FY 2002 ECONOMIC OUTLOOK,

HIGHLIGHTS FROM FY 1994 TO FY 2001,

FY 2002 BASELINE PROJECTIONS

January 2001
i

TABLE OF CONTENTS

Page

I. The President’s Transmittal Message .............................................................. 3

II. The Turnaround in the Budget and the Economy ....................................... 13

III. Major Functions of the Federal Government

1. Introduction ........................................................................................... 31

2. National Defense ................................................................................... 43

3. International Affairs ............................................................................. 53

4. General Science, Space, and Technology ............................................. 61

5. Energy .................................................................................................... 71

6. Natural Resources and Environment .................................................. 81

7. Agriculture ............................................................................................. 97

8. Commerce and Housing Credit ............................................................ 107

9. Transportation ....................................................................................... 115

10. Community and Regional Development .............................................. 123

11. Education, Training, Employment, and Social Services .................... 133

12. Health .................................................................................................... 149

13. Medicare ................................................................................................. 159

14. Income Security ..................................................................................... 163

15. Social Security ....................................................................................... 171

16. Veterans Benefits and Services ............................................................ 177

17. Administration of Justice ..................................................................... 181

18. General Government ............................................................................. 191

19. Net Interest ........................................................................................... 197

20. Undistributed Offsetting Receipts ....................................................... 201

IV. Current Services Estimates and the Pending Policy Agenda ................... 205

V. List of Charts and Tables .................................................................................... 233
ii

GENERAL NOTES

1. All years referred to are fiscal years, unless otherwise noted.

2. Detail in this document may not add to the totals due to rounding.

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1

I. THE PRESIDENT’S

TRANSMITTAL MESSAGE
3

I. THE PRESIDENT’S TRANSMITTAL

MESSAGE

To the Congress of the United States:

I am pleased to submit my FY 2002

Economic Outlook, Highlights from FY 1994

to FY 2001, FY 2002 Baseline Projections.

For the benefit of the new Administration

and the public, this document includes an

economic overview, a technical presentation

of current services projections, a programmatic

review of the Federal Government that details

my Administration’s actions over the last

eight years, and pending policy proposals

that I believe should be the starting point

for a new Administration.

The Outlook in 1993

To appreciate what we have accomplished

in the past eight years, we must take stock

of where we were in 1993. When I took

office in 1993, economic growth had averaged

only 1.7 percent in the four previous years.

In 1992, unemployment surged to 7.8 percent.

In 1992, the budget deficit was $290 billion,

the largest in the history of our Nation.

The debt held by the public quadrupled

between 1980 and 1992 and threatened to

keep mounting. The deficit was projected

to reach $390 billion by 1998 and $639

billion by 2003.

I believed that by exercising fiscal responsibility and making strategic investments in

our future, we could reverse this trend and

spur the economy to robust growth. Eight

years later, with deficits turned to surplus,

with the mountain of debt receding, and

with sustained economic growth at record

level, we can say that we were able to

achieve this goal through a steadfast commitment to fiscal discipline.

The Clinton-Gore Record

Over the eight years of my Administration,

our total deficit reduction totals $1.2 trillion,

more than double our original estimates.

We have experienced four straight years

of surplus, a stretch of prosperity last seen

following World War I. For three years in

a row, we have actually been able to pay

off $363 billion of this debt and expect

to pay off $600 billion by the end of this

year. With a sustained commitment to fiscal

discipline by continuing to use the surplus

to pay down the debt, this Nation can

be fully debt-free in this decade for the

first time since 1835. We can eliminate

the publicly held debt by the end of the

decade and, by doing so, we can strengthen

our economy and our Nation’s prospects for

the future.

FY 2002 Economic Outlook, Highlights from

FY 1994 to FY 2001, FY 2002 Baseline

Projections continues to project that the Federal budget will remain in surplus for many

decades to come, if a responsible fiscal policy

prevails and realistic assumptions and projections are used.

The Federal Government must continue

to meet the needs of the American people

in a Nation with a growing economy and

a growing population. We take for granted

the need to maintain critical functions like

air traffic safety, law enforcement, the administration of Social Security and Medicare,

and national security—both defense and diplomacy. Because I firmly believe that the

American people demand and deserve a Government that meets their needs, this document

reflects the progress we have made in serving

the American people. These accomplishments

include:

• Improving education, with initiatives focusing on accountability and school-system
4 THE PRESIDENT’S TRANSMITTAL MESSAGE

reforms; increased funding for Pell Grants

and Work-Study Programs; and, initiatives

to reduce class size, establish after-school

programs, improve reading ability, expand

mentoring and education technology, and

renovate crumbling schools. The results

are significant. For example, 29,000 teachers have been hired, on our way to the

goal of hiring 100,000 new teachers to reduce class size, and there has been a sixfold increase in the number of Title I elementary schools with after-school programs. We have doubled funding for Head

Start, and increased funding for higher

education programs—the biggest increase

since the G.I. Bill.

• Rewarding work and ‘‘ending welfare as

we know it,’’ with incentives to States for

moving welfare recipients into jobs, encouraging businesses to hire people from

welfare rolls, expanding the Earned Income Tax Credit, tripling funding for dislocated worker training, and increasing

funding for child care. Since January 1993,

the welfare rolls have decreased from 14.1

million to 6.3 million, the fewest number

of people on welfare since 1968.

• Making Social Security solvency a national

priority, with the challenge to ‘‘save Social

Security first,’’ ensuring that Social Security funds are used to pay for Social Security and strengthen our economic health.

• Achieving the longest Medicare Trust

Fund solvency in a quarter century while

improving Medicare’s benefits.

• Reversing the increase in the number of

uninsured Americans through the Children’s Health Insurance Program (CHIP)

and other policies. Over 3.3 million children have received health insurance

through the CHIP.

• Setting the highest level of environmental

standards ever. More land in the lower

48 States has been protected under the

Antiquities Act than by any other Administration; 58.5 million acres of national forest will be protected from road building

and logging; unprecedented legislation will

provide $12 billion over six years in dedicated funding for the conservation of

America’s land and coastal resources;

climate change and clean water funding

was increased; and, efforts to fight budget

riders that would have sacrificed hard-won

environmental safeguards to special-interests succeeded.

• Increasing investments in science and

technology, as the keys to economic

growth. Funding for medical research at

the National Institutes of Health doubled,

allowing for breakthroughs such as the

complete sequencing of the human genome

and new therapies to prevent breast cancer.

• Securing funding to hire over 100,000

additional community police officers, making our streets safer. My Administration’s

initiatives to reduce crime contributed to

the lowest annual serious crime count

since 1985.

• Giving Americans confidence that when

natural disasters occur, such as the

Northridge Earthquake, Hurricane Floyd,

and the Midwest Floods, their Government

will help them return to prosperity.

• Implementing the Uruguay Round, the

North American Free Trade Agreement,

and other major agreements, to liberalize

trade and financial markets, aid construction of a new global economic architecture,

and promote growth.

• Fighting transnational threats, such as

HIV/AIDS, terrorism, and environmental

destruction, as well as securing historic

debt relief for countries in crisis and resources to fight child abuse at home and

abroad.

• Improving the security of Americans at

home and abroad, through increased funding for embassy security.

• Strengthening our national security by

promoting stability in responding to natural disasters in Central America and Africa, as well as man-made crises in

Kosovo, Bosnia, and Indonesia.

• Maintaining the Nation’s security, with

the best-equipped, best-trained, and bestprepared military in the world.
I. THE PRESIDENT’S TRANSMITTAL MESSAGE 5

This document also highlights the dramatic

improvements in the management of the

Federal Government we have made over

the last eight years. We have used information

technology to create a Government that is

more accessible and responsive to citizens.

The Federal Government has reinvented the

way it buys goods and services, focusing

on customer satisfaction and results. We

have transformed the Federal financial management system. Eight years ago, only a

few agencies routinely prepared and issued

audited financial statements. Now virtually

all agencies issue annual audited financial

statements. More than half of the 24 largest

agencies received clean audits in 1999. In

addition, significant strides have been made

to advance the transparency and

underpinnings of the regulatory process and

improve the Nation’s statistics. These management functions are the essentials of governmental operations. Doing them very well

rarely garners attention. Failing to do them

can undermine program and policy effectiveness as certainly as bad policy decisions

or inadequate program implementation.

As the Nation looks to the future, there

are several important areas where additional

work is needed. Examples include:

• Providing prescription drug coverage for

Medicare beneficiaries;

• Passing legislation to stiffen penalties for

hate crimes;

• Ensuring equity for legal immigrants;

• Increasing the minimum wage to support

millions of working families;

• Providing a Medicaid buy-in option for

children with disabilities in working families;

• Ensuring stability in the Middle East

peace process;

• Increasing our embassy security;

• Funding diplomacy as an alternative to

crises and violence;

• Striving to hire 100,000 new teachers to

reduce class size;

• Helping school districts to obtain financing

to construct and modernize schools; and,

• Expanding and improving the quality of

the Head Start program.

My Hopes for the Nation

This is a rare moment in American history.

Never before has our Nation enjoyed so

much prosperity, at a time when social

progress continues to advance and our position

as the global leader is secure. Today, we

are well prepared to make the choices that

will shape the future of our Nation for

decades to come.

By reversing the earlier trend of fiscal

irresponsibility, using conservative economic

estimates, balancing the budget, and producing

an historic surplus, we have helped restore

our national spirit and produced the resources

to help opportunity and prosperity reach

all corners of this Nation. We have it within

our reach today, by making the right choices,

to offer the promise of prosperity to generations of Americans to come. If we keep

to the path of fiscal discipline, we can

build a foundation of prosperity for the

future of the Nation.

Over the last eight years, I have sought

to provide the fiscal discipline necessary to

ensure the continuing growth of our economy

while making essential investments in the

future of our people—especially those who

are less fortunate. The results are evident.

I present this document with pride in our

accomplishments, and the hope that this

progress will continue and grow for all Americans.

In the past eight years, we have enjoyed

extraordinary economic performance because

our fiscal policy was responsible and sound.

To continue the Nation’s strong economic

performance, we must maintain our commitment to a sound fiscal policy. Experience

over the last twenty years clearly shows

how perilous it is to create conditions for

budgetary problems. We are now enjoying

the benefits of a virtuous cycle of surplus

and debt reduction and must not return

to the vicious cycle of red ink.
6 THE PRESIDENT’S TRANSMITTAL MESSAGE

The challenge now, in this era of surplus,

is to make balanced choices to use our

resources to meet both the evident, pressing

needs of today, and the more distant, but

no less crucial, needs of generations to come.

WILLIAM J. CLINTON

January 16, 2001
Table I–1. Baseline Totals (In billions of dollars) Category 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 

Receipts ................................................. 2,025 2,125 2,210 2,301 2,401 2,525 2,649 2,788 2,934 3,088 3,257 3,434 Outlays .................................................. 1,789 1,868 1,933 1,994 2,058 2,145 2,204 2,279 2,365 2,450 2,540 2,623 Unified surplus ..................................... 236 256 277 307 343 380 446 509 570 638 717 810 

Memorandum Compostion of surplus: Social Security ................................... 152 160 176 194 210 233 247 265 281 295 313 329 

Postal Service .................................... –2 –2 –3 * * 1 1 1 1 2 2 2 Medicare Hospital Insurance (HI) ... 30 27 35 39 44 47 54 56 59 62 67 69 Remaining on-budget ........................ 57 71 69 74 89 99 144 188 228 279 335 410 

Debt held by the public ........................ 3,410 3,173 2,907 2,611 2,277 1,906 1,470 970 411 111 

* $500 million or less. 1 Excess balances start to be accumulated in 2006, when the amount of the unified surplus that is available to repay debt held by the public is m

debt that is available to be redeemed. Excess balances exceed debt held by the public (gross) beginning in 2009. Policy decisions will be required pluses that are accumulated as excess balances.
Table I–2. Baseline Totals by Category (In billions of dollars) Category 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Receipts .................................................................. 2,025.2 2,124.6 2,209.7 2,301.3 2,400.6 2,524.7 2,649.3 2,788.4 2,934.4 3,088Outlays: Discretionary: Defense ........................................................... 295.0 303.7 306.7 321.1 331.0 340.7 350.6 360.1 369.2 379

Non-Defense ................................................... 322.0 350.5 374.9 388.7 397.5 408.0 418.3 429.8 441.7 452Subtotal, discretionary .................................. 617.0 654.1 681.5 709.8 728.5 748.7 768.9 789.9 810.9 832

Mandatory: Social Security ................................................ 406.0 431.4 451.3 473.6 498.7 526.4 556.2 588.9 624.5 664

Medicare and Medicaid ................................. 312.0 347.7 369.2 394.2 421.6 456.8 482.6 522.2 561.5 603Means-tested entitlements 1 ......................... 105.2 108.7 114.5 120.2 125.0 132.3 134.6 136.5 144.1 148

Other mandatory ............................................ 125.5 116.2 124.2 122.8 129.3 147.9 153.5 160.3 172.6 182

Subtotal, mandatory ...................................... 948.8 1,004.0 1,059.2 1,110.8 1,174.4 1,263.3 1,326.8 1,407.9 1,502.7 1,599

Net interest ........................................................ 223.2 210.2 192.0 173.8 154.6 132.8 107.8 81.2 51.4 18Total Outlays ..................................................... 1,789.0 1,868.3 1,932.8 1,994.4 2,057.5 2,144.8 2,203.5 2,279.1 2,364.9 2,450

Surplus ................................................................... 236.2 256.3 276.9 306.9 343.0 379.9 445.8 509.4 569.5 637

1Food stamps, TANF/family support, SSI, child nutrition, EITC, veterans pensions, children’s health insurance fund.
Table I–3. Federal Government Financing and Debt 1 (In billions of dollars) Actual 2000 Estimate 2001 2002 2003 2004 2005 2006 2007 2008 20

Financing: Unified surplus ................................................................................. 236 256 277 307 343 380 446 509 570 

Social Security surplus ................................................................. 152 160 176 194 210 233 247 265 281 Medicare HI surplus ..................................................................... 30 27 35 39 44 47 54 56 59 Postal Service surplus .................................................................. –2 –2 –3 * * 1 1 1 1 Other surplus ................................................................................ 57 71 69 74 89 99 144 188 228 

Means of financing other than borrowing from the public: Premiums paid (–) on buybacks of Treasury securities 2 ........... –6 –8 .......... .......... .......... .......... .......... .......... ............ ....

Changes in: 3 Treasury operating cash balance ............................................. 4 13 .......... .......... .......... .......... .......... .......... ............ ....

Checks outstanding, deposit funds, etc. 4 ................................ 3 –* –1 .......... .......... .......... .......... .......... ............ ....

Seigniorage on coins ..................................................................... 2 2 2 2 2 2 2 2 2 Less: Net financing disbursements: Direct loan financing accounts ................................................. –22 –25 –14 –15 –13 –14 –14 –14 –14 

Guaranteed loan financing accounts ....................................... 4 –* 1 2 2 2 2 2 2 

Total, means of financing other than borrowing from the public ................................................................................... –13 –19 –11 –10 –9 –10 –10 –10 –10 

Total, amount available to repay debt held by the public ............................................................................... 223 237 266 296 334 370 436 500 560 

Change in debt held by the public: 5 6 Change in debt held by the public (gross) .................................. –223 –237 –266 –296 –334 –370 –147 –171 –97 –

Less change in excess balances ................................................... ............ .......... .......... .......... .......... .......... –289 –328 –462 –

Change in debt held by the public (net) .................................. –223 –237 –266 –296 –334 –370 –436 –500 –560 –

Debt Subject to Statutory Limitation, End of Year: Debt issued by Treasury .................................................................. 5,601 5,608 5,606 5,593 5,563 5,523 5,729 5,930 6,222 6

Adjustment for Treasury debt not subject to limitation and agency debt subject to limitation 7 ............................................... –15 –15 –15 –15 –15 –15 –15 –15 –15 

Adjustment for discount and premium 8 ......................................... 6 6 6 6 6 6 6 6 6 

Total, debt subject to statutory limitation 9 ................................ 5,592 5,598 5,596 5,584 5,554 5,513 5,719 5,920 6,212 6

Debt Outstanding, End of Year: Gross Federal debt: Debt issued by Treasury .............................................................. 5,601 5,608 5,606 5,593 5,563 5,523 5,729 5,930 6,222 6

Debt issued by other agencies ...................................................... 28 28 27 26 25 23 22 20 20 

Total, gross Federal debt .......................................................... 5,629 5,636 5,633 5,620 5,588 5,546 5,751 5,950 6,242 6

Held by: Debt securities held as assets by Government accounts ........... 2,219 2,462 2,726 3,009 3,312 3,639 3,992 4,363 4,752 5

Debt securities held as assets by the public: 6 Debt held by the public (gross) 10 ............................................. 3,410 3,173 2,907 2,611 2,277 1,906 1,759 1,587 1,490 1

Less excess balances ................................................................. ............ .......... .......... .......... .......... .......... –289 –617 –1,079 –1

Debt held by the public (net) ................................................ 3,410 3,173 2,907 2,611 2,277 1,906 1,470 970 411 1
* $500 million or less. NA = Not applicable.1Treasury securities held by the public and zero-coupon bonds held by Government accounts are almost entirely measured at sales price plus am

amortized premium. Agency debt is almost entirely measured at face value. Treasury securities in the Government account series are measured at ized discount (if any). 2This table includes estimates for Treasury buybacks of outstanding securities only through FY 2001. These estimates assume that Treasury w(face value) of securities in FY 2001. The premiums paid on buybacks are based on experience to date and the interest rates in the economic assum

3 A decrease in the Treasury operating cash balance (which is an asset) would be a means of financing a deficit and therefore has a positive sign

outstanding or deposit fund balances (which are liabilities) would also be a means of financing a deficit and therefore would also have a positive sig

4 Besides checks outstanding and deposit funds, includes accrued interest payable on Treasury debt, miscellaneous liability accounts, allocati

rights, and, as an offset, cash and monetary assets other than the Treasury operating cash balance, miscellaneous asset accounts, and profit on sale 

5For 2000, includes a $355 million reclassification of debt. Indian tribal funds that are owned by the Indian tribes and held and managed in a fi

Government on the tribes’ behalf were reclassified from trust funds to deposit funds as of October 1, 1999, and their holdings of Treasury securiticlassified from debt held by Government accounts to debt held by the public. 6The amount of unified budget surplus available to repay debt held by the public is estimated to be greater than the amount of debt that is avail

2006 and subsequent years. The difference is assumed to be held as ‘‘excess balances’’ and to earn interest at a Treasury rate. (‘‘Excess’’ means in for operational and programmatic purposes.) The ‘‘debt held by the public (gross)’’ is the amount of Federal debt securities held by the public. The ‘(net)’’ is the ‘‘debt held by the public (gross)’’ less the ‘‘excess balances.’’ 7 Consists primarily of Federal Financing Bank debt.

8 Consists of unamortized discount (less premium) on public issues of Treasury notes and bonds (other than zero-coupon bonds) and unrealized d

account series securities. 9The statutory debt limit is $5,950 billion.

10 At the end of 2000, the Federal Reserve Banks held $511 billion of Federal securities and the rest of the public held $2,899 billion. Debt held 

Banks is not estimated for future years.

11 ‘‘Excess balances’’ start to be accumulated in 2006, when the amount of the unified surplus that is available to repay debt held by the public is 

of debt that is available to be redeemed. Excess balances exceed debt held by the public (gross) beginning in 2009. Policy decisions will be required pluses that are accumulated as excess balances.
11

II. THE TURNAROUND IN THE

BUDGET AND THE ECONOMY
13

II. THE TURNAROUND IN THE BUDGET

AND THE ECONOMY

This section reviews the budgetary and

economic performance of the Clinton-Gore

Administration, comparing conditions now

with those when President Clinton took office.

