United States General Accounting Office

GAO Report to the Congress

March 1995 ADDRESSING THE

DEFICIT

Budgetary Implications

of Selected GAO Work

for Fiscal Year 1996

GAO/OCG-95-2

GAO United States

General Accounting Office

Washington, D.C. 20548

Comptroller General

of the United States

B-259261 

March 15, 1995

To the President of the Senate and

the Speaker of the House of Representatives

In previous reports,1

 we have stressed to the Congress and the public the

urgent need for deficit reduction. This report is part of our continuing

effort to help the Congress identify options that could be used to reduce

the deficit. This year’s report follows work we began last year in

Addressing the Deficit: Budgetary Implications of Selected GAO Work

(GAO/OCG-94-3, March 11, 1994). This report, like its predecessor,

systematically identifies in a single document the budgetary implications

of selected policy changes and program reforms discussed in our work but

not yet implemented or enacted. Of the 120 options presented in this

report, 52 are updated and 68 are new. Most, if not all, of the options have

already been provided to interested congressional staff.

Narrative descriptions are presented in appendix III of this report

organized by budget function and receipts. Some of these options reflect

our recommendations; most do not, but rather represent one way to

address, in a budgetary context, some of the significant problems

identified in our evaluations of federal policies and programs. Inclusion of

a specific option in this report does not mean that we endorse it as the

only or most feasible approach or that other spending reductions or

revenue increases are not also appropriate for consideration by the

Congress.

We have also provided the analytical framework that we developed last

year to provide a structure for congressional consideration of individual

options in this report. The framework, presented in appendix II, is

organized around three broad themes:

• reassess objectives, that is, reconsider whether to terminate or revise

services and programs provided;

• redefine beneficiaries, that is, reconsider a program’s intended audience;

and

• improve efficiency, that is, reconsider how a program or service is

provided.

1

Budget Policy: Prompt Action Necessary to Avert Long-term Damage to the Economy

(GAO/OCG-92-2, June 5, 1992) and The Budget Deficit: Outlook, Implications, and Choices

(GAO/OCG-90-5, September 12, 1990).

Page 1 GAO/OCG-95-2 Addressing the Deficit
B-259261 

This framework provides one set of criteria that may be used to assess

goals, scope, and approaches for delivering federal programs.

To determine budgetary effects, each spending option was discussed with

the Congressional Budget Office (CBO), and each revenue option was

discussed with the Joint Committee on Taxation (JCT). Where possible,

estimates of budgetary savings or revenue gains were developed by CBO

and JCT. Where estimates are not provided, a brief explanation and

discussion is included with the option. A further discussion of the savings

estimates is included in appendix I.

Under the Budget Enforcement Act (BEA), as amended, the spending and

revenue options included in this report could be used either to reduce the

deficit or to provide funds for other programs. Under the pay-as-you-go

(PAYGO) rules of BEA, savings from direct spending programs (entitlement

and mandatory programs) or revenue options would reduce the deficit

unless these savings were used to offset either program expansions or tax

cuts. For discretionary spending programs, savings from changes would

contribute to additional deficit reduction only if BEA caps on discretionary

spending were lowered; otherwise, the savings would be available for use

in other discretionary programs.

Although we derived the options in this report from our existing body of

work, there are similarities, not surprisingly, with other deficit reduction

proposals. For example, some options contained in this report were

included in the President’s February 1995 budget submission, Budget of

the United States Government, Fiscal Year 1996; the February 1995 CBO

report, Reducing the Deficit: Spending and Revenue Options; and the

March 1994 Republican Budget Initiative For Fiscal Year 1995.

We are sending copies of this report to appropriate congressional

committees and other interested parties. Copies will be made available to

others upon request.

Page 2 GAO/OCG-95-2 Addressing the Deficit
B-259261 

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

for Budget Issues, who may be reached at (202) 512-9573. Specific

questions about individual options included in the appendixes may be

directed to the GAO Contact listed with each option. Major contributors to

this report are listed in appendix IV.

Charles A. Bowsher

Comptroller General

of the United States

Page 3 GAO/OCG-95-2 Addressing the Deficit
Contents

Letter 1

Appendix I 

The Structure and

Content of This

Report

12

Appendix II 

A Framework for

Deficit Reduction

14

Appendix III 

Options for Deficit

Reduction

18

050 National Defense 24

Hunter Joint Tactical Unmanned Aerial Vehicle System 25

Reduce Army Inventories of Spare and Repair Parts at Divisions 27

Improved Material Management Can Reduce Shipyard Costs 29

Reduce Army’s Unfilled War Reserve Requirements by Using

Other Inventory Items

31

Defense Infrastructure 33

Potential Reductions to the Fiscal Year 1996 Defense Operation

and Maintenance Budget

35

Alter Readiness Status of Some Ready Reserve Force Ships 37

Upgrades to Navy F-14 Fighter Aircraft May Not Be Needed 39

Options to Acquire Fewer Attack Submarines 41

Continental Air Defense 43

Carrier Battle Group Expansions and Upgrades 45

Army’s Comanche Helicopter 47

F-22 Fighter 49

C-17 Aircraft 51

MK-48 Advanced Capability Torpedo Propulsion System 54

Reassess Defense Conversion Spending 56

Improve Controls Over Payments to Defense Contractors 58

Defense Inventories 60

Use Prime Vendors to Supply High-Volume Clothing and Textile

Items

62

Restructure Defense Transportation 63

Reduce Excess Capacity and Increase Cost-Effectiveness of

Depot Maintenance Program

65

Page 4 GAO/OCG-95-2 Addressing the Deficit
Contents

Use of Innovative Commercial Practices to Supply Electronics

Items to Maintenance and Repair Facilities

67

Consolidate the Separate Military Exchange Stores 69

Copayments for Care in Military Hospitals 70

Administering Defense Health Care 72

Centralize Department of Energy’s Procurement of Laboratory

Testing Services

74

Improve Department of Energy’s Property Management Controls 76

Restructure Department of Energy’s National Laboratories 78

Negotiate More Realistic Environmental Agreeements 80

Improve Hanford Site Management 82

Burdensharing in the Republic of Korea 84

150 International Affairs 86

Food Aid: Reduce or Eliminate Funding for Public Law 480 Title I

Program

87

U.S. Contribution to the International Fund for Agricultural

Development

89

Shortwave Radio Modernization Program 91

TV Marti 93

Sell High-Value Property in Tokyo 95

250 General Science, Space, and Technology 97

Space Station 98

270 Energy 100

Recover Clean Coal Technology Funds 101

Delay Procurement of Nuclear Waste Containers 103

Privatize Uranium Enrichment Program 105

Enhance Profitability of Naval Petroleum Reserve-1 107

Consolidate Strategic Petroleum Reserve 109

300 Natural Resources and Environment 111

Federal Land Policies 112

Collaborative Federal Land Management Approach 115

Federal Timber Sales 117

Conservation Reserve Program Contracts 119

Charge Fair Market Value for Natural Resources 122

Communication Site Fees 123

Recreation Fees at Federal Sites 124

Hardrock Mining Royalties 126

Natural Resources Revenue Sharing 128

Changing How Federal Needs for Helium Are Met 130

Federal Water Policies 133

Water Transfers 136

Page 5 GAO/OCG-95-2 Addressing the Deficit
Contents

Pollution Fees and Taxes 137

Hazardous Waste Cleanup Cost Recovery 139

Nuclear Waste Disposal Fees 141

350 Agriculture 142

U.S. Department of Agriculture Dairy Price Support Program 143

Milk Marketing Orders 145

U.S. Department of Agriculture Crop Price Supports 147

Farm Lands Eligible for Deficiency Payments 149

Rice Program 151

Peanut Program 153

Reduce or Eliminate Funding for the Market Promotion Program 155

Reduce Funding for the Export Credit Guarantee Programs 157

370 Commerce and Housing Credit 159

National Oceanic Atmospheric Administration Research Fleet

Modernization

160

Centralize Servicing for Rural Housing and Community

Development Service’s Single-Family Housing Loans

161

Opportunities to Reduce the Cost of the 2000 Decennial Census 163

400 Transportation 166

Eliminate or Transfer Interstate Commerce Commission

Functions

167

Cargo Preference Laws: Their Costs and Effects 169

Increase Federal Fees Paid by Foreign-Flagged Cruise Ships 171

Increase State Share of State-Supported Intercity Rail Passenger

Service

173

Reduce or Eliminate Amtrak Subsidies 175

Targeting Military Airport Program Funds Within the National

Airport System

178

Enhance Department of Transportation’s Oversight of Its

University Research

180

450 Community and Regional Development 182

Reappraise Rural Development Programs 183

500 Education, Training, Employment, and Social Services 185

Employment and Training Programs 186

550 Health 190

Overall Strategy to Address Prescription Drug Fraud and

Medicaid Fraud

191

Medicaid: States Use Illusory Approaches to Shift Program Costs

to the Federal Government

193

Medicaid Formula: Fairness Could Be Improved 195

Adopt Automated Drug Utilization Reviews 197

Page 6 GAO/OCG-95-2 Addressing the Deficit
Contents

570 Medicare 199

Teaching Hospitals’ Medicare Payments 200

Medicare Payment Safeguards 202

Medicare Payments for High Technology Procedures 204

Change the Health Maintenance Organization Rate-Setting

Method for Medicare

205

600 Income Security 207

Fees for Non-Aid to Families With Dependent Children Child

Support Enforcement Services

208

Automated Child Support Enforcement Systems 210

Funding for State Automated Welfare Systems 212

Unified Risk-Based Food Safety System 214

Consolidation of U.S. Department of Agriculture Food Assistance

Programs

216

650 Social Security 218

Social Security Continuing Disability Reviews 219

700 Veterans Benefits and Services 221

Cost Sharing for Veterans’ Long-Term Care 222

Consruction of Veterans’ Medical Care Facilities 224

Veterans’ Disability Compensation for Non-Service Connected

Diseases

226

750 Administration of Justice 227

Justice’s Use of Private Counsel to Collect Civil Debt 228

800 General Government 230

General Services Administration Supply Depot System 231

The 1-Dollar Coin 233

Judiciary’s Long-Range Space Planning System 235

Multiple 237

Premium Payments to Employees While on Leave 238

Global Positioning System Technology 239

Reform or Repeal the Davis-Bacon Act 241

Better Manage Department of Energy Overtime Costs 243

Eliminate Prefinancing Funds for Department of Energy

Contractors

245

Use Uncosted Obligations to Offset Future Budget Needs 247

Federal Agency Credit Management Programs 249

Formula-Based Grant Programs 251

Receipts 254

Tax Treatment of Health Insurance Premiums 255

Information Reporting on Forgiven Debts 257

Administration of the Tax Deduction for Real Estate Taxes 259

Page 7 GAO/OCG-95-2 Addressing the Deficit
Contents

Corporate Tax Document Matching 261

Tax Treatment of Interest Earned on Life Insurance Policies and

Deferred Annuities

262

Federal Agency Reporting to the Internal Revenue Service 264

Independent Contractor Tax Compliance 265

Deductibility of Home Equity Loan Interest 267

Internal Revenue Service Staff Utilization 269

Collecting Gasoline Excise Taxes 271

Computing Excise Tax Bases 272

Small-Issue Industrial Development Bonds and Qualified

Mortgage Bonds

273

Improving Compliance of Sole Proprietors 275

Increase Highway User Fees on Heavy Trucks 277

Appendix IV 

Major Contributors to

This Report

279

Accounting and Information Management Division, Washington,

D.C.

279

Abbreviations

ADCAP advanced capability

AFDC Aid to Families with Dependent Children

AIP Airport Improvement Program

AOC Administrative Office of the U.S. Courts

BBS broad-based, sustainable

BEA Budget Enforcement Act

BLM Bureau of Land Management

BRAC base realignment and closure

CBO Congressional Budget Office

CERCLA Comprehensive Environmental Response,

 Compensation and Liability Act

CRP Conservation Reserve Program

CSFP Commodity Supplemental Food Program

CVP Central Valley Project

DFAS Defense Finance and Accounting Service

DGPS differential global positioning system

DLA Defense Logistics Agency

DOD Department of Defense

DOE Department of Energy

DOT Department of Transportation

DUR drug utilization review

EDWAA economic dislocation and worker adjustment

 assistance

Page 8 GAO/OCG-95-2 Addressing the Deficit
Contents

EM Environmental Restoration and Waste Management

EPA Environmental Protection Agency

FAA Federal Aviation Administration

FAS Foreign Agricultural Service

FDIC Federal Deposit Insurance Corporation

FHWA Federal Highway Administration

FmHA Farmers Home Administration

FWS Fish and Wildlife Services

FY fiscal year

GAO General Accounting Office

GSA General Services Administration

HACCP Hazard Analysis and Critical Point Control System

HCFA Health Care Financing Administration

HHS Department of Health and Human Services

HMO health maintenance organization

HUD Department of Housing and Urban Development

ICC Interstate Commerce Commission

IDB industrial development bond

IFAD International Fund for Agricultural Development

INS Immigration and Naturalization Service

IRS Internal Revenue Service

JAST Joint Advanced Strike Technology

JCT Joint Committee on Taxation

JTPA Job Training Partnership Act

MAP Military Airport Program

MPP Market Promotion Program

MWR morale, welfare, and recreation

NASA National Aeronautics and Space Administration

NDAA non-development airlift aircraft

NOAA National Oceanic and Atmospheric Administration

NORAD North American Aerospace Defense Command

NPR-1 Naval Petroleum Reserve-1

OCSE Office of Child Support Enforcement

OMB Office of Management and Budget

O&M operation and maintenance

OPEC Organization of Petroleum Exporting Countries

PAYGO pay-as-you-go

PPS Prospective Payment System

QMB qualified mortgage bond

RFE/RL Radio Free Europe/Radio Liberty

RHCDS Rural Housing and Community Development Service

Page 9 GAO/OCG-95-2 Addressing the Deficit
Contents

RTC Resolution Trust Corporation

SINC service industry noncompliance initiative

SKFB soup kitchens/food banks

SPR Strategic Petroleum Reserve

SSA Social Security Administration

SSN nuclear-powered attack submarine

TEFAP The Emergency Food Assistance Program

TCMP Taxpayer Compliance Management Program

TPU Torpedo Propulsion Unit

USAO U.S. Attorney Office

USDA U.S. Department of Agriculture

USIA United States Information Agency

USTRANSCOM U.S. Transportation Command

UAV unmanned aerial vehicle

VA Department of Veterans Affairs

VOA Voice of America

Page 10 GAO/OCG-95-2 Addressing the Deficit
Page 11 GAO/OCG-95-2 Addressing the Deficit
Appendix I 

The Structure and Content of This Report

The options included in this report cover a wide range of federal policies

and programs, reflecting the breadth of GAO’s work responsibilities. To aid

in using this report, each option is presented in a standard format in

appendix III. The options are presented by budget function; options

covering multiple functions appear separately, as do options involving

receipts. Cognizant congressional committees and subcommittees and the

responsible executive department or agency are indicated for each option.

The applicable theme from the framework is also identified. For spending

options, we also indicate the affected budget account and subfunction and

whether the spending is discretionary or direct.

Each option is described in a brief narrative. Although these descriptions

are intended to synopsize the key issues and problems developed in our

audits and evaluations, readers are encouraged to refer to the related GAO

products, listed at the end of each option, for a complete discussion.

Lastly, as noted in our letter, to determine savings and revenue estimates,

each option was discussed with the CBO and JCT. If specific estimates could

not be provided, a brief discussion is included with the option. Where

estimates are provided, the following conventions were followed.1

• For revenue estimates, the increase in collections reflects that which

would occur, over and above that 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 nondefense discretionary spending programs, two estimates are

provided. One estimate is of savings compared to the actual fiscal year

1995 appropriations increased for projected inflation. A second estimate is

of savings compared to fiscal year 1995 appropriations in nominal terms

(held constant for the next 4 years).

• For defense discretionary spending programs, estimates are of savings

compared to the President’s 1995 fiscal year Defense Plan that CBO uses for

its defense discretionary estimates. CBO uses this plan because it provides

the programmatic detail necessary to estimate the effects of changes in

force structures and weapons systems.

1

For a complete discussion of the uses and caveats of the CBO estimates, see CBO’s February 1995

report, Reducing the Deficit: Spending and Revenue Options.

Page 12 GAO/OCG-95-2 Addressing the Deficit
Appendix I 

The Structure and Content of This Report

Subsequent savings and revenue estimates provided by CBO and JCT may

not match exactly those contained in this report. Differences in the 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 sales of real estate and other

government-owned property—constitute asset sales. Under BEA, proceeds

from the sale of federal government physical or financial assets cannot be

counted as deficit reduction. However, both the President and some

Members of the Congress have proposed asset sales to reduce the deficit.

The President has proposed changing the scoring rules for asset sales for

those sales that meet certain standards. Given this context, in order to

provide policymakers the fullest possible picture of the budgetary

implications of our work, we have included those options which constitute

asset sales. They are clearly identified as such.

Finally, some of the options could not be estimated by CBO or JCT under

current scorekeeping conventions. Several of these involve management

improvements that we believe can contribute to solving the deficit

problem, but where the effects are too indirect for estimation purposes. A

few options are not estimated because they concern future choices about

spending that is not currently in the baseline. In other cases, savings are

likely to come in years beyond the 5-year estimation period that CBO uses.

Page 13 GAO/OCG-95-2 Addressing the Deficit
Appendix II 

A Framework for Deficit Reduction

The history of deficit reduction efforts suggests that basing decisions on

explicit policy rationales, rather than considering separate

program-by-program assessments, may improve chances for success. A

consistent and systematic framework can be an effective means to

formulate and package broad-based deficit reduction proposals.

Additionally, this kind of approach can be used regardless of any other

budgetary control mechanism (for example, discretionary spending limits

or sequestration procedures) or any given level of desired deficit

reduction.

GAO’s deficit reduction framework consists of three broad themes: reassess

objectives, redefine beneficiaries, and improve efficiency and accuracy.

These three fundamental strategies are based on an implicit set of decision

rules that encourage decisionmakers to think systematically, within an

ever-changing environment, about

• what services the government provides or should continue to provide,

• for whom these services are or should be provided, and

• how services are or should be provided.

By using a policy-oriented framework such as this, choices can be made

more clearly and the results become more defensible.

Reassess Objectives The first theme within our deficit reduction framework focuses on the

objectives for federal programs or services. Our premise is that

periodically reconsidering a program’s original purpose, the conditions

under which it continues to operate, and its cost-effectiveness, is

appropriate. Our work suggests three decision rules which 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 such that 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 Davis-Bacon Act requires that workers on federally

assisted construction projects be paid wages at or above levels determined

Page 14 GAO/OCG-95-2 Addressing the Deficit
Appendix II 

A Framework for Deficit Reduction

to be prevailing in the area. Weighing this objective against opportunities

to reduce federal construction costs and increase work opportunities for

less skilled workers, the Congress could consider GAO’s option to reduce

the scope or repeal Davis-Bacon.

Another example involves reassessing rice program objectives. If the

Congress wanted to reduce high government costs and increase the U.S.

share of the world rice market, it could consider GAO’s option to move rice

producers towards greater market orientation.

Redefine Beneficiaries The second theme within our deficit reduction 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

which 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 at individuals, groups, or industries that directly

benefit from federal programs. Also, existing charges can be increased so

that a greater portion of a program’s cost is shared by the direct

beneficiaries.

• 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 GAO’s option on formula grants.

Page 15 GAO/OCG-95-2 Addressing the Deficit
Appendix II 

A Framework for Deficit Reduction

Another example is the Market Promotion Program (MPP), an export

promotion program that subsidizes overseas promotional activities for

U.S. agricultural products. Given the possibility that federal funds may be

replacing industry funds instead of supporting additional promotional

activities, GAO provides an option to reduce spending and restrict

remaining federal funds to small, generic, new-to-export companies.

Improve Efficiency The third theme within our deficit reduction 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 five decision rules which

illustrate this strategy.

• Reorganizing 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.

• 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 Energy (DOE) and the

Environmental Protection Agency (EPA) both procure commonly used

analyses of toxic and radioactive contaminants in conjunction with their

responsibilities for large environmental cleanup efforts. EPA spends less on

these activities because, unlike DOE, EPA uses a centralized procurement

system. GAO’s option offers a way to reduce future costs by adapting DOE

procurement to EPA’s more efficient processes.

Also in keeping with the efficiency theme, GAO has identified a total of 163

federal programs and funding streams providing employment and training

assistance. These programs are spread across 15 departments and

independent agencies with a total budget of about $20 billion. Many of the

programs have similar goals and provide the same services to similar

populations using separate, parallel delivery structures. Consolidating

Page 16 GAO/OCG-95-2 Addressing the Deficit
Appendix II 

A Framework for Deficit Reduction

these programs where it is appropriate can reduce administrative costs.

GAO’s option illustrates how opportunities to improve efficiency and

flexibility in employment and training programs can provide a basis for

reducing program funding.

Page 17 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Appendix III is divided into two sections. First, table III.1 is a summary

listing of the options organized by budget function and receipts. Following

the table, the presentation of individual options begins. This is organized

by function beginning with 050-national defense. For each option, when

relevant, we provide information about authorizing committee,

appropriations subcommittee, primary agency, budget account, spending

type, budget subfunction, and framework theme. We then provide a

summary and description of budgetary implications.

Table III.1: Summary of Options for Deficit Reduction

Option title Budget function BEA category

Framework

theme Status

Hunter joint tactical Unmanned Aerial Vehicle

system

050-National defense Discretionary Reassess

objectives

New

Reduce Army inventories of spare and repair parts

at divisions

050-National defense Discretionary Improve

efficiency

New

Improved material management can reduce

shipyard costs

050-National defense Discretionary Improve

efficiency

New

Reduce Army’s unfilled war reserve requirements

by using other inventory items

050-National defense Discretionary Improve

efficiency

New

Defense infrastructure 050-National defense Discretionary Improve

efficiency

Updated

Potential reductions to the fiscal year 1996 defense

operation and maintenance budget

050-National defense Discretionary Improve

efficiency

New

Alter readiness status of some ready reserve force

ships

050-National defense Discretionary Reassess

objectives

New

Upgrades to Navy F-14 fighter aircraft may not be

needed

050-National defense Discretionary Reassess

objectives

New

Options to acquire fewer attack submarines 050-National defense Discretionary Reassess

objectives

New

Continental air defense 050-National defense Discretionary Improve

efficiency

New

Carrier battle group expansions and upgrades 050-National defense Discretionary Improve

efficiency

New

Army’s Comanche helicopter 050-National defense Discretionary Reassess

objectives

Updated

F-22 fighter 050-National defense Discretionary Reassess

objectives

Updated

C-17 aircraft 050-National defense Discretionary Reassess

objectives

Updated

MK-48 advanced capability torpedo propulsion

system

050-National defense Discretionary Reassess

objectives

Updated

Reassess defense conversion spending 050-National defense Discretionary Reassess

objectives

New

(continued)

Page 18 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option title Budget function BEA category

Framework

theme Status

Improve controls over payments to defense

contractors

050-National defense Discretionary Improve

efficiency

New

Defense inventories 050-National defense Discretionary Improve

efficiency

Updated

Use prime vendors to supply high-volume clothing

and textile items

050-National defense Discretionary Improve

efficiency

New

Restructure defense transportation 050-National defense Discretionary Improve

efficiency

New

Reduce excess capacity and increase costeffectiveness of depot maintenance program050-National defense Discretionary Improve

efficiency

New

Use of innovative commercial practices to supply

electronics items to maintenance and repair facilities

050-National defense Discretionary Improve

efficiency

New

Consolidate the separate military exchange stores 050-National defense Discretionary Improve

efficiency

New

Copayments for care in military hospitals 050-National defense Discretionary Redefine

beneficiaries

Updated

Administering defense health care 050-National defense Discretionary Improve

efficiency

Updated

Centralize Department of Energy’s procurement of

laboratory testing services

050-National defense Discretionary Improve

efficiency

New

Improve Department of Energy’s property

management controls

050-National defense Discretionary Improve

efficiency

New

Restructure Department of Energy’s national

laboratories

050-National defense Discretionary Reassess

objectives

New

Negotiate more realistic environmental agreements 050-National defense Discretionary Reassess

objectives

New

Improve Hanford site management 050-National defense Discretionary Improve

efficiency

New

Burdensharing in the Republic of Korea 050-National defense Discretionary Improve

efficiency

Updated

Food aid: reduce or eliminate funding for Public

Law 480 Title I Program

150-International affairs Discretionary/

direct

Reassess

objectives

New

U.S. contribution to the International Fund for

Agricultural Development

150-International affairs Discretionary Reassess

objectives

New

Shortwave radio modernization program 150-International affairs Discretionary Reassess

objectives

New

TV Marti 150-International affairs Discretionary Reassess

objectives

Updated

Sell high-value property in Tokyo 150-International affairs Discretionary Reassess

objectives

New

Space Station 250-General science,

space, and technology

Discretionary Reassess

objectives

Updated

Recover clean coal technology funds 270-Energy Discretionary Reassess

objectives

New

(continued)

Page 19 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option title Budget function BEA category

Framework

theme Status

Delay procurement of nuclear waste containers 270-Energy Discretionary Reassess

objectives

New

Privatize uranium enrichment program 270-Energy Direct Reassess

objectives

New

Enhance profitability of Naval Petroleum Reserve-1 270-Energy Discretionary Improve

efficiency

New

Consolidate Strategic Petroleum Reserve 270-Energy Discretionary Improve

efficiency

New

Federal land policies 300-Natural resources

and environment

Direct Improve

efficiency

Updated

Collaborative federal land management approach 300-Natural resources

and environment

Discretionary Improve

efficiency

New

Federal timber sales 300-Natural resources

and environment

Discretionary Improve

efficiency

Updated

Conservation reserve program contracts 300-Natural resources

and environment

Direct Improve

efficiency

Updated

Charge fair market value for natural resources 300-Natural resources

and environment

Direct Improve

efficiency

New

Communication site fees 300-Natural resources

and environment

Direct Improve

efficiency

New

Recreation fees at federal sites 300-Natural resources

and environment

Direct Improve

efficiency

Updated

Hardrock mining royalties 300-Natural resources

and environment

Direct Improve

efficiency

Updated

Natural resources revenue sharing 300-Natural resources

and environment

Discretionary Improve

efficiency

Updated

Changing how federal needs for helium are met 300-Natural resources

and environment

Direct Reassess

objectives

New

Federal water policies 300-Natural resources

and environment

Direct Improve

efficiency

Updated

Water transfers 300-Natural resources

and environment

Direct Improve

efficiency

New

Pollution fees and taxes 300-Natural resources

and environment

Direct Improve

efficiency

Updated

Hazardous waste cleanup cost recovery 300-Natural resources

and environment

Discretionary Improve

efficiency

Updated

Nuclear waste disposal fees 300-Natural resources

and environment

Direct Improve

efficiency

Updated

U.S. Department of Agriculture dairy price support

program

350-Agriculture Direct Reassess

objectives

Updated

Milk marketing orders 350-Agriculture Direct Reassess

objectives

Updated

U.S. Department of Agriculture crop price supports 350-Agriculture Direct Redefine

beneficiaries

Updated

(continued)

Page 20 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option title Budget function BEA category

Framework

theme Status

Farm lands eligible for deficiency payments 350-Agriculture Direct Improve

efficiency

Updated

Rice program 350-Agriculture Direct Reassess

objectives

New

Peanut program 350-Agriculture Direct Reassess

objectives

New

Reduce or eliminate funding for the Market

Promotion Program

350-Agriculture Direct Redefine

beneficiaries

New

Reduce funding for the Export Credit Guarantee

Programs

350-Agriculture Direct Reassess

objectives

New

National Oceanic Atmospheric Administration

research fleet modernization

370-Commerce and

housing credit

Discretionary Improve

efficiency

New

Centralize servicing for Rural Housing and

Community Development Service’s single-family

housing loans

370-Commerce and

housing credit

Discretionary Improve

efficiency

New

Opportunities to reduce the cost of the 2000

decennial census

370-Commerce and

housing credit

Discretionary Improve

efficiency

Updated

Eliminate or transfer Interstate Commerce

Commission functions

400-Transportation Discretionary Reassess

objectives

New

Cargo preference laws: their costs and effects 400-Transportation Discretionary Reassess

objectives

New

Increase federal fees paid by foreign-flagged cruise

ships

400-Transportation Direct Redefine

beneficiaries

New

Increase state share of state-supported intercity rail

passenger service

400-Transportation Discretionary Redefine

beneficiaries

New

Reduce or eliminate Amtrak subsidies 400-Transportation Discretionary Reassess

objectives

New

Targeting military airport program funds within the

national airport system

400-Transportation Discretionary/

direct

Improve

efficiency

New

Enhance Department of Transportation’s oversight

of its university research

400-Transportation Discretionary Improve

efficiency

New

Reappraise rural development programs 450-Community and

regional development

Discretionary Improve

efficiency

New

Employment and training programs 500-Education, training,

employment, and social

services

Discretionary/

direct

Improve

efficiency

Updated

Overall strategy to address prescription drug fraud

and Medicaid fraud

550-Health Direct Improve

efficiency

New

Medicaid: States use illusory approaches to shift

program costs to the federal government

550-Health Direct Reassess

objectives

New

Medicaid formula: fairness could be improved 550-Health Direct Reassess

objectives

New

Adopt automated drug utilization reviews 550-Health Direct Improve

efficiency

New

(continued)

Page 21 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option title Budget function BEA category

Framework

theme Status

Teaching hospitals’ Medicare payments 570-Medicare Direct Improve

efficiency

Updated

Medicare payment safeguards 570-Medicare Discretionary/

direct

Improve

efficiency

Updated

Medicare payments for high technology procedures 570-Medicare Direct Improve

efficiency

Updated

Change the health maintenance organization

rate-setting method for Medicare

570-Medicare Discretionary/

direct

Improve

efficiency

New

Fees for non-Aid to Families with Dependent

Children child support enforcement services

600-Income security Direct Redefine

beneficiaries

Updated

Automated child support enforcement systems 600-Income security Direct Improve

efficiency

New

Funding for state automated welfare systems 600-Income security Discretionary/

direct

Improve

efficiency

New

Unified risk-based food safety system 600-Income security Discretionary Improve

efficiency

New

Consolidation of U.S. Department of Agriculture

food assistance programs

600-Income security Direct Improve

efficiency

New

Social Security continuing disability reviews 650-Social security Discretionary/

direct

Improve

efficiency

Updated

Cost sharing for veterans’ long-term care 700-Veterans benefits

and services

Discretionary Redefine

beneficiaries

Updated

Construction of veterans’ medical care facilities 700-Veterans benefits

and services

Discretionary Reassess

objectives

Updated

Veterans’ disability compensation for non-service

connected diseases

700-Veterans benefits

and services

Direct Redefine

beneficiaries

Updated

Justice’s use of private counsel to collect civil debt 750-Administration of

justice

Discretionary Improve

efficiency

New

General Services Administration supply depot

system

800-General government Direct Improve

efficiency

Updated

The 1-dollar coin 800-General government Direct Improve

efficiency

Updated

Judiciary’s long-range space planning system 800-General government Direct Improve

efficiency

Updated

Premium payments to employees while on leave Multiple Discretionary Improve

efficiency

New

Global positioning system technology Multiple Discretionary Improve

efficiency

New

Reform or repeal the Davis-Bacon Act Multiple Discretionary Reassess

objectives

New

Better manage Department of Energy overtime costs Multiple Discretionary Improve

efficiency

New

Eliminate prefinancing funds for Department of

Energy contractors

Multiple Discretionary Improve

efficiency

New

(continued)

Page 22 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option title Budget function BEA category

Framework

theme Status

Use uncosted obligations to offset future budget

needs

Multiple Discretionary Improve

efficiency

New

Federal agency credit management programs Multiple Discretionary/

direct

Improve

efficiency

Updated

Formula-based grant programs Multiple Discretionary/

direct

Redefine

beneficiaries

Updated

Tax treatment of health insurance premiums Receipts Direct Redefine

beneficiaries

Updated

Information reporting on forgiven debts Receipts Direct Improve

efficiency

Updated

Administration of the tax deduction for real estate

taxes

Receipts Direct Improve

efficiency

Updated

Corporate tax document matching Receipts Direct Improve

efficiency

Updated

Tax treatment of interest earned on life insurance

policies and deferred annuities

Receipts Direct Reassess

objectives

Updated

Federal agency reporting to the Internal Revenue

Service

Receipts Direct Improve

efficiency

Updated

Independent contractor tax compliance Receipts Direct Improve

efficiency

Updated

Deductibility of home equity loan interest Receipts Direct Reassess

objectives

Updated

Internal Revenue Service staff utilization Receipts Direct Improve

efficiency

Updated

Collecting gasoline excise taxes Receipts Direct Improve

efficiency

Updated

Computing excise tax bases Receipts Direct Improve

efficiency

Updated

Small-issue industrial development bonds and

qualified mortgage bonds

Receipts Direct Reassess

objectives

Updated

Improving compliance of sole proprietors Receipts Direct Improve

efficiency

New

Increase highway user fees on heavy trucks Receipts Direct Redefine

beneficiaries

New

Page 23 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

050 National

Defense

• Hunter joint tactical Unmanned Aerial Vehicle system

• Reduce Army inventories of spare and repair parts at divisions

• Improved material management can reduce shipyard costs

• Reduce Army’s unfilled war reserve requirements by using other inventory

items

• Defense infrastructure

• Potential reductions to the fiscal year 1996 defense operation and

maintenance budget

• Alter readiness status of some ready reserve force ships

• Upgrades to Navy F-14 fighter aircraft may not be needed

• Options to acquire fewer attack submarines

• Continental air defense

• Carrier battle group expansions and upgrades

• Army’s Comanche helicopter

• F-22 fighter

• C-17 aircraft

• MK-48 advanced capability torpedo propulsion system

• Reassess defense conversion spending

• Improve controls over payments to defense contractors

• Defense inventories

• Use prime vendors to supply high-volume clothing and textile items

• Restructure defense transportation

• Reduce excess capacity and increase cost-effectiveness of depot

maintenance program

• Use of innovative commercial practices to supply electronics items to

maintenance and repair facilities

• Consolidate the separate military exchange stores

• Copayments for care in military hospitals

• Administering defense health care

• Centralize Department of Energy’s procurement of laboratory testing

services

• Improve Department of Energy’s property management controls

• Restructure Department of Energy’s national laboratories

• Negotiate more realistic environmental agreements

• Improve Hanford site management

• Burdensharing in the Republic of Korea

Page 24 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Hunter Joint Tactical

Unmanned Aerial

Vehicle System

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

Beginning with first fielding in 1995, the Hunter Unmanned Aerial Vehicle

(UAV) System is to provide Army Corps, Marine Divisions, and eventually

Navy Amphibious Assault Ships with an intelligence gathering capability.

Hunter is intended to replace the Pioneer UAV system that was used during

Operation Desert Shield/Desert Storm, but which had frequent failures.

Hunter is a $4 billion program with unit costs projected to be about

$24 million per system.

