 

Costs (GAO/NSIAD-98-55, Jan. 21, 1998).

GAO Contact Henry L. Hinton, Jr., (202) 512-5140

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 96 177 279 363 391

Outlays 85 166 264 350 384

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 174 GAO-01-447 Supporting Congressional Oversight

Eliminate Unneeded 

Naval Materials and 

Supplies Distribution 

Points

Our broad-based reviews of various aspects of the Department of the 

Navy’s financial management operations and its ability to meet the existing 

management and reporting requirements1

 have identified numerous 

deficiencies, some of which can have significant budgetary implications. 

For example, in 1996 we reported that because of inadequate systems, 

Navy item managers did not have sufficient visibility over $5.7 billion in 

operating materials and supplies on ships and at 17 Navy redistribution 

sites. These 17 sites, which contained, almost half of the excess items, were 

often located in the same general area as other DOD suppliers. Because 

about $883 million, or 15 percent of this inventory, was excess to current 

operating allowances or needs, and because the Navy ordered or 

purchased items that were already on hand in excess quantities, the Navy 

incurred unnecessary costs of approximately $27 million in the first half of 

fiscal year 1995. 

The Navy could achieve savings by providing item managers with better 

visibility over these assets and by eliminating redundant or unnecessary 

redistribution sites. Eliminating the 17 sites would cost about $50 million 

over three years but would reduce associated operating costs by $3 million 

annually and could reduce redundant supply operations and streamline 

visibility efforts. Additionally, a significant one-time saving could occur due 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Account Operations and Maintenance, Navy 

(17-1804)

Spending type Discretionary

Budget subfunction 050/Department of Defense—Military 

Framework theme Improve efficiency 

1

The Chief Financial Officers Act of 1990, as amended, requires that each agency chief 

financial officer (CFO) develop an integrated agency accounting and financial management 

system that complies with applicable principles and standards and provides for complete, 

reliable, consistent, and timely information that is responsive to the agency’s financial 

information needs. The act also specifies that each agency CFO should direct, manage, and 

provide policy guidance and oversight of asset management systems, including inventory 

management and control. 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 175 GAO-01-447 Supporting Congressional Oversight

to the reintroduction of previously unused inventory back into the supply 

system. An estimate of this one-time saving cannot be performed until a 

more current study of the supply system is undertaken. However, we 

estimated in 1996 that this unused inventory may be valued at as much as 

$445 million.

Five-Year Savings

Related GAO Products CFO Act Financial Audits: Programmatic and Budgetary Implications of 

Navy Financial Data Deficiencies (GAO/AIMD-98-56, Mar. 16, 1998). 

High-Risk Series: Defense Financial Management (GAO/HR-97-3, Feb. 

1997). 

Navy Financial Management: Improved Management of Operating 

Materials and Supplies Could Yield Significant Savings (GAO/AIMD-96-94, 

Aug. 16, 1996). 

CFO Act Financial Audits: Navy Plant Property Accounting and Reporting 

Is Unreliable (GAO/AIMD-96-65, July 8, 1996). 

Financial Management: Control Weaknesses Increase Risk of Improper 

Navy Civilian Payroll Payments (GAO/AIMD-95-73, May 8, 1995). 

GAO Contact Gregory D. Kutz, (202) 512-9505

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority -17 -16 -15 3 3

Outlays -5 -10 -12 -8 -2

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 176 GAO-01-447 Supporting Congressional Oversight

Acquire Conventionally 

Rather than NuclearPowered Aircraft 

Carriers

Throughout the 1960s and most of the 1970s, the Navy pursued a goal of 

creating a fleet of nuclear carrier task forces. The centerpiece of these task 

forces, the nuclear-powered aircraft carrier, would be escorted by nuclearpowered surface combatants and nuclear-powered submarines. In deciding 

to build nuclear-powered surface combatants, the Navy believed that the 

greatest benefit would be achieved when all the combatant ships in the task 

force were nuclear-powered. However, the Navy stopped building nuclearpowered surface combatants after 1975 because of the high cost. Recently, 

most of the remaining nuclear-powered surface combatants have been 

decommissioned early because they were not cost-effective to operate and 

maintain.

Our analysis shows that both conventional and nuclear aircraft carriers 

have been effective in fulfilling U.S. forward presence, crisis response, and 

war-fighting requirements and share many characteristics and capabilities. 

Conventionally and nuclear-powered carriers both have the same standard 

air wing and train to the same mission requirements. Each type of carrier 

offers certain advantages. For example, conventionally powered carriers 

spend less time in extended maintenance and, as a result, they can provide 

more forward presence coverage. By the same token, nuclear carriers can 

store larger quantities of aviation fuel and munitions and, as a result, are 

less dependent upon at-sea replenishment. There was little difference in 

the operational effectiveness of nuclear and conventional carriers in the 

Persian Gulf War.

The U.S. maintains a continuous presence in the Pacific region by 

homeporting a conventionally powered carrier in Japan. If the Navy 

switches to an all nuclear carrier force, it would need to homeport a 

nuclear-powered carrier there to maintain the current level of worldwide 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Improve efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 177 GAO-01-447 Supporting Congressional Oversight

overseas presence with a 12-carrier force. Homeporting a nuclear-powered 

carrier in Japan could prove difficult and costly because of the need for 

support facilities, infrastructure improvements, and additional personnel. 

The U.S. would need a larger carrier force if it wanted to maintain a similar 

level of presence in the Pacific region with nuclear-powered carriers 

homeported in the U.S. The Navy currently has 3 conventionally powered 

and 9 nuclear-powered carriers.

The life-cycle costs—investment, operating and support, and inactivation 

and disposal costs—are greater for nuclear-powered carriers than 

conventionally powered carriers. Our analysis, based on historical and 

projected costs, shows that life-cycle costs for conventionally powered and 

nuclear-powered carriers (for a notional 50-year service life) are estimated 

at $14.1 billion and $22.2 billion (in fiscal year 1997 dollars), respectively.

In assessing design concepts for the next class of aircraft carriers 

designated as the CVX—and consistent with the Navy’s CVX project 

objectives to reduce life cycle costs by 20 percent— our analysis indicates 

that national security requirements can be met at less cost with 

conventionally powered carriers rather than nuclear-powered carriers. If 

Congress chose to acquire a conventionally powered carrier in 2006 instead 

of a nuclear-powered carrier, the following savings could be achieved.

Five-Year Savings

Related GAO Products Navy Aircraft Carriers: Cost-Effectiveness of Conventionally and 

Nuclear-Powered Carriers (GAO/NSIAD-98-1, Aug. 27, 1998).

Nuclear Waste: Impediments to Completing the Yucca Mountain Repository 

Project (GAO/RCED-97-30, Jan. 17, 1997). 

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 plan

Budget authority 3,730 470 620 170 800

Outlays 110 450 850 810 840

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 178 GAO-01-447 Supporting Congressional Oversight

Defense Infrastructure: Budget Estimates For 1996-2001 Offer Little 

Savings for Modernization (GAO/NSIAD-96-131, Apr. 4, 1996).

Navy’s Aircraft Carrier Program: Investment Strategy Options

(GAO/NSIAD-95-17, Jan. 1, 1995). 

Navy Carrier Battle Groups: The Structure and Affordability of the Future 

Force (GAO/NSIAD-93-74, Feb. 25, 1993).

Nuclear-Powered Ships: Accounting for Shipyard Costs and Nuclear Waste 

Disposal Plans (GAO/NSIAD-92-256, July 1, 1992). 

GAO Contact Henry L. Hinton, Jr., (202) 512-5140
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 179 GAO-01-447 Supporting Congressional Oversight

Improve the 

Administration of 

Defense Health Care

Each of the three military departments (Army, Navy, and Air Force) 

operates its own health care system, providing medical care to active duty 

personnel, their dependents, retirees, and survivors of military personnel. 

To a large extent, these separate systems, which cost about $35 million 

annually, perform many of the same administrative, management, and 

operational functions. 

Since 1949 numerous studies have reviewed whether a central entity 

should be created within the Department of Defense (DOD) for the 

centralized management and administration of the three systems. Most of 

these studies encouraged some form of organizational consolidation. A 

Defense health agency would consolidate the three military medical 

systems into one centrally managed system, eliminating duplicate 

administrative, management, and operational functions. No specific budget 

estimate can be developed until numerous variables, such as the extent of 

consolidation and the impact on command and support structures, are 

determined.

Although CBO agrees that improving the administration of Defense health 

care has the potential to create savings, it cannot develop a savings 

estimate until a specific legislative proposal is identified.

Related GAO Products Defense Health Care: TRICARE Resource Sharing Program Failing to 

Achieve Expected Savings (GAO/HEHS-97-130, Aug. 22, 1997).

Defense Health Care: Actions Under Way to Address Many TRICARE 

Contract Change Order Problems (GAO/HEHS-97-141, July 14, 1997).

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense 

Account Defense Health Program (97-0130)

Spending type Discretionary

Budget subfunction 051/Department of Defense—Military

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 180 GAO-01-447 Supporting Congressional Oversight

TRICARE Administrative Prices in the Northwest Region May Be Too High

(GAO/HEHS-97-149R, June 24, 1997).

Defense Health Care: New Managed Care Plan Progressing, but Cost and 

Performance Issues Remain (GAO/HEHS-96-128, June 14, 1996).

Defense Health Care: Despite TRICARE Procurement Improvements, 

Problems Remain (GAO/HEHS-95-142, Aug. 3, 1995).

Defense Health Care: DOD’s Managed Care Program Continues to Face 

Challenges (GAO/T-HEHS-95-117, Mar. 28, 1995).

Defense Health Care: Issues and Challenges Confronting Military Medicine

(GAO/HEHS-95-104, Mar. 22, 1995).

GAO Contact Stephen P. Backhus, (202) 512-7101
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 181 GAO-01-447 Supporting Congressional Oversight

Reassess the Most 

Cost-Effective Ways for 

VA and DOD to Share 

Health Care Resources

Together the Department of Veterans Affairs (VA) and the Department of 

Defense (DOD) provide health care services to more than 12 million 

beneficiaries and operate more than 700 medical facilities at a cost of about 

$34 billion annually. To promote more cost-effective use of these health 

care resources and more efficient delivery of care, the Congress, in May 

1982, enacted the VA and DOD Health Resources sharing and Emergency 

Operations Act (Sharing Act). Specifically, the act authorizes VA medical 

centers (VAMC) and military treatment facilities -(MTF) to become 

partners and enter into sharing agreements to buy, sell, and barter medical 

and support services. 

Over the past two decades, the sharing program has yielded benefits in 

both dollar savings and qualitative gains, illustrating what can be achieved 

when the two agencies work together to identify where excess capacity 

and cost advantages exist. Although VA and DOD continue to share 

resources to provide quality and cost-effective health care services, 

existing sharing agreements are not being taken full advantage of and 

additional sharing opportunities could be pursued. For example, in fiscal 

year1998, 75 percent of direct medical care occurred under just 12 

agreements for inpatient care, 19 agreements for outpatient care, and 12 

agreements for ancillary care. Most joint venture activity was similarly 

concentrated at two sites where many hospital services and administrative 

processes are integrated. In addition, relatively few VA facilities reported 

that they participate in the national joint disability discharge initiative—an 

initiative intended to eliminate duplicative physical examinations that 

Authorizing committees Armed Services (Senate and House)

Veterans’ Affairs (Senate and House) 

Appropriations subcommittees Defense (Senate and House)

VA, HUD, and Independent Agencies 

(Senate and House)

Primary agencies Department of Defense

Department of Veteran’s Affairs

Accounts Defense Health Program (97-0130)

Medical Care (36-0160)

Spending type Discretionary

Budget subfunctions 051/Department of Defense-Military 

703/Hospital and Medical Care for Veterans

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 182 GAO-01-447 Supporting Congressional Oversight

military personnel were required to undergo to be discharged and receive 

VA disability benefits. VA and DOD continue to be hampered by longstanding barriers, including inconsistent reimbursement and budgeting 

policies and burdensome agreement approval processes. These longstanding barriers along with recent changes in how VA and DOD provide 

medical care have created confusion about the status of current 

agreements and present challenges for future collaboration and cost 

efficiencies. Although VA and DOD have taken some recent actions to 

address these barriers, there is still confusion about the status of current 

agreements and challenges for the future collaboration and cost 

efficiencies remain. 

VA and DOD sharing partners generally believe the sharing program yielded 

benefits in both dollar savings and qualitative gains, illustrating what can 

be achieved when the two agencies work together. Although it may be 

difficult to quantify, it seems worthwhile to continue to pursue 

opportunities to share resources where excess capacity and cost 

advantages exist. Given the changing environment mentioned above, the 

criteria and conditions that make resource sharing a cost-effective option 

for the federal government need to be reviewed and strategies for sharing 

rethought. VA and DOD need to work together to determine an appropriate 

course of action to ensure that resource sharing opportunities are realized. 

Given the different approaches to providing health care services that DOD 

and VA follow, the Congress may wish to provide specific guidance 

clarifying the criteria, conditions, and expectations for VA and DOD 

collaboration. Although CBO agrees that sharing resources in medical care 

between DOD and VA has the potential to create savings, it cannot develop 

a savings estimate until a specific proposal is developed.

Related GAO Products VA and Defense Health Care: Evolving Systems Require Rethinking of 

Resource Sharing Strategies (GAO/HEHS-00-52, May 17, 2000).

VA and Defense Health Care: Rethinking of Resource Sharing Strategies Is 

Needed (GAO/T-HEHS-00-117, May 17, 2000)

GAO Contact Stephen P. Backhus, (202) 512-7101
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 183 GAO-01-447 Supporting Congressional Oversight

Continue Defense 

Infrastructure Reform

Although the Department of Defense has made significant reductions in 

defense force structure and military spending since the end of the Cold 

War, it has not achieved commensurate reductions in infrastructure2

 costs. 

For example, we previously reported that the proportion of planned 

infrastructure funding in DOD’s budgets would remain relatively constant 

at about 60 percent through 2001. Our October 2000 analysis of the 

Department’s future years defense program for fiscal years 2001-2005 found 

that the portion of DOD’s future years defense program devoted to direct 

infrastructure relative to mission has not changed, despite the expectation 

that it would. Recognizing that it must make better use of its scarce 

resources, DOD announced the Defense Reform Initiative (DRI) in 

November 1997. Through this program, DOD hoped to create a revolution 

in business affairs, which would substantially streamline and improve the 

economy and efficiency of its business operations and streamline its 

operations. The resulting savings would be used to help DOD increase 

procurement funding from $42 billion in fiscal year 1998 to $60 billion in 

fiscal year 2001 in order to help modernize the warfighting forces.

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense 

Accounts Multiple

Spending type Discretionary 

Budget subfunction 051/Department of Defense—Military

Framework theme Improve efficiency

2

DOD defines infrastructure as those activities that provide support services to mission 

programs, such as combat forces, and primarily operate from fixed locations. They include 

such program elements as installation support, acquisition infrastructure, central logistics, 

central training, central medical and central personnel. In fiscal year 2001, approximately 

$33 billion of infrastructure costs are expected to be related to maintenance and upkeep of 

facilities across these program elements.
Appendix III

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Page 184 GAO-01-447 Supporting Congressional Oversight

A major thrust of the DRI was to reduce unneeded infrastructure, primarily 

through a number of initiatives that potentially could reduce the cost of 

DOD’s operations and support activities and expanded use of public-private 

competitions (using the Office of Management and Budget’s A-76 process).3

Included are initiatives such as eliminating unneeded facilities 

infrastructure through such means as the Department’s proposal for two 

additional base realignment and closure rounds, demolition of unneeded 

buildings, and privatization of housing and utilities on military facilities. 

One DRI initiative involves the demolition and disposal of over 80 million 

square feet of excess space at military facilities. Each of the military 

services has been given a demolition target, which they are expected to 

reach by the end of fiscal year 2003. Other initiatives include reducing the 

number of major Defense Information System Agency (DISA) data 

processing centers from 16 to 6; closing unneeded research and 

development, test and evaluation (RDT&E) facilities; and avoiding 

hundreds of millions of dollars in future capital expenditures by privatizing 

utility systems (electric, natural gas, water, and sewer) at military bases. 

Overall, DOD’s progress in reducing infrastructure is mixed. While it is 

generally on target to demolish over 80 million square feet of excess space 

by 2003 and consolidate its DISA data processing centers, closing 

unneeded test facilities has also been difficult. DOD’s RDT&E 

infrastructure consists of 131 laboratories and test and evaluation centers 

that develop and test military technologies. Over the years, DOD has tried 

to reduce the size of its RDT&E infrastructure and has closed or expects to 

close 62 sites by 2001. In addition, DOD reduced its RTD&E personnel by 

about 40,000 between fiscal years 1990 and 1997, saving an estimated 

$2.4 billion annually in personnel costs. DOD pointed out, however, that the 

estimate is somewhat inflated because many employees were replaced by 

on-site contractors who are conducting essentially the same tasks. Despite 

these reductions, the RDT&E infrastructure continues to be burdened by 

excess capacity. DOD recently estimated that excess capacity, in terms of 

square footage, is between 20 percent and 60 percent, depending on the 

military service and the method of estimation used.

Privatizing utilities has also proved to be more complicated and costly than 

anticipated and progress has been slow. While the Department has 

established the goal of privatizing utility systems on military bases by 

3

Under A-76, agencies conduct public/private competitions to determine whether the public 

or private sector will perform selected commercial activities and functions.
Appendix III

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Federal Programs

Page 185 GAO-01-447 Supporting Congressional Oversight

September 30, 2003, as of June 2000, DOD had privatized only 15 of the 

approximately 1,700 systems it is considering for privatization. The effort is 

complex, time-consuming, and expensive. Although exact costs are not 

known, DOD estimates that it could cost hundreds of millions of dollars to 

complete required feasibility and environmental studies and upgrade the 

facilities to make them attractive to private investors. Additionally, instead 

of realizing significant savings, as once envisioned, the program is likely to 

result in increased costs to the Department’s Operations and Maintenance 

budgets to fund privatized utility services. By not privatizing, however, 

DOD faces large capital costs in the future (possibly in the billions) to 

repair the utility systems and ensure they continue to operate at an 

acceptable level. DOD sees privatization as a way to leverage private 

resources to finance these needed capital repairs. It also gets DOD out of a 

business for which it does not believe it is particularly well suited.

DOD is in the fourth year of a program to evaluate activities involving over 

200,000 positions for potential outsourcing which it expects to result in 

estimated savings of $9.2 billion by 2005 and $2.8 billion in annual recurring 

savings thereafter. While we have raised questions about the precision of 

DOD’s savings estimates and the likelihood of savings not being realized as 

quickly as projected by DOD, we nevertheless have noted the potential for 

significant savings from A-76 studies, once associated investment costs 

have been offset, regardless of whether governmental organizations or 

private contractors win the competitions. 

DOD continues to emphasize that additional base realignment and closure 

rounds are necessary to reduce unneeded infrastructure and to fee up 

funds for readiness, weapon modernization and other needs. The 

Department projects that additional base closure rounds could produce 

new savings of $3.4 billion a year once realignment and closure actions 

were completed and the cots of implementing these actions were offset by 

savings. While we have previously raised questions about the precision of 

DOD’s savings estimate, our work has nevertheless shown that net annual 

recurring savings can be expected once initial investment costs from 

implementing base realignment and closure decisions have been offset. 

However, because of issues related to economic impact, cost and savings 

from prior rounds, and executive branch handling of two closure and 

realignment decisions in the 1995 round, the Congress has been reluctant 

to authorize additional rounds.

Streamlining, consolidating and possibly privatizing infrastructure 

activities can help DOD save significant amounts of support costs which it 
Appendix III

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Federal Programs

Page 186 GAO-01-447 Supporting Congressional Oversight

hopes to apply to future weapon modernization needs. Savings for this 

option cannot be fully estimated until a comprehensive consolidation and 

downsizing plan is specified. 

Related GAO Products Future Years Defense Program: Risks in Operation and Maintenance and 

Procurement Programs (GAO-01-33, Oct. 5, 2000.)

Defense Infrastructure: Improved Performance Measures Would Enhance 

Defense Reform Initiative (GAO/NSIAD-99-169, Aug. 4, 1999).

Defense Reform Initiative: Organization, Status and Challenges

(GAO/NSIAD-99-87, Apr. 21, 1999).

Defense Reform Initiative: Progress, Opportunities, and Challenges

(GAO/T-NSIAD-99-95, Mar. 2, 1999).

Force Structure: A-76 Not Applicable to Air Force 38th Engineering 

Installation Wing Plan (GAO/NSIAD-99-73, Feb. 26, 1999).

Major Management Challenges and Program Risks: Department of Defense

(GAO/OCG-99-4, Jan. 1999).

Army Industrial Facilities: Workforce Requirements and Related Issues 

Affecting Depots and Arsenals (GAO/NSIAD-99-31, Nov. 30, 1998).

Military Bases: Review of DOD’s 1998 Report on Base Realignment and 

Closure (GAO/NSIAD-99-17, Nov. 13, 1998).

Defense Infrastructure: Challenges Facing DOD in Implementing Reform 

Initiatives (GAO/T-NSIAD-98-115, Mar. 18, 1998).

Best Practices: Elements Critical to Successfully Reducing Unneeded 

RDT&E Infrastructure (GAO/NSIAD/RCED-98-23, Jan. 8, 1998).

Future Years Defense Program: DOD’s 1998 Plan Has Substantial Risk in 

Execution (GAO/NSIAD-98-26 Oct. 23, 1997).

1997 Defense Reform Bill: Observations on H.R. 1778

(GAO/T-NSIAD-97-187, June 17, 1997).
Appendix III

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Federal Programs

Page 187 GAO-01-447 Supporting Congressional Oversight

Defense Infrastructure: Demolition of Unneeded Buildings Can Help Avoid 

Operating Costs (GAO/NSIAD-97-125, May 13, 1997).

DOD High-Risk Areas: Eliminating Underlying Causes Will Avoid Billions of 

Dollars in Waste (GAO/T-NSIAD/AIMD-97-143, May 1, 1997).

Defense Acquisition Organizations: Linking Workforce Reductions With 

Better Program Outcomes (GAO/T-NSIAD-97-140, Apr. 8, 1997).

Defense Budget: Observations on Infrastructure Activities

(GAO/NSIAD-97-127BR, Apr. 4, 1997).

GAO Contact Henry L. Hinton, Jr., (202) 512-4300
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 188 GAO-01-447 Supporting Congressional Oversight

Limit Funding for 

Procurement of 

Antiarmor Weapons

Since 1990, DOD has invested billions of dollars to increase its antiarmor 

weapons capabilities. According to the President’s fiscal year 2001 budget 

submission, DOD plans to spend about $15.7 billion more on 15 antiarmor 

weapons acquisition programs. In its report on the Fiscal Year 1999 

Defense Appropriations Bill, the House Committee on Appropriations 

expressed concern that the military services were continuing to develop 

and procure an increasing number of tank-killing weapons at a time when 

potential adversaries have much smaller armored forces. Furthermore, 

DOD’s inventory of antiarmor weapons had remained at 1990 Cold-War 

levels, while the number of armored targets under current planning 

scenarios had dropped to less than 20 percent of the number considered in 

1990. Citing its concerns, the Committee directed the Secretary of Defense 

to develop an Antiarmor Munitions Master Plan that would identify excess 

antiarmor weapons capabilities.

GAO reviewed DOD’s Antiarmor Munitions Master Plan and reported that 

the plan did not identify any excess antiarmor weapons or provide the data 

and analyses needed to identify such excesses. The plan acknowledged 

that the tank threat was low and that the existing antiarmor weapon 

inventory is more than adequate to defeat the threat as defined in the 

Secretary of Defense’s planning guidance. 

Considering that DOD’s antiarmor weapon inventory is more than adequate 

to defeat current threats, the Congress could consider establishing an 

annual funding cap on the procurement of antiarmor weapons and require 

DOD to establish priorities among the various antiarmor weapons being 

acquired. In fiscal year 2001, DOD planned to spend about $1.3 billion and, 

for fiscal years 2001 through 2005, an average of over $1.1 billion per year 

for the procurement of antiarmor weapons. If the Congress directed DOD 

Authorizing committees Armed Services (Senate and House)

Appropriations subcommittees Defense (Senate and House)

Primary agency Department of Defense

Account Multiple

Spending type Discretionary

Budget subfunction 051/Department of Defense

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 189 GAO-01-447 Supporting Congressional Oversight

to restrict its annual funding for the procurement of antiarmor weapons to 

$1 billion and adjust only for inflation, DOD could still achieve substantial 

improvements in its antiarmor capabilities with associated savings as 

shown below.

Five-Year Savings

Related GAO Products Defense Acquisitions: Reduced Threat Not Reflected in Antiarmor Weapon 

Acquisitions (GAO/NSIAD-99-105, July 22, 1999).