Over the past eight years, the budget has

turned from record deficits to record surpluses;

the resultant increase in national saving

supported sharply rising investment, accelerating productivity, and the longest economic

expansion in history. Moreover, the substantial

improvement in the budget has set the Federal

Government on a path to be debt-free by

the end of this decade.

The Clinton-Gore Economic Strategy

President Clinton was elected with the

goal of revitalizing the economy. When he

took office in January 1993, the economy

was slowly emerging from the 1990–1991

recession, with an unemployment rate of

7.5 percent. He proposed a three-part economic

strategy: fiscal discipline to free resources

for private investment; increased support for

investment in our people, including education,

health care, and research; and engagement

in the international economy, to open markets

abroad to our products and services. In

the last eight years, this Administration has

completed hundreds of agreements that increase our access to foreign markets, and

has expanded public human and infrastructure

investment (as documented elsewhere in this

volume). Furthermore, the Administration’s

new budget policy was enacted in 1993,

and it has proven a great success.

The budget deficit, which had reached a

record $290 billion in 1992, has steadily

fallen, until in 1998 there was a budget

surplus for the first time in 29 years. The

budget is projected to end the current fiscal

year with a surplus of $256 billion—the

fourth year in a row of surplus, for the

longest period of budget surpluses since the

1920s; and by far the longest string of

consecutive years of budget improvement in

our Nation’s history.

The turnaround in the budget supported

a remarkable turnaround in the economy.

Financial markets responded to the shift

from deficits to surpluses by reducing longterm interest rates. Real interest rates (actual

market rates minus expected inflation) were

about 1.2 percentage point lower on average

under this Administration than they were

during the previous 12 years. Lower real

interest rates stimulated more business investment, leading to rising productivity, higher

profits, and increased real wages. The average

rate of economic growth accelerated to 4.0

percent per year.

The investment boom strengthened and

prolonged the economic expansion, which by

February 2000 had become the longest in

U.S. history. This February, it will complete

its tenth year. President Clinton is the first

two-term President to leave office without

enduring a recession. The past eight years

were an extraordinary combination of low

inflation, falling unemployment, soaring productivity, rising real wages, and declining

poverty—which continued into the new millennium.

Budgetary Performance

Before 1993, 12 years of burgeoning budget

deficits had quadrupled the amount of Federal

debt held by the public—an increase of $2.3

trillion. Relative to the size of the economy,

the debt almost doubled—rising from 26 percent of Gross Domestic Product (GDP) in

1980 to 48 percent in 1992. The Administration’s first priority was to cut the massive

deficit (and thus slow the rise in Federal

debt). To accomplish that, the Administration

proposed, and the Congress enacted, the Omnibus Budget Reconciliation Act (OBRA) of

1993. It was a crucial step toward fiscal

responsibility. The Administration expected

OBRA to reduce the deficit significantly;

but the actual improvement in the budget

far exceeded these expectations. To finally

eliminate the budget deficit, the President
14 FY 2002 ECONOMIC OUTLOOK

1980 1985 1990 1995 2000 2005 2010

-1,000

-500

0

500

1,000

Surplus (+) / deficit (-) in billions of dollars

Chart II-1. Unified Budget Surpluses

 Follow Years of Deficits 

Pre-OBRA Baseline

Total Deficits 

1981-1992 $2.3 Trillion 

Total Savings 

1993-2001 $3.3 Trillion 

Current Services Surpluses 

2002-2011 $5.0 Trillion 

and the Congress agreed to the bipartisan

Balanced Budget Act (BBA), enacted in 1997,

which set a goal of a balanced budget by

2002. In 1998, the budget went into surplus

four years ahead of schedule, accelerated

by stronger-than-projected economic growth.

Deficit Reduction Was Augmented by its

Favorable Economic Effects: The cumulative

results of OBRA and the BBA were a stunning

turnaround. The Administration originally projected that OBRA would reduce the deficit by

a cumulative $505 billion from 1994 through

1998. In fact, the total deficit reduction over

this period was more than twice as large—

$1.2 trillion (and $3.3 trillion from 1993

through 2001) as long-term fiscal discipline

proved its value by accelerating economic

growth (see Chart II–1). As financial markets

saw that the risk of exploding future deficits

and Federal borrowing would truly decline,

they brought market interest rates down—reducing the deficit directly, but more importantly, reducing the cost of capital to businesses, and stimulating investment and

growth.

Government Debt Was Reduced: When

the Government runs a deficit, it borrows from

the public and accumulates debt. The huge

deficits incurred to pay for World War II

pushed the publicly held Federal debt to a

peak of 109 percent of GDP in 1946. For many

years thereafter, the economy grew faster than

the debt; and the ratio of the debt to the GDP

gradually fell to a low of around 25 percent

in the mid-1970s. The exploding deficits of the

1980s reversed this trend, and sent the debt

back up—until it peaked at almost 50 percent

of GDP in 1993. Had the Clinton-Gore Administration done nothing, both OMB and the

Congressional Budget Office (CBO) had projected that publicly held Federal debt would

have approached $7 trillion (or 75 percent of

GDP) by 2002, and would have risen even further thereafter. Instead, the Administration’s

deficit reduction policy cut the ratio of debt

to GDP immediately; and the budget surpluses
II. THE TURNAROUND IN THE BUDGET AND THE ECONOMY 15

1980 1985 1990 1995 2000 2005 2010

-25

0

25

50

75

Percent of GDP

Chart II-2. Publicly Held Debt has been

Pre-OBRA

Baseline

FY 2002 Current

Services Baseline

Actuals

Brought Under Control

since 1998 have actually reduced the dollar

amount of debt, and driven the debt to GDP

ratio down even faster. The ratio of publicly

held debt to GDP in 2000 was 30 percentage

points lower than was projected as of 1993,

based on the policies before the Administration’s budget plan.

Moreover, the pay-down in debt in the

past three years ($363 billion) and the expected amount this year ($237 billion) combine

to a $600 billion debt reduction—the largest

four-year debt pay-down ever. As Chart II–2

shows, this substantial reduction and the

prospect of continuing surpluses have put

the debt held by the public on a trajectory

that can eliminate the Federal Government’s

debtor status by the end of this decade.

There Are Now Unified, Social Security,

and On-Budget Surpluses: The unified budget has been the most common framework for

tallying the Federal Government’s deficits and

surpluses. The unified budget counts all Government receipts and spending (including Social Security contributions and benefits). This

is the appropriate budget concept to evaluate

how the Federal Government’s activities affect

the economy; obviously, for that purpose, it is

essential to leave nothing out. The improvement in this overall budget surplus is shown

in Chart II–1, and its effect on bringing down

debt held by the public is shown in Chart II–2.

Also, each of the major components of the unified budget is in surplus: the off-budget surplus—the excess of Social Security receipts

over benefit payments, and the relatively small

amount of transfers to or from the United

States Postal Service—has increased from $45

billion to $158 billion between 1993 and 2001;

and the on-budget balance—the rest of the unified budget—has swung from a $300 billion

deficit to a $98 billion surplus (see Chart II–3).

The Medicare surplus (which this Administration has proposed to move off-budget to protect

that vital program’s Trust Fund) has grown

as well—from $4 billion in 1993 (and small
16 FY 2002 ECONOMIC OUTLOOK

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Surplus (+) / deficit (-) in billions of dollars

Chart II-3. On-Budget Deficits have been

Unified Budget Surplus

On-Budget Surplus

-290

-340

-255

-203

-164

-108

-22

69

124

236 256

71

86

1

-30

-103

-174

-226

-259

-300

On-Budget 

Excluding 

Medicare 

Hospital 

Insurance

98

-400

-300

-200

-100

0

100

200

300

Turned into Surpluses

deficits from 1995 through 1997) to $27 billion

in 2001.

A crucial part of the Clinton-Gore Administration’s policy has been to save and protect

the Social Security surpluses. The larger

balances in the Social Security Trust Funds,

and the interest that they earn, can finance

Social Security benefits further into the future.

Balances are currently invested in Federal

securities—the most secure asset available.

If Trust Fund assets were to be partly

invested in private market instruments—such

as stocks and bonds, rather than Federal

debt—then the return earned by the Trust

Fund could be somewhat higher, on average,

over long periods. However, though the allocation of gross Federal debt between debt

in the Trust Funds and debt held by the

public would change, the total amount of

gross debt would not change. The buildup

of assets in the Trust Funds will correspond

to a real increase in national wealth, and

enhance the Government’s ability to pay

future benefits, only if it is saved by reducing

the publicly held debt. This can be ensured

if the Social Security surplus is protected

by keeping the non-Social Security budget

(approximately equal to the ‘‘on-budget’’) at

least in balance. The consistent swing of

the on-budget from deficit into surplus in

this Administration has done just that.

As is clear from Chart II–3, the shift

from unified budget deficit to surplus was

mainly due to the elimination of the onbudget deficit. But whichever framework is

used, the Federal Government’s fiscal position

since President Clinton took office has improved dramatically.

Government’s Claim on the Economy

Was Reduced while Prosperity Spurred Receipts: Federal spending reached the highest

share of the economy since World War II in

the 1980s; it was still 22.2 percent of GDP

in 1992. The defense buildup in the early

1980s, higher Federal interest payments
II. THE TURNAROUND IN THE BUDGET AND THE ECONOMY 17

1980 1985 1990 1995 2000 2005 2010

0

15

16

17

18

19

20

21

22

23

24

Percent of GDP

Chart II-4. The Budget was Balanced by Lower

Spending and Increases in Receipts

Outlays

Receipts

Current Services

Baseline

because of increased debt and high interest

rates, and large cost increases in Federal

health programs overwhelmed all deficit-cutting efforts. This spending share turned down

under President Clinton—even while the Administration increased Government investments in education, health care, the environment, and other priorities. In the last eight

years, the ratio of Federal spending to GDP

has steadily declined; in 2000 it was down to

18.2 percent, the lowest since the 1960s. At

the same time, a healthy economy plus a

strong stock market raised Federal tax receipts. Though tax burdens on most families

have declined, the share of Federal receipts

in GDP rose from 18.5 percent in 1995 to 20.6

percent in 2000—because of the rapid growth

of incomes. Some of this increase may prove

temporary; the Treasury Department estimates that receipts will decline to about 19.7

percent of GDP over the course of this decade—again, with no increase in tax rates (see

Chart II–4).

The United States Has Become a World

Leader in Budgetary Performance: In the

1980s, world opinion often faulted the United

States for its large budget deficits, which were

believed to have raised worldwide interest

rates and hampered economic growth. The

Clinton-Gore Administration’s fiscal policy

changed this criticism to praise, as the United

States became a leader among the G-7 countries. In 2001, the United States is projected

to have the largest budget surplus as a share

of its economy (see Chart II–5). This outstanding performance came not from higher

tax rates, but from spending restraint. Though

the United States supports the world’s largest

defense establishment, it still has the G-7’s

lowest public spending and taxes as percentages of GDP.

Economic Performance

Government does not make the economy

grow; the private sector is the engine of

economic growth. The American people have
18 FY 2002 ECONOMIC OUTLOOK

2.6

2.2 2.1

-0.1

-1.0

-1.7

-6.0

U.S. U.K. Canada France Italy Germany Japan

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

Surplus (+) / deficit (-), percent of GDP

Chart II-5. Among the G-7 Countries the United States

will have the Largest Budget Surplus in 2001

Source: Organization for Economic Cooperation and Development (OECD) Economic Outlook, December 2000

always been entrepreneurial and productive.

However, the economy can grow faster and

more consistently when budget policy, and

monetary policy, are sound. Good budgetary

policy is as important as monetary policy

to such a successful outcome. And in fact,

though the Federal Reserve has played a

crucial role in this economic expansion, monetary policy was able to do its job better

and more easily because of the sound fiscal

policy of this Administration, as Fed members

have acknowledged. Fiscal discipline, along

with investment in our people and opening

markets abroad—the other key elements of

the Clinton economic strategy—has paid clear

dividends in the economic performance of

the 1990s.

Work Effort in the U.S. Economy Is at

an All-Time High: Under the Clinton-Gore

Administration, the share of the adult population that is employed has reached the highest point in U.S. history (see Chart II–6). The

economic expansion, gaining strength as a result of greater confidence, lower interest rates,

more investment, and accelerating productivity, created a veritable explosion of good job

opportunities. Continuing investment in education at all levels improved the skills of new

entrants into the labor force. Welfare reform

and expansions of the Earned Income Tax

Credit have increased labor force participation.

Between January 1993 and December 2000,

the unemployment rate fell from 7.3 percent

to 4.0 percent—the lowest it has been since

the end of the 1960s. The economy created

more than 22 million jobs, of which 92

percent were in the private sector, while

Federal Government employment shrank. The

net increase in jobs was larger under President

Clinton than under the two previous Administrations combined. The healthy private labor

market helped to make welfare reform a

success by providing people leaving the welfare

rolls with productive opportunities.
II. THE TURNAROUND IN THE BUDGET AND THE ECONOMY 19

1960 1965 1970 1975 1980 1985 1990 1995 2000

0

56

58

60

62

64

66

Percent of civilian population

Chart II-6. The Employment: Population Ratio

Reached a Record High in 2000

Real wages have risen under this Administration; the increase has been especially noticeable since 1995. Over the last five years,

real hourly earnings have increased at an

average annual rate of 1.3 percent per year.

Over the preceding 20 years, hourly earnings

had been falling at an average annual rate

of 0.4 percent per year.

Administration Budget Policy Promoted

National Saving: To get more capital, the

economy needs more saving. For the economy

as a whole, what matters is national saving—

the sum of household saving, corporate retained earnings, and the Government surplus.

Household saving is important, but it is only

one component of national saving. A business

that seeks to raise investment capital by floating a bond or selling a share of stock does

not care, or even know, whether the funds

come ultimately from households, other businesses, or government. National saving declined under the two preceding Administrations, but increased under President Clinton

(see Chart II–7). This is a critical piece of evidence that the economic expansion of the

1990s is fundamentally different from that of

the 1980s.

Furthermore, as is shown in Chart II–7,

the entirety of the improvement in national

saving came from the reduction of the Federal

budget deficit. (The Federal Government’s

budget improved by more than the total

increase in national saving; State and local

governments as a group run roughly balanced

budgets in every year, and hence did not

contribute significantly to the budget improvement.) The overwhelming contribution of budget policy toward eliminating the 1998 budget

deficit came from the Clinton-Gore Administration’s initial budget plan. The BBA of

1997 and the economic growth generated

by the Administration’s fiscal discipline finished the job.
20 FY 2002 ECONOMIC OUTLOOK

1980 1982 1985 1987 1990 1992 1995 1997 2000

-8

-6

-4

-2

0

2

4

6

8

10

12

Percent of net national product

Chart II-7. Net National Saving Recovered 

in the Clinton Years

Net National Saving

Government Saving

Private Saving

National saving went down in the 1980s,

and up in the 1990s. National saving went

up because Federal budget policy produced

surpluses. And the Federal budget improvement began with the policy actions taken

by the Administration in 1993.

Lower Interest Rates Enhanced Investment: The point of the Administration’s policy

of increasing national saving was to reduce

Government’s drain on investable funds, to

bring down interest rates while increasing the

funds available for private investment. This

is a matter of supply and demand; with a larger supply of investable funds because of increased Government saving, the price of the

funds—the interest rate—would be expected to

go down. With the enactment of the President’s program, interest rates fell; and even

though unemployment has steadily declined

since, interest rates have remained at or below

the levels of the preceding recession.

With lower interest rates, businesses enjoyed

a lower cost of capital for investment—

a lower cost to take savings and convert

it into capital for use in production. Given

that national saving generally declined from

1980 to 1992, and increased from 1993 to

the present, it might be expected that investment would be stronger under the current

Administration than it was in the preceding

12 years; and again, that is what the record

shows. The share of GDP devoted to business

investment over the 1980s either declined

slightly or was flat depending on the precise

measure chosen. However, investment soared

during the Clinton-Gore Administration (see

Chart II–8).

The ratio of real business equipment investment to real GDP reached 12.4 percent

in the third quarter of 2000. Since the

beginning of 1993, inflation-adjusted investment in equipment and software has grown

at an annual rate of 13.0 percent, more

than 23⁄4 times the rate of 1981–1992. The
II. THE TURNAROUND IN THE BUDGET AND THE ECONOMY 21

0

5

10

15

Percent of real GDP

Chart II-8. Real Business Fixed Investment

1960 1965 1970 1975 1980 1985 1990 1995 2000

has Soared Since 1992

investment boom under President Clinton

is the longest and strongest since World

War II. The private sector has done the

investing, but the Administration’s policy of

balanced budgets and fiscal responsibility

clearly helped to bring interest rates down;

and that helped to create the environment

in which businesses could more confidently

take business risks.

The Benefits of Faster Productivity

Growth: Economists believe that strong investment pays a double dividend. First, it increases the size of the productive base of the

economy; with more factories and machines,

output can expand. But second, to the extent

that new factories and machines are more efficient than the ones they replace, then productivity (the amount of output that we get from

each hour of work) will rise. Under President

Clinton, productivity growth has broken from

the trend line that had prevailed since the

early 1970s (see Chart II–9).

Enhanced productivity growth is important

for many reasons; but perhaps most pertinent

today, it makes an economic expansion more

durable. Economic cycles usually end because

inflation breaks out, which can occur when

investment falls and productivity growth

slows—as it did at the end of the 1970s,

and the end of the 1980s. Continued strong

investment has helped the current business

expansion to continue for so long with low

inflation. Productivity growth has increased,

not declined, as this expansion has matured.

Thanks to accelerated productivity growth

due partly to increased capital intensity,

the current expansion has lasted for almost

10 years; in February 2000, it became the

longest expansion in U.S. history (the data

go back to the mid-1800s), and each passing

month sets a new record.

Increasing productivity is also important

because it is the only route to sustained

real-wage and living-standard growth. In the

1970s, U.S. productivity growth slowed
22 FY 2002 ECONOMIC OUTLOOK

1973 1978 1983 1988 1993 1998

0

75

80

85

90

95

100

105

110

115

120

125

Nonfarm business output per hour, 1992=100

Chart II-9. Productivity has Accelerated 

Along with Investment

Trend: 1974-1990

sharply. The average annual growth of output

per hour in the nonfarm business sector

fell from 2.8 percent (from 1949 through

1973) to 1.4 percent (from 1974 through

1990). When productivity grows at 2.8 percent

per year, living standards double every quarter-century; but when productivity grows at

only 1.4 percent per year, incomes grow

by less than half. Over a generation, many

workers can find themselves falling behind

their parents, as well as their own expectations.

From the 1970s through the early 1990s,

productivity growth stalled at the new slower

rate. Since the mid-1990s, however, nonfarm

business output per hour has grown at an

average of 3.0 percent per year—slightly

higher than the rate before the 1970s’ slowdown (the break in the trend is shown

in Chart II–9). Some of the speedup could

be due to temporary factors; but the persistence of the higher growth rate for five

years suggests that somewhat faster growth

may be sustained. This is welcome news,

not only for businesses seeking to hold down

costs, but also for typical workers and their

families, who once again see real improvements in their earnings.

The Misery Index Is Near a 30-Year Low:

The success of budget and monetary policies

shows also in the low unemployment and inflation under this Administration. The Misery

Index—the sum of the annual unemployment

rate and the core Consumer Price Index (CPI)

inflation rate—was lower than at any time

since the 1960s (see Chart II–10).

In 2000, the unemployment rate has averaged 4.0 percent—the lowest yearly average

since 1969—while inflation has averaged just

2.7 percent (as measured by the core CPI,

excluding volatile food and energy prices).

The inflation rate crept up this year after

its 34-year low in 1999, but remains near

its average since 1995. This is the fifth

year in a row of core inflation under three
II. THE TURNAROUND IN THE BUDGET AND THE ECONOMY 23

Unemployment Rate

Misery Index

Core Inflation

Dec. to Dec.