Although Pioneer demonstrated the military utility of UAV systems in

combat, it is not clear that Hunter will ever be capable of meeting the

military requirements of the Army, Navy, and Marine Corps. GAO has

reported that to date, the Hunter UAV system has shown itself to be

logistically insupportable and tests have identified serious performance

problems that adversely affect the system’s effectiveness. Based on its

performance to date, the system may prove unsuitable for use by

operational forces and, contrary to DOD plans, could require costly

contractor maintenance and support to keep it operating. Furthermore,

after several crashes during testing, the Hunter UAV system was ordered

grounded by DOD and has remained grounded.

DOD has recently restructured the Hunter program in an effort to address

the system’s problems. However, the restructured program would further

delay and curtail critical testing while allowing for additional procurement

of systems whose performance is so far unproven and possibly defective.

Even so, in October 1994, the Commanding General of the Army’s

Operational Test and Evaluation Command expressed his belief that it is

unlikely Hunter will be ready for Initial Operational Test and Evaluation by

July 1995, as called for in the restructuring plan.

Page 25 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Given the problems with the Hunter system, and the fact that DOD is

developing a number of other UAV systems including a close-range, or

maneuver, system and several endurance systems, the Congress may wish

to reconsider the need to purchase Hunter. Terminating the program could

produce the following savings.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 230 220 200 180 170

Outlays 50 110 170 180 180

Source: Congressional Budget Office.

Related GAO Products Unmanned Aerial Vehicles: No More Hunter Systems Should Be Bought

Until Problems Are Fixed (GAO/NSIAD-95-52, March 1, 1995).

Unmanned Aerial Vehicles: Performance of Short-Range System Still in

Question (GAO/NSIAD-94-65, December 15, 1993).

GAO Contact Louis J. Rodrigues, (202) 512-4841

Page 26 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Reduce Army

Inventories of Spare

and Repair Parts at

Divisions

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Operation and Maintenance, Army (21-2020)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

The five Army divisions are authorized to stock more than 26,000 items

such as parts for wheel and track vehicles and other support equipment

for their retail level inventories valued at more than $230 million.

Despite recent reductions in authorized inventories for these activities, the

divisions continue to stock inventory that contributes little toward

meeting the needs of their customers. GAO found that among the five

divisions about $47 million was invested in inventory items that had two or

fewer demands during the previous 12 months. Of this, $37 million had no

requests. Additionally, $61 million was invested in inventory that

accounted for only 11 percent of the items issued to the divisions’

customers.

Stocking items at the retail level that receive few demands represents an

inventory investment that could be avoided. The Army’s own studies have

shown similar results and have recommended that the infrequently

demanded items be removed from the list of items that the divisions are

authorized to stock. These studies have also recommended that the

criteria for determining what items should be stocked need to be

reevaluated. While DOD agrees that the criterion for determining what

inventory items should be stocked at the divisions needs to be

reevaluated, DOD did not fully agree that all infrequently requested items

should be removed from stock.

Savings under this option could be achieved by reducing Army inventories

of spare and repair parts. For example, if the Congress chooses to reduce

future investment in these items by $108 million to reflect GAO’s estimate,

the following savings could result.

Page 27 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 108 0 0 0 0

Outlays 70 30 8 0 0

Source: Congressional Budget Office.

Related GAO Products Army Inventory: Opportunities Exist for Additional Reductions to Retail

Level Inventories (GAO/NSIAD-94-129, June 6, 1994).

Army Inventory: Divisions’ Authorized Levels of Demand-Based Items Can

Be Reduced (GAO/NSIAD-93-09, October 20, 1992).

Army Inventory: Fewer Items Should Be Stocked at the Division Level

(GAO/NSIAD-91-218, July 24, 1991).

GAO Contact Mark E. Gebicke, (202) 512-5140

Page 28 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Improved Material

Management Can

Reduce Shipyard

Costs

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Operation and Maintenance, Navy (17-1804)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

The Navy’s public shipyards support peacetime fleet maintenance needs

and provide a base for responding to wartime requirements. Although the

eventual size of the public shipyard industrial base is uncertain because of

fleet downsizing, each shipyard should operate as efficiently as possible.

Despite recent improvements in shipyard material management, the

shipyards’ material requirements determination process still is not

working as intended. Since shipyards order more material than needed to

accomplish ship repairs, they have unused material after repairs are

completed. GAO found that in fiscal years 1991 through 1993, the shipyards

wrote off $88 million in losses for unused material, including $56 million in

material sent to disposal. At the end of fiscal year 1993, the shipyards had

$34.7 million of material on hand that had not been used on completed

repairs and $11.8 million of material on order for repairs that were already

completed.

GAO also found that shipyards maintain inventories of material that are not

recorded on official records, issue more shop store material than needed

for some ship repairs, and do not ensure compliance with policies to

eliminate excess shop store inventories and protect material assets from

loss. As a result, inventory records were not accurate and material funds

were wasted. DOD agreed with GAO’s findings and conclusions.

The Congress could reduce appropriations by $46.5 million for the Navy’s

shipyard repair material investment to account for excess inventories.

Page 29 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 50 0 0 0 0

Outlays 40 10 0 0 0

Source: Congressional Budget Office.

Related GAO Product Navy Supply: Improved Material Management Can Reduce Shipyard Costs

(GAO/NSIAD-94-181, July 27, 1994).

GAO Contact Mark E. Gebicke, (202) 512-5140

Page 30 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Reduce Army’s

Unfilled War Reserve

Requirements by

Using Other Inventory

Items

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Operation and Maintenance, Army (21-2020)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

Between 1992 and 1994, Department of Defense (DOD) policies restricted

the services with regard to filling war reserve requirements with assets

procured with funds other than those specifically appropriated for that

purpose. In February 1994, the DOD Comptroller changed the policy and

advised the Army that it could use inventory items not needed for

peacetime operations for these purposes as long as the total amount of

protected war reserve inventory did not exceed $2.9 billion—the

cumulative amount the Congress had previously appropriated for buying

war reserve inventory.

GAO analysis shows that the Army could fill $497 million of its unfilled war

reserve requirements for spare and repair parts by transferring items not

needed for peacetime operating purposes to the war reserve account. DOD

agreed with GAO’s analysis but is reluctant to reclassify items not needed

for peacetime operating purposes to war reserves unless the Congress

eliminates or modifies section 8007 of Public Law 103-139, the Department

of Defense Appropriations Act for 1994. This particular section provides

that except in the amounts equal to the amounts appropriated for war

reserves, no obligations may be made to procure or increase the value of

war reserve material inventory unless the Secretary of Defense had

notified the Congress prior to such obligations.

For fiscal year 1995, the administration did not request funding for the

Army’s unfilled war reserve requirements nor does DOD have plans to fund

the requirements in the 1995 Defense Plan. If a future administration

budget proposal were made for unfilled war reserve requirements, the

Congress may wish to encourage DOD to shift peacetime inventory by using

funding already in the baseline (operation and maintenance, Army

account) to fill the new requirements.

Page 31 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Related GAO Product Army Inventory: Unfilled War Reserve Requirements Could Be Met With

Items From Other Inventory (GAO/NSIAD-94-207, August 25, 1994).

GAO Contact Mark E. Gebicke, (202) 512-5140

Page 32 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Defense

Infrastructure

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

As DOD realigns and downsizes, GAO has reported that it needs to ensure

that the remaining infrastructure is downsized commensurate with the

remaining forces. As pointed out in DOD’s self-initiated Bottom Up Review,

there are numerous opportunities to reduce the defense infrastructure

without affecting readiness. In fact, reducing the infrastructure could

enhance readiness in that moneys now being spent to maintain unneeded

infrastructure could be applied to readiness enhancement measures.

Significant budget reductions could be achieved by streamlining the

command structure of the remaining forces; sharing medical facilities and

services; consolidating depots and shipyards; reforming acquisition

processes; consolidating and eliminating research, development, and

training facilities; using simulators for training and exercises; and reducing

dependence on government-owned housing.

Savings for this option cannot be estimated until a comprehensive

consolidation and downsizing plan is specified. According to the Bottom

Up Review, infrastructure areas and processes accounted for $160 billion

of the $254 billion fiscal year 1994 Defense budget.

Related GAO Products 1994 DOD Budget: Potential Reductions to the Operation and Maintenance

Budget (GAO/NSIAD-93-295BR, September 16, 1993).

Depot Maintenance: Issues in Management and Restructuring to Support a

Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993).

Depot Maintenance: Issues in Allocating Workload Between the Public and

Private Sectors (GAO-T-NSIAD-94-161, April 12, 1994).

Page 33 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Military Bases: Analysis of DOD’s Recommendations and Selection Process

for Closures and Realignments (GAO/NSIAD-93-173, April 15, 1993).

GAO Contact Donna M. Heivilin, (202) 512-8412

Page 34 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Potential Reductions

to the Fiscal Year

1996 Defense

Operation and

Maintenance Budget

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

The military services’ operation and maintenance (O&M) accounts are used

to fund a wide range of military activities from training and purchasing of

spare and repair parts to civilian personnel.

GAO analysis of selected O&M requests for fiscal year 1995 showed that the

budget for that year could have been reduced by $4.5 billion without

damaging defense operations and capabilities. The largest potential

reductions, each for over $500 million, were associated with better

management of spare and repair parts inventories, funds requested for

ground operating tempo that are not used for training purposes, overstated

civilian personnel requirements, and excessive unobligated balances from

prior years’ appropriations. Another potential reduction of about

$470 million was associated with improved maintenance practices that the

services could adopt.

The Congress may wish to consider the potential opportunity for savings

when formulating fiscal year 1996 appropriations for operation and

maintenance accounts.

Based on GAO’s analysis regarding potential savings in the fiscal year 1995

O&M budget, the Congress may wish to consider reductions of a similar

magnitude, $4.5 billion, when formulating fiscal year 1996 appropriations

for O&M accounts. It is important for the Congress to be aware that savings

for this option include savings for other options involving the individual

services’ O&M accounts since the problems GAO identified persist. CBO noted

that budget authority savings could be larger due to savings from recurring

costs. However, CBO is unable to identify the particular years in which

these savings would be achieved or the amounts.

Page 35 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 4,500 0 0 0 0

Outlays 3,400 850 150 50 20

Source: Congressional Budget Office.

Related GAO Product 1995 Budget: Potential Reductions to the Operation and Maintenance

Programs (GAO/NSIAD-94-246BR, September 6, 1994).

GAO Contact Mark E. Gebicke, (202) 512-5140

Page 36 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Alter Readiness Status

of Some Ready

Reserve Force Ships

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account National Defense Sealift Fund (17-4557)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

Ready Reserve Force ships are used by the military services to transport

cargo to where it is needed. A 1990 DOD Mobility Requirements Study

recommended maintaining 63 ships at a high readiness level (such as able

to be activated in 4 or 5 days) with operation and maintenance costing

hundreds of millions of dollars. Consistent with this study, the Army has a

long-term plan to increase its capability to reach seaports more quickly.

However, GAO has expressed a concern that the Army’s current ability to

move cargo from key installations to seaports is constrained by

deteriorated rail facilities. GAO found that although the Army plans to

increase its capability to reach seaports more quickly, most transportation

infrastructure renovation and repair projects will not be completed as

anticipated in DOD’s Mobility Requirements Study. Further, GAO found that

DOD’s analysis did not support maintaining 63 ships in a high state of

readiness. For example, the study’s model assumed only 14 ships would

need to be ready to load cargo by the 5th day.

Because the various components of the U.S. mobility forces must work

together to synchronize the delivery of equipment and supplies, GAO

believes that it is possible to keep some Ready Reserve Force ships at a

lower readiness level. Under similar logic, the Maritime Administration’s

fiscal year 1994 Ready Reserve Force budget request for maintenance and

operations was $136 million, or approximately $221 million less than the

$357 million identified in the Mobility Study. The administration concluded

that reduced funding in fiscal year 1994 would not result in a great

degradation of readiness. Appropriations could be reduced by keeping

more Ready Reserve Force Ships in a lower readiness level than planned

until transportation renovations and/or repairs are complete. For example,

based on GAO’s audit work, if the Congress chose this alternative and 20

Page 37 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

ships were kept in a lower readiness status, the following savings could be

achieved.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 20 20 20 20 20

Outlays 15 18 20 20 20

Source: Congressional Budget Office.

Related GAO Products Ready Reserve Force: Ship Readiness Has Improved, but Other Concerns

Remain (GAO/NSIAD-95-24, November 8, 1994).

Strategic Mobility: Serious Problems Remain in U.S. Deployment

Capabilities (GAO/T-NSIAD-94-165, April 26, 1994).

DOD’s Mobility Requirements: Alternative Assumptions Could Affect

Recommended Acquisition Plan (GAO/NSIAD-93-103, April 22, 1993).

GAO Contact Mark E. Gebicke, (202) 512-5140

Page 38 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Upgrades to Navy

F-14 Fighter Aircraft

May Not Be Needed

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Aircraft Procurement, Navy (17-1506)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

Until recently, the Navy planned to spend over $2.5 billion from fiscal

years 1994-2003 on structural, survivability, and capability upgrades for

many F-14 fighter aircraft. About $1.6 billion was planned for a very

limited ground attack upgrade to 210 aircraft, and another $970 million

was planned for structural and survivability improvements to 198 older

F-14A and B model aircraft (157 of which would then receive the ground

attack upgrade along with 53 F-14D models).

A GAO analysis concluded that the first upgrade did not provide enough

additional capability and would not be fielded soon enough to warrant the

expenditure of $1.6 billion and the program was terminated when the

Congress did not appropriate these funds. Fiscal year 1995 funds were

appropriated for F-14A/B structural and survivability improvements, and

that program is likely to continue for several years. Navy officials continue

to believe a ground attack upgrade is necessary. A final decision on the

extent of the upgrade depends on the results of a cost-effectiveness and

operational assessment and an acquisition milestone decision scheduled

for the first quarter of fiscal year 1995.

We question the need for F-14 structural/survivability upgrades. The Navy

has stated that F-14s are using up their service life and that structural

upgrades are needed to keep F-14s operating until they are retired and

replaced by F/A-18E/F aircraft beginning in fiscal year 2000. The Navy

plans to retire and store about 150 F-14s over the next 2 to 3 years as it

reduces its force structure. In lieu of structural modifications, some of

these aircraft with service life remaining, could possibly be brought back

out of storage in future years, and operated until F-14s are gradually

retired and replaced by F/A-18E/F aircraft. If the Congress chose to cancel

the F-14 structural/survivability modification program, the following

savings could be achieved.

Page 39 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 130 120 120 110 110

Outlays 20 60 100 110 110

Source: Congressional Budget Office.

Related GAO Product Naval Aviation: F-14 Upgrades Are Not Adequately Justified

(GAO/NSIAD-95-12, October 19, 1994).

GAO Contact Richard A. Davis, (202) 512-3504

Page 40 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Options to Acquire

Fewer Attack

Submarines

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Shipbuilding and Conversion, Navy (17-1611)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

Nuclear-powered attack submarines (SSN) are the Navy’s prime

antisubmarine warfare asset. Today, faced with a changed world threat, a

new defense posture, and constrained defense budgets, the Navy is

reducing the size of its SSN fleet. The DOD’s Bottom-Up Review determined

that the Navy needed to maintain a force of 45 to 55 SSNs after fiscal year

1999 to meet the requirements of the defense strategy, including both

regional conflicts and peacetime presence operations.

One option the Congress may consider is to cancel plans to buy the third

Seawolf submarine and defer acquisition of a new generation submarine

until 2003, while continuing some research and development efforts

through 2000. The estimated savings reflected in the table include the

costs associated with consolidating submarine production at one of the

two facilities and maintaining that facility over the next 5 years. However,

due to the delayed acquisition of the new generation submarine, beginning

in 2003, the Navy would have to increase its annual shipbuilding budgets

more than currently planned.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 2,130 920 3,410 670 1,470

Outlays –20 750 1,320 1,550 1,210

Source: Congressional Budget Office.

Note: Higher outlays from increased shutdown and maintenance costs, as well as research and

development costs, completely offset outlay savings in 1996.

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Related GAO Product Attack Submarines: Alternatives for a More Affordable SSN Force Structure

(GAO/NSIAD-95-16, October 13, 1994).

GAO Contact Richard A. Davis, (202) 512-3504

Page 42 GAO/OCG-95-2 Addressing the Deficit
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Option:

Continental Air

Defense

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (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)

Procurement-funded Replenishment Spares

Replacement Support Equipment and

Modifications

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

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. As of May 1994, the force consisted of 150 primary aircraft

comprised of Air National Guard F-15A/B and F-16A/B aircraft in 10

dedicated units, as well as 2 F-15 dual-tasked general-purpose units which

stand alert for NORAD. At that time the Air Force budgeted about

$370 million annually to operate and support the continental air defense

force.

The former Soviet Union no longer poses 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 the United States no longer needed

a large, dedicated air defense force and that the dedicated 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

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territorial airspace, including activities such as assisting aircraft in distress

or intercepting aircraft as part of anti-drug 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 could acquire the necessary skills used by air

defense and air sovereignty pilots.

Based on our audit work, GAO has concluded that significant savings could

be achieved by dual-tasking the active, reserve, and training forces.

Savings could also be achieved if the dedicated continental air defense

force and mission were eliminated. If the Congress chose to eliminate the

dedicated force the following savings could be achieved.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 210 430 450 470 480

Outlays 160 370 420 450 470

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 Richard A. Davis, (202) 512-3504

Page 44 GAO/OCG-95-2 Addressing the Deficit
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Option:

Carrier Battle Group

Expansions and

Upgrades

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Operation and Maintenance, Navy

(17-1804)

Military Personnel, Navy (17-1453)

Procurement-funded Replenishment

Spares

Replacement Support Equipment and

Modifications

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

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 $1.7 billion (in fiscal year 1995 dollars) and

will continue to increase. The Navy is embarking on several costly

carrier-related programs—procuring another carrier, refueling existing

carriers, and replacing/upgrading combat aircraft.

GAO’s analysis indicates that there are opportunities for using 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 crises response. If the Congress

chose to retire one aircraft carrier and one active air wing in 1996, the

following savings could be achieved.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 290 600 630 650 670

Outlays 210 480 560 610 640

Source: Congressional Budget Office.

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

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

GAO Contact Richard A. Davis, (202) 512-3504

Page 46 GAO/OCG-95-2 Addressing the Deficit
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Option:

Army’s Comanche

Helicopter

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Research, Development, Test and Evaluation,

Army (21-2040)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

When fielded in 2003, the Comanche helicopter is to replace the

Vietnam-era scout and attack helicopters that the Army considers

incapable of meeting existing or future requirements. The Comanche’s

overall program cost has grown to approximately $45 billion, with an

estimated program unit cost of about $35 million. Anticipated cost

increases and other unresolved technical risks indicate that future cost

growth is likely. Moreover, the Army’s Comanche helicopter program

currently faces a $540 million funding shortfall for fiscal years 1995-2004.

In order to cope with anticipated funding shortfalls, the Army is proposing

to streamline the program. This entails merging the demonstration,

validation, engineering, and manufacturing development phases into one

developmental phase. In December 1994, the Secretary of Defense decided

to restructure the Comanche program as a prototype/technology base

program, resulting in a program cost reduction from $4.2 billion to about

$2 billion for fiscal years 1996 through 2001.

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 modify many of those that will

remain to increase combat capabilities. For example, the Army is arming

the Kiowa and plans to improve the basic model Apaches, including

adding Longbow modifications to 227 Apaches. These actions, collectively,

tend to blur the distinction in roles among the Army’s helicopter fleet.

Given 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, and declining

defense budgets, the Congress may wish to rethink the need to purchase

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the Comanche. Terminating the program would produce the following

savings.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 370 500 520 520 500

Outlays 210 410 490 500 500

Source: Congressional Budget Office.

Note: The Comanche Helicopter program has been restructured to a prototype program only in

the administration’s 1996 budget request. Therefore, under the President’s 1996 Defense Plan,

savings from terminating the program would be considerably lower than the estimate above.

Related GAO Products Army Aviation: Modernization Strategy Needs to Be Reassessed

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

Comanche Helicopter: Program Needs Reassessment Due to Increased

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

GAO Contact Louis J. Rodrigues, (202) 512-4841

Page 48 GAO/OCG-95-2 Addressing the Deficit
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Option:

F-22 Fighter Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Aircraft Procurement, Air Force (57-3010)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

In recent years, GAO has issued numerous reports on the Air Force’s F-22

program leading to the following findings and conclusions.

The Air Force’s F-22 program was initiated in 1981 to meet the evolving

threat projected for the mid-1990s. Since the F-22 program entered

full-scale development in 1991, the severity of the projected military threat

in terms of quantities and capabilities had declined. Instead of confronting

thousands of modern Soviet fighters, U.S. air forces are now expected to

confront potential adversary air forces that include few fighters that have

the capability to challenge the F-15—the U.S. front line fighter. GAO’s

analysis shows that the F-15 exceeds the most advanced fighter threat

system expected to exist for many years. Further, our analysis indicated

that the current inventory of F-15s can be economically maintained in a

structurally sound condition until 2015 or later.

DOD is currently planning to procure significant units before completing

operational tests and evaluations, thereby increasing the cost, schedule,

and performance risks within the system. Initial operational tests and

evaluations that determine the system’s operational utility and

appropriateness for production are not scheduled to be completed until

after the Air Force will have committed to procure 80 aircraft involving an

investment of $12.4 billion. Air Force plans call for procurement of 4

aircraft a year, increasing to 36 a year (a 900 percent increase) before

initial operational tests and their evaluation are scheduled to be

completed. Many aircraft systems entering production before starting

operational testing have required major modification later which is often

costly.

Using DOD guidelines, F-22 program concurrency is high because the F-22

program is scheduled to proceed into low rate initial production well

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before any operational testing starts. Furthermore, the F-22 program

contemplates a higher commitment as a percent of total production prior

to completion of initial operational testing than most modern fighter

programs.

Because the need for the F-22 is not urgent and the concurrency between

development and production is high, the Congress could choose to restrict

production of F-22s to six aircraft in 1999 and eight aircraft in 2000 until

initial operational tests and evaluations are completed in February 2002.

One Air Force official stated that one set of production tooling can

produce six to eight production aircraft a year. If the Congress decides to

restrict production in this way, the following savings could be achieved.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 0 0 0 740 1,740

Outlays 0 0 0 50 290

Source: Congressional Budget Office.

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

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

Tactical Aircraft: F-15 Replacement is Premature as Currently Planned

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

Tactical Aircraft: Planned F-15 Replacement Is Premature

(GAO/C-NSIAD-94-11, December 8, 1993).

F-22 Fighter: Concurrency in Development and Production (GAO/NSIAD-95-59,

report in progress).

GAO Contact Louis J. Rodrigues, (202) 512-4841

Page 50 GAO/OCG-95-2 Addressing the Deficit
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Option:

C-17 Aircraft Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Aircraft Procurement, Air Force (57-3010)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

Many GAO reports and testimonies issued over the past decade have

produced the following findings and conclusions regarding the Air Force

C-17.

The C-17 has been a troubled program almost since its inception and has

fallen far short of original cost, schedule, and performance objectives. As a

result of the program’s problems, the Department of Defense (DOD)

sponsored a cost and operational effectiveness analysis to explore

alternatives to the C-17 for meeting planned airlift capacity requirements,

including acquiring additional commercial wide-body derivative aircraft.

Although the analysis shows that there are cost effective wide-body

alternatives, DOD has not made a final decision on substituting commercial

wide-body aircraft for the C-17.

The Congress may wish to purchase commercial wide-body aircraft over

the period 1996 to 2000 instead of purchasing more than 40 C-17 aircraft.

Estimated funding identified for strategic airlift purposes in the 1995

Defense Plan could be used.2

 The following savings could be achieved if 34

commercial wide-body aircraft were purchased instead of buying

additional C-17s.

2

The 1995 plan for strategic airlift, according to DOD, could buy more C-17s or non-development airlift

aircraft (NDAA) or a combination of NDAA and C-17s. The specifics of how DOD would use this

money are not available now and may not be available until the fall of 1995 when DOD is scheduled to

decide whether or not to purchase more C-17s. Moreover, the 1995 plan for strategic airlift did not

include any money in the year 2000. CBO assumed that the administration would need roughly

$4.3 billion in 2000 (about the same amount in 1999) to continue procurement.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 210 1,660 1,480 2,370 2,380

Outlays 10 150 560 1,090 1,570

Source: Congressional Budget Office.

Related GAO Products Military Airlift: Comparison of C-5 and C-17 Airfield Availability

(GAO/NSIAD-94-225, July 11, 1994).

Military Airlift: The C-17 Proposed Settlement and Program Update

(GAO/T-NSIAD-94-172, April 28, 1994).

Military Airlift: The C-17 Program Update and Proposed Settlement

(GAO/T-NSIAD-94-166, April 19, 1994).

Military Airlift: C-17 Settlement Is Not a Good Deal (GAO/NSIAD-94-141,

April 15, 1994).

Military Airlift: The C-17 Program Status and Proposed Settlement

(GAO/T-NSIAD-94-115, February 10, 1994).

Military Airlift: Status of the C-17 Development Program (GAO/T-NSIAD-93-6,

March 10, 1993) and (GAO/T-NSIAD-93-8, March 18, 1993).

Defense Industry: Status of the C-17 Program and Related Issues Affecting

the McDonnell Douglas Corporation (GAO/T-NSIAD-92-4, November 14, 1992).

Military Aircraft: C-17 Wing Flap Requires Additional Testing

(GAO/NSIAD-92-160, July 8, 1992).

Military Airlift: Selected Events in the Development of the C-17

(GAO/NSIAD-92-181FS, May 4, 1992).

Military Airlift: Cost and Complexity of the C-17 Aircraft Research and

Development Program (GAO/NSIAD-91-5, March 19, 1991).

Status of the Air Force’s C-17 Aircraft Program (GAO/T-NSIAD-90-48, June 19,

1990).

Page 52 GAO/OCG-95-2 Addressing the Deficit
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Military Airlift: C-17 Faces Schedule, Cost, and Performance Challenges

(GAO/NSIAD-89-195, August 18, 1989).

GAO Contact Louis J. Rodrigues, (202) 512-4841

Page 53 GAO/OCG-95-2 Addressing the Deficit
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Option:

MK-48 Advanced

Capability Torpedo

Propulsion System

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Weapons Procurement, Navy (17-1507)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

In 1986, the Navy established a requirement to upgrade the propulsion

system on its MK-48 Advanced Capability (ADCAP) torpedo. The upgrade

was intended to reduce noise levels when the torpedo was fired from the

SSN-21 Seawolf submarine. In January 1992, the Navy stated that the

Seawolf’s requirements could be met by the current ADCAP, without the

upgrade. The Navy now plans to combine the Torpedo Propulsion Unit

(TPU) with a new guidance and control unit. Together these improvements,

referred to as the ADCAP Modification Program, are estimated to cost about

$711 million. According to a Navy official, the Navy plans to upgrade about

1,386 ADCAP torpedoes starting about January 1997.

Although operational test and evaluation of the ADCAP Modification

Program will not be complete until late 1995, the Navy plans to seek

approval for low-rate initial production in February 1995. In 1992, GAO

questioned the need for the TPU and recommended that the TPU be

terminated. Although the Navy now justifies the TPU in part on the basis of

improving ADCAP shallow water performance, latest Navy testing has

shown that the current ADCAP torpedo can effectively operate in shallow

water. If the Congress chose to terminate the upgrade program, the

following savings could be achieved.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 20 20 20 20 0

Outlays 10 10 20 20 10

Source: Congressional Budget Office.

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Related GAO Product Navy Torpedo Program: MK-48 ADCAP Propulsion System Upgrade Not

Needed (GAO/NSIAD-92-191, September 10, 1992).

GAO Contact Richard A. Davis, (202) 512-3504

Page 55 GAO/OCG-95-2 Addressing the Deficit
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Option:

Reassess Defense

Conversion Spending

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Reassess objectives

Estimates of DOD’s portion of the total federal funds to be spent on defense

conversion for fiscal years 1993 through 1997 are increasing. However, we

found no evidence that (1) the level of spending is appropriate in light of

other government programs that support similar purposes and (2) the

private economy has not already responded to the need for which these

funds were authorized and appropriated. Consequently, the Congress may

wish to slow DOD’s spending in this area.

The President’s defense conversion initiative, announced on March 11,

1993, totaled $19.6 billion over 5 years; DOD’s portion was 42 percent. The

administration’s February 1994 estimate of the cost of the initiative was

$21.6 billion; DOD’s portion has increased to 59 percent. A study for DOD’s

1993 Defense Conversion Commission identified 116 other federal or state

programs, not classified as defense conversion, that could help ease the

impact of defense downsizing. These programs cost about $24 billion in

fiscal year 1993. Other related programs include federal activities to

develop advanced industrial technology with costs of about $10 billion in

fiscal year 1994.

The United States is now in the tenth year of defense downsizing and

many firms, individuals, and communities who were adversely affected

may have already responded. GAO reports show that overall, savings from

slowing defense conversion spending would depend on the programs and

activities affected. As an illustrative example, the Congressional Budget

Office estimates that if the Technology Reinvestment Program, one

component of defense conversion spending, was eliminated beginning in

fiscal year 1996, the following savings could be achieved.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 650 680 700 730 750

Outlays 280 560 650 690 720

Source: Congressional Budget Office.

Related GAO Products Defense Conversion: Capital Conditions Have Improved for Small-and

Medium-Sized Firms (GAO/NSIAD-94-224, July 21, 1994).

Defense Conversion: Status of Funding and Spending (GAO/NSIAD-94-218BR,

June 30, 1994).

Defense Conversion: Slow Start Limits Spending (GAO/NSIAD-94-72,

January 25, 1994).

GAO Contact David E. Cooper, (202) 512-4587

Page 57 GAO/OCG-95-2 Addressing the Deficit
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Option:

Improve Controls

Over Payments to

Defense Contractors

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

Weak financial controls have resulted in millions of dollars of incorrect

payments being made by the Defense Finance and Accounting Service

(DFAS), the principal contract-paying activity of the Department of Defense.

During a 6-month period, DFAS processed $751 million in checks from

defense contractors. GAO researched checks totaling $392 million and

found that $305 million, 78 percent, represented overpayments by the

government. Overpayments resulted from DFAS making duplicate payments

and paying invoices without considering previous progress payments.

Contractors, rather than DFAS’ controls, detected most overpayments. GAO

work shows that this increases the risk that losses will result from

undetected or unreturned payments. Overpayments cost the government

thousands of dollars of interest each day; underpayments are also costly as

Defense is required to pay interest on valid invoices that are paid late.

Defense is working to strengthen its existing internal control procedures

to prevent overpayments and detect them more rapidly when they do

occur. Initiatives are also underway to reform and streamline the complex

regulatory policies and procedures that affect contract payments. GAO

believes, however, that the large dollar amounts at risk warrant DOD’s

viewing the need for corrective actions with an increased sense of

urgency.

CBO agrees that stronger internal controls can reduce costs from over- and

underpayments to contractors. However, savings depend on the specific

changes in control systems that would be required and their likely effects.

Related GAO Products DOD Procurement: Overpayments and Underpayments at Selected

Contractors Show Major Problem (GAO/NSIAD-94-245, August 5, 1994).

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DOD Procurement: Millions in Overpayments Returned by DOD Contractors

(GAO/NSIAD-94-106, March 14, 1994).

GAO Contact David E. Cooper, (202) 512-4587

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Option:

Defense Inventories Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

Over 100 GAO reports have pointed out DOD inventory management

problems and have shown that DOD has continually bought and stored

items that greatly exceeded its operational and war reserve needs.

Systemic problems in determining requirements and inadequate financial

accountability and control have contributed to poor inventory

management practices. Further, DOD’s culture has traditionally emphasized

overbuying and placed little value on economy and efficiency, causing

unneeded items to pile up in warehouses. Force reductions and base

closures will only compound the situation and result in additional

unneeded inventory.

DOD has been slow to implement private sector practices that could reduce

inventory costs. In this regard, the Defense Logistics Agency has recently

begun conducting pilot programs to demonstrate the applicability of

commercial practices and to tailor changes required in each of its facilities

so that the successful results of the programs could be applied in supply

and distribution.

Systemic reforms—such as improving the way inventory requirements are

determined, using commercial inventory management practices, and

changing financial management policies and practices—are needed to

achieve further reductions in DOD’s budget requirements. GAO estimates

that, as of September 1993, only about half of DOD’s $77.5 billion in

inventory was needed to be on hand to support current operations and

war reserves. GAO presents several specific options relating to DOD

inventories. See options “Use Prime Vendors to Supply High-Volume

Clothing and Textile Items,” “Use of Innovative Commercial Practices to

Supply Electronics Items,” “Reduce Army Inventories of Spare and Repair

Parts at Divisions,” and “Improved Material Management Can Reduce

Shipyard Costs.”

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Related GAO Products Commercial Practices: DOD Could Reduce Electronics Inventories by Using

Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994).

Commercial Practices: Leading-Edge Practices Can Help DOD Better

Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, April 13, 1994).

Commercial Practices: DOD Could Save Millions by Reducing Maintenance

and Repair Inventories (GAO/NSIAD-93-155, June 7, 1993).

DOD Food Inventory: Using Private Sector Practices Can Reduce Costs and

Eliminate Problems (GAO/NSIAD-93-110, June 4, 1993).

Defense Transportation: Commercial Practices Offer Improvement

Opportunities (GAO/NSIAD-94-26, November 26, 1993).

Defense Inventory: Top Management Attention Is Crucial (GAO/NSIAD-90-145,

March 26, 1990).

GAO Contact Donna M. Heivilin, (202) 512-8412

Page 61 GAO/OCG-95-2 Addressing the Deficit
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Option:

Use Prime Vendors to

Supply High-Volume

Clothing and Textile

Items

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

The Department of Defense (DOD) spends over a billion dollars for clothing

and textile items sold to military service customers, primarily the services’

14 recruit induction centers and over 300 military exchange stores.

GAO has reported that while private sector companies are cutting costs by

minimizing inventories, DOD continues to store redundant levels of clothing

and textile inventories throughout its wholesale and retail system. Much of

this inventory is aged; for about 26 percent of the items, DOD had 10 years

of supply on hand. To maintain these stocks, DOD employs a large

operations infrastructure and thus incurs unnecessary inventory storage

and handling costs.

Many private sector firms and some federal agencies with uniformed

employees are relying on prime vendors to manage their clothing

inventories. Prime vendors provide timely and direct delivery between

customers and suppliers, and order additional stock from manufacturers

on short notice, with quick turnaround, to minimize inventory holding

costs and improve customer service. DOD plans to implement a prime

vendor program at recruit induction centers beginning in fiscal year 1995.

GAO believes that substantial opportunities exist to reduce DOD annual

expenditures on clothing and textile items by adopting best commercial

practices on a wide-scale basis, CBO cannot develop a 5-year savings

estimate for this option at this time.

Related GAO Product Commercial Practices: Leading-Edge Practices Can Help DOD Better

Manage Clothing and Textile Stocks (GAO/NSIAD-94-64, April 13, 1994).