Defense Acquisitions: Antiarmor Munitions Master Plan Does Not Identify 

Potential Excesses or Support Planned Procurements (GAO/NSIAD-00-67, 

May 5, 2000).

GAO Contact James Wiggins, (202) 512-4841

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 plan

Budget authority 455 376 0 0 0

Outlays 137 254 212 120 61

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 190 GAO-01-447 Supporting Congressional Oversight

Improve State 

Department Business 

Processes

The Department of State has a number of outmoded and inefficient 

business processes. For example, one of the problems confronting State is 

how to efficiently relocate its employees overseas, find suitable housing 

abroad, and provide household furniture. Our work suggests that millions 

of dollars could be saved while providing high-quality services if State 

adopted relocation practices used in the private sector—including 

outsourcing various parts of the transfer process. 

State’s employee transfer process has remained virtually unchanged for 

years. State employees are confronted with a myriad of steps and multiple 

offices to navigate. State also separately contracts for each segment of 

most moves. In addition to incurring annual direct costs of about 

$36 million to ship household effects, State incurs as much as $1,600 in 

overhead costs for each move. Moves are typically processed in State’s 

Transportation Division in Washington, D.C.; one of its four regional 

dispatch agencies; and its European Logistical Support Office. We found 

that leading companies in the private sector use a number of “best 

practices” to provide better service and reduce costs. Such practices 

include having one point of contact for assistance to employees, known as 

one-stop-shopping, and using commercial, door-to-door shipments to lower 

the cost of shipping employees’ household effects. Private sector firms also 

generally use one contractor for all segments of the move, minimizing inhouse support requirements and reducing total costs. 

Authorizing committees Foreign Relations (Senate)

International Relations (House)

Appropriations subcommittees Commerce, Justice, State, the Judiciary, 

and Related Agencies (Senate and House)

Primary agency Department of State

Account Diplomatic and Consular Programs 

(19-0113)

Salaries and Expenses (19-01107)

Security/maintenance of U.S. Missions 

(19-0535)

Spending type Discretionary

Budget subfunction 153/Conduct of foreign affairs

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 191 GAO-01-447 Supporting Congressional Oversight

Another important State process is providing overseas housing. State and 

other U.S. government agencies operating overseas spend over $200 million 

annually to lease housing and purchase furniture for employees and their 

families. This process appears to be more costly than necessary. Our 

comparison of State’s processes with those of key private sector firms 

operating overseas indicates that if State adopted private sector practices 

at a number of posts, it could potentially save the U.S. government 

substantial amounts of money and still meet its employees’ overseas 

residential housing and furniture needs. Specific practices that can reduce 

costs include (1) using relocation companies and similar service providers 

to search for housing and negotiate leases to reduce in-house support costs 

and shift some property preparation expenses to landlords, (2) providing 

employees with housing allowances to select their own homes rather than 

managing and maintaining a housing pool of government leases and preassigning residences, and (3) acquiring residential furniture overseas 

instead of buying and shipping it from the United States. The Overseas 

Presence Advisory Panel convened by the Secretary of State also suggested 

that State explore incentives for greater private sector involvement in 

managing residential property to improve operational efficiency.

Our cost analysis of the U.S. mission’s housing office in Brussels and the 

housing support function at the U.S. embassy in London illustrate how 

using a relocation company could potentially yield significant savings at 

those posts. For example, based on cost data provided by the mission in 

Brussels, the annual salary cost alone attributable to the short-term leasing 

process totaled about $700,000 in fiscal year 1996. If property preparation 

and other support costs are included, the embassy’s direct and indirect 

costs for short-term residential leases exceed $1.5 million annually. In 

contrast, a relocation company would charge between $207,000 and 

$277,000 for home-finding services. For London, the support costs for 

residential leasing totaled about $700,000 annually. Outsourcing homefinding services would cost between $118,000 and $151,000. 

While the Congressional Budget Office agrees that improving State’s 

business processes could yield savings, it cannot develop an estimate until 

specific proposals are identified.

Related GAO Products State Department: Using Best Practices to Relocate Employees Could 

Reduce Costs and Improve Service (GAO/NSIAD-98-19, Oct. 17, 1997).
Appendix III

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Federal Programs

Page 192 GAO-01-447 Supporting Congressional Oversight

State Department: Options for Reducing Overseas Housing and Furniture 

Costs (GAO/NSIAD-98-128, July 31, 1998).

GAO Contact Jess T. Ford, (202) 512-4128
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 193 GAO-01-447 Supporting Congressional Oversight

Streamline U.S. 

Overseas Presence

The Department of State maintains a physical presence in the form of 

embassies in over 160 countries, usually in the capital city, and consulates 

general, consulates, and other offices in the capital or other cities. Almost 

18,000 U.S. direct-hire employees (over 6,400 from State and 11,200 from 

other agencies) work overseas at a total of more than 250 diplomatic posts. 

In addition, the U.S. direct-hire staffing levels have increased over the 

years, most notably in the non-foreign affairs agencies. The U.S. 

government also employs over 35,000 locally hired and contract staff at its 

diplomatic posts. U.S. embassies have become bases to at least 27 other 

U.S. government agencies involved in more than 300 activities.

Security requirements and the increasing costs of diplomacy are directly 

linked to the size of the overseas work force. Moreover, U.S. foreign policy 

needs, which have changed dramatically with the end of the cold war, call 

into question whether the current overseas post and staff structure is 

appropriate. By reducing the number of Americans at posts where U.S. 

interests are of lesser importance, consolidating functions, or using 

regional embassies in certain regions, State could reduce its security 

requirements and enhance the safety of Americans overseas. In addition to 

security concerns, the costs of maintaining Americans overseas are high. It 

costs over $200,000 annually to station an American overseas, which is 

about two times as much as for Washington-based staff. 

For several years, we have been encouraging actions to reevaluate 

overseas staffing requirements. In 1999, the Secretary of State established 

Authorizing Committees Foreign Relations (Senate)

International Relations (House)

Appropriation subcommittees Commerce, Justice, State and the Judiciary, 

and Related Agencies (Senate and House)

Primary agency Department of State

Account Diplomatic and Consular Programs 

(19-0113)

Salaries and Expenses (19-0107)

Security/maintenance of U.S. Missions (19-

0535)

Spending type Discretionary

Budget subfunction 153/Conduct of foreign affairs

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 194 GAO-01-447 Supporting Congressional Oversight

the Overseas Presence Advisory Panel to review how the United States 

carries out its activities overseas. In November 1999, the Panel 

recommended the formation of an interagency committee to review and 

streamline every overseas post. Although the Panel did not specify the 

amount of savings that could be achieved through streamlining posts, it 

expressed the belief that the savings would be substantial. If the Congress 

chose to reduce overseas staffing by 1 percent, either through domestic 

reallocation or elimination, the Congressional Budget Office estimates that 

the following savings could be achieved. 

Five-Year Savings

Five-Year Savings

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Option: Relocate overseas staffing domestically by 1 percent

Savings from the 2001 funding level

Budget authority 4 8 12 16 20

Outlays 3 7 10 14 18

Note: The Congressional Budget Office assumes that these direct-hire positions would be relocated 

gradually or through attrition to minimize costs. This would occur at an even pace over 5 years and, 

based on information from GAO, savings are estimated at $100,000 per position.

Source: Congressional Budget Office.

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Option: Eliminate overseas staffing by 1 percent

Savings from the 2001 funding level

Budget authority 7 14 21 28 35

Outlays 6 13 19 26 33

Note: The Congressional Budget Office assumes that these direct-hire positions would be eliminated 

through attrition rather than a reduction-in-force, which would involve significant costs. Attrition would 

occur at an even pace over 5 years and, based on information from GAO, savings are estimated at 

$200,000 per position eliminated.

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 195 GAO-01-447 Supporting Congressional Oversight

Related GAO Products State Department: Major Management Challenges and Program Risks

(GAO/T-NSIAD/AIMD-99-99, Mar. 4, 1999).

Foreign Affairs Management: Major Challenges Facing the Department of 

State (GAO/T-NSIAD-98-251, Sept. 17, 1998).

Overseas Presence: Staffing at U.S. Diplomatic Posts

(GAO/NSIAD-95-50FS, Dec. 28, 1994).

State Department: Overseas Staffing Processes Not Linked to Policy 

Priorities (GAO/NSIAD-94-228, Sept. 20, 1994).

GAO Contact Jess T. Ford, (202) 512-4128
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 196 GAO-01-447 Supporting Congressional Oversight

Reduce the Costs of 

the Rural Utilities 

Service’s Electricity 

and 

Telecommunications 

Loan Programs

The Rural Utilities Service (RUS), created by the Federal Crop Insurance 

Reform and Department of Agriculture Reorganization Act of 1994 (P.L. 

103-354, Oct. 13, 1994), was established to provide loan funds intended to 

assist in the development of the utility infrastructure in the nation’s rural 

areas. RUS finances the construction, improvement, and repair of 

electrical, telecommunications, and water and waste disposal systems 

through direct loans and through repayment guarantees on loans made by 

other lenders. According to RUS reports, the outstanding principal owed on 

RUS loans totaled about $41 billion as of September 30, 1998. 

From a financial standpoint, RUS has successfully operated the 

telecommunications loan program, but the agency has had, and continues 

to have, significant financial problems with the electricity loan program. 

For example, during fiscal years 1992 through July 31, 1997, RUS wrote off 

the debt of four electricity loan borrowers totaling more than $1.5 billion. 

Since then, the agency has written off $0.3 billion and is in the process of 

writing off an additional $3.0 billion, and it is probable that the agency will 

continue to incur losses in the future.

RUS needs to take steps to increase the effectiveness and reduce the costs 

of its loan programs. RUS could, for example, (1) target loans to borrowers 

that provide services to areas with low populations, (2) target subsidized 

direct loans to borrowers that have a financial need for the agency’s 

assistance, and (3) graduate the agency’s financially viable borrowers from 

direct loans to commercial credit. Also, to reduce its vulnerability to losses, 

RUS could (1) establish loan and indebtedness limits, (2) set the repayment 

guarantee at a level below 100 percent, and (3) prohibit loans to delinquent 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate) 

Agriculture (House) 

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate)

Agriculture (House) 

Primary agency Department of Agriculture

Accounts Multiple 

Spending type Discretionary

Budget subfunction 271/Energy supply

Framework theme Improve efficiency
Appendix III

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Federal Programs

Page 197 GAO-01-447 Supporting Congressional Oversight

borrowers or to borrowers who have caused the agency to incur loan 

losses. CBO cannot develop an estimate for this option until specific 

proposals to improve efficiency are identified.

Related GAO Products Rural Utilities Service: Status of Electric Loan Portfolio (GAO/AIMD-99-

264R, Aug. 17, 1999).

Rural Water Projects: Federal Assistance Criteria and Potential Benefits of 

the Proposed Lewis and Clark Project (GAO/T-RCED-99-252, July 29, 1999).

Rural Water Projects: Federal Assistance Criteria Related to the Fort Peck 

Reservation Rural Water Project (GAO/T-RCED-98-230, June 18, 1998).

Rural Water Projects: Identifying Benefits of the Proposed Lewis and Clark 

Project (GAO/RCED-99-115, May 28, 1999).

Rural Utilities Service: Risk Assessment for the Electric Loan Portfolio

(GAO/T-AIMD-98-123, Mar. 30, 1998).

Rural Utilities Service: Opportunities to Operate Electricity and 

Telecommunications Loan Programs More Effectively (GAO/AIMD-98-42, 

Jan. 21, 1998).

Federal Electricity Activities: The Federal Government’s Net Cost and 

Potential for Future Losses (GAO/AIMD-97-110, Sept. 19, 1997).

Rural Development: Financial Condition of the Rural Utilities Service’s 

Electricity Loan Portfolio (GAO/T-RCED-97-198, July 8, 1997).

Rural Development: Financial Condition of the Rural Utilities Service’s 

Loan Portfolio (GAO/RCED-97-82, Apr. 11, 1997).

GAO Contacts Bob Robinson, (202) 512-3841 

Lawrence J. Dyckman, (202) 512-3841

Linda M. Calbom, (202) 512-9508
Appendix III

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Federal Programs

Page 198 GAO-01-447 Supporting Congressional Oversight

Consolidate or 

Eliminate Department 

of Energy Facilities

Since 1982, many panels, commissions, and task forces, and several GAO 

studies have addressed how the Department of Energy (DOE) could 

achieve operational efficiencies in its research and development facilities. 

Recommendations have included focusing unclear missions, aligning 

laboratory activities with DOE goals, consolidating facilities, and replacing 

cumbersome, inefficient management structures. In particular, with the end 

of the Cold War, DOE may no longer need to maintain three nuclear 

weapons laboratories. A DOE-chartered task force—the 1995 Task Force 

on Alternative Futures for the Department of Energy National 

Laboratories—reported that DOE’s entire laboratory system could be 

reduced productively by eliminating obsolete and redundant missions and 

supporting infrastructure. Because such consolidations have not occurred, 

science budgets are being spent increasingly on maintenance of obsolete 

and inappropriate infrastructure, rather than innovative research and 

development.

Congress recently reorganized DOE’s defense laboratories and put them 

under control of the new semi-autonomous National Nuclear Security 

Administration. However what is still needed is a mission-by-mission 

examination of DOE. This reassessment should explore alternative 

organizational approaches to best implement DOE’s missions and, ideally, 

should be part of a governmentwide restructuring of related programs and 

activities. An outcome of this reassessment could be to reorganize existing 

national laboratories to focus on specific DOE programs and activities, 

eliminating duplication of both structures and personnel. This could 

include converting some labs into private or quasi-private entities, 

Authorizing committees Energy and Natural Resources (Senate) 

Energy and Commerce (House)

Appropriations subcommittees Energy and Water Development 

(Senate and House)

Primary agency Department of Energy

Account Energy Supply, R&D Activities 

(89-0224)

Spending type Discretionary 

Budget subfunction 053/Atomic energy defense activities

Framework theme Improve efficiency
Appendix III

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Page 199 GAO-01-447 Supporting Congressional Oversight

transferring labs to universities, or assigning them to different agencies 

whose missions better match lab strengths.

One specific option that the Congress could consider is the consolidation 

of nuclear weapons functions of the Lawrence Livermore facility into the 

Los Alamos laboratory. Los Alamos officials have estimated that having 

both facilities design weapons, but only one facility engineer and test them, 

would save about $200 million in annual operating costs. The table below 

reflects savings from phasing in such a consolidation over a 5-year period.

Five-Year Savings

Related GAO Products Department of Energy: Need to Address Longstanding Management 

Weaknesses (GAO/T-RCED-99-255, July 13, 1999).

Department of Energy: Key Factors Underlying Security Problems at DOE 

Facilities (GAO/T-RCED-99-159, Apr. 20, 1999).

Department of Energy: Uncertain Progress in Implementing National 

Laboratory Reforms (GAO/RCED-98-197, Sept. 10, 1998).

Department of Energy: A Framework for Restructuring DOE and Its 

Missions (GAO/RCED-95-197, Aug. 21, 1995).

Federal R&D Laboratories (GAO/RCED/NSIAD-96-78R, Feb. 29, 1996).

Department of Energy: National Laboratories Need Clearer Mission and 

Better Management (GAO/RCED-95-10, Jan. 27, 1995).

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 plan

Budget authority 63 129 189 271 346

Outlays 41 103 171 242 316

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 200 GAO-01-447 Supporting Congressional Oversight

DOE’s National Laboratories: Adopting New Missions and Managing 

Effectively Pose Significant Challenges (GAO/T-RCED-94-113, Feb. 3, 

1994).

Department of Energy: Management Problems Require a Long-term 

Commitment to Change (GAO/RCED-93-72, Aug. 31, 1993).

Nuclear Weapons Complex: Issues Surrounding Consolidating Los Alamos 

and Lawrence Livermore National Laboratories (GAO/RCED-92-98, 

Sept. 24, 1992).

GAO Contacts Bob Robinson, (202) 512-3841 

Jim Wells, (202) 512-3841
Appendix III

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Federal Programs

Page 201 GAO-01-447 Supporting Congressional Oversight

Improve Oversight of 

Superfund 

Administrative 

Expenditures to Better 

Identify Opportunities 

for Cost Savings

Under the Superfund program, when the Environmental Protection Agency 

(EPA) pays for the cleanup of a contaminated site, the work is conducted 

by private contractors who are hired by EPA, another federal entity, or a 

state. In a mature program such as Superfund, which is almost 20 years old, 

an increasing proportion of expenditures should be directly related to 

cleaning up sites with a smaller proportion of program expenditures going 

to administrative support activities.

Superfund program expenditures for the study, design, and construction of 

cleanups declined from 48 percent in fiscal year 1996 to 42 percent in fiscal 

year 1998; while support spending increased from 52 percent to 58 percent 

over this same period. We found that most of the agency’s support spending 

went for administrative items such as rent, computer services, and policy 

development activities. EPA headquarters’ spending was particularly 

concentrated in non-site specific support categories. For example, for 

fiscal years 1996 through 1998 about 82 percent of EPA headquarters’ 

Superfund spending was for non-site specific items such as overall program 

direction; policy development; program planning and analysis; budgetary, 

financial and administrative support; rent, and information management 

support. 

To help better identify opportunities for potential cost savings in the 

Superfund program, we recommended that EPA expand the monitoring of 

program expenditures to regularly analyze the breakdown of expenditures 

in terms of contractor cleanup work, site-specific spending, and non-site 

specific spending. Such analyses should compare spending shares among 

EPA regional and headquarters units, and significant differences should be 

Authorizing committees Environment and Public Works (Senate)

Energy and Commerce (House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Environmental Protection Agency

Account Hazardous Substances Superfund

(20-8145)

Spending type Discretionary

Budget subfunction 304/Pollution control and abatement 

Framework theme Improve efficiency
Appendix III

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Federal Programs

Page 202 GAO-01-447 Supporting Congressional Oversight

further analyzed to identify the root causes and to determine where costsaving corrective actions are warranted.

A reduction in expenditures for administrative support activities could lead 

to a reduction in overall spending or an increase in the share of Superfund 

spending that goes for site specific purposes, such as studying, designing, 

and implementing cleanups. Decreasing the proportion of expenditures 

related to administrative support activities and increasing the proportion 

directly related to cleaning up sites could lead to a more efficient use of 

limited resources. CBO cannot estimate such savings without further 

information regarding the details of the proposed option.

Related GAO Products Superfund: EPA Can Improve Its Monitoring of Superfund Expenditures

(GAO/RCED-99-139, May 11, 1999).

Superfund: Progress Made by EPA and Other Federal Agencies to Resolve 

Program Management Issues (GAO/RCED-99-111, Apr. 21, 1999).

Superfund: Progress, Problems, and Future Outlook (GAO/T-RCED-99-128, 

Mar. 23, 1999).

Performance and Accountability Series: Major Management Challenges and 

Program Risks, Environmental Protection Agency (GAO/OCG-99-17, Jan. 

1999).

GAO Contacts Bob Robinson, (202) 512-3841

Dave Wood, (202) 512-3841
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 203 GAO-01-447 Supporting Congressional Oversight

Reassess Federal Land 

Management Agencies’ 

Functions and 

Programs

The responsibilities of the four major federal land management agencies—

the National Park Service, the Bureau of Land Management (BLM), and the 

Fish and Wildlife Service within the Department of Interior, and the Forest 

Service within the Department of Agriculture—have grown more similar 

over time. Most notably, the Forest Service and BLM now provide more 

noncommodity uses, including recreation and protection for fish and 

wildlife, on their lands. In addition, managing federal lands has become 

more complex. Managers have to reconcile differences among a growing 

number of laws and regulations, and the administration of these laws is 

dispersed among several federal agencies and state and local agencies. 

These changes have coincided with two other developments—the federal 

government’s increased emphasis on downsizing and budgetary constraint 

and scientists’ increased understanding of the importance and functioning 

of natural systems whose boundaries may not be consistent with existing 

jurisdictional and administrative boundaries. Together, these changes and 

developments suggest a basis for reexamining the processes and structures 

under which the federal land management agencies currently operate.

Two basic strategies have been proposed to improve federal land 

management: (1) streamlining the existing structure by coordinating and 

integrating functions, systems, activities, programs, and field locations and 

(2) reorganizing the structure by combining agencies. The two strategies 

are not mutually exclusive and some prior proposals have encompassed 

both.

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House)

Resources (House)

Appropriations subcommittees Interior and Related Agencies (Senate and 

House)

Primary agencies Department of the Interior

Department of Agriculture 

Accounts Multiple

Spending type Discretionary 

Budget subfunction 302/Conservation and land management

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 204 GAO-01-447 Supporting Congressional Oversight

Over the last several years, the Forest Service and BLM have collocated 

some offices or shared space with other federal agencies. They have also 

pursued other means of streamlining, sharing resources, and saving rental 

costs. However, no significant legislation has been enacted to streamline or 

reorganize federal land management agencies and the four major federal 

land management agencies have not, to date, developed a strategy to 

coordinate and integrate their functions, systems, activities, and programs. 

Without a specific restructuring proposal that would eliminate certain 

programs or revise how the land is managed, CBO does not estimate 

savings due to sharing resources among the four major land management 

agencies. Savings would depend on the extent of a workforce restructuring 

and implementation proposal.

Related GAO Products Land Management Agencies: Ongoing Initiative to Share Activities and 

Facilities Needs Management Attention (GAO-01-50, Nov. 21, 2000)

Federal Wildfire Activities: Current Strategy and Issues Needing Attention

(GAO/RCED-99-223, Aug. 13, 1999).

Land Management: The Forest Service’s and BLM’s Organizational 

Structures and Responsibilities (GAO/RCED-99-227, July 29, 1999).

Ecosystem Planning: Northwest Forest and Interior Columbia River Basin 

Plans Demonstrate Improvements in Land-Use Planning

(GAO/RCED-99-64, May 26, 1999).

Land Management Agencies: Revenue Sharing Payments to States and 

Counties (GAO/RCED-98-261, Sept. 17, 1998).

Federal Land Management: Streamlining and Reorganization Issues

(GAO/T-RCED-96-209, June 27, 1996).

National Park Service: Better Management and Broader Restructuring 

Efforts Are Needed (GAO/T-RCED-95-101, Feb. 9, 1995).

Forestry Functions: Unresolved Issues Affect Forest Service and BLM 

Organizations in Western Oregon (GAO/RCED-94-124, May 17, 1994).

Forest Service Management: Issues to Be Considered in Developing a New 

Stewardship Strategy (GAO/T-RCED-94-116, Feb. 1, 1994).
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 205 GAO-01-447 Supporting Congressional Oversight

GAO Contacts Bob Robinson, (202) 512-3841

Barry T. Hill, (202) 512-3841
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 206 GAO-01-447 Supporting Congressional Oversight

Increase Flexibility in 

ATSDR’s Health 

Assessment Process to 

Better Meet EPA’s 

Needs in Evaluating 

Superfund Sites

The Agency for Toxic Substances and Disease Registry (ATSDR) provides a 

number of products and services related to human health effects of 

exposure to hazardous substances. Many of these products and services 

are useful to the Environmental Protection Agency (EPA) in its efforts to 

clean up hazardous waste sites including consultations, which are typically 

issue-specific, short-term efforts addressing unique health issues at 

Superfund sites. Although many of ATSDR’s products and services are 

useful to EPA’s efforts to clean up hazardous waste sites, public health 

assessments—which are typically long-term, extensive efforts focusing on 

the health effects of hazardous waste sites—have little or no impact on 

EPA’s cleanup decisions. This is because the longer-term assessments are 

often not issued when needed nor have they been conclusive about the 

health effects of Superfund sites. EPA and ATSDR officials attributed the 

problems with these health assessments, in part, to the statutory 

requirement of preparing full health assessments for all sites listed or 

proposed for listing on EPA’s National Priority List.

GAO has recommended that the Congress amend the requirement that 

ATSDR conduct a detailed health assessment at each site proposed for or 

listed on EPA’s Superfund National Priorities List. The recommendation 

was intended to provide ATSDR with more flexibility in choosing the 

appropriate health-related product or service to best meet EPA and other 

users’ needs in addressing activities at hazardous waste sites. Congress 

provided ATSDR with this flexibility in EPA’s fiscal year 2000 appropriation. 

The act also reduced ATSDR’s appropriation by $6 million related to this 

change. Continuation of this program flexibility in future legislation (e.g., 

reauthorization or appropriations) would likely result in similar savings in 

Authorizing committees Environment and Public Works (Senate)

Energy and Commerce (House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Environmental Protection Agency 

Account Hazardous Substance Superfund 

(20-8145)

Spending type Discretionary

Budget subfunction 304/Pollution control and abatement

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 207 GAO-01-447 Supporting Congressional Oversight

fiscal year 2001 and beyond. CBO could not estimate any savings for this 

option as savings are already assumed in baseline projections.