1960 1965 1970 1975 1980 1985 1990 1995 2000

0

5

10

15

20

25

30

Percent

Chart II-10. The Misery Index is Near Its Lowest

 Level in Over Thirty Years

Unemployment Rate

Core CPI, 12-Month 

Percent Change 

percent—the best five-year record since the

1960s.

The turnaround in economic performance

under President Clinton—faster economic

growth, falling unemployment, and lower inflation—happened in the private sector; but

it was aided by the Administration’s budget

policy and the Federal Reserve’s monetary

policy. The past eight years demonstrate

that fiscal discipline and a matching monetary

policy can generate more work, saving, and

investment than an easy budget policy that

ignores deficits and debt.

The Economic Outlook

The Clinton-Gore Administration has developed a final economic forecast, continuing

its conservative, prudent approach (See Table

II–1). No economic forecaster is accurate

all the time, but the Administration believes

that it makes more sense to plan for middleof-the-road conditions, so that any budget

errors are likely to be in the ‘‘right’’ direction,

rather than to make long-term commitments

for the best-case forecast, only to see spiraling

uncontrolled deficits and debt. Previous Administrations more often overestimated economic performance; such mistakes are dangerous, because they can encourage policymakers to avoid hard and essential choices.

One of the Administration’s most important

early decisions was to adopt a realistic economic forecast, and this philosophy has served

the Nation well.
Table II–1. Economic Assumptions 1 (Calendar years; dollar amounts in billions) Actual 1999 Projections 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2

Gross Domestic Product (GDP): Levels, dollar amounts in billions: Current dollars .............................................. 9,299 9,991 10,536 11,099 11,695 12,324 12,986 13,676 14,388 15,122 15,888 16

Real, chained (1996) dollars ......................... 8,876 9,337 9,645 9,954 10,272 10,601 10,941 11,284 11,627 11,968 12,315 12Chained price index (1996 = 100), annual average ....................................................... 104.8 107.0 109.2 111.5 113.8 116.2 118.7 121.2 123.7 126.3 129.0 

Percent change, fourth quarter over fourth quarter: Current dollars .............................................. 6.5 6.7 5.3 5.4 5.4 5.4 5.4 5.3 5.2 5.1 5.1 

Real, chained (1996) dollars ......................... 5.0 4.1 3.2 3.2 3.2 3.2 3.2 3.1 3.0 2.9 2.9 Chained price index (1996 = 100) ................. 1.6 2.4 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 

Percent change, year over year: Current dollars .............................................. 5.8 7.4 5.5 5.3 5.4 5.4 5.4 5.3 5.2 5.1 5.1 

Real, chained (1996) dollars ......................... 4.2 5.2 3.3 3.2 3.2 3.2 3.2 3.1 3.0 2.9 2.9 Chained price index (1996 = 100) ................. 1.5 2.2 2.0 2.1 2.1 2.1 2.1 2.1 2.1 2.1 2.1 

Incomes, billions of current dollars: Corporate profits before tax ......................... 823 934 922 934 961 990 1,035 1,080 1,127 1,162 1,196 

Wages and salaries ....................................... 4,470 4,767 5,031 5,310 5,608 5,917 6,233 6,566 6,904 7,264 7,637 8Other taxable income 2 .................................. 2,141 2,286 2,353 2,422 2,488 2,561 2,649 2,745 2,843 2,943 3,048 3

Consumer Price Index (all urban): 3 Level (1982–84 = 100), annual average ........ 166.7 172.3 176.8 181.4 186.2 191.2 196.4 201.7 207.2 212.7 218.5 2

Percent change, fourth quarter over fourth quarter ........................................................ 2.6 3.4 2.5 2.6 2.7 2.7 2.7 2.7 2.7 2.7 2.7 Percent change, year over year .................... 2.2 3.4 2.7 2.6 2.7 2.7 2.7 2.7 2.7 2.7 2.7 

Unemployment rate, civilian, percent: Fourth quarter level ...................................... 4.1 4.0 4.3 4.6 4.7 4.8 4.9 5.0 5.1 5.1 5.1 

Annual average ............................................. 4.2 4.0 4.1 4.4 4.6 4.7 4.8 4.9 5.0 5.1 5.1 

Federal pay increases, percent: Military and civilian 4 ................................... 3.6 4.8 3.7 3.9 3.9 3.9 3.9 3.9 3.9 3.9 3.9 

Interest rates, percent: 91-day Treasury bills 5 .................................. 4.7 5.9 6.0 5.7 5.4 5.3 5.3 5.3 5.3 5.3 5.3 

10-year Treasury notes ................................. 5.6 6.1 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 

1 Based on information as of mid-November 2000. 2 Rent, interest, dividend and proprietor’s components of personal income. 3Seasonally adjusted CPI for all urban consumers. Two versions of the CPI are now published. The index shown here is that currently 

quired by law, in calculating automatic adjustments to individual income tax brackets. 4 Beginning with 2002, projected increases in the Employment Cost Index for private industry wages and salaries. 5 Average rate (bank discount basis) on new issues within period.
II. THE TURNAROUND IN THE BUDGET AND THE ECONOMY 25

The Near-Term Outlook

Real GDP Growth: Over the coming 10

years, the Blue Chip panel of 50 forecasters

predicts a trend of real GDP growth averaging

around 3.3 percent for most of the decade. The

Administration’s forecast for the next five

years averages 3.2 percent. After 2005, the Administration projects growth slowing gradually

to 2.9 percent per year in 2009–2011. Later

this decade, the large baby-boom generation—

born in the 20 years following World War II—

will begin to retire. When that happens, labor

force growth is likely to slow, pulling down

real GDP growth. The initial effects of this

demographic transition are reflected in the Administration’s projections of real GDP for

2006–2011. It is not clear whether the private

forecasters have begun to take account of this

predictable shift in the labor force.

It is uncertain how much of the actual

acceleration in productivity growth since 1995

will be sustained; but since last year’s forecast,

favorable evidence has mounted, and most

economists are now more sanguine about

prospects for productivity growth. Compared

with the 2001 Budget assumptions, the Administration has increased projected potential

GDP growth, and now projects that labor

productivity in the nonfarm business sector

can increase at an average rate of 2.2

percent per year through 2011.

Unemployment and Inflation: The unemployment rate in December was 4.0 percent,

near the lowest point in three decades. It is

projected to rise somewhat over the next few

years, and to stabilize at an average rate of

5.1 percent—still well below the 6.7 percent

average rate from 1970 through 1992.

Inflation was boosted this year by a spike

in oil prices; but oil futures market prices

imply relief in 2001, and so inflation is

likely to decline. The Administration projects

CPI inflation of 2.5 percent in 2001 (on

a fourth quarter to fourth quarter basis),

following a 3.4 percent rate during 2000.

CPI inflation is expected to average 2.7

percent per year for 2002 through 2011—

close to the average of 2.5 over the past

five years. Inflation in the GDP chain-weighted

price index is projected to average 2.1 percent

through 2011. These projections maintain the

gap that has emerged in recent years between

these two measures of inflation.

For several years, real GDP has grown

faster than mainstream forecasters believed

would be sustainable without higher inflation.

This year’s moderate upward revision to the

estimate of potential GDP growth is consistent

with this performance; strong investment in

new technologies is paying off in higher

productivity. However, some of the rapid

GDP growth of the last eight years came

because labor force participation was increasing and unemployment was falling. Looking

ahead, the unemployment rate is likely to

rise slightly and labor growth is projected

to slow, which the Administration believes

will moderate the pace of GDP growth.

Interest Rates: Interest rates on Treasury

debt fell to extremely low levels—short maturities under five percent—during the world financial crisis of 1997–1998. Since then, shortterm rates—following several interest rate

hikes by the Federal Reserve during 1999 and

2000—have risen to their highest level since

1991; the 91-Day Treasury Bill discount rate

was 5.7 percent in late December. The yield

on 10-year Treasury notes also rose in 1999,

but it retreated in 2000; in late December, it

was about 1⁄2 percentage point below the shortterm rate. The Administration projects that

the 10-year rate will average near 5.8 percent—its level of mid-November—throughout

the forecast period. Meanwhile, the short-term

rate is projected to decline gradually to around

5.3 percent, which would restore the usual upward-sloping yield curve. The outlook is complicated by the ongoing reduction in Federal

debt, which gradually removes Government

bills, notes, and bonds from the market.

Trend Projections: Except in the near

term, the projections shown in Table II–1 are

not a precise year-to-year forecast; instead,

they reflect the average behavior expected for

the economy over the medium term. In some

years, growth could be faster than assumed;

in other years, it could be slower. Similarly,

inflation, unemployment, and interest rates

could fluctuate around the projected values. If

the assumptions hold on average, however,

they should provide a prudent basis for budgeting. If fiscal and monetary policies remain

sound, the economy could continue to
26 FY 2002 ECONOMIC OUTLOOK

0

1

2

3

4

5

(Average absolute surplus/deficit projection error as a percent of GDP, 1976-2001)

Require Caution

Current

Year

Budget

Year

Two Years

Ahead

Three Years

Ahead

Four Years

Ahead

Five Years

Ahead

Chart II-11. Long-Term Budget Projections

outperform these relatively conservative projections, as it has for the past several years.

The Budget Outlook

The Near-Term Outlook: The Administration projects continuing budget surpluses in

2001 and subsequent years. On current-services assumptions, the unified surplus is projected at $256 billion in 2001 and $277 billion

in 2002. The on-budget surplus, $86 billion in

2000, is projected to be $98 billion in 2001.

By 2011, it could reach $479 billion.

These projections are imprecise, and if

experience is any guide, they could err by

large margins. The future is uncertain, and

the more distant the projection, the greater

the uncertainty. Over the history of fiveyear budget projections (first required by

the Congressional Budget Act of 1974, and

thus starting with the 1976 Budget), every

Administration has made substantial errors.

Chart II–11 shows that the average forecast

error for the deficit/surplus (regardless of

sign, expressed as a percentage of GDP)

of the fiscal year already in progress was

0.6 percent of GDP (in today’s terms, over

$60 billion—not a trivial sum for a year

already one-fourth over). The average error

for the coming year was twice as large—

1.2 percent (or more than $120 billion today).

Errors grew even larger as the projection

was more distant, averaging 4.0 percent of

GDP (more than $400 billion today) for

the five-year ahead (the most distant) projections. (The Clinton-Gore Administration’s errors were only slightly smaller than those

of other Administrations, though unlike all

the others, we have run smaller deficits

and larger surpluses than we projected.)

Such enormous uncertainty about budgets

just a few years in the future should influence

policymakers’ decisions about expensive, longterm commitments on the basis of mere

projections—especially now, when the public

debt, though declining, is still about the

same percentage of GDP as in 1985; and
II. THE TURNAROUND IN THE BUDGET AND THE ECONOMY 27

when the baby-boom generation is just seven

years away from beginning to collect Social

Security benefits.

The Long-Term Outlook: Though long-run

budget projections are inherently uncertain,

they can warn of potential problems, which

may be more easily solved if addressed sooner.

In the 1990s, policymakers increasingly focused on long-range projections, some looking

as far as 75 years ahead—especially for the

budget effects of population aging and reforms

to Social Security or Medicare.

Prior to the 1993 Clinton program, the

Federal deficit was projected to spiral out

of control in this decade. The outlook improved

after OBRA, although deficits continued for

a time. Following the passage of the BBA

in 1997, a unified budget surplus was projected beginning in 2002, and for about

20 years; even so, the deficit was expected

to return in the long run.

Since 1997, the economy and the budget

have performed much better than projected

when the BBA was passed. Projections of

publicly held Federal debt have steadily declined. Lower interest payments have reinforced the improvement of the budget, and

have significantly extended the long-run surplus projections. Still, the long-term current

services baseline is a mechanical extrapolation

of the budget implications of current law,

and thus is not intended to reflect likely

policy actions. Moreover, the range of uncertainty around such projections is very large.

Under reasonable alternative assumptions, the

budget could return to deficit within a few

years following the retirement of the babyboomers. The underlying demographic pressures are formidable, and if the demographic

or economic outcomes prove to be less favorable than assumed here, the surplus would

be threatened. (See Budget of the United

States Government, Fiscal Year 2001: Analytical Perspectives, chapter 2; and Economic

Report of the President, January 2001, chapter

2.)

The favorable long-term budget results in

these projections can be realized only with

prudent policy—choosing continuing reductions

in outstanding debt, rather than expensive

tax cuts or spending increases—while sustaining private saving, investment, and productivity growth.
29

III. HIGHLIGHTS FROM

FY 1994 TO FY 2001
31

1. INTRODUCTION

This section discusses achievements of the

Clinton-Gore Administration on a functionby-function basis. Other sections of this document discuss America’s dramatic economic

resurgence during the last eight years, the

elimination of the budget deficit, and growing

budget surpluses that have created an opportunity to extend the life of the Social Security

and Medicare trust funds and offered the

hope of paying down the debt with prudent

budget policies. The past eight years have

also seen remarkable achievements in areas

such as education, health care, help to working

families, crime fighting, science, the environment, national security, foreign affairs, and

the efficient and effective management of

the Federal Government.

SELECTED HIGHLIGHTS OF THE PAST

EIGHT YEARS

Program Achievements

Education and Training: This Administration’s dedication to improving educational

and employment opportunities for all Americans is reflected in the nearly 80-percent increase in Federal funding for education and

training programs since 1993 and in major initiatives to improve and expand those programs. The Administration restructured elementary and secondary education programs to

focus on school-wide and school-system reforms

based on challenging academic standards for

all students, including initiatives to reduce

class size, establish after-school programs, improve reading abilities, and renovate crumbling schools. The doors to college were opened

to more students through increased Pell

Grants and Work-Study opportunities, reduced

student loan costs, new tax credits for postsecondary education, and new programs to help

disadvantaged students prepare for and succeed in college. Workers received improved job

training services thanks to the Workforce Investment Act, which called for a streamlined,

customer-focused job training system in each

community. Finally, the Administration established the Corporation for National and Community Service and created the AmeriCorps

program to engage Americans of all ages in

community-based service and to help students

who serve to pay off their student loans.

Rewarding Work: Perhaps one of the greatest legacies this Administration will leave is

the effort to ‘‘end welfare as we know it’’ with

policies that expand supports for low-income

working families. From rewarding States for

moving welfare recipients into jobs and encouraging businesses to hire people from welfare

rolls, to expanding the Earned Income Tax

Credit and improving health coverage through

Medicaid and the State Children’s Health Insurance Program; and from proposing and

signing the Family and Medical Leave Act to

more than doubling funding for child care, the

President has led the Nation in a holistic effort

to reform welfare and support working families. By maintaining an historic economic recovery, this Administration’s efforts led to falling welfare rolls, lower unemployment rates

and most noteworthy, lower poverty rates.

Through significant, targeted funding increases and effective policies, the Administration has demonstrated its commitment to improving the income security of low-income

Americans.

Social Security: Since 1993, the Administration has proposed a series of legislative and

management initiatives that have helped to

prepare Social Security for the baby boom generation. President Clinton’s 1998 challenge to

‘‘save Social Security first’’ made the continued

solvency of the Social Security program a national priority and generated bipartisan agreement for substantial debt reduction over the

next decade to prepare the Nation for the

needs of the future. Following the Social Security Administration’s (SSA’s) transition to an

independent agency in 1995, the Administration encouraged SSA to promote program improvements responsive to a changing population, enhance customer service, and emphasize public education efforts. In 1996, the Administration worked with the Congress to develop a dedicated funding source to enable SSA

to improve the integrity of the disability
32 HIGHLIGHTS FROM FY 1994 TO FY 2001

programs by eliminating a backlog of continuing disability reviews.

Medicare: Throughout the past eight years,

this Administration has achieved the longest

Medicare Trust Fund solvency in a quarter

century. At the beginning of the Administration, Medicare was projected to become insolvent in 1999. Due to the Administration’s efforts, the Medicare Trust Fund solvency has

been extended by a total of 26 years. These

actions included support of legislation, such as

the Health Insurance Portability and Accountability Act of 1996 and the Balanced Budget

Act (BBA) of 1997, as well as important administrative actions, such as expanded coverage of routine patient care costs related to

clinical trials. The Administration’s leadership

has strengthened the Medicare Trust Fund

and has laid a strong foundation for future

Medicare reform.

Natural Resources and the Environment: The Administration achieved the cleanest environment in a generation amidst an historic economic expansion, despite serious environmental problems facing the Nation in 1993.

Among the President’s greatest accomplishments was winning legislation that will provide $12 billion over six years in unprecedented, dedicated funding for the conservation

of America’s land and coastal resources. He

also protected more land in the lower 48 States

under the Antiquities Act than any other

President. The Administration also more than

doubled funding to combat global climate

change through the Climate Change Technology Initiative, almost doubled funding to

address the Nation’s major remaining water

quality problems through the Clean Water Action Plan, and developed critical rules to implement the Plan. In addition, the Administration cleaned up almost four times as many

Superfund sites as in the previous 12 years,

reduced wetlands loss by 80 percent, and

fought back numerous anti-environmental legislative riders that would have traded hardwon environmental safeguards for short-term

special-interest gains.

Science and Technology: In 1993, President Clinton took office committed to fostering

progress and economic growth by expanding

investment in civilian research and development (R&D). The President’s economic strategy relied upon the critical element of investing in people and proposed targeted investments to help the Nation compete in the global

economy and improve our quality of life. While

aggressively pursuing priority research areas,

the Administration maintained a balanced

portfolio of research across agencies and disciplines. The Administration’s investments

sustained and nurtured America’s world-leading science and technology enterprise, through

pursuit of specific agency missions and

through stewardship of critical research fields

and scientific facilities; strengthened and expanded access to high quality science, mathematics, and engineering education, and contributed to preparing the next generation of

scientists and engineers; focused on activities

that required a Federal presence to attain national goals, including national security, environmental quality, economic growth and prosperity, and human health and well being; and,

promoted international cooperation in science

and technology that strengthened the advance

of science and achievement of national priorities. In keeping with the emphasis on civilian

R&D, the Administration increased the share

for civilian R&D investments, from 42 percent

in 1993 to just over 50 percent in 2001. During

this same period, total Federal funding for

R&D increased from $72.5 billion to $90.2 billion, a 24-percent increase, while defense R&D

funding received a more modest increase of

seven percent, from $42.2 billion to $45.0 billion.

Administration of Justice: The Administration’s criminal justice policies have helped

push crime rates to their lowest levels in 25

years, including rates of youth violence and

violence against women and minorities. The

Community Oriented Policing initiative has

funded over 100,000 additional community police officers to make our streets safer, and has

provided local police departments with critical

equipment. Increased attention to combating

gun-related violence at the Federal, State, and

local level reduced the number of violent

crimes committed with guns between 1993 and

1998 by 35 percent. Federal law enforcement

agencies have adapted to new threats, including the criminal misuse of new technologies.

Our civil rights laws are being vigorously

enforced by agencies that now receive the
1. INTRODUCTION 33

funding they need to protect Americans from

discrimination.

Economic Development and Housing Assistance: In a bipartisan effort to revitalize

impoverished rural and inner-city areas, the

Congress authorized and funded the Administration’s New Markets initiative in December

2000. This initiative, administered by the

Small Business Administration, will provide

$250 million in public and private capital for

rural and urban small business investments,

plus technical assistance and mentoring services for aspiring entrepreneurs. In addition, a

30-percent tax credit will spur investment in

a wide range of businesses. The New Markets

initiative complements the Administration’s

Empowerment Zones (EZs), established in

1994 to challenge communities with high unemployment and poverty rates to develop and

implement innovative strategic plans for revitalization. Areas designated as EZs offer tax

benefits for businesses, waivers from Federal

regulations, and grants for job training and

other services. The thirty-one urban and rural

areas designated as EZs have created over

120,000 new jobs since 1993, and leveraged

more than $12 billion in additional public and

private sector investment in community revitalization efforts. Nine new EZs were authorized for 2001, bringing the total to forty. The

Administration’s efforts to expand economic

opportunity for low-income families also have

included increasing the supply of portable

housing vouchers by over 250,000 from 1993

through 2001. Housing vouchers help families

improve their housing conditions and lower

their rent payments, and they also help working families or families moving from welfare

to work relocate to areas of greater economic

opportunity or move closer to schools, child

care, or other services.