GAO Contact Donna M. Heivilin, (202) 512-8412

Page 62 GAO/OCG-95-2 Addressing the Deficit
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Option:

Restructure Defense

Transportation

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

Numerous studies by DOD, presidential commissions, and others have

reported that the structure of the defense transportation system is

fragmented and inefficient. Traffic management processes were developed

independently for each mode of transportation, and each supported with

independently developed automated systems. GAO believes that DOD needs

to better integrate traffic management and to provide more effective

support, at lower cost, both in peace and in war.

In 1992, DOD designated the U.S. Transportation Command (USTRANSCOM)

the single DOD manager for defense transportation in peace and war.

However, GAO work shows that the extensive field organization and

multiple component command responsibilities continue to exist.

USTRANSCOM and the services also continue to support multiple

independent automated transportation systems. Savings could be achieved

by restructuring the traffic management infrastructure, including the

implementation of a 1988 proposal by a DOD task force to consolidate the

individual headquarters commands. While CBO agrees that savings would

result from implementation of this option, it cannot develop a 5-year

savings estimate until numerous variables, such as the extent of

consolidation and the impact on command and support structures, are

determined.

Related GAO Products Defense Transportation: Commercial Practices Offer Improvement

Opportunities (NSIAD-94-26, November 26, 1993).

Defense Transportation: Ineffective Oversight Contributes to Freight

Losses (NSIAD-92-96, June 18, 1992).

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Defense Reorganization: DOD’s Efforts to Streamline the Transportation

Command (NSIAD-91-36BR, October 26, 1990).

GAO Contact Donna M. Heivilin, (202) 512-8412

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Option:

Reduce Excess

Capacity and Increase

Cost-Effectiveness of

Depot Maintenance

Program

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

DOD’s annual $15 billion depot maintenance program provides for major

overhaul of parts, rebuilding parts and end items, modifying systems and

equipment by applying new or improved components, and manufacturing

parts unavailable from the private sector. This work is accomplished by

thousands of commercial contractors as well as by DOD employees in large

industrial depots maintained by the military departments. Factors such as

threat changes, new war-fighting plans, force structure reductions, and

increased reliability and maintainability of many military systems have

significantly reduced depot maintenance requirements over the past few

years. The department has been struggling to implement initiatives to

(1) identify what maintenance should be conducted at depots and what

should be conducted in operational units, (2) cost-effectively allocate

depot maintenance workload between the public and private sectors,

(3) downsize the military depot maintenance system1

 to reduce excess

capacity, and (4) implement a cost-effective approach for managing DOD’s

depot management programs, systems, and facilities. Changes in several

areas could improve the cost-effectiveness of the DOD depot maintenance

program.

First, the current DOD depot management structure is not conducive to

making interservicing decisions that are essential to developing a more

efficient and effective depot maintenance system. Several prior GAO

studies have discussed this problem in detail. By consolidating the

management of the depot maintenance program in a single DOD agency or

command, the department would produce the greatest opportunity for

efficiency and matching depot capacity with future requirements.

1

With full implementation of currently approved base realignment and closure (BRAC) decisions, the

number of military depots will be reduced to 24, and more closures are expected to be announced as a

part of the 1995 BRAC process.

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Second, legislation that prohibits the military departments from

contracting out more than 40 percent of their depot maintenance work to

the private sector may preclude the most cost-effective allocation of

workload. Furthermore, since statistics gathered regarding this workload

allocation are inconsistent among the services and between the public and

private sector, DOD’s analysis of the so-called 60-40 split between the

public and private sector is not meaningful. The Congress may wish to

consider legislation eliminating the 60-40 requirement and providing that

DOD assign depot work to the public or private sector based on merit-based

criteria that includes industrial base, readiness, and core requirements as

well as cost.

CBO cannot develop a 5-year savings estimate at this time. The magnitude

of savings would depend on the resulting structure and size of the depot

maintenance system and workload split between the private and public

sectors.

Related GAO Products Navy Maintenance: Assessment of the Public and Private Shipyard

Competition Program (GAO/NSIAD-94-184, May 25, 1994).

Correspondence to the Chairman, Subcommittee on Readiness,

Committee on Armed Services, July 28, 1994 (follow-up to April 12, 1994,

Depot Maintenance Testimony).

Depot Maintenance: Issues in Allocating Workload Between the Public and

Private Sectors (GAO/T-NSIAD-94-161, April 12, 1994).

Depot Maintenance: Issues in Management and Restructuring to Support a

Downsized Military (GAO/T-NSIAD-93-13, May 6, 1993).

GAO Contact Donna M. Heivilin, (202) 512-8412

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Option:

Use of Innovative

Commercial Practices

to Supply Electronics

Items to Maintenance

and Repair Facilities

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

The Defense Logistics Agency (DLA) manages over 1 million electronics

items, such as resistors, fuses, and switches. It stores this inventory,

valued at over $2 billion, at 28 distribution depots and other storage

locations. This large level of inventory reflects DLA’s practice of buying and

storing electronics supplies to ensure they are available to

customers—sometimes several years in advance of when the supplies are

actually needed. The turnover of DLA’s electronics inventory is slow. In

fiscal year 1993, the wholesale inventory of such items would turn over

once every 4 years. In comparison, private sector suppliers often turn their

stock over 4 times a year.

Many private sector companies have adopted modern inventory

management practices, including long-term relationships with suppliers,

direct delivery programs, and direct communication channels between

suppliers and end users. With these practices, companies do not store

supplies at intermediate handling and storage locations, as DOD does.

Instead, they arrange for suppliers to deliver inventory items directly to

the end users facility close to the time when the items are needed. The

result is a reduction in inventories and related holding costs as well as

improved customer service.

DLA has initiated several programs to adopt commercial practices for

electronics items, but overall progress is slow and projected results are

limited. However, DLA recently initiated a study to examine the feasibility

of using “supplier parks” at military industrial facilities—a successful

technique currently in use by progressive private firms. Budgetary savings

would result if DLA managed electronics inventories in this manner.

GAO believes that substantial opportunities exist to reduce DOD

expenditures on electronics items by adopting best commercial practices

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on a wide-scale basis. CBO cannot develop a 5-year savings estimate for this

option at this time.

Related GAO Product Commercial Practices: DOD Could Reduce Electronics Inventories by Using

Private Sector Techniques (GAO/NSIAD-94-110, June 29, 1994).

GAO Contact Donna M. Heivilin, (202)512-8412

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Option:

Consolidate the

Separate Military

Exchange Stores

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Multiple

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

GAO reviewed the “morale, welfare, and recreation (MWR)” program—a

$12 billion dollar enterprise that provides service members, their

dependents, and eligible civilians with an affordable source of goods and

services like those available to civilians—and found that revenue

generated by the MWR activities is likely to decrease in the 1990’s because

of the downsizing of forces and increasing private sector competition.

Appropriated funds—which now constitute 10 percent of MWR

funding—are also expected to decline as overall budgets decline.

Exchange stores are the largest producer of MWR revenue. DOD’s

decentralized approach to managing the MWR program will not work well

in this environment. Since 1968, studies by GAO, DOD, and others have

recommended the consolidation of exchanges into a single entity. Each

study predicted financial benefits could be achieved through

consolidation. While the Army and Air Force exchanges have been

consolidated, the Navy and Marine Corps retain independent exchanges.

Further consolidations could achieve additional savings. CBO cannot

develop a 5-year savings estimate until numerous variables, such as the

extent of consolidation, are determined.

Related GAO Product Morale, Welfare, and Recreation: Declining Funds Require DOD to Take

Action (GAO/NSIAD-94-120, February 28, 1994).

GAO Contact Donna M. Heivilin, (202) 512-8412

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Option:

Copayments for Care

in Military Hospitals

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Defense Health Program (97-0130)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Redefine beneficiaries

Numerous GAO reports and testimonies have documented the problems of

coordinated care in the military health service system. In particular, we

have reported that currently care received by military beneficiaries in

military hospitals and clinics is free. However, when care must be

obtained through civilian providers, military beneficiaries share in the

costs of the care they receive. This uneven system has led to confusion,

uncertainty, and inequity among beneficiaries as to what their health care

benefits are. Further, research has shown that free care leads to greater

(and unnecessary) utilization and, therefore, greater costs.

DOD has suggested a new set of cost-sharing requirements for care

provided by civilian network providers under its health care reform

proposal. However, the proposal maintains free care to beneficiaries in

military facilities, thereby continuing the inequity and overutilization

problems.

The Congress may wish to establish beneficiary cost-sharing requirements

for care received in military hospitals similar to the DOD health care reform

proposal for care that beneficiaries will receive from civilian facilities.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 210 200 200 200 200

Outlays 180 190 190 200 200

Savings from the 1995 funding level adjusted for inflation

Budget authority 210 200 200 200 200

Outlays 180 190 200 200 200

Source: Congressional Budget Office.

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Related GAO Products Defense Health Care: Lessons Learned From DOD’s Managed Health Care

Initiatives (GAO/T-HRD-93-21, May 10, 1993).

Defense Health Care: Obstacles in Implementing Coordinated Care

(GAO/T-HRD-92-24, April 7, 1992).

Defense Health Care: Implementing Coordinated Care—A Status Report

(GAO/HRD-92-10, October 3, 1991).

The Military Health Services System—Prospects for the Future

(GAO/T-HRD-91-11, March 14, 1991).

GAO Contact David P. Baine, (202) 512-7101

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Option:

Administering

Defense Health Care

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Account Defense Health Program (97-0130)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

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 systems perform many of the same administrative,

management, and operational functions.

Since 1949 over 22 studies have reviewed whether a central entity should

be created within 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.

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Related GAO Products Defense Health Care: Lessons Learned From DOD’s Managed Health Care

Initiatives (GAO/T-HRD-93-21, May 10, 1993).

Defense Health Care: Obstacles in Implementing Coordinated Care

(GAO/T-HRD-92-24, April 7, 1992).

Defense Health Care: Implementing Coordinated Care—A Status Report

(GAO/HRD-92-10, October 3, 1991).

The Military Health Services System—Prospects for the Future

(GAO/T-HRD-91-11, March 14, 1991).

GAO Contact David P. Baine, (202) 512-7101

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Option:

Centralize

Department of

Energy’s Procurement

of Laboratory Testing

Services

Authorizing committees Energy and Natural Resources (Senate) 

Resources (House) 

Commerce (House)

Appropriations subcommittees Energy and Water Development 

(Senate and House)

Primary agency Department of Energy

Account Defense Environment, Restoration & Waste

Management (89-0242)

Spending type Discretionary

Budget subfunction Atomic energy defense activities

Framework theme Improve efficiency

Both the Department of Energy (DOE) and the Environmental Protection

Agency (EPA) are responsible for large environmental cleanup efforts. A

major component of DOE’s cleanup program involves analyses of toxic and

radioactive contaminants. DOE has estimated that these analyses may cost

the federal government more than $15 billion over the next 30 years. While

both agencies analyze nonradioactive organic and inorganic chemicals

using some of the same testing methods, the agencies procure these

commonly-used analyses in a different manner. EPA centrally contracts for

them while DOE employs a decentralized procurement approach that relies

heavily on its operating contractors to subcontract for them through

commercial laboratories.

Under its procurement approach, DOE pays higher prices to its commercial

laboratories than EPA does for the same analyses and methods, partly

because decentralized purchasing practices do not produce price

competition, volume discounts, and compliance with one standard

contract format. Also, its decentralized approach to procuring

commonly-used analyses results in duplication of contractor efforts in the

award and management of commercial laboratory subcontracts, which

adds inefficiencies and increases administrative costs. GAO’s preliminary

analysis indicates that if DOE contracted for these services through one

central procurement function, similar to EPA’s approach, it would receive

substantially lower prices from commercial laboratories by consolidating

its overall buying power and greatly reduce the inherent duplication in

contract award and oversight activities.

DOE estimates that laboratory analyses cost at least 15 percent of its

cleanup costs. For fiscal year 1995, DOE was appropriated about $5 billion

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for Defense Environmental Restoration and Waste Management. By

centralizing its laboratory analyses, GAO assumes DOE could achieve

savings of $62 million annually as shown in the table below.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 62 62 62 62 62

Outlays 37 57 62 62 62

Savings from the 1995 funding level adjusted for inflation

Budget authority 62 63 65 67 69

Outlays 37 58 64 66 68

Source: Congressional Budget Office.

Related GAO Product Report expected to be issued by May 1995

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Improve Department

of Energy’s Property

Management Controls

Authorizing committees Armed Services (Senate) 

Energy and Natural Resources (Senate) 

National Security (House) 

Commerce (House)

Appropriations subcommittees Energy and Water Development 

(Senate and House)

Primary agency Department of Energy

Accounts Multiple

Spending type Discretionary

Budget subfunction Atomic energy defense activities

Framework theme Improve efficiency

The Department of Energy (DOE) has accumulated a considerable amount

of property, including computer, office, and electronic equipment, most of

which is managed by its contractors. GAO reviewed the property

management activities of 20 of DOE’s major contractors and found that

$74 million in government-owned property was missing. GAO also

determined that, of the 20 contractors reviewed, only seven had property

management systems that were approved by DOE as of January 31, 1994.

Without such approval, no one can know with certainty how much

property might be missing.

Based on 5 years of audit work in this area, GAO believes that each year

millions of dollars are spent unnecessarily to replace property that has

become missing as a result of contractor actions. To curb this expense,

DOE must give property management improvement a higher departmental

priority. This improvement could include DOE taking steps to recoup the

value of lost or missing property from the responsible contractors. In

addition, DOE can ensure that all departmental contractors have approved

property management systems in place. While improved controls will

achieve savings, a savings estimate was not developed for this option

because the value and amount of missing property is unknown.

Related GAO Products Nuclear Security: Property Control Problems at DOE’s Livermore

Laboratory Continue (GAO/RCED-91-141, May 16, 1991).

Nuclear Security: DOE Oversight of Livermore’s Property Management

System Is Inadequate (GAO/RCED-90-122, April 18, 1990).

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Department of Energy: Status of DOE’s Property Management System

(GAO/RCED-94-154FS, April 7, 1994).

Department of Energy: The Property Management System at the Rocky

Flats Plant Is Inadequate (GAO/RCED-94-77, March 1, 1994).

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Restructure

Department of

Energy’s National

Laboratories

Authorizing committees Energy and Natural Resources (Senate)

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 Energy supply

Framework theme Reassess objectives

The Department of Energy’s (DOE) laboratory network is comprised of 28

labs, with a budget of nearly $8 billion and employment at 63,000. Recent

shifts in national priorities—principally, the dramatic reduction in the

arms race and proposed cutbacks in energy and nuclear research

funding—raise questions about the need for all these labs. In particular,

DOE’s three large defense labs, costing about $1 billion annually, were

created to design and test nuclear weapons, a role which has greatly

diminished over time. Currently, these labs allocate less than half their

budgets to nuclear weapons design, development and testing—the

principal reasons they were created. Yet, as GAO has reported, DOE still

maintains a redundant structure with respect to nuclear weapons work, an

arrangement that may no longer be the most efficient alternative for

meeting defense requirements.

Aside from deciding on the ideal number of labs, most experts GAO

consulted agree that the missions of the laboratories now need to be

clarified if their resources are to be used most effectively. Some are

suggesting the current laboratory structure may not be the most rational if

the labs are to move into newer mission areas. Suggestions for

restructuring range from converting some labs into private or quasi-public

entities, transferring labs to universities, or assigning them to different

agencies whose missions better match lab strengths.

The Congress should reconsider the role and mission of the laboratories,

which could be restructured in various ways. For example, the recent

Galvin Commission examined a transfer of most of the nuclear weapons

functions of Lawrence Livermore to Los Alamos laboratory. Los Alamos

officials estimated that having both facilities design weapons but only one

engineer and test them would save up to $200 million in annual operating

costs. The table below reflects these savings.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 200 200 200 200 200

Outlays 120 185 200 200 200

Savings from the 1995 funding level adjusted for inflation

Budget authority 200 204 209 215 221

Outlays 120 188 207 212 218

Source: Congressional Budget Office.

Related GAO Products National Laboratories Need Clearer Mission and Better Management

(GAO/RCED-95-10, January 27, 1995).

DOE’s National Laboratories: Adopting New Missions and Managing

Effectively Pose Significant Challenges (GAO/T-RCED-94-113, February 3,

1994).

Department of Energy: Management Problems Require a Long-Term

Commitment to Change (GAO/RCED-93-72, August 31, 1993).

Energy Policy: Changes Needed to Make National Energy Planning More

Useful (GAO/RCED-93-29, April 27, 1993).

Nuclear Weapons Complex: Issues Surrounding Consolidating Los Alamos

and Lawrence Livermore National Laboratories (GAO/RCED-92-98,

September 24, 1992).

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Negotiate More

Realistic

Environmental

Agreements

Authorizing committees Energy and Natural Resources (Senate) 

Resources (House) 

Commerce (House)

Appropriations subcommittees Energy and Water Development 

(Senate and House)

Primary agency Department of Energy

Account Defense Environment & Waste Management

(89-0242)

Spending type Discretionary

Budget subfunction Atomic energy defense activities

Framework theme Reassess objectives

The Department of Energy’s (DOE) Environmental Restoration and Waste

Management (EM) program oversees and directs all aspects of the agency’s

nuclear weapons complex cleanups. DOE has faced criticism about poor

management and high costs in the EM program.

As required by Superfund legislation for sites on the National Priorities

List, and to secure compliance with other statutes, the Department of

Energy (DOE) has entered into agreements with the Environmental

Protection Agency and various states to clean up and conduct related

activities at the nuclear weapons complex sites. For fiscal year 1995 alone,

about $1.4 billion has been targeted for this and related purposes.

However, many of these environmental agreements were negotiated

before DOE had accurate information on which to base the scope of work

or the milestones to which it is committed. As a result, the agreements

taken together do not reflect a national strategy of targeting resources

based on the highest risks to human health and the environment.

Moreover, many of the contaminated groundwater and soil problems do

not yet have acceptable cleanup solutions. And although DOE has spent

over $600 million to develop new cleanup technologies, few of them have

yet to find their way into DOE’s cleanup agenda.

In addition, the EM program, as CBO noted, has not been efficiently

managed. Internal and external reviews have found excessive levels of

funds supporting management functions.

DOE could achieve both long-term and short-term budgetary savings if it

delayed cleanup actions where existing methods cannot achieve the

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necessary cleanup levels efficiently or effectively. Delaying such projects

would require that DOE renegotiate environmental agreements to establish

milestones that would allow the agency to employ more advanced cleanup

technologies in the future. By renegotiating environmental agreements to

delay certain environmental restoration projects and by reducing

inefficient administrative and management functions, DOE could achieve

significant savings. The Congress may wish to reflect these savings from

increased managerial effectiveness in a 10-percent reduction in DOE’s EM

budget.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 582 582 582 582 582

Outlays 288 491 582 582 582

Savings from the 1995 funding level adjusted for inflation

Budget authority 602 623 645 667 691

Outlays 303 521 631 653 676

Source: Congressional Budget Office.

Related GAO Products Department of Energy: National Priorities Needed for Meeting

Environmental Agreements (GAO/RCED-95-1, March 3, 1995).

Department of Energy: Management Changes Needed to Expand Use of

Innovative Cleanup Technologies (GAO/RCED-94-205, August 10, 1994).

GAO Contact Victor S. Rezendes, (202) 512-3841

Page 81 GAO/OCG-95-2 Addressing the Deficit
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Option:

Improve Hanford Site

Management

Authorizing committees Energy and Natural Resources (Senate) 

Resources (House) 

Commerce (House)

Appropriations subcommittees Energy and Water Development 

(Senate and House)

Primary agency Department of Energy

Account Defense Environmental Restoration & Waste

Management 

(89-0242)

Spending type Discretionary

Budget subfunction Atomic energy defense activities

Framework theme Improve efficiency

The Hanford Site, a 560-square-mile installation managed by the

Department of Energy (DOE), has produced nuclear materials for national

defense since 1943. GAO believes that improvement could be made in the

management of the site that would reduce future costs. Descriptions of the

two components of this option follow.

Hanford Farm Maintenance

Procedures

Over 61 million gallons of high-level radioactive waste are stored in 177

underground storage tanks at DOE’s Hanford Site in southeast Washington

State. Timely maintenance of these aging tanks and equipment for

monitoring them is critical because of the hazardous nature of the

contents and the potential consequences of a significant leak or other

accident. However, a 1992 DOE study found problems with the

maintenance program.

GAO believes that DOE has made progress in strengthening the $32 million

tank farm maintenance program, resulting in the reduction of the number

of uncompleted maintenance projects. However, development of

benchmark and, where appropriate, engineered performance standards

would help identify additional opportunities to improve tank farm

maintenance.

The Congress may wish to encourage DOE to improve the efficiency of its

tank farm maintenance program. Savings would depend on the specific

actions taken.

Well-Drilling Technology As part of the cleanup of radioactive and hazardous wastes at its Hanford

Site in southeastern Washington State, DOE will install almost 900

permanent and temporary monitoring wells in fiscal years 1993-1997 at a

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cost of more than $270 million. However, the cost of installing wells could

be reduced through the adoption of faster and less expensive well-drilling

technologies and using the drilling workforce more efficiently.

GAO believes that Hanford should expedite the evaluation of alternative

well-drilling technologies and, in the interim, require its contractors to

select the most cost-effective technology, consistent with safety standards,

for use at each well being drilled. While employing less costly technologies

and more efficient work forces could achieve savings, a budget estimate

cannot be developed to reflect such savings. This is because the link

between operational efficiencies and the resulting savings is not certain

enough for estimation purposes.

Related GAO Product Nuclear Waste: Future Improvements Needed in the Hanford Tank Farm

Maintenance Program (GAO/RCED-95-29, November 8, 1994).

Nuclear Waste: Hanford’s Well-Drilling Costs Can Be Reduced

(GAO/RCED-93-71, March 4, 1993).

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Burdensharing in the

Republic of Korea

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Defense (Senate)

National Security (House)

Primary agency Department of Defense

Accounts Operation and Maintenance, Army (21-2020) 

Air Force (57-3400) 

Navy (17-1804)

Spending type Discretionary

Budget subfunction Department of Defense—Military

Framework theme Improve efficiency

The United States expects to spend $845 million in fiscal year 1995 on

operations and maintenance to support American troops in the Republic

of Korea. Operations and maintenance costs include salaries of local

national employees working for the U.S. military, utilities, and support

services contracts. In 1995, national labor costs (in Korean currency) will

amount to the equivalent of about $370 million, or 44 percent of the total

estimated operations and maintenance costs. During negotiations in 1994,

the United States asked the Korean government to pay $311 million to

offset total won-based operations and maintenance costs; the Republic of

Korea agreed to pay $300 million. About $90 million of Korea’s

contribution will offset the national labor costs in 1995.

The United States plans to conduct further negotiations in the spring of

1995 with the Republic of Korea on the level of its support for these costs.

GAO believes that the United States should seek an agreement with the

Republic of Korea to increase its contribution to include payment of all

won-based labor costs. Attaining this goal would significantly reduce the

costs to maintain the U.S. presence in Korea. If an agreement were

reached, the following savings could be achieved.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 290 300 310 320 330

Outlays 220 280 300 310 320

Source: Congressional Budget Office.

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Related GAO Product Military Presence: U.S. Personnel in the Pacific Theater (GAO/NSIAD-91-192,

August 20, 1991).

GAO Contact Joseph E. Kelley, (202) 512-4128

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150 International

Affairs

• Food aid: reduce or eliminate funding for Public Law 480 Title I Program

• U.S. contribution to the International Fund for Agricultural Development

• Shortwave radio modernization program

• TV Marti

• Sell high-value property in Tokyo

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Option:

Food Aid: Reduce or

Eliminate Funding for

Public Law 480 Title I

Program

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Commerce, Science, and Transportation

(Senate) 

Agriculture (House)

Appropriations subcommittees Agriculture, Rural Development, and Related

Agencies (Senate) 

Agriculture (House)

Primary agency Department of Agriculture

Accounts P.L. 480 Grants (12-2278)

P.L. 480 Program (12-2277)

Spending type Discretionary/Direct

Budget subfunction International affairs

Framework theme Reassess objectives

Through the Public Law 480 Title I Food Aid Program, U.S. agricultural

commodities are sold to developing countries on long-term credit at

below-market interest rates. The current goal of the program is to promote

the foreign policy of the United States by enhancing the food security of

developing countries. The Public Law 480 legislation specifies ways that

agricultural commodities provided under the program can support this

goal, including their use to promote broad-based, sustainable (BBS)

development, and develop and expand markets for U.S. agricultural

commodities.

Title I’s contribution to BBS development and long-term market

development for U.S. agricultural goods is limited for many reasons. Title I

aid has minimal impact on BBS development because the value of foreign

exchange a country might save through purchasing Title I commodities on

concessional terms—the vehicle through which BBS development could

occur—is small relative to the country’s development needs. Also, the

program provides USDA little leverage to influence development activities

or initiate policy reforms in the recipient country. Furthermore, other

competing objectives dilute whatever leverage might be associated with

the program.

Title I’s contribution to long-term, foreign market development for U.S.

agricultural commodities has not been demonstrated. Title I commodities

tend to be price sensitive, therefore it is difficult to transform the

concessional market share established through the Title I program into

commercial market share, unless the United States can offer competitive

prices and financing.

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In addition, several legislatively mandated program requirements (that is,

cargo preference rules, reexport restrictions, and commodity eligibility

rules) impose constraints on recipients that undermine market

development efforts.

Despite streamlined management adopted in 1990 amendments to the Title

I program, multiple and sometimes competing objectives, as well as

contradictory program requirements, continue to encumber the Title I

program, making it difficult to create and implement an effective program

strategy. Thus, from this perspective, the Congress may wish to consider

reducing or eliminating funding for the Title I program. The savings

presented below assume that the program authority would not be

extended beyond fiscal year 1996.3

 The delay would permit USDA to lower

production through an increased acreage set-aside in 1996 which would

not build surpluses or otherwise affect the budget.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 0 268 268 268 268

Outlays 0 148 254 268 268

Savings from the 1995 funding level adjusted for inflation

Budget authority 0 286 296 306 317

Outlays 0 158 277 301 312

Source: Congressional Budget Office.

Related GAO Product Public Law 480 Title I: Economic and Market Development Objectives Not

Met (GAO/T-GGD-94-191, August 3, 1994).

GAO Contact Allan I. Mendelowitz, (202) 512-4812

3

The savings include $29 million for ocean freight differential costs for the shipment of agricultural

commodities.

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Option:

U.S. Contribution to

the International Fund

for Agricultural

Development

Authorizing committees Foreign Relations (Senate) 

International Relations (House)

Appropriations subcommittees Foreign Operations (Senate and House)

Primary agency Funds appropriated to the President

Account International Organizations and Programs 

(11-1005)

Spending type Discretionary

Budget subfunction International development and humanitarian

assistance

Framework theme Reassess objectives

The International Fund for Agricultural Development (IFAD) finances

projects designed to promote agricultural self-sufficiency in food deficit

countries. Members of the Organization for Economic Cooperation and

Development, and the Organization of Petroleum Exporting Countries

(OPEC) provide most of the funding for IFAD operations, but the United

States is the largest single financial contributor. The United States has

provided IFAD about $542 million since its inception in 1977: $200 million

as the initial contribution, and $180 million, $79.7 million, and $82.8 million

for the first, second, and third replenishments, respectively. The IFAD

Governing Council will vote on the fourth replenishment in early 1995.

GAO first reported on IFAD in 1981. Since that time, GAO has noted that IFAD

has expanded its size and role in project development and implementation

significantly beyond what was originally intended. IFAD develops its own

projects and its expanded staff is involved in all phases of project

management as a consequence. Personnel and administrative costs have

increased dramatically. At the same time, donations from OPEC countries

have fallen off sharply. GAO has criticized the IFAD funding trends,

expanded staff levels, and increased involvement in projects and

recommended that IFAD’s mission and funding (both the amount and the

contribution ratio) be reexamined.

Given the significant changes in IFAD’s operations, the funding

uncertainties on the part of other members, and the limited U.S.

government involvement in monitoring IFAD field activities, GAO believes

that further U.S. support for IFAD warrants reassessment. CBO did not

provide an estimate of budgetary savings for fiscal years 1996 through

2000 because the administration did not request and the Congress did not

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provide any funds for IFAD in 1995. If the Congress chose to suspend

further U.S. contributions, no future appropriations would be needed.

Related GAO Products Multilateral Foreign Aid: U.S. Participation in the International Fund for

Agricultural Development (GAO/NSIAD-93-176, September 24, 1993).

Status Report on U.S. Participation in the International Fund for

Agricultural Development (ID-81-33, March 27, 1981).

GAO Contact Joseph E. Kelley, (202) 512-4128

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Option:

Shortwave Radio

Modernization

Program

Authorizing committees Foreign Relations (Senate) 

International Relaltions (House)

Appropriations Subcommittees Commerce, Justice, State, the Judiciary, and

Related Agencies (Senate and House)

Primary agency U.S. Information Agency

Account Radio Construction (67-0204)

Spending type Discretionary

Budget subfunction Foreign information and exchange activities

Framework theme Reassess objectives

Voice of America (VOA) broadcasts are sent to about 29 leased and owned

relay stations worldwide via satellite. Relay stations broadcast VOA

programs via shortwave and medium wave transmissions. GAO believes

that major political changes and advances in communications technology

may render some of the Voice of America’s (VOA) planned shortwave

station modernization projects obsolete before they are finished.

In Eastern Europe and the republics of the former Soviet Union,

indigenous media, including television, have become relatively reliable

sources of information. Further, audiences for U.S. government direct

broadcasts (VOA and Radio Free Europe/Radio Liberty (RFE/RL)) have

declined. In response to the recent consolidation of VOA and RFE/RL within

the U.S. Information Agency, the radios have cut back direct broadcast

hours and are planning to eliminate redundant language broadcasts. In

several locations, they are using alternatives—such as providing programs

to local stations for rebroadcast—to supplement or replace direct

broadcasts. By the turn of the century, direct broadcasts from satellites

delivering high-quality signals may be available.

Despite these changes and the fact that fewer people in target audiences

are listening to shortwave broadcasts, VOA plans to continue to construct

new shortwave stations and modernize existing ones. Over half of the

$900 million VOA plans to spend on modernization between 1994 and 2003

is for shortwave projects that have not yet begun. The planned shortwave

modernization projects are not supported by cost-benefit analyses. In

1994, GAO recommended that VOA analyze the costs and benefits of its

shortwave modernization projects, given the consolidation of VOA and

RFE/RL and the changing political and technological environment.

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Because the planned shortwave modernization projects are not supported

by cost-benefit analysis, GAO believes that further requests for additional

appropriations should be scrutinized and delayed pending further

analyses. Only a fraction of the dollars associated with planned

modernization projects has been appropriated; therefore, the estimated

budget savings compared with the baseline is modest. The following table

reflects the savings that could be achieved—only $5 million has been

appropriated—if the new Pacific Island shortwave station was not

constructed.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 5 5 5 5 5

Outlays 2 3 5 5 5

Savings from the 1995 funding level adjusted for inflation

Budget authority 5 5 6 6 6

Outlays 2 3 5 6 6

Source: Congressional Budget Office.

Related GAO Products Voice of America: Station Modernization Projects Need to Be Justified

(GAO/NSIAD-94-69, January 24, 1994).

Voice of America: Management Actions Needed to Adjust to a Changing

Environment (GAO/NSIAD-92-150, July 24, 1992).

GAO Contact Joseph E. Kelley, (202) 512-4128

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Option:

TV Marti Authorizing committees Foreign Relations (Senate) 

International Relations (House)

Appropriations subcommittees Commerce, Justice, State, and Judiciary (Senate

and House)

Primary agency U.S. Information Agency

Account Broadcasting to Cuba (67-0208)

Spending type Discretionary

Budget subfunction Foreign information and exchange activities

Framework theme Reassess objectives

GAO reports show that although USIA provides television broadcasts to

Cuba through TV Marti, the broadcasts are constantly and effectively

jammed. USIA’s research data shows that, mainly as a result of the

jamming, the number of Cubans who are able to watch the broadcasts is

small. Other factors that decrease effectiveness of TV Marti include

problems with transmission facilities, broadcast hours that are not

convenient to viewers, and a broadcast signal that does not reach much

beyond the greater Havana area. The U.S. Advisory Commission on Public

Diplomacy has reported that TV Marti is not cost-effective and has

repeatedly recommended that it be terminated. In March 1994, the

Advisory Panel on Radio Marti and TV Marti concluded that TV Marti

cannot be considered cost effective and would not be cost effective unless

the viewing audience in Cuba could be substantially expanded. According

to the Director of USIA’s Office of Cuba Broadcasting, TV Marti expanded

its daily broadcasts in August 1994 by 2 hours (from 3:30 am to 8:00 am),

but Cuban jamming also expanded. In an attempt to overcome jamming,

TV Marti has plans to convert from VHF to UHF transmission, at a cost of

$1.2 million, even though Cuba could acquire equipment to jam the new

signal at relatively little cost. Furthermore, GAO has criticized controls over

program quality and objectivity, and according to the Advisory Panel,

identified problems do not appear to have been fully resolved.

The Congress may wish to eliminate TV Marti given its persistent problems

and its limited ability to achieve its goals. If TV Marti were eliminated, the

savings that could be achieved are shown in the following table.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 2 8 8 8 8

Outlays 2 7 8 8 8

Savings from the 1995 funding level adjusted for inflation

Budget authority 2 9 9 10 10

Outlays 2 8 9 9 10

Source: Congressional Budget Office.

Related GAO Products TV Marti: Costs and Compliance With Broadcast Standards and

International Agreements (GAO/NSIAD-92-199, May 6, 1992).

Broadcasts to Cuba: TV Marti Surveys are Flawed (GAO/NSIAD-90-252,

August 9, 1990).

GAO Contact Joseph E. Kelley, (202) 512-4128

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Option:

Sell High-Value

Property in Tokyo

Authorizing committees Foreign Relations (Senate) 

International Affairs (House)

Appropriations subcommittees Commerce, Justice, State, the Judiciary, and

Related Agencies (Senate and House)

Primary agency Department of State

Account Acquisition and Maintenance of Buildings

Abroad (19-0535)

Spending type Discretionary

Budget subfunction Conduct of foreign affairs

Framework theme Reassess objectives

The United States government owns about 3,000 real properties

oversees—valued at about $12 billion—some of which could be sold or

leased. The State Department is permitted to use real property sales

proceeds for other facilities’ needs without specific OMB or Congressional

approval.

GAO believes that some high-value properties in Tokyo, Japan, are

underdeveloped. Analysis demonstrates the feasibility of—and identifies

options for—selling portions of this property. One option would be to sell

the Deputy Chief of Mission residence and construct a less costly

replacement residence on the government-owned housing compound. The

State Department has rejected this option because the embassy desired to

retain the facility for representational purposes.

The current sales value of this property is uncertain. There has been no

recent appraisal of the Deputy Chief of Mission residence, but in 1990, it

was valued at $92 million. Embassy information, based on Japanese

government reports, shows that residential property values have declined

about 30 percent since 1990.