Related GAO Product Superfund Program: Activities of the Agency for Toxic Substances and 

Disease Registry and Department of Justice (GAO/RCED-99-85, Mar. 18, 

1999). 

GAO Contacts Bob Robinson, (202) 512-3841

Dave Wood, (202) 512-3841
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 208 GAO-01-447 Supporting Congressional Oversight

Pursue Cost-Effective 

Alternatives to NOAA’s 

Research/Survey Fleet

The National Oceanic and Atmospheric Administration (NOAA) has an 

aging in-house fleet of 15 ships that are used to support its programs in 

fisheries research, oceanographic research, and hydrographic charting and 

mapping. Most of NOAA’s ships are past their 30-year life expectancies, and 

many of them are costly and inefficient to operate and maintain and lack 

latest state-of-the-art technology. NOAA’s ships are managed and operated 

by a NOAA Corps of about 240 uniformed service commissioned officers 

who, like the Public Health Service Commissioned Corps, perform civilian 

rather than military functions but are covered by a military-like pay and 

benefits system.

For more than a decade, congressional committees, public and private 

sector advisory groups, the National Performance Review (NPR), the 

Commerce Office of Inspector General (OIG), and our office have urged 

NOAA to aggressively pursue more cost-effective alternatives to its inhouse fleet of ships. Since 1990, NOAA has developed several fleet 

replacement and modernization plans that call for investments of millions 

of dollars to upgrade or replace these ships, and each has been criticized by 

the Commerce OIG for not pursuing alternative approaches strongly 

enough. In 1996, the OIG recommended that NOAA terminate its fleet 

modernization efforts; cease investing in its ships; immediately begin to 

decommission, sell, or transfer them; and contract for the required ship 

services.

In response, NOAA has decommissioned almost one-third of its fleet since 

1990 and now outsources about 40 percent of its research and survey 

Authorizing committees Commerce, Science and Transportation 

(Senate)

Energy and Commerce (House)

Appropriations subcommittees Commerce, Justice, State, and the 

Judiciary

Primary agency Department of Commerce

Account Procurement, Acquisition and Construction 

(13-1460)

Spending type Discretionary

Budget subfunction 306/Other natural resources

Framework theme Improve efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 209 GAO-01-447 Supporting Congressional Oversight

needs. Although NOAA has increased its outsourcing for these services and 

expects to further increase its use of outsourcing to about 50 percent over 

the next 10 years, NOAA continues to rely heavily on its old, inefficient fleet 

and still plans to replace or upgrade some of these ships. In this regard, the 

Congress approved NOAA’s request for $52 million in fiscal year 2000 to 

acquire a new fisheries research ship. In addition, NOAA’s congressional 

budget presentation for fiscal year 2001 indicated that NOAA plans to 

spend another $159 million during fiscal years 2002 through 2004 for three 

additional replacement ships.

In its September 1999 Semiannual Report, the Commerce OIG stated that 

NOAA has not developed a contingency plan for collecting fisheries data in 

the case that it does not receive follow-on funding for the remaining 

vessels. According to the OIG, the absence of such a plan places the 

fisheries program at serious risk and NOAA’s challenge remains to 

thoroughly assess and aggressively pursue alternative approaches instead 

of relying so heavily on owning and operating an in-house fleet. Pursuing 

cost-effective alternatives could help reduce the additional $159 million 

NOAA estimates is needed through fiscal year 2004 for fleet replacement. 

CBO agrees that savings are possible depending on the specific alternative 

that is proposed.

Related GAO Products Department of Commerce: National Weather Service Modernization and 

NOAA Fleet Issues (GAO/T-AIMD/GGD-99-97, Feb. 24, 1999).

Major Management Challenges and Program Risks: Department of 

Commerce (GAO/OCG-99-3, Jan. 1999).

Issues on the National Oceanic and Atmospheric Administration’s 

Commissioned Corps (GAO/GGD-98-35R, Dec. 2, 1997).

National Oceanic and Atmospheric Administration: Issues on the 

Civilianization of the Commissioned Corps (GAO/T-GGD-98-22, Oct. 29, 

1997).

Federal Personnel: Issues on the Need for NOAA’s Commissioned Corps

(GAO/GGD-97-10, Oct. 31, 1996).

Research Fleet Modernization: NOAA Needs to Consider Alternatives to 

the Acquisition of New Vessels (GAO/RCED-94-170, Aug. 3, 1994).
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 210 GAO-01-447 Supporting Congressional Oversight

GAO Contact Carlotta C. Joyner, (202) 512-6806
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 211 GAO-01-447 Supporting Congressional Oversight

Increase Federal 

Revenues Through 

Water Transfers

Water transfers, in which rights to use water are bought and sold, are a 

mechanism for reallocating scarce water to new users by allowing those 

who place the highest economic value on the resource to purchase it. Water 

transfers are a valuable tool for improving the efficiency of water use and 

environmental quality and can be a promising way to increase federal 

revenues for water development projects. Current reclamation law 

provides the Secretary of the Interior with discretion in establishing 

municipal and industrial charges to recover some of the costs of 

constructing the projects. However, Interior’s principles governing water 

transfers focus on facilitating transfers and placing the government in the 

same or a better financial condition after a transfer is made, rather than 

charging the highest amounts possible without discouraging transfers. 

Increasing federal revenues will reduce the net benefits to the buyers and 

sellers, thereby discouraging some transfers. Deciding how much the 

Bureau of Reclamation should charge for transferred water involves 

balancing the increase in federal revenues with retaining incentives for 

water transfers to occur. Moreover, many reclamation projects have 

specified interest rates in authorizing legislation that limit interest charges 

below current levels.

The Congress may wish to change reclamation law to allow the use of 

current Treasury borrowing rates in establishing charges for transferred 

water. If this change was implemented in 2000, CBO estimates the 

following additional receipts. This estimate assumes that 3 percent of the 

outstanding irrigation-related debt of about $2 billion is annually traded, 

with the interest rate tied to the 30-year Treasury rate.

Authorizing committees Energy and Natural Resources (Senate)

Resources (House)

Primary agency Department of the Interior

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 212 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Related GAO Product Water Markets: Increasing Federal Revenues Through Water Transfers

(GAO/RCED-94-164, Sept. 21, 1994).

GAO Contacts Bob Robinson, (202) 512-3841

Barry T. Hill, (202) 512-3841

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Added receipts 2 4 4 4 4

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 213 GAO-01-447 Supporting Congressional Oversight

Strengthen Controls 

Over Crop Insurance 

Claims 

Since 1981, USDA’s crop insurance program has provided over $21 billion to 

farmers for insured crop losses caused by droughts, floods, hurricanes, and 

other natural disasters. This multibillion-dollar program, administered by 

USDA’s Risk Management Agency, provides subsidized insurance through 

private insurance companies that assume a portion of the risk associated 

with claims payments. Currently, federal crop insurance is available for 75 

crops on a county-by-county basis.

Although the program’s loss experience is a major factor in determining the 

cost of federal crop insurance to farmers and to the government, there are 

no reliable estimates of the extent to which crop insurance claims are paid 

in error. While USDA’s Risk Management Agency estimates that about 5 

percent of claims were paid in error in 1997, its methodology for estimating 

errors was questionable in several respects. As a result, the Risk 

Management Agency does not know the extent to which private insurance 

companies are making erroneous crop insurance payments or the 

effectiveness of individual administrative requirements in minimizing 

erroneous payments. The Risk Management Agency could strengthen 

quality controls and reduce erroneous payments if it had a better 

understanding of the nature and magnitude of payment errors. Better 

controls over claims payments could potentially save the crop insurance 

program and the government millions of dollars annually.

To ensure proper control over claims payments, USDA could develop a 

more statistically valid sampling approach that would develop accurate 

estimates of error rates for crop insurance claims payments. Although CBO 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House)

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate)

Agriculture (House) 

Primary agency Department of Agriculture 

Accounts Federal Crop Insurance Corporation Fund 

(12-4085)

Spending type Direct

Budget subfunction 351/Farm income stabilization

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 214 GAO-01-447 Supporting Congressional Oversight

agrees that better controls over claims payments would produce savings, it 

cannot develop a savings estimate until a specific proposal is identified.

Related GAO Products Crop Insurance: USDA Needs a Better Estimate of Improper Payments to 

Strengthen Controls Over Claims (GAO/RCED-99-266, Sept. 22, 1999). 

Crop Insurance: Further Actions Could Strengthen Program’s Financial 

Soundness (GAO/T-RCED-99-161, April 21, 1999). 

Crop Insurance: Additional Actions Could Further Improve Program’s 

Financial Soundness (GAO/T-RCED-99-123, Mar. 17, 1999). 

Crop Insurance: USDA’s Progress in Expanding Insurance for Specialty 

Crops (GAO/RCED-99-67, Apri1 16, 1999).

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 215 GAO-01-447 Supporting Congressional Oversight

Consolidate Common 

Administrative 

Functions at USDA

In accordance with the Federal Crop Insurance Reform and Department of 

Agriculture Reorganization Act of 1994, USDA has reorganized and 

streamlined its structure, consolidating 43 agencies and offices into 29 

operating under seven mission areas. Under its streamlining plans, USDA 

also required mission areas with more than one agency to consolidate 

administrative functions such as human resource management and 

procurement. By mid-1997, USDA reported that administrative 

consolidation had been completed in four of the five mission areas with 

more than one agency.

However, we found that many of the mission areas where consolidation 

had been completed, still have multiple offices performing functions such 

as legislative and legal affairs, public information and community affairs, 

and financial and budget management for each of the component agencies. 

In total, more than 3,500 staff fill these positions. In addition, USDA has 

recently developed a plan to streamline administrative functions for its 

county-based service agencies—the Farm Service Agency, the Natural 

Resources and Conservation Service, and the agencies in the Rural 

Development mission. Included in this plan is the creation of a Support 

Services Bureau to provide centralized administrative support to these 

county-based agencies. Until recently, each of these agencies has 

maintained separate administrative operations nationally and at the state 

office level in almost every state. The state offices employ 4,782 USDA 

employees, including administrative staff.

To further streamline its organization, increase efficiency, and reduce 

overhead costs associated with running separate offices, USDA could do 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House)

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Accounts Multiple

Spending type Discretionary/Direct

Budget subfunction 352/Agricultural research and services

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 216 GAO-01-447 Supporting Congressional Oversight

more to combine agencies’ support functions, such as legislative and legal 

affairs and public information, into a single office serving the needs of all 

mission component agencies. In addition, even though USDA has 

developed a plan to converge administrative functions for county-based 

agencies, a number of obstacles need to be overcome if the plan is to be 

successfully implemented, including the selection of a strong leadership 

team to implement the convergence plan. Development of the Support 

Services Bureau is currently on hold because funding was explicitly not 

made available in the 2001 appropriation. CBO agrees that this option could 

potentially yield savings, but did not develop a savings estimate due to 

uncertainty of the extent to which improved efficiencies actually lead to 

budgetary savings. 

Related GAO Products U.S. Department of Agriculture: Administrative Streamlining is Expected to 

Continue Through 2002 (GAO/RCED-99-34, Dec. 11, 1998).

U.S. Department of Agriculture: Update on Reorganization and 

Streamlining Efforts (GAO/RCED-97-186R, June 24, 1997).

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 217 GAO-01-447 Supporting Congressional Oversight

Further Consolidate 

Farm Service Agency 

County Offices 

USDA maintains a field office structure that dates back to the 1930s when 

transportation and communication systems limited the geographic 

boundaries covered by a single field office and when there were a greater 

number of small, widely disbursed, family-owned farms. In 1933, the United 

States had more than 6 million farmers; today the number of farms in the 

United States is less than 2 million and a small fraction of these produce 

more than 70 percent of the nation’s agricultural output. At various times, 

the Congress has attempted to reduce the number of county offices serving 

farmers and/or reduce county office staffing. Most recently, the Federal 

Crop Insurance Reform and Department of Agriculture Reorganization Act 

of 1994 (P.L. 103-354, Oct. 13, 1994) directed the Secretary of Agriculture to 

streamline departmental operations by consolidating county offices. 

In response to the Agriculture Reorganization Act, USDA’s Farm Service 

Agency has closed over 370 county offices and reduced its county office 

staff by about 28 percent. However, the Farm Service Agency still has 

nearly 2,400 county offices, including 673 small county offices that have 

three or fewer permanent full-time employees. These smaller offices 

generally cannot take advantage of certain economies of scale. For 

example, USDA’s workload data indicate that small county offices spend 

about 46 percent of their time on such fixed administrative activities as 

obtaining and managing office space and processing paperwork related to 

payroll. In comparison, larger county offices spend only 32 percent of their 

time on these administrative activities.

The Farm Service Agency could further consolidate its county office field 

structure by closing more of its small county offices. Criteria for 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House)

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies 

(Senate) Agriculture (House) 

Primary agency Department of Agriculture

Accounts Multiple

Spending type Discretionary

Budget subfunction 351/Farm income stabilization

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 218 GAO-01-447 Supporting Congressional Oversight

determining which small county offices to close could include the 

(1) distance from another county office, (2) time spent on administrative 

duties, and (3) number of farmers who receive Farm Service Agency 

financial benefits. Although CBO agrees that closing offices that serve few 

farmers would produce savings, it cannot develop a savings estimate until a 

specific proposal is identified.

Related GAO Products Farm Service Agency: Characteristics of Small County Offices

(GAO/RCED-99-102, May 28, 1999).

U.S. Department of Agriculture: Status of Closing and Consolidating 

County Offices (GAO/T-RCED-98-250, July 29, 1998).

Farm Programs: Service to Farmers Will Likely Change as Farm Service 

Agency Continues to Reduce Staff and Close Offices (GAO/RCED-98-136, 

May 1, 1998).

Farm Programs: Administrative Requirements Reduced and Further 

Program Delivery Changes Possible (GAO/RCED-98-98, Apr. 20, 1998).

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 219 GAO-01-447 Supporting Congressional Oversight

Revise the Marketing 

Assistance Loan 

Program to Better 

Reflect Market 

Conditions

The U.S. Department of Agriculture’s (USDA) marketing assistance loan 

program is designed to provide producers of certain crops—wheat, feed 

grains, oilseeds, upland cotton, and rice—with interim financial assistance 

at harvest, when prices are usually lower than at other times of the year. 

The program is composed of two major components—loans and loan 

deficiency payments. Under the loan component, producers can use their 

harvested crop as collateral to obtain the loans. The program gives 

producers the choice of one of three options for settling marketing loans, 

effectively guaranteeing a minimum price for these crops. First, producers 

can sell their crop and repay the loan with interest, which they are likely to 

do if the market price is high. Second, if crop prices remain too low to 

allow producers to repay the loan plus interest, they can sell the crop and 

repay the loan at the posted county price and keep the difference, which is 

called a marketing loan gain. Finally, if the price is low, producers can 

forfeit their collateral and keep the loan amount. The program’s other 

component—the loan deficiency payment—reflects the difference by 

which the applicable county loan rate exceeds the posted county price on 

the day a producer requests such a payment. If producers choose this 

component, they receive a cash payment and can sell their crop whenever 

they choose. The amount of a marketing assistance loan is based on the 

amount of the crop offered as collateral multiplied by the county loan rate. 

This rate is a per-unit price for each crop that is established on a national 

basis by law and then adjusted by USDA to reflect county variations in 

market prices across the country. In accordance with current farm 

legislation, the Secretary of Agriculture may adjust the marketing 

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House)

Appropriation committees Agriculture, Rural Development, and 

Related Agencies (Senate)

Agriculture, Rural Development, Food and 

Drug Administration, and Related Agencies 

(House)

Primary agency Department of Agriculture

Accounts Commodity Credit Corporation Fund

(12-4336)

Spending type Direct

Budget subfunction 351/Farm income stabilization

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 220 GAO-01-447 Supporting Congressional Oversight

assistance loan rate annually within the national loan rates legislatively 

established for specific crops.

Cash payments for this program have significantly increased in the last few 

years. In 1996, the market assistance loan program served primarily as a 

source of interim financing because crop prices were high enough to 

enable producers to sell their crops and repay their loans. However, in 

1998, when market prices fell below the loan rates, a large number of 

producers turned to the program as a source of income. For 1998 crops, the 

program provided $6.7 billion in loans. It also provided $3.7 billion for cash 

payments (as of September 22, 1999), up from $162 million in payments for 

1997 crops. Payments were expected to grow to about $5.9 billion for 1999 

crops and to $10 billion for 2000 crops. Although the Secretary of 

Agriculture has the authority to adjust county loan rates, USDA has 

generally not done so since 1995 because the demand for loans prior to 

1998 was low. More recently, USDA did not want to lower loan rates during 

the current period of low crop prices. According to a USDA estimate, 

however, revising the marketing assistance loan rate for the 1999 crop of 

wheat, corn, and other feed grains to better reflect current market 

conditions would have reduced outlays for marketing loan gains and loan 

deficiency payments by about $900 million.

To ensure proper controls over program costs, the Congress could direct 

the Secretary of Agriculture to annually adjust county loan rates for wheat, 

corn, other feed grains, and oilseeds to accurately reflect current market 

conditions. For example, in 1999, the Secretary was authorized to lower the 

marketing assistance loan rate for corn by about 5 percent. If the Congress 

had directed the Secretary to adjust the rates in 1999, USDA estimated 

savings of $900 million would have occurred. Although future savings 

cannot be determined until final crop year prices are known, CBO agrees 

that savings can accrue through more timely adjustments.

Related GAO Product U.S. Department of Agriculture: Marketing Assistance Loan Program 

Should Better Reflect Market Conditions (GAO/RCED-00-9, Nov. 23, 1999).

GAO Contact Lawrence J. Dyckman, (202) 512-5138
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 221 GAO-01-447 Supporting Congressional Oversight

Reduce FHA’s 

Insurance Coverage

Through its Federal Housing Administration (FHA), the Department of 

Housing and Urban Development (HUD) insures private lenders against 

nearly all losses resulting from foreclosures on single-family homes insured 

under its Mutual Mortgage Insurance Fund (Fund). The Department of 

Veterans Affairs (VA) also operates a single-family mortgage guaranty 

program. However, unlike FHA, VA covers only 25 to 50 percent of the 

original loan amount against losses incurred when borrowers default on 

loans, leaving lenders responsible for any remaining losses. 

In May 1997, GAO reported that reducing FHA’s insurance coverage to the 

level permitted for VA home loans would likely reduce the Fund’s exposure 

to financial losses, thereby improving its financial health. As a result, the 

Fund’s ability to maintain financial self-sufficiency in an uncertain future 

would be enhanced. For example, if insurance coverage on FHA’s 1995 

loans were reduced to VA’s levels and a 14 percent volume reduction in 

lending was assumed, GAO estimated that the economic value of the loans 

would increase by $52 million to $79 million. Economic value provides an 

estimate of the profitability of FHA loans, which is important because 

estimated increases in economic value due to legislative changes allow 

additional mandatory spending authorizations to be made, other revenues 

to be reduced, or projected savings in the federal budget to be realized. 

Reducing FHA’s insurance coverage would likely improve the financial 

health of the fund because the reduction in claim payments resulting from 

lowered insurance coverage would more than offset the decrease in 

premium income resulting from reduced lending volume. 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Department of Housing and Urban 

Development

Account FHA-Mutual Mortgage Insurance Fund (86-

0183)

Spending type Discretionary/Direct

Budget subfunction 371/Mortgage credit

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 222 GAO-01-447 Supporting Congressional Oversight

Legislative changes could be made to reduce FHA’s insurance coverage. 

Savings under this option would depend on future economic conditions, 

the volume of loans made, how higher risk and lower risk borrowers would 

be identified for exclusion from the program, and whether some losses may 

be shifted from FHA to the Government National Mortgage Association. In 

addition, reducing FHA’s insurance coverage does pose trade-offs affecting 

lenders, borrowers, and FHA’s role, such as diminishing the federal role in 

stabilizing markets. Borrowers most likely affected would be low-income, 

first-time, and minority home buyers and those individuals purchasing 

older homes.

CBO did not provide a savings estimate for this option because the amount 

of potential savings would depend on the reaction of lenders and the 

resulting demand for FHA’s products. 

Related GAO Product Homeownership: Potential Effects of Reducing FHA’s Insurance Coverage 

for Home Mortgages (GAO/RCED-97-93, May 1, 1997).

GAO Contact Stanley J. Czerwinski, (202) 512-7631
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 223 GAO-01-447 Supporting Congressional Oversight

Merging USDA and 

HUD Single-Family 

Insured Lending 

Programs and 

Multifamily Portfolio 

Management Programs

USDA, primarily through its Rural Housing Service (RHS) has jurisdiction 

over most federal rural housing programs. HUD, primarily through its 

Federal Housing Administration (FHA), has jurisdiction over the major 

nationwide federal housing programs. As the distinctions between rural 

and urban life have blurred and federal budgets have tightened, the need 

for the separate rural housing programs, first created in the mid-1930s to 

stimulate the rural economy and assist needy rural families, is 

questionable. 

Similarities exist between the RHS and FHA programs for delivering rural 

housing, and efficiencies could be achieved by merging the two programs. 

For instance, RHS’ single-family guaranteed loan program and FHA’s singlefamily insured loan program both primarily target low- and moderateincome households, use the same qualifying ratios, and operate in the same 

markets. Even though RHS’ program offers slightly more attractive terms 

for the borrower and is available only in rural areas, whereas FHA’s 

program is available nationwide, both programs could be offered through 

the same network of lenders. Adapting each one’s best practices for use by 

the other and eliminating inconsistencies in the rules applicable to private 

owners under the current programs would improve the efficiency with 

which the federal government delivers rural housing programs.

As we recently reported, to optimize the federal role in rural housing, the 

Congress may wish to consider requiring USDA and HUD to examine the 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees Agriculture; VA, HUD and Independent 

Agencies (House)

Agriculture, Rural Development and 

Related Agencies; VA, HUD, and 

Independent Agencies (Senate)

Primary agency Department of Agriculture

Department of Housing and Development

Account Multiple

Spending type Direct/Discretionary

Budget subfunction 371/Mortgage Credit

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 224 GAO-01-447 Supporting Congressional Oversight

benefits and costs of merging those programs that serve similar markets 

and provide similar products. As a first step, the Congress could consider 

requiring RHS and HUD to explore merging their single-family insured 

lending programs and multifamily portfolio management programs, taking 

advantage of the best practices of each and ensuring that targeted 

populations are not adversely affected. CBO cannot estimate savings for 

this option without a more specific proposal.

Related GAO Product Rural Housing: Options for Optimizing the Federal Role in Rural Housing 

Development (GAO/RCED-00-241, Sept. 15, 2000).

GAO Contact Stanley J. Czerwinski, (202) 512-7631
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 225 GAO-01-447 Supporting Congressional Oversight

Consolidate Homeless 

Assistance Programs

In 1987, the Congress passed the Stewart B. McKinney Act (P.L. 100-77) to 

provide a comprehensive federal response to address the multiple needs of 

homeless people. The act encompassed both existing and new programs, 

including those providing emergency food and shelter, those offering longterm housing and supportive services, and those designed to demonstrate 

effective approaches for providing homeless people with services. Over the 

years, some of the original McKinney programs have been consolidated or 

eliminated, and some new programs have been added. Today homeless 

people receive assistance through these programs as well as other federal 

programs that are not authorized under the McKinney Act but are 

nevertheless specifically targeted to serve the homeless population. In 

February 1999, we reported that seven federal agencies administer 16 

programs that are targeted to serve the homeless population. In fiscal year 

1997, these agencies obligated over $1.2 billion for homeless assistance 

programs, and the programs administered by the Department of Housing 

and Urban Development (HUD) accounted for about 70 percent of this 

total.

While these federal programs offer a wide range of services to the homeless 

population, some of these services appear similar. For example, food and 

nutrition services can be provided to homeless people through 8 different 

targeted programs administered by 5 different agencies. Moreover, our 

work at the state and local level has found that state and local government 

officials generally believe that the federal government has not done a good 

job of coordinating its various homeless assistance programs. This lack of 

coordination adversely affects the ability of states and localities to 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(Senate and House)

Primary agencies Department of Housing and Urban 

Development

Accounts Multiple

Spending type Direct/Discretionary

Budget subfunctions Multiple

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 226 GAO-01-447 Supporting Congressional Oversight

integrate their own programs. Also, we recently reported that, because 

different homeless assistance programs have varying sets of eligibility and 

funding requirements, they can cause coordination difficulties for the 

federal agencies administering them as well as administrative and 

coordination burdens for the states and communities that have to apply for, 

and use, these funds.