Agriculture: The Administration strongly

supported family farms, fighting to open foreign markets to U.S. commodities. The

NAFTA, GATT, and China trade agreements

secured by the Administration will increase

farm income significantly for years to come.

The Administration championed better risk

management for farmers, and led the successful efforts in 1994 and 2000 to overhaul the

Federal crop insurance program to provide

higher coverage and better value for agricultural producers. Through significant increases

in the Department of Agriculture’s conservation programs, the Administration demonstrated that farm programs can both improve the environment and boost farm income.

In addition, the Government reformed the Nation’s nearly century-old meat and poultry inspection system, to deploy food safety resources based on science and risk.

International Affairs: The Administration’s international affairs budget policy has

responded to the increased demands of

globalization in the new post-Cold War world.

The Administration implemented the Uruguay

Round, NAFTA, and other major agreements

to liberalize trade and financial markets, and

aided in the construction of a new global financial infrastructure to support financial stability

and promote economic growth. It helped spur

recovery from financial crises in Mexico and

Asia through carefully targeted use of the Exchange Stabilization Fund, and by securing

new resources for the International Monetary

Fund. The Administration mobilized resources

to fight transnational problems, such as the

spread of HIV/AIDs and increased threats to

the global environment. It improved the security of Americans at home and abroad by protecting U.S. embassies and fighting international terrorism. As a critical element of its

effort to pay arrears owed to the United Nations, it successfully concluded negotiations to

establish a new scale of assessments for

United Nations dues that will reduce the U.S.

share of the UN budget and result in substantial future budgetary savings. Finally, the Administration responded forcefully to natural

disasters from Central America to sub-Saharan Africa and manmade conflicts from Bosnia

and Kosovo to Indonesia, and provided critical

support to countries attempting the difficult

transition to democracy. As a result of these

policies and programs, the United States continues to play the preeminent role in the postCold War world.

National Security: Since 1993, the Administration has ensured the Nation’s security by

sustaining a commitment to support the best

equipped, best trained, and best prepared

fighting force in the world. The Nation’s strong

military posture provided the foundation which

enabled American leadership to promote peace,

freedom, and prosperity around the globe. This

was demonstrated by our efforts in Bosnia and
34 HIGHLIGHTS FROM FY 1994 TO FY 2001

Kosovo and through the success of humanitarian and other contingency operations. The

Clinton-Gore Administration provided the necessary defense resources to recruit and retain

first-rate personnel, maintain a high quality

of life for military personnel and their families,

enhance military readiness and operational capabilities, fund current contingency operations,

and prepare for the future by modernizing

weapons systems to maintain the Nation’s

technological advantage into the 21st Century.

The global danger from nuclear weapons and

other weapons of mass destruction was reduced by the Administration’s efforts to shape

the strategic landscape through deterrence,

arms control agreements, continued enforcement of UN sanctions on Iraq, and threat reduction assistance programs in Russia and

other states of the former Soviet Union. The

reliability of the Nation’s nuclear stockpile was

maintained and advances were made in the

cleanup of radioactive waste from fifty years

of weapons production. Emphasis was also

placed on building awareness of, deterring, and

meeting the challenge from emerging unconventional threats such as terrorism and computer attack. The Clinton-Gore Administration’s national security efforts in all of these

areas has shaped a defense posture well adapted to the post-Cold War world with military

forces positioned to meet the challenges of a

new century.

A Falling Interest Burden: In 1993, the

Administration inherited a large and growing

debt, and the prospect of large and growing

budget deficits for many years into the future.

Net interest outlays had grown from $14.4 billion (or 1.4 percent of the Gross Domestic

Product, or GDP) in 1970 to $198.7 billion (or

3.0 percent of GDP) in 1993, and were projected to grow still further without a change

in policy. Largely as a result of fiscal policy

actions under this Administration and the

strong economic performance over the past

eight years, the long, upward trend for net

interest has ended. In dollar terms, net interest began to decline in 1998 with the first

balanced budget in recent years. As a percentage of GDP, net interest will fall from 3.0 percent in 1993 to an estimated 2.0 percent in

2001, a reduction of one-third. As a percentage

of total outlays, net interest will fall from 14.1

percent in 1993 to 11.2 percent in 2001, freeing resources for other purposes. Moreover, the

prospect of continuing surpluses implies that

net interest outlays will continue to fall toward

zero over the next few years. This improvement is one of the most important reasons for

the projected long-term stability of the budget,

and is a vital foundation for the Nation’s preparation for the aging of the population, including the impending retirement of the baby-boom

generation.

Management Improvement

The last eight years have seen a dramatic

improvement in the management of the Federal Government. The Administration not only

balanced the budget and invested in key

priorities for the future, but took important

steps to help the Government operate more

effectively and efficiently. Management functions, such as use of information technology,

procurement, financial management, statistics

and regulatory reform, are the essentials

of governmental operations, whatever an organization’s missions or functions may be. Doing

them very well rarely garners attention; failing

to do them can destroy program and policy

effectiveness and public trust as certainly

as bad policy decisions or inadequate program

implementation. Because the Administration

has sought to integrate budget and management, many significant management accomplishments are addressed in the functionby-function chapters that follow (examples

include human resources in Chapter 18, ‘‘General Government,’’ and energy efficiency in

Chapter 5, ‘‘Energy’’). However, there are

also a number of Government-wide efficiencies

and improvements that are worth noting.

Information Technology (IT): Over the

past eight years, the Administration has emphasized the importance of IT in creating a

Government that is more accessible and responsive to citizens. Early efforts focused on

the management of specific agency systems—

emphasizing off-the-shelf technology, open architecture, and modular development. The bipartisan Clinger-Cohen Act codified Administration policy by tying IT to agency budget

and strategic planning decisions, and created

the position of Chief Information Officer in

each agency. To aid agency implementation of

the Clinger-Cohen Act, OMB issued a Memorandum titled ‘‘Funding Information Systems
1. INTRODUCTION 35

Investments,’’ commonly referred to as ‘‘Raines’

Rules’’, which established decision criteria to

evaluate all major information system investments proposed in the President’s budget.

The Administration’s foremost management

objective at the end of the decade was

to navigate the year 2000 (Y2K) computer

conversion, probably the single largest technology management challenge in history. The

Federal Government’s Y2K efforts exceeded

all expectations—resulting in a remarkably

trouble free roll-over to the year 2000. In

addition, under the direction of the President’s

Council on Year 2000 Conversion, the Federal

Government also worked with the private

sector, State and local governments, and

international organizations to solve the problem.

The Administration has also focused on

other important IT initiatives, including capital planning, computer security, and data

sharing. In addition, a Presidential Directive

led to specific, major accomplishments in

the arena of electronic government. Every

agency now offers key information and critical

services online, and more are launched each

week. Moreover, the Administration is working

across agencies to bring transformational

change on a Government-wide basis.

In September 2000, the Administration

launched www.firstgov.gov to provide the public with a single, customer-focused web site,

where it can find every Federal Government

on-line resource by topic or by agency. Through

FirstGov, citizens can search over 27 million

web pages in less than one-quarter of a

second, 24 hours a day, seven days a week.

People can apply for student loans, find

new jobs, find the latest health research,

and more. The site safeguards communications

and transactions with the Government, protects privacy, and leverages a partnership

with the private sector to maximize innovation

and usability.

Ensuring privacy and security are essential

to fully exploiting the potential of the Internet

for electronic government and electronic commerce. With respect to privacy, the Administration has worked aggressively, particularly

on privacy safeguards for Federal web sites.

As a result, virtually all major points of

entry to agency web sites provide notice

to visitors about what information is collected,

why the information is collected, and what

agencies will do with it. With respect to

security, the Administration has developed

a Public Key Infrastructure that uses digital

signatures to ensure that recipients of online

information can authenticate senders in a

reliable way; this infrastructure also enables

the public to use common digital signatures

across agencies. Well over 100,000 digital

signatures have already been issued, and

over the next several months this number

will grow substantially.

Procurement: The Administration has reinvented the way the Government buys approximately $200 billion annually in goods,

services, and construction, concentrating on results rather than process, focusing on customer

satisfaction, and giving people on the front

lines the opportunity to experiment with innovative ways to do their jobs. Working with the

Congress, major legislation was enacted that

simplified procedures for acquisitions, promoted the use of commercial items, eliminated

many record-keeping and reporting requirements, emphasized past performance and best

value in contractor selection, and removed barriers in negotiations.

The Administration also introduced other

reforms. For example, the Government began

using performance-based contracting for services, holding agencies accountable for cost,

schedule, and performance of major acquisition

programs, and using alternative dispute resolution methods to reduce the number of

costly and time-consuming bid protests. Credit

cards were introduced allowing Government

employees to purchase over 90 percent of

all supplies without using contracting offices.

Federal supply schedules and multi-agency

contracts were established allowing requirements across agencies to be combined and

speeding up the acquisition of products and

services. Share-in savings contracts were created to allow industry to use its investments

and creativity to reduce energy costs and

to be paid out of the savings.

Other Government-wide successes include

the development of a set of core acquisition

system performance measures to enable, for

the first time, comprehensive Governmentwide and agency assessments of progress
36 HIGHLIGHTS FROM FY 1994 TO FY 2001

toward providing best value to taxpayers.

In addition, the Administration has established www.fedbizopps.gov, a single point of

entry to enable all businesses to gain easy

access to contracting opportunities; www.pronet.sba.gov, to promote small business opportunities; and the GovSales section of

www.financenet.gov, to provide access to all

Government sales of financial assets, real

property and personal property.

Financial Management: Over the last

eight years, there has been an extraordinary

transformation in Federal financial management. Eight years ago, only a few agencies

routinely prepared and issued audited financial statements. Now virtually all agencies

issue annual audited financial statements and

more than half of the 24 largest agencies received clean audits in 1999, the fourth year

of such reporting. (By comparison, it took the

States over a decade to achieve this result.)

Similarly, there was no Government-wide audited financial statement in the early 1990’s;

this year marks the third year of an annual

Government-wide financial statement. In 1993,

the Federal financial community did not have

a set of Government-wide accounting standards. The creation of the Federal Accounting

Standards Advisory Board (FASAB) led to the

development and issuance of a complete set

of basic accounting standards and concepts in

1996. In October 1999, as validation of these

efforts, the American Institute of Certified

Public Accountants recognized FASAB standards as ‘‘generally accepted accounting principles’’. Recognition of FASAB standards by an

independent, internationally-recognized audit

standard-setting authority marks a significant

milestone. After several years of pilot activities, agencies now can combine financial and

performance reports, providing for the first

time a clear picture of what agencies accomplish and at what cost.

Agencies have also begun to install and

use modern, integrated financial systems that

combine accounting requirements with program performance, allowing for improved reporting and accountability. These systems

are being designed to integrate accounting

requirements with program management

needs, allowing for more timely and useful

information to managers. For example, CFOs

are maximizing the use of the Internet for

credit and debt management programs to

conduct secure, private, and authenticated

Internet transactions for debt management

by using electronic signature technology, including digital signatures or Personal Identification Numbers (PINs), where appropriate.

In the Federal grants area, OMB and agencies

are making it easier for State, local, and

Tribal governments and non-profit organizations to apply for Federal grants and, as

recipients, report their progress. The Federal

Commons initiative—a project to establish

a single point of entry online for Federal

grant programs—is being introduced across

Federal grant-making agencies.

Regulatory Reform: The Administration

has continued its efforts to improve the transparency and analytical bases of the regulatory

process. In 1993, the President issued Executive Order No. 12866 setting forth the guiding

principles and the process that the Administration would follow in issuing new regulations

and reforming existing rules. The Executive

Order requires that the agencies fully assess

the costs and benefits of all alternatives, including not regulating, and selecting the alternative that maximizes net benefits (unless a

statute requires another approach). The Executive Order also requires the agencies to submit

their regulations to OMB for review and coordination with other interested agencies before publication. A major emphasis of this program was transparency and openness to the

public, including small businesses and State,

local and Tribal governments.

On March 22, 2000, OMB issued Guidelines

to Standardize Measures of Costs and Benefits

and the Format of Accounting Statements.

The guidelines lay out the principles and

methodology the agencies are to use in estimating and presenting the required costbenefit analyses of the their regulations.

OMB has also submitted to the Congress

for the last three years the Report to Congress

on the Costs and Benefits of Federal Regulations.

The Administration’s efforts to improve regulation have produced significant beneficial

results. OMB’s Report to The President On

the Third Anniversary of Executive Order

12866: More Benefits Fewer Burdens and,

for the last three years, the Report to Congress
1. INTRODUCTION 37

on the Costs and Benefits of Federal Regulations document some of these improvements.

Statistical Policy and Programs: During

the past eight years, significant strides have

been taken to improve the Nation’s statistics.

Most visibly, the 2000 Census was completed

on time, under budget, and with higher mail

response than that of a decade ago. In addition, the American Community Survey was initiated to provide accurate and up-to-date local

area information that will be used by the Federal Government to allocate close to $200 billion in Federal funds annually.

Obsolete standards that underlie our key

economic and demographic statistics were

revised. In cooperation with Canada and

Mexico, the 1997 North American Industry

Classification System (NAICS), based on how

an establishment produces its products, was

developed and introduced to replace the Standard Industrial Classification, and an enhancement of NAICS for 2002 was completed.

The Standard Occupational Classification,

which will be used by all Federal agencies

that publish occupational data, was completed

in 2000. Major revisions to the Governmentwide Standards for Maintaining, Collecting,

and Presenting Federal Data on Race and

Ethnicity were issued in 1997, and implementation guidance based on additional research

and analyses subsequently was issued for

public comment. At the end of 2000, the

Administration adopted simplified and expanded standards for defining Metropolitan

and Micropolitan Statistical Areas for use

in collecting, tabulating, and publishing Federal statistics.

In 1997, OMB issued the Federal Statistical

Confidentiality Order to ensure that statistical

information will not be used in any Government actions against respondents. The Administration also gained bipartisan support for

its legislative proposal to harmonize statutory

protections for the confidentiality of statistical

data and permit sharing of data for statistical

purposes among designated agencies. These

efforts are designed to bolster the confidentiality afforded statistical information provided

by the public.

To improve the relevance, accuracy, and

timeliness of the Nation’s key statistical indicators, a number of critical programs were

improved. These efforts included: formulating

a strategic plan for maintaining and improving

the National Income and Product Accounts;

revising the Consumer Price Index (CPI)

to reflect changes in the geographic distribution of the population and in consumers’

buying habits and make the CPI a more

accurate and reliable reflection of economic

conditions; expanding service sector output,

price, and productivity measures; and integrating health surveys to capture changes

in health care and welfare.

Finally, two reports that bring together

key statistics from a variety of agencies

were inaugurated—America’s Children: Key

National Indicators of Well-Being, an annual

monitoring report on the status of America’s

children, and Older Americans: Key Indicators

of Well-Being, a periodic Federal report that

describes the status of the Nation’s older

population; in addition, more than 100 agencies across the Government are now partners

in FedStats (www.fedstats.gov), the one-stopshopping Internet service that greatly facilitates access for users of Federal statistics.

Program Performance

The last eight years have also seen a

much-needed emphasis on program performance for analyzing and funding Federal programs, through this Administration’s commitment to the Government Performance and

Results Act (GPRA) of 1993. This legislation

was complemented by the Administration’s

National Performance Review initiative, which

was announced in September 1993 and led

by Vice President Gore. This effort later

became the National Partnership for Reinventing Government. Agencies continue to

improve the quality and scope of their performance data, and this information is increasingly

important in budget decisions, program management, and organizational accountability.

Prior to 1993, very few Federal agencies

had ever prepared long-range plans; their

performance measures usually were limited

to workload, and hidden from public view;

and reporting on what programs actually

accomplished was rare. By the end of 2000,

all 14 Cabinet departments and about 85

independent agencies had prepared two cycles

of strategic plans, which are prepared every
38 HIGHLIGHTS FROM FY 1994 TO FY 2001

three years, and four annual plans; and

had completed the first set of annual reports

that compare actual performance against goals

set in the annual plans. Collectively, these

plans and reports set measurable goals and

objectives for every Government function and

major program. All plans and reports produced

by agencies under GPRA are sent to the

Congress, and are available to the public.

In 1993, the Administration initiated the

National Performance Review, an eight-year

effort that focused on creating a Government

that works better, costs less, and gets results

that Americans care about. This effort has

streamlined the Government work force, eliminated obsolete programs and agencies, empowered its employees to cut red tape, and

used partnerships to get results. The payoff

included:

• elimination of 250 obsolete programs (such

as the Tea Tasting Board) and agencies

(like the Interstate Commerce Commission);

• a reduction of 377,000 employees during

the course of the Administration, resulting

in the smallest work force since the Eisenhower years;

• the creation of more than 4,000 customer

service standards, and the use of privatesector customer satisfaction measures,

which now show the Federal Government

is almost equal to the service sector in

satisfaction levels;

• the use of more than 350 reinvention labs

to test innovations and more than 850

labor-management partnerships covering

two-thirds of the work force;

• a reduction of more than 640,000 pages

of internal rules; and,

• partnerships, such as one between EPA

and the 1,300 companies in the toxic

chemical industry, which reduced emissions by 50 percent in four years—faster

than if EPA had used the traditional rulemaking process.

During this Administration, public trust

in the Federal Government nearly doubled

in the course of only four years, rising

from an all-time low of 21 percent in 1994

to 40 percent when last measured in 1998

by the University of Michigan.

The performance of the economy, the increased emphasis on performance in Government programs, and the achievements discussed in the individual function-by-function

chapters that follow demonstrate that the

American public can be proud of its Government’s performance over the past eight years.

THE FUNCTION-BY-FUNCTION

CHAPTERS

Presentations by ‘‘budget function’’ are a

result of long-standing custom and legislation.

The functions are categories that emphasize

what the Federal Government seeks to accomplish, rather than the agency conducting

the activity. The functions are designed to

inform the American people about the ultimate

purpose of the spending according to broad

categories. The function categories are also

used by the Congress in its review and

analysis of the budget.

Table 1–1 and the tables at the beginning

of each chapter present data by function

for 1993, an estimate for 2001, and the

corresponding increase or decrease. Table 1–1

displays a category for allowances, which

includes two items for 2001. The first allowance is for a 0.22 percent across-the-board

reduction required by law in discretionary

budget authority for agencies other than

the Department of Defense. The reduction

for the Department of Defense is included

in the estimate for the National Defense

function. The second allowance is for mandatory outlays and reflects legislation to compensate non-Social Security beneficiaries for

the loss in benefits caused by shortfalls

in cost-of-living increases due to an error

in the calculation of the CPI in 1999. The

adjustment for Social Security is included

in the Social Security function.

The tables display data for the following

Federal resources:

Discretionary Budget Authority: The

Budget Enforcement Act (BEA) of 1990 defines

discretionary budget authority as spending authority controlled by annual appropriations

acts. Most funding for Federal agencies and

some grants to State and local governments
1. INTRODUCTION 39

are discretionary. The BEA limits the amount

of discretionary budget authority that can be

appropriated for a fiscal year. In aggregate,

this spending represents about one-third of

total Government spending.