GAO assumes that the Deputy Chief of Mission residence is valued at

$40 million—a conservative estimate at less than 50 percent of its value in

1990. GAO also assumes that a replacement residence would be built on the

Mitsui compound prior to the current residence being sold. The second

residence could be built on government-owned property for $3.8 million,

according to a 1991 study conducted for the State Department.

As described in our letter, this option involves an asset sale. Under current

BEA rules, therefore, it could not be used for deficit reduction.

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Furthermore, the Congress would have to specifically restrict proceeds

from the sale of the Deputy Chief of Mission residence from reverting to

the State Department’s budget, as currently authorized. If legislation were

changed, the savings that could be achieved from selling this property are

shown in the following table.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Asset Sale

Budget authority –4 0 0 0 40

Outlays –1 –1 –1 –1 40

Source: Congressional Budget Office.

Note: CBO scored this option using the following assumption. Four million dollars would be

authorized for the construction of the new Deputy Chief of Mission residence on the Mitsui

compound. The sale of the old residence would occur after construction of the first is completed.

The sale of the old residence at the assumed level of $40 million would count as savings if legislation

were changed.

Related GAO Product Management of Overseas Real Property (GAO/HR-93-15, December 1992).

GAO Contact Joseph E. Kelley, (202) 512-4128

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250 General

Science, Space, and

Technology

• Space Station

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Option:

Space Station Authorizing committees Commerce, Science and Transportation

(Senate) 

Science (House)

Appropriations subcommittees VA, HUD, and Independent Agencies

(Senate and House)

Primary agency National Aeronautics and Space

Administration

Account Human Space Flight (80-0111)

Spending type Discretionary

Budget subfunction Space flight, research, and supporting

activities

Framework theme Reassess objectives

In 8 reports and testimonies issued since 1991, GAO has expressed

concerns about rising cost estimates that have prompted several redesigns

of the space station since it was first funded in fiscal year 1985. In 1993,

the station was redesigned again and Russia was brought in as a partner.

NASA believed that Russian participation would improve the station’s

capabilities and reduce the estimated cost to complete assembly by

$2 billion. The Congress subsequently capped funding from fiscal year

1994 through 2002 at $17.4 billion.

While all the details of Russian participation have not yet been worked

out, it appears that increased Russian involvement in the station will not

produce savings and in fact may add to the cost to complete assembly.

NASA believes that it can identify other savings to offset the added costs of

Russian participation and stay within the $17.4 billion cap. It is not clear

that all the necessary reductions can be achieved. Also, it has not been

determined to what degree U.S. researchers will benefit from the

additional resources available from Russian involvement.

Given the uncertainty that still surrounds the station’s cost, schedule, and

performance, the Congress may wish to consider whether, and to what

extent, it wants to accept NASA’s most recent changes. After reviewing the

details of these changes, the Congress could consider whether to accept

the project’s latest redesign, reduce its scope and cost, or terminate it. If

the project were terminated, the following savings would result.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 2,100 2,100 2,100 2,100 2,100

Outlays 1,323 1,953 2,100 2,100 2,100

Savings from the 1995 funding level adjusted for inflation

Budget authority 2,169 2,243 2,323 2,402 2,486

Outlays 1,367 2,064 2,288 2,367 2,450

Source: Congressional Budget Office.

Related GAO Products Space Station: Update on the Impact of the Expanded Russian Role

(GAO/NSIAD-94-248, July 29, 1994).

Space Station: Impact of the Expanded Russian Role on Funding and

Research (GAO/NSIAD-94-220, June 21, 1994).

Space Station: Information on National Security Applications and Cost

(GAO/NSIAD-93-208, May 18, 1993).

Space Station: Program Instability and Cost Growth Continue Pending

Redesign (GAO/NSIAD-93-187, May 18, 1993).

NASA: Large Programs May Consume Increasing Share of Limited Future

Budgets (GAO/NSIAD-92-278, September 4, 1992).

Space Station: Status of Financial Reserves (GAO/NSIAD-92-279, July 20, 1992).

NASA Budget: Potential Shortfalls in Funding NASA’s 5-Year Plan

(GAO/T-NSIAD-92-18, March 17, 1992).

Questions Remain on the Costs, Uses, and Risks of the Redesigned Space

Station (GAO/T-NSIAD-91-26, May 1, 1991).

GAO Contact Donna M. Heivilin, (202) 512-8412

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270 Energy • Recover clean coal technology funds

• Delay procurement of nuclear waste containers

• Privatize uranium enrichment program

• Enhance profitability of Naval Petroleum Reserve-1

• Consolidate Strategic Petroleum Reserve

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Option:

Recover Clean Coal

Technology Funds

Authorizing committees Energy and Natural Resources (Senate)

Commerce (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 Energy supply

Framework theme Reassess objectives

In a May 1994 report to the Congress, DOE estimated that on the basis of its

analyses of the funding requirements for the 45 projects in the Clean Coal

Technology Program, there would be about $150 million remaining in

uncommitted program funds. These funds would remain after meeting the

projects’ funding needs and after considering the probability of potential

project cost increases and the probability of additional projects

withdrawing from the program. According to DOE, part of this remaining

balance would be needed to pay annual program administrative costs. In

its fiscal year 1995 departmental budget request, DOE requested

congressional approval to reallocate $100 million ($20 million in fiscal year

1995 and $80 million in fiscal year 1996) of the uncommitted funds to begin

a new international clean coal technology transfer effort. However, DOE’s

proposal was not approved. Thus, at least $100 million in uncommitted

funds originally appropriated for the Clean Coal Technology Program

could be rescinded. If the Congress chose to cut future budget authority by

this amount, the following savings could occur. However, savings in

outlays would occur beyond the 5-year period, when budget authority is

expected to be used.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 100 0 0 0 0

Outlays 0 0 0 0 0

Savings from the 1995 funding level adjusted for inflation

Budget authority 100 0 0 0 0

Outlays 0 0 0 0 0

Source: Congressional Budget Office.

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Related GAO Products 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 Contact Victor S. Rezendes, (202) 512-3841

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Option:

Delay Procurement of

Nuclear Waste

Containers

Authorizing committees Energy and Natural Resources (Senate)

Resources (House)

Commerce (House)

Appropriations subcommittees Energy and Water Development (Senate and

House)

Primary agency Department of Energy

Account Nuclear Waste Disposal Fund (89-5227)

Spending type Discretionary

Budget subfunction Energy supply

Framework theme Reassess objectives

In February 1994, DOE decided to develop by 1998 a system of nuclear

waste containers, called multipurpose containers, that would be used

initially to store and/or transport waste, and later to permanently dispose

of the waste in an underground geologic repository. DOE plans to spend

$36 million on this initiative in fiscal year 1995 and about $254 million in

fiscal years 1996 through 1999.

GAO is concerned that the repository will not be ready to receive the waste

for at least 15 more years and that DOE has no realistic prospects for

developing a federal facility to temporarily store the waste. Until the

repository is ready, DOE intends to make the multipurpose containers

available to utilities that operate nuclear power plants to store their waste.

Developing the multipurpose container system over the next few years so

utilities can use the containers to store waste is premature for two

reasons. First, the final design of the container system depends, in part, on

the results of ongoing studies of a candidate repository site in Nevada.

Development and use of the container system in advance of the results of

these studies may require DOE to eventually spend more money to rework

the container system to make it compatible with the actual repository

environment. Second, DOE’s preliminary position is that, in the absence of

a repository or federal storage facility, DOE is not obligated to begin

accepting waste from utilities. Delaying the procurement of a container

system indefinitely could reduce future costs and produce the following

savings.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 64 64 64 64 0

Outlays 32 58 64 64 32

Savings from the 1995 funding level adjusted for inflation

Budget authority 64 64 64 64 0

Outlays 32 58 64 64 32

Source: Congressional Budget Office.

Related GAO Products Nuclear Waste: Comprehensive Review of the Disposal Program Is Needed

(GAO/RCED-94-299, September 27, 1994).

Nuclear Waste: Development of Casks for Transporting Spent Fuel Needs

Modification (GAO/RCED-92-56, March 13, 1992).

Nuclear Waste: Operation of Monitored Retrievable Storage Facility Is

Unlikely by 1998 (GAO/RCED-91-194, September 24, 1991).

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Privatize Uranium

Enrichment Program

Authorizing committees Energy and Natural Resources (Senate)

Commerce (House)

Primary agency U.S. Enrichment Corporation

Account U.S. Enrichment Corporation Fund

(95-4045)

Spending type Direct

Budget subfunction Energy supply

Framework theme Reassess objectives

For many years GAO supported legislation that would have created a

government corporation as an initial step toward the eventual privatization

of the Department of Energy’s uranium enrichment program. The Energy

Policy Act of 1992 established the United States Enrichment Corporation

which returns revenues less operating expenses and a deposit to a

working capital fund to the Treasury. The act also requires the corporation

to develop by July 1995 a plan to privatize the government’s uranium

business and requires GAO to review the plan before it is implemented. GAO

is to determine if (1) the sale of the corporation would result in any undue

cost to the government and (2) the revenues gained from the sale would

represent at least the net present value of the corporation.

To illustrate potential savings from this option, if the United States

Enrichment Corporation were sold, CBO estimates that the 5-year savings

that follow could be achieved. According to CBO, selling the Corporation

would require about $150 million in expenses in 1996 to prepare and

implement the sale. After sale, which CBO assumes would be completed in

fiscal year 1997, the government would reduce net outlays for 1998

through 2000. Based on Office of Management and Budget and United

States Enrichment Corporation information, CBO estimates that asset sale

receipts for selling the Corporation would total about $1.5 billion over the

1996 through 1997 period. Under current budget rules, however, receipts

from asset sales are not scorable for deficit reduction.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Assets sales

Budget authority 400 1,100 0 0 0

Outlays 400 1,100 0 0 0

Source: Congressional Budget Office.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 0 0 0 0 0

Outlays –150 –8 10 88 159

Source: Congressional Budget Office.

Related GAO Products UEC Cash Flow Projection (GAO/RCED-92-292BR, September 17, 1992).

Comments on Proposed Legislation to Restructure DOE’s Uranium

Enrichment Program (GAO/T-RCED-92-14, October 29, 1991).

Comments on H.R. 2480, The Uranium Enrichment Reorganization Act

(GAO/T-RCED-91-3, October 11, 1990).

Comments on Smith Barney’s Uranium Enrichment Analysis

(GAO/T-RCED-90-101, July 31, 1990).

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Enhance Profitability

of Naval Petroleum

Reserve-1

Authorizing committees Armed Services (Senate) 

National Security (House)

Appropriations subcommittees Interior and Related Agencies (Senate and

House)

Primary agency Department of Energy

Account Energy Programs (89-0219)

Spending type Discretionary

Budget subfunction Energy supply

Framework theme Improve efficiency

The Naval Petroleum Reserve-1 (NPR-1) in Elk Hills, California, was

established in the early 1900s to ensure fuel supplies for the military. The

reserves were largely inactive until the Congress enacted new legislation

in 1976 in response to the 1973 through 1974 Arab oil embargo. The Naval

Petroleum Reserves Production Act of 1976 (Public Law 94-258) changed

NPR-1 from a strategic reserve for the military to a source of oil for the U.S.

economy and revenue for the U.S. government. The U.S. government owns

approximately 78 percent of this oil and gas field; Chevron U.S.A., Inc.

owns 22 percent. DOE, as the administrator for the U.S. government, is

authorized to develop and operate the field.

Since NPR-1 has been primarily viewed as a source of revenue for the U.S.

Treasury, GAO has issued a series of reports relating to issues that need to

be addressed to (1) protect the government’s interests in the event of the

sale of the reserve, (2) increase its revenues by improving its marketing

techniques, and (3) enhance its profitability by operating the field more

along the line of a commercial oil and gas operation.

The Congress may wish to consider amending the NPR Production Act of

1976 to provide DOE with the flexibility to operate NPR-1 in a way that

maximizes the value of the asset rather than maximizing the production of

oil, as is currently the case.

If the Congress and the Secretary of Energy adopt our recommendations,

we believe that over the next 30 years, hundreds of millions of dollars

could be generated for the U.S. taxpayer. For example, to meet the

production requirement, DOE injects gas to enhance oil recovery.

According to preliminary studies by DOE, Bechtel, and Chevron, if this

requirement was eliminated, the gas sold from two reservoirs could

generate a profit of about $200 million in net present value to DOE.

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While CBO agrees that revenues might be generated over the long-term

from this option, CBO is not able to estimate year-to-year savings. The CBO

baseline already anticipates some revenue from NPR-1. Estimating

additional future revenues would depend on the specific management

changes adopted, the time needed for implementation, and future market

conditions.

Related GAO Products Naval Petroleum Reserve: Opportunities Exist to Enhance Its Profitability

(GAO/RCED-95-65, January 12, 1995).

Naval Petroleum Reserve: Limited Opportunities Exist to Increase

Revenues From Oil Sales in California (GAO/RCED-94-126, May 24, 1994).

Naval Petroleum Reserve No. 1: Efforts to Sell the Reserve (GAO/RCED-88-198,

July 28, 1988).

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Consolidate Strategic

Petroleum Reserve

Authorizing committees Energy and Natural Resources (Senate)

Commerce (House)

Appropriations subcommittees Interior and Related Agencies (Senate and

House)

Primary agency Department of Energy

Accounts Strategic Petroleum Reserve (89-0218)

SPR Petroleum Account (89-0233)

Spending type Discretionary

Budget subfunction Defense-related activities 

Emergency energy preparedness

Framework theme Improve efficiency

Because of budget constraints, very little crude oil has been purchased for

storage in the Strategic Petroleum Reserve (SPR) since 1993, and no

additional purchases are planned for fiscal year 1995. Currently, the

reserve has about 150 million barrels of excess storage capacity spread out

over four of the five storage sites. Consolidation of storage sites would

result in lower operations and maintenance costs if DOE maintains the

amount of oil stored in the reserve at its current level of about 600 million

barrels. DOE has decided to close one site that has a serious problem with

water intrusion. Additional savings could result from closing another site

in addition to the one with the water intrusion problem. Reducing the

number of storage sites would reduce the amount of oil that could be

withdrawn on a daily basis.

Savings for this option would depend on the number of storage sites

closed and the associated transfer costs. Preliminary estimates have been

calculated by a DOE contractor for several alternatives, with varying time

frames for potential savings. The estimated net cost savings from

decommissioning and mothballing specific storage sites and transferring

the oil to the remaining sites range from about $105 million to about

$394 million after a 20-year period, depending on the consolidation

alternative selected and whether the sites are reactivated.

To illustrate the potential savings that could be achieved from this option,

two sites could be mothballed and not reopened. According to CBO, if DOE

was required to sell a sufficient amount of existing oil stocks to pay for the

consolidation, no net transport and handling costs for shutting down two

facilities and moving oil elsewhere would occur. This scenario would

require asset sale receipts (selling of oil stocks) to pay for the

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consolidation costs. As shown in the table that follows, paying for such

costs with receipts would then yield net operations savings of about

$15 million to $25 million per year beginning in fiscal year 1999.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 0 0 0 15 25

Outlays 0 0 0 0 12

Savings from the 1995 funding level adjusted for inflation

Budget authority 0 0 0 17 28

Outlays 0 0 0 0 11

Source: Congressional Budget Office.

Related GAO Product Energy Policy: Ranking Options to Improve the Readiness of and Expand

the Strategic Petroleum Reserve (GAO/RCED-94-259, August 18, 1994).

GAO Contact Victor S. Rezendes, (202) 512-3841

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300 Natural

Resources and

Environment

• Federal land policies

• Collaborative federal land management approach

• Federal timber sales

• Conservation reserve program contracts

• Charge fair market value for natural resources

• Communication site fees

• Recreation fees at federal sites

• Hardrock mining royalties

• Natural resources revenue sharing

• Changing how federal needs for helium are met

• Federal water policies

• Water transfers

• Pollution fees and taxes

• Hazardous waste cleanup cost recovery

• Nuclear waste disposal fees

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Option:

Federal Land Policies Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House) 

Resources (House) 

Transportation and Infrastructure (House)

Primary agencies Department of the Interior

Department of Agriculture

Spending type Direct

Framework theme Improve efficiency

The federal government owns and manages more than 700 million

acres—nearly one-third of the U.S. landmass. For many years, these lands

have been sold or otherwise made available for a variety of purposes to

private citizens, corporations, and state and local governments. In many

cases, the rate of return received by the government for the sale or use of

these valuable natural resources has fallen far below reasonable

market-based levels.

This option has two components: increased fees for patenting hardrock

mining claims and higher fees for concessionaires operating on federal

lands. Descriptions of each component follow.

Increased Fees for

Patenting Hardrock Mining

Claims

The Mining Law of 1872 allows holders of economically minable claims to

obtain all rights and interests to both the land and the minerals by

patenting them for $2.50 or $5.00 an acre—an amount that approximated

the fair market value for western grazing land and farmland in 1872. Over

the last 123 years, the federal government has sold about 3.2 million acres

of public lands, or an area about the size of Connecticut, under this patent

provision. As a result, some patent holders have reaped huge profits at the

government’s expense. At the time of GAO’s 1989 study, 265 patent

applications were pending for more than 80,000 acres of public land. At

just 12 of these sites, if all the land applied for was patented, the

government would have received about $16,000 for land appraised in 1988

at between $14.4 million and $47.1 million.

Both the House-passed version (H.R. 322) and the Senate-passed version

(S. 775) of hardrock mining law reform eliminated the patenting of federal

land, and the fiscal year 1995 appropriations bill for the Department of the

Interior and related agencies (H.R. 4602) includes a 1-year moratorium on

new mining patent applications, including about 180 that are pending.

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Higher Fees for

Concessionaires Operating

on Federal Lands

The federal government enters into agreements with concessionaires to

serve as the principal operators of parks, forests, and other recreation

areas. In 1991, GAO reported that concessionaires generated about 

$1.4 billion in gross revenues and paid the government about $35 million in

concession fees—an average return to the government of about 2 percent.

Interior’s follow-on report to the Vice President’s National Performance

Review concluded that receipts from concession franchise fees must be

actively pursued by the National Park Service, estimating that substantial

revenue could be generated by promoting competition, expediting

contract renegotiations, and boosting the government’s return. Legislation

to reform concession management overwhelmingly passed both houses

during the 103rd Congress. However, a compromise could not be reached

and the legislation did not pass before the Congress adjourned. However,

concession legislation will likely be one of five key park and recreation

bills the House Committee on Resources will address.

CBO cannot develop a 5-year estimate of additional receipts due to

increased fees for patenting hardrock mining claims at this time. The

difficulties of estimating the commercial value of holdings, combined with

the lack of essential data on those holdings, makes estimating savings

difficult.

CBO also cannot develop a 5-year estimate of additional receipts from

higher fees for concessionaires operating on federal land at this time. Any

increase in the average rate of return to the government from

concessionaire revenue would depend on future market competition,

contract renegotiations, and the specific management changes adopted by

the Congress.

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Related GAO Products

Hardrock Mining Patents Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

Federal Land Management: The Mining Law of 1872 Needs Revision

(GAO/RCED-89-72, March 10, 1989).

Concessionaires Operating on

Federal Lands

Federal Lands: Little Progress Made in Improving Oversight of

Concessionaires (GAO/T-RCED-93-42, May 27, 1993).

Forest Service: Little Assurance That Fair Market Value Fees Are

Collected From Ski Areas (GAO/RCED-93-107, April 16, 1993).

Federal Lands: Improvements Needed in Managing Concessionaires

(GAO/RCED-91-163, June 11, 1991).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Collaborative Federal

Land Management

Approach

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 Conservation and land management

Framework theme Improve efficiency

As a result of the National Performance Review recommendations, the

four primary federal land management agencies—the National Park

Service, Bureau of Land Management (BLM), and Fish and Wildlife Service

within Interior and the Forest Service within Agriculture—have prepared

or are preparing a streamlining plan that would show how they would

reduce and restructure its workforce. However, by looking beyond

existing jurisdictional boundaries, a collaborative federal approach to land

management has the potential to achieve additional efficiencies by

refocusing, combining, or eliminating certain missions, programs,

activities, or field locations.

Through the years, there have been several attempts to have agencies

collaborate in managing federal land. These include (1) consolidating BLM’s

and the Forest Service’s responsibilities for managing adjacent lands in

western Oregon and Washington to eliminate 280 permanent positions at

an estimated annual savings of $10.3 million, (2) the potential for

eliminating 2 to 4 Forest Service regions, about 40 forest supervisor

offices, and 70 district offices, estimated in 1992 to save between

$3.5 million and $15.2 million over 5 years and between $82 million and

$95.7 million over 10 years, and (3) using shared resources such as a

Forest Service supervisor overseeing both Forest Service and BLM

employees in Oregon.

CBO cannot develop a 5-year savings estimate at this time. Estimating

savings due to sharing resources between the Forest Service and BLM can

be difficult. Savings would depend on the extent of the work force

restructuring and implementation plan.

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Related GAO Products 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, February 1, 1994).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Federal Timber Sales Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Appropriations subcommittees Interior and Related Agencies (Senate and

House)

Primary agency Department of Agriculture

Account National Forest System (12-1106)

National Forest Service Receipts (12-9990)

Spending type Discretionary

Budget subfunction Conservation and land management

Framework theme Improve efficiency

USDA’s Forest Service does not always recover its costs on sales of timber,

resulting in below-cost sales. Currently, the Service receives most of its

operating funds from receipts from timber sales and from appropriated

funds linked to primarily timber management and harvest. Thus, in every

national forest, even in those where timber harvesting is uneconomic and

other activities and uses are more valuable, forest managers are

overwhelmingly dependent on timber sales for funding.

GAO estimated that in fiscal year 1990, under the most conservative

definition of costs, $35.6 million in Forest Service preparation and

administration expenses went unrecovered. GAO’s estimates ranged as high

as $112.2 million when all operating costs and payments to states were

considered.

The Congress may wish to cease all below-cost federal timber sales. For

example, all future timber sales could be eliminated in three of the Forest

Service’s nine regions where, on average over the last decade, cash

expenditures have exceeded cash receipts but would also reduce Forest

Service outlays for timber management, reforestation, construction of

logging roads, and other program costs. CBO estimates that the following

net 5-year savings in federal outlays could be achieved.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 20 35 50 60 80

Outlays 15 30 45 55 75

Savings from the 1995 funding level adjusted for inflation

Budget authority 20 35 50 60 80

Outlays 15 30 45 55 75

Source: Congressional Budget Office.

Related GAO Products Forest Service Management: Issues to Be Considered in Developing a New

Stewardship Strategy (GAO/T-RCED-94-116, February 1, 1994).

Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

Comments on Below-Cost Timber Bills (GAO/RCED-92-160R, April 1, 1992).

Forest Service Needs to Improve Efforts to Reduce Below-Cost Timber

Sales (GAO/T-RCED-91-43, April 25, 1991).

Forest Service Needs to Improve Efforts to Protect the Government’s

Financial Interest and Reduce Below-Cost Timber Sales (GAO/T-RCED-91-42,

April 24, 1991).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Conservation Reserve

Program Contracts

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Account Conservation Reserve Program (12-3319)

Spending type Direct

Budget subfunction Conservation and land management

Framework theme Improve efficiency

The Conservation Reserve Program (CRP) was mandated by the Food

Security Act of 1985 to help farmers control soil erosion on

environmentally sensitive cropland, decrease production of surplus

agricultural commodities, and support farmers’ income. To implement CRP,

USDA offered 10- to 15-year contracts for rental payments to farmers who

agreed to replace cropland with a grass cover or other conserving use. CRP

contracts begin to expire in 1996. Between fiscal years 1996 through 2003,

these contracts commit the government to pay $6.1 billion in annual rental

payments.

From its inception through 1992, about 36.5 million acres have been

enrolled. For fiscal year 1995, the government’s annual rental payments to

farmers are estimated to be $1.7 billion. Although enrolling acreage in CRP

instead of annual commodity programs reduces costs in USDA’s annual

price and income support programs, USDA has estimated that the CRP has a

net government cost between $2 billion and $6.6 billion over the life of the

program.

Since 1985, several conditions have emerged that may warrant modifying

CRP contracts to provide farmers more flexibility to use their CRP land for

new crop and conservation opportunities. A favorable climate for CRP

reform now exists due to a general improvement in the farm economy

since the 1980s, potential new market growth arising from the North

American Free Trade Agreement and the General Agreement on Tariffs

and Trade, and the application of more sustainable practices of the

conservation compliance program. Under these new conditions, modifying

CRP contracts could release suitable acres for the development of new

conservation cropping practices.

There are numerous options to modify CRP contracts to adjust to new

conditions. Two options include (1) allowing farmers to terminate

contracts without incurring financial penalty and (2) permitting

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conservation-compatible economic uses on their CRP acres, such as haying,

grazing, and biomass production. Budget savings under the first option

would depend on assumptions concerning when and how many farmers

participate and the extent to which these farmers participate in other USDA

price and income support programs. Consistent with this option, in

December 1994, the Secretary of Agriculture announced that USDA will

consider requests from farmers to be released from their CRP contracts or

to reduce the acreage subject to it. Under the second option, the contract

holder would receive a reduced rental payment in return for the ability to

generate revenues on their CRP land.

Under both options, there are also nonbudget considerations. If farmers

terminate their CRP contracts early to return to crop production, it will be

necessary to develop alternative means of sustaining the environmental

benefits that have been achieved through CRP. If farmers are permitted to

return some of their CRP acres to uses such as haying and grazing, there

could be a significant economic impact on existing livestock producers.

CBO cannot develop a 5-year savings estimate for the first component of

this option—early termination of CRP contracts—at this time. Savings

would depend on the farmer participation and potential interactions with

other agricultural programs.

To illustrate the potential savings under the second component of this

option, permitting conservation-compatible economic uses on CRP acres,

farmers could be allowed to use some of the land in the CRP for haying or

grazing in exchange for a fee or a reduction in other government

payments. The per acre charge would be set according to local market

rental rates for haying or grazing. CBO estimates that federal outlays would

thus be reduced by an estimated $453 million over the 1996 through 2000

period.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Budget authority 80 92 89 100 91

Outlays 80 92 89 100 91

Source: Congressional Budget Office.

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Related GAO Products Conservation Reserve Program: Alternatives Are Available for Managing

Environmentally Sensitive Cropland (GAO/RCED-95-42, in draft, expected

March 1995).

Conservation Reserve Program: Cost-Effectiveness Is Uncertain

(GAO/RCED-93-132, March 26, 1993).

Conservation Reserve Program: Determining Program’s Effects on

Production Depends on Assumptions (GAO/RCED-90-201, July 25, 1990).

Farm Programs: Conservation Reserve Program Could Be Less Costly and

More Effective (GAO/RCED-90-13, November 15, 1989).

GAO Contact John W. Harman, (202) 512-5138

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Option:

Charge Fair Market

Value for Natural

Resources

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House) 

Resources (House)

Primary agencies Department of Agriculture

Department of the Interior

Spending type Direct

Framework theme Improve efficiency

Market-based incentives may provide opportunities to encourage

ecologically and economically sound use of the nation’s natural resources.

For example, some believe that forest managers should be rewarded for

making money and protecting the environment. They have suggested that

forest managers be allowed to charge fair market value for all of the

resources within their land units and that each land unit receive funds

from the net receipts it earned the previous year. While this approach

would require specific statutory authority, legislative precedent exists for

returning revenues to the agencies or land units carrying out the activities

or programs.

According to the World Resources Institute, with approximately

250 million visitor days annually, at a conservative value of about $10 per

day of recreational use, the national forests provide recreational services

worth $2.5 billion per year compared to the gross value of timber sales of

$800 million in 1991. The Forest Service estimates that if it collected the

full value of the recreational services it provides, annual revenues would

reach $5 billion. At the same time, fees would sensitize consumers to the

value of the services the forests provide.

CBO cannot develop a 5-year estimate for this option at this time. Future

revenues would depend on the fee structure, method of implementation,

and market reaction.

Related GAO Product Forest Service Management: Issues to Be Considered in Developing a New

Stewardship Strategy (GAO/T-RCED-94-116, February 1, 1994).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Communication Site

Fees

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House) 

Resources (House)

Primary agencies Department of Agriculture

Department of the Interior

Spending type Direct

Framework theme Improve efficiency

In many cases, current annual fees for using communications sites on

lands administered by Agriculture’s Forest Service and Interior’s Bureau of

Land Management (BLM) are significantly below fair market value. For

example, the annual fees paid by television broadcasters at a large Forest

Service communications site near Los Angeles, California, are only about 2

to 15 percent of fees based on the site’s appraised fair market value.

Forest Service and BLM officials estimate that charging fees based on fair

market value would increase total federal revenues by over 500

percent—from about $4 million annually to about $23 million annually. CBO

cannot develop a 5-year estimate for this option at this time. Additional

revenues gained by charging fair market value would depend on the fee

structure adopted, implementation, and future market conditions.

Related GAO Products Federal Lands: Fees for Communications Sites Are Below Fair Market

Value (GAO/RCED-94-248, July 12, 1994).

Federal Lands: Fees for Communications Sites Are Below Fair Market

Value (GAO/T-RCED-94-262, July 12, 1994).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Recreation Fees at

Federal Sites

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House) 

Resources (House) 

Transportation and Infrastructure (House)

Primary agencies Department of the Interior

Department of Agriculture 

Department of the Army

Spending type Direct

Framework theme Improve efficiency

Improved pricing of user fees at recreational sites could help defray direct

costs to the government, shift the cost burden from the taxpayers to the

beneficiaries of the services, and alleviate overcrowding at many sites.

Entrance and user fees are charged at some sites, but the fees generally

cover only a small portion of the costs for services provided to visitors.

For example, in 1993, Interior’s National Park Service spent an estimated

$230 million on services for visitors but recovered only an estimated

$90 million in fees. Interior’s Office of Inspector General reported that the

Service did not collect as much as anticipated because the fees collected

were not returned to the individual parks. This led to a lack of incentive,

which, together with staffing and funding shortfalls, resulted in the Service

not collecting an estimated $105 million during fiscal year 1991.

Interior’s follow-on report to the Vice President’s National Performance

Review concluded that reform in the nature, level, and collection of fees in

national parks could generate substantial revenues. The administration’s

fiscal year 1995 budget sought expanded authority to increase park

entrance and other recreation user fees. Legislation to increase entrance

fees and to give the Secretary of the Interior more discretion to set

entrance, recreation, and special-use fees was introduced in both the

House (H.R. 4533) and the Senate (S. 2121). However, neither of these bills

passed before the 103rd Congress adjourned.

Increasing such fees and disallowing their use for increased park spending

would yield net new receipts over the fiscal year 1996 through 2000 period

as shown in the following table. Any spending increases resulting from

increased fees would be subject to new authorizing legislation.

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Five-Year Savings

Dollar in millions

FY96 FY97 FY98 FY99 FY00

Added receipts 175 172 181 188 196

Source: Congressional Budget Office.

Related GAO Products Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

Forest Service: Difficult Choices Face the Future of the Recreation

Program (GAO/RCED-91-115, April 15, 1991).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Hardrock Mining

Royalties

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 Improve efficiency

The government receives no financial compensation for hardrock minerals

extracted from federal lands. In 1990, hardrock minerals worth at least

$1.2 billion were extracted from federal lands, while known, economically

recoverable reserves of hardrock minerals remaining on federal lands

were valued at $64.9 billion.

The Congress may wish to consider receiving financial compensation for

hardrock minerals extracted from federal lands. The administration’s

fiscal year 1995 budget assumed fee levels and reforms consistent with

H.R. 322, the House-passed version of hardrock mining law reform. This

bill would have charged an 8-percent royalty on gross profits on existing

and future claims. Conversely, the Senate-passed version (S. 775) would

have charged a 2-percent royalty on net (point of extraction). The lengthy

2-year effort to overhaul the nation’s 122-year old mining policy ended on

September 29, 1994, when House and Senate conferees acknowledged that

they could not reconcile their differences. If the Congress adopted fee

levels and reforms consistent with H.R. 322, the House-passed version, CBO

estimates that the following receipts would be gained.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Added receipts 70 70 70 70 70

Source: Congressional Budget Office.

Related GAO Products Mineral Royalties: Royalties in the Western States and in Major

Mineral-Producing Countries (GAO/RCED-93-109, March 29, 1993).

Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

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Mineral Resources: Value of Hardrock Minerals Extracted From and

Remaining on Federal Lands (GAO/RCED-92-192, August 24, 1992).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Natural Resources

Revenue Sharing

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Energy and Natural Resources (Senate)

Agriculture (House) 

Resources (House)

Appropriations subcommittees Agriculture, Rural Development, and Related

Agencies (Senate)

Interior and Related Agencies (Senate)

Interior (House)

Agriculture, Rural Development, Food and Drug

Administration, and Related Agencies (House)

Primary agencies Department of the Interior

Department of Agriculture

Accounts Multiple

Spending type Discretionary

Budget subfunction Conservation and land management

Framework theme Improve efficiency

The federal government collects fees from private interests for the sale or

use of natural resources on federal lands. A percentage of these fees is,

under certain conditions, allocated to states and counties as an offset for

tax revenues not received from the federal lands.

Federal land-managing agencies typically do not deduct the full costs of

their programs from the gross receipts that the programs generate before

sharing the receipts with states and counties. Sharing federal receipts on a

gross, rather than a net, basis often reduces the federal government’s

share of the revenues to a level below its costs.

According to CBO, changing revenue-sharing from a gross-receipt to a

net-receipt basis would reduce net federal outlays and produce the savings

shown as follows.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 170 175 180 190 195

Outlays 135 175 180 190 195

Savings from the 1995 funding level adjusted for inflation

Budget authority 170 175 180 190 195

Outlays 135 175 180 190 195

Source: Congressional Budget Office.

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Related GAO Products Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

Rangeland Management: Current Formula Keeps Grazing Fees Low

(GAO/RCED-91-185BR, June 11, 1991).

Forest Service Needs to Improve Efforts to Reduce Below-Cost Timber

Sales (GAO/T-RCED-91-43, April 25, 1991).

Mineral Revenues: Collection and Distribution of Revenues From Acquired

Lands (GAO/RCED-90-7, August 2, 1990).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Changing How

Federal Needs for

Helium Are Met

Authorizing committees Energy and Natural Resources (Senate)

Resources (House)

Appropriations subcommittees Interior and Related Agencies (Senate and

House)

Primary agency Department of the Interior

Accounts Helium fund (14-4053)

Spending type Direct

Budget subfunction Other natural resources

Framework theme Reassess objectives

The Helium Act of 1960 was passed in response to growing federal needs

for helium. The objectives of the 1960 act are to (1) conserve helium for

future use, (2) provide a sustained supply of helium sufficient for essential

government activities, and (3) foster and encourage individual enterprise

in the development and distribution of helium. The act required that

federal agencies purchase their major requirements for helium from

Interior’s Bureau of Mines.

The 1960 act required that the program’s net capital and retained earnings,

plus subsequent program borrowing from the Treasury for purchases of

crude helium, be established as debt in the Helium Fund. The act required

that the helium program debt, plus compound interest, be repaid to the

Treasury by 1995 from helium sales revenues. Because the Bureau did not

set its sale price to federal agencies high enough to recover the initial

program costs and subsequent interest the Helium Fund remains in debt.