Congress may wish to consider consolidating all homeless assistance 

programs under HUD because HUD (1) has taken a leadership role in the 

area of homelessness, (2) has developed a well-respected approach for 

delivering homeless assistance programs called the Continuum of Care, 

and (3) is currently responsible for administering 70 percent of the funds 

for four key programs targeted to the homeless. Consolidating all of the 

homeless assistance programs under HUD should result in administrative 

and operational efficiencies at the federal level as well as reduce the 

administrative and coordination burdens of state and local governments. 

However, without a specific legislative proposal, CBO in unable to estimate 

the potential savings for this option.

Related GAO Products Homelessness: Consolidating HUD’s McKinney Programs

(GAO/T-RCED-00-187, May 23, 2000).

Homelessness: State and Local Efforts to Integrate and Evaluate Homeless 

Assistance Programs (GAO/RCED-99-178, June 29, 1999).

Homelessness: Coordination and Evaluation of Programs Are Essential

(GAO/RCED-99-49, Feb. 26, 1999).

Homelessness: McKinney Act Programs Provide Assistance but Are Not 

Designed to Be the Solution (GAO/RCED-94-37, May 31, 1994).

GAO Contact Stanley J. Czerwinski, (202) 512-7631
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 227 GAO-01-447 Supporting Congressional Oversight

Improve Department of 

Transportation’s 

Oversight of its 

University Research

The Department of Transportation (DOT) conducts research to enhance 

safety, mobility, environmental quality, efficiency, and economic growth in 

the nation’s transportation system. The results of DOT’s research programs 

include prototypes of systems, new operating procedures, data used to 

focus policy decisions, and regulations. Within DOT several offices are 

responsible for the oversight of research and development activities. In 

addition, each of DOT’s operating administrations is responsible for 

reviewing and monitoring its own research to ensure that the university 

awards’ objectives are met and the costs are appropriate. 

While DOT’s spending on research at universities has grown significantly 

from fiscal years 1988 through 1993, DOT does not have an integrated plan 

to ensure that research is needed to meet departmental goals. In addition, a 

lack of oversight on some university awards led to overcharges of almost 

$450,000 and unpaid cost-sharing totaling $3 million in a sample of awards 

that GAO reviewed in detail. More effective planning and management of 

the research program could reduce costs by limiting duplicate research and 

ensuring that recipients follow award guidelines on allowable costs and 

cost sharing. 

As GAO recommended, DOT has completed the development of a 

departmentwide database to track the purpose and costs associated with 

each university research award. GAO also recommended that DOT 

evaluate the operating administrations’ processes to ensure that they have 

adequate policies and procedures to carry out their responsibilities for 

monitoring awards. However, the department has no plans to evaluate the 

operating administrations’ processes to ensure that they have adequate 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Accounts Multiple

Spending type Discretionary

Budget subfunction 401/402/403/407/Ground, Air, Water, and 

Other Transportation

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 228 GAO-01-447 Supporting Congressional Oversight

policies and procedures to carry out their responsibilities for monitoring 

awards. 

GAO findings of overcharges and unpaid cost sharing for a sample of grants 

suggest that the Congress could slow DOT’s university research spending 

by reducing appropriations until improvements in necessary planning and 

management processes are made. CBO does not disagree that improved 

monitoring and oversight of DOT’s university research can reduce outlays. 

However, savings from this option would depend on which among many 

small accounts are reduced and the amounts of these reductions. 

Related GAO Product Department of Transportation: University Research Activities Need Greater 

Oversight (GAO/RCED-94-175, May 13, 1994).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 229 GAO-01-447 Supporting Congressional Oversight

Apply Cost-Benefit 

Analysis to 

Replacement Plans for 

Airport Surveillance 

Radars

Before installing an airport surveillance radar (ASR), FAA typically 

conducts benefit-cost studies to determine whether it will be cost effective. 

In addition to the $5 million cost of the new radars, other costs may be 

incurred for auxiliary equipment and infrastructure modifications. Benefits 

of these improvements include travelers’ time saved through potential 

reductions in aircraft delays and lives saved and injuries avoided through 

reduced risk of midair and terrain collisions. Because there is a direct 

correlation between projected air traffic operations and the potential 

benefits associated with radar installation, airports with higher air traffic 

projections would receive more benefit from a radar than those with lower 

projections. 

FAA had planned to install technologically advanced ASR-11 radars to 

replace its model ASR-7 and ASR-8 radars, currently located at 101 airports 

without applying its benefit-cost criteria. FAA’s rationale for not applying its 

benefit-cost criteria to these 101 airports was its belief that discontinuing 

radar operations at airports that no longer qualify could lead to public 

perceptions that safety was being reduced, even if safety was not 

compromised. However, some of these airports may no longer qualify for a 

radar based on FAA’s benefit-cost criteria and seventy-five of them have 

less air traffic than an airport whose radar request FAA recently denied 

using its benefit-cost criteria. Furthermore, at some of these airports, the 

circumstances that originally justified a radar no longer exist. 

GAO recommended that FAA apply its benefit-cost criteria to all 101 

airports where it plans to replace the ASR-7 and ASR-8 radars and 

determine whether those airports had a continuing operational need for a 

radar. In response to GAO’s recommendation, FAA asked it’s regional 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Accounts Facilities and Equipment (69-8107)

Spending type Discretionary 

Budget subfunction 402/Air transportation

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 230 GAO-01-447 Supporting Congressional Oversight

offices to verify the operational need for a radar at the 75 airports that had 

less traffic than the airport whose radar was recently denied. FAA 

determined that there continues to be an operational need for a radar at all 

75 airports. However, FAA does not plan to do the benefit/cost studies that 

GAO recommended, does not plan to decommission any of the radars, and 

plans to proceed with replacing the old radars with the newer radars at all 

airports. We continue to believe that savings may result if FAA were to 

perform the benefit/cost studies at the 101 airports.

Related GAO Product Air Traffic Control: Surveillance Radar Request for the Cherry Capital 

Airport (GAO/RCED-98-118, May 28, 1998).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 231 GAO-01-447 Supporting Congressional Oversight

Close, Consolidate, or 

Privatize Some Coast 

Guard Operating and 

Training Facilities

The Coast Guard could achieve budget savings by downsizing its facilities. 

The Coast Guard abandoned plans to close its Curtis Bay facility in 1988, 

when GAO reported that it lacked supporting data. While the cost 

effectiveness of this facility has been questioned, the Coast Guard has not 

conducted a detailed study to compare the facility’s cost effectiveness with 

that of commercial shipyards. In fiscal year 1996, GAO testified that the 

Coast Guard could save $6 million by closing or consolidating over 20 small 

boat stations. Also in 1996, GAO recommended that the Coast Guard 

consider other alternatives—such as privatization—to operate its vessel 

traffic service centers, which cost $20.2 million to operate in fiscal year 

1999. Furthermore, in fiscal 1995, GAO recommended that the Coast Guard 

close one of its large training centers in Petaluma, California—at a savings 

of $9 million annually. The Coast Guard agreed that this may be possible 

but did not close it largely because of public opposition. 

Given the serious budget constraints the Coast Guard now faces, it will 

need to achieve significant budgetary savings to offset the increased 

budgetary needs of the future. Closing, consolidating, or privatizing 

training and operating facilities, including the Curtis Bay facility, 20 small 

boat stations, the vessel traffic service centers, and one of its training 

centers in Petaluma, California, would help the Coast Guard to achieve 

these required savings. While CBO agrees that closing, consolidating, or 

privatizing Coast Guard facilities could yield savings, it cannot develop an 

estimate until specific proposals are identified. 

Related GAO Products Coast Guard: Budget Challenges for 2001 and Beyond

(GAO/T-RCED-00-103, Mar. 15, 2000).

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Accounts Operating Expenses (69-0201)

Spending type Discretionary 

Budget subfunction Multiple

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 232 GAO-01-447 Supporting Congressional Oversight

Coast Guard: Review of Administrative and Support Functions

(GAO/RCED-99-62R, Mar. 10, 1999).

Coast Guard: Challenges for Addressing Budget Constraints

(GAO/RCED-97-110, May 14, 1997).

Marine Safety: Coast Guard Should Address Alternatives as It Proceeds 

With VTS 2000 (GAO/RCED-96-83, Apr. 22, 1996).

Coast Guard: Issues Related to the Fiscal Year 1996 Budget Request

(GAO/T-RCED-95-130, Mar. 13, 1995).

Coast Guard: Improved Process Exists to Evaluate Changes to Small Boat 

Stations (GAO/RCED-94-147, Apr. 1, 1994).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 233 GAO-01-447 Supporting Congressional Oversight

Improve FAA Oversight 

and Enforcement to 

Ensure Proper Use of 

General Aviation 

Airport Land and 

Revenue

There are deficiencies with FAA’s oversight and enforcement of federal 

requirements at general aviation airports. Despite policy that requires FAA’s 

Airports field offices to monitor general aviation airports for compliance 

with requirements that come with federal land or funding, only 4 of 23 

responsible offices did so. Moreover, the monitoring programs at these 4 

offices relied on airports to certify their adherence to federal requirements 

with little or no independent oversight or review. The Department of 

Transportation’s Inspector General has previously concluded that such selfcertifications were ineffective for ensuring compliance with federal 

requirements which restrict the use of airport revenues to airport-related 

purposes. Failure to develop and implement adequate internal controls for 

oversight and enforcement have left the federal investment in general 

aviation airports exposed to mismanagement, fraud, waste and abuse. 

Inadequate monitoring has allowed instances of unauthorized land use to 

go undetected for over a decade, and resulted in increased aviation safety 

risks and the loss or diversion of millions of dollars in airport revenue. For 

example, airport land has been inappropriately used for mobile home 

parks; little league baseball fields; dog pounds; duck-hunting blinds; and 

city police, fire, and vehicle maintenance facilities. In some cases, 

increased risks to aviation safety also resulted. For example, FAA 

determined that birds attracted by an unauthorized landfill on an airport 

posed a possible danger to aircraft. The DOT Inspector General identified 

almost $6.8 million in lost or diverted revenues at 5 airports where the 

unauthorized use of airport land occurred. FAA has not used its regulatory 

powers to enforce unauthorized land use or revenue loss/diversion cases 

and, instead, relies on negotiations to resolve such unauthorized land use. 

Because FAA does not monitor these airports, it cannot determine how 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Accounts Multiple

Spending type Discretionary 

Budget subfunction 402/Air transportation

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 234 GAO-01-447 Supporting Congressional Oversight

frequently unauthorized land use has occurred, or how much revenue has 

been lost or diverted. 

To improve FAA’s internal controls and detect instances of revenue 

diversion, GAO has recommended, among other things, that FAA require its 

field offices to regularly monitor general aviation airports that have 

received federal lands or funding to ensure that federal requirements for 

the use of airport land and revenues are met. Savings from this option 

would depend on the extent to which revenue diversion is occurring at 

general aviation airports. Accordingly, CBO has not prepared a savings 

estimate for this option.

Related GAO Products General Aviation Airports: Oversight and Funding (GAO/RCED-99-214, 

June 1999).

General Aviation Airports: Unauthorized Land Use Highlights Need for 

Improved Oversight and Enforcement (GAO/RCED-99-109, May 1999).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 235 GAO-01-447 Supporting Congressional Oversight

Convert Coast Guard 

Support Officer 

Positions to Civilian 

Status

The Coast Guard uses officers in operational positions—to command 

boats, ships, and aircraft that can be deployed during time of war—and in 

support positions, such as personnel, public affairs, data processing, and 

financial management. Military standard personnel costs are paid out of the 

Coast Guard’s discretionary budget and include all pay and allowances, 

permanent change of station costs, training costs, and active-duty medical 

costs associated with each pay grade. Certain allowances—housing and 

subsistence—are provided to military personnel tax-free. Additionally, 

military retirement costs are funded by an annual permanent appropriation 

separate from the Coast Guard’s discretionary budget. Civilian standard 

personnel costs are also paid out of the Coast Guard’s discretionary budget 

and include basic, locality, overtime, and special pays as well as the costs 

associated with permanent change of station, training, health insurance, 

life insurance, and the accrued cost of civilian retirement. 

Of 5,760 commissioned officer positions in the Coast Guard’s workforce (as 

of the end of fiscal year 1999), GAO selectively evaluated nearly 1,000 in 75 

units likely to have support positions. Of these positions, GAO found about 

800 in which officers were performing duties that offered opportunities for 

conversion to civilian positions. Such positions include those in, among 

other things, personnel, public affairs, civil rights, and data processing. In 

comparing all of the relevant costs associated with military and civilian 

positions, GAO found that employing an active-duty commissioned officer 

in the positions we reviewed is, on average, 21 percent more costly than 

filling the same position with a comparable civilian employee. The cost 

differential is based on a comparison of average annual pay, benefits, and 

expenses associated with the Coast Guard’s commissioned officers at 

Authorizing committees Commerce, Science, and Transportation 

(Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Account Operating Expenses (69-0201)

Spending type Discretionary 

Budget subfunction 403/Water Transportation

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 236 GAO-01-447 Supporting Congressional Oversight

different military ranks and federal civilian employees at comparable 

civilian grades for fiscal year 1999. 

Converting support positions currently filled by military officers to civilian 

status would reduce costs associated with delivering these services with no 

apparent impact on performance. By converting commissioned officer 

positions to civilian positions, savings would accrue to the federal 

government in the form of retirement savings, tax advantage savings, and 

savings to the Coast Guard’s discretionary budget. CBO agrees that this 

option would lead to savings, but that those savings would primarily result 

from differences between military and civilian retirement plans. 

Consequently, the budgetary savings resulting from this shift would not 

begin until “new” civilian employees began to retire, which will occur after 

the 5-year projection period.

Related GAO Product Coast Guard Workforce Mix: Phased-In Conversion of Some Support 

Officer Positions Would Produce Savings (GAO/RCED-00-60, Mar. 1, 2000).

GAO Contact John H. Anderson, Jr., (202) 512-2834
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 237 GAO-01-447 Supporting Congressional Oversight

Consolidate Student 

Aid Programs

The Department of Education provides loans and grants to students to help 

finance their higher education. The federal government’s role in supporting 

higher education is contributing about 50 percent of its education budget to 

postsecondary education programs and activities, most of which are for 

student financial aid. The largest programs provide federally insured loans 

and Pell grants for students. The Federal Family Education Loan (FFEL) 

and Federal Direct Loan (FDL) programs compose the largest source of 

federal student financial aid. FFEL and FDL programs are entitlements, but 

Pell grants, the largest federal grant-in-aid program, are awarded to the 

most needy eligible students, dependent on the availability of appropriated 

funds. 

Although the student loan and Pell grant programs provide the majority of 

federal financial aid to students for postsecondary education, another 11 

smaller programs are targeted to specific segments of the postsecondary 

school population. The programs fund remedial and support services for 

prospective students from disadvantaged families, programs to enhance 

the labor pool in designated specialties, grants to students for volunteer 

activities, and grants to women and minorities who are underrepresented 

in graduate education.

These 11 programs, which were funded at $1.3 billion total in fiscal year 

2000, could be candidates for consolidation. For example, programs 

directed at attracting minority and disadvantaged students could be 

consolidated into one program. Or a certain amount of funds could be 

provided to states through a single grant, in lieu of several smaller grants, 

to cover some or all of the purposes of several small grant programs. 

Authorizing committees Labor and Human Resources (Senate)

Education and the Workforce (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education, and Related Agencies (Senate 

and House)

Primary agency Department of Education

Account Student Financial Assistance (91-0200)

Spending type Discretionary/Direct

Budget subfunction 502/Higher education 

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 238 GAO-01-447 Supporting Congressional Oversight

In anticipation of the administrative savings that could be achieved through 

consolidation, funding for these programs could be reduced 10 percent 

each year as part of the consolidation. Since all savings achieved through 

consolidation would be administrative in nature, we assume that there 

would be no adverse impact on students’ access to postsecondary 

education—a principal object of the enabling legislation, the Higher 

Education Act of 1965, as amended.

Five-Year Savings

Related GAO Products Department of Education: Information on Consolidation Opportunities and 

Student Aid (GAO/T-HEHS-95-130, Apr. 6, 1995).

Department of Education: Opportunities to Realize Savings

(GAO/T-HEHS-95-56, Jan.18, 1995).

GAO Contact Cornelia Ashby, (202) 512-8403

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 163 163 163 163 163

Outlays 28 125 150 163 163

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 239 GAO-01-447 Supporting Congressional Oversight

Create a Single Federal 

Agency to Administer a 

Unified Food 

Inspection System

A multitude of agencies oversee food safety, with two agencies accounting 

for most federal spending on, and regulatory responsibilities for food 

safety. The Food Safety and Inspection Service (FSIS), under USDA, is 

responsible for the safety of meat, poultry, and some egg and some egg 

products, while the Food and Drug Administration (FDA) is responsible for 

the safety of most other foods.

However, the federal system to ensure the safety and quality of the nation’s 

food is inefficient, outdated and does not adequately protect the consumer 

against food-borne illness. Along with FSIS and FDA, 10 other agencies 

administer over 35 different laws that oversee food safety. The current food 

safety system suffers from overlapping and duplicative inspections, poor 

coordination, and inefficient allocation of resources.

To improve the effectiveness and efficiency of the federal food safety 

system, the Congress could consider consolidating federal food safety 

agencies and activities under a single, risk-based food safety inspection 

agency with a uniform set of food safety laws. CBO agrees that this option 

could potentially yield savings, but did not develop a savings estimate due 

to uncertainty of the extent to which improved efficiencies actually lead to 

budgetary savings.

Related GAO Products Food Safety: U.S. Needs a Single Agency to Administer a Unified, RiskBased Inspection System (GAO/T-RCED-99-256, Aug. 4, 1999).

Authorizing committees Agriculture, Nutrition, and Forestry (Senate) 

Agriculture (House) 

Energy and Commerce (House)

Appropriations subcommittees Agriculture, Rural Development, and 

Related Agencies (Senate) 

Agriculture (House)

Primary agency Department of Agriculture

Accounts Multiple 

Spending type Discretionary

Budget subfunction 554/Consumer and occupational health and 

safety

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 240 GAO-01-447 Supporting Congressional Oversight

Food Safety: Opportunities to Redirect Federal Resources and Funds Can 

Enhance Effectiveness (GAO/RCED-98-224, Aug. 6, 1998).

Food Safety: Federal Efforts to Ensure the Safety of Imported Foods Are 

Inconsistent and Unreliable (GAO/RCED-98-103, Apr. 30, 1998).

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food

(GAO/RCED-94-192, Sept. 26, 1994).

Food Safety and Quality: Uniform Risk-based Inspection System Needed to 

Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992).

GAO Contacts Bob Robinson, (202) 512-3841

Lawrence J. Dyckman, (202) 512-3841
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 241 GAO-01-447 Supporting Congressional Oversight

Convert Public Health 

Service Commissioned 

Corps Officers to 

Civilian Status

The Commissioned Corps of the Public Health Service (PHS) was 

established in the late 1800s to provide medical care to sick and injured 

merchant seamen. Over the ensuing years, the Corps’ responsibilities have 

grown, and Corps officers today are involved in a wide range of PHS 

programs, such as providing medical care to Native Americans at tribal and 

Indian Health Service facilities, psychiatric, medical, and other services in 

federal prisons, and health sciences research. As the result of their 

temporary service with the armed forces during World Wars I and II, 

members of the Corps were authorized to assume military ranks and 

receive military-like compensation, including retirement eligibility (at any 

age) after 20 years of service. Corps officers continue to receive virtually 

the same pay and benefits as military officers, including retirement. The 

functions of the Corps are essentially civilian in nature, and, in fact, some 

civilian PHS employees carry out the same functions as Corps members. 

Further, 

• the Corps has not been incorporated into the armed forces since 1952;

• generally, the Corps does not meet the criteria and principles cited in a 

DOD report as justification for the military compensation system; and

• other than Corps officers who are detailed to the Coast Guard and DOD, 

Corps members are not subject to the Uniform Code of Military Justice, 

which underlies how military personnel are managed.

Corps officials maintained that uniformed Corps members are needed as 

mobile cadres of professionals who can be assigned with little notice to any 

location and function, often in hazardous or harsh conditions. However, 

other agencies, such as the Environmental Protection Agency, the National 

Authorizing committees Labor and Human Resources (Senate)

Energy and Commerce (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education, and Related Agencies (Senate 

and House)

Primary agency Department of Health and Human Services

Account Multiple

Spending type Discretionary/Direct

Budget subfunction 551/Health care services

Framework theme Improve efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 242 GAO-01-447 Supporting Congressional Oversight

Transportation Safety Board, and the Federal Emergency Management 

Agency, use civilian employees to respond quickly to disasters and other 

emergency situations that could involve both hazardous or harsh 

conditions.

Based on 1994 costs, when all of the components of personnel costs—

including basic pay and salaries; special pay, allowances, and bonuses; 

retirement; health care; life insurance; and Corps members’ tax 

advantages—were considered, PHS personnel costs could have been 

reduced by converting the PHS Corps to civilian status. Any decision to 

convert the Corps could be implemented in a number of ways to address a 

variety of transition issues. For example, all officers with a specific number 

of years in the Corps could be allowed to continue until retirement or other 

separation, while all new entrants would be required to be civilian 

employees.

Although CBO estimates that converting officers with fewer than 15 years 

of service to civilian status would result in a net cost to the federal 

government during the initial 5-year estimation period, it agrees that annual 

savings of millions of dollars would continue to grow as new entrants 

continue to be hired at a lower cost than PHS Corps recruits.

Related GAO Products Federal Personnel: Public Health Service Commissioned Corps Officers’ 

Health Care for Native Americans (GAO/GGD-97-111BR, Aug. 27, 1997).

Federal Personnel: Issues on the Need for the Public Health Service’s 

Commissioned Corps (GAO/GGD-96-55, May 7, 1996).

GAO Contact Carlotta C. Joyner, (202) 512-6806
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 243 GAO-01-447 Supporting Congressional Oversight

Control Provider 

Enrollment Fraud in 

Medicaid

Recent investigations of fraud in the California Medicaid program, which 

could exceed $1 billion in program losses, involve cases where closer 

scrutiny would have raised questions about the legitimacy of the providers 

involved. State Medicaid programs are responsible for processing millions 

of providers’ claims each year, making it is impossible to perform detailed 

checks on a significant portion of them. While most providers bill 

appropriately, states need enrollment procedures to help prevent entry into 

Medicaid of providers intent on committing fraud. Preventing such 

providers from billing the program is more efficient than attempted 

recovery once payments have already been made.

Our recent testimony highlighted several Medicaid programs that have 

comprehensive procedures to check the legitimacy of providers before 

they can bill the program. These states check that a provider has a valid 

license (if required) and no criminal record, has not been excluded from 

other federal health programs, and practices from a legitimate business 

location. However, only nine states report that they conduct all of these 

checks. In addition, we found that many states poorly control provider 

billing numbers. They either allow providers to bill indefinitely or fail to 

cancel inactive numbers. Since billing numbers are necessary to submit a 

claim, poor control of them may allow fraudulent providers to obtain 

another provider’s number to bill the program inappropriately.

At present, the federal government has no uniform or minimum 

requirements in approving providers’ applications. As a result, we believe 

that it would be beneficial for HCFA to assist states in developing effective 

Authorizing committees Finance (Senate)

Energy and Commerce (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services 

Account Grants to States for Medicaid

(75-0512)

Spending type Direct

Budget subfunction 551/Health care services

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 244 GAO-01-447 Supporting Congressional Oversight

provider enrollment procedures. If states could limit entrance of even a 

small percentage of dishonest providers by adopting such procedures, 

future Medicaid costs would be reduced substantially. However, CBO 

cannot develop an estimate of the savings for this option until specific 

strategies are identified. Moreover, savings would be net of the additional 

resources required to implement such procedures. 

Related GAO Products Medicaid: HCFA and States Could Work Together to Better Ensure the 

Integrity of Providers (GAO/T-HEHS-00-159, July 18, 2000).

Medicaid: Federal and State Leadership Needed to Control Fraud and 

Abuse (GAO/T-HEHS-00-30, Nov. 9, 1999).

Health Care: Fraud Schemes Committed by Career Criminals and 

Organized Criminal Groups and Impact on Consumers and Legitimate 

Health Care Providers (GAO/OSI-00-1R, Oct. 5, 1999). 

Medicaid Fraud and Abuse: Stronger Action Needed to Remove Excluded 

Providers From Federal Health Programs (GAO/HEHS-97-63, Mar. 31, 

19997).

Fraud and Abuse: Providers Excluded From Medicaid Continue to 

Participate in Federal Health Programs (GAO/T-HEHS-96-205, Sept. 5, 

1996).

Prescription Drugs and Medicaid: Automated Review Systems Can Help 

Promote Safety, Save Money (GAO/AIMD-96-72, June 11, 1996). 