Mandatory Outlays: The BEA defines mandatory outlays as those controlled by laws

other than annual appropriations acts. Mandatory outlays are primarily for benefit programs

for individuals, such as Medicare and Medicaid. Mandatory outlays, including outlays for

net interest, make up about two-thirds of total

Government spending. Unlike discretionary

spending, the BEA does not limit the amount

of mandatory outlays. Instead, the Act requires

that legislated changes for mandatory outlays

and receipts combined cannot increase the deficit or reduce the surplus.

Credit Activity: The credit data include direct loan disbursements and guaranteed loans.

Direct loan disbursements. Direct loan disbursements are disbursements by the Government to a non-Federal borrower that require

repayment with interest. The amounts shown

in the tables do not include repayments.

The largest categories of direct loan disbursements are by the Department of Agriculture

to assist farmers, and by the Department

of Education to assist students attending

higher education.

Guaranteed loans. Guaranteed loans are

loan disbursements made by a non-Federal

entity (e.g., a private bank) where the Government guarantees repayment of all or part

of the principal or interest. The largest

categories of guaranteed loans are to increase

homeownership and to help low-income families afford suitable housing. Most guaranteed

loans are classified in the function chapters

for Commerce and Housing Credit, and for

Veterans Benefits and Services.

Tax Expenditures: Tax expenditures are

revenue losses due to the preferential provisions of the Federal tax laws, such as special

exclusions, exemptions, deductions, credits, deferrals, or tax rates. They are alternatives to

other policy instruments, such as spending or

regulatory programs, as means of achieving

Federal policy goals. Because of interactions

across provisions, the estimates are only rough

approximations of the total revenue loss for

each function and for the Federal Government.

Most tax expenditures are classified in the

Commerce and Housing Credit function and

the Income Security function.

In 1993, this Administration achieved a

major expansion of the Earned Income Tax

Credit, which reduces taxes for working families. The Administration also achieved a child

care tax credit of $500 per child for lowand middle-income families in the BBA of

1997. The Act also added significant tax

expenditures for education, including the Hope

and Lifetime Learning credits and Educational

Individual Retirement Accounts (IRAs), and

expanded retirement incentives by increasing

traditional IRA limits and adding Roth IRAs.

Capital gains received greater preferences,

and most gains on owner-occupied home sales

were exempted from tax. There were also

numerous other changes that affected health

care, energy, community development, science

and technology, and other functional areas.
40 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 1–1. Federal Resources by Function

(In billions of dollars)

Function 1993

Actual

2001

Estimate

Change:

1993–2001

NATIONAL DEFENSE:

Spending:

Discretionary budget authority ............................. 276.1 311.0 34.9

Mandatory outlays ................................................. -1.3 -0.4 0.9

Credit Activity:

Direct loan disbursements .................................... ................. * *

Guaranteed loans .................................................. ................. * *

Tax expenditures .................................................... 2.1 2.2 *

INTERNATIONAL AFFAIRS:

Spending:

Discretionary budget authority 1 .......................... 21.2 22.7 1.5

Mandatory outlays ................................................. –4.3 –8.8 –4.5

Credit Activity:

Direct loan disbursements .................................... 1.9 2.9 0.9

Guaranteed loans .................................................. 9.5 11.1 1.6

Tax expenditures .................................................... 4.5 18.1 13.6

GENERAL SCIENCE, SPACE, AND TECHNOLOGY:

Spending:

Discretionary budget authority ............................. 17.2 20.8 3.6

Mandatory outlays ................................................. * 0.1 0.1

Tax expenditures .................................................... 3.3 7.7 4.4

ENERGY:

Spending:

Discretionary budget authority ............................. 5.8 3.1 –2.7

Mandatory outlays ................................................. –1.2 –3.6 –2.4

Credit Activity:

Direct loan disbursements .................................... 1.5 1.9 0.4

Guaranteed loans .................................................. * * *

Tax expenditures .................................................... 2.4 2.1 –0.3

NATURAL RESOURCES AND ENVIRONMENT:

Spending:

Discretionary budget authority ............................. 21.4 28.8 7.4

Mandatory outlays ................................................. 0.2 0.2 –*

Credit Activity:

Direct loan disbursements .................................... * * *

Tax expenditures .................................................... 1.6 1.6 –*

AGRICULTURE:

Spending:

Discretionary budget authority ............................. 4.3 4.8 0.5

Mandatory outlays ................................................. 16.1 20.4 4.2

Credit Activity:

Direct loan disbursements .................................... 11.1 10.9 –0.3

Guaranteed loans .................................................. 4.6 6.5 1.9

Tax expenditures .................................................... 0.3 1.1 0.8

COMMERCE AND HOUSING CREDIT:

Spending:

Discretionary budget authority ............................. 4.1 2.9 –1.2

Mandatory outlays ................................................. –25.6 3.0 28.5

Credit Activity:

Direct loan disbursements .................................... 5.0 1.7 –3.3

Guaranteed loans .................................................. 79.4 229.6 150.2

Tax expenditures .................................................... 160.0 254.7 94.6
1. INTRODUCTION 41

Table 1–1. Federal Resources by Function—

Continued

(In billions of dollars)

Function 1993

Actual

2001

Estimate

Change:

1993–2001

TRANSPORTATION:

Spending:

Discretionary budget authority ............................. 14.0 19.1 5.1

Obligation limitation .............................................. 20.4 38.5 18.1

Mandatory outlays ................................................. 1.7 2.2 0.4

Credit Activity:

Direct loan disbursements .................................... * 0.7 0.6

Guaranteed loans .................................................. ................. 0.5 0.5

Tax expenditures .................................................... 1.8 2.2 0.4

COMMUNITY AND REGIONAL DEVELOPMENT:

Spending:

Discretionary budget authority ............................. 9.6 11.0 1.4

Mandatory outlays ................................................. 0.8 –0.7 –1.4

Credit Activity:

Direct loan disbursements .................................... 2.4 2.3 –0.1

Guaranteed loans .................................................. 0.3 3.5 3.2

Tax expenditures .................................................... 0.9 1.4 0.6

EDUCATION, TRAINING, EMPLOYMENT, AND

SOCIAL SERVICES:

Spending:

Discretionary budget authority ............................. 38.2 61.1 22.9

Mandatory outlays ................................................. 13.5 10.7 –2.8

Credit Activity:

Direct loan disbursements .................................... 2.7 19.1 16.4

Guaranteed loans .................................................. 14.8 28.2 13.5

Tax expenditures .................................................... 21.9 59.5 37.6

HEALTH:

Spending:

Discretionary budget authority ............................. 20.7 38.9 18.2

Mandatory outlays ................................................. 79.8 138.9 59.1

Credit Activity:

Direct loan disbursements .................................... 0.1 ................. –0.1

Guaranteed loans .................................................. 0.3 * –0.3

Tax expenditures .................................................... 53.3 99.8 46.5

MEDICARE:

Spending:

Discretionary budget authority ............................. 2.8 3.4 0.5

Mandatory outlays ................................................. 127.9 218.8 90.9

INCOME SECURITY:

Spending:

Discretionary budget authority ............................. 31.9 39.5 7.6

Mandatory outlays ................................................. 175.9 213.0 37.1

Credit Activity:

Direct loan disbursements .................................... 0.1 * –0.1

Guaranteed loans .................................................. ................. 0.1 0.1

Tax expenditures .................................................... 74.2 131.9 57.8

SOCIAL SECURITY:

Spending:

Discretionary budget authority ............................. 2.6 3.4 0.8

Mandatory outlays ................................................. 302.0 431.4 129.4

Tax expenditures .................................................... 23.7 26.0 2.3
42 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 1–1. Federal Resources by Function—

Continued

(In billions of dollars)

Function 1993

Actual

2001

Estimate

Change:

1993–2001

VETERANS BENEFITS AND SERVICES:

Spending:

Discretionary budget authority ............................. 16.2 22.5 6.3

Mandatory outlays ................................................. 19.8 22.9 3.1

Credit Activity:

Direct loan disbursements .................................... 2.2 1.7 –0.5

Guaranteed loans .................................................. 35.4 29.5 –5.9

Tax expenditures .................................................... 2.0 3.5 1.5

ADMINISTRATION OF JUSTICE:

Spending:

Discretionary budget authority ............................. 14.6 30.0 15.4

Mandatory outlays ................................................. 0.3 0.7 0.4

GENERAL GOVERNMENT:

Spending:

Discretionary budget authority ............................. 11.6 14.0 2.4

Mandatory outlays ................................................. 1.5 2.3 0.7

Credit Activity:

Direct loan disbursements .................................... ................. * *

Tax expenditures .................................................... 37.2 71.3 34.1

NET INTEREST:

Spending:

Mandatory outlays ................................................. 198.7 210.2 11.5

Tax expenditures .................................................... 1.1 0.5 –0.6

ALLOWANCES:

Spending:

Discretionary budget authority ............................. ................. –0.6 –0.6

Mandatory outlays ................................................. ................. 0.2 0.2

UNDISTRIBUTED OFFSETTING RECEIPTS:

Spending:

Mandatory outlays ................................................. –37.4 –47.2 –9.8

FEDERAL GOVERNMENT TOTAL:

Spending:

Discretionary budget authority ............................. 512.5 636.5 124.0

Mandatory outlays ................................................. 868.5 1,214.2 345.7

Credit Activity:

Direct loan disbursements .................................... 27.1 41.2 14.1

Guaranteed loans .................................................. 144.3 309.2 164.9

Tax expenditures .................................................... 390.2 683.3 293.1

* $50 million or less.

1 Excludes $12.1 billion for 1993 for an increase in the U.S. quota at the International

Monetary Fund.
43

2. NATIONAL DEFENSE

Table 2–1. Federal Resources in Support of National

Defense

(Dollar amounts in millions)

Function 050 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 276,109 311,030 13%

Mandatory outlays ..................................................... –1,344 –418 –69%

Credit Activity:

Direct loan disbursements ....................................... ................. 11 NA

Guaranteed loans ...................................................... ................. 39 NA

Tax expenditures ....................................................... 2,115 2,160 2%

NA = Not applicable.

Since 1993, the Clinton-Gore Administration

has sustained its commitment to supporting

the world’s strongest military force, capable

of defending the United States, its citizens,

and its allies, and protecting and advancing

American interests and values around the

world. Today, the United States is the sole

remaining superpower in the world, with

military capabilities unsurpassed by any Nation. The United States has sought to use

that position of strength in a manner consistent with the fundamental values and

ideals upon which our republic was founded.

We have maintained a steadfast focus on

simple goals—peace, shared prosperity, and

freedom. The U.S. military, as the world’s

best trained and best equipped fighting force,

provides the strength and leadership that

serve as the foundation for regional peace

and stability that allows us to share our

goals with others around the globe. This

has been demonstrated throughout the tenure

of this Administration, most recently by the

restoration of stability in Kosovo and during

humanitarian relief and other contingency

operations.

President Clinton took significant steps to

ensure that our Nation’s military is fully

prepared to meet the challenges of this

new century. The Administration strengthened

our Nation’s security by sustaining a commitment to recruit, train, and equip the best

fighting force that the world has ever known,

one capable of defeating large-scale crossborder aggression in two distant theaters

in overlapping timeframes. This was achieved

by enhancing military readiness and operational capabilities, and supporting programs

to take care of military personnel and their

families from recruitment through retirement,

including defense health programs. The Administration also prepared for the future

by procuring effective and modern weapons

systems and funding a strong and diverse

research and development effort to maintain

our technological advantage through the development of advanced weapons systems.

The Administration’s efforts to shape the

strategic landscape through continued deterrence, arms control agreements, such as the

START agreements, and threat reduction assistance programs in Russia and other states

of the former Soviet Union, has reduced

the global danger from nuclear weapons and

other weapons of mass destruction. The Department of Energy’s (DOE’s) national security

program has maintained confidence in our

nuclear stockpile deterrent and has significantly advanced the cleanup of radioactive

waste from fifty years of weapons production.
44 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 2–2. U.S. Conventional Force Structure

Cold War

(1990) 2001 QDR Target(by 2003)

Land Forces:

Army divisions (active/National Guard) ................ 18/10 10/8 10/8

Marine Corps divisions (active/reserve) ................. 3/1 3/1 3/1

Tactical Air Forces:

Air Force fighter wings (active/reserve) ................ 24/12 12+/7+ 12+/8

Navy air wings (active/reserve) .............................. 13/2 10/1 10/1

Marine Corps wings ................................................. 3/1 3/1 3/1

Naval Forces:

Aircraft carriers (active/reserve) ........................... 15/1 12/0 11/1

Battle forces ships ................................................... 546 317 306

Mobility Forces:

Airlift (tactical/strategic) ........................................ 513/432 526/335 478/329

Sealift (Surge/Ready Reserve Force) ...................... 69/102 67/76 78/90

Military Personnel:

Active ....................................................................... 2,069,000 1,382,242 1,367,600

Selected reserve ....................................................... 1,128,000 863,775 837,200

Building a new Defense Strategy for the

Post-Cold War World

The end of the Cold War left the United

States armed forces with a strategy, force

structure, and infrastructure no longer appropriate for the new security environment.

Based on an in-depth assessment of the

new security environment and rethinking of

U.S. defense strategy, the Administration conducted a Bottom Up Review (BUR) in 1993

and restructured its forces to meet four

key requirements:

• fight and win two nearly simultaneous

major regional wars;

• conduct, in peacetime, a variety of operations short of a major regional conflict;

• maintain a strong forward presence; and,

• deter and prevent the use of weapons of

mass destruction against U.S. territory,

forces, and allies.

In an effort to better align U.S. military

strategy, force structure, infrastructure, manning, and resource requirements, the Administration conducted the Quadrennial Defense

Review (QDR) in 1997. This is the Department

of Defense’s (DOD’s) strategic plan, which

was reviewed and approved by the President

and the Congress. The QDR supported the

BUR requirement to maintain the ability

to fight two major-theater wars nearly simultaneously, and adopted a defense strategy of

shaping the international environment to prevent conflict, responding to crises, and preparing for future threats. It also emphasized

that it was in the Nation’s interest to respond

to small-scale contingency operations and address asymmetric threats such as information

warfare, weapons of mass destruction, and

terrorism. The QDR force structure is shown

in Table 2–2.

Maintaining a Strong Defense

When this Administration took office, the

DOD budget, as a result of the end of

the Cold War, had already declined by 33

percent in real (after inflation) terms from

its 1985 peak, when the drawdown started,

and active military forces had been reduced

by 25 percent. Today, our military forces

and programs are sized to meet the threats

and strategy addressed in both the BUR

and QDR.

The Administration requested several significant increases in the defense budget to

provide full support in the near term for
2. NATIONAL DEFENSE 45

military readiness and quality of life, and

to modernize our forces over the long term.

These objectives—first outlined in the Defense

Funding Initiative of December 1994—which

added $25 billion over five years—have remained the essential pillars of this Administration’s defense program.

The President’s approval of a six-year,

$112 billion increase for defense in the 2000

Budget furthered these efforts and represented

the first long-term, sustained increases for

defense programs in over a decade. That,

and subsequent budget proposals, provided

continued significant increases for military

readiness programs to enhance our forces’

ability to respond immediately to crises; build

for the future by increasing funding for

weapons modernization programs; and, care

for our military troops and their families

by further enhancing quality of life programs.

These efforts help ensure that the United

States will be fully prepared to meet the

security challenges of the 21st Century.

In addition, the Administration has placed

great emphasis on managing our defense

resources more efficiently by reforming and

improving the management of defense programs. The Defense Reform Initiative increased the use of competitive sourcing and

privatization, adopted best business practices

through acquisition reform, and eliminated

excess infrastructure through base realignments and closures. Other initiatives included

streamlining of the civilian work force, improving financial management practices, and implementing information technology reforms.

Ensuring the Nation’s Security Through

the Best Equipped, Best Trained, and Best

Prepared Fighting Force in the World

Enhancing Military Readiness and Operations: Maintaining high levels of readiness

has been this Administration’s top defense priority. Robust funding has been provided for

training, spare parts, and weapons maintenance critical to unit readiness, and for recruiting and retaining quality personnel. In

addition, in an effort to monitor current and

future military readiness, the Administration

has undertaken efforts to improve readiness

reporting systems to ensure early identification of potential problems, and allow prompt

remedial action. To meet the diverse security

challenges of the 21st Century, the Administration has undertaken initiatives to transform

the Army into a more deployable force, restructure the Air Force into 10 flexibly-sized air

expeditionary force units, and reduce the

Navy’s operating costs and manning requirements through the Smart Ship Program.

Greater use has also been made of National

Guard and reserve forces and personnel to

complement active duty forces.

Funding Contingency Operations: The

U.S. military has protected U.S. interests

through involvement in contingency operations

such as Bosnia, Kosovo, and Iraq. To pay for

these operations, the Administration consistently sought supplemental appropriations, including nearly $4 billion in a 1999 request for

Kosovo operations. These supplemental requests ensured that U.S. military forces remained at high levels of readiness as they participated in contingency operations. The Administration developed accurate cost projection

methodologies which served to inform policy

decisions. The Administration made special efforts to track the incremental costs of these

operations, especially Kosovo, separately from

traditional defense operations costs. The Administration also sought supplemental funding

in advance, whenever possible, so that normal

military activities would not be disrupted by

diverting funds to cover contingency costs. It

is true that U.S. military participation in contingency operations has been costly in terms

of dollars, in part because the Congress has

provided funding above the requested levels

for items not directly related to these operations. However, costs of individual operations

have come down as they have made progress

toward their objectives. Moreover, the Administration has clearly advanced U.S. national

security interests by helping to contain Iraq,

stopping the bloodshed in the Balkans,

strengthening the NATO alliance and demonstrating its continuing value.

Taking Care of Military Personnel and

their Families from Recruitment through

Retirement—including Defense Health

Programs: In order to attract and retain high

quality personnel and ensure that military

compensation remains competitive with private sector pay, the Administration has consistently supported increases in military pay
46 HIGHLIGHTS FROM FY 1994 TO FY 2001

and retirement benefits. The Administration

has also provided significant enhancements to

the quality of life of our military personnel

and their families, including a compensation

initiative to reduce service members’ out-ofpocket costs for housing. This program, approved by the Congress in 2001, will reduce

out-of-pocket costs for military personnel from

19 percent to 15 percent by 2001, and eliminate these costs entirely by 2005.

Additional quality of life improvements have

been demonstrated by the tremendous decline

in the number of military personnel on food

stamps—a result of the Administration’s consistent support for military pay increases.

In 1991, 19,400 military personnel received

food stamps; by 2000, this number had been

reduced to 5,100. For 2001, the Administration

submitted legislation designed to immediately

eliminate military personnel dependence on

food stamps by providing a military commissary benefit. Other quality of life improvements include a worldwide family support

and communications program to ease the

hardships of deployments and family separations, and the construction and improvement

of child care centers, fitness centers, upgraded

barracks, and family housing. Specifically,

the Administration has moved aggressively

to upgrade the inventory of Governmentowned housing for military families and utilize

private sector capital and expertise to provide

new, modern privatized housing for military

families. DOD has awarded contracts for

the construction of about 5,600 housing units

and issued solicitations for the construction

of approximately another 22,000 units.

To reduce the costs of defense health

programs, the Administration established a

managed care approach to military health

care known as TRICARE-—now also available

for Medicare-eligible military retirees for the

first time. The Administration has also implemented special programs for active duty families stationed in remote areas of the country

where health care may not be available.

Preparing for the Future by Modernizing

Weapons Systems: The U.S. military is the

best equipped fighting force in the world. Over

the past eight years, the Administration has

strongly supported a robust modernization program focused on the most advanced technologies to incorporate in future systems. This

effort is critical to maintaining military forces

capable of deterring and winning wars and

successfully executing all contingency missions

that may arise. Weapons modernization, including procurement of new systems, upgrades

to existing systems, and development of new

technologies to incorporate in future systems,

has been a high priority for this Administration. The Administration’s efforts in developing

and procuring new systems have positioned

the U.S. military to continue its unrivaled

military superiority well into the 21st Century,

as the discussion that follows highlight.