As GAO reports document, many conditions have changed since the Helium

Act of 1960 was passed and we believe the act’s objectives should be

reassessed. In 1960, the Bureau was the sole producer of refined helium,

but now a helium private industry supplies almost 90 percent of refined

U.S. helium and could meet federal needs for helium if there were no

Bureau program. Also, in 1960 there was concern that helium conservation

was necessary to ensure that federal needs could be met, but now the

Bureau has enough helium in storage to meet federal needs until at least

2070. Because these changes have affected the act’s objectives and the

Bureau’s ability to repay the helium debt, GAO has recommended that the

Congress (1) reassess how to meet current and foreseeable federal needs

for helium and (2) cancel the program debt because canceling the debt

would not adversely affect the federal budget. Any decision on how to

meet federal needs for helium should consider not only the effects of the

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changes that have occurred since 1960, but also (1) the interrelationship of

the act’s objectives, recognizing that a change to one could affect another,

and (2) the decision’s effect on the federal budget and the total cost of

supplying helium to the U.S. economy.

The administration’s fiscal year 1996 budget proposed to privatize the

helium program by (1) selling or leasing the Bureau of Mines production

facility and (2) selling the crude helium reserve. However, under the

Budget Enforcement Act of 1990 (BEA) rules, proceeds from asset sales

cannot be used to offset discretionary spending or new spending from

PAYGO-controlled legislation. Recognizing this, the administration has

proposed to amend the rules.

Our option, like H.R. 3967 which was introduced during the 103rd

Congress, is scored under current scorekeeping rules. Under these rules

the following savings could be achieved if the Congress chose to prohibit

the Bureau of Mines from refining crude helium and selling refined helium.

Instead, the Bureau would sell crude helium. Under this alternative, the

federal government would maintain a small helium reserve inventory, and

federal agencies would be required to buy refined helium from private

industry sources. Savings from the sale of facilities and equipment no

longer needed to store helium would yield assets sales of $1 million. Both

sets of savings are shown in the tables that follow.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Assets sales

Budget authority 0 1 0 0 0

Outlays 0 1 0 0 0

Source: Congressional Budget Office.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 0 0 0 0 0

Outlays 0 4 7 7 8

Source: Congressional Budget Office.

Note: The CBO estimates do not reflect the effects of cancelling the program debt because

cancelling the debt would not adversely affect the federal debt.

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Related GAO Products Mineral Resources: H.R. 3967—A Bill to Change How Federal Needs for

Refined Helium Are Met (GAO/T-RCED-94-183, April 19, 1994).

Mineral Resources: Meeting Federal Needs for Helium (GAO/T-RCED-93-44,

May 20, 1993).

Mineral Resources: Meeting Federal Needs for Helium (GAO/RCED-93-1,

October 30, 1992).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Federal Water Policies Authorizing committees Energy and Natural Resources (Senate)

Resources (House)

Primary agency Department of the Interior

Accounts Multiple

Spending type Direct

Budget subfunction Water resources

Framework theme Improve efficiency

This broad option has four components: increased fees for subsidized

federal water to large farms, subsidized water to produce subsidized

crops, repayment of water project construction costs, and federal water

subsidies. Descriptions of each of the components follow.

Increased Fees for

Subsidized Federal Water

to Large Farms

Under 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 vague 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 which it is entitled to receive under the act.

Subsidized Water to

Produce Subsidized 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. 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.

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,

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irrigators had repaid only $10 million, or 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 the CVP by 2030. While construction costs may

ultimately 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.

Federal Water Subsidies 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.

The savings in the table below would be achieved if the Congress required

farms of more than 960 acres to pay the full cost of federal irrigation water

and allowed those who grow surplus agricultural commodities to receive

either crop support payments or federally subsidized water in the CVP, but

not both. A 5-year estimate of additional receipts for the repayment of

water project construction costs could not be made because savings fall

beyond the 5-year period CBO uses. Savings from changing federal water

subsidies cannot be developed at this time because savings would depend

on the extent to which irrigators could be made to pay more of these

costs.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 15 15 20 30 30

Outlays 15 15 20 30 30

Source: Congressional Budget Office.

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Related GAO Products

Subsidized Federal Water to

Large Farms

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, October 12, 1989).

Subsidized Water to Produce

Subsidized Crops

Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

Reclamation Law: Changes Needed Before Water Service Contracts Are

Renewed (GAO/RCED-91-175, August 22, 1991).

Repayment of Water Project

Construction Costs

Water Subsidies: Impact of Higher Irrigation Rates on Central Valley

Project Farmers, (GAO/RCED-94-8, April 19, 1994).

Reclamation Law: Changes Needed Before Water Service Contracts Are

Renewed, (GAO/RCED-91-175, August 22, 1991).

Federal Water Subsidies Water Subsidies: Impact of Higher Irrigation Rates on Central Valley

Project Farmers (GAO/RCED-94-8, April 19, 1994).

Natural Resources Management Issues (GAO/OCG-93-17TR, December 1992).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Water Transfers Authorizing committees Energy and Natural Resources (Senate)

Resources (House)

Primary agency Department of the Interior

Spending type Direct

Framework theme Improve efficiency

Water transfers, in which rights to use water are bought and sold, are a

mechanism for relocating scarce water to new users by allowing those

who place the highest economic value on it to purchase it. Water transfers

from irrigation to municipal and industrial uses can increase federal

revenues because municipal and industrial users pay rates based on their

full share of the project’s construction cost plus interest. In contrast, many

irrigators pay only a portion of their share of the construction costs and

are exempt from paying interest. However, 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.

A 5-year estimate of additional receipts cannot be developed at this time.

The difficulties of estimating the highest economic value of water and

which users are willing to pay that value inhibit estimation.

Related GAO Product Water Markets: Increasing Federal Revenues Through Water Transfers

(GAO/RCED-94-164, September 21, 1994).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Pollution Fees and

Taxes

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Environmental Protection Agency

Spending type Direct

Framework theme Improve efficiency

User fees, cost reimbursement mechanisms, and pollution taxes could

help defray the costs of administering environmental protection programs,

encourage pollution prevention, and generate significant revenue. Taxes

on emissions of pollutants, and on the harmful substances themselves,

could supplement regulatory efforts to meet the objectives of existing

environmental laws. Based on our audit work GAO has 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.

Based on our work, 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 discharge, effective on discharges of water pollutants

made after December 31, 1995. Rates range from $0.2426 per pound for the

least toxic pollutant to $63.40 per pound for the most toxic pollutant.

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gain 0.4 0.6 0.6 0.6 0.6

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

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Related GAO Products Environmental Protection: Implications of Using Pollution Taxes to

Supplement Regulation (GAO/RCED-93-13, February 17, 1993).

Hazardous Waste: Much Work Remains to Accelerate Facility Cleanups

(GAO/RCED-93-15, January 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).

GAO Contact Peter Guerrero, (202) 512-6111

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Option:

Hazardous Waste

Cleanup Cost

Recovery

Authorizing committees Environment and Public Works (Senate)

Commerce (House) 

Transportation and Infrastructure (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 Pollution control and abatement

Framework theme Improve efficiency

GAO first reported on the need for a better managed superfund program in

1989. More recently GAO has found that the Comprehensive Environmental

Response, Compensation and Liability Act (CERCLA) prevents the

Environmental Protection Agency (EPA) from charging polluters hundreds

of millions of dollars in additional interest on the cost EPA incurs to clean

up Superfund sites by setting an interest rate significantly lower than

commercial rates. The act also fails to explicitly authorize EPA to recover

indirect costs, such as those for research and development. If EPA had

been allowed to accrue interest at a commercial rate from the date funds

were expended, GAO estimates that $105 million in interest could have

been accrued in 1990 on the funds EPA expended in fiscal year 1989 alone.

We also estimated that through fiscal year 1988, EPA did not collect

$800 million in indirect clean-up costs incurred from activities such as

administrative management, research and development on clean-up

approaches, and some enforcement, audit and legal services.

The Congress should amend CERCLA to allow EPA to recover from

responsible parties more interest on the cost it incurs to clean up

Superfund sites and to explicitly authorize EPA to recover indirect costs.

Savings could not be estimated due to EPA’s varying success in collecting

the full amount of current penalty and interest charges.

Related GAO Products Superfund: EPA Has Opportunities to Increase Recoveries of Costs

(GAO/RCED-94-196, September 28, 1994).

Superfund: More Settlement Authority and EPA Cost Controls Could

Increase Cost Recovery (GAO/RCED-91-144, July 18, 1991).

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Superfund: A More Vigorous and Better Managed Enforcement Program is

Needed (GAO/RCED-90-22, December 14, 1989).

GAO Contact Peter Guerrero, (202) 512-6111

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Option:

Nuclear Waste

Disposal Fees

Authorizing committees Energy and Natural Resources (Senate)

Commerce (House) 

Resources (House)

Primary agency Department of Energy

Spending type Direct

Framework theme Improve efficiency

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, the following additional receipts could

be expected.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Added receipts 19 40 64 86 110

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).

GAO Contact Victor S. Rezendes, (202) 512-3841

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350 Agriculture • U.S. Department of Agriculture dairy price support program

• Milk marketing orders

• U.S. Department of Agriculture crop price supports

• Farm lands eligible for deficiency payments

• Rice program

• Peanut program

• Reduce or eliminate funding for the Market Promotion Program

• Reduce funding for the Export Credit Guarantee Programs

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Option:

U.S. Department of

Agriculture Dairy

Price Support

Program

Authorizing committees Agriculture, Nutrition and Forestry (Senate) 

Agriculture (House)

Primary agency Department of Agriculture

Account Commodity Credit Corporation Fund (12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Reassess objectives

To ensure long-term viability, the dairy industry will have to increase its

efforts to become more dependent on commercial markets—particularly

international markets. A major factor that has impeded the dairy industry’s

ability to more effectively expand and compete in global markets has been

the Price Support Program and the Dairy Export Incentive Program, which

encourages the production of dairy products that do not always meet

customers’ requirements, and often result in U.S. market prices that

exceed world prices. For example, the 1993 U.S. market price for cheddar

cheese was $1.28 per pound, while the world price was $0.81 per pound.

The cost of dairy support purchases was approximately $315 million in

fiscal year 1993 at a support price of $10.10 per hundred-weight of milk

equivalent, which continues to be the support price today. Furthermore,

the dairy program has influenced the U.S. dairy industry to place more

emphasis on production rather than marketing.

The Congress has taken steps to make the federal dairy program more

responsive to market forces, particularly by reducing the support price.

However, a recent GAO report showed that U.S. dairy prices still exceed

world prices, limiting the price competitiveness of U.S. dairy products in

the world market. To counteract this situation, the Congress established

the Dairy Export Incentive Program, which subsidizes exports of dairy

products and cost about $135 million in fiscal year 1993.

GAO has recommended making the dairy program more responsive to

market forces by tying the support price to the market, thereby effectively

reducing the support price. USDA reported that it has been estimated that

the support price would have to be reduced to between $6 and $7 per

hundred-weight to achieve significant exports of U.S. dairy products. GAO

has also advocated that support prices be lowered gradually to allow

producers who have made production decisions based on the program a

period of time to adjust to the new prices.

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To address these issues, the Congress may wish to reduce the dairy

support price by $0.80 annually over five years, beginning in fiscal year

1995. This would eliminate the need for the Dairy Export Incentive

Program and the producer assessments supporting the program.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 120 263 289 257 252

Outlays 120 263 289 257 252

Source: Congressional Budget Office.

Related GAO Product Dairy Industry: Potential for and Barriers to Market Development

(GAO/RCED-94-19, December 21, 1993).

GAO Contact John W. Harman, (202) 512-5138

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Option:

Milk Marketing

Orders

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Account Commodity Credit Corporation Fund (12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Reassess objectives

The major objectives of federal dairy policies have been to ensure an

adequate supply of milk and to support dairy farmers’ incomes. Two

interrelated programs to accomplish these objectives are milk marketing

orders and price supports. Milk is the only commodity with both order

pricing and price support programs.

Marketing orders set minimum prices that must be paid for milk for fluid

use, based on the manufacturing grade price plus differentials that are

unique to each of the 38 federal milk marketing orders. GAO has reported

that the premise for federal milk marketing orders is outdated. A need no

longer exists to encourage and maintain a locally produced supply of milk.

Milk is now produced in all regions of the country, and technologies are

available to transfer it, either as fluid or in a form to be later reconstituted

as fluid, should local shortages develop.

Given the change in underlying conditions for this program, the Congress

may wish to consider reducing the federal role in milk pricing by taking

actions such as phasing out the pricing provisions of the milk marketing

orders. The probable effect of this change would be reduced purchases

under the federal price support program as farmers cut production in

response to reduced prices. Eliminating these provisions could also

ultimately reduce the price of dairy products to consumers.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 149 166 173 119 62

Outlays 149 166 173 119 62

Source: Congressional Budget Office.

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Related GAO Product Milk Marketing Orders: Options for Change (GAO/RCED-88-9, March 21, 1988).

GAO Contact John W. Harman, (202) 512-5138

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Option:

U.S. Department of

Agriculture Crop

Price Supports

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Account Commodity Credit Corporation Fund (12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Redefine beneficiaries

The Commodity Credit Corporation has supported the incomes of farmers

since the 1930s. Concerned about large payments to farm operators and

the overall cost of federal farm programs, the Congress established an

annual limit on farm payments of $50,000 per person in 1970. Persons are

broadly defined to be individuals, members of joint operations, or entities

such as limited partnerships, corporations, associations, trusts, and

estates. Payment limits again became a significant issue in the mid-1980s

when individuals reorganized their farming operations to receive larger

total federal payments.

In 1987, legislative amendments allowed a person to receive up to $100,000

of farm payments per year. These amendments, intended to tighten the

payment limit requirements and reduce program costs, have had a very

limited effect because

• farmers were allowed to reorganize their operations, within a specified

time period, to avoid reductions in total payments;

• USDA required only 50 percent of a corporation’s ownership to provide

significant contributions of personal labor or active personal management

to meet the requirement that the corporation be actively engaged in

farming; and

• farmers were allowed to qualify for payments from up to three eligible

entities.

If the Congress wants to further tighten payment limits as a means to

reduce program costs, one option would be to limit payments to $50,000

per individual and only provide benefits to individuals actively engaged in

farming. This limit would apply whether the payments are earned from the

individual’s own operations or are attributed to them as owners in one or

more entities.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 51 91 106 105 104

Outlays 51 91 106 105 104

Source: Congressional Budget Office.

Related GAO Products Agriculture Payments: Number of Individuals Receiving 1990 Deficiency

Payments and the Amounts (GAO/RCED-92-163FS, April 27, 1992).

Agriculture Payments: Effectiveness of Efforts to Reduce Farm Payments

Has Been Limited (GAO/RCED-92-2, December 5, 1991).

Farm Payments: Basic Changes Needed to Avoid Abuse of the $50,000

Payment Limit (GAO/RCED-87-176, July 20, 1987).

GAO Contact John W. Harman, (202) 512-5138

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Option:

Farm Lands Eligible

for Deficiency

Payments

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Account Commodity Credit Corporation Fund (12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Improve efficiency

In the Food, Agriculture, Conservation, and Trade Act of 1990, the

Congress provided farmers with greater ability to respond to market

signals by allowing them to plant crops other than their designated

program crops on up to 25 percent of their base acres. This flexibility was

one of the principal elements in the overall strategy of the 1990 farm

legislation aimed at improving U.S. competitiveness in the international

agriculture market. The Agricultural Reconciliation Act of 1990 reduced

government expenditures for agriculture programs by providing for the

elimination of income support payments on 15 percent of base acres, even

when the designated program crops are planted on these acres. Taken

together, these laws enacted provisions which are commonly called “flex

acres.”

GAO has reported on a number of options for increasing the use of flex

acres, all of which would require legislative change. Options include

(1) increasing the number of normal flex acres ineligible for deficiency

payments beyond the current 15-percent level, (2) increasing the number

of optional flex acres, with corresponding decreases in deficiency

payments, for those acres planted in alternative crops, or (3) permitting

farmers to grow alternative crops on more than 25 percent of their base

acres while continuing to receive deficiency payments on 75 percent of the

acres. While the first option would clearly reduce government costs, the

second and third options could also reduce costs as farmers increase their

use of optional flex acres. All three options would allow farmers to

participate in USDA’s commodity programs while continuing to increase

their incentive to respond to the needs of the marketplace.

One approach to implement the first option, above, would be to raise the

proportion of each farmer’s base acreage ineligible for deficiency

payments from 15 percent to 25 percent.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 444 781 927 915 892

Outlays 444 781 927 915 892

Source: Congressional Budget Office.

Related GAO Product Commodity Programs: Flex Acres Enhance Farm Operations and Market

Orientation (GAO/RCED-94-76, December 30, 1993).

GAO Contact John W. Harman, (202) 512-5138

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Option:

Rice Program Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Account Commodity Credit Corporation Fund

(12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Reassess objectives

Despite legislative reforms in 1985 and 1990 to reduce the government

costs and increase the U.S. share of the world rice market, overall

government costs have remained high—averaging $1 billion per year

between 1986 and 1992. And, government payments as a percentage of

producers’ total rice revenues nearly doubled from 27 percent in 1982

through 1984 to 50 percent in 1992. On average, the government payments

were about 7 percent above producers’ full cost of production between

1988 and 1990. Moreover, the U.S. share of the world rice market dropped

from 24 percent in 1980 to 15 percent in 1992.

GAO has reported that government costs remain high because of

(1) continued high deficiency payments, (2) the addition of the marketing

loan provision in 1985 that allows producers to repay their loans at either

the loan rate or USDA’s calculated world price, whichever is lower, and

(3) several export promotion initiatives.

In light of these problems, the Congress may wish to consider ways to

move rice producers towards greater market orientation. To reduce

producer dependency, the Congress could lower the target price,

incorporate marketing loan gains into the deficiency payment calculation,

eliminate the 50/85 program, and reduce export assistance. The 50/85

program allows producers to plant 50 percent of their rice acres and

receive deficiency payments on 85 percent of their acres. The Congress

may also want to consider implementation options such as phasing out

payments to producers over a number of years.

To illustrate the savings from a market-based approach, the following

table shows the savings that could be achieved if Congress chose to

eliminate the availability of the 50/85 program for rice producers.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 6 10 19 33 27

Outlays 6 10 19 33 27

Source: Congressional Budget Office.

Related GAO Product Rice Program: Government Support Needs to Be Reassessed

(GAO/RCED-94-88, May 26, 1994).

GAO Contact John W. Harman, (202) 512-5138

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Option:

Peanut Program Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Account Commodity Credit Corporation Fund 

(12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Reassess objectives

Since the Great Depression of the 1930s, USDA has administered a program

to control the supply of U.S. peanuts and between 1982 and 1989 the

peanut program has guaranteed producers a minimum price for their

crops that substantially exceeds the world market price. However, peanut

farming, like other agricultural operations, has undergone massive

changes since that time. Smaller farms have been consolidated to form

larger-scale operations resulting in fewer farms with greater amounts of

peanut quota. For example, in 1991, fewer than 22 percent of the U.S.

peanut producers controlled over 80 percent of the quota. Thus, the

peanut program has provided substantial benefits to a small number of

producers who hold most of the quota. GAO has reported that from 1982 to

1992, the annual quota support price averaged $697 per ton, while the

estimated cost of producing peanuts averaged $463 per ton, this difference

resulted in an average minimum net return of 51 percent to producers.

Moreover, because the quota support price is required to increase each

year when costs go up, but not decrease when costs go down, the gap

between quota support prices and costs has generally increased over time.

GAO also found that 68 percent of all quota owners in 1988, who held

56 percent of the quota, rented their quotas to others.

GAO has raised a concern that most costs of the peanut program are paid

for by U.S. consumers. Economic studies and GAO’s analysis estimate that

the peanut program adds, on average, anywhere from $314 million to

$513 million each year to consumers’ costs of buying peanuts. About 76 to

88 percent of the cost is transferred directly to producers as income, and

the remaining portion represents a social welfare loss that reflects

inefficiencies in the program’s use or allocation of resources.

USDA spends millions of dollars yearly to operate the peanut program. In

supporting the peanut program from 1986 through 1990, USDA incurred

average annual costs of $34.4 million.

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GAO has recommended that the Congress restructure the peanut support

program by making it more responsive to market forces. GAO believes that

this change could achieve savings to the government and consumers.

However, CBO did not develop a 5-year estimate of savings for this option.

CBO noted that the world market price for commodities fluctuates

considerably. In addition, the effects of any such changes in the peanut

program on other commodities and programs are difficult to measure.

Related GAO Product Peanut Program: Changes Are Needed to Make the Program Responsive to

Market Forces (GAO/RCED-93-18, February 8, 1993).

GAO Contact John W. Harman, (202) 512-5138

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Option:

Reduce or Eliminate

Funding for the

Market Promotion

Program

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Accounts Commodity Credit Corporation Fund

(12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Redefine beneficiaries

The Market Promotion Program (MPP) is an export promotion program

that subsidizes overseas promotional activities for U.S. agricultural

products. The MPP was authorized under the 1990 Food, Agriculture,

Conservation, and Trade Act to assist U.S. agricultural exporters,

particularly those faced with unfair trading practices abroad. Payments are

made to partially offset the costs of market building and commodity

promotion undertaken by state-related, private nonprofit, and private

profit-making firms. The Foreign Agricultural Service (FAS) operates MPP

through 65 not-for-profit associations that either run the programs

themselves or pass funds through to other entities.

FAS has no assurance that MPP funds are supporting additional promotional

activities rather than simply replacing company/industry funds. Moreover,

FAS has not provided adequate guidance or oversight in targeting MPP funds

to smaller and new-to-export industries which are less likely to supplant

them.

In fiscal year 1995, MPP funding was reduced to $84.5 million from the

budgeted level of $110 million. The Congress also encouraged USDA to

better target assistance and to promote greater participation from small

companies and other entities. The results of this direction are not yet

known. In addition, this type of promotion is among the few unaffected by

the GATT Uruguay Round. Nevertheless, additional future savings could

be achieved if the Congress further reduced or eliminated the program.

Based on our examinations of the MPP since its inception, GAO believes that

the program should target small, generic new-to-export companies and not

extend assistance to large companies. Further, we believe that participants

should be graduated out of the program within 5 years. With these

changes, Congress could cut MPP funding by an additional $35 million, to a

$50 million level for fiscal years 1996 through 2000.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 7 50 60 60 60

Outlays 7 50 60 60 60

Source: Congressional Budget Office.

Related GAO Products 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, March 25, 1993).

GAO Contact Allan I. Mendelowitz, (202) 512-4812

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Option:

Reduce Funding for

the Export Credit

Guarantee Programs

Authorizing committees Agriculture, Nutrition and Forestry (Senate)

Agriculture (House)

Primary agency Department of Agriculture

Accounts Commodity Credit Corporation Loans Program

Account (12-1336)

Commodity Credit Corporation Fund

(12-4336)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Reassess objectives

Under the U.S. Department of Agriculture (USDA), the Export Credit and

Intermediate Export Credit Guarantee Programs are major agricultural

export promotion programs. The main objective of these programs is to

increase U.S. agricultural exports. Based on legislative requirements, USDA

makes a total of $5.7 billion in government loan guarantees available each

year to foreign country buyers of U.S. agricultural commodities.

GAO has reported that since the programs began in the 1980s, and as of

May, 1993, the government had paid out approximately $4.2 billion

because of loan repayment defaults by foreign country buyers. Past

operations of the programs have incurred high costs because USDA had

provided a large amount of guarantees to high-risk countries, such as Iraq

and the former Soviet Union. Guarantees had been extended to such

high-risk countries because of market development reasons and foreign

policy considerations. Extending guarantees and increasing exposure to

new and existing high-risk participants will result in higher program costs.

GAO is unaware of any empirical evidence that demonstrates that the

export credit guarantee programs resulted in increased agricultural

exports. Also, there is a history of poor management control of these

programs, principally because USDA officials viewed the export credit

guarantee programs as “commercial” programs that are subject to the

normal controls that exist for commercial sales transactions.

Through legislative direction and other encouragement, USDA has taken

some action to improve management of the programs, but additional steps

are still necessary. Thus, from this perspective, the Congress may wish to

reduce the programs’ budgets.

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To illustrate how savings would be achieved, the Congress could choose

to reduce lending authority to $3.3 billion, about $750 million less than

assumed in CBO’s baseline. The estimate of savings assumes that the entire

reduction would derive from lowering the value of loan guarantees for

sales to the world’s most risky borrowers receiving guarantees. Congress

may wish to consider whether such beneficiary countries might be more

appropriately assisted with food aid programs. However, this would offset

some or all of the savings cited in the following table.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority –229 244 230 222 214

Outlays –229 244 230 222 214

Source: Congressional Budget Office.

Related GAO Products U.S. Department Of Agriculture: Issues Related to the Export Credit

Guarantee Programs (GAO/T-GGD-93-28, May 6, 1993).

Loan Guarantees: Export Credit Guarantee Programs’ Costs Are High

(GAO/GGD-93-45, December 22, 1992).

GAO Contact Allan I. Mendelowitz, (202) 512-4812

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370 Commerce and

Housing Credit

• National Oceanic Atmospheric Administration research fleet

modernization

• Centralize servicing for Rural Housing and Community Development

Service’s single-family housing loans

• Opportunities to reduce the cost of the 2000 decennial census

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Option:

National Oceanic

Atmospheric

Administration

Research Fleet

Modernization

Authorizing committees Commerce, Science and Transportation (Senate) 

Commerce (House)

Appropriations subcommittees Commerce, Justice, State and the Judiciary and

Related Agencies (Senate and House)

Primary agency Department of Commerce

Account Fleet Modernization, Shipbuilding and

Conversion (13-1457)

Spending type Discretionary

Budget subfunction Other advancement of commerce

Framework theme Improve efficiency

In 1993, we reported on the National Oceanic and Atmospheric

Administration’s (NOAA) fleet modernization plan. As GAO said, the plan

calls for replacing NOAA’s existing fleet of old and technologically obsolete

ships that support NOAA’s programs in fisheries research, oceanographic

research, and hydrographic charting and mapping. NOAA’s modernization

plan envisions the need for 24 new or refurbished vessels over a 15-year

period at an estimated cost of $1.9 billion (in fiscal year 1995 dollars).

Studies by GAO, the Vice President’s National Performance Review, and

others have recommended that NOAA experiment with greater use of

private sector vessel services as potentially cost-effective alternatives to

continued reliance on NOAA vessels. In response, NOAA is taking action to

experiment with vessel contracting and chartering alternatives and to

assess the results of these experiments in the context of fleet

modernization needs and costs. If experience with contracting and

chartering alternatives shows that leasing is a cost-effective alternative to

NOAA vessels, future costs associated with NOAA’s modernization plans

could be reduced. However, CBO cannot develop a savings estimate at this

time because the costs of leasing have not been determined.

Related GAO Products Research Fleet Modernization: NOAA Needs to Consider Alternatives to the

Acquisition of New Vessels (GAO/RCED-94-170, August 3, 1994).

Ocean Research Vessels: NOAA Fleet Modernization Plan (GAO/T-RCED-94-52,

October 21, 1993).

GAO Contact James Duffus, III (202) 512-7756

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Option:

Centralize Servicing

for Rural Housing and

Community

Development

Service’s

Single-Family Housing

Loans

Authorizing committees Banking, Housing and Urban Affairs (Senate) 

Banking and Financial Services (House)

Appropriations subcommittees Agriculture, Rural Development, and Related

Agencies (Senate and House)

Primary agency Department of Agriculture

Accounts Multiple

Spending type Discretionary

Budget function Mortgage Credit

Framework theme Improve efficiency

The Rural Housing and Community Development Services (RHCDS) makes

housing and farm loans to rural Americans who cannot otherwise obtain

them on reasonable terms.1 RHCDS services about 675,000 single-family

housing borrowers via some 1,700 county offices. Servicing single-family

housing loans accounts for about 35 percent of the work load in these

offices. An additional 90,000 loans are administered by a loan servicing

company from a central location.

The private sector has used centralized servicing of housing loans for

many years to reduce servicing costs. Under centralized servicing, the

servicing rights to loans are sold and the purchasing organization collects

monthly payments, establishes escrows for property taxes and insurance,

manages delinquencies, and provides credit counseling on the lender’s

behalf.

One option to reduce RHCDS administrative costs would be to expand in

house RHCDS centralized servicing and reduce servicing in county offices.

RHCDS borrowers could still obtain loans under current arrangements, but

loan servicing would be performed at a separate, central location.

Borrowers would receive the same services provided by the private sector

loan servicing industry by phone or mail—as well as services unique to

RHCDS, such as periodic review of interest credit agreements, application of

moratoriums, and appeals. Another option would be private sector

contracting. Alternatively, a combination of these means could be

used—allowing the public and private sectors to compete for loan

servicing privileges.

1

RHCDS was formed from the rural housing section of Farmers Home Administration (FmHA) and the

Community Facilities Division of the Rural Development Administration.

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To illustrate the savings that could be achieved from this option, GAO has

found that centralizing these services could result in closing 742 county

offices unable to support 2 staff years. Closing these offices would

produce about $171 million in outlay saving from the associated full-time

employee reductions in fiscal years 1999 and 2000 as shown in the table

that follows.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 0 0 0 64 85

Outlays 0 0 0 57 85

Savings from the 1995 funding level adjusted for inflation

Budget authority 0 0 0 75 104

Outlays 0 0 0 67 104

Source: Congressional Budget Office.

Related GAO Products U.S. Department of Agriculture: Centralized Servicing for FmHA

Single-Family Housing Loans (GAO/RCED-93-231BR, September 23, 1994).

U.S. Department of Agriculture: Centralized Servicing for FmHA

Single-Family Housing Loans (GAO/T-RCED-94-121, February 9, 1994).

GAO Contact Judy A. England-Joseph, (202) 512-7631

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Option:

Opportunities to

Reduce the Cost of

the 2000 Decennial

Census

Authorizing committees Governmental Affairs (Senate) 

Government Reform and Oversight (House)

Appropriations subcommittees Commerce, Justice, State, and the Judiciary and

Related Agencies (Senate and House)

Primary agency Department of Commerce

Account Periodic Censuses and Programs (13-0450)

Spending type Discretionary

Budget subfunction Other advancement of commerce

Framework theme Improve efficiency

Since 1992, GAO reports and testimonies have identified opportunities to

reduce the cost of the 2000 Decennial Census without decreasing

accuracy. The Census Bureau estimated that using the 1990 census-taking

approach without modification could cost about $4.8 billion in current

dollars for the 2000 Decennial Census.

GAO believes the Census Bureau should pursue several cost-saving options

currently being evaluated in the Census Bureau’s 1995 Census Test.

Census Bureau estimates suggest that the use of these options could result

in savings of about $1 billion for the 2000 Decennial Census. These options

are as follows:

• Promoting a higher mail response rate by simplifying and streamlining the

census questionnaire and using a strategy of multiple mail contacts. A

simplified, more user-friendly questionnaire could promote better

response rates by reducing the time and effort needed for respondents to

understand and complete the form. Additionally, tests have shown that the

use of multiple contacts, such as targeted reminder cards and second

mailings improve response rates.

• Using the Postal Service to identify vacant and invalid addresses during

the mailing of questionnaires to avoid costly and unnecessary follow-up

efforts. In order to maximize savings, the Census Bureau must ascertain

the earliest point at which vacant and invalid housing units are accurately

classified to eliminate futile follow-up on them.

• Gathering data on only a sample of those households not responding by

mail, rather than attempting to contact them all in person. Savings

estimates would vary according to the initial percentage of households

responding by mail and the sampling rate and method selected. The

Census Bureau is contemplating following-up on approximately a

30-percent sample.

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The Census Bureau estimates that it could have saved between

$700 million and $800 million of the $2.6 billion that it spent on the 1990

Decennial Census if it had incorporated the procedures listed above.

Almost all of these savings would have occurred in fiscal year 1990. With

inflation and workload adjustments, this figure should be somewhat

higher for fiscal year 2000.

In addition, by eliminating or reducing costly labor-intensive address list

operations through greater reliance on the Postal Service and local

communities, the Census Bureau estimates that it could save as much as

$188 million for the 2000 Census. This cooperative effort will be

permissible under 1995 legislation (Public Law 103-430). To realize these

savings, the Census Bureau estimates that it will incur costs of about

$5.1 million in each of fiscal years 1995, 1996, and 1997. However,

thereafter, the Bureau will generate net savings of $13.5 million in fiscal

year 1998, between $129.4 million and $179.4 million in fiscal year 1999,

and another $10.8 million in fiscal year 2000.

The dollar amounts above are Census Bureau estimates. The Census

Bureau will have to spend several million each year to prepare for the

changes. The Census Bureau should require $950 million less in budget

authority to accomplish the 2000 decennial census than it would without

implementing this proposal. Because of the unique nature of the census, a

cyclical program with the majority of spending occurring once every 10

years, estimates against a fiscal year 1995 frozen baseline would be

inappropriate. CBO estimates that using sampling for nonresponse

follow-up and incorporating other changes for the 2000 Decennial Census

could result in the following savings.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority –5 –5 –5 –5 950

Outlays –5 –5 –5 –5 846

Source: Congressional Budget Office.

Related GAO Products Decennial Census: 1995 Test Census Presents Opportunities to Evaluate

New Census-Taking Methods (GAO/T-GGD-94-136, September 27, 1994).

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Decennial Census: Promising Proposals, Some Progress, But Challenges

Remain (GAO/T-GGD-94-80, January 26, 1994).

Decennial Census: Test Design Proposals Are Promising, But Fundamental

Reform Is Still at Risk (GAO/T-GGD-94-12, October 7, 1993).

Decennial Census: Focused Action Needed Soon to Achieve Fundamental

Breakthroughs (GAO/T-GGD-93-32, May 27, 1993).

Decennial Census: Fundamental Reform Jeopardized by Lack of Progress

(GAO/T-GGD-93-6, March 2, 1993).

Transition Series: Commerce Issues (GAO/OCG-93-12TR, December 1992).

Decennial Census: 1990 Results Show Need for Fundamental Reform

(GAO/GGD-92-94, June 9, 1992).

GAO Contact William M. Hunt, (202) 512-8676

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400 Transportation • Eliminate or transfer Interstate Commerce Commission functions

• Cargo preference laws: their costs and effects

• Increase federal fees paid by foreign-flagged cruise ships

• Increase state share of state-supported intercity rail passenger service

• Reduce or eliminate Amtrak subsidies

• Targeting military airport program funds within the national airport

system

• Enhance Department of Transportation’s oversight of its university

research

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Option:

Eliminate or Transfer

Interstate Commerce

Commission

Functions

Authorizing committees Commerce, Science and Transportation (Senate) 

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Interstate Commerce Commission

Account Salaries and Expenses (30-0100)

Spending type Discretionary

Budget subfunction Ground transportation

Framework theme Reassess objectives

GAO testified both last year and earlier this year on the Interstate

Commerce Commission’s (ICC) remaining rail and motor carrier regulatory

activities and discussed options for eliminating some functions while

transferring others to different agencies. GAO noted that while the ICC’s rail

regulatory responsibilities were widely viewed as necessary, much of the

resources devoted to trucking regulatory activities, most notably tariff and

operating certificate filings, seemed unnecessary in a largely deregulated

environment and could be eliminated. The Congress adopted GAO’s

position in this regard and legislation was enacted to eliminate most of

these activities and downsize the agency. ICC’s budget for fiscal year 1995

was reduced about $13.5 million as a result of these changes.