GAO Contact William J. Scanlon, (202) 512-7114
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 245 GAO-01-447 Supporting Congressional Oversight

Adjust Medicare 

Payment Allowances to 

Reflect Changing 

Technology, Costs, and 

Market Prices 

Medicare’s supplementary medical insurance program (Medicare Part B) 

allowed almost $6 billion for durable medical equipment, supplies, 

prosthetics, orthotics, enteral and parenteral nutrition, and outpatient 

drugs in 1998. For most medical equipment and supplies, Medicare 

payments are primarily based on historical charges, indexed forward, 

rather than current costs or market prices. For example, the Medicare 

payments for such items as walkers, catheters, and glucose test strips are 

based on supplier charges allowed in 1986 and 1987 and were adjusted for 

inflation each year. Beginning in 1998, Medicare law was amended to freeze 

Medicare payments for medical equipment and supplies and limit payment 

increases for prosthetics and orthotics to1 percent each year for five years. 

GAO has reported that Medicare payments for some medical equipment 

and supplies are out of line with market prices. This can occur when 

providers’ costs for some procedures, equipment, and supplies have 

declined over time as competition and efficiencies increased. For example, 

when Medicare sets its payment rates for new items, the rates typically are 

based on the high initial unit costs. Over time, providers’ unit costs decline 

as the equipment improves, utilization increases, and experience in using 

the equipment results in efficiencies. In other cases, medical innovations 

and advances have increased the cost of some procedures and products. 

However, Medicare did not have a process to routinely and systematically 

review these factors and make timely adjustments to the Medicare 

allowances. In fact, through the years, the Congress has legislatively 

adjusted Medicare allowances for some products and services, such as 

Authorizing committees Finance (Senate) 

Energy and Commerce (House)

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance 

Trust Fund (20-8004)

Spending type Direct

Budget subfunction 571/Medicare

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 246 GAO-01-447 Supporting Congressional Oversight

home oxygen, clinical laboratory tests, intraocular lenses, computed 

tomography scans and magnetic resonance imaging scans.

To respond to problems with excessive payments, the Balanced Budget Act 

of 1997 provided the Health Care Financing Administration (HCFA) the 

authority to use a streamlined process for adjusting Medicare Part B 

payments by up to 15 percent per year. (This revised authority does not 

extend to adjusting Medicare payments for physician services.) In 1998, 

HCFA issued an interim final rule with a comment period to implement the 

revised process. Under the revised process, HCFA and its contractors have 

each issued a notice proposing to reduce Medicare payments for different 

items of medical equipment, supplies, and prosthetics. The contractors’ 

proposed payment reductions are based on retail prices that beneficiaries 

would pay. HCFA used competitive prices paid by the VA to account for 

supplier costs in proposing Medicare payment reductions. On July 2000, 

GAO issued a report on HCFA’s and the contractors’ actions to implement 

the revised authority in adjusting payments. Congress also passed 

legislation requiring HCFA to publish a final rule that responds to issues 

raised in GAO’s report and to public comments on the implementation of 

the revised authority. HCFA has not yet issued a final rule. Once the final 

rule has been issued, HCFA and its contractors plan to more forward with 

the proposed payment reductions. 

An obstacle to effectively using this new authority is that Medicare 

frequently does not know specifically what it is paying for. HCFA does not 

require suppliers to identify on Medicare claims the specific items billed. 

Instead, suppliers are required to use HCFA billing codes, most of which 

cover a broad range of products of various types, qualities, and market 

prices. For example, one Medicare billing code is used for more than 200 

different urological catheters, even though some of these catheters sell at a 

fraction of the price of others billed under the same code. Unless Medicare 

claims contain more product specific information, HCFA cannot track what 

items are billed to ensure that each billing code is used for comparable 

products. Although the health care industry is increasingly using more 

specific universal product numbers and bar codes for inventory control, 

HCFA does not currently require suppliers to use these identifiers on 

Medicare claims.

HCFA is exploring the use of universal product numbers as a way to 

improve Medicare’s ability to pay for medical equipment and supplies. In 

September 1999, HCFA awarded a one-year contract to an outside 

consultant to gather information on universal product numbers and 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 247 GAO-01-447 Supporting Congressional Oversight

determine how they could be integrated into the Medicare claims 

processing system. CBO is also collecting data on a Universal Product 

Code-based payment system and is unable to provide saving estimates at 

this time.

There are a number of other options that could also help bring Medicare 

allowances more into line with actual costs and market prices. For 

example, the Congress has authorized HCFA to implement competitive 

bidding demonstrations for some Part B services and supplies (except 

physician services). In 1998, HCFA announced plans for the first 

competitive bidding demonstration project in Polk County, Florida. In the 

spring of 1999, HCFA selected competing suppliers to provide at reduced 

Medicare payment rates: oxygen supplies; hospital beds; surgical dressings; 

enteral nutrition equipment and supplies; and urological supplies. When the 

local payment rates took effect for these items in October 1999 (and will 

remain in effect for two years), HCFA achieved a 17 percent reduction in 

Medicare payments on average. In 2000, HCFA began a second competitive 

bidding demonstration project in three counties near San Antonio, Texas 

for: oxygen supplies; hospital beds; manual wheelchairs; non-customized 

orthotic devices (such as braces and splints); and nebulizer inhalation 

drugs. The new payment rates for these items, which are on average 20 

percent below existing Medicare rates for Texas, will take effect on 

February 1, 2001 until December 31, 2002. 

These projects may eventually bring some Medicare payment rates more in 

line with actual costs and market rates, but none of these projects 

specifically targets expensive, evolving technologies. We believe significant 

program savings would result from an ongoing, systematic process for 

evaluating the reasonableness of Medicare payment rates for new medical 

technologies as those technologies mature.

Another approach for paying more appropriately for medical equipment 

and supplies is basing Medicare payments on the lower of the fee schedule 

allowance or the lowest amount a provider has agreed to accept from other 

payers. HCFA would need legislative authority to pursue this option. Yet 

another approach is to develop separate fee schedules that distinguish 

between wholesale and retail acquisition to ensure that large suppliers do 

not receive inappropriately large Medicare reimbursements. While the 

Congressional Budget Office agrees that aligning Medicare allowances with 

costs and market prices could yield savings, it cannot develop an estimate 

until HCFA has completed its demonstration projects and implemented 

specific proposals. 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 248 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Medicare Payments: Use of Revised “Inherent Reasonableness” Process 

Generally Appropriate (GAO/HEHS-00-79, July 5, 2000).

Medicare: Progress to Date in Implementing Certain Major Balanced 

Budget Act Reforms (GAO/T-HEHS-99-87, Mar. 17, 1999).

Medicare: Need to Overhaul Costly Payment System for Medical 

Equipment and Supplies (GAO/HEHS-98-102, May 12, 1998).

Medicare: Access to Home Oxygen Largely Unchanged; Closer HCFA 

Monitoring Needed (GAO/HEHS-99-56, Apr. 5, 1999.)

Medicare: Home Oxygen Program Warrants Continued HCFA Attention 

(GAO/HEHS-98-17, Nov. 7, 1997).

Medicare: Problems Affecting HCFA’s Ability to Set Appropriate 

Reimbursement Rates for Medical Equipment and Supplies (GAO/HEHS97-157R, June 17, 1997).

Medicare: Comparison of Medicare and VA Payment Rates for Home 

Oxygen (GAO/HEHS-97-120R, May 15, 1997).

Medicare Spending: Modern Management Strategies Needed to Curb 

Billions in Unnecessary Payments (GAO/HEHS-95-210, Sept. 19, 1995).

Medicare High Spending Growth Calls for Aggressive Action

(GAO/T-HEHS-95-75, Feb. 6, 1995).

Medicare: Excessive Payments Support the Proliferation of Costly 

Technology (GAO/HRD-92-59, May 27, 1992).

GAO Contact William J. Scanlon, (202) 512-7114
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 249 GAO-01-447 Supporting Congressional Oversight

Increase Medicare 

Program Safeguard 

Funding

Medicare program safeguard activities designed to combat fraud, waste 

and abuse have historically returned about $10 in savings for each dollar 

spent and HCFA has reported a return of $15 for each dollar spent in fiscal 

year 1999. These types of activities include pre- and post-payment medical 

review of claims to determine if services are medically necessary and 

appropriate, audits, and fraud unit investigations. The Health Insurance 

Portability and Accountability Act of 1996 established the Medicare 

Integrity Program (MIP) and provided HCFA with increased funding for 

program safeguard activities. CBO estimated a net savings of over $3 billion 

from these increased resources given to HCFA, as well as other resources 

given to the HHS Office of Inspector General and Federal Bureau of 

Investigation to identify and pursue individuals or entities that defraud 

federal health care programs. As we recently reported, HCFA has taken a 

number of actions under MIP to promote more efficient and effective 

contractor safeguard operations. However, measuring the effectiveness of 

its actions is difficult because funding levels rose so recently and because 

HCFA does not have the kind of data needed to measure the effectiveness 

of its efforts. 

While funding has increased, in 2002 it will still remain below program 

safeguard funding levels in the previous decade, adjusted for inflation. 

Comparing program safeguard expenditures between fiscal years 1995 and 

1998—two years before and after MIP implementation—shows that 

Authorizing committees Finance (Senate)

Energy and Commerce (House)

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services

Accounts Federal Hospital Insurance Trust Fund (20-

8005) 

Federal Supplementary Medical Insurance 

Trust Fund (20-8004) 

Program Management (75-0511)

Spending type Discretionary/Direct

Budget subfunction 571/Medicare

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 250 GAO-01-447 Supporting Congressional Oversight

expenditures increased by more than one-quarter to $544.6 million. 

However, in constant 1998 dollars, the amount spent on program 

safeguards per claim processed is still almost one-third less than was spent 

in fiscal year 1989. Further, the combined effects of increased claims 

volume of 3 to 5 percent annually in recent years and inflation will erode 

part of the benefits of increased funding authorized for future years. For 

example, appropriated fiscal year 2002 funding of $700 million, adjusted for 

inflation and claims growth, is expected to be about 10 percent below the 

1991 through 1996 average. In response to reduced resources, contractors 

apply fewer or less stringent payment controls resulting in payment of 

claims that otherwise would not be. 

GAO believes that additional program safeguard funding might better 

protect Medicare against erroneous payments and yield net savings. As a 

result, we recently suggested that the Congress consider increasing HCFA’s 

MIP funds to allow an expansion of postpayment and other effective 

program safeguard activities. However, HCFA needs a better understanding 

of costs and savings from particular activities—such as desk reviews and 

cost audits. It also needs to consistently code savings from different 

activities to understand their relative value, as well as determine which 

contractors are realizing the highest return on investment from their 

program safeguard activities. Therefore, GAO also recommended that 

HCFA evaluate the effectiveness of prepayment and postpayment activities 

to determine the relative benefits of various safeguards. 

CBO did not prepare a savings estimate for this option because it does not 

estimate changes in direct spending due to changes in discretionary 

spending.

Related GAO Products Medicare: HCFA Could Do More to Identify and Collect Overpayments 

(GAO/HEHS/AIMD-00-304, Sept. 7, 2000).

Medicare Contractors: Further Improvement Needed in Headquarters and 

Regional Office Oversight (GAO/HEHS-00-46, Mar. 23, 2000).

Medicare: Program Safeguard Activities Expand, but Results Difficult to 

Measure (GAO/HEHS-99-165, Aug. 4, 1999).

Medicare Contractors: Despite Its Efforts, HCFA Cannot Assure Their 

Effectiveness or Integrity (GAO/HEHS-99-115, July 14, 1999).
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 251 GAO-01-447 Supporting Congressional Oversight

Medicare: Improprieties by Contractors Compromised Medicare Program 

Integrity (GAO/OSI-99-7, July 14, 1999).

Medicare: Health Care Fraud and Abuse Control Program Financial Report 

for Fiscal Year 1997 (GAO/AIMD-98-157, Jun. 1, 1998).

Medicare: Fraud and Abuse Control Pose a Continuing Challenge

(GAO/HEHS-98-215R, July 15, 1998).

Medicare: HCFA’s Use of Anti-Fraud-and-Abuse Funding and Authorities 

(GAO/HEHS-98-160, June 1, 1998).

Medicare: Improper Activities by Mid-Delta Home Health (GAO/OSI-98-5, 

Mar. 12, 1998).

Medicare: Recent Legislation to Minimize Fraud and Abuse Requires 

Effective Implementation (GAO/T-HEHS-98-9, Oct. 9, 1997).

Medicare Fraud and Abuse: Summary and Analysis of Reform in the Health 

Insurance Portability and Accountability Act of 1996 and the Balanced 

Budget Act of 1997 (GAO/HEHS-98-18R, Oct. 9, 1997).

Medicare: Control Over Fraud and Abuse Remains Elusive

(GAO/T-HEHS-97-165, June 26, 1997).

Medicare: Inherent Program Risks and Management Challenges Require 

Continued Federal Attention (GAO/T-HEHS-97-89, Mar. 4, 1997).

Nursing Homes: Too Early to Assess New Efforts to Control Fraud and 

Abuse (GAO/T-HEHS-97-114, Apr. 16, 1997).

Medicare Home Health: Success of Balanced Budget Act Cost Controls 

Depends on Effective and Timely Implementation (GAO/T-HEHS-98-41, 

Oct. 29, 1997).

Medicare (GAO/HR-97-10, Feb. 1997).

Funding Anti-Fraud and Abuse Activities (GAO/HEHS-95-263R, Sept. 29, 

1995). 

Medicare: High Spending Growth Calls for Aggressive Action 

(GAO/T-HEHS-95-75, Feb. 6, 1995). 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 252 GAO-01-447 Supporting Congressional Oversight

Medicare Claims (GAO/HR-95-8, Feb. 1995). 

Medicare: Adequate Funding and Better Oversight Needed to Protect 

Benefit Dollars (GAO/T-HRD-94-59, Nov. 12, 1993). 

Medicare: Further Changes Needed to Reduce Program and Beneficiary 

Costs (GAO/HRD-91-67, May 15, 1991). 

Medicare: Cutting Payment Safeguards Will Increase Program Costs 

(GAO/T-HRD-89-06, Feb. 28, 1989). 

Medicare and Medicaid: Budget Issues (GAO/T-HRD-87-1, Jan. 29, 1987). 

GAO Contact William J. Scanlon, (202) 512-7114
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 253 GAO-01-447 Supporting Congressional Oversight

Continue to Reduce 

Excess Payments to 

Medicare+Choice 

Health Plans

The Balanced Budget Act of 1997 (BBA) created the Medicare+Choice 

program to encourage the wider availability of health maintenance 

organizations (HMO) and permit other types of health plans, such as 

preferred provider organizations, to participate in Medicare. BBA also 

modified the methodology used to pay plans, in part because the 

government was paying more to cover beneficiaries in managed care than it 

would have spent if these individuals had remained in the traditional feefor-service program. Under BBA’s payment provisions, annual increases in 

HMO payment rates are still largely tied to forecasted increases in per 

capita spending in the fee-for-service program, although the law specified 

both minimum rates and minimum annual rate increases. Since BBA was 

enacted, a substantial number of HMOs have partially or completely 

withdrawn from Medicare, or announced that they will do so beginning 

January 2001. Industry representatives have cited inadequate Medicare 

payment rates and regulatory burdens as primary reasons for the 

withdrawals.

In contrast to the HMO industry’s position, recent GAO reports found that 

(1) HMO withdrawals were associated with many factors, including 

competitive market forces and the inherent difficulty HMOs have operating 

cost effectively in sparsely populated areas, (2) since BBA was enacted, the 

increase in Medicare’s average HMO payment rate has exceeded the 

increase in average per capita spending in the traditional fee-for-service 

program, and (3) 1998 payments to HMOs exceeded by an estimated 

$3.2 billion the amount that Medicare would have spent to serve HMO 

Authorizing committees Finance (Senate) 

Energy and Commerce (House)

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance 

Trust Fund (20-8004)

Spending type Direct/Discretionary

Budget subfunction 571/Medicare

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 254 GAO-01-447 Supporting Congressional Oversight

enrollees in the traditional fee-for-service program. These excess payments 

occurred because HMO payment rates are largely determined by the cost of 

serving the average beneficiary while HMOs tend to attract a favorable 

selection of healthier-than-average beneficiaries with lower expected 

health care costs.

GAO has suggested that Medicare pursue the following two strategies to 

address the problem of excess payments and help save the government 

money when Medicare beneficiaries enroll in HMOs:

1. Implement a risk adjustment method that uses comprehensive data to 

adjust payment rates on the basis of a beneficiary’s expected annual 

health care costs. 

BBA mandated that HCFA implement a health-based risk adjuster by 

2000. This year, HCFA began to phase in an interim method based on 

inpatient hospital data only. This method, if fully implemented, would 

reduce HMO payments by about 5.9 percent, or about half of the 

$3.2 billion in excess payments caused by favorable selection. HCFA 

intends to implement a more comprehensive method in 2004 that will 

incorporate additional medical data from other settings. However, the 

Balanced Budget Refinement Act of 1999 (BBRA) slowed the 

implementation of the interim adjuster and mandated additional 

studies on risk adjustment methods.

2. Shift to a system in which Medicare+Choice rates are competitively 

determined. 

Competitive bidding demonstrations were mandated by BBA, but 

provisions in BBRA will delay implementation of such demonstrations 

until at least January 1, 2002. 

CBO agrees that savings are possible if the above strategies are followed, 

but savings would depend on the interactions between price and 

enrollment changes. Consequently, CBO cannot estimate savings for this 

option without a more specific proposal.

Related GAO Products Medicare+Choice: Plan Withdrawals Indicate Difficulty of Providing 

Choice While Achieving Savings (GAO/HEHS-00-183, Sept. 7, 2000).
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 255 GAO-01-447 Supporting Congressional Oversight

Medicare+Choice: Payments Exceed Cost of Fee-for-Service Benefits, 

Adding Billions to Spending (GAO/HEHS-00-161, Aug. 23, 2000).

Medicare: Better Information Can Help Ensure That Refinements to BBA 

Reforms Lead to Appropriate Payments (GAO/T-HEHS-00-14, Oct. 1, 1999).

Medicare+Choice: Reforms Have Reduced, but Likely Not Eliminated, 

Excess Plan Payments (GAO/HEHS-99-144, June 18, 1999).

Medicare+Choice: Impact of 1997 Balanced Budget Act Payment Reforms 

on Beneficiaries and Plans (GAO/T-HEHS-99-137, June 9, 1999).

Medicare Managed Care: Better Risk Adjustment Expected to Reduce 

Excess Payments Overall While Making Them Fairer to Individual Plans 

(GAO/T-HEHS-99-72, Feb. 25, 1999).

Medicare HMOs: Setting Payment Rates Through Competitive Bidding 

(GAO/HEHS-97-154R, June 12, 1997).

GAO Contact William J. Scanlon, (202) 512-7114
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 256 GAO-01-447 Supporting Congressional Oversight

Modify the New Skilled 

Nursing Facility 

Payment Method to 

Ensure Appropriate 

Payments

The Balanced Budget Act mandated the implementation of a prospective 

payment system (PPS) for skilled nursing facilities (SNF) to help address 

concerns about dramatic growth in Medicare spending for these services. A 

PPS provides incentives to deliver services efficiently by paying 

providers—regardless of their costs—fixed, predetermined rates that vary 

according to expected patient service needs. Health Care Financing 

Administration (HCFA) began phasing in such a system for SNFs in July 

1998. 

Problems with the design of the PPS, inadequate data used to establish 

rates, and inadequate planned oversight of claims for payment, however, 

could compromise Medicare’s ability to stem spending growth while 

maintaining beneficiary access. We are concerned that the PPS preserves 

the opportunity for providers to increase their compensation by supplying 

potentially unnecessary services. Furthermore, the payment rates were 

computed using data that overstate the reasonable cost of providing care 

and may not appropriately reflect the differences in costs for patients with 

different care needs. In addition, as a part of the system, Medicare appears 

to have established new criteria for determining eligibility for the Medicare 

SNF benefit, which could expand the number of beneficiaries who will be 

covered and the length of covered stays. The planned oversight of claims to 

determine if a beneficiary is entitled to Medicare coverage and how much 

payment a SNF should receive is insufficient, increasing the potential to 

compromise expected savings. 

Authorizing committees Finance (Senate)

Ways and Means (House)

Energy and Commerce (House)

Appropriations subcommittees Labor, Health and Human Services, 

Education and Related Agencies (Senate) 

Labor, Health and Human Services and 

Education (House)

Primary agency Department of Health and Human Services

Account Federal Hospital Insurance Trust Fund 

(20-8005)

Spending type Direct

Budget subfunction 571/Medicare

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 257 GAO-01-447 Supporting Congressional Oversight

GAO believes that HCFA should modify the SNF PPS regulations to address 

these concerns. Medicare needs to ensure that the payment rates reflect 

only necessary services that the facilities actually provide. Medicare should 

also increase its vigilance over claims review and provider oversight so that 

payments are appropriate and made only for eligible beneficiaries.

CBO agrees that improved payment methods and oversight could reduce 

spending. However, by convention, CBO only estimates the costs or savings 

of proposals that change current law, not administrative changes.

Related GAO Products Medicare: Better Information Can Help Ensure That Refinements to BBA 

Reforms Lead to Appropriate Payments (GAO/T-HEHS-00-14, Oct. 1, 1999).

Skilled Nursing Facilities: Medicare Payments Need to Better Account for 

Nontherapy Ancillary Cost Variation (GAO/HEHS-99-185, Sept. 30, 1999).

Balanced Budget Act: Any Proposed Fee-for-Service Payment 

Modifications Need Thorough Evaluation (GAO/T-HEHS-99-139, June 10, 

1999).

Balanced Budget Act: Implementation of Key Medicare Mandates Must 

Evolve to Fulfill Congressional Objectives (GAO/T-HEHS-98-214, July 16, 

1998).

Long-Term Care: Baby Boom Generation Presents Financing Challenges 

(GAO/T-HEHS-98-107, Mar. 9, 1998).

Medicare Post-Acute Care: Home Health and Skilled Nursing Facility Cost 

Growth and Proposals for Prospective Payment (GAO/T-HEHS-97-90, 

Mar. 4, 1997).

Medicare: Progress to Date in Implementing Certain Major Balanced 

Budget Act Reforms (GAO/T-HEHS-99-87. Mar. 17, 1999).

Medicare Post-Acute Care: Better Information Needed Before Modifying 

BBA Reforms (GAO/T-HEHS-99-192, Sept. 15, 1999).

GAO Contact William J. Scanlon, (202) 512-7114
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 258 GAO-01-447 Supporting Congressional Oversight

Implement RiskSharing in Conjunction 

With Medicare Home 

Health Agency 

Prospective Payment 

System

Medicare spending for home health care rose from $3.7 billion in 1990 to 

$17.8 billion in 1997—an annual growth rate of over 25 percent—making it 

one of the fastest growing components of the Medicare program. This 

spending growth was primarily due to more beneficiaries receiving services 

and more visits provided per user, because Medicare’s cost-based payment 

method reimbursed home health agencies (HHA) for each visit provided. 

To control spending, the Balanced Budget Act of 1997 (BBA) required the 

implementation of a prospective payment system (PPS) for home health 

agencies. Beginning October 1, 2000, Medicare will pay a fixed, 

predetermined amount for each 60-day episode of care, adjusted for patient 

characteristics that affect the costs of providing care. Under this system, 

agencies will be rewarded financially for keeping their per-episode costs 

below the payment rate and thus will have a strong incentive to reduce the 

number of visits provided during an episode and to shift to a less costly mix 

of visits.

However, under an episode-based payment system, HHAs will have an 

incentive to provide the minimum number of visits necessary to receive a 

full episode payment. While the initial episode payment is based on an 

average of 27 visits, agencies can receive an episode payment if they 

provide as few as 5 visits. Agencies providing more than the average 

number of visits in an episode can reduce their level of service provision 

below that used to develop the episode base payment, thereby increasing 

profits. Conversely, HHAs could treat beneficiaries who need only a few 

visits during a 60-day period and receive the full episode payment if they 

Authorizing committees Finance (Senate)

Energy and Commerce (House)

Ways and Means (House)

Appropriations subcommittees Labor, HHS, Education and Related 

Agencies (Senate)

Labor, Health and Human Services, and 

Education (House)

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance 

Trust Fund (20-8004)

Spending type Direct

Budget subfunction 571/Medicare

Framework theme Improve efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 259 GAO-01-447 Supporting Congressional Oversight

pass the 5-visit threshold. Such responses are likely, given that HHAs 

historically have responded quickly to Medicare payment incentives, and 

because no agreed-upon standards exist for what constitutes necessary or 

appropriate home health care against which such changes could be 

assessed. Because the new PPS payment rates are based on 60-day service 

patterns reflecting historically high utilization levels, many HHAs will not 

have trouble keeping their service provision within the episode below these 

levels. In such cases, Medicare would in essence be paying for services that 

were not received by its beneficiaries. 