• Ground Forces: Over the past eight

years, the Army developed new systems

to improve warfighting capabilities, such

as the Comanche helicopter and the Crusader howitzer, and upgraded existing systems such as the Apache helicopter and

the Abrams tank to enhance operational

readiness and improve capabilities. In addition, both the Army and the Marine

Corps have developed a new light weight

155mm howitzer. The hallmark of the

Army’s modernization effort is its plan to

transform itself into a more mobile and

lethal force. The Army plans first to field

a medium weight force between now and

2007 to provide greater combat power and

mobility to units that deploy to hostile

areas in the early stages of a conflict or

to peace enforcement operations. In the

long term, the Army plans to field an ‘‘objective force’’ that is lighter and more lethal than the current force by developing

a Future Combat System (FCS). Ultimately, Army transformation will exploit

technology advances anticipated in the

FCS along with new operational concepts

and organizational structures to maintain

its battlefield superiority.

The Administration has funded the cornerstones of the Marine Corps’ modernization

program—the V-22 tilt-rotor aircraft and

the Advanced Amphibious Assault Vehicle—to significantly enhance capability as

well. Both programs, developed over the

course of the last decade, will replace

aging helicopters and tracked vehicles and

increase the Marines’ ability to execute

their ship-to-shore and cross-country
2. NATIONAL DEFENSE 47

movements with greater speed, range, and

payload.

• Naval Forces: Since 1994, the Administration has funded several new classes of

ships that will ensure U.S. naval superiority far into the future. These new classes

include the LPD-17 amphibious ship, the

Virginia Class attack submarine, and a

new auxiliary support ship. The Administration also fully funded continued procurement of Nimitz class nuclear aircraft

carriers, the backbone of the Navy’s fleet,

as well as Seawolf attack submarines, and

DDG-51 class destroyers. The Administration provided funds to develop new technologies that will lead to procurement of

next-generation systems including a new

design nuclear aircraft carrier and the

next generation surface combatant, known

as DD-21, that will serve the Navy well

into this century. The Administration has

also supported programs that augment the

fleet’s warfighting capabilities and enable

more cost-effective operation. Initiatives,

such as Cooperative Engagement Capability and the Smart Ship program, take

advantage of advances in information

technology to deliver improved combat capabilities to our Navy while also reducing

personnel and operations costs.

• Tactical Aviation Forces: Aviation force

modernization has been an important part

of the Administration’s modernization program from the start. As a result of the

President’s efforts, the Navy’s F/A-18E/F

attack fighter and the Air Force’s F-22

fighter are now in production, and the

Joint Strike Fighter, a low-cost, stealthy,

multiservice attack aircraft, is entering

advanced development. These aircraft will

ensure that U.S. troops will never have

to fight under threat of enemy air attack.

• Mobility Forces: The Administration has

aggressively pursued modernization of

DOD’s strategic airlift and sealift forces,

which are vital to transporting U.S. forces

where they are needed anywhere in the

world. The Administration corrected serious problems it inherited in the C-17 airlift aircraft program and put the program

on track. Recent operations in the Balkans

proved the C-17’s versatility in performing

a variety of airlift missions. The Department plans to purchase additional C-17s

in coming years to ensure that U.S. mobility forces possess the maximum possible

flexibility with which to face the uncertain

world of the future. In addition, the Administration provided funding that enabled the Air Force to initiate a C-5 modernization program to ensure that they are

capable of meeting the projected airlift requirements; and it funded procurement of

a new class of sealift ships intended to

expand the ability to transport large quantities of equipment around the world.

• Tactical Munitions: The Administration

has pursued a munitions investment strategy to develop and procure weapons with

revolutionary capabilities—such as precision accuracy, all-weather performance,

U.S. Global Positioning System (GPS)

guidance, and increased standoff range.

America’s role in NATO’s victory in the

Kosovo air war showcased the success of

this strategy. The Joint Direct Attack Munition (JDAM), a GPS guidance kit which

inexpensively transforms unguided bombs

into accurate weapons with all-weather capability, is a revolutionary munition first

procured during this Administration; the

Air Force used JDAM to great effect in

Kosovo. The Administration requested

funds to improve the Navy’s Tomahawk

cruise missile, a ‘‘weapon of choice’’

against high-value, heavily-defended targets. The newer Tactical Tomahawk

version will feature a number of improved

capabilities, including in-flight re-targeting. The military Departments also initiated a mid-range Joint Air-to-Surface

Standoff Missile which is now under development.

• Space Systems: The Administration

made significant investments in space systems that are critical to supporting military operations worldwide. These systems

will enhance military communications, positioning and navigation, missile detection

and warning, and weather monitoring.

The Administration’s National Space

Transportation policy sustained and revitalized U.S. space launch capabilities and

led to development of the Evolved Expendable Launch Vehicles program to provide
48 HIGHLIGHTS FROM FY 1994 TO FY 2001

more efficient, economical access to space.

The Space Based Infra-red Satellites will

replace the existing missile detection and

warning satellite constellation. The Administration consolidated Department of

Commerce and DOD programs into a single enhanced, polar-orbiting satellite system now in development to reduce the cost

of acquiring and operating weather systems. Finally, the Administration formulated a national policy and strategic vision

for the management and use of the GPS,

and funded a modernization program for

GPS that will significantly improve services for all users, both civil and military.

• Missile Defense: The Administration has

invested in both ballistic missile defense

technologies and theater missile defense

systems that will defend against missiles

directly threatening deployed United

States and allied forces. The Administration has also been committed to the development of a limited National Missile Defense (NMD) system to counter the emerging ballistic missile threat from states of

concern, and to working with Russia on

any changes to the Anti-Ballistic Missile

Treaty that may be required to deploy a

limited NMD. The NMD system as a

whole is not yet proven, and the President

decided in September 2000 not to proceed

with the deployment at this time. However, the Administration is continuing a

program that represents the fastest, and

most technologically mature path to

achieving an effective NMD that can protect all 50 States against emerging

threats.

Reducing the Global Danger from Nuclear

Weapons and Other Weapons of Mass

Destruction

Shaping the Strategic Landscape

Through Deterrence, Arms Control, and

Cooperative Threat Reduction: The President has remained firmly committed to maintaining a robust deterrent capability while reducing the threat from weapons of mass destruction (WMD) through arms control and cooperative threat reduction efforts with states

of the former Soviet Union.

• President Clinton’s budgets over the past

eight years have maintained and improved

the Nation’s deterrent capability by selectively enhancing the current nuclear force.

The largest program in this regard will

modify the remaining four Trident nuclear

submarines to enable them to carry the

most accurate and longest range submarine launched ballistic missile. Other

DOD efforts to maintain the strategic nuclear force include programs that support

upgrades to intercontinental ballistic missiles and intercontinental bombers such as

the B-2.

• DOE also plays a critical role in the nuclear deterrence mission. Following President Clinton’s announcement in August

1995 that he would seek a ‘‘zero yield’’

Comprehensive Test Ban Treaty, which

would ban any nuclear weapons test explosions, DOE implemented a science-based

Stockpile Stewardship Program to ensure

the safety and reliability of our nuclear

deterrent. Through this program, which

relies on non-nuclear test facilities and

computer codes (rather than underground

testing) to simulate nuclear explosions to

predict the performance of the weapons,

DOE has been able to annually certify the

nuclear weapons stockpile as safe and reliable. The 2001 enacted level for this program is nearly $5 billion. The Administration successfully negotiated the zero-yield

Comprehensive Test Ban Treaty with the

other nuclear powers and sent it to the

Senate for ratification in September, 1997.

It remains in the Senate awaiting ratification.

In addition, DOE made significant

progress in reducing contamination at

former weapons production facilities. Over

the past eight years, DOE completed remedial action at more than 4,000 of the

9,700 areas of known hazardous or radioactive material contamination, including

cleanup of some ecologically sensitive

areas such as along the Columbia River

in Washington and above the Snake River

Plain Aquifer in Idaho.

• While investing in these force enhancements and the stockpile stewardship program, the Administration has simulta-
2. NATIONAL DEFENSE 49

Table 2–3. Strategic Forces

Cold War

(Pre-START)

Current

(START I)

Projected

(START II)

ICBMs

Minuteman ............................................................... 950 500 500

Peacekeeper .............................................................. 50 50 0

TRIDENT Submarines ................................................ 31 18 14

SLBMs .......................................................................... 568 432 336

Heavy Bombers ............................................................ 324 97 1 97 1

Total Warheads ........................................................... 13,498 6,000 2 3,500

1 Excludes 93 B-1B bombers dedicated to conventional missions.

2Maximum number of warheads on delivery vehicles determined by ‘‘counting rules’’ established by each

treaty.

neously worked to lower the risks associated with WMD. To that end, the President has maintained arms control as a

high priority of U.S. policy and implemented reductions under the Strategic

Arms Reduction Treaty (START I),

brought the START II treaty to the

threshold of implementation (pending Senate approval), and laid the groundwork for

even further reductions under a START

III agreement. In addition, the Administration negotiated the passage in 1997 of

the Chemical Weapons Convention to ban

the worldwide production, storage, and use

of chemical weapons. To date, the United

States has destroyed 22 percent of its

chemical weapons stockpile.

• The Administration’s threat reduction assistance programs in Russia and other

states of the former Soviet Union have

steadily grown to nearly $1.0 billion per

year, and they have reaped significant

benefits over the past eight years. Managed by DOD, DOE, and State, the programs mitigate the danger posed by WMD,

the proliferation of their fissile material

components, and the scientific expertise

behind them. In 2001, DOD’s Cooperative

Threat Reduction (CTR) program accounted for about 48 percent of the total

Administration threat reduction request

while DOE’s portion was about 37 percent

and State’s was 14 percent.

DOD funds support accelerated strategic

arms reductions in Russia and states of

the former Soviet Union by dismantling

and destroying strategic warheads, their

delivery systems, and infrastructure. They

also support WMD nonproliferation efforts

by enhancing the safety, security, and control of nuclear weapons and fissile material components as well as chemical and

biological munitions. Over the past eight

years, CTR programs have supported deactivating over 5,000 nuclear warheads,

destroying 17 strategic nuclear submarines and 405 intercontinental ballistic

missiles (ICBMs), and eliminating 365

ICBM silos and 67 strategic bombers,

while maintaining the fissile components

of these weapons in a secure environment.

The Administration began eliminating

United States surplus weapons-grade plutonium by conversion and immobilization,

and negotiated a similar program to dispose of Russian surplus plutonium; improved the safety of 65 reactors at Sovietdesigned nuclear power plants and assisted nine countries to adopt and implement internationally accepted nuclear

safety programs; and, provided security

and accounting upgrades to protect over

400 metric tons of weapons-grade nuclear

material at dozens of Russian and former

Soviet sites. The United States and Russia

also concluded an agreement in 1993

under which Russia will sell to the United

States low-enriched uranium (LEU)

derived from 500 tons of highly enriched

uranium (HEU) from dismantled former
50 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 2–4. Overall Funding for Unconventional Threats

(Budget authority, in millions of dollars)

Actual 2001

Estimate 1998 1 1999 2000

Combating Terrorism, excluding WMD .................................. 5,871 7,519 6,966 7,759

Defense Against WMD ............................................................. 645 1,238 1,454 1,552

Critical Infrastructure Protection ........................................... 1,142 1,429 1,759 2,027

Total ..................................................................................... 7,658 10,186 10,179 11,338

1 1998 was the first year that data were available.

Soviet Union nuclear weapons. To date,

the U.S. Enrichment Corporation (the

United States agent in these purchases)

has purchased LEU fuel derived from

about 6,000 nuclear weapons’ worth of

HEU.

State’s programs also support proliferation

prevention activities by engaging former

weapons scientists to direct their efforts

away from weapons programs to activities

with civilian benefits, and by preventing

the illicit transfer of WMD through implementation of effective export controls.

Meeting the Challenges of Unconventional Threats: The Administration has focused on meeting the challenge from emerging

unconventional and asymmetric threats designed to offset U.S. superiority. The last decade has seen an increase in the frequency and

severity of terrorist attacks on military forces

and civilian targets, as well as the sophistication of emerging threats, such as WMD and

information-based warfare. President Clinton

has made defending the United States against

such threats a top national security priority,

and has sought to defend against these threats

through diplomatic and military means abroad

and increased preparedness at home. Over the

past eight years, the President:

• Issued three Presidential Directives to

combat terrorism and defend against

WMD at home and abroad, and to protect

the Nation’s critical infrastructure from

cyber attack. The Directives codified the

roles and responsibilities of the many U.S.

agencies involved in these missions.

• Appointed a National Coordinator for Security, Infrastructure Protection, and

Counter-terrorism to coordinate the U.S.

Government’s efforts to confront emerging

threats against Americans at home and

abroad.

• Provided over $11 billion across the Government in 2001—a funding increase of

more than 40 percent since 1998—to combat terrorism, defend against WMD, and

protect critical infrastructure. This funding included efforts to equip and train first

responders in the Nation’s 120 largest

metropolitan areas to prepare for and defend against weapons of mass destruction;

create the first ever civilian medical stockpile for WMD incidents; and, recruit and

train cyber security personnel to protect

the Federal Government’s own critical infrastructure.

Reforming and Improving the

Management of Defense Programs

Defense Management Initiatives: The Administration identified defense reform as a

major DOD priority. In November 1997, the

Department announced the Defense Reform

Initiative (DRI), which adopted the best business practices used by industry. The goal was

to improve these activities and to reduce the

overhead burden that these support activities

place on the defense budget. DOD has completed two-thirds of 54 separate Defense Reform Initiatives and the remainder are well

underway. Since the DRI was launched, DOD

has made progress in consolidating various

defense organizations, streamlining its
2. NATIONAL DEFENSE 51

infrastructure, re-engineering its business

practices, and competing more jobs with the

private sector than ever before. DOD has projected that the work currently performed by

approximately 150,000 positions will be bid

against private sector firms by 2005, with projected savings of approximately $7 billion. Savings that result from competition are being reallocated to meet readiness and modernization

needs.

• Reforming the Acquisition System: The Administration has also strongly supported

efforts by DOD to reform the way it acquires weapon systems and services. Over

the past eight years, DOD has reduced the

amount of time it takes to field new weapon systems by 25 percent, saved millions

of dollars in small purchases through the

use of a Government-wide commercial purchase card, and, through the use of electronic commerce, reduced cumbersome

paper transactions by 50 percent.

• Reducing Infrastructure: The reduction in

the U.S. force structure made possible by

the end of the Cold War has left DOD

with more land and buildings than it

needs to carry out its mission. The Administration inherited an established process,

the Base Realignment and Closure Commission (BRAC), to remove this infrastructure from DOD’s inventory. Since 1988,

BRAC has closed or restructured 97 major

military installations and hundreds of

smaller ones (55 of these major installations since 1993). While this process is

costly in the short term, it is an investment that leads to elimination of the cost

of upkeep on unused buildings and yields

operational efficiencies. By the end of

2001, BRAC will have more than paid for

itself, saving a net of $15 billion, and will

save nearly $6 billion annually thereafter.

At the same time, the Administration has

worked diligently to minimize the effect

of moving jobs out of affected communities

by providing technical support to community redevelopment efforts, and turning

over land to reuse as quickly as possible.

Although the reduction in total DOD infrastructure has been beneficial and despite

the many efficiencies achieved, BRAC has

not kept pace with the overall change in

force structure. For the last several years,

the Administration requested additional

BRAC rounds to allow for a further ‘‘rightsizing’’ of Defense infrastructure. This request, strongly endorsed by both internal

DOD and external analysis, has failed to

win congressional approval.

The Administration has also implemented

an aggressive demolition program, and has

recently widened the authority to lease out

unneeded DOD buildings and land. These

programs have helped to reduce costs

without moving people, and have become

particularly important given the failure of

the Congress to pass the legislation needed to replicate the success of previous

BRAC rounds.

• Streamlining the Civilian Work Force:

Over the past eight years, DOD has used

buyouts and early retirements to achieve

a streamlined and more productive work

force. During this time, the Department

has shrunk its civilian work force by approximately 37 percent, roughly commensurate with the reduction in military

forces. The Administration was able to

achieve this result mainly by offering incentives to those eligible or nearly eligible

for retirement. Providing these incentives

reduced the need for reductions-in-force,

and thus accomplished the downsizing and

streamlining with a minimal amount of

disruption or economic hardship. While

using these transition initiatives to ease

the way for the many workers who left

the work force, the Administration has

also supported pay and benefit increases

for the remaining employees who continue

to become a more productive work force.

• Improving Financial Management: DOD

has made significant progress in reforming

its financial management operations. The

Defense Finance and Accounting Service

(DFAS) is the Department’s agent for accomplishing needed financial management

reforms. DFAS has consolidated DOD’s financial operations, significantly reduced

the number of finance and accounting systems, established and implemented ambitious deployment schedules, and reengineered business practices to adopt best

practices from both the private and Government sectors. For example, over 300
52 HIGHLIGHTS FROM FY 1994 TO FY 2001

financial management field sites were reduced to just 26, saving about $120 million

annually; 324 finance and account systems

were reduced to 76—with further reductions planned to achieve ultimately a 90-

percent reduction; and, between 1993 and

1999, personnel levels at the DFAS decreased by 37 percent, from 31,000 personnel in 1993 to 19,500 personnel at the

end of 1999. Since 1996, the DFAS has

identified over 85 percent of its personnel

in finance and accounting functions as

available for public-private competition,

and has committed to study over 6,000 positions for competitive outsourcing. To

date, the DFAS has completed six competitions resulting in annual savings of over

$28 million.

• Implementing the Information Technology

Management Reform Act (ITMRA): Also

known as the Clinger-Cohen Act, ITMRA

is designed to help agencies improve mission performance by effectively using information technology. One example is the

Global Command and Control System,

which provides the seamless integration of

Service capabilities necessary to conduct

joint and multinational operations into the

21st Century. In October 2000, the U.S.

Navy awarded an eight-year, $6.95 billion

Navy—Marine Corps Intranet (NMCI) contract for managing the Service’s shorebased computing enterprise. NMCI represents one of the biggest technology

outsourcing contracts ever. The DOD Chief

Information Officer Council manages

DOD’s information technology budget and

its command, control, and communications

budget, and provides advice on ITMRArelated issues. In addition, DOD continues

to restructure its work processes while applying modern technologies to maximize

the performance of information systems,

achieve a significant return on investment,

cut costs, and produce measurable results.
53

3. INTERNATIONAL AFFAIRS

Table 3–1. Federal Resources in Support of

International Affairs

(Dollar amounts in millions)

Function 150 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority 1 .............................. 21,194 22,706 7%

Mandatory outlays ..................................................... –4,322 –8,815 104%

Credit Activity:

Direct loan disbursements ....................................... 1,943 2,862 47%

Guaranteed loans ...................................................... 9,531 11,110 17%

Tax expenditures ....................................................... 4,510 18,060 NA

NA = Not applicable.

1 Excludes $12,063 million in 1993 for an increase in the U.S. quota at the International Monetary Fund.

International affairs activities support America’s critical interests by reaching key strategic

goals: fostering worldwide economic growth,

supporting the establishment and consolidation of democracy abroad, enhancing America’s

national security, improving the global environment, and addressing other key global

issues, such as AIDS. The Clinton-Gore Administration capitalized upon the new postCold War architecture by working to expand

the global economy and the benefits of

globalization, supporting the liberalization of

trade, and aiding countries in their transition

to democracy.