Other ICC activities, we found more problematic. The remaining trucking

activities could be continued at ICC or transferred to another federal

agency such as the Department of Transportation or the Federal Trade

Commission, but the budgetary savings would likely be minimal. There

was widespread agreement among shippers and carriers that there was a

continuing need to adjudicate rail disputes and protect the interests of

captive rail shippers in market dominance situations. Remaining rail

responsibilities could be merged with the Federal Maritime Commission

and merger review activities could be transferred to the Department of

Justice.

One option the Congress may want to consider would eliminate all

remaining motor carrier functions, except safety and insurance activities,

which would be transferred. The Congress may also want to transfer ICC’s

rail and merger activities to other federal agencies, such as the

Department of Transportation and the Justice Department. While GAO

believes that efficiencies could be achieved through these transfers, future

cost reductions would depend on which functions are continued and at

what level of effort. CBO estimates that eliminating remaining regulation of

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motor carriers, except in the areas of safety and insurance, would achieve

the following savings.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 6 9 9 9 9

Outlays 5 9 9 9 9

Savings from the 1995 funding level adjusted for inflation

Budget authority 6 10 11 11 11

Outlays 5 10 11 11 11

Source: Congressional Budget Office.

Related GAO Products Interstate Commerce Commission: Key Issues Need to be Addressed in

Determining Future of ICC’s Regulatory Functions (GAO/T-RCED-94-261,

July 12, 1994).

Interstate Commerce Commission: Transferring ICC’s Rail Regulatory

Responsibilities May Not Achieve Desired Results (GAO/T-RCED-94-222,

June 9, 1994).

Trucking Transportation: Information on Handling of Undercharge Claims

(GAO/RCED-93-208FS, August 30, 1993).

Trucking Deregulation: Proposed Sunset of ICC’s Trucking Regulatory

Responsibilities (GAO/RCED-87-107, April 23, 1987).

GAO Contact Kenneth M. Mead, (202) 512-2834

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Option:

Cargo Preference

Laws: Their Costs and

Effects

Authorizing committees Commerce, Science and Transportation (Senate) 

Transportation and Infrastructure (House)

Appropriations subcommittees Multiple

Primary agency Multiple

Accounts Multiple

Spending type Discretionary

Budget subfunction Water transportation

Framework theme Reassess objectives

Cargo preference laws require that certain government-owned or financed

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

guarantees a minimum amount of business for the U.S. merchant fleet.

This promotes other sectors of the maritime industry because U.S.-flagged

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.

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. Four federal

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

Agency for International Development—are responsible for more than 99

percent, by tonnage, of 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 because U.S.-flagged vessels generally charge more to

carry cargo than their foreign-flagged counterparts. The average is about

$710 million per year when the costs associated with the Persian Gulf War

are included.

The effect of cargo preference laws on the U.S. merchant marine industry

is mixed. On one hand, the share of international oceanborne cargo

carried by U.S. vessels has declined despite cargo preference laws because

most oceanborne international cargo is not subject to cargo preference

laws. On the other hand, these laws appear to have a substantial impact on

the U.S. merchant marine industry by providing incentive for vessels to

remain in the U.S. fleet. In the absence of preference cargo, the equivalent

of up to two-thirds, by tonnage, of the 165 U.S.-flagged vessels engaged in

international trade would leave the fleet, either by reflagging to achieve

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cost savings or by ceasing to operate if they are not competitive. This

would directly impact about 6,000 U.S. shipboard jobs.

To summarize, if the Congress eliminated cargo preference laws, federal

agencies would save hundreds of millions of dollars yearly, but the U.S.

fleet would be significantly smaller and shipboard jobs would be lost. If

the laws were eliminated, the following savings could be achieved.1

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 555 555 555 555 555

Outlays 410 525 545 545 550

Savings from the 1995 funding level adjusted for inflation

Budget authority 580 595 605 620 635

Outlays 430 560 590 610 625

Source: Congressional Budget Office.

Related GAO Products Management Reform: Implementation of the National Performance

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

Maritime Industry: Cargo Preference Laws—Their Estimated Costs and

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

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

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

Cargo Preference Requirements: Objectives Not Significantly Advanced

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

1994).

GAO Contact Kenneth M. Mead, (202) 512-2834

1

The termination of cargo preference requirements for all government-sponsored cargoes would

probably cause additional defaults on outstanding loans guaranteed by the Maritime Administration.

CBO estimates that such defaults would increase mandatory spending by between $4 million and

$30 million over the next several years.

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Option:

Increase Federal Fees

Paid by

Foreign-Flagged

Cruise Ships

Authorizing committees Multiple

Primary agency Multiple

Spending type Direct

Framework theme Redefine beneficiaries

The multibillion dollar passenger cruise market in the United States is

almost exclusively served by foreign-flagged cruise vessels. With the

exception of two, there are no oceangoing U.S.-flagged cruise vessels of

any substantial size. Access to the U.S. market is, therefore, a very

lucrative privilege, which is made even more so because the vessels and

their crews pay virtually no corporate or personal U.S. income tax.

To ensure adequate shoreside facilities and that the safety, health, and

economic welfare of U.S. passengers and property, and our immigration

laws are adequately safeguarded, the federal government has enacted laws

and dispersed responsibility for their administration and enforcement

throughout several departments and agencies of the federal government.

This raises the question of whether the foreign-flagged cruise vessels,

which are enjoying substantial profits as a result of their monopoly, are

paying their fair share of the cost to the federal government of ensuring

that this extremely valuable U.S. market operates safely and in accordance

with our laws and regulations.

GAO has reported that seven agencies provide services to foreign-flagged

cruise vessels. All but two of the agencies’ revenues, in the form of charges

for these services, were about equal to or exceeded their costs to provide

the services. However, the Coast Guard spent about $1.4 million dollars to

provide such services as vessel safety inspections, pollution prevention,

port safety, marine investigations, and search and rescue, and charged no

fees in fiscal year 1993. The Immigration and Naturalization Service (INS)

spent about $7.3 million dollars on passenger inspections but collected

only about $700,000 because passengers are exempt from its fee when

arriving at a port of entry in the U.S. on a cruise originating in Canada,

Mexico, a territory or possession of the United States, or any adjacent

island.

The Congress may wish to extend fees for these services to the remaining

agencies. The table that follows reflects the revenues that would result if

the Congress enacted legislation (1) authorizing the Coast Guard to charge

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fees for its services and (2) lifting the Immigration and Naturalization

Service exemption.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Added receipts

Option: Coast Guard fees 0.4 1.1 1.4 1.4 1.4

Option: Lifting INS Exemption 38 38 38 38 38

Source: Congressional Budget Office.

Related GAO Product None

GAO Contact Kenneth M. Mead, (202) 512-2834

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Option:

Increase State Share

of State-Supported

Intercity Rail

Passenger Service

Authorizing committees Commerce, Science and Transportation (Senate)

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Account Grants to National Railroad Passenger

Corporation (69-0704)

Spending type Discretionary

Budget subfunction Ground transportation

Framework theme Redefine beneficiaries

The Rail Passenger Service Act allows Amtrak to initiate and/or operate

intercity rail service, known as 403(b) service, that is financially supported

by the states. As of September 1994, Amtrak had contracts with 8 states to

operate this service over 15 routes.2

 In fiscal year 1993, section 403(b)

service accounted for about 14 percent of Amtrak’s ridership. Under the

provisions of the Rail Passenger Service Act, the states pay 45 percent of

section 403(b) service operating losses in the first year of operation and

65 percent of these losses in subsequent years. For service that began

prior to 1989, states reimburse Amtrak for short-term avoidable losses,

while for service that began after 1989, states reimburse Amtrak for

long-term avoidable losses. States also pay 50 percent of the capital

equipment costs (primarily depreciation and interest) associated with

section 403(b) service. Any costs (capital or operating) not paid by states

are absorbed by Amtrak.

In fiscal year 1993, Amtrak absorbed about $82 million in losses on section

403(b) services. This included about $78 million in operating costs and

$4 million in capital costs. Amtrak absorbed such costs as heavy

maintenance and overhaul of cars and locomotives, accident repairs, and

an allocated portion of fixed costs (e.g., yard and station operation and

various overhead costs). The individual states paid about $26 million.

Amtrak absorbs other costs from the service as well. For example,

Amtrak’s use of equipment for section 403(b) service precludes its use on

other intercity routes where there could be equipment shortages. Amtrak

is not reimbursed for these lost opportunity costs.

Although the savings will be relatively minor in comparison to Amtrak’s

overall losses, the Congress may want to increase the state share of

2

These states were Alabama, California, Illinois, Michigan, Missouri, New York, North Carolina, and

Wisconsin.

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existing or new 403(b) service losses and Amtrak has expressed a

willingness to do so. For example, currently participating states are

responsible for paying a percentage of either short-term or long-term

avoidable losses. If participating states were all required to reimburse

Amtrak for fully-allocated losses, GAO estimates that the states’

reimbursement would increase by about $82 million in the first year (using

fiscal year 1994 data). If the federal subsidy to Amtrak were reduced by a

comparable amount, the following savings would apply.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 82 82 82 82 82

Outlays 82 82 82 82 82

Savings from the 1995 funding level adjusted for inflation

Budget authority 82 85 88 91 94

Outlays 82 85 88 91 94

Source: Congressional Budget Office.

Related GAO Product Intercity Passenger Rail: Amtrak’s Financial and Operating Conditions

Threaten Its Longterm Viability (GAO/RCED-95-71, February 6, 1995).

GAO Contact Kenneth M. Mead, (202) 512-2834

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Option:

Reduce or Eliminate

Amtrak Subsidies

Authorizing committees Commerce, Science and Transportation (Senate) 

Transportation and Infrastructure (House)

Appropriations subcommittees Transportation (Senate and House)

Primary agency Department of Transportation

Account Grants to National Railroad Passenger

Corporation (69-0704)

Spending type Discretionary

Budget subfunction Ground transportation

Framework theme Reassess objectives

Amtrak’s financial condition has rapidly deteriorated, creating a situation

that could seriously affect Amtrak’s ability to provide high-quality

passenger rail service nationwide. Amtrak and the federal government

need to make key long-term decisions concerning the quality and extent of

passenger rail service and the government’s commitment to subsidize such

operations. Recognizing Amtrak’s need for financial support, the Congress

has provided significant funding since Amtrak began operating in 1971.

Since 1990, however, Amtrak’s federal subsidy has not covered the gap

between operating expenses and revenues. Total operating deficits have

exceeded federal operating subsidies by $175 million. This imbalance

occurred because passenger revenues have been lower than projected

while expenses have been higher than expected. Furthermore, over the

past 8 years, Amtrak has steadily reduced its working capital by

$371 million.

Over the next few years, Amtrak will face difficult and costly challenges

that could impede its financial recovery. At the same time, Amtrak faces

few opportunities to substantially increase revenues. The challenges

include (1) maintaining its aging passenger cars, (2) modernizing the

Beech Grove, Indiana, repair facility, which services all equipment used

outside the Northeast Corridor, (3) modernizing its locomotive and

passenger car fleet, acquiring high-speed trains, and continuing rail

improvements in the Northeast Corridor, (4) negotiating, by 1996, new

operating agreements with the freight railroads, which own about

97 percent of the track over which Amtrak operates, (5) negotiating labor

issues and work rules with Amtrak’s union employees, and (6) incurring

higher costs for employee health benefits and environmental clean-up.

To address its financial and operating problems, in December 1994,

Amtrak announced plans to cut expenses by restructuring its route

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network and improving productivity. However, even if fully implemented,

these actions will not solve Amtrak’s longer-term problems. Revenues will

continue to fall short of expenses on most routes; and Amtrak projects

that operating expenses will exceed operating revenues and the federal

subsidy by $1.3 billion between 1996 and the year 2000. If Amtrak is to

continue nationwide operations at the present level, enhance the quality

and reliability of its service, and improve its overall financial condition, it

will require substantial operating and capital funding. In European

countries where competitive conditions are more conducive to rail travel,

intercity rail passenger service has received substantial public funding. In

the United States, only a few well-traveled routes may ever generate

sufficient revenues to cover operating costs.

If substantially increasing the level of federal funding for Amtrak,

especially for capital investments, is not possible in today’s budgetary

environment, then now may be the time for the Congress to consider

refocusing Amtrak’s efforts and reducing its current route system,

retaining service in locations where Amtrak can carry the largest number

of passengers in the most cost-effective manner. The Congress could

consider establishing a temporary commission similar to the military base

closure commission to restructure Amtrak’s operations and reduce the

route network so that efficient and quality service can be provided within

the available funding from all sources—federal, state and local, and

private.

Savings estimates can not be made until specific proposals are developed

regarding changes in Amtrak operations and routes. These estimates

cannot be made because restructuring proposals would affect the amount

of the reduction in federal funding for Amtrak’s capital, operating, and

Northeast corridor activities.

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Related GAO Products Intercity Passenger Rail: Financial and Operating Conditions Threaten

Amtrak’s Long-term Viability (GAO/RCED-95-71, February 6, 1995).

Amtrak: Key Decisions Need to Be Made in the Face of Deteriorating

Financial Condition (GAO/T-RCED-94-186, April 13, 1994).

Amtrak: Deteriorated Financial Condition and Costly Future Challenges

(GAO/T-RCED-94-145, March 23, 1994).

Amtrak: Financial Condition Has Deteriorated and Future Costs Make

Recovery Difficult (GAO/T-RCED-94-155, March 17, 1994).

GAO Contact Kenneth M. Mead, (202) 512-2834

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Option:

Targeting Military

Airport Program

Funds Within the

National Airport

System

Authorizing committees Science, Commerce and Transportation (Senate) 

Transportation and Infrastructure (House)

Primary agency Department of Transportation

Account Grants-in-aid for airports (Airport and Airway

Trust Fund) (69-8106)

Spending type Discretionary/Direct

Budget subfunction Air transportation

Framework theme Improve efficiency

The Airport Improvement Program (AIP), the nation’s multibillion dollar

program for planning and improving its airport infrastructure, includes

legislatively established funding categories for specific uses. One such

category—the Military Airport Program (MAP)—was established in 1990 to

assist current and former military airports located in congested

metropolitan areas in converting to viable civilian airports.

However, 9 of the 12 airports selected by the Federal Aviation

Administration (FAA) to participate in the MAP do not meet key legislatively

established program goals. Five of the airports are not located in

congested air traffic areas and are unlikely to increase capacity, either in

major metropolitan areas or systemwide. Nine airports selected had

already been operating as joint or civilian airports for 10 or more years,

and many of these already had the types of facilities in place that the

program was designed to develop.

The Congress could suspend participation in MAP or limit participation to

those airports (1) that are located in FAA-defined congested areas and

(2) where first civilian use occurred after the 1988 and later base closure

and realignment processes. If the Congress did not wish airports

participating in MAP to receive AIP funding in lieu of MAP funding, it would

need to specify this. However, because any or all of these actions could

result in a redirection rather than a reduction in AIP spending, the Congress

would also need to reduce the contract authority and obligation limitation

for the AIP to achieve savings. Given past problems in selecting airports

that meet legislatively-established criteria, one option the Congress could

consider is eliminating the MAP. The following estimate assumes a

reduction in AIP funding of 2.5 percent each year, which is about the

amount that corresponds to MAP funding.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 55 57 59 61 63

Outlays 7 22 29 33 35

Savings from the 1995 funding level adjusted for inflation

Budget authority 55 57 59 61 63

Outlays 7 23 31 36 39

Source: Congressional Budget Office.

Related GAO Product Airport Improvement Program: The Military Airport Program Has Not

Achieved Intended Impact (GAO/RCED-94-209, June 30, 1994).

GAO Contact Kenneth M. Mead, (202) 512-2834

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Option:

Enhance Department

of Transportation’s

Oversight of Its

University Research

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 Ground, air, water, and other transportation

Framework theme Improve efficiency

The Department of Transportation (DOT) conducts a variety of 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 are 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

between fiscal years 1988 and 1993, DOT does not have an integrated plan

to ensure that sponsored research is needed to meet departmental goals.

In addition, since each of DOT’s eight operating administrations conducts

and tracks its own research, there is no effective mechanism to ensure

that duplicative and/or unnecessary research is not conducted by more

than one administration. Finally, a lack of oversight on some university

awards led to overcharges of almost $450,000 and unpaid cost-sharing

totalling $3 million in a sample of awards 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.

GAO has recommended that DOT complete the development of a

departmentwide database to track the purpose and costs associated with

each university research award and evaluate the operating

administrations’ processes to ensure that they have adequate policies and

procedures to carry out their responsibilities for monitoring awards.

CBO does not disagree that improved monitoring and oversight of DOT’s

university research can reduce outlays. GAO findings of overcharges and

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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. 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 Kenneth M. Mead, (202) 512-2834

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450 Community and

Regional

Development

• Reappraise rural development programs

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Option:

Reappraise Rural

Development

Programs

Authorizing committees Agriculture, Nutrition, and Forestry (Senate)

Agriculture (House) 

Small Business (House)

Appropriations subcommittees Agriculture, Development, and Related

Agencies (Senate)

Agriculture, Rural Development, Food and

Drug Administration, and Related

Agencies (House)

Primary agency Department of Agriculture

Department of Housing and Urban

Development

Department of Commerce

Environmental Protection Agency 

Small Business Administration

Accounts Multiple

Spending type Discretionary

Budget subfunction Area and regional development

Framework theme Improve efficiency

Since 1989 GAO reports and testimonies has commented on problems in

federal rural development programs. Most recently we found that

approximately 689 federal programs provide rural development assistance

in the United States. The web of federal policies and regulations that

accompany these programs makes the delivery of assistance inefficient.

The programs are complex and narrowly focused, generally making them

difficult and costly to use. The programs are an inefficient surrogate for a

single federal policy for economic development in rural areas.

To improve the effectiveness and efficiency of federal assistance to rural

areas the Congress may wish to consider program consolidations where

these are appropriate. It is difficult to estimate the savings that would be

achieved from program consolidations because savings would depend in

large part on the programs the Congress consolidates and the extent to

which overlapping or duplicative activities could be eliminated. However,

the President has proposed in his fiscal year 1996 budget to authorize U.S.

Department of Agriculture (USDA) state directors to shift funds between 14

existing USDA rural development loan and grant programs, which would

remain separate.

Using the proposed baseline in the President’s fiscal year 1996 budget the

administration reported that $42 million in administrative savings could be

achieved from this change due to accompanying reductions in USDA

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headquarters’ FTEs. CBO’s estimate of cost savings—using fiscal year 1995

data—would be achieved over 5 years and are reflected in the table below.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 11 13 15 16 17

Outlays 11 13 14 16 17

Savings from the 1995 funding level adjusted for inflation

Budget authority 15 20 24 29 33

Outlays 14 19 24 28 33

Source: Congressional Budget Office.

Related GAO Products Rural Development: Patchwork of Federal Programs Needs to Be

Reappraised (GAO/RCED-94-165, July 28, 1994).

Rural Development: Profile of Rural Areas (GAO/RCED-93-40FS, April 29,

1993).

Rural Development: America Faces Many Challenges (GAO/RCED-93-35,

November 20, 1992).

Rural Development: Federal Programs That Focus on Rural America and

Its Economic Development (GAO/RCED-89-56BR, January 19, 1989).

GAO Contact John W. Harman (202) 512-5138

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500 Education,

Training,

Employment, and

Social Services

• Employment and training programs

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Option:

Employment and

Training Programs

Authorizing committees Multiple

Appropriations subcommittees Labor, Health and Human Services, and

Education (Senate and House)

Primary agencies Multiple

Accounts Multiple

Spending type Discretionary/Direct

Budget subfunction Training and employment

Framework theme Improve efficiency

The challenges posed by increased global competition and a changing

economy call for a renewed commitment to invest in the American

workforce. The federal government’s effort to meet this commitment has

been to increase investment in a wide array of programs that target people

experiencing barriers to employment and to add other new programs that

target particular groups. Since 1992 GAO has issued 9 reports and

testimonies commenting on federal employment and training programs.

Most recently, GAO identified a total of 163 federal programs and funding

streams providing employment and training assistance. These programs

are spread across 15 departments and independent agencies with a total

budget of about $20 billion.

GAO’s analysis of programs that target the economically disadvantaged

showed that those programs had similar goals, often served the same

categories of people, and provided many of the same services using

separate, yet parallel, delivery structures. This overlap can add

unnecessary administrative costs at each level of government—federal,

state, and local.

The amount of any savings from consolidating programs will depend on

how many programs are included, the degree and kind of reductions, and

the level of federal involvement. To illustrate the potential for savings from

consolidating employment and training programs, one option would be to

consolidate the following programs for the economically disadvantaged:

Job Training Partnership Act (JTPA) IIA Training Services for the

Disadvantaged Adult, JTPA IIA State Education Programs, JTPA IIA

Incentive Grants, Job Opportunities and Basic Skills Program, Food Stamp

Employment and Training, Family Self-Sufficiency Program, Vocational

Education—Basic State Programs, Educational Opportunity Centers, and

Student Literacy and Mentoring Corps. A second option could consolidate

the following programs for dislocated workers: JTPA Economic Dislocation

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and Worker Adjustment Assistance (EDWAA) (substate allotment), JTPA

EDWAA (governor’s discretionary), JTPA EDWAA (Secretary’s discretionary),

JTPA Defense Conversion Adjustment Program, JTPA Clean Air Employment

Transition Assistance, JTPA Defense Diversification, Trade Adjustment

Assistance—Workers, Vocational Education—Demonstration Centers for

the Training of Dislocated Workers, and the Transition Assistance

Program.

Consolidating similar employment and training programs would result in

administrative efficiencies to the states as well as improved opportunities

to reduce fragmentation and increase effectiveness in service delivery. In

consolidating programs, the Congress would also want to consider the

implications for federal agency workloads and responsibilities. In

anticipation of the benefits states will receive, funding for the programs

included could be reduced 10 percent each year as part of the

consolidation. Savings from the consolidations are shown in the two sets

of tables below which separately identify direct and discretionary

spending.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Option: Disadvantaged adults

Direct spending

Savings from the 1995 funding level adjusted for inflation

Budget authority 120 120 120 120 120

Outlays 100 110 110 110 110

Source: Congressional Budget Office.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Option: Disadvantaged adults

Discretionary spending

Savings from the 1995 funding level

Budget authority 210 210 210 210 210

Outlays 120 190 210 220 230

Savings from the 1995 funding level adjusted for inflation

Budget authority 210 220 220 230 240

Outlays 120 190 210 220 230

Source: Congressional Budget Office.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Option: Dislocated workers

Direct spending

Savings from the 1995 funding level adjusted for inflation

Budget authority 30 30 30 30 30

Outlays 20 30 30 30 20

Source: Congressional Budget Office.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Option: Dislocated workers

Discretionary spending

Savings from the 1995 funding level

Budget authority 130 130 130 130 130

Oulays 70 130 130 130 130

Savings from the 1995 funding level adjusted for inflation

Budget authority 130 140 140 150 150

Outlays 70 130 140 140 140

Source: Congressional Budget Office.

Related GAO Products Multiple Employment Training Programs: Major Overhaul Is Needed to

Create a More Efficient, Customer-Driven System (GAO/T-HEHS-95-70,

February 6, 1995).

Multiple Employment Training Programs: Major Overhaul Is Needed to

Reduce Costs, Streamline the Bureaucracy, and Improve Results

(GAO/T-HEHS-95-53, January 10, 1995).

Multiple Employment Training Programs: Overlap in Programs Raises

Questions About Efficiency (GAO/HEHS-94-193, July 11, 1994).

Multiple Employment Training Programs: Major Overhaul Is Needed

(GAO/T-HEHS-94-109, March 3, 1994).

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Multiple Employment Training Programs: Overlapping Programs Can Add

Unnecessary Administrative Costs (GAO/HEHS-94-80, January 28, 1994).

Multiple Employment Training Programs: Conflicting Requirements

Hamper Delivery of Services (GAO/HEHS-94-78, January 28, 1994).

Multiple Employment Programs: National Employment Training Strategy

Needed (GAO/T-HRD-93-27, June 18, 1993).

Multiple Employment Programs (GAO/HRD-93-26R, June 15, 1993).

Multiple Employment Programs (GAO/HRD-92-39R, July 24, 1992).

GAO Contact Linda G. Morra, (202) 512-7014

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550 Health • Overall strategy to address prescription drug fraud and Medicaid fraud

• Medicaid: States use illusory approaches to shift program costs to the

federal government

• Medicaid formula: fairness could be improved

• Adopt automated drug utilization reviews

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Option:

Overall Strategy to

Address Prescription

Drug Fraud and

Medicaid Fraud

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Department of Health and Human Services

Account Grants to States for Medicaid (75-0512)

Spending type Direct

Budget subfunction Health care services

Framework theme Improve efficiency

The Medicaid program typically includes prescription drugs in its covered

services, and diversion of these medications has been a problem for at

least a decade. Such diversion can involve pharmacists routinely adding

drugs to legitimate prescriptions, keeping the extras for themselves or for

sale to others; clinics providing inappropriate prescriptions to Medicaid

recipients who trade them for cash or merchandise or have them filled and

market the drugs; and entrepreneurs who provide recipients with abusable

drugs in exchange for subsequent illicit use of their Medicaid recipient

numbers. Participants in drug diversion schemes therefore frequently face

added charges of fraud, false claims, or other related violations of state or

federal law.

The financial incentives for diverting drugs are substantial and apply to

both controlled and noncontrolled substances. Legal controlled

drugs—those with significant potential for physical or psychological

harm—are appealing because they are relatively cheap and chemically

pure compared to illicit drugs. Profits from street sales can amount to

several thousand percent of initial investment. One drug costing the

pharmacy less than 50 cents per pill sold on the street for $85 per pill.

Noncontrolled drugs, also, have recently become popular targets for

diversion because they are comparatively easier to obtain and are

particularly desirable if obtained under an insurance program—such as

Medicaid—requiring little or no copayment. With no or minimal outlay on

the part of the recipient, the street price—while typically lower than the

pharmacy price and thus attractive to buyers—is entirely profit.

Medicaid accounts for 80 percent of all federal spending on prescription

drugs. By 1996, Medicaid’s drug benefit is expected to cost $10 billion.

While precise dollar losses due to diversion—as with all fraud—are

impossible to identify, New York State officials estimate that, in 1990,

these losses represented about 10 percent of the state’s total Medicaid

spending for prescription drugs.

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States have various initiatives under way to curb Medicaid prescription

drug diversion but are hampered by insufficient resources, lengthy and

frequently unproductive investigations, and the prevalence of repeat

offenders and resilient schemes. GAO believes that the Health Care

Financing Administration should assume an active leadership role in

orchestrating and encouraging states’ efforts and fostering the

development and implementation of preventive measures. HHS generally

agrees with the GAO findings and recommendation but believes it is not

feasible unless new staff resources can be identified and allocated.

The Congress should encourage HHS to take a stronger role. If states

curbed these losses by even a small percentage, future Medicaid costs

would be reduced substantially. However, CBO cannot develop an estimate

for this option until specific strategies are identified. Moreover, savings

would be net of the additional resources required to curb fraudulent

activities.

Related GAO Products Medicaid: A Program Highly Vulnerable to Fraud (GAO/T-HEHS-94-106,

February 25, 1994).

Medicaid Drug Fraud: Federal Leadership Needed to Reduce Program

Vulnerabilities (GAO/HRD-93-118, August 2, 1993).

Medicaid Prescription Drug Diversion: A Major Problem, But State

Approaches Offer Some Promise (GAO/T-HRD-92-48, July 29, 1992).

GAO Contact Sarah F. Jaggar, (202) 512-7119

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Option:

Medicaid: States Use

Illusory Approaches

to Shift Program

Costs to the Federal

Government

Authorizing committees Finance (Senate) 

Commerce (House)

Primary agency Department of Health and Human Services

Account Grants to States for Medicaid (75-0512)

Spending type Direct

Budget subfunction Health care services

Framework theme Reassess objectives

GAO has raised a concern that Michigan, Texas, and Tennessee have 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.

The practices that involve payments to state-owned facilities will be

restricted by Omnibus Budget Reconciliation Act of 1993 provisions that

limit such payments to unreimbursed Medicaid and uninsured costs.

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 to verify that monies are

used for the purpose for which they were obtained.

GAO believes 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. GAO believes 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

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states to alter Medicaid financing formulas. Future requests and use of

waivers by states are uncertain.

Related GAO Products Medicaid: States Use Illusory Approaches to Shift Program Costs to the

Federal Government (GAO/HEHS-94-133, August 1, 1994).

Medicaid: The Texas Disproportionate Share Program Favors Public

Hospitals (GAO/HRD-93-86, March 30, 1993).

GAO Contact Sarah F. Jaggar, (202) 512-7119

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Option:

Medicaid Formula:

Fairness Could Be

Improved

Authorizing committees Finance (Senate) 

Commerce (House)

Primary agency Department of Health and Human Services

Account Grants to States for Medicaid (75-0512)

Spending type Direct

Budget subfunction Health care services

Framework theme Reassess objectives

The Medicaid program provides medical assistance to current and recent

beneficiaries of the Aid to Families with Dependent Children (AFDC)

program, low-income people who receive Supplemental Security Income,

and certain other low-income individuals. The federal share of the

program costs varies with the per capita income of the state. 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, GAO has issued numerous reports and testimonies in which we

identify ways in which the fairness of federal grant formulas could be

improved. With respect to Medicaid GAO believes the fairness of the

matching formula could be improved by replacing the per capita income

factor with the number of people living below the official poverty line and

the total taxable resources of the state, and by reducing the minimum

federal share to 40 percent. These changes could reduce federal

reimbursements by reducing the federal share in states providing the most

generous benefits that have the fewest low-income people in need and a

greater ability to fund benefits from state resources. It also 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. 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

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 4,600 5,100 5,700 6,200 6,900

Outlays 4,600 5,100 5,700 6,200 6,900

Source: Congressional Budget Office.

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Related GAO Product Medicaid Formula: Fairness Could Be Improved (GAO/T-HRD-91-5,

December 7, 1990).

GAO Contact Sarah F. Jaggar, (202) 512-7119

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Option:

Adopt Automated

Drug Utilization

Reviews

Authorizing committees Finance (Senate) 

Commerce (House)

Primary agency Department of Health and Human Services

Account Grants to States for Medicaid (75-0512)

Spending type Direct

Budget subfunction Health care services

Framework theme Improve efficiency

Amendments to Title XIX of the Social Security Act required states to

implement drug utilization review (DUR) programs in the Medicaid

programs by January 1, 1993. Under DUR, states must review Medicaid

prescriptions to (1) determine whether they are appropriate, medically

necessary, and not likely to result in adverse medical reactions and

(2) identify fraud, waste, and abuse. Reviews must be performed

prospectively (before prescriptions are filled) and retrospectively (on a

quarterly basis after prescriptions are filled).

The amendments do not require states to use statewide automated

systems to implement prospective reviews, although at the time of GAO’s

review about two-thirds of the states had or were planning to acquire

these systems. Automated systems for prospective DUR reviews reduce

Medicaid program costs in two ways: (1) by cancelling prescriptions that

are inappropriate drug therapy or are instances of waste, fraud and/or

abuse and (2) by reducing hospitalizations due to adverse drug reactions

(which account for from 3 percent to 28 percent of Medicaid

hospitalizations). Automated systems are also cost-effective from the

states’ perspective. For example, Maryland’s total one-time costs for

system acquisition were about $165,000, and its initial 10-month operating

costs were about $472,000. In contrast, data show that the value of

Medicaid prescriptions cancelled during this period exceeded $6.7 million.

Although most states and the District of Columbia either operate or plan to

implement automated prospective DUR system within the next few years,

about one-third have no plans to acquire these systems. The Health Care

Financing Administration could influence the remaining states to do so by

providing additional information about system use and benefits. If these

remaining states were required to acquire the systems, savings would

result from lower Medicaid grant payments.

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CBO could not prepare a 5-year estimate of savings at this time without

more complete national data on Medicaid prescriptions. For example,

initial GAO work shows that having the DUR system resulted in millions of

dollars in cancellations of prescriptions which could have been

inappropriate or fraudulent or which presented possible adverse medical

reactions. However, since the automated systems are relatively new, data

are not yet available to show precisely how many of these cancellations

resulted in budgetary savings.

Related GAO Product Prescription Drugs: Automated Prospective Review Systems Offer

Potential Benefits for Medicaid (GAO/AIMD-94-130, August 5, 1994).

GAO Contact Frank W. Reilly, (202) 512-6252

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570 Medicare • Teaching hospitals’ Medicare payments

• Medicare payment safeguards

• Medicare payments for high technology procedures

• Change the health maintenance organization rate-setting method for

Medicare

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Option:

Teaching Hospitals’

Medicare Payments

Authorizing committees Finance (Senate) 

Commerce (House) 

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services, and

Education (Senate and House)

Primary agency Department of Health and Human Services

Account Federal Hospital Insurance Trust Fund

Account (20-8005)

Spending type Direct

Budget subfunction Medicare

Framework theme Improve efficiency

Medicare’s Prospective Payment System pays hospitals with graduate

medical education programs at rates higher than those other hospitals

receive for treating the same conditions. The higher payments are to

compensate for the higher costs teaching hospitals incur, which are

thought to be due to such factors as increased diagnostic testing,

increased number of procedures performed, and higher staffing ratios. The

teaching adjustment is based on the ratio of interns and residents per bed

and currently is set at a 7.65-percent increase in payments for each 0.1

increment in the ratio.

In 1989, GAO found that the present adjustment factor was too high

because it did not explicitly consider all relevant teaching hospital costs

and did not accurately measure all cost factors. Based on its analysis, GAO

found that the adjustment should be no higher than 6.26 percent and could

be as low as 3.73 percent. The 6.26-percent rate would better measure

factors explicitly recognized by the current formula. The 3.73-percent rate

expands on the current formula to reflect additional factors that affect

teaching hospital costs.

CBO’s analysis of Medicare’s indirect medical education payments

discusses rates of 6 percent and 3 percent. Savings for those rates are

reflected in the following table.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Option: Reduce to 6-percent adjustment factor

Outlays 930 1,120 1,200 1,280 1,360

Option: Reduce to 3-percent adjustment factor

Outlays 2,600 3,150 3,350 3,600 3,800

Source: Congressional Budget Office.

Related GAO Product Medicare: Indirect Medical Education Payments Are Too High

(GAO/HRD-89-33, January 5, 1989).