In order to reduce these incentives, the Congress could require HCFA to 

implement a risk-sharing arrangement, in which total Medicare PPS 

payments to an HHA are adjusted at year-end in light of the provider’s 

actual costs, to mitigate any unintended consequences of the payment 

change. Such an arrangement could moderate the incentive to manipulate 

services to maximize profits and the uncertainties associated with payment 

rates that are based on averages when so little is known about appropriate 

patterns of home health care. Limiting an HHA’s losses or gains would help 

protect the industry, the Medicare program, and beneficiaries from possible 

negative effects of the PPS until more is known about how best to design 

the PPS and the most appropriate home health treatment patterns. CBO 

was unable to estimate savings for this option due to a lack of data on how 

home health agencies’ costs compare to the new payment rates 

implemented on October 1, 2000. 

Related GAO Products Medicare Home Health Care: Prospective Payment System Will Need 

Refinement as Data Become Available (GAO/HEHS-00-9, Apr. 7, 2000).

Medicare Home Health Care: Prospective Payment System Could Reverse 

Recent Declines in Spending (GAO/HEHS-00-176, Sept. 8, 2000).

GAO Contact William J. Scanlon, (202) 512-7114
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 260 GAO-01-447 Supporting Congressional Oversight

Improve Social 

Security Benefit 

Payment Controls

Social Security Administration (SSA) is required by law to reduce social 

security benefits to persons who also receive a pension from noncovered 

employment (typically persons who work for the federal government or 

state and local governmental agencies). The Government Pension Offset 

provision requires SSA to reduce benefits to persons whose social security 

entitlement is based on another person’s social security coverage (usually 

their spouse’s). The Windfall Elimination Provision requires SSA to use a 

modified formula to calculate a person’s earned social security benefit 

whenever a person also earned a pension through a substantial career in 

noncovered employment. The modified formula reduces the social security 

benefit significantly.

We found that SSA payment controls for these offsets were incomplete. For 

state and local retirees, SSA had no third-party pension data to verify 

whether persons were receiving a noncovered pension. An analysis of 

available data indicated that this lapse in payment controls for state and 

local government retirees cost the trust funds between $129 million to 

$323 million from 1978 to about 1995.

We have recommended that SSA work with the Internal Revenue Service 

(IRS) to revise the reporting of pension income on IRS tax form 1099R. IRS 

has advised SSA that it needs a technical amendment to the Tax Code to 

obtain the information SSA needs. We believe that millions of dollars in 

reduced overpayments could be achieved each year with better payment 

controls. However, it should be noted that these savings would be offset 

somewhat by administrative costs associated with conducting additional 

computer matching at SSA. CBO estimates that improved payment controls 

could result in the savings shown in the table below.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Social Security Administration

Accounts Federal Old Age and Survivor’s Insurance 

Trust Fund (20-8006)

Spending type Direct

Budget subfunction 651/Social security

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 261 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Related GAO Product Social Security: Better Payment Controls for Benefit Reduction Provisions 

Could Save Millions (GAO/HEHS-98-76, Apr. 30, 1998).

GAO Contact Barbara D. Bovbjerg, (202) 512-7215

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Direct spending

Savings from the CBO Baseline

Budget authority 0 15 45 55 60

Outlays 0 15 45 55 60

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 262 GAO-01-447 Supporting Congressional Oversight

Simplify Supplemental 

Security Income 

Recipient Living 

Arrangements

Social Security Administration (SSA) administers the Supplemental 

Security Income (SSI) program, which is the nation’s largest cash 

assistance program for the poor. Since its inception, the SSI program has 

been difficult to administer because, similar to other means tested 

programs, it relies on complicated criteria and policies to determine initial 

and continuing eligibility and benefit levels. One of the factors considered 

is the living arrangements of the beneficiary. When determining SSI 

eligibility and benefit amounts, SSA staff apply a complex set of policies to 

document an individual’s living arrangements and any additional support 

they may be receiving from others. This process depends heavily on selfreporting by recipients of whether they live alone or with others; the 

relationships involved; the extent to which rents, food, utilities, and other 

household expenditures are shared; and exactly what portion of those 

expenses the individual pays. These numerous rules and policies have 

made living arrangement determinations one of the most complex and 

error prone aspects of the SSI program, and a major source of 

overpayments. 

We recently reported that SSA has not addressed longstanding SSI living 

arrangement verification problems, despite numerous internal and external 

studies and many years of quality reviews denoting this as an area prone to 

error and abuse. Some of the studies we reviewed recommended ways to 

simplify the process by eliminating many complex calculations and thereby 

making it less susceptible to manipulation by recipients. Other studies we 

reviewed suggested ways to make this aspect of the program less costly to 

taxpayers. For example, in 1989, SSA’s Office of Inspector General reported 

that a more simplified process that applied a shared expenditures rationale 

Authorizing committees Finance (Senate)

Ways and Means (House)

Appropriations subcommittees Labor, HHS, Education and Related 

Agencies (Senate and House)

Primary agency Social Security Administration

Accounts Supplemental Security Income Program 

(28-0406)

Spending type Direct/Discretionary

Budget subfunction 609/Other income security

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 263 GAO-01-447 Supporting Congressional Oversight

to all SSI recipients living with another person would result in fewer errors 

and reduce annual overpayments by almost $80 million. Such a change 

would require legislative action by the Congress. In light of the potential 

cost savings associated with addressing this issue, we recommended in 

September 1998 that SSA develop and advance legislative options for 

simplifying SSI living arrangement policies and ultimately reduce program 

overpayments. SSA told us that it is continuing to study SSI living 

arrangement policies and may ultimately consider proposing legislative 

options for change.

Although CBO agrees that some changes that would simplify living 

arrangement policies have the potential to create savings, it cannot develop 

a savings estimate until a specific legislative proposal is identified.

Related GAO Product Supplemental Security Income: Action Needed on Long-Standing Problems 

Affecting Program Integrity (GAO/HEHS-98-158, Sept. 14, 1998).

GAO Contact Barbara D. Bovbjerg, (202) 512-7215
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 264 GAO-01-447 Supporting Congressional Oversight

Reduce Federal 

Funding Participation 

Rate for Automated 

Child Support 

Enforcement Systems

The Department of Health and Human Services’ (HHS) Office of Child 

Support Enforcement (OCSE) oversees states’ efforts to develop 

automated systems for the Child Support Enforcement Program. 

Established for both welfare and nonwelfare clients with children, this 

program is directed at locating parents not supporting their children, 

establishing paternity, obtaining court orders for the amounts of money to 

be provided, and collecting these amounts from noncustodial parents. 

Achievement of Child Support Enforcement Program goals depends in part 

on the effective planning, design, and operation of automated systems. The 

federal government is providing enhanced funding to develop these 

automated child support enforcement systems by paying up to 90 percent 

of states’ development costs. From fiscal year 1981 through fiscal year 

1999, the states have spent about $4.5 billion to develop these systems, 

including about $3.3 billion from the federal government.

The 90 percent funding participation rate was initially discontinued at the 

end of fiscal year 1995, the congressionally mandated date for the systems 

to be certified and operational. However, the Congress subsequently 

extended the deadline for these systems to the end of fiscal year 1997. The 

federal government will continue to reimburse states’ costs to operate 

these systems at the 66 percent rate established for administrative 

expenses. Finally, the Personal Responsibility and Work Opportunity 

Reconciliation Act of 1996 (P.L. 104-193) provided additional funding for 

the states to meet new systems requirements under this law. An 80 percent 

federal funding participation rate, with a total national funding cap of 

$400 million was authorized through fiscal year 2001. The 66 percent 

Authorizing committees Finance (Senate)

Ways and Means (House)

Appropriations subcommittees Labor, HHS, Education and Related 

Agencies (Senate and House)

Primary agency Department of Health and Human Services

Account Family Support Payments to States (75-

1501)

Spending type Direct

Budget subfunction 609/Other income security

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 265 GAO-01-447 Supporting Congressional Oversight

federal funding participation rate was continued for systems operation and 

administrative expenses.

The Congress could choose to reduce the federal funding participation rate 

for modification and operation of these systems from 66 percent to the 50 

percent rate now common for such costs in other programs, such as Food 

Stamps and other welfare programs. CBO estimates that a reduced 

participation rate would produce the following savings.

Five-Year Savings

Related GAO Products Child Support Enforcement: Leadership Essential to Implementing 

Effective Automated Systems (GAO/T-AIMD-97-162, Sept. 10, 1997).

Child Support Enforcement: Strong Leadership Required to Maximize 

Benefits of Automated Systems (GAO/AIMD-97-72, June 30, 1997).

Child Support Enforcement: Timely Action Needed to Correct System 

Development Problems (GAO/IMTEC-92-46, Aug. 13, 1992).

Child Support Enforcement: Opportunity to Defray Burgeoning Federal 

and State Non-AFDC Costs (GAO/HRD-92-91, June 5, 1992).

GAO Contact Joel C. Willemssen, (202) 512-6408

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the CBO baseline

Budget authority 220 235 245 260 270

Outlays 220 235 245 260 270

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 266 GAO-01-447 Supporting Congressional Oversight

Obtaining and Sharing 

Information on Medical 

Providers and 

Middlemen May 

Reduce Improper 

Payments to 

Supplemental Security 

Income Recipients

The Supplemental Security Income (SSI) program guarantees a minimum 

level of income for needy aged, blind, or disabled individuals. At the end of 

1999, the SSI program was paying benefits to more than 5.2 million blind 

and disabled individuals and more than 1.3 million elderly individuals. For 

these groups, 1999 program expenditures totaled $26.9 billion and 

$4.6 billion, respectively. 

Over the years, some SSI recipients may have improperly gained access to 

program benefits by feigning or exaggerating disabilities with the help of 

middlemen (particularly interpreters) and medical providers. Although it is 

not possible to know the exact number of beneficiaries who became 

eligible for benefits through these practices, analysis suggests that the SSI 

program is vulnerable to this type of fraud and abuse. First, in an April 1998 

sample, GAO found that more than 60 percent of the SSI beneficiaries 

suffer from mental and physical impairments that are difficult to 

objectively verify. Second, medical providers who were investigated for 

defrauding Medicaid, Medicare, or private insurance companies provided 

at least some of the medical evidence for 6 percent of the 208,000 disabled 

SSI recipient cases we reviewed in six states. Third, over 96 percent of the 

158 SSA officials and staff that we interviewed said that they believed that 

the practice of middlemen helping people improperly qualify for SSI 

benefits has continued. SSA has tried to address this problem by 

developing ways to better identify and assess the initial or continuing 

eligibility of applicants and recipients who may be feigning disabilities. The 

agency has not, however, taken steps to systematically obtain and 

distribute information on various medical providers and middlemen that 

Authorizing committees Finance (Senate)

Ways and Means (House)

Appropriation committees Labor, HHS, Education, and Related 

Agencies (Senate)

Labor, Health and Human Services, and 

Education (House)

Primary agency Social Security Administration

Accounts Supplemental Security Income Program 

(28-0406)

Spending type Direct/Discretionary

Budget subfunction 609/Other income security

Framework theme Improve Efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 267 GAO-01-447 Supporting Congressional Oversight

would better help identify such applicants and recipients. These steps are 

important because past experiences have shown that a single middleman 

or medical provider can help hundreds of ineligible beneficiaries get on the 

rolls. Every individual who obtains benefits by feigning or exaggerating 

disabilities will cost the federal government an estimated $122,000 in SSI 

and Medicaid benefits over the 10-year period 1999 through 2009.

In order to reduce the number of improper claims under the SSI program, 

the Congress could consider requiring SSA to systematically obtain 

information on various middlemen and service providers and routinely 

share it throughout SSA. Such information could be collected from other 

government agencies and private entities that also face similar fraud and 

abuse issues as well as from SSA staff. SSA could use this information, for 

example, to determine which claims should receive increased scrutiny to 

prevent applicants from receiving improper benefits and to target 

investigations of current beneficiaries to determine if they should be 

removed from the program. Although CBO agrees that efforts to reduce 

fraud in the SSI program through greater information sharing about 

medical providers and middleman have the potential to create savings, it 

cannot develop a savings estimate until a specific legislative proposal is 

identified. 

Related GAO Products Supplemental Security Income: Additional Action Needed to Reduce 

Program Vulnerability to Fraud and Abuse (GAO/HEHS-99-151, Sept. 15, 

1999).

Supplemental Security Income: Disability Program Vulnerable to Applicant 

Fraud When Middlemen Are Used (GAO/HEHS-95-116, Aug. 31, 1995).

GAO Contact Cynthia M. Fagnoni, (202) 512-7215
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 268 GAO-01-447 Supporting Congressional Oversight

Reassess Unneeded 

Health Care Assets 

Within the Department 

of Veterans Affairs

The Department of Veterans Affairs (VA) owns 4,700 buildings and 18,000 

acres of land, which it uses to operate 181 major health care delivery 

locations. These locations operate in 106 health care markets nationwide. 

These include 40 markets where multiple VA facilities compete with each 

other to serve veterans (115 locations) and 66 markets served by a single 

VA delivery location. VA spends a major portion of its $18.4 billion health 

care budget—about 1 out of every 4 dollars—to operate, maintain, and 

improve its delivery locations, generally referred to as the costs of asset 

ownership. All VA delivery locations project a declining veteran population 

base for their primary market areas, with two-thirds expecting declines 

greater than 33 percent over the next 20 years.

Without a major restructuring, billions of dollars will be used in the 

operation of hundreds of unneeded VA buildings over the next several 

years. For example, VA could realize efficiency savings totaling millions of 

dollars and provide the same or higher quality of care by consolidating 

medical and administrative services in fewer than its 4 major delivery 

locations in the Chicago area; over 120 buildings are currently operated and 

maintained at these locations. VA responded by studying and then 

identifying six restructuring options for the Chicago area, with projected 

annual savings ranging between $132 million and $189 million in fiscal year 

2010 (VA believes that it will need 10 years to fully implement any 

restructuring option). In September 1999, VA announced its intent to 

implement the option that realizes the largest dollar savings, primarily 

because, according to VA, it maximizes the accessibility and quality of 

medical care for veterans. Many stakeholders, especially medical schools, 

have voiced objections to VA’s restructuring plan.

Authorizing committees Veterans Affairs (House and Senate)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(House and Senate)

Primary agency Department of Veterans Affairs

Account Medical Care (36-0160)

Spending type Discretionary

Budget subfunction 703/Hospital and medical care for veterans

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 269 GAO-01-447 Supporting Congressional Oversight

VA needs to implement an asset realignment plan not only for the Chicago 

area; but also needs to develop and implement realignment plans for its 

other health care markets. VA plans to contract with a private consulting 

firm to conduct rigorous analyses of its networks, including the Chicago 

area. Such analyses are to include a determination of veterans’ health care 

needs in each network and alternatives analyses to enable VA to evaluate 

options for meeting needs in the most cost-effective manner. 

Although CBO agrees that reducing unneeded health care assets at the VA 

has the potential to create savings, it cannot develop a savings estimate 

until a specific legislative proposal is identified.

Related GAO Products VA Health Care: VA Is Struggling to Address Asset Realignment Challenges

(GAO/T-HEHS-00-88, Apr. 5, 2000).

VA Health Care: Improvements Needed in Capital Asset Planning and 

Budgeting (GAO/HEHS-99-145, Aug. 13, 1999).

VA Health Care: Challenges Facing VA in Developing an Asset Realignment 

Process (GAO/T-HEHS-99-173, July 22, 1999).

Veterans’ Affairs: Progress and Challenges in Transforming Health Care 

(GAO/T-HEHS-99-109, Apr. 15, 1999).

VA Health Care: Capital Asset Planning and Budgeting Need Improvement 

(GAO/T-HEHS-99-83, Mar. 10, 1999).

VA Health Care: Closing a Chicago Hospital Would Save Millions and 

Enhance Access to Services (GAO/HEHS-98-64, Apr. 16, 1998).

VA Health Care: Opportunities to Enhance Montgomery and Tuskegee 

Service Integration (GAO/T-HEHS-97-191, July 28, 1997).

VA Health Care: Lessons Learned From Medical Facility Integrations 

(GAO/T-HEHS-97-184, July 24, 1997).

Department of Veterans Affairs: Programmatic and Management 

Challenges Facing the Department (GAO/T-HEHS-97-97, Mar. 18, 1997).

VA Health Care: Opportunities for Service Delivery Efficiencies Within 

Existing Resources (GAO/HEHS-96-121, July 25, 1996).
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 270 GAO-01-447 Supporting Congressional Oversight

VA Health Care: Opportunities to Increase Efficiency and Reduce Resource 

Needs (GAO/T-HEHS-96-99, Mar. 8, 1996).

VA Health Care: Challenges and Options for the Future 

(GAO/T-HEHS-95-147, May 9, 1995).

GAO Contact Stephen P. Backhus, (202) 512-7101
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 271 GAO-01-447 Supporting Congressional Oversight

Reducing VA Inpatient 

Food and Laundry 

Service Costs

The Department of Veterans Affairs (VA) provides inpatient food services 

and laundry processing for more than 36,000 inpatients a day in hospitals, 

nursing homes, and domiciliaries at 177 inpatient locations. VA spends 

about $324 million and $52 million, respectively, for these activities and 

employs 7,000 Nutrition and Food Service (NFS) wage-grade workers, not 

including dietitians and 1,100 laundry processing workers. The NFS 

workers cook and prepare food, distribute food to patients, and retrieve 

and wash plates, trays, and utensils. The laundry processing workers sort, 

wash, dry, fold, and transport laundry. 

VA has downsized its inpatient volume by 35 percent over the last 5 years 

while it has increased its outpatient volume. The total number of patients 

treated has increased from 2.9 to 3.6 million. As a result of the reduction in 

inpatient volume, the volume of inpatient food and laundry services has 

declined. In food services, VA has consolidated 28 of its food production 

locations into 10, began using less expensive Veterans Canteen Service 

(VCS) workers in 9 locations, and contracted out in 2 locations. For laundry 

services, VA has consolidated 116 of its laundries into 67 locations and used 

competitive sourcing to contract with the private sector to operate 2 VA 

laundries and to contract with 10 commercial laundries.

VA has the potential to further reduce its inpatient food service and laundry 

costs by systematically assessing, at all its health care delivery locations, 

options it is already using at some of its health care locations. For example, 

using the benchmark of employees to food service volume at the 

consolidated Central Texas Health Care System, the Congress could require 

VA to consolidate 63 food production locations within a 90-minute driving 

distance of each other into 29 production locations. Also, the Congress 

could require VA to use less expensive VCS employees at all inpatient food 

Authorizing committees Veterans’ Affairs (Senate and House)

Appropriations subcommittees VA, HUD, and Independent Agencies 

(Senate and House)

Primary agency Department of Veterans Affairs

Account Medical Care (VA) (35-0160)

Spending type Discretionary

Budget subfunction 703/Hospital and Medical Care for Veterans

Framework theme Improve efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 272 GAO-01-447 Supporting Congressional Oversight

locations. Competitive sourcing between in-house and private sector 

operations is more cost effective and could also save additional food 

service costs. The Congress could also require VA to consolidate its laundry 

operations. Using VA’s laundry productivity standard of 160,000 pounds per 

employee, VA could close 13 laundries and consolidate their workload at 

other laundries within a 4-hour drive. Finally, competitive sourcing to 

determine if VA-owned and operated laundries, private operation of VAowned laundries, or commercial laundries are most cost effective could 

save additional laundry costs. If Congress required VA to consolidate and 

competitively bid its food service and laundry operations and use VCS 

employees at all impatient food locations, the following budgetary savings 

could be achieved over 5 years. 

Five-Year Savings

Related GAO Products VA Health Care: Consolidations and Competitive Sourcing of Laundry 

Service Could Save Millions (GAO-01-61, Nov. 30, 2000).

VA Health Care: Expanding Food Service Initiatives Could Save Millions 

(GAO-01-64, Nov. 30, 2000).

VA Health Care: Laundry Service Operations and Costs (GAO/HEHS-00-16, 

Dec. 21, 1999).

VA Health Care: Food Service Operations and Costs at Inpatient Facilities 

(GAO/HEHS-00-17, November 19, 1999).

GAO Contact Stephen P. Backhus, (202) 512-7101

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 5 37 78 93 95

Outlays 4 34 73 91 94

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 273 GAO-01-447 Supporting Congressional Oversight

Consolidate Asset 

Forfeiture Programs at 

the Departments of 

Justice and Treasury

Federal asset forfeiture programs at the Departments of Justice and the 

Treasury, with combined inventories valued at more than $1 billion as of 

September 30, 1999, have not adequately focused on managing the items 

seized. Justice and the Treasury continue to operate two similar but 

separate seized asset management and disposal programs without plans for 

consolidation, despite legislation requiring them to develop a plan to 

consolidate postseizure administration of certain properties.

Consolidating the management and disposition of all noncash seized 

property could reduce administrative costs by millions annually. In 

response to continuing strong interest from the Congress, OMB, and GAO, 

the departments have commissioned a joint study of property management 

within the federal asset forfeiture program. The study is to include an 

assessment of both departments’ programs and recommend opportunities 

for cost savings and sharing of information as well as agency and 

contractor resources. While the joint study does not fully embrace the 

concept of consolidation of the separate asset management and disposal 

functions, it does encompass the spirit of identifying cost savings and 

efficiencies within the program. However, the study is not yet completed, 

and any cost savings that would result have not been identified.

Because the study is not yet completed, the Congress could continue to 

pursue consolidation of postseizure administration of noncash assets. CBO 

Authorizing committees Judiciary (Senate and House)

Appropriations subcommittees Multiple

Primary agencies Department of Justice

Treasury Department

Account Assets Forfeiture Fund (15-5042)

Treasury Forfeiture Fund (20-5697)

Spending type Permanent indefinite appropriation 

(Congress must authorize in annual 

appropriations act use of DOJ fund for 

certain investigative expenses.) 

Budget subfunction 752/Federal litigative and judicial activities 

(DOJ fund)

751/Federal law enforcement activities 

(Treasury fund)

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 274 GAO-01-447 Supporting Congressional Oversight

cannot estimate the savings or additional costs that would result from this 

option until specific proposals are identified. 

Related GAO Products High-Risk Series: Asset Forfeiture Programs (GAO/HR-99-1, Jan. 1999).

Major Management Challenges and Program Risks: Department of Justice 

(GAO/OCG-99-10, Jan. 1999).

Asset Forfeiture: Historical Perspective on Asset Forfeiture Issues

(GAO/T-GGD-96-40, Mar. 19, 1996).

Asset Forfeiture: Noncash Property Should Be Consolidated Under the 

Marshals Service (GAO/GGD-91-97, June 28, 1991).

Asset Forfeiture: Opportunities for Savings Through Program 

Consolidation (GAO/T-GGD-91-22, Apr. 25, 1991).

GAO Contact Laurie E. Ekstrand, (202) 512-8777
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 275 GAO-01-447 Supporting Congressional Oversight

Replace the 1-Dollar 

Note With a 1-Dollar 

Coin

Replacing the 1-dollar note with a new 1-dollar coin would save the 

government hundreds of millions of dollars annually. Substituting a dollar 

coin for a dollar note could yield over $450 million of savings to the 

government per year, on average, over a 30-year period. The savings come 

about because a coin lasts longer than paper money; the Federal Reserve 

has lower processing costs with coins than paper money; and a coin would 

result in interest savings from the additional seigniorage earned on a coin 

(i.e., the difference between the face value of a coin and its production 

cost). 

In the past, the executive branch has not supported the replacement of the 

$1 note with a coin because of the belief that the Congress would respond 

to public pressure and allow both the coin and note to be used. All Western 

economies now use a coin for monetary transactions at the same value that 

Americans use the more costly paper note. These countries have 

demonstrated that public resistance to such a change can be managed and 

overcome. The United States has released a new gold-colored dollar coin 

this year. While initial demand for the coin has been strong, for it to realize 

its savings potential, the note has to be eliminated. With proper 

congressional oversight, public resistance to elimination of the $1 note 

could be overcome and public support for the coin improved.