Promoted Free Trade, Open Markets, and

Economic Prosperity

Completed Successful Trade Negotiations—the North American Free Trade

Agreement and the Uruguay Round: Strong

U.S. growth over the past eight years accompanied America’s increased integration into

the world economy. Between 1992 and 1999,

the U.S. economy, as measured by real gross

domestic product, grew at an average annual

rate of 3.7 percent, while real exports of goods

and services increased on average by 6.8 percent per year. Imports have grown at an average annual rate of 10.6 percent per year. This

reflects both stronger growth in the United

States than in the rest of the world over much

of this period, and the crucial role of imports—

now dominated by capital goods such as the

computers and machinery—in supporting U.S.

investment. Indeed, increased globalization

has come at a time of rapid growth that has

produced a dramatic increase in the number

of new jobs and the reduction of unemployment to the lowest levels in 30 years.

These developments have been facilitated

by the Administration’s trade policy accomplishments, including passage of the Uruguay

Round trade agreements, the North American

Free Trade Agreement, and over 200 postUruguay Round negotiations that have yielded

additional market access commitments in financial services, basic telecommunication services, and information technology. Several studies recently reviewed by the Council of Economic Advisers estimate an annual income

gain to the United States of between $27

billion and $37 billion with full implementation of the Uruguay Round’s results.

Successfully Managed Financial Crises

in Mexico and Asia: Since 1993, the Administration has confronted and successfully responded to two serious financial crises that

threatened to undermine regional and global
54 HIGHLIGHTS FROM FY 1994 TO FY 2001

economic stability. In December 1994, the rapidly depreciating Mexican peso jeopardized the

economic progress and reforms made by the

government of Mexico up to that point. In response, the Administration extended up to $20

billion in available credits through the Exchange Stabilization Fund (ExSF), and worked

with the International Monetary Fund (IMF)

to extend a line of credit based on the implementation of further reforms. The rapid response proved instrumental in restoring investor confidence and allowing the Mexican economy to resume growth. As a measure of this

success, by January 1997, Mexico had repaid

ahead of schedule all of the $11.5 billion it

drew from the facility.

A more serious crisis emerged in the fall

of 1997 when the devaluation of the Thai

currency began a series of currency crises

in Asia that soon engulfed Malaysia, Indonesia, Philippines, and South Korea—and

later Russia. This crisis, because of its size

and the region’s integration into the global

economy, threatened the stability of the global

economic and financial system. The Administration responded to this crisis by advancing

steps to strengthen the international financial

architecture, by maintaining open markets,

by making the ExSF available as part of

a secondary line of defense against further

instability, and by achieving authorization

and appropriation for an IMF quota increase

and the establishment of the New Arrangements to Borrow (NAB). Coupled with the

macroeconomic and structural reforms implemented by the Asian governments, much

of the region has resumed positive growth

rates in a more sustainable fashion just

two years after the crisis.

Passed the International Monetary Fund

Quota Increase and the New Arrangements to Borrow: In cases of severe international financial crises, the IMF plays a key

role in mobilizing official assistance conditioned on policy reforms—and is the one institution situated to mobilize such substantial

support quickly—and provides the predominant share of official financing needed to help

stabilize the global monetary system. In September 1997, the 11th quota review resulted

in a call for a 45-percent increase in the resources of the IMF to allow it to carry out

its normal operations while preserving the

ability to respond to such crises in a rapidly

growing and increasingly complicated world

economy. In addition to the IMF quota increase, the G–7 nations proposed the creation

of the New Arrangements to Borrow, which

would complement the existing supplemental

credit line, the General Arrangements to Borrow.

The call for an increase in available IMF

resources coincided with the decade’s gravest

threat to the global financial and economic

system, the East Asian Financial Crisis. With

this event as a backdrop, the Administration

requested and received authorization and appropriations for both the quota increase ($14.5

billion) and the NAB ($3.4 billion) in 1999.

That legislation resulted in both the needed

resources being made available and a bipartisan agreement on policy priorities in

the IMF, which included a commitment to

greater IMF transparency, resulting in the

adoption of a number of reforms by the

Fund. With the quota increase and credit

line in hand, the IMF was able to play

a critical role in responding to the crisis

and help the affected countries along the

path of reform and sustainable growth.

Facilitated the Continued Transition to

Democracy Throughout the World

Helped Integrate Poland, Hungary, and

Czech Republic into the West: The integration of Poland, Hungary, and the Czech Republic into the democratic, free-market family of

nations and Western institutions such as

NATO is one of the key foreign policy achievements of the past eight years. Since 1993, U.S.

efforts in these countries focused on building

democratic institutions and achieving economic

reforms. Timely and effective U.S. assistance

played a key role in their governments’ efforts

to privatize industries and put in place the

judicial and regulatory structures needed for

a market economy and a society based on the

rule of law. As a result of these efforts, by

2000, these three countries had graduated

from being Support for Eastern European Democracy aid recipients to becoming NATO allies, all within one decade of the dismantling

of their Communist regimes.
3. INTERNATIONAL AFFAIRS 55

As a measure of the success of U.S. assistance efforts, according to Freedom House,

all three countries have achieved political

rights and civil liberties that are roughly

comparable to those found in Western Europe,

with their Freedom House ratings, based

on a 1 to 5 scale, improving from 4.2

in 1992 to 4.7 in 1999. Similarly, U.S.

assistance in implementing economic reforms

has helped all three countries develop effective

market institutions and flourishing private

sectors. Because their transformations have

been so successful, Hungary, Poland, and

the Czech Republic are among the first

tier of countries that will be considered

for membership in an expanded European

Union.

Helped Democratic Transitions in Russia and Ukraine: Since 1993, the Administration’s assistance strategy for the states of the

former Soviet Union has been designed to foster their transition to democracy and marketbased economies and to facilitate their integration into the larger global community, while

advancing U.S. national security interests in

such areas as nonproliferation and arms control. The strategy has achieved notable successes during the past eight years. In Ukraine,

for example, U.S. assistance made possible

Ukraine’s complete denuclearization and

helped develop and implement a successful privatization program for small- and mediumsized enterprises. Similar assistance efforts in

Russia, particularly in the threat reduction

area, have helped ensure implementation of

landmark arms control treaties and ensure

that weapons of mass destruction do not fall

into the wrong hands. In both countries, U.S.

assistance has helped promote the growth of

independent media and non-governmental organizations. The transitions in Russia and

Ukraine are incomplete, but both countries

have made important strides toward development of democratic institutions and the rule

of law. Their successful completion will depend

upon continued commitment on the part of

both governments to overcome challenges such

as crime and corruption as well as economic

inequality, combined with the implementation

of effective reform programs and improvements

to the investment climate.

Promoted Peace in the Middle East: During the last eight years, the United States has

been a strong and continuous supporter of the

search for a comprehensive peace in the Middle East. United States diplomatic and financial support has been indispensable for

progress towards peace and stability in the region. Our efforts have focused on promoting

progress and stability through bilateral negotiations between Israel and the Palestinians,

Syrians, and Lebanese; through supporting allied nations with diplomacy, military deployments, and security assistance; and, through

regional economic development and containment of Iraq and other threats to stability in

the region. U.S. assistance has contributed to

and helped sustain the progress achieved as

a result of the Oslo Accords, the supplementary Wye River and Sharm el Sheik agreements, the Jordanian-Israeli peace treaty, and

the Camp David negotiations this past year.

Most recently, the Administration submitted

a request of $750 million in supplemental 2001

funding and recommended an additional $500

million in 2002 funding to assist those countries and parties in the Middle East that take

constructive steps in the search for peace. In

the current tragic circumstances of continued

violence in the region, the United States has

worked closely with the parties to end the violence and has supported international efforts,

such as the International Fact Finding Committee, designed to diffuse tensions and restore

confidence among the parties in the region.

Promoted U.S. Assistance for Plan Colombia: The U.S. assistance to Plan Colombia

is a $1.3 billion bi-partisan, integrated set of

programs developed with the government of

Colombia and designed to reduce the supply

of drugs coming into the United States and

to bring greater stability to the Andean region.

This emergency supplemental appropriation

was signed by the President in July 2000, and

includes funding for interdiction of trafficking,

eradication of illicit crops, alternative development, human rights strengthening, displaced

persons, and justice system reforms in Colombia and other Andean countries. Even as implementation proceeds, the United States continues to lead efforts to encourage cooperation

and contributions from the international community. Success of this program will depend

upon the successful coordination of its different, inter-related facets, and upon the direction taken by Colombia’s internal conflict.
56 HIGHLIGHTS FROM FY 1994 TO FY 2001

Helped Democracy in Guatemala: After

36 years of civil war that led to the death

of up to 200,000 people, the government of

Guatemala signed a peace agreement formally

ending the conflict in 1996. The peace accords

established the framework for a more

participatory and equitable society involving

the integration into society of ex-rebels and

a comprehensive restructuring of the military,

justice system, tax policy, and social services.

As part of a multilateral effort to support

the peace accords, the United States doubled

its assistance to Guatemala, and has provided

over $110 million in Economic Support Funds

since 1997 to support the implementation

of the accords, the demobilization of thousands

of ex-combatants, infrastructure reconstruction

in war-affected areas, land titling, fiscal reform, and literacy of women. With strong

multilateral support, Guatemala is now entering its fifth year of successfully implementing

the peace accords. These structural reforms

have started the process of transforming

Guatemala into a more participatory and

equitable society, but significant challenges

remain. The Agency for International Development (USAID) plans to continue support

for the peace process until 2003 to address

remaining challenges, including continuing income disparities, land distribution issues, and

civic violence.

Debt Forgiveness: In 1999, under United

States leadership, the G–7 nations agreed at

the Cologne summit to an initiative to provide

expanded debt reduction to heavily indebted

poor countries (HIPCs). This initiative will provide the 33 countries likely to meet HIPC eligibility requirements with debt reduction of up

to $90 billion, or 70 percent of their total debt.

For 2000 and 2001, the Congress appropriated

the Administration’s full request of $545 million ($185 million for the reduction of U.S. bilateral debt and $360 million as a contribution

to the HIPC trust fund to reduce the debt held

by regional development banks) for the expanded HIPC initiative. In order to fully implement the initiative, $375 million in additional funds will need to be appropriated in

2002 and 2003.

Many poor countries, particularly in Africa,

have developed unmanageable debt burdens

to official bilateral and multilateral creditors,

and the debt servicing payments to these

creditors often prevent these countries from

making desperately-needed social investments

in poverty reduction, primary education, child

immunizations and other health programs,

or clean water and sanitation. In the vast

majority of HIPCs, per capita Gross National

Product amounts to less than $1 per day

and the average for all HIPCs is only about

$360 per year. In response to the needs

of these countries, the United States proposed

to expand the HIPC initiative (originally

adopted in 1996) to provide deeper, broader,

and faster debt reduction for more countries,

contingent on economic reforms and application of savings on debt servicing to social

concerns. While the Administration’s efforts

have been a leap forward in addressing

the debt burden of poor countries, longterm success ultimately will depend in large

part on whether the beneficiary countries

continue the economic reforms begun under

this initiative and remain committed to the

alleviation of poverty and support of social

programs.

Developed and Expanded Programs to

Assist African Countries: The HIPC debt reduction initiative is just one of a series of

measures that this Administration has undertaken during the past several years to assist

sub-Saharan African countries to strengthen

their economies and deal with difficult economic, social, political, and environmental conditions. These initiatives have been a response

to the clear understanding that many countries in sub-Saharan Africa have failed to participate in the benefits of the growing economic

globalization. Rather, these countries have

failed over the past three decades to sustain

positive, real, per-capita economic growth, with

serious negative consequences for their populations. In addition to debt reduction, some of

the key measures undertaken by the Administration to assist sub-Saharan Africa have included:

• the increase in bilateral assistance levels,

and the economic, social, and political programs they support, back to past peak levels;

• the passage of the African Growth and Opportunity Act, which, by reducing U.S. tariffs on goods from sub-Saharan African
3. INTERNATIONAL AFFAIRS 57

countries as well as other measures, seeks

to encourage increased trade and investment between the United States and subSaharan African countries;

• the implementation of the Africa Trade

and Investment Policy Program, which

helps reform-oriented African countries to

improve the enabling environment for

trade and private investment;

• the provision of disaster assistance to

countries seriously impacted by natural

disasters, including $160 million to respond to flooding in southern Africa in

2000; and,

• the rapid scaling up in 2000 and 2001 of

broader HIV/AIDS initiatives to combat

the pandemic in south and eastern Africa.

The results of these efforts are somewhat

mixed—while South Africa successfully ended

apartheid and Mozambique peacefully concluded its decades-long civil war, civil strife

continues in Sierra Leone, the Democratic

Republic of the Congo, and other countries.

However, the outrage expressed by African,

as well as Western, countries at the recent

military coup in Cote d’Ivoire is an encouraging sign that more and more Africans

expect their governments to adhere to the

rule of law and improve their standards

of living.

Grappled with Global Problems

Increased AIDS Awareness, Development

of Preventative and Ameliorative Programs: The HIV/AIDS pandemic is the defining public health crisis of our time, which

threatens to undo four decades of progress in

international development. At the start of the

1990s, health experts estimated that between

15 and 20 million people would be living with

HIV by the beginning of the 21st Century. Ten

years later, the true magnitude of the epidemic

is far more alarming: over 36 million people

are living with HIV; and, HIV/AIDS prevalence among adults exceeded 20 percent in

seven countries in sub-Saharan Africa. In the

hardest hit African countries, infant mortality

is twice as high as it would have been without

AIDS.

The U.S. Government has been the world

leader in responding to the global pandemic

of AIDS. Since 1993, the United States,

through USAID, has dedicated over $1.5

billion for the prevention and mitigation of

this epidemic in the developing world. USAID’s

support was instrumental in reducing the

prevalence of HIV in Uganda and Zambia

and in stabilizing low HIV prevalence rates

in Senegal, Philippines, and Indonesia. By

1999, however, it became apparent that international efforts to combat the HIV pandemic

needed to be stepped up and the U.S. Government responded. The United States’ global

AIDS funding has increased from $139 million

in 1999 to an estimated $455 million in

2001. These increases are focused on highprevalence countries and low-prevalence countries at risk of impending epidemics in subSaharan Africa, Asia, and Latin America,

where countries have been selected for ‘‘rapid

scale-up’’ and ‘‘intensive focus’’ under the

Leadership and Investment in Fighting an

Epidemic initiative. The U.S. Government

effort has brought together a host of Federal

agencies in the first ever Government-wide

mobilization against AIDS.

Kyoto Protocol and Related Environmental Programs: Global climate change is

one of the most far-reaching threats to sustainable development worldwide. As the world’s

number one emitter of greenhouse gasses, the

United States has recognized the need to work

with developing countries to stem global climate change. The Administration announced

at the UN in 1997 a plan to invest $1 billion

over the next five years in programs and activities to help developing countries to reduce

greenhouse gas emissions, and the 2001 appropriation funds the fourth tranche of this commitment. USAID is also addressing other critical global environmental challenges such as

clean energy, natural resources management,

and biodiversity conservation, for which the

2001 appropriation provides a significant increase in funding.

President Clinton signed the Kyoto Protocol

in November 1998, reaffirming the Administration’s commitment to work with other

countries to meet the challenge of global

warming. The Kyoto Protocol is an historic

step forward in international efforts to address

global warming, incorporating environmental

targets with market-based mechanisms to

minimize the cost of meeting them. However,
58 HIGHLIGHTS FROM FY 1994 TO FY 2001

ratification of the Protocol requires passage

by the U.S. Senate. Lasting progress in

combating global warming will require ratification by the United States, as well as meaningful participation by key developing countries

in addressing climate change.

Protected American Lives and Changed

America’s Foreign Policy Machinery

Greatly Expanded Embassy Security: As

the President stated on the second anniversary

of the bombing attacks on our embassies in

Nairobi and Dar es Salaam on August 7, 1998,

the terrorists took from us our colleagues,

friends, and loved ones, but they have failed

utterly to deter us from advancing our principles around the world. Addressing the security vulnerabilities of the Nation’s diplomatic

presence has been given the highest priority.

Since the embassy bombings, the Administration has embarked upon an unprecedented program of security initiatives around the world.

It initiated a long-term capital program, because it will take a multi-year effort to address

these vulnerabilities and proposed advanced

appropriations of $3.4 billion over the 2002-

2005 period to sustain that program. Efforts

have focused on bringing our diplomatic facilities up to heightened security standards and

on maintaining necessary security upgrades.

These have included enhanced local guard

services, physical security equipment and technical support upgrades, increased deployment

of armored vehicles, increases in American security personnel, security and crisis management training, and a worldwide program to

build new, secure facilities.

Through 2001, the Administration has invested about $3 billion in this effort. These

funds have been used to upgrade comprehensively the security at our overseas facilities,

including enhancing the physical security at

U.S. missions through construction projects,

the installation of security equipment, inspecting all vehicles entering U.S. diplomatic facilities, expanding anti-terrorism assistance training to aid foreign police in combating terrorism, and hiring additional diplomatic security agents. These funds are also being used

to support the initial stages of a worldwide

embassy security construction program with

a goal of replacing up to 220 diplomatic

and consular facilities worldwide with new,

secure buildings. A major challenge currently

being addressed is the need to pursue fully

regional efficiencies and security planning

that will have an impact on the need for

overseas staffing. The results of such analysis

then will be used to ensure that facility

design addresses both the size and functional

needs of all U.S. Government staffing needs

at each location.

Enhanced the Security of U.S. Borders:

The Administration has implemented a comprehensive strategy to improve the Department of State’s equipment, technology systems,

and support needed to carry out the vital function of U.S. border security. Major initiatives

over the last eight years have included a comprehensive, worldwide upgrade of computer

equipment and consular systems at the Department’s overseas posts; increased data sharing with other border security and law enforcement agencies; continued improvements to the

automated name checking system capabilities;

expanded implementation of the Border Crossing Card program in Mexico; and, modernization of the security and delivery of U.S. passports to American citizens, including completion of the initial deployment of passport photo

digitization technology. These improvements

were made possible by the establishment of

a new fee paid by persons seeking non-immigrant visas for travel to the United States.

Improved security has not come at the

expense of customer service. To the contrary,

under the Vice President’s National Performance Review, reinvention goals have been

met by eliminating long lines at high volume

passport agencies and vastly increasing consular information and services available via

the Internet. Appointment systems that allow

customers to schedule a convenient time

to apply for a passport are now installed

at passport agencies in New York, Boston,

Chicago, Houston, Los Angeles, Miami, Philadelphia, San Francisco, Seattle, Stamford,

and Washington, D.C., and the Department

of State has eliminated the requirement to

stand in line while waiting for service by

introducing customer-numbering systems. The

Department of State’s Consular Affairs web

site (travel.state.gov) went on-line in 1996.

Since then, the amount and variety of information on the site have grown enormously

and it now includes downloadable passport
3. INTERNATIONAL AFFAIRS 59

applications, announcements and warnings

on safety abroad that are posted on the

web site immediately upon approval, tips

for students and travelers, and other information and services to assist Americans abroad.

Integrated the United States Information Agency (USIA) and the Arms Control

and Disarmament Agency (ACDA) into the

State Department: The end of the Cold War

and efforts to reinvent Government provided

the opportunity to seek a new approach to the

conduct of foreign policy and a reorganization

of foreign affairs agencies. Under the Foreign

Affairs Reform and Restructuring Act of 1998,

USIA and ACDA were consolidated, and the

missions, personnel, and programs of these

agencies were integrated into the State Department and the newly-independent Broadcasting Board of Governors, which was established as an independent executive branch

agency. One year following the October 1,

1999, implementation of the Act, the integration of USIA’s programs into the State Department has already strengthened U.S. foreign

policy by making public diplomacy an integral

component of foreign policy. ACDA’s integration on April 1, 1999, has made the State Department better able to contribute to the coordination of foreign and security policy and

deploy more effectively the broad tools of diplomacy to promote arms control and nonproliferation. As integration is fully implemented, the challenge remains to streamline

activities and effectuate significant management improvements and resource reductions in

years to come.