GAO Contact Sarah F. Jaggar, (202) 512-7119

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Option:

Medicare Payment

Safeguards

Authorizing committees Finance (Senate)

Commerce (House)

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services and

Education (Senate and 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 subfunctions Health and Medicare

Framework theme Improve efficiency

GAO has issued many reports on the problem of high Medicare costs, and

we have identified ways in which costs could be reduced. Recently, we

reported that when Medicare pays contractors to process claims, one of

the contractors’ responsibilities is to ensure that Medicare only pays

claims for covered services that are medically necessary and appropriate

and for which Medicare is the primary payer. Such activities are referred

to as program safeguards.

The funding that contractors receive to review each claim has declined by

over 20 percent since 1989. In response, contractors apply fewer or less

stringent payment controls, and claims are paid that otherwise would not

be. Historically, payment safeguards have returned $10 in savings for each

dollar expended on them. GAO believes additional program safeguard

funding is necessary to better protect the program against erroneous

payments.

Although CBO does not disagree that increasing program safeguards can

reduce Medicare outlays, it does not make budget estimates of such

savings. This is because it is difficult to establish a clear connection

between increases in administrative activities and savings that might

accrue through changes in the operations of the program. In addition, even

if such a connection can be established, the magnitude of savings

attributable to such changes is not certain enough for budget scorekeeping

purposes.

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Related GAO Products Medicare: High Spending Growth Calls for Aggressive Action

(GAO/T-HEHS-95-75, February 6, 1995).

Medicare Claims: High Risk Series (GAO/HR-95-8, February 1995).

Medicare: Adequate Funding and Better Oversight Needed to Protect

Benefit Dollars (GAO/T-HRD-94-59, November 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, February 28, 1989).

Medicare and Medicaid: Budget Issues (GAO/T-HRD-87-1, January 29, 1987).

GAO Contact Sarah F. Jaggar, (202) 512-7119

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Option:

Medicare Payments

for High Technology

Procedures

Authorizing committees Finance (Senate) 

Commerce (House) 

Ways and Means (House)

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance

Trust Fund (20-8004)

Spending type Direct

Budget subfunction Medicare

Framework theme Improve efficiency

When new medical technologies first come into use, costs are often high

because of such factors as initial capital expenditures and low utilization

rates. Medicare payment rates are normally set during this period. Over

time, the costs related to a particular technology often go down as

equipment is improved, utilization increases, and experience with the

technology results in efficiencies. However, Medicare does not have a

process for routinely and systematically assessing these factors and its

payment rates often remain at the original high levels.

Over the years, the Congress has reacted to the identification of specific

overpaid procedures and services by legislatively reducing rates. For

example, payments have been reduced for overpriced surgeries, selected

items of durable medical equipment, and intraocular lenses. GAO believes

that establishment of a systematic process for periodically evaluating the

reasonableness of Medicare payment rates as technologies mature would

result in significant program savings.

Savings have not been estimated because this option encompasses all

procedures that are now or will be described as mature. Any savings

would depend on the particular technologies for which Medicare payment

rates are reduced.

Related GAO Product Medicare: Excessive Payments Support the Proliferation of Costly

Technology (GAO/HRD-92-59, May 27, 1992).

GAO Contact Sarah F. Jaggar, (202) 512-7119

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Option:

Change the Health

Maintenance

Organization

Rate-Setting Method

for Medicare

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Department of Health and Human Services

Account Federal Supplementary Medical Insurance

Trust Fund (20-8004)

Spending type Discretionary/Direct

Budget subfunction Medicare

Framework theme Improve efficiency

Hoping to take advantage of the potential cost savings associated with

health maintenance organizations (HMO), Congress created the Medicare

risk contract program. Under this program, HMOs are paid a flat fee (or

capitation rate) for each Medicare beneficiary enrolled. Capitation rates

are set at 95 percent of the estimated average cost per Medicare

beneficiary in the fee-for-service sector, adjusted for enrollees’

demographic factors—age, sex, Medicaid eligibility, and whether or not

the enrollee is in an institution such as a nursing home. These risk

adjustments are designed to reduce “favorable selection,” which occurs

when HMO enrollees are healthier than Medicare beneficiaries in the

fee-for-service sector.

The risk contract program has not achieved its goal of reducing Medicare

costs because the Health Care Financing Administration’s (HCFA) risk

adjustment methodology has proved insufficient to prevent HMOs from

benefiting from favorable selection. Because the healthier HMO enrollees

are more than 5 percent less expensive to care for than comparable

fee-for-service beneficiaries, HCFA has paid HMOs more for beneficiaries’

treatment than it would have spent had those same beneficiaries remained

in the fee-for-service sector.

GAO identified four alternative risk adjustment mechanisms that—unlike

HCFA’s current system—would adjust payments based on the health status

of enrollees. For example, one of these risk adjustors (clinical indicators)

would adjust capitation rates for the presence or absence of a particular

chronic health condition, such as heart disease or cancer. Any of these

four risk adjustment methods could reduce favorable selection and allow

Medicare to achieve cost savings under the risk contract program. GAO

recommended that HCFA conduct demonstration projects on each of these

options to gather more practical risk adjustment experience.

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A 5-year estimate of savings cannot be developed at this time. Insufficient

data have been collected to determine the specific impact of proposed risk

assessment methods on Medicare costs and on HMO participation in the

risk contract program.

Related GAO Product Medicare: Changes to HMO Rate-Setting Method Are Needed to Reduce

Program Costs (GAO/HEHS-94-119, September 2, 1994).

GAO Contact Sarah F. Jaggar, (202) 512-7119

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600 Income

Security

• Fees for non-Aid to Families with Dependent Children child support

enforcement services

• Automated child support enforcement systems

• Funding for state automated welfare systems

• Unified risk-based food safety system

• Consolidation of U.S. Department of Agriculture food assistance programs

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Option:

Fees for Non-Aid to

Families With

Dependent Children

Child Support

Enforcement Services

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 Other income security

Framework theme Redefine beneficiaries

The purpose of the Child Support Enforcement Program is to strengthen

state and local efforts to obtain child support for both families eligible for

Aid to Families with Dependent Children (AFDC) and non-AFDC 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 1993, non-AFDC caseloads and

costs have risen 302 percent and 520 percent, respectively. States have

exercised their discretion to charge only minimal application and service

fees and, thus, are doing little to recover the federal government’s

66-percent share of program costs. In fiscal year 1993, for example, state

fee practices returned $31 million of the $985 million spent to provide

non-AFDC services.

Since 1992, GAO has 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 charge a

minimum percentage service fee on successful collections for non-AFDC

families. Application fees are administratively burdensome, and a service

fee would ensure that families are charged only when the service has been

successfully performed.

If the Congress wishes to fully recover the administrative costs of the

program, a 15-percent service fee on collections for non-AFDC families

would be necessary. States could charge a 15-percent service fee for

collection for non-AFDC cases. The following savings assume states would

be able to implement this option beginning October 1, 1995.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 800 870 940 1,010 1,090

Outlays 800 870 940 1,010 1,090

Source: Congressional Budget Office.

Related GAO Products Child Support Enforcement: Families Could Benefit From Stronger

Enforcement Program (GAO/HEHS-95-2, December 27, 1994).

Child Support Enforcement: Federal Efforts Have Not Kept Pace With

Expanding Program (GAO/T-HEHS-94-209, July 20, 1994).

Child Support Enforcement: Opportunity to Defray Burgeoning Federal

and State Non-AFDC Costs (GAO/HRD-92-91, June 5, 1992).

GAO Contact Jane L. Ross, (202) 512-7215

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Option:

Automated Child

Support Enforcement

Systems

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 Other income security

Framework theme Improve efficiency

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

Aid to Families with Dependent Children (AFDC) and non-AFDC clients, 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 on the

effective planning, design, and operation of automated systems. The

federal government provides enhanced funding to develop these

automated child support enforcement systems by paying up to 90 percent

of states’ development costs. The states estimate it will cost over

$1.2 billion to develop these systems.

The 90-percent federal funding participation rate is limited to expenditures

through fiscal year 1995. Thereafter, the federal government will

reimburse states’ costs to develop and operate these systems at the

66-percent rate established for administrative expenses. Despite past

problems such as lack of OCSE oversight and its limited action to correct

known problems with state systems, all states indicate their system

development will be complete in time to meet this deadline. However, it is

doubtful all states will meet this deadline.

Most of the increased child support collections estimated by the states due

to their automated systems are for non-AFDC clients. The non-AFDC clients

will benefit from these increased collections but pay little towards the cost

of administering their cases. Expenditures for non-AFDC cases totaled over

$985 million for fiscal year 1993. The Congress provided the states broad

discretion to help defray costs of providing these services for non-AFDC

clients, but most states charge only minimal application fees of less than

$25 and few states charge optional fees for federal and state offsets.

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GAO work shows that beginning in fiscal year 1996, the states could spend

up to $300 million annually to operate automated systems for child

support enforcement, including $198 million of federal funds. Given the

states’ broad discretion to help defray costs, the Congress could choose to

reduce the federal funding participation rate for development and

operation of automated child support enforcement systems from 66

percent to the 50-percent rate now common for such costs in other

programs, such as AFDC and Food Stamps. CBO estimates that doing so

would produce savings of $72 million each year as shown in the table

below.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 72 72 72 72 72

Outlays 72 72 72 72 72

Source: Congressional Budget Office.

Related GAO Products Child Support Enforcement: Timely Action Needed to Correct System

Development Problems (GAO/IMTEC-92-46, August 13, 1992).

Child Support Enforcement: Opportunity to Defray Burgeoning Federal

and State Non-AFDC Costs (GAO/HRD-92-91, June 5, 1992).

GAO Contact Frank W. Reilly, (202) 512-6252

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Option:

Funding for State

Automated Welfare

Systems

Authorizing committees Agriculture (Senate and House) 

Finance (Senate)

Ways and Means (House)

Appropriations subcommittees Labor, HHS, Education and Related

Agencies (Senate)

Agriculture (House)

Primary agency Departments of Agriculture and Health and

Human Services

Account Multiple

Spending type Discretionary/Direct

Budget subfunction Food and nutrition; other income security

Framework theme Improve efficiency

From 1984 to 1992, federal agencies contributed over $6.8 billion, and

$1.8 billion prior to 1984, to help fund development and operation of

automated information systems for welfare and welfare-related programs.

These programs include: Aid to Families with Dependent Children (AFDC),

Medicaid, Food Stamps, Child Support Enforcement, Job Opportunities

and Basic Skills Training (JOBS), Child Care, and Child Welfare Services

and Foster Care/Adoption Assistance. The Department of Health and

Human Services (HHS) administers all of these programs except Food

Stamps, which the Department of Agriculture (USDA) administers. As part

of their program administration responsibilities, these departments are to

monitor the development of automated information systems to ensure that

the systems meet federal requirements.

Ineffective oversight of state-developed systems has led to millions of

dollars being spent on systems that do not work and/or do not meet

federal requirements. For example, one state spent $51 million on a system

that could not be implemented as planned because important user

requirements were not incorporated into its original design. Although most

states are developing integrated systems incorporating three welfare

programs (AFDC, Medicaid, and Food Stamps), HHS and USDA each spend

time and money to independently review state systems, which results in

contradictory directions given to different states. Moreover, even though

millions of dollars have been spent, the benefits of these systems in

reducing administrative costs and mistakes have not been determined.

Many states operate separate systems for separate programs even though

the welfare clients the programs serve are often the same. In addition,

many states are now in the process of upgrading or replacing existing

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systems or developing or planning to develop new systems, which they

estimate could cost at least $2.2 billion from 1993 to 1999.

Savings could be achieved and the usefulness of state automated systems

improved if problems were identified and corrected early in the system

development process. In addition, more of these systems could be

integrated, with the federal government providing model systems to

further reduce development costs. If it chooses, the Congress could slow

HHS’ and USDA’s development funding to reflect the anticipated savings

resulting from early detection of problems in the system development

process, greater system integration, and greater use of models to guide

state development efforts. However, a savings estimate for this option

cannot be developed at this time. This is because yearly data on states’

future spending for automated systems development in the affected

welfare and welfare-related programs are not available.

Related GAO Products Automated Welfare Systems: Historical Costs and Projections

(GAO/AIMD-94-52FS, February 25, 1994).

Welfare Programs: Ineffective Federal Oversight Permits Costly

Automated System Problems (GAO/IMTEC-92-29, May 27, 1992).

GAO Contact Frank W. Reilly, (202) 512-6252

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Option:

Unified Risk-Based

Food Safety System

Authorizing committees Agriculture, Nutrition, and Forestry

(Senate) 

Agriculture (House)

Appropriations subcommittees Agriculture, Rural Development, and

Related Agencies (Senate) 

Agriculture, Rural Development, Food and

Drug Administration, and Related

Agencies (House)

Primary agency Department of Agriculture

Accounts Multiple

Spending type Discretionary

Budget subfunction Other income security

Framework theme Improve efficiency

GAO has issued more than 10 reports and testimonies on food safety issues.

This work leads us to conclude that the federal system to ensure the safety

and quality of the nation’s food—at an annual cost of $1 billion a year—is

inefficient and outdated and does not adequately protect the consumer

against food-borne illness. GAO has reported that as many as 12 different

agencies administering over 35 different laws oversee food safety. As a

result, the current food safety system suffers from overlapping and

duplicative inspections, poor coordination, inefficient allocation of

resources, and outdated inspection procedures.

One option that might be considered to improve the effectiveness,

efficiency, and uniformity of the federal food safety system would be the

consolidation of activities in a new single food safety agency. This agency

would administer a uniform set of food safety laws and implement a food

inspection system. GAO has recommended the establishment of a system

based on the Hazard Analysis and Critical Control Point system (HACCP). A

HACCP-based system relies on building safety into food production. The

current federal food safety system is not HACCP-based and tries to ensure

food safety primarily through end-product testing. GAO has recommended

that responsibility for implementing HACCP-based systems be delegated to

the industry, with the government retaining an oversight role. GAO believes

that this will result in cost savings to the government by eliminating some

federal food inspections.

However, a 5-year estimate of savings cannot be developed at this time.

The amount of any savings from consolidating food inspection programs

will depend on how many programs are included, the degree and kind of

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reductions, and the level of federal involvement. In addition, the amount of

savings will depend on the extent to which administrative cost savings are

used to offset overall program costs.

Related GAO Products Food Safety: Fundamental Changes Needed to Improve Monitoring of

Unsafe Chemicals in Food (GAO/T-RCED-94-311, September 28, 1994).

Food Safety: Changes Needed to Minimize Unsafe Chemicals in Food

(GAO/RCED-94-192, September 26, 1994).

Food Safety: A Unified, Risk-Based Food Safety System Needed

(GAO/T-RCED-94-223, May 25, 1994).

Meat Safety: Inspectors’ Ability to Detect Harmful Bacteria Is Limited

(GAO/T-RCED-94-228, May 24, 1994).

Food Safety: Risk-Based Inspections and Microbial Monitoring Needed for

Meat and Poultry (GAO/RCED-94-110, May 19, 1994).

Food Safety: Risk-Based Inspections and Microbial Monitoring Needed for

Meat and Poultry (GAO/T-RCED-94-189, April 19, 1994).

Meat Safety: Inspection System’s Ability to Detect Harmful Bacteria

Remain Limited (GAO/T-RCED-94-123, February 10, 1994).

Food Safety: A Unified Risk-Based System Needed to Enhance Food

Safety (GAO/T-RCED-94-71, November 4, 1993).

Food Safety: Building a Scientific, Risk-Based Meat and Poultry Inspection

System (GAO/T-RCED-93-22, March 16, 1993).

Food Safety: Inspection of Domestic and Imported Meat Should Be

Risk-Based (GAO/RCED-93-10, February 18, 1993).

Food Safety and Quality: Uniform, Risk-based Inspection System Needed

to Ensure Safe Food Supply (GAO/RCED-92-152, June 26, 1992).

GAO Contact John W. Harman, (202) 512-5138

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Option:

Consolidation of U.S.

Department of

Agriculture Food

Assistance Programs

Authorizing committees Agriculture, Nutrition, and Forestry

(Senate) 

Agriculture (House) 

Economic and Educational Opportunities

(House)

Primary agency Department of Agriculture

Account Emergency Food Assistance Program

(12-3635)

Spending type Direct

Budget subfunction Farm income stabilization

Framework theme Improve efficiency

GAO first reported on the need to improve federal food assistance programs

in 1978. More recently, we have said that nearly all federal domestic food

assistance is provided under the U.S. Department of Agriculture’s 14 food

assistance programs. These programs have been established by a series of

congressional acts and amendments since the mid-1940s. The 14 programs

provide food and food-related assistance to about 39 million persons,

including infants and children, the disabled, pregnant and breast-feeding

women, and the elderly. The federal cost of providing food assistance has

dramatically increased from about $664 million in fiscal year 1967 to an

estimated $37 billion in fiscal year 1994.

The multiple program approach used to provide food assistance has

created a complex administrative structure involving different nutritional

goals and funding schemes and encompassing various combinations of

federal, state, and local agencies that, for the most part, dispense food

benefits independently. This complex administrative structure, based on

separate authorizing legislation and regulations, causes possible overlaps

of benefits and functions, inconsistent administrative procedures, and

confusion for applicants who attempt to find out what programs are

available to them. As a result, the current multiprogram approach may not

be the most effective way of providing federal food assistance.

To illustrate how savings could be achieved, consolidating three

commodity food assistance programs—The Emergency Food Assistance

Program (TEFAP), Soup Kitchens/Food Banks (SKFB) and Commodity

Supplemental Food Program (CSFP)—would streamline federal, state, and

local administration of the food assistance programs that rely on USDA

commodities. Currently, TEFAP and SKFB can provide similar commodities

for use in households through food pantries. Combining these three

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programs would give states more flexibility to target resources more

effectively. At the same time, a consolidated commodity distribution

program would continue to support USDA’s price support and surplus

removal activities. It would also continue to (1) provide an outlet for

commodities if surpluses arise and (2) make commodities available to help

victims of natural disasters.

In anticipation of the increased flexibility and reduced administrative

burdens states would gain from consolidating the programs, the Congress

may want to consider eliminating some funding currently provided the

states for administering the programs. The table below reflects the savings

that could be achieved from this option.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 41 43 44 46 47

Outlays 37 43 44 46 47

Source: Congressional Budget Office.

Related GAO Products Food Assistance Programs (GAO/RCED-95-115R, February 28, 1995).

Food Assistance: USDA’s Multiprogram Approach (GAO/RCED-94-33,

November 24, 1993).

Food Assistance: Nutritional Conditions and Program Alternatives in

Puerto Rico (GAO/RCED-92-114, July 21, 1992).

Federal Domestic Food Assistance Programs—A Time for Assessment and

Change (CED-78-113, June 13, 1978).

GAO Contact John W. Harman, (202) 512-5138

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650 Social Security • Social Security continuing disability reviews

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Option:

Social Security

Continuing Disability

Reviews

Authorizing committees Finance (Senate)

Ways and Means (House)

Appropriations subcommittees Labor, Health and Human Services, and

Education (Senate and House)

Primary agency Department of Health and Human Services

Accounts Federal Disability Insurance Trust Fund 

(20-8007)

Federal Hospital Insurance Trust Fund

(20-8005) 

Federal Supplementary Medical Insurance

Trust Fund (20-8004)

Federal Old-Age and Survivors Insurance

Trust Fund (20-8006)

Spending type Discretionary/Direct

Budget subfunctions Social Security and Medicare

Framework theme Improve efficiency

Between 1987 and 1993, the Social Security Administration (SSA)

completed less than half the disability reviews required by law. Such

reviews often find that Disability Income beneficiaries are no longer

disabled and may be removed from the rolls. According to SSA, the lack of

continuing disability reviews in 1990 through 1993 will cost the trust funds

about $1.4 billion through 1997.

While SSA has taken steps to improve the payoff from the disability reviews

it does perform, GAO believes that SSA should continue to examine ways to

increase the number of such reviews and to make existing reviews more

efficient. Although CBO does not disagree that increasing disability reviews

can reduce outlays, it does not make budget estimates of such savings.

This is because it is difficult to establish a clear connection between

increases in administrative activities and savings that might accrue

through changes in the operations of a program. In addition, even if such a

connection can be established, the magnitude of savings attributable to

such changes is not certain enough for budget scorekeeping purposes.

Related GAO Products Social Security: New Continuing Disability Review Process Could Be

Enhanced (GAO/HEHS-94-118, June 27, 1994).

Social Security: Increasing Number of Disability Claims and Deteriorating

Service (GAO/HRD-94-11, November 10, 1993).

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Social Security Disability: SSA Needs to Improve Continuing Disability

Program (GAO/HRD-93-109, July 8, 1993).

Social Security: SSA’s Processing of Continuing Disability Reviews

(GAO/T-HRD-93-9, March 9, 1993).

GAO Contact Jane L. Ross, (202) 512-7215

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700 Veterans

Benefits and

Services

• Cost sharing for veterans’ long-term care

• Construction of veterans’ medical care facilities

• Veterans’ disability compensation for non-service connected diseases

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Options for Deficit Reduction

Option:

Cost Sharing for

Veterans’ Long-Term

Care

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 Hospital and medical care for veterans

Framework theme Redefine beneficiaries

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. In

fiscal year 1990, 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.

The Congress may wish to consider increasing cost sharing for VA nursing

home care by (1) adopting cost-sharing requirements similar to those

imposed by most state veterans’ homes and (2) implementing an estate

recovery program similar to those operated by many states under their

Medicaid programs. If VA recovered either 25 percent or 50 percent of its

costs of providing nursing home and domiciliary care through a

combination of cost sharing and estate recoveries, the savings shown in

the following table would apply.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Option: Recovery of 25 percent of costs

Budget authority 247 171 49 –137 –415

Outlays 243 182 67 –110 –374

Option: Recovery of 50 percent of costs

Budget authority 633 493 411 287 102

Outlays 637 500 423 305 129

Source: Congressional Budget Office.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Option: Recovery of 25 percent of costs

Budget authority 296 321 362 424 517

Outlays 294 318 356 415 503

Option: Recovery of 50 percent of costs

Budget authority 593 643 724 848 1033

Outlays 589 635 712 830 1006

Source: Congressional Budget Office.

Related GAO Products 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, August 12, 1992).

GAO Contact David P. Baine, (202) 512-7101

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Option:

Construction of

Veterans’ Medical

Care Facilities

Authorizing committees Veterans’ Affairs (Senate and House)

Appropriations subcommittees VA, HUD, and Independent Agencies

(Senate and House)

Primary agency Department of Veterans Affairs

Account Construction (36-0110)

Spending type Discretionary

Budget subfunction Hospital and medical care for veterans

Framework theme Reassess objectives

Annually, Department of Veterans Affairs (VA) spends about $500 million

on construction of medical care facilities. Currently, VA is planning to build

new hospitals in Honolulu, Hawaii; East Central Florida; and northern

California. Construction of additional VA capacity would add to the surplus

of hospital beds that already exists in many of the communities where VA

plans to build hospitals. Many states, including Florida and Hawaii, are

implementing or considering health care reforms that would ensure health

insurance coverage for virtually all residents, including veterans. Where

such universal health care coverage is adopted, the demand for VA hospital

care could decrease by about 50 percent, and demand for outpatient care

could decrease by about 40 percent.

The Congress may wish to limit construction of additional VA health care

facilities until reforms of health care financing systems, both nationally

and in individual states, and VA eligibility take shape. If the Congress limits

both major and minor projects, CBO estimates that the following savings

could be achieved.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 422 416 412 408 402

Outlays 19 73 149 197 248

Savings from the 1995 funding level adjusted for inflation

Budget authority 423 442 448 463 478

Outlays 19 75 154 240 323

Source: Congressional Budget Office.

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Related GAO Products Veterans’ Health Care: Potential Effects of Health Care Reforms on VA’s

Major Construction Program (GAO/HRD-T-93-19, May 6, 1993).

Veterans’ Health Care: Potential Effects of Health Financing Reforms on

Demand for VA Services (GAO/HRD-T-93-12, March 31, 1993).

Veterans’ Health Care: Potential Effects of Health Reforms on VA

Construction (GAO/T-HRD-93-7, March 3, 1993).

VA Health Care: Actions Needed to Control Major Construction Cost

(GAO/HRD-93-75, February 26, 1993).

Transition Series: Veterans’ Affairs Issues (GAO/OCG-93-21TR,

December 1992).

GAO Contact David P. Baine, (202) 512-7101

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Option:

Veterans’ Disability

Compensation for

Non-Service

Connected Diseases

Authorizing committees Veterans’ Affairs (Senate and House)

Primary agency Department of Veterans Affairs

Account Compensation (36-0153)

Spending type Direct

Budget subfunction Income security for veterans

Framework theme Redefine beneficiaries

During 1986, VA paid approximately $1.7 billion in disability compensation

payments to veterans with diseases neither caused nor aggravated by

military service. In 1994 CBO reported that about 250,000 veterans were

receiving about $1.5 billion annually in VA compensation for these

diseases. GAO’s study of five countries shows that they do not compensate

veterans under these circumstances.

The Congress may wish to reconsider whether such diseases should be

compensated as service-connected disabilities. If disability compensation

payments to veterans with non-service connected, disease-related

disabilities were eliminated in future cases, the following savings would

apply.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 38 79 124 172 225

Outlays 34 71 119 167 244

Source: Congressional Budget Office.

Related GAO Products Disabled Veterans Programs: U.S. Eligibility and Benefit Types Compared

With Five Other Countries (GAO/HRD-94-6, November 24, 1993).

VA Benefits: Law Allows Compensation for Disabilities Unrelated to

Military Service (GAO/HRD-89-60, July 31, 1989).

GAO Contact David P. Baine, (202) 512-7101

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750 Administration

of Justice

• Justice’s use of private counsel to collect civil debt

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Option:

Justice’s Use of

Private Counsel to

Collect Civil Debt

Authorizing committees Judiciary (Senate and House) 

Governmental Affairs (Senate) 

Government Reform and Oversight (House)

Appropriations subcommittees Commerce, Justice, State, and Judiciary

(Senate)

Commerce, Justice, State (House)

Primary agency Department of Justice

Account Salaries and expenses, General legal

activities (15-0128)

Spending type Discretionary

Budget function Federal litigative and judicial activities

Framework theme Improve efficiency

Many GAO reports have documented the problems of civil fines and

penalties and the collection of these debts. As GAO has reported over the

years the volume of nontax delinquent civil debt cases in U.S. Attorney

Offices (USAO) has fluctuated. Case overload in some offices resulted in

delays in working civil debt collection cases, which had a negative effect

on collection efforts. As a result, in 1986 the Congress authorized a private

counsel debt collection pilot program which allows the Attorney General

to contract with private counsel firms in up to 15 jurisdictions to litigate

and collect these debts. Private firms are paid on a contingency fee basis.

USAOs and private attorneys have handled different sizes and types of civil

debt cases, making assessments of their relative cost effectiveness

unclear. However, private counsel firms have cost effectively collected

debts that would otherwise have gone uncollected and have been

successful in reducing case backlogs. For example, from implementation

of the pilot program through fiscal year 1992, private counsel firms in

seven districts collected $9.2 million at a cost of $2.4 million and closed

9,728 cases. As of September 30, 1992, these firms continued to work on

15,791 cases. The fluctuating nature of the caseload seems to make the

flexibility of a contractual arrangement more desirable than hiring

permanent USAO collection staff.

Because of the success of the pilot program and the flexibility it provides

in addressing debt collection, GAO believes that the Congress should

consider allowing the Attorney General to contract with private counsel

firms to collect delinquent nontax civil debt on an as-needed basis in all

districts. Further, the requirement for participation of a fixed number of

firms in each district should be dropped to allow the participation of only

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Options for Deficit Reduction

the number of firms needed to do the work. These actions would enhance

debt collection efforts.

CBO agrees that savings can be achieved through the use of private

counsel. However, CBO could not prepare an estimate of savings from this

option without information upon which to base projections of private

counsel use by USAOs. GAO work shows that in addition to the seven pilot

districts in its review, Justice contracted or planned to contract with

private counsel firms in five other districts to address foreclosure cases.

The future need for private counsel in the remaining 82 districts is

uncertain.

Related GAO Products National Fine Center: Expectations High, But Development Behind

Schedule (GAO/GGD-93-95, August 10, 1993).

Justice Department: Litigation and Collection of Civil Fines and Penalties

(GAO/GGD-88-23FS, January 7, 1988).

Justice Department: Impediments Faced in Litigating and Collecting Debts

Owed the Government (GAO/GGD-87-7BR, October 15, 1986).

Debt Collection: Billions Are Owed While Collection and Accounting

Problems Are Unresolved (GAO/AFMD-86-39, May 23, 1986).

Justice Department: Improved Management Processes Would Enhance

Justice’s Operations (GAO/GGD-86-12, March 14, 1986).

Financial Integrity: Justice Made Progress But Further Improvements

Needed (GAO/GGD-86-9, October 31, 1985).

After the Criminal Fine Enforcement Act Of 1984—Some Issues Still Need

to Be Resolved (GAO/GGD-86-02, October 10, 1985).

GAO Contact Norman J. Rabkin, (202) 512-3610

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Options for Deficit Reduction

800 General

Government

• General Services Administration supply depot system

• The 1-dollar coin

• Judiciary’s long-range space planning system

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Option:

General Services

Administration Supply

Depot System

Authorizing committees Governmental Affairs (Senate) 

Government Reform and Oversight (House)

Primary agency General Services Administration

Account General Supply Fund (47-4530)

Spending type Direct

Budget subfunction General property and records management

Framework theme Improve efficiency

The General Services Administration (GSA) has a multimillion dollar supply

system to help support federal agencies’ mission needs. As part of this

system, GSA buys and warehouses about 16,000 common-use supply

products and resells and ships them to federal agencies through five

depots. An alternative method GSA uses is to have supplies delivered

directly from suppliers to federal agencies. Agencies pay less when

supplies are delivered directly. At the time of GAO’s most recent work, GSA

marked up directly delivered products, on average, 10 percent of product

cost, while products stored and shipped from GSA depots were marked up

an average of 29 percent. By fiscal year 1995, GSA’s markups had increased

to 22 percent and 36 percent, respectively. Although the cost difference

between the two delivery options has lessened in the intervening years for

a variety of reasons, including a changed methodology for calculating

mark-ups, the difference is still significant and reflects the higher costs

associated with maintaining and operating a large depot distribution

system.

GAO’s review showed that GSA directly delivered only an estimated

$68 million of the estimated $800 million in sales that had potential for

direct delivery during the 12-month period ending on February 14, 1991.

This means that over 80 percent of depot sales had potential to be supplied

in this way. The remaining depot sales were mostly low-value,

small-quantity orders which may have been uneconomical for GSA to

handle—more specifically it cost them more to provide the materials than

the customer paid. Most of these orders could have been purchased locally

without going through GSA. If GSA increased direct delivery and encouraged

agencies to purchase low-value, small-quantity orders locally, it could

significantly reduce needed depot operations.

Maintaining a large and costly depot distribution system may no longer be

a viable or necessary activity for the federal government. Consistent with

this position, the Vice President’s National Performance Review

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Options for Deficit Reduction

recommended that supply inventories be reduced and agencies be allowed

to choose sources of supply. In response, GSA is studying its own and

private-sector depot distribution costs to identify where greater efficiency

could be achieved. In addition, GSA (1) has drafted regulatory changes that,

if implemented, will permit agencies to use supply sources other than

depots, (2) has begun actions to identify logistic models that may provide

other sources of supply capable of providing items at reasonable costs,

and (3) has increased the use of commercial rather than

government-specific item descriptions, which should provide a clearer link

between the items agencies need and those available commercially. To the

extent that GSA’s efforts result in more economical and efficient ways for

agencies to obtain needed supplies outside the depot system, GAO believes

that there will be increased opportunities to reduce or possibly even

eliminate GSA’s depot system.

One option that the Congress could consider would be to require

increased use of direct delivery for high-dollar value supplies and only

stocking items that are profitable. After these changes are implemented,

GSA or the Congress could phase out GSA depots that are no longer

economically justifiable or needed. If all the depots were phased out, the

following savings would result.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level adjusted for inflation

Budget authority 15 31 46 47 49

Outlays 11 27 42 47 48

Source: Congressional Budget Office.

Related GAO Products General Services Administration: Increased Direct Delivery of Supplies

Could Save Millions (GAO/GGD-93-32, December 28, 1992).

Transition Series: General Services Issues (GAO/OCG-93-28TR,

December 1992).

GAO Contact J. William Gadsby, (202) 512-8387

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Option:

The 1-Dollar Coin Authorizing committees Banking, Housing, and Urban Affairs

(Senate) 

Banking and Financial Services (House)

Primary agency Department of the Treasury

Spending type Direct

Framework theme Improve efficiency

In 1993, GAO reported on cost savings associated with the 1-dollar coin. We

said that because a dollar coin would have a longer life and be more easily

processed than a note, and because the seignorage recognized reduces the

amount of borrowing needed to finance the deficit, substituting a dollar

coin for a dollar note would yield significant savings to the government.

Other countries have demonstrated that public resistance to such a change

can be managed and overcome.

The direct budgetary savings from this option are relatively small during

the CBO 5-year estimating period. These savings, shown in the table that

follows, result from increases in payments of earnings by the Federal

Reserve Bank into miscellaneous receipts of the Treasury.

Although not reflected in the table, there are other substantial longer term

savings due to the effects of seigniorage. Seignorage is the difference

between the face value of the coin and its cost of production, which

includes the value of the metals contained in the coin and the Mint’s

manufacturing and distribution costs. Seignorage is not considered part of

the budget, but it does substitute for borrowing from the public and, thus,

lowers interest costs to the government.

Five-Year Revenues

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Revenue gains 0 0 20 30 50

Source: Congressional Budget Office.

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Related GAO Products 1-Dollar Coin: Reintroduction Could Save Millions If Properly Managed

(GAO/GGD-93-56, March 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 J. William Gadsby, (202) 512-8387

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Option:

Judiciary’s

Long-Range Space

Planning System

Authorizing committees Environment and Public Works (Senate)

Transportation and Infrastructure (House)

Primary agency Administrative Office of the United States

Courts

Account Federal Buildings Fund (47-4542)

Spending type Direct

Budget subfunction General property and records management

Framework theme Improve efficiency

In 1988, the Administrative Office of the U.S. Courts (AOC) developed a

long-range plan for space needs. Based on 1992 space projections by the

AOC, GAO estimated that the total space requirements for courts and related

agencies would increase to about 36.9 million square feet over a 10-year

period—a 97-percent increase. GAO found that AOC’s planning process

resulted in higher estimates for court space than is warranted. Using the

judiciary’s $31 per square foot average cost for all court space, GAO showed

that the judiciary could save approximately $112 million annually, or

$1.1 billion in constant dollars over a 10-year period, if the errors in its

planning process were corrected.

The Congress should direct the judiciary to revise its planning process for

identifying long-range space needs. Specifically, the process should

(1) treat all judicial districts consistently in terms of assumptions between

caseloads, staff, and space, (2) establish a baseline of space needs for each

district that reflects current caseloads, and (3) increase the reliability of its

estimates by using an appropriate statistical methodology to project

caseloads and by reducing the level of subjectivity in the process. Because

of uncertainty about the nature and extent of changes that might be made

to the planning process, a 5-year estimate of savings cannot be developed

for this option.