Even though this option would result in significant long-term savings, it 

does not yield savings over the first 5 years, as scored by CBO. First, 

seigniorage, which would lower interest costs to the government by either 

Authorizing committees Banking, Housing, and Urban Affairs 

(Senate)

Financial Services (House)

Appropriations subcommittees Treasury and General Government 

(Senate)

Treasury, Postal Service, and General 

Government (House)

Primary agency Department of the Treasury

Account United States Mint Public Enterprise Fund 

(20-4159)

Spending type Direct/Governmental Receipts

Budget subfunction 803/Central fiscal operations

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 276 GAO-01-447 Supporting Congressional Oversight

replacing the need to borrow from the public or allowing the government to 

pay down its accumulated debt more quickly, is not included in the savings 

estimate because it is not considered part of the budget. Second, while the 

initial 5-year window captures much of the additional cost for the U.S. Mint 

to produce and stockpile a sufficient number of 1-dollar coins for 

circulation, it includes only a fraction of the savings to the Federal Reserve 

System from lower production and processing costs.

Related GAO Products A Dollar Coin Could Save Millions (GAO/T-GGD-95-203, July 13, 1995).

1-Dollar Coin Reintroduction Could Save Millions if It Replaced the 1-

Dollar Note (GAO/T-GGD-95-146, May 3, 1995).

1-Dollar Coin: Reintroduction Could Save Millions if Properly Managed 

(GAO/GGD-93-56, Mar. 11, 1993).

National Coinage Proposals: Limited Public Demand for New Dollar Coin 

or Elimination of Pennies (GAO/GGD-90-88, May 23, 1990).

GAO Contact Bernard L. Ungar, (202) 512-8387
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 277 GAO-01-447 Supporting Congressional Oversight

Eliminate Pay 

Increases After 

Separation in 

Calculating Lump-Sum 

Annual Leave 

Payments 

Employee pay and benefits is one of many areas of the federal budget 

receiving congressional attention because of scarce federal resources. One 

such benefit is an employee’s entitlement under 5 U.S.C. 5551(a) to receive 

a lump-sum payment for any accumulated, unused annual leave upon 

separation from federal service. In calendar year 1996, the cost of lumpsum leave payments to separating civilian employees was about 

$562 million governmentwide. We were requested to identify any personnel 

cost savings that could be achieved from limiting the lump-sum leave 

payment to the employee’s pay rate at the time of separation, instead of the 

current method of assuming the employee had remained in service until the 

entire leave balance had expired. 

Based in part on our information and analysis, CBO estimated that agencies 

could realize personnel cost savings of $20 million over 5 years if lump-sum 

annual leave payments were limited to the rate of pay at the time of 

separation. If the Congress enacted such a limitation, no General Schedule 

(GS) pay increases that go into effect following an employee’s separation 

would be added to the payment calculation. To illustrate how small the 

maximum reduction in payments would be to individual separating 

employees, we calculated what the maximum reduction in lump-sum leave 

payments would have been to separating employees in January 1996 at 

various GS pay levels if the net 2.54 percent pay increase had been 

eliminated from their lump-sum leave payments. For example, we reported 

that the maximum reduction for an average GS-15 pay level would be from 

$86 to $481, depending on the amount of accrued annual leave. 

Authorizing committees Governmental Affairs (Senate)

Government Reform (House)

Appropriations subcommittees Multiple

Primary agency Office of Personnel Management

Account Multiple

Spending type Discretionary

Budget subfunction Multiple

Framework theme Improve Efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 278 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Related GAO Product Federal Civilian Personnel: Cost of Lump-Sum Annual Leave Payments to 

Employees Separating From Government (GAO/GGD-97-100, May 29, 

1997).

GAO Contact Carlotta C. Joyner, (202) 512-6806

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Budget authority 4 4 4 4 4

Outlays 4 4 4 4 4

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 279 GAO-01-447 Supporting Congressional Oversight

Increase Fee Revenue 

From Federal Reserve 

Operations

The Federal Reserve is responsible for conducting monetary policy, 

maintaining the stability of financial markets, providing services to 

financial institutions and government agencies, and supervising and 

regulating banks and bank-holding companies. The Federal Reserve is 

unique among governmental entities in its mission, structure, and finances. 

Unlike federal agencies funded through annual appropriations, the Federal 

Reserve is a self-financing entity that deducts its expenses from its revenue 

and transfers the remaining amount to the U.S. Department of the Treasury. 

Although the Federal Reserve’s primary mission is to support a stable 

economy, rather than to maximize the amount transferred to Treasury, its 

revenues contribute to total U.S. revenues and, thus, can help reduce the 

federal deficit. 

One way to enhance the Federal Reserve’s revenue would be to charge fees 

for bank examinations, thus increasing the Federal Reserve’s return to 

taxpayers. The Federal Reserve Act authorizes the Federal Reserve to 

charge fees for bank examinations, but the Federal Reserve has not done 

so, either for the state-member banks it examines or the bank-holding 

company examinations it conducts. Taxpayers in effect bear the cost of 

these examinations, which total hundreds of millions of dollars annually. If 

fees were assessed similar to those charged national banks with a credit 

allowed for fees paid to state regulators, the following savings could be 

achieved.

Authorizing committees Banking, Housing and Urban Affairs 

(Senate)

Financial Services (House)

Primary agency Federal Reserve Board

Spending type Direct

Framework theme Improve efficiency 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 280 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Related GAO Products Federal Reserve System: Current and Future Challenges Require 

Systemwide Attention (GAO/T-GGD-96-159, July 26, 1996).

Federal Reserve System: Current and Future Challenges Require 

Systemwide Attention (GAO/GGD-96-128, June 17, 1996).

Federal Reserve Banks: Inaccurate Reporting of Currency at the Los 

Angeles Branch (GAO/AIMD-96-146, Sept. 30, 1996).

Federal Reserve Banks: Internal Control, Accounting, and Auditing Issues

(GAO/AIMD-96-5, Feb. 9, 1996).

GAO Contact Thomas J. McCool, (202) 512-8678

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Savings from the 2001 funding level

Added receipts 86 90 94 98 102

Note: Estimates are presented net of the tax effect.

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 281 GAO-01-447 Supporting Congressional Oversight

Recognize Up-front the 

Costs of Long-Term 

Space Acquisitions

Building ownership through construction or lease-purchase—where 

ownership of the asset is transferred to the government at the end of the 

lease period—is generally less costly than meeting agencies’ long-term 

requirements through ordinary operating leases. However, we have 

reported over the last decade that GSA relies heavily on operating leases to 

meet the long-term space needs of the federal government. In March 1999, 

we reported that for 9 major operating lease acquisitions GSA proposed 

between fiscal years 1994 and 1996, construction would have been the least 

cost option in 8 cases. In these 8 cases, lease-purchase was estimated to be 

more costly than construction, but less than the operating lease option GSA 

proposed. For example, the present value cost for the operating lease to 

meet the Patent and Trademark Office’s long-term requirements in northern 

Virginia was estimated to be about $973 million. Construction was 

estimated to be $925 million—or $48 million less—and lease-purchase was 

estimated at $935 million—or $38 million less than the operating lease 

option. In total for these 8 cases, construction and lease-purchase had cost 

advantages over operating leases estimated at about $126 million and 

$107 million, respectively.

Historically, the Federal Buildings Fund (FBF) has not generated sufficient 

revenue for constructing new office buildings. Operating leases have 

become an attractive option because the total costs do not have to be 

scored up-front and payments are spread out over time. However, as shown 

above, they are a costly alternative to ownership over the long-run. A leasepurchase would seem to be a desirable alternative from GSA’s point of view. 

However, the budget scorekeeping rules established by the Budget 

Authorizing committees Environment and Public Works (Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Treasury and General Government 

(Senate)

Treasury, Postal Service, and General 

Government (House)

Primary agency General Services Administration

Account Federal Buildings Fund (47-4542)

Spending type Discretionary

Budget subfunction 804/General property and records 

management

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 282 GAO-01-447 Supporting Congressional Oversight

Enforcement Act of 1990 (BEA) effectively prevent GSA from taking 

advantage of this option. The scorekeeping rules require the total budget 

authority for lease-purchases to be recognized and recorded up-front in the 

year they are approved. Although GSA has viewed the up-front funding 

requirement as an impediment to meeting agency space needs in a costeffective manner, it is generally recognized as an important tool for 

maintaining governmentwide fiscal control. That is, the rules prevent 

agencies and Congress from committing the government to future 

payments that may exceed future resources and spending priorities. 

Since lease-purchases are not a viable option for improving the costeffectiveness of space acquisition, an option that could result in long-term 

savings for the government would be to recognize that many operating 

leases are used for long-term needs and should be treated on the same 

basis as the ownership options. This would make such instruments 

comparable in the budget to direct federal ownership and would foster 

more cost-effective decision-making by OMB and Congress. Applying the 

principle of up-front full recognition of the long-term costs to all options for 

satisfying long-term space needs—construction, purchases, leasepurchases, or operating leases—is more likely to result in selecting the 

most cost-effective alternative than the current scoring rules. 

It is important to note that there would be implementation challenges if this 

option is pursued. If operating leases were scored up-front, adjustments to 

the BEA caps would be necessary to accommodate the scoring change. For 

existing leases, the additional budget authority would need to be provided 

and the caps would have to be adjusted upward initially to recognize the 

higher up-front costs. The caps would be lowered in succeeding years to 

recognize the lower annualized costs.4

 Such a change may also need to be 

phased in because of resource constraints. Finally, it would be difficult to 

reach agreement on what constitutes long-term space needs that would 

warrant this up-front budgetary treatment. GSA officials suggested in July 

1997 that if changes to the scoring rules are made, all operating leases 

should be scored up-front. The GSA officials said that its leases no longer 

contain a clause permitting the government to terminate them for 

convenience and thus, its leases effectively commit the government for the 

term of the lease when they are signed. Even though this option should 

4

Existing contracts could also be “grandfathered” in as occurred under the lease-purchase 

rule. 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 283 GAO-01-447 Supporting Congressional Oversight

result in long-term savings, it does not yield savings over the first 5 years, as 

scored by CBO.

Related GAO Products General Services Administration: Comparison of Space Acquisition 

Alternatives—Leasing to Lease-Purchase and Leasing to Construction 

(GAO/GGD-99-49R, Mar. 12, 1999).

Space Acquisition Cost: Comparison of GSA Estimates for Three 

Alternatives (GAO/GGD-97-148R, Aug. 6, 1997).

Budget Issues: Budgeting for Federal Capital (GAO/AIMD-97-5, Nov. 12, 

1996).

Budget Issues: Budget Scorekeeping for Acquisition of Federal Buildings 

(GAO/T-AIMD-94-189, Sept. 20, 1994).

Federal Office Space: Increased Ownership Would Result in Significant 

Savings (GAO/GGD-90-11, Dec. 22, 1989).

GAO Contact Bernard L. Ungar, (202) 512-8387
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 284 GAO-01-447 Supporting Congressional Oversight

Improper Benefit 

Payments Could Be 

Avoided or More 

Quickly Detected if 

Data From Various 

Programs Were Shared

Many federally funded benefit and loan programs rely on applicants and 

current recipients to accurately report information, such as the amount of 

income they earn, that affects their eligibility for assistance. To the extent 

that such information is underreported or not reported at all, the federal 

government overpays benefits or provides loans to individuals who are 

ineligible. In recent years, we and others have demonstrated that federally 

funded benefit and loan programs, such as housing and higher education 

assistance, have made hundreds of millions of dollars in improper 

payments. Some of these payments were made improperly because the 

federal, state, and local entities that administer the programs sometimes 

lacked adequate, timely data needed to determine applicants’ and current 

recipients’ eligibility for assistance. Our previous work has demonstrated 

that improper payments can be avoided or detected more quickly by using 

data from other programs, or maintained for other purposes, to verify selfreported information. 

Federally funded benefit and loan programs provide cash or in-kind 

assistance to individuals who meet specified eligibility criteria. Because 

these programs require similar information to make eligibility 

determinations, it is more efficient to share the necessary data with one 

another rather than requiring each program to independently verify similar 

data. These programs may verify self-reported information by comparing 

their records with independent, third-party data sources from other federal 

or state agencies as well as private organizations. For example, benefit and 

loan programs can compare large amounts of information on applicants 

and recipients by using computers to match automated records. Electronic 

transmission of data and on-line access to agencies’ databases are 

additional tools program administrators can use to share important 

information on applicants and recipients in a timely, efficient manner. If 

Authorizing committees Multiple

Appropriation committees Multiple

Primary agency Multiple

Accounts Multiple

Spending type Direct/Discretionary

Budget subfunction Multiple

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 285 GAO-01-447 Supporting Congressional Oversight

used consistently, they can help program administrators check the 

accuracy of individuals’ self-reported statements as well as identify 

information relevant to eligibility that the applicants and recipients 

themselves have not provided.

Various opportunities exist for federal, state, and local agencies to save 

taxpayer dollars by sharing information that affects individuals’ eligibility 

for benefits. For example, the Department of Education’s OIG estimates 

that underreported income contributed to about $109 million in excess Pell 

Grant awards in 1995 and 1996. Access to IRS taxpayer information could 

have helped Education prevent some of these overpayments. Improper 

payments could also be avoided or detected more quickly in other 

programs. For example, an on-line system used to obtain state wage data in 

just one public housing authority revealed that 47 percent of families 

sampled had unreported income. 

The three federally funded benefit and loan programs we examined—

Temporary Assistance for Needy Families, Tenant-Based Section 8 and 

Public Housing, and student grants and loans—all use data sharing to 

varying degrees to verify information that applicants and current benefit 

recipients provide. However, the weaknesses in these programs’ eligibility 

determination processes could be mitigated if additional data sources were 

available for sharing. For example, the Congress could grant the 

Department of Education access to IRS taxpayer data which could reduce 

overpayments in its student loan programs. CBO could not estimate 

savings until a more specific option is developed.

Related GAO Products Benefit and Loan Programs: Improved Data Sharing Could Enhance 

Program Integrity (GAO/HEHS-00-119, Sept. 13, 2000).

The Challenge of Data Sharing: Results of a GAO-Sponsored Symposium on 

Benefit and Loan Programs (GAO-01-67, Oct. 20, 2000). 

GAO Contact Cynthia M. Fagnoni, (202) 512-7215 
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 286 GAO-01-447 Supporting Congressional Oversight

Require Corporate Tax 

Document Matching

IRS’ document matching program for payments to individuals has proven 

to be a highly cost-effective way of bringing in billions of dollars in tax 

revenues to the Treasury while at the same time boosting voluntary 

compliance. However, unlike payments to individuals, the law does not 

require that information returns be submitted on most payments to 

corporations. 

Generally using IRS’ assumptions, we estimated the benefits and costs for a 

corporate document matching program that would cover interest, 

dividends, rents, royalties, and capital gains. Assuming that a corporate 

document matching program began in 1993, we estimated that for years 

1995 through 1999, IRS’ annual costs would be about $70 million and 

annual increased revenues about $1 billion. This estimate did not factor in 

compliance costs and changes in taxpayer behavior. Given increased 

corporate noncompliance, and declining audit coverage, the Congress may 

wish to require a corporate document matching program. 

JCT agrees that the option has the potential for increased revenue but has 

not developed estimates of revenue gain.

Related GAO Product Tax Administration: Benefits of a Corporate Document Matching Program 

Exceed the Costs (GAO/GGD-91-118, Sept. 27, 1991).

GAO Contact James R. White, (202) 512-9110

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 287 GAO-01-447 Supporting Congressional Oversight

Improve 

Administration of the 

Tax Deduction for Real 

Estate Taxes

IRS audits show that individuals overstated their real estate tax deductions 

by about $1.5 billion nationwide in 1988. We estimate that this resulted in a 

nearly $300 million federal tax loss, which would increase to about 

$400 million for 1992. However, this may understate lost revenues because 

our review also found that IRS auditors detected only about 29 percent of 

$127 million in overstated deductions in three locations we reviewed. 

Revenues could be lost not only for the federal government, but also for the 

31 states which in 1991 tied their itemized deductions to those used for 

federal tax purposes. 

Two changes to the reporting of real estate cash rebates and real estate 

taxes could reduce noncompliance and increase federal tax collections. 

First, the Congress could require that states report to IRS, and to taxpayers 

on Form 1099s, cash rebates of real estate taxes. Second, the Congress 

could require that state and local governments conform real estate tax 

statements to specifications issued by IRS that would separate real estate 

taxes from nondeductible fees, which are often combined on these 

statements. 

For estimation purposes, the proposals would be effective for rebates 

issued after December 31, 2001, and for amounts reported on tax bills after 

December 31, 2002. JCT estimates that the proposals together, would 

increase federal fiscal revenues as shown in the table below.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service 

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 288 GAO-01-447 Supporting Congressional Oversight

Five-Year Savings

Related GAO Product Tax Administration: Overstated Real Estate Tax Deductions Need To Be 

Reduced (GAO/GGD-93-43, Jan. 19, 1993).

GAO Contact James R. White, (202) 512-9110

Dollars in millions

FY02 FY03 FY04 FY05 FY06

Revenue gain 0 * * 0.1 0.2

Note: JCT provided its revenue estimates in billions of dollars.

* - less than $50 million

Source: Congressional Budget Office.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 289 GAO-01-447 Supporting Congressional Oversight

Increase Collection of 

Returns Filed by U.S. 

Citizens Living Abroad

U.S. citizens residing abroad are generally subject to the same filing 

requirements as citizens residing in the United States. The State 

Department estimated the total population of U.S. citizens living abroad at 

about 3.1 million in 1995, excluding active military and current government 

personnel. Some evidence suggests that the failure to file tax returns may 

be relatively prevalent in some segments of the U.S. population abroad, and 

the revenue impact, while unknown, could be significant.

IRS’ ability to identify and collect taxes from nonfilers residing abroad is 

restricted by the limited reach of U.S. laws in foreign countries, particularly 

U.S. laws on tax withholding, information reporting, and enforced 

collection through liens, levies, and seizures. Another factor that could 

contribute to nonfiling abroad is the ambiguity in IRS’ filing instructions for 

its Form 1040 and related guidance. For example, it may not be clear that 

income qualifying for the foreign earned income or housing expense 

exclusions must be considered in determining whether one’s gross income 

exceeds the filing threshold.

In pursuing nonfilers abroad, IRS has not fully explored the usefulness of 

passport application data as a means of identifying potential nonfilers. 

While passport applications contain no income information, they could be 

used to collect applicants’ social security number, age, occupation, and 

country of residence.

IRS may want to take additional steps to enforce the current information 

requirement that all passport applicants provide their social security 

numbers as a means of identifying potential nonfilers abroad. IRS may also 

want to clarify its instructions for determining what income must be 

considered in determining whether gross income exceeds the filing 

threshold. Initial projects to increase the number of returns filed from 

overseas suggests that the potential increase in tax revenues would justify 

the costs to improve compliance.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 290 GAO-01-447 Supporting Congressional Oversight

JCT agrees that the option has the potential for increased revenue but has 

not developed estimates of revenue gain.

Related GAO Products Tax Administration: Nonfiling Among U.S. Citizens Abroad 

(GAO/GGD-98-106, May 11, 1998).

IRS Activities to Increase Compliance on Overseas Taxpayers 

(GAO/GGD-93-93, May 18, 1993).

United States Citizens Residing in Foreign Countries and Not Filing Federal 

Income Tax Returns (Accession #126891, GAO/GGD, May 8, 1985, 

testimony).

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 291 GAO-01-447 Supporting Congressional Oversight

Increase the Use of 

Seizure Authority to 

Collect Delinquent 

Taxes

IRS’ use of its statutory authority to seize taxpayer assets has been 

instrumental in bringing into compliance (i.e., full pay status) many 

delinquent taxpayers that had been unresponsive to other tax collection 

efforts, including demands for payment through letters, phone calls and 

personal visits and levies on bank accounts and wages. Of the approximate 

8,300 taxpayers whose assets were seized by IRS in fiscal year 1997, about 

42 percent became fully tax compliant—resolving about $186 million in tax 

debts—as a result of the seizures. In total, the seizure of taxpayer property 

in fiscal year 1997 resulted in resolving about $235 million or about 22 

percent of the $1.1 billion of tax debts owed by the 8,300 taxpayers. 

IRS’ use of seizure authority has been in a period of transition as IRS adapts 

to the requirements of the IRS Restructuring and Reform Act of 1998. 

During this transition the number of seizures has declined over 98 percent. 

IRS employees told GAO that seizures have nearly stopped because of their 

uncertainty over the act’s seizure requirements and IRS’ slow development 

of workable policies and procedures implementing the act. 

IRS national office officials indicated to GAO that they expected the 

number of seizures to rebound as changes to the seizure program are 

implemented and employees adapt to the new requirements. The officials 

also indicated that the expected rebound would be to levels significantly 

below pre-act experience given (1) IRS program changes that provide 

taxpayers with additional opportunities to resolve their tax delinquencies 

prior to seizure (2) expanded definition of taxpayer property statutorily 

exempt from seizure (3) increased time available to taxpayers to exercise 

rights to challenge seizures and (4) reductions in collection staff available 

to make seizures. 

Until the anticipated rebound begins, however, IRS is at risk of forgoing the 

collection of millions of dollars as indicated by the 1997 data. To facilitate 

the rebound and to help ensure that seizure authority is used when 

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 292 GAO-01-447 Supporting Congressional Oversight

warranted, GAO has made a number of recommendations to IRS. In part, 

GAO recommended that IRS provide written guidance to employees on 

when seizure action ought to be taken, that is, the conditions and 

circumstances that would justify seizure action and the responsibilities of 

senior managers to ensure that such actions are taken. Effective 

implementation of the recommendations, particularly those involving the 

responsibilities of IRS managers, is contingent on the success of the 

ongoing time-phased organizational restructuring of IRS as mandated by 

the 1998 act. 

JCT agrees that the option has the potential for increased revenue but has 

not developed estimates of revenue gain.

Related GAO Product IRS Seizures: Needed for Compliance but Processes for Protecting 

Taxpayer Rights Have Some Weaknesses (GAO/GGD-00-4, Nov. 29, 1999).

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 293 GAO-01-447 Supporting Congressional Oversight

Increase Collection of 

Self-employment Taxes

Self-employed taxpayers can get Social Security benefits based on earnings 

for which they did not pay taxes because the Social Security Act requires 

the Social Security Administration to grant earnings credits, which are used 

to determine benefit eligibility and amounts, and pay benefits without 

regard to whether the Social Security taxes have been paid. As of 

September 1997, more than 1.9 million self-employed taxpayers were 

delinquent in paying $6.9 billion in self-employment taxes. Also, more than 

144,000 taxpayers with delinquent self-employment taxes of $487 million 

were receiving about $105 million annually in monthly Social Security 

benefits.

While IRS’ ability to collect self-employment taxes before taxpayers 

become delinquent is hampered because there is no withholding on selfemployment income, most self-employed taxpayers are required to make 

estimated tax payments. However, as of September 1997, about 90 percent 

of the delinquent self-employed taxpayers required to make estimated tax 

payments did not. 

In the past, there have been proposals to deny social security credits to 

taxpayers that fail to pay their self-employment taxes and to require 

withholding on certain self-employment income. No actions were taken on 

these proposals. One way to collect self-employment taxes before 

taxpayers become delinquent that does not require a law change would be 

to encourage more self-employed individuals to make their required 

estimated tax payments. IRS could do this by establishing a program to 

remind previously noncompliant taxpayers (i.e., those who were assessed 

an estimated tax penalty the previous year) to make such payments.

JCT agrees that the option has the potential for increased revenue but has 

not developed estimates of revenue gain.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 294 GAO-01-447 Supporting Congressional Oversight

Related GAO Product Tax Administration: Billions in Self-Employment Taxes Are Owed 

(GAO/GGD-99-18, Feb. 19, 1999).

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 295 GAO-01-447 Supporting Congressional Oversight

Increase the Use of 

Electronic Funds 

Transfer for 

Installment Tax 

Payments

The Internal Revenue Code authorizes IRS to allow taxpayers to pay their 

taxes in installments, with interest, if this arrangement would facilitate 

collection of the liability. As of September 2000, IRS had about 2.2 million 

installment agreements outstanding, worth about $8.3 billion. At the end of 

fiscal year 2000, approximately 35 percent of these installment agreements 

were in default. 

A number of states use electronic funds transfer (EFT) to make their 

installment agreement program more efficient and effective. One state, 

Minnesota, requires taxpayers to pay by EFT, with some exceptions. As of 

late 1997, approximately 90 percent of Minnesota’s installment agreements 

were EFT agreements, and the default rate had dropped from about 50 

percent to between 3 percent and 5 percent in the 2 years the EFT 

requirement has been in effect. In California, within 6 months of 

implementing its EFT procedures, its default rate for new installment 

agreements dropped from around 40 percent to 5 percent. 

EFT payments also produce administrative savings through lower 

processing costs involved in recording and posting remittances, lower 

postage and handling costs associated with sending monthly payment 

reminders, and lower collection enforcement costs needed to pursue fewer 

taxpayers in default. IRS’ initial comparison of the cost of EFT payments 

with the cost of having taxpayers send installment payments to lockboxes 

in commercial banks showed that EFT payment costs were about 37 

percent less than the lockbox costs.