Related GAO Products Federal Judiciary Space: Progress Is Being Made to Improve the

Long-Range Planning Process (GAO/T-GGD-94-146, May 4, 1994).

Federal Judicial Space Follow-up (GAO/GGD-94-135R, April 22, 1994).

Federal Judiciary Space: Long-Range Planning Process Needs Revision

(GAO/T-GGD-94-1B, October 7, 1993).

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Federal Judiciary Space: Long-Range Planning Process Needs Revision

(GAO/GGD-93-132, September 28, 1993).

GAO Contact William M. Hunt, (202) 512-8676

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Multiple • Premium payments to employees while on leave

• Global positioning system technology

• Reform or repeal the Davis-Bacon Act

• Better manage Department of Energy overtime costs

• Eliminate prefinancing funds for Department of Energy contractors

• Use uncosted obligations to offset future budget needs

• Federal agency credit management programs

• Formula-based grant programs

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Option:

Premium Payments to

Employees While on

Leave

Authorizing committees Multiple

Appropriations subcommittees Multiple

Primary agency Multiple

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Framework theme Improve efficiency

The Office of Personnel Management has directed all federal agencies to

pay employees who are scheduled to work on Sundays at the Sunday

premium pay rate even if the employees take leave on Sunday. The

directive became effective on May 27, 1993, and was based on a U.S.

Claims Court interpretation of federal leave statutes that prohibit an

employee’s pay from being diminished due to taking leave. Prior to this

time, employees who took leave on Sunday were paid at their basic pay

rate for the leave rather than the Sunday premium rate of the base rate

plus 25 percent. The Department of Transportation (DOT), which paid

$36.8 million for Sunday premium pay in fiscal year 1993, estimated that

regularly paying the Sunday premium pay rate to employees on leave

would cost it an additional $6 million annually.

The House Committee on Appropriations’ Subcommittee on

Transportation and Related Agencies included a provision in the DOT fiscal

year 1995 appropriation that precluded DOT from paying premium pay for

Sundays not actually worked. The Congress could consider including

similar provisions in the appropriations for other agencies which pay

Sunday premium pay or alternatively revise the federal leave statutes to

require that the employees receive their base rate of pay when on leave. A

5-year estimate of savings cannot be developed at this time. This is

because specific data concerning Sunday premium pay are not currently

centralized. GAO expects to have these data in the near future.

Related GAO Product None identified.

GAO Contact Nancy R. Kingsbury, (202) 512-5074

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Option:

Global Positioning

System Technology

Authorizing committees Multiple

Appropriations subcommittees Multiple

Primary agency Multiple

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Framework theme Improve efficiency

Many federal agencies are developing differential global positioning

system (DGPS) technology to provide more accurate satellite-based

positioning information for navigation, surveying, or mapping. For

example, the Federal Aviation Administration is planning a national DGPS

network for aviation costing about $500 million and the Coast Guard is

installing a coastal and inland waterway DGPS marine navigation system

expected to cost about $18 million. At least 22 other federal agencies have

identified future DGPS applications, such as automatic vehicle location,

improved rail safety, and more accurate mapping and surveying for

highway construction or natural resource inventory activities, among

other uses.

GAO found, however, that while some agencies have modified their DGPS

systems to permit use by other federal agencies, most federal agencies

were not developing joint DGPS technology or sharing equipment. This

occurred because (1) federal agencies are not required to coordinate their

DGPS development and (2) the lead agency for civil DGPS development—the

Department of Transportation (DOT)—has never received legislative or

executive branch authority to coordinate non-DOT agencies’ use of DGPS.

The Congress may want to consider directing the Office of Management

and Budget (OMB) to develop a stronger coordination mechanism for

managing future federal DGPS activities. Such a mechanism would require,

among other things, that agencies justify why future DGPS applications

could not be met by other federal systems. If the Congress delayed

spending until a coordination mechanism were implemented or reduced

appropriations to eliminate duplication, future costs would be lower. A

5-year estimate of savings cannot be developed at this time. This is

because data on the amounts agencies spend for these activities and the

portion of spending that is overlapping are not available.

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Related GAO Product Global Positioning Technology: Opportunities for Greater Federal Agency

Joint Development and Use (GAO/RCED-94-280, September 28, 1994).

GAO Contact Kenneth M. Mead, (202) 512-2834

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Option:

Reform or Repeal the

Davis-Bacon Act

Authorizing committees Labor and Human Resources (Senate)

Economic and Educational Opportunities

(House)

Appropriations subcommittees Labor, Health and Human Services, and

Education (Senate and House)

Primary agency Department of Labor

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Framework theme Reassess objectives

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 the 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 the costs of federally funded construction projects.

In 1979, GAO expressed major concerns about the accuracy of wage

determinations and its impact on federal construction costs. As a result of

these concerns, GAO recommended that Davis-Bacon be repealed. While

Davis-Bacon regulatory changes have addressed some specific concerns

raised in our 1979 report, other concerns remain, most notably the

potential for wage determinations to be based on low quality data. For

example, wage determinations are completed with response rates as low

as 25 percent because Labor must depend on the voluntary cooperation of

contractors to respond to requests for wage and benefit data. In addition,

Labor does not verify the data received, even on a sample basis. Finally,

Labor reports that the average age of a wage survey is more than 7 years.

CBO has noted that repealing Davis-Bacon or raising the threshold would

increase employment opportunities for less-skilled workers. However,

such changes also would lower the earnings of some construction

workers. If the Congress repealed Davis-Bacon, the following savings

would apply.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 390 410 420 430 440

Outlays 150 430 600 690 770

Savings from the 1995 funding level adjusted for inflation

Budget authority 390 410 420 430 440

Outlays 150 430 600 690 770

Source: Congressional Budget Office.

Related GAO Products Changes to the Davis-Bacon Act Regulations and Administration

(GAO/HEHS-94-95R, February 7, 1994).

The Davis-Bacon Act Should be Repealed (GAO/HRD-79-18, April 27, 1979).

GAO Contact Linda G. Morra, (202) 512-7014

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Option:

Better Manage

Department of Energy

Overtime Costs

Authorizing committees Armed Services (Senate) 

Energy & Natural Resources (Senate) 

National Security (House) 

Commerce (House)

Appropriations subcommittees Energy & Water Development (Senate and

House)

Interior (Senate and House)

Primary agency Department of Energy

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Framework theme Improve efficiency

The Department of Energy’s (DOE) direct overtime costs for its federal

employees increased from $15.5 million in 1989 to $26.5 million in 1993,

and its efforts to manage and minimize such costs have been limited.

As a result, DOE has (1) incurred costs for questionable overtime work,

such as driving DOE officials to the airport from their homes on weekends,

(2) not fully utilized compensatory time as a less costly alternative to paid

overtime, and (3) not consistently planned annual leave to minimize the

use of overtime. In order to better manage overtime and minimize costs,

DOE should (1) ensure that the types of work driving overtime costs are

essential, (2) increase the use of compensatory time as an alternative to

paid overtime, and (3) ensure that annual leave is planned to minimize the

use of overtime. The Congress may wish to reduce DOE appropriations in

anticipation of changes in DOE’s direct overtime costs practices. The

following table illustrates the savings that could be realized over 5 years if

DOE reduced its overtime expenditures annually by 6 percent.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 1 2 3 4 5

Outlays 1 2 3 4 5

Savings from the 1995 funding level adjusted for inflation

Budget authority 1 2 3 4 6

Outlays 1 2 3 4 6

Source: Congressional Budget Office.

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Related GAO Product Energy Management: Department of Energy’s Efforts to Manage Overtime

Costs Have Been Limited (GAO/RCED-94-282, September 27, 1994).

GAO Contact Victor S. Rezendes, (202) 512-3841

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Option:

Eliminate

Prefinancing Funds

for Department of

Energy Contractors

Authorizing committees Armed Services (Senate) 

Energy & Natural Resources (Senate) 

National Security (House) 

Commerce (House)

Appropriations subcommittees Energy & Water Development (Senate and

House)

Interior (Senate and House)

Primary agency Department of Energy

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Framework theme Improve efficiency

At the end of fiscal year 1992, the Department of Energy (DOE) had allowed

its management and operating contractors to hold $219 million in

“prefinancing” funds, that is, amounts to be used to continue operations in

the event an appropriations act is not enacted at the beginning of the next

fiscal year. This was based on DOE’s belief that the contractors needed

assurances that their operations could continue for at least 20 days and

that there were no other funds available to continue operations should a

funding lapse occur.

GAO believes that providing contractors prefinancing funds is excessive

and unnecessary. DOE allows contractors to hold prefinancing funds

without sufficient analysis by DOE of (1) the likely number of days

contractors would be without funds if a funding lapse occurred, (2) the

activities for which funding needs to be provided, and (3) the availability

of other mechanisms to provide funds during any such lapse. Equally

significant, DOE is providing these funds to the contractors with their

operating or construction funds and not requiring that separate balances

of prefinancing funds be maintained. DOE has since reduced the amounts

of prefinancing. However, as of the end of fiscal year 1994, contractors still

held $32 million for prefinancing purposes. Using these available funds to

meet current operating needs would enable the Congress to reduce DOE

appropriations by a similar amount. A one-time savings of $32 million in

fiscal year 1996 could be realized if prefinancing funds were discontinued.

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Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 funding level

Budget authority 32 0 0 0 0

Outlays 19 10 2 0 0

Savings from the 1995 funding level adjusted for inflation

Budget authority 32 0 0 0 0

Outlays 19 10 2 0 0

Source: Congressional Budget Office.

Related GAO Product DOE Management: Funds for Maintaining Contractors’ Operations Could Be

Reduced and Better Controlled (GAO/RCED-94-27, October 25, 1993).

GAO Contact Victor S. Rezendes, (202) 512-3841

Page 246 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Use Uncosted

Obligations to Offset

Future Budget Needs

Authorizing committees Armed Services (Senate) 

Energy & Natural Resources (Senate)

National Security (House)

Commerce (House)

Appropriations subcommittees Energy & Water Development 

(Senate and House) 

Interior (Senate and House)

Primary agency Department of Energy

Accounts Multiple

Spending type Discretionary

Budget subfunctions Multiple

Framework theme Improve efficiency

Uncosted obligations are budget authority that the Department of Energy

(DOE) has obligated to its contractors for goods and services that have not

yet been provided and for which costs have therefore not been incurred.

At the end of fiscal year 1994, uncosted obligations totaled about

$8.4 billion for DOE-funded programs.

Over the past several years, GAO has audited DOE’s uncosted balances and

found amounts that were no longer needed for their original purposes that

could be used to offset future funding requirements. For example, a 1994

GAO review of two DOE program areas—Environmental Restoration and

Waste Management, and Defense Programs—identified over $500 million

in available funding for fiscal year 1995. DOE plans to use $620 million in

uncosted obligations to offset its fiscal year 1995 budget needs.

GAO believes that additional uncosted funds are available because the

scope of our reviews so far has been limited to two major

accounts—Defense Programs and Environmental Management—that

account for about $4 billion in uncosted balances. Other programs also

hold large balances. Future appropriations could be reduced to reflect

these unused funds.

The Congress may wish to consider rescinding fiscal year 1995

appropriations and/or reducing fiscal year 1996 appropriations to reflect

these unused funds. Based upon our last two audits of DOE’s two accounts

alone, reducing appropriations by $500 million in fiscal year 1996 could

achieve the following savings.1

1

The budget authority amount is a GAO estimate. The corresponding outlays are computed using CBO

spendout rates.

Page 247 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Savings from the 1995 Defense Plan

Budget authority 500 0 0 0 0

Outlays 300 164 37 0 0

Source: Congressional Budget Office.

Related GAO Product Energy Management: Use of Uncosted Balances to Meet Budget Needs

(GAO/RCED-94-232FS, June 6, 1994).

GAO Contact Victor S. Rezendes, (202) 512-3841

Page 248 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Federal Agency Credit

Management

Programs

Authorizing committees Multiple

Appropriations subcommittees Multiple

Primary agencies Multiple

Accounts Multiple

Spending type Discretionary/Direct

Budget subfunctions Multiple

Framework theme Improve efficiency

Federal agencies are expected to implement several loan origination,

account servicing, collection, and write-off initiatives specified by the

Office of Management and Budget (OMB) in its nine-point credit

management program.

However, GAO has reported several times that agencies are not adequately

screening applicants for delinquent federal debt, and, in some instances,

are not using private collection firms in the normal collection process. GAO

believes that not using these tools contributes to delinquencies and

adversely affects the government’s ability to make collectible loans and to

collect on outstanding loans. In the fiscal year 1995 budget submission,

OMB reported that in fiscal year 1993, lending agencies wrote off about

$2.7 billion of direct loans and terminated for default over $8.4 billion of

guaranteed loans; for fiscal year 1994, OMB estimated that write-offs will be

about $1.3 billion and terminations about $9 billion.

Although OMB has established a sound credit management program, and

both OMB and Treasury provide instruction to agencies on the use of the

nine-point credit management program tools, agencies are not legislatively

required to do so. GAO believes that agencies’ credit management programs

would be improved if the Congress required the use of many of these

initiatives.

This option could be applied to some or all of the loans and debts of many

agencies. Savings would depend on the extent to which agencies adopt

appropriate credit management tools.

Related GAO Products Federal Credit and Insurance Programs: Actions That Could Minimize a

Growing Risk (GAO/T-AFMD-92-1, October 24, 1991).

Page 249 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Guaranteed Loan Programs Are an Increasing Risk (GAO/T-AFMD-90-29,

September 18, 1990).

Credit Management: Deteriorating Credit Picture Emphasizes Importance

of OMB’s Nine-Point Program (GAO/AFMD-90-12, April 16, 1990).

GAO Contact Gregory M. Holloway, (202) 512-9510

Page 250 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Formula-Based Grant

Programs

Authorizing committees Multiple

Appropriations subcommittees Multiple

Primary agencies Multiple

Accounts Multiple

Spending type Discretionary/Direct

Budget subfunctions Multiple

Framework theme Redefine beneficiaries

GAO has issued many reports over the past decade showing that the

distribution of federal grants to state and local governments is not

well-targeted to those jurisdictions with greatest programmatic needs or

lowest fiscal capacity to meet those needs. As a result, program recipients

in areas with relatively lower needs and greater wealth may enjoy a higher

level of services than is available in harder pressed areas, or the wealthier

areas can provide the same level of services at lower tax rates than harder

pressed areas.

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 the cuts. At the same time,

redesigned formulas could hold harmless the hardest pressed areas, which

are most vulnerable.

Cuts in federal grants to states could be targeted by disproportionately

reducing federal funds to states with the strongest tax bases and fewer

needs. Cuts in federal grants to local governments could be targeted by

either concentrating cuts on areas with the strongest tax bases or by

changing program eligibility to restrict grant funding only to those places

with lower fiscal capacity or greatest programmatic needs.

As an example, during the debate in 1986 over the termination of General

Revenue Sharing, GAO reported that a better targeted formula and

restricted eligibility could achieve a 50-percent cut in total outlays, while

maintaining or increasing federal funds to harder pressed jurisdictions.

Recently, the administration proposed reducing outlays for the Low

Income Home Energy program by over $1.2 billion for fiscal year 1995 by

targeting the formula to concentrate remaining funds on states it views as

having the greatest needs.

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Options for Deficit Reduction

An example that illustrates the potential of this type of option is a

10-percent reduction in the aggregate total of all closed-ended or capped

formula grant programs exceeding $1 billion.2

 This group includes over

70 percent of the dollars for such programs but excludes some major

open-ended formula reimbursement programs, most notably Aid to

Families with Dependent Children and Medicaid. The savings achieved

through this option 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, 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

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Discretionary spending

Savings from the 1995 funding level

Budget authority 2,430 2,430 2,430 2,430 2,430

Outlays 1,740 3,390 3,990 4,210 4,370

Savings from the 1995 funding level adjusted for inflation

Budget authority 2,430 2,500 2,590 2,670 2,760

Outlays 1,740 3,400 4,020 4,250 4,420

Source: Congressional Budget Office.

Five-Year Savings

Dollars in millions

FY96 FY97 FY98 FY99 FY00

Direct spending

Savings from the 1995 funding level adjusted for inflation

Budget authority 1,800 2,250 2,320 2,390 2,460

Outlays 80 100 100 100 100

Source: Congressional Budget Office.

Related GAO Products Medicaid: Alternatives for Improving the Distribution of Funds to States

(GAO/HRD-93-112FS, August 20, 1993).

2

In the transportation budget function, several very small closed-ended grants could not be easily

isolated in the baseline and thus are included in the estimate.

Page 252 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Remedial Education: Modifying Chapter 1 Formula Would Target More

Funds to Those Most in Need (GAO/HRD-92-16, March 28, 1992).

Drug Treatment: Targeting Aid to States Using Urban Population as

Indicator of Drug Use (GAO/HRD-91-17, November 27, 1990).

Local Governments: Targeting General Fiscal Assistance Reduces Fiscal

Disparities (GAO/HRD-86-113, July 24, 1986).

Highway Funding: Federal Distribution Formulas Should Be Changed

(GAO/RCED-86-114, March 31, 1986).

Changing Medicaid Formula Can Improve Distribution of Funds to States

(GAO/GGD-83-27, March 9, 1983).

GAO Contact Sarah F. Jaggar, (202) 512-7119

Page 253 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Receipts • Tax treatment of health insurance premiums

• Information reporting on forgiven debts

• Administration of the tax deduction for real estate taxes

• Corporate tax document matching

• Tax treatment of interest earned on life insurance policies and deferred

annuities

• Federal agency reporting to the Internal Revenue Service

• Independent contractor tax compliance

• Deductibility of home equity loan interest

• Internal Revenue Service staff utilization

• Collecting gasoline excise taxes

• Computing excise tax bases

• Small-issue industrial development bonds and qualified mortgage bonds

• Improving compliance of sole proprietors

• Increase highway user fees on heavy trucks

Page 254 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Tax Treatment of

Health Insurance

Premiums

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Redefine beneficiaries

The current tax treatment of health insurance 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. 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—that is 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 a refundable tax credit of

20 percent of all premiums, with eligible premiums capped at $360 and

$170 per month for family coverage and individuals, respectively. This

option recognizes the gain from changing the treatment of insurance only

for the individual income tax, not the payroll tax. The option is effective

for payments of health insurance premiums paid after December 31, 1995.

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gains 24.9 –0.4 –0.2 0.1 0.6

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

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Related GAO Product Tax Policy: Effects of Changing Tax Treatment of Fringe Benefits

(GAO/GGD-92-43, April 7, 1992).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 256 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Information Reporting

on Forgiven Debts

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

The Internal Revenue Code requires taxpayers to report forgiven debts as

income except under certain circumstances. GAO reviewed taxpayer

compliance in reporting the Federal Deposit Insurance Corporation’s

(FDIC) and Resolution Trust Corporation’s (RTC) forgiven debt with and

without information reporting by these corporations to IRS.

Information reporting increased taxpayer compliance. For example,

without information reporting, 1 percent of taxpayers voluntarily reported

FDIC forgiven debts. With reporting, 48 percent voluntarily reported their

forgiven debts. With the information reports, IRS was able to detect that

another 20 percent had failed to report their forgiven debts, yielding

68 percent of taxpayers eventually complying.

In 1993, the Congress required information reporting on forgiven debts by

FDIC, RTC, the National Credit Union Administration, credit unions, certain

banks, and federal agencies. The Congress could consider extending the

requirement to other lending institutions. Revenues for this option are

difficult to estimate due to uncertainties about its effect on lending

institution reporting practices. However, to illustrate potential savings

from this option, if the requirement were extended to finance companies,

JCT estimates revenue gains of under $50 million, assuming an effective

date of January 1, 1996.

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gains a a a a a

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

aA gain of less than $50 million.

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Options for Deficit Reduction

Related GAO Product Tax Administration: Information Returns Can Improve Reporting of

Forgiven Debts (GAO/GGD-93-42, February 17, 1993).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 258 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Administration of the

Tax Deduction for

Real Estate Taxes

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

IRS audits show that individuals overstated their real estate tax deductions

by about $1.5 billion nationwide in 1988. GAO estimates 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

GAO’s review also found that IRS auditors detected only about 29 percent of

$127 million in overstated deductions in three locations GAO 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 1099’s, 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, 1996 and for amounts reported on tax

bills after December 31, 1997. Together, the proposals would increase

federal fiscal year revenues as shown in the table below.

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gains 0 a 0.1 0.2 0.2

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

aA gain of less than $50 million.

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Options for Deficit Reduction

Related GAO Product Tax Administration: Overstated Real Estate Tax Deductions Need To Be

Reduced (GAO/GGD-93-43, January 19, 1993).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 260 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Corporate Tax

Document Matching

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

Internal Revenue Service (IRS) data show that corporate compliance with

tax laws has declined to an alarming degree. 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, GAO 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, GAO estimated that for years

1995-1999, 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 continuing

deficits, increased corporate noncompliance, and declining audit

coverage, the Congress may wish to require a corporate document

matching program.

JCT has not developed an estimate of revenue gains from this proposal. JCT

agrees that this option will result in increased revenues, but those

revenues will depend heavily on the scope of coverage under an expanded

information reporting system.

Related GAO Product Tax Administration: Benefits of a Corporate Document Matching Program

Exceed the Costs (GAO/GGD-91-118, September 27, 1991).

GAO Contact Jennie S. Stathis, (202) 512-5407

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Options for Deficit Reduction

Option:

Tax Treatment of

Interest Earned on

Life Insurance

Policies and Deferred

Annuities

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Reassess objectives

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 like 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 want to reconsider granting preferential tax treatment

to inside buildup, weighing the social benefits against the revenue forgone.

The Congress may wish to consider taxing the interest earned on life

insurance policies and deferred annuities. The table below reflects the

estimated savings from this option, effective for life insurance policies and

annuities purchased after December 31, 1995.

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gains 4.5 12.9 16.8 20.6 23.2

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

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Related GAO Product Tax Policy: Tax Treatment of Life Insurance and Annuity Accrued Interest

(GAO/GGD-90-31, January 29, 1990).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 263 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Federal Agency

Reporting to the

Internal Revenue

Service

Authorizing committees Governmental Affairs (Senate) 

Finance (Senate) 

Government Reform and Oversight

(House) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

According to Internal Revenue Service (IRS) data, corporate tax

compliance decreased by 20 percentage points between 1980 and 1987.

Information returns—reports provided to IRS by payers of interest,

dividends, or other tax-related information—have proven to be highly

cost-effective in generating billions of tax dollars from individual

taxpayers. However, no such program exists for payments to corporations.

IRS matches information return data to individuals’ tax returns, which

induces individuals to voluntarily report income and helps to identify

those who do not. Similar results might be obtained from corporations.

Federal agencies could help increase corporate tax compliance by

reporting their payments made to corporations for services. Federal

agencies paid corporations about $61 billion for service contracts of more

than $25,000 in 1990.

JCT has not developed an estimate of the revenue gains for this proposal.

JCT does not disagree that improved reporting could increase compliance.

Related GAO Product Tax Administration: Federal Agencies Should Report Service Payments

Made to Corporations (GAO/GGD-92-130, September 22, 1992).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 264 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Independent

Contractor Tax

Compliance

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

Common law rules for classifying workers as employees or independent

contractors are unclear and subject to conflicting interpretations. While

recognizing this ambiguity, the Internal Revenue Service (IRS) enforces tax

laws and rules through employment tax examinations. Since 1989,

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

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 requiring information

reporting on payments made to some independent contractors constituted

as corporations. The proposal—the service industry noncompliance

initiative or SINC—would have extended 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.

JCT did not provide an estimate for this option. Estimating the revenue

gains from this option is difficult. A previous estimate by the JCT showed

that the proposal increased revenues by about $400 million over 5 years. In

contrast, the Department of Treasury’s Office of Tax Analysis estimated a

5-year gain of about $5 billion. Estimates can vary widely depending on the

definition of independent contractor, the scope of coverage under an

expanded information reporting or withholding system, and assumptions

about how much more unreported income could be captured.

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Options for Deficit Reduction

Related GAO Product Tax Administration: Approaches for Improving Independent Contractor

Compliance (GAO/GGD-92-108, July 23, 1992).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 266 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Deductibility of Home

Equity Loan Interest

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Department of the Treasury

Spending type Direct

Framework theme Reassess objectives

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 grew at an average annual rate

of about 20 percent between 1981 and 1991. 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 to the

first $300,000 of indebtedness for the taxpayer’s principal and second

residence. Assuming an effective date of January 1, 1997, this option would

generate the following revenues.

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gains 3.8 6.5 7.2 8.1 9.2

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

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Options for Deficit Reduction

Related GAO Product Tax Policy: Many Factors Contributed to the Growth in Home Equity

Financing in the 1980s (GAO/GGD-93-63, March 25, 1993).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 268 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Internal Revenue

Service Staff

Utilization

Authorizing committees Appropriations (Senate and House)

Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

The allocation of IRS’ collection staff has not been based on the relative

productivity of its collection programs. Some of the more productive

programs, such as IRS automatic call sites, have not reached their full

potential because staff are assigned to less productive field collection

activities. The productivity of collection staff also varies greatly among

collection locations.

More emphasis on contacting delinquent taxpayers early using telephone

collection techniques and allocating staff based on productivity should

increase collections. A rough GAO estimate indicated that the reassignment

of about 1,000 staff from field collections—the least productive use of

staff—to telephone collections could increase collections by about

$1.2 billion per year. In IRS’ fiscal year 1995 appropriations, the Congress

directed IRS to utilize any additional collection staff for telephone

collections and not for field collections.

Although CBO does not disagree that better utilization of IRS staff can

increase revenues, it does not make budget estimates of such increases.

This is because it is difficult to establish a clear connection between

changes in staff allocations and revenue gains. In addition, even if such a

connection can be established, the magnitude of such gains attributable to

reallocation is not certain enough for budget scorekeeping purposes.

Related GAO Products Tax Administration: New Delinquent Tax Collection Methods of IRS

(GAO/GGD-93-67, May 11, 1993).

Tax Administration: Improved Staffing of IRS’ Collection Function Would

Increase Productivity (GAO/GGD-93-97, May 5, 1993).

April 21, 1993, letter to the Honorable Steny H. Hoyer, Chairman,

Subcommittee on Treasury, Postal Service, and General Government,

House Committee on Appropriations.

Page 269 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Internal Revenue Service Receivables (GAO/HR-93-13, December 1992).

Tax Administration: IRS’ System Used in Prioritizing Taxpayer

Delinquencies Can Be Improved (GAO/GGD-92-6, March 26, 1992).

Tax Administration: Efforts to Prevent, Identify, and Collect Employment

Tax Delinquencies (GAO/GGD-91-94, August 28, 1991).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 270 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Collecting Gasoline

Excise Taxes

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

Although reliable statistical data do not exist to estimate gasoline excise

tax evasion, the Department of Transportation estimated in a report to the

Congress that such evasion amounted to about $500 million annually.

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, GAO 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. The

amount of revenue that would be generated from moving the collection

point for gasoline excise taxes would depend on the accuracy of the

$500 million estimate of evasion and how well the move curbed such

evasion.

JCT agrees that this option has the potential for increased revenue but has

not developed estimates of revenue gains.

Related GAO Product Tax Administration: Status of Efforts to Curb Motor Fuel Tax Evasion

(GAO/GGD-92-67, May 12, 1992).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 271 GAO/OCG-95-2 Addressing the Deficit
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Options for Deficit Reduction

Option:

Computing Excise

Tax Bases

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

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. Of the five excise taxes GAO studied in 1989, alcohol and

tobacco taxes yielded over 99 percent of the increased revenue that

indexing would have generated. The Congress may wish to consider

indexing excise tax rates for alcohol and tobacco. The table below reflects

the estimated savings from this option with an effective date of January 1,

1996.

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gains 0.4 0.7 1.1 1.4 1.8

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

Related GAO Products Alcohol Excise Taxes: Simplifying Rates Can Enhance Economic and

Administrative Efficiency (GAO/GGD-90-123, September 27, 1990).

Tax Policy: Revenue Potential of Restoring Excise Taxes to Past Levels

(GAO/GGD-89-52, May 9, 1989).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 272 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Small-Issue Industrial

Development Bonds

and Qualified

Mortgage Bonds

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Department of the Treasury

Spending type Direct

Framework theme Reassess objectives

Industrial development bonds (IDB), issued by state and local

governmental authorities, are used to help finance the creation or

expansion of manufacturing facilities. Qualified mortgage bonds (QMB),

issued by state and local housing agencies, allow home buyers to receive

below-market rates on their mortgages. Interest earned by investors on

IDBs and QMBs is exempt from federal income taxes.

In 1993, the Congress made permanent the authority of state and local

governments to issue QMBs and IDBs. However, GAO believes that the

achievement of public benefits from both IDBs and QMBs is questionable.

GAO found that (1) job creation attributed to IDB projects would likely have

occurred without issuance of the bonds in the three states reviewed,

(2) there is no evidence to support the contention that IDBs achieve

significant public benefits, such as providing economic growth to

depressed areas, and (3) most developers contacted said that they would

have proceeded with their projects in the absence of IDBs. Similarly, GAO

found that QMBs (1) do little to increase home ownership, (2) are usually

provided to home buyers who do not need them to obtain a conventional

(unassisted) mortgage loan, and (3) are not cost-effective.

Both IDBs and QMBs could be better targeted. For example, IDBs could be

focused on economically distressed areas or to start-up companies, and

QMBs could be directed toward home buyers who could not reasonably

qualify for unassisted conventional loans. However, because of evidence

that neither IDBs nor QMBs are achieving their intended benefits and in view

of lost tax revenues, the Congress may wish to consider repealing both

provisions. Estimated revenues gained from eliminating QMBs and IDBs are

shown in the table below.

Page 273 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Five-Year Revenues

Dollars in billions

FY96 FY97 FY98 FY99 FY00

Revenue gains a 0.2 0.3 0.4 0.5

Source: Joint Committee on Taxation.

Note: JCT provided its revenue estimates in billions of dollars.

aA gain of less than $50 million.

Related GAO Products Industrial Development Bonds: Achievement of Public Benefits Is Unclear

(GAO/RCED-93-106, April 22, 1993).

Home Ownership: Limiting Mortgage Assistance Provided to Owners With

High Income Growth (GAO/RCED-90-117, September 26, 1990).

Home Ownership: Targeting Assistance to Buyers Through Qualified

Mortgage Bonds (GAO/RCED-88-190BR, June 27, 1988).

Home Ownership: Mortgage Bonds Are Costly and Provide Little

Assistance to Those in Need (GAO/RCED-88-111, March 28, 1988).

GAO Contact Judy A. England-Joseph, (202) 512-7631

Page 274 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Improving

Compliance of Sole

Proprietors

Authorizing committees Finance (Senate) 

Ways and Means (House)

Primary agency Internal Revenue Service

Spending type Direct

Framework theme Improve efficiency

Sole proprietors have a disproportionate share of noncompliance.3

Although they account for just 13 percent of individual taxpayers, sole

proprietors accounted for about 40 percent of the unreported income on

1988 tax returns filed by individuals. Noncompliance in reporting sole

proprietor income by a majority of the estimated 13 million sole

proprietors creates an estimated tax gap of $34 billion a year. To date, IRS

efforts to improve compliance among these taxpayers have not yielded

significant improvements.

GAO analyzed the noncompliance of the 10 least compliant sole proprietor

industries in the 1988 Taxpayer Compliance Management Program (TCMP).4

 The TCMP data show that sole proprietors are less compliant, file more

complex returns, appear to be intentionally noncompliant more often, and

tend to be better off financially than nonbusiness taxpayers. Also, sole

proprietors are less likely to prepare their own returns. GAO reviewed the

IRS audit workpapers for two market segments with significant

noncompliance—the trucking industry and auto body shops—to identify

the causes of noncompliance.

IRS can address the overall noncompliance problem of sole proprietorships

by developing a system for managing and monitoring all of its sole

proprietor compliance projects. IRS’ TCMP data can be used to help identify

projects that would address the most noncompliant sole proprietor market

segments on a nationwide basis and analyze the underlying causes of

noncompliance. IRS, then, can work with specific industry groups. For

example, IRS could increase compliance by encouraging better

recordkeeping in the trucking industry, and better information returns

reporting by insurance companies on payments made to auto body shops.

As GAO’s work showed, if IRS used TCMP data more effectively, and targeted

IRS compliance activities to affected industries, then tax collections would

increase.

3

The term sole proprietors refers to self-employed individuals other than farmers.

4

This program generates compliance data through rigorous audits of randomly selected tax returns.

Page 275 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Because of uncertainties about the nature and impact of any new system

IRS might adopt, JCT could not estimate the revenue gains directly

attributable to this proposal.

Related GAO Product Tax Administration: IRS Can Better Pursue Noncompliant Sole Proprietors

(GAO/GGD-94-175, August 2, 1994).

GAO Contact Jennie S. Stathis, (202) 512-5407

Page 276 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

Option:

Increase Highway

User Fees on Heavy

Trucks

Authorizing committees Science, Commerce, and Transportation

(Senate) 

Transportation and Infrastructure (House)

Primary agency Department of Transportation

Spending type Direct

Framework theme Redefine beneficiaries

To develop and maintain highways, the Federal Highway Administration

(FHWA) collects user fees. In fiscal year 1993, FHWA collected over

$18.5 billion from four user fees: fuel taxes, a heavy vehicle use tax, a new

vehicle excise tax, and an excise tax on heavy tires. In 1982, FHWA reported

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.

To increase highway revenues and to respond to the FHWA study, the

Congress in 1982 passed the first major increase in federal highway use

taxes since 1956. To increase revenues, the Congress raised gasoline and

diesel taxes from 4 to 9 cents per gallon. To improve equity, the Congress

mandated 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 we recommended in June 1994, FHWA is conducting a formal cost

allocation study to determine whether all highway users are paying their

fair share of federal highway costs. If this study finds that heavy trucks

underpay their share, one solution could be to base the truck’s fees on

vehicle weight and distance traveled—a method currently employed by six

states. The precise revenue gain from this action would depend on the

type and amount of user fee increases. Increasing fuel taxes, the heavy

vehicle use tax, the new vehicle excise tax, and the excise tax on heavy

tires would generate additional revenues. For example, in fiscal year 1993,

heavy truck operators paid about $630 million in heavy vehicle use taxes.

Raising the ceiling on this fee from $550 to $1,900 per user could raise

between $800 million and $1 billion.

Page 277 GAO/OCG-95-2 Addressing the Deficit
Appendix III 

Options for Deficit Reduction

JCT does not disagree that this option could yield revenue. However, an

estimate of revenue gains is not available at this time.

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 Kenneth M. Mead, (202) 512-2834

Page 278 GAO/OCG-95-2 Addressing the Deficit
Appendix IV 

Major Contributors to This Report

Accounting and

Information

Management Division,

Washington, D.C.

Margaret T. Wrightson, Assistant Director

Deborah A. Colantonio, Evaluator-in-Charge

Mary P. Giovinazzo, Senior Evaluator

Maureen M. Berner, Evaluator

Janet C. Eackloff, Evaluator

(935151) Page 279 GAO/OCG-95-2 Addressing the Deficit
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