The reported benefits for IRS of using EFT for installment agreement 

payments include the potential to reduce the percentage of taxpayer 

defaults, decrease administrative costs, and achieve faster collections. At 

the end of fiscal year 2000, less than 1.5 percent of IRS’ outstanding 

installment agreements were EFT agreements.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 296 GAO-01-447 Supporting Congressional Oversight

JCT agrees that the option has the potential for increased revenue but has 

not developed estimates of revenue gain.

Related GAO Products Tax Administration: Increasing EFT Usage for Installment Agreements 

Could Benefit IRS (GAO/GGD-98-112, June 10, 1998).

Tax Administration: Administrative Improvements Possible in IRS’ 

Installment Agreement Program (GAO/GGD-95-137, May 2, 1995).

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 297 GAO-01-447 Supporting Congressional Oversight

Reduce Gasoline 

Excise Tax Evasion

Although no current and reliable estimate of gasoline excise tax evasion 

exists, the most recent Federal Highway Administration estimate, from 

1992, was that evasion amounted to between 3 and 7 percent of gasoline 

excise tax revenue. From a tax administration perspective, moving the 

collection point for gasoline excise taxes from the terminal to the refinery 

level may reduce tax evasion because (1) gasoline would change hands 

fewer times before taxation, (2) refiners are presumed to be more 

financially sound and have better records than other parties in the 

distribution system, and (3) fewer taxpayers would be involved. However, 

industry representatives raise competitiveness and cost-efficiency 

questions associated with moving the collection point. 

In a May 1992 report, we suggested that the Congress explore the level of 

gasoline excise tax evasion and, if it was found to be sufficiently high, move 

tax collection to the point at which gasoline leaves the refinery. Assuming 

an effective date of January 1, 2002, JCT estimates that moving tax 

collection to the point at which the gasoline leaves the refinery would 

result in the following revenue gains.

Five-Year Revenues

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain 0.8 * * * *

Note: JCT provided its revenue estimates in billions of dollars.

* - less than $50 million

Source: Joint Committee on Taxation.
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 298 GAO-01-447 Supporting Congressional Oversight

Related GAO Product Tax Administration: Status of Efforts to Curb Motor Fuel Tax Evasion 

(GAO/GGD-92-67, May 12, 1992).

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 299 GAO-01-447 Supporting Congressional Oversight

Improve Independent 

Contractor Tax 

Compliance 

The Internal Revenue Service (IRS) enforces tax laws and rules for 

classifying workers as employees or independent contractors through 

employment tax examinations. Through fiscal year 1995, 90 percent of 

these examinations had found misclassified workers. From October 1987 

through December 1991, the average IRS tax assessment relating to 

misclassified workers was $68,000. 

Establishing clear rules is difficult. Nevertheless, taxpayers need—and the 

government is obligated to provide—clear rules for classifying workers if 

businesses are to voluntarily comply. In addition, improved tax compliance 

could be gained by requiring businesses to (1) withhold taxes from 

payments to independent contractors and/or (2) file information returns 

with IRS on payments made to independent contractors constituted as 

corporations. Both approaches have proven to be effective in promoting 

individual tax compliance. 

During 1993, the Congress considered but rejected extending current 

information reporting requirements for unincorporated independent 

contractors to incorporated ones. Thus, independent contractors organized 

as either sole proprietors or corporations would have been on equal 

footing, and IRS would have had a less intrusive means of ensuring their 

tax compliance.

In recent years, various proposals on clarifying the definition of 

independent contractors and improving related information reporting 

emerged. Congressional hearings dealt with some of these bills. 

We believe that revenues from this option could possibly increase by 

billions of dollars. JCT agrees that the option has the potential for 

increased revenue but has not developed estimates of revenue gain.

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service 

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 300 GAO-01-447 Supporting Congressional Oversight

Related GAO Products Tax Administration: Estimates of the Tax Gap for Service Providers

(GAO/GGD-95-59, Dec. 28, 1994).

Tax Administration: Approaches for Improving Independent Contractor 

Compliance (GAO/GGD-92-108, July 23, 1992).

GAO Contact James R. White, (202) 512-9110
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 301 GAO-01-447 Supporting Congressional Oversight

Expand the Use of IRS’ 

TIN-Matching Program

The IRS and FMS have recently initiated a continuous tax levy program 

designed to identify and levy federal payments to taxpayers that owe 

federal taxes. The potential effectiveness of this program will be reduced 

because payment records submitted to FMS by federal agencies often have 

an inaccurate Taxpayer Identification Number (TIN) and/or name. 

Since 1997, IRS has had a TIN-matching program that federal agencies can 

use to verify the accuracy of TIN and name combinations furnished by 

federal payees that are necessary for issuing information returns. This 

program was intended to reduce the number of notices of incorrect TIN 

and name combinations issued for backup withholding by allowing 

agencies the opportunity to identify TIN and name discrepancies and to 

contact payees for corrected information before issuing an information 

return. Monthly, federal agencies may submit a batch of name and TIN 

combinations to IRS for verification. IRS matches each record submitted 

and informs the agency whether the TIN and name submitted matches its 

records. However, IRS cannot explicitly tell an agency what the correct 

TIN, name, or both TIN and name should be if the records do not match. To 

do so would violate tax disclosure laws. 

In an April 2000 report, we found that about 33 percent of vendor payment 

records submitted by federal agencies to FMS during one quarter in fiscal 

year 1999 had TINs and/or names that differed with the TINs and/or names 

in IRS’ accounts receivable records. As a result, vendor payment records 

totaling almost $20 billion were unsuitable for matching against IRS’ 

accounts receivable records and therefore would not be included in the 

joint FMS/IRS continuous tax levy program for the purpose of reducing 

federal tax delinquencies.

The Congress may wish to expand the use of IRS’ TIN-matching program 

for purposes other than information reporting to enable federal agencies to 

specifically verify the accuracy of vendor TINs and names. This would help 

Authorizing committees Finance (Senate)

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency
Appendix III

Opportunities to Improve the Efficiency of 

Federal Programs

Page 302 GAO-01-447 Supporting Congressional Oversight

to reduce the number of federal payment records that are unsuitable for 

matching against IRS’ accounts receivable records and to increase the 

number of federal tax delinquencies that could be collected through the 

continuous tax levy program. We estimate that resolving inconsistencies 

between the name payees use to receive federal payments and the names 

payees use on their federal tax returns could generate as much as 

$74 million annually. The table below reflects JCT’s estimated savings from 

this option for contracts entered into after December 31, 2001.

Five-Year Revenues

Related GAO Product Tax Administration: IRS’ Levy of Federal Payments Could Generate 

Millions of Dollars (GAO/GGD-00-65, April 7, 2000).

GAO Contact James R. White, (202) 512-9110

Dollars in billions

FY02 FY03 FY04 FY05 FY06

Revenue gain * * * * *

Note: JCT provided its revenue estimates in billions of dollars.

* - less than $50 million

Source: Joint Committee on Taxation.
Page 303 GAO-01-447 Supporting Congressional Oversight

Appendix IV

Options Listed by Budget Function ApendxiIV

050 National Defense Limit Commitment to Production of the F-22 Fighter Until Operational 

Testing is Complete (p. 16)

Reassess the Army’s Comanche Helicopter Program (p. 19)

Reassess the Army’s Crusader Program (p. 24)

Acquire Conventionally Powered Aircraft Carriers (p. 176)

Reorganize C-130 and KC-135 Reserve Squadrons (p. 172)

Eliminate or Retask Dedicated Continental Air Defense Units (p. 22)

Reduce the Number of Carrier Battle Group Expansions and Upgrades 

(p. 14)

Assign More Air Force Bombers to Reserve Components (p. 169)

Reassess the Need for the Selective Service System (p. 26)

Eliminate Unneeded Department of Navy Distribution Points (p. 174)

Improve the Administration of Defense Health Care (p. 179)

Consolidate Military Exchange Stores (p. 166)

Continue Defense Infrastructure Reform (p. 183)

Limit Funding for Procurement of Antiarmor Weapons (p. 188)

Reassess The Most Cost-Effective Ways For VA And DOD To Share Health 

Care Resources (p. 181)

150 International 

Affairs

Improve State Department Business Processes (p. 190)

Streamline U.S. Overseas Presence (p. 193)

Reduce the Risk Assumed by Export-Import Bank Programs (p. 86)

Eliminate U.S. Contributions to Administrative Costs in Rogue States 

(p. 28)

250 Science, Space, 

and Technology

Continue Oversight of the International Space Station and Related Support 

Systems (p. 30)

270 Energy Corporatize or Divest Selected Power Marketing Administrations (p. 32)

Recover Power Marketing Administrations’ Costs (p. 89)

Consolidate or Eliminate Department of Energy Facilities (p. 198)

Reduce Department of Energy’s Contractors’ Separation Benefits (p. 93)

Exempt Department of Energy’s Operating Contractors from Certain State 

Taxes (p. 95)

Increase Nuclear Waste Disposal Fees (p. 97)
Appendix IV

Options Listed by Budget Function

Page 304 GAO-01-447 Supporting Congressional Oversight

Monitor the Department of Energy’s Strategic Computing Initiative and 

Supercomputer Utilization (p. 36)

Rescind Clean Coal Technology Funds (p. 38)

Reduce the Costs of the Rural Utilities Service’s Electricity and 

Telecommunications Loan Programs (p. 196)

Recover Federal Investment in Successfully Commercialized Technology 

(p. 99)

300 Natural Resources 

and Environment

Pursue Cost-Effective Alternatives to NOAA’s Research/Survey Fleet 

(p. 208)

Reassess Federal Land Management Agencies Functions and Programs 

(p. 203)

Revise the Mining Law of 1872 (p. 101)

Coordinate Federal Policies for Subsidizing Water for Agriculture and Rural 

Uses (p. 103)

Increase Federal Revenues Through Water Transfers (p. 211)

Improve Oversight of Superfund Administrative Expenditures to Better 

Identify Opportunities for Cost Savings (p. 201)

Increase Flexibility in ATSDR’s Health Assessment Process To Better Meet 

EPA’s Needs in Evaluating Superfund Sites (p. 206)

Terminate Land-Exchange Programs (p. 40)

Defer Fish and Wildlife Service’s Acquisition of New Lands (p. 42)

Deny Additional Funding for Commercial Fisheries Buyback Programs 

(p. 44)

350 Agriculture Consolidate Common Administrative Functions at USDA (p. 215)

Further Consolidate Farm Service Agency County Offices (p. 217)

Strengthen Controls Over Crop Insurance Claims (p. 213)

Terminate or Significantly Reduce the Department of Agriculture’s Market 

Access Program (p. 46)

Lowering the Sugar Program’s Loan Rate To Processors (p. 106)

Revise the Marketing Assistance Loan Program to Better Reflect Market 

Conditions (p. 219)

370 Commerce and 

Housing Credit

Recapture Interest on Rural Housing Loans (p. 108)

Reduce FHA’s Insurance Coverage (p. 221)

Require Self-Financing of Mission Oversight by Fannie Mae and Freddie 

Mac (p. 110)
Appendix IV

Options Listed by Budget Function

Page 305 GAO-01-447 Supporting Congressional Oversight

Merging USDA and HUD Single-family Insured Lending Programs and 

Multifamily Portfolio Management Programs (p. 223)

Consolidate Homeless Assistance Programs (p. 225)

400 Transportation Restructure Amtrak to Reduce or Eliminate Subsidies (p. 51)

Close, Consolidate, or Privatize Some Coast Guard Operating and Training 

Facilities (p. 231)

Adequacy of Management Controls and Affordability of the Coast Guard 

Deepwater Project (p. 54)

Improve FAA Oversight and Enforcement to Ensure Proper Use of General 

Aviation Airport Land and Revenue (p. 233)

Apply Cost-Benefit Analysis to Replacement Plans for Airport Surveillance 

Radars (p. 229)

Eliminate Cargo Preference Laws to Reduce Federal Transportation Costs 

(p. 56)

Improve Department of Transportation’s Oversight of its University 

Research (p. 227)

Increase Aircraft Registration Fees to Enable the Federal Aviation 

Administration to Recover Actual Costs (p. 112)

Eliminate the Pulsed Fast Neutron Analysis Inspection System (p. 49)

Convert Coast Guard Support Officer Positions to Civilian Status (p. 235)

450 Community and 

Regional Development

Limit Eligibility for Federal Emergency Management Agency Public 

Assistance (p. 114)

Eliminate the Flood Insurance Subsidy on Properties That Suffer the 

Greatest Flood Loss (p. 116)

Eliminate Flood Insurance For Certain Repeatedly Flooded Properties 

(p. 118)

500 Education, 

Training, Employment, 

and Social Services

Consolidate Student Aid Programs (p. 237)

550 Health Create a Single Federal Agency to Administer a Unified Food Inspection 

System (p. 239)
Appendix IV

Options Listed by Budget Function

Page 306 GAO-01-447 Supporting Congressional Oversight

Charge Beneficiaries for Food Inspection Costs (p. 120)

Implement Risk-Based Meat and Poultry Inspections at USDA (p. 122)

Convert Public Health Service Commissioned Corps Officers to Civilian 

Status (p. 241)

Control Provider Enrollment Fraud in Medicaid (p. 243)

Prevent States from Using Illusory Approaches to Shift Medicaid Program

Costs to the Federal Government (p. 124)

Improve Fairness of Medicaid Matching Formula (p. 58)

570 Medicare Design New Payment System so that Medicare Does Not Overpay for Home 

Health Care (p. 127)

Modify the New Skilled Nursing Facility Payment Method to Ensure 

Appropriate Payments (p. 256)

Adjust Medicare Payment Allowances to Reflect Changing Technology, 

Costs, and Market Prices (p. 245)

Increase Medicare Program Safeguard Funding (p. 249)

Continue to Reduce Excess Payments to Medicare+Choice Health Plans 

(p. 253)

Reassess Medicare Incentive Payments in Health Care Shortage Areas 

(p. 60)

Implementing Risk-sharing in Conjunction with Medicare Home Health 

Agency Prospective Payment System (p. 258)

600 Income Security Simplify SSI Recipient Living Arrangements (p. 262)

Improve Social Security Benefit Payment Controls (p. 260)

Implement a Service Fee for Successful Non-Temporary Assistance for 

Needy Families (TANF) Child Support Enforcement Collections (p. 131)

Develop Comprehensive Return-to-Work Strategies for People With 

Disabilities (p. 63)

Improve Reporting of DOD Reserve Payroll Data to State Unemployment 

Insurance Programs (p. 133)

Reduce Federal Funding Participation Rate for Automated Child Support 

Enforcement Systems (p. 264)

Share the Savings From Bond Refundings (p. 129)

Revise Benefit Payments Under the Federal Employees’ Compensation Act 

(p. 66)

Increase Congressional Oversight of PBGC’s Budget (p. 73)
Appendix IV

Options Listed by Budget Function

Page 307 GAO-01-447 Supporting Congressional Oversight

Obtaining and Sharing Information on Medical Providers and Middlemen 

May Reduce Improper Payments to Supplemental Security Income 

Recipients (p. 266)

700 Veterans Benefits 

and Services

Revise VA’s Disability Ratings Schedule to Better Reflect Veterans’ 

Economic Losses (p. 75)

Discontinue Veterans’ Disability Compensation for Nonservice Connected 

Diseases (p. 136)

Increase Cost Sharing for Veterans’ Long-Term Care (p. 138)

Reassess Unneeded Health Care Assets within the Department of Veterans 

Affairs (p. 268)

Limit Enrollment in Veterans Affairs Health Care System (p. 140)

Reducing VA Inpatient Food and Laundry Service Costs (p. 271)

750 Administration of 

Justice

Consolidate Asset Forfeiture Programs at the Departments of Justice and 

Treasury (p. 273)

800 General 

Government, 900 Net 

Interest, and 999 

Multiple

Eliminate Pay Increases After Separation in Calculating Lump-Sum Annual 

Leave Payments (p. 277)

Replace the 1-Dollar Note with a 1-Dollar Coin (p. 275)

Recognize Up-front the Costs of Long-Term Space Acquisitions (p. 281)

Increase Fee Revenue from Federal Reserve Operations (p. 279)

Repeal the Davis-Bacon Act (p. 77)

Target Funding Reductions in Formula Grant Programs (p. 144)

Adjust Federal Grant Matching Requirements (p. 149)

Prevent Delinquent Taxpayers from Benefiting from Federal Programs 

(p. 142)

Improper Benefit Payments Could be Avoided or More Quickly Detected if 

Data from Various Programs Were Shared (p. 284)

Receipts Increase Collection of Returns Filed by U.S. Citizens Living Abroad (p. 289)

Increase the Use of Electronic Funds Transfer for Installment Tax 

Payments (p. 295)

Limit the Tax Exemption for Employer-Paid Health Insurance (p. 152)

Tax Interest Earned on Life Insurance Policies and Deferred Annuities 

(p. 80)
Appendix IV

Options Listed by Budget Function

Page 308 GAO-01-447 Supporting Congressional Oversight

Require Corporate Tax Document Matching (p. 286)

Improve Independent Contractor Tax Compliance (p. 299)

Further Limit the Deductibility of Home Equity Loan Interest (p. 82)

Improve Administration of the Tax Deduction for Real Estate Taxes 

(p. 287)

Repeal the Partial Exemption for Alcohol Fuels from Excise Taxes on 

Motor Fuels (p. 154)

Reduce Gasoline Excise Tax Evasion (p. 297)

Index Excise Tax Bases for Inflation (p. 156)

Increase the Use of Seizure Authority to Collect Delinquent Taxes (p. 291)

Increase Collection of Self-employment Taxes (p. 293)

Increase Highway User Fees on Heavy Trucks (p. 158)

Impose Pollution Fees and Taxes (p. 160)

Expand the Use of IRS’ TIN-Matching Program (p. 301)
Page 309 GAO-01-447 Supporting Congressional Oversight

Appendix V

Explanation of Conventions Used to Estimate 

Savings and Revenue Gains ApendxiV

CBO and JCT provided cost estimates for many of our options. As in our 

April 1999 report, a brief explanation is included with the option if specific 

estimates could not be provided. Where estimates are provided, the 

following conventions were followed.1

• For revenue estimates, the increase in collections reflects what would 

occur, over and above amounts due under current law, if the option were 

enacted.

• For direct spending programs, estimated savings show the difference 

between what the program would cost under the CBO baseline, which 

assumes continuation of current law, and what it would cost after the 

suggested modification.

• For discretionary spending programs the estimates show savings 

compared to the fiscal year 2001 appropriations adjusted for inflation. 

Savings for most defense options are estimated relative to DOD’s 

planned program levels.

Specific assumptions made in estimating individual options are noted in the 

option narratives in appendix III. 

Subsequent savings and revenue estimates provided by CBO and JCT may 

not match exactly those contained in this report. Differences in details of 

specific proposals, changes in assumptions which underlie the analyses, 

and updated baselines can all lead to significant differences in estimates. 

Also, a few of our options—involving the sale of real estate and other 

government-owned property—constitute asset sales. Under the Balanced 

Budget and Emergency Deficit Control Act of 1985, as amended, proceeds 

from an asset sale may be counted only if the sale entails no net financial 

cost to the government. We have included those options that constitute 

asset sales whether or not they meet that test.

Finally, some of the options could not be scored by CBO or JCT. Several of 

these involve management improvements that we believe can contribute to 

reduced spending or increased revenues but whose effects are too 

uncertain to be estimated. A few options are not estimated because they 

concern future choices about spending that is not currently in the baseline 

used to calculate annual spending and revenue. In other cases, savings are 

likely to come in years beyond the 10-year estimation period that CBO uses.

1

For a complete discussion of the uses and caveats of the CBO estimates, see CBO’s report, 

Budget Options (March 2000).
Page 310 GAO-01-447 Supporting Congressional Oversight

Appendix VI

Options Not Updated for This Report ApendxiVI

The following table provides information on options presented in earlier 

versions of this series that are not included in this product. Sixteen options 

from our last report are not included in this report because (1) the option 

was fully or substantially acted upon by the Congress or the cognizant 

agency, (2) the option was no longer appropriate due to environmental 

changes or the aging of our work, or (3) the Congress or the cognizant 

agency chose a different approach to address the issues discussed in the 

option. We will continue to monitor many of these options to assess 

whether underlying issues are ultimately resolved based on the actions 

taken. It is possible that some of the issues discussed below may appear in 

subsequent editions of this series.

Option (budget function) Comments

Reassess Defense’s Guided Weapons 

Program (050)

This option was replaced by the option to limit funding for antiarmor weapons.

Eliminate Excess Force Structure in the Army 

National Guard’s Combat Forces (050)

Two Army National Guard combat divisions are scheduled to convert to combat support 

divisions to meet shortages. 

Rightsize DOD’s Health System for Active 

Duty Care (050)

The fiscal year 2001 Defense Authorization Act permits military retirees to access DOD 

funded health care at military hospitals or from private sources. 

Require Copayments for Care in Military 

Treatment Facilities (050)

The National Defense Authorization Act for fiscal year 2001 directed that no copayment 

shall be charged for care provided under TRICARE Prime to a dependent of a member of 

the uniformed services. The Secretary of Defense was also directed to refrain from using 

copayments for Medicare eligible beneficiaries who take advantage of extended 

TRICARE/CHAMPUS eligibility. 

Close the Uniformed Services University of 

the Health Sciences (050)

Recent changes to the program suggest that a reassessment of the assumptions 

underlying this option would require extensive data gathering and analysis.

Reduce Hanford Tank Waste Cleanup Costs 

(270)

The Department of Energy has terminated its strategy for a fixed unit price contract to 

treat Hanford tank wastes because of dramatic growth in the contractor’s estimate. DOE 

now is planning a cost-plus-incentive-fee contract and to finance the project using 

appropriated funds.

Implement Market-Based Incentives for Use of 

Federal Lands and Natural Resources (300)

The four major land management agencies have been given authority to implement 

market-based incentives in many areas covered by this option. For example, land 

management agencies now participate in fee demonstration projects. Where marketbased incentives have not been developed we have retained specific options, for 

example options on Water Transfers and the Mining Law of 1872. 

Reduce Federal Outlays for Natural 

Resources Revenue Sharing (300)

The Secure Rural Schools and Community Self-Determination Act of 2000 established a 

guaranteed fixed payment system to states and counties for the sale or use of natural 

resources on federal lands.

Improve Hazardous Waste Cleanup Cost 

Recovery (300)

EPA has adopted a new methodology for calculating its indirect cost rate, and has begun 

using these rates in its cost recovery negotiations for Superfund sites.

Identify and Recover Excess Funds in 

Superfund Contracts (300)

EPA has taken actions to identify and recover unspent excess funds in Superfund 

contracts. 
Appendix VI

Options Not Updated for This Report

Page 311 GAO-01-447 Supporting Congressional Oversight

Better Control Spending for Superfund 

Cleanup Contractors (300)

EPA has reduced the number of contracts it has in place and has made a concerted 

effort to ensure that support costs in all new Superfund contracts represent no more than 

11 percent of the total contract price. 

Evaluate the Reasonableness of Medicare 

Payments for New Technology Procedures 

(570)

This option has been combined with the option to adjust Medicare payment allowances 

to reflect changing technology, costs, and market prices.

Reduce Department of Veterans Affairs 

Outpatient Pharmacy Costs (700)

The Veterans Millennium Health Care and Benefits Act authorized VA to increase the 

medication copayment amount. 

Develop Criteria for Determining When Weed 

and Seed Sites are Self-Sustaining (750)

The Executive Office of Weed and Seed has made significant progress toward 

determining when weed and seed sites are becoming self-sustaining.

Complete Criminal Alien Deportation 

Proceedings to Avoid Unneeded Detention 

Costs (750)

INS has developed a workload analysis model to help them better manage their hearing 

caseload for the Institutional Hearing Program. 

Open the Government Printing Office to 

Competition (800)

We will reconsider this option in light of recent technological advances by GPO that 

require a reassessment of GPO’s competitiveness to private sector printing operations.

(Continued From Previous Page)

Option (budget function) Comments
Page 312 GAO-01-447 Supporting Congressional Oversight

Appendix VII

GAO Contacts and Staff Acknowledgments ApendxiVI

GAO Contacts Hundreds of people throughout GAO were responsible for either preparing 

the options included in this product or producing the reports and 

testimonies that form the basis for the options. At the end of each option, a 

key contact name is provided to address questions pertaining to the 

specific option.

Staff 

Acknowledgments 

Michael J. Curro, Assistant Director; Bryon Gordon, Senior Analyst; and 

Carole Buncher, Senior Analyst, prepared this report. Questions may be 

directed to these staff in the Strategic Issues Team, at (202) 512-9573.

(935368) Letr
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