Provided Multilateral Solutions to

Multilateral Problems

UN Reform and Arrears Clearance: The

Administration, in cooperation with the Congress, has made substantial progress toward

reducing U.S. arrears owed to the UN and

bringing about badly needed reforms in that

organization. The United States has used its

influence to push for management improvements, organizational streamlining, and the

budget discipline needed to ensure zero nominal growth in the UN and specialized agencies’

budgets. The United Nations Reform Act of

1999 provides the foundation for this process

by conditioning U.S. payments for specific arrearage amounts to the implementation of reforms at the UN and reductions in the U.S.

assessment rate for the UN regular, peacekeeping and other specialized agencies’ budgets. The Administration obtained congressional

approval for $926 million to be available upon

those conditions being met. The first set of

conditions was met last year, allowing an initial payment of arrears of $100 million. As

a critical element in the effort to bring about

the other reforms that must be achieved prior

to releasing the remaining arrearage payments, the Administration successfully concluded negotiations to establish a new scale

of assessments for UN dues that will reduce

the U.S. share of the UN budget and result

in substantial future budgetary savings.

Expanded UN Peacekeeping: The Administration has used its leadership at the UN

in support of a number of peacekeeping operations to contain flashpoints that threatened

international security in Bosnia, Kosovo, East

Timor, and other locations. UN peacekeeping

operations have directly supported U.S. national interests by helping nurture new democracies, reducing refugee flows, and preventing

small conflicts from developing into regional

or international wars which would be far more

costly in terms of lives and resources. The

United States has been a driving force behind

efforts to identify and implement reforms at

the UN to improve the efficiency and efficacy

of peacekeeping operations. As part of this

process, the United States recently concluded

negotiations with the other UN member countries to reduce the level of U.S. assessments

for UN peacekeeping activities.

Non-Proliferation: The Administration

supported several initiatives in the area of

non-proliferation.

Enhanced Threat Reduction Initiative: Over

the past eight years, the United States has

provided extensive assistance to Russia and

the other New Independent States (NIS) to

help reduce the risk of proliferation of weapons

of mass destruction and associated delivery

systems, materials, technology and expertise,

and to enhance regional stability. Such assistance has enabled Belarus, Kazakhstan, and

Ukraine to become non-nuclear-weapons states

and helped deactivate over 5,000 strategic nuclear warheads. The 1998 economic crisis in

Russia and other NIS increased the risks of
60 HIGHLIGHTS FROM FY 1994 TO FY 2001

weapons and weapons expertise proliferation.

In response, the Administration proposed the

Expanded Threat Reduction Initiative in January 1999 to accelerate and expand non-proliferation assistance to the NIS. As a result,

with congressional support, over $870 million

was made available in 2000 and 2001 for high

priority non-proliferation programs of the Departments of Defense, Energy, and State.

These programs have enhanced nuclear material security at tens of NIS sites; provided

thousands of former Soviet weapons scientists

employment opportunities in peaceful research

and development ventures; enhanced border

controls; and provided other assistance to reduce regional and global threats. Success in

continuing to reduce such threats will be dependent upon continued cooperation between

Russia, the other NIS, and the West to address

global security concerns raised by economic uncertainty in the region.

Korean Peninsula Energy Development Organization (KEDO): The United States has been

committed to preventing the destabilizing

manufacture and deployment of nuclear weapons by North Korea. Through focused diplomatic efforts, the United States and North

Korea concluded in October 1994 an Agreed

Framework to address concerns about the intentions of North Korea’s nuclear program.

Under the terms of the Agreed Framework,

the United States pledged to assist North Korean civilian energy requirements—with nonproliferation safeguards—through the newly

created KEDO in exchange for North Korean

termination of its own nuclear program and

for coming into line with international nuclear

non-proliferation norms. Since the conclusion

of the Agreed Framework, the United States

has worked with the North Koreans toward

full implementation, which has also led to improved relations between the countries, culminating in the visit of the Secretary of State

to North Korea in the fall of 2000.

Other Non-Proliferation Successes: More generally, the United States has invested in major

efforts over the last eight years to strengthen

the international regimes aimed at curbing

weapons of mass destruction and ballistic missiles. In 1995, the Nuclear Non-Proliferation

Treaty, which originally was set to last only

twenty-five years, was extended indefinitely.

In 1997, the Chemical Weapons Convention,

which prohibits the development, production,

transfer, and use of chemical weapons, entered

into force following ratification by the U.S.

Senate. While Senate ratification for the Comprehensive Test Ban Treaty remains to be secured, 160 countries have signed—and 67, including Russia, have ratified—this treaty prohibiting all nuclear explosions. At the same

time, the United States has led the drive to

strengthen both the nuclear safeguards system

administered by the International Atomic Energy Agency and the constraints on biological

weapons embodied in the Biological and Toxin

Weapons Convention.

Responded to Humanitarian Crises

Aggressive Responses to Hurricanes

Mitch and Georges: In response to Hurricanes Mitch and Georges, which devastated

Central America and the Caribbean, respectively, in the fall of l998, the U.S. Government

civilian and military authorities cooperated to

mount quickly and effectively one of the largest emergency relief responses to an international natural disaster in U.S. history. In

the space of a few months, the United States

provided supplies and food to millions of victims, as well as to effect emergency repairs

to bridges, roads, and schools. In May 1999,

the Congress approved the Administration’s request for $956 million in supplemental funds

for the Central American and Caribbean countries affected by the hurricanes. It contained

$621 million in reconstruction assistance to replace lost housing, rehabilitate damaged

schools, implement disaster mitigation and watershed restoration, and support local governments. More than $100 million of the funding

is being implemented with the cooperation of

12 other U.S. agencies including the Department of Transportation, Department of Health

and Human Services, Peace Corps, and the

U.S. Army Corps of Engineers.
61

Table 4–2. Selected Research Increases

(Budget authority, dollar amounts in millions)

1993

Actual

2001

Enacted

Percent

Change:

1993–2001

National Institutes of Health ....................................... 10,335 20,370 97%

National Science Foundation ........................................ 2,750 4,426 61%

Total 21st Century Research Fund .............................. 29,681 44,908 51%

Note: See Table 4–4 for details.

4. GENERAL SCIENCE, SPACE, AND

TECHNOLOGY

Table 4–1. Federal Resources in Support of General

Science, Space, and Technology

(Dollar amounts in millions)

Function 250 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 17,214 20,830 21%

Tax expenditures ....................................................... 3,300 7,700 133%

Investments in scientific discovery and technological development both public and private

have driven economic growth and improvements in the quality of life in America

for as long as our Nation has existed. (See

Table 4–2.) In the last fifty years, developments in science and technology have generated at least half of the Nation’s productivity

growth, creating millions of high-skill, highwage jobs. Federal Government support for

science and technology has helped put Americans on the Moon, harnessed the atom,

tracked weather patterns and earthquake

faults, and deciphered the chemistry of life.

In 1993, President Clinton took office committed to expanding investment in civilian

research and development (R&D), because

technological advances are key to progress

and economic growth. The President’s economic strategy relied upon the critical element

of investing in people and proposed targeted

investments to help the Nation compete in

the global economy and improve our quality

of life. The Clinton-Gore Administration’s investments in R&D were guided by several

fundamental principles, including the following: a) sustain and nurture America’s

world-leading science and technology enterprise, through pursuit of specific agency missions and through stewardship of critical

research fields and scientific facilities; b)

strengthen and expand access to high-quality

science, mathematics, and engineering education, and contribute to preparing the next

generation of scientists and engineers; c)

focus on activities that require a Federal

presence to attain national goals, including

national security, environmental quality, economic growth and prosperity, and human

health and well being; or, d) promote inter-
62 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 4–3. Research and Development Investments 1

(Budget authority, dollar amounts in millions)

1993

Actual

2000

Actual

2001

Enacted

Percent

Change:

1993 to

2001

Percent

Change:

2000 to

2001

Funding by R&D Type:

Basic Research .................................................................. 13,362 19,323 21,861 64% 13%

Applied Research .............................................................. 13,608 18,642 21,182 56% 14%

Development 2 ................................................................... 42,795 40,399 42,518 –1% 5%

Equipment ......................................................................... 3 983 1,094 NA 11%

Facilities ............................................................................ 2,727 3,728 3,552 70% –5%

Total ............................................................................... 72,492 83,075 90,207 24% 9%

Funding by R&D Share:

Civilian .............................................................................. 30,329 40,471 45,181 49% 12%

Defense .............................................................................. 42,163 42,604 45,026 7% 6%

Total ............................................................................... 72,492 83,075 90,207 24% 9%

Civilian (percent) .............................................................. 42% 49% 50%

R&D Support to Universities ......................................... 11,674 14,377 16,365 40% 14%

Science and Technology Initiatives:

National Nanotechnology Initiative ................................ NA 267 420 NA 57%

Information Technology R&D .......................................... 728 1,543 2,006 176% 30%

Climate Change Technology Initiative ............................ NA 1,096 1,239 NA 13%

Partnership for a New Generation of Vehicles ............... NA 224 236 NA 5%

U.S. Global Change Research Program.. ........................ 1,326 1,692 1,700 28% *

* = 0.5 percent or less.

NA = Not applicable.

1 Includes funding from multiple functions.

2Defense R&D funding is the source of nearly 90 percent of Federal development funding.

3 Equipment and facilities data were not collected separately in 1993.

national cooperation in science and technology

that would strengthen the advance of science

and achievement of national priorities.

In his first year, the President proposed

and secured passage of a research tax credit

to spur additional basic and applied research

as well as significant investments to fund

R&D in a range of fields. In keeping with

the emphasis on civilian research and development, the Administration increased the share

for civilian R&D investments, from 42 percent

in 1993 to 50 percent in 2001. Discretionary

funding in the general science, space, and

technology function increased by 21 percent

from $17.2 billion in 1993 to $20.8 billion

in 2001. (A restructuring of budget accounts

in 1998 and 1999 added $1.5 billion in

2001 for this function for Department of

Energy (DOE) R&D activities. These amounts

were included in the energy function—see

Chapter 5, ‘‘Energy’’—in 1993.) During this

same period, total Federal funding for R&D

across all budget functions increased by 24

percent, from $72.5 billion to $90.2 billion,

while funding for defense R&D received a

more modest increase of seven percent, from

$42.2 billion to $45.0 billion (see Table 4–3).

Defense R&D currently accounts for nearly

90 percent of federally-funded development,

which decreased by one percent since 1993,

from $42.8 billion in 1993 to $42.5 billion

in 2001.

In 1999, the President established the 21st

Century Research Fund for America (see

Table 4–4), relying upon a coordinated and

balanced investment strategy to provide resources for basic research at the National

Institutes of Health (NIH), the National

Science Foundation (NSF), and DOE, and

a wide range of applied research activities

in areas such as the environment, agriculture,

energy, computers, communications, and transportation. In addition to allocating resources

in a balanced manner across several budget
4. GENERAL SCIENCE, SPACE, AND TECHNOLOGY 63

Table 4–4. 21st Century Research Fund1

(Budget authority, dollar amounts in millions)

1993

Actual

2000

Actual

2001

Enacted

Percent

Change:

1993 to

2001

Percent

Change:

2000 to

2001

Health and Human Services:

National Institutes of Health ........................................... 10,335 17,813 20,370 97% 14%

National Science Foundation ........................................ 2,750 3,897 4,426 61% 14%

National Aeronautics and Space Administration

(NASA):

Space Science .................................................................... 1,770 2,193 2,508

Earth Science .................................................................... 996 1,443 1,498

Aerospace Technology ....................................................... 884 985 1,107

Life and Microgravity Sciences ........................................ 408 275 317

NASA Total .................................................................... 4,058 4,896 5,430 34% 11%

Department of Energy (DOE):

Science Programs .............................................................. 3,066 2,788 3,186

Solar and Renewable R&D .............................................. 249 315 375

Energy Conservation R&D ............................................... 346 577 626

DOE Total ...................................................................... 3,661 3,680 4,187 14% 14%

Department of Defense (DOD):

Basic Research .................................................................. 1,314 1,161 1,318

Applied Research .............................................................. 3,549 3,410 3,690

DOD Total ...................................................................... 4,863 4,571 5,008 3% 10%

Department of Agriculture (USDA):

CSREES Research and Education ................................... 433 487 543

Economic Research Service .............................................. 59 53 55

Agricultural Research Service ......................................... 661 830 916

Forest Service Research ................................................... 183 218 246

USDA Total ................................................................... 1,336 1,588 1,760 32% 11%

Department of Commerce (DOC):

Oceanic and Atmospheric Research ................................ 202 298 358

National Institutes of Standards and Technology 2 ....... 364 534 494

DOC Total ...................................................................... 566 832 852 51% 2%

Department of Transportation (DOT):

Highway Research ............................................................ 221 490 437

Aviation Research ............................................................. 230 156 187

DOT Total ...................................................................... 451 646 624 38% –3%

Department of Interior: U.S. Geological Survey ....... 750 813 882 18% 8%

Environmental Protection Agency (EPA):

Office of Research and Development ............................... 517 561 573

Climate Change Technology programs ........................... NA 103 96

EPA Total ...................................................................... 517 664 669 29% 1%

Department of Education: Research programs ............. 162 319 349 115% 9%

Department of Veterans Affairs: Medical Research .... 232 321 351 51% 9%

21st Century Research Fund ......................................... 29,681 40,040 44,908 51% 12%

NA = Not applicable.

1 Includes funding from multiple functions.

2Does not include Manufacturing Extension Partnership.
64 HIGHLIGHTS FROM FY 1994 TO FY 2001

functions, the Research Fund serves as an

effective tool to ensure that complementary

disciplines are funded consistent with a balanced portfolio of research activity. The Research Fund also focuses on basic research

and strengthening university-based research.

During this Administration, funding for programs in the 21st Century Research Fund

has grown 52 percent from $29.7 billion

in 1993 to $44.9 billion in 2001. During

this same period, funding support for universities grew to nearly $16.4 billion in 2001,

a 40-percent increase since 1993.

This Administration also promoted highpriority multiagency science and technology

initiatives in strategic areas important to

the future of the Nation. These efforts include

investments in information technology research, nanotechnology, global change, climate

change technologies, and the next-generation

of fuel-efficient, environmentally-smart vehicles. These priority areas hold great promise

for breakthroughs that are revolutionary, that

drive the economy and that likely will change

the way we think and live.

Within the general science, space, and

technology function, the Federal Government

supports areas of cutting-edge science and

technology, through the National Aeronautics

and Space Administration (NASA), NSF, and

DOE. The activities of these agencies contribute to greater understanding of the world

in which we live, ranging from the edges

of the universe to the smallest imaginable

particles, and to new knowledge that may

have applications that improve our lives.

Each of these agencies fund the construction

and operation of major scientific facilities

on Earth or in space for multiple users.

These agencies also contribute to the Nation’s

cadre of skilled scientists and engineers.

A description of the accomplishments during

the Clinton-Gore Administration for NASA,

NSF, and DOE follows.

National Aeronautics and Space

Administration

NASA is the lead Federal agency for R&D

in civil space activities, working to expand

frontiers in air and space to serve America

and improve the quality of life on Earth.

NASA pursues this vision through investments

in five enterprises (Space Science, Earth

Science, Biological and Physical Research,

Aero-Space Technology, and Human Exploration and Development of Space) and missions to carry out these activities.

Space Science: Space Science programs are

designed to enhance our understanding of the

possible existence of life beyond Earth, the

fundamental rules that governed the creation

and evolution of our universe and its galaxies,

stars, planets and life, and how changes in

the Sun can affect Earth. Highlights of Space

Science mission accomplishments during this

Administration include:

• Using images from NASA’s Mars Global

Surveyor spacecraft, scientists discovered

new geological features suggesting the existence of large sources of liquid water at

or near the surface of Mars. This discovery, combined with microscopic evidence of possible bacterial fossils in Martian meteorites, revolutionized scientific

views on the potential for life on Mars.

• Using images and other data from NASA’s

Galileo mission to Jupiter, scientists discovered evidence which strongly suggests

that Jupiter’s moon, Europa, harbors a

subterranean ocean beneath its icy crust,

further extending possible abodes for life

elsewhere in our solar system.

• Astronomers funded by NASA and NSF

discovered the first scientific evidence that

planets exist in other star systems. Astronomers have identified approximately

50 stars that have evidence of planetary

companions to date.

• On July 4, 1997, NASA successfully landed the Mars Pathfinder spacecraft and its

Sojourner rover on Mars. The Pathfinder

mission garnered worldwide interest, with

almost one billion ‘‘hits’’ on Pathfinder’s

web site. The cost of the Pathfinder mission was one-sixth that of one of NASA’s

Viking missions that landed on Mars in

1976.

• NASA’s Hubble Space Telescope took images of the most distant parts of our universe yet seen. Calculations of the distance

to some faraway galaxies based on Hubble

data show that our universe is expanding

faster than previously understood and
4. GENERAL SCIENCE, SPACE, AND TECHNOLOGY 65

have led to new theories about an unidentified energy source that is driving the expansion of our universe.

Earth Science: Earth Science programs

focus on the effects of natural and humaninduced changes on the global environment

through long-term, space-based observation of

Earth’s land, oceans, and atmospheric processes. These observations provide data for refining scientific models of the Earth system

that inform global climate change decisionmaking. Highlights of Earth Science accomplishments during this Administration include:

• NASA moved its Earth Observing System

series of remote sensing satellites from

planning to operation by launching Terra,

the first satellite in the series, in 2000.

Using data from Terra, scientists will continue to study the Earth’s climate, atmosphere, oceans, land cover, and ecosystems.

NASA scientists have already discovered

that the growing season in Canada and

Siberia increased by about one week during the 1980’s, perhaps evidence of climate

warming due to human influence.

• Researchers continuously tracked the waxing and waning of the El Nin ̃

o phenomenon from space for the first time

using NASA’s Ocean Topography Experiment mission. Scientists funded by NASA

and NOAA uncovered the mechanics of El

Nin ̃o and will be better able to predict

how future El Nin ̃os influence rainfall levels throughout the world.

• The Tropical Rainfall Measurement Mission, a partnership between NASA and its

sister agency in Japan, made the first accurate measurements of rainfall over global tropical regions. By combining these

measurements with wind data from

NASA’s QuikSCAT mission, scientists improved models for predicting when and

where a hurricane will hit land.

• NASA’s Total Ozone Mapping Spectrometer tracked the annual shrinkage and

growth of the areas of depleted ozone over

the Earth’s poles. Ozone is a key chemical

in the Earth’s atmosphere that blocks dangerous ultraviolet radiation from the Sun.

Researchers believe certain man-made

chemicals create these ‘‘ozone holes’’.

Biological and Physical Research: Biological and Physical Research programs conduct experiments in physics, chemistry and biology to understand how the unique conditions

of the space environment affect living organisms and fundamental science phenomena.

Using this information, scientists hope to reduce the risks of long-duration human

spaceflight and gain new insights into biology,

materials, and processes that can improve life

on Earth. Highlights of Biological and Physical

Research accomplishments during this Administration follow.

• A NASA researcher used a novel new state

of matter called a Bose-Einstein condensate to create an ‘‘atom laser’’ that generates an intense beam of coherent atoms.

The step from ordinary atomic beams to

atom lasers is analogous to the step from

the light bulb to the optical laser. The

atom laser might replace conventional

atomic beams and provide greater precision in atomic clocks and for tests of the

fundamental laws of physics. Ultimately,

it might lead to high-resolution atom deposition on surfaces for the fabrication of

novel materials and nanostructures.

• NASA researchers developed the rotating

bioreactor to enable the growth and study

of tissue cultures in three dimensions,

both in space and on the ground. The bioreactor enables tissue research in an environment that mimics the human body

with much more fidelity than previous research methods. This technology has allowed a NASA/NIH team to conduct the

first laboratory study of HIV inside human

lymphoid tissue, allowed research on

three-dimensional prostate and ovarian

cancer tumors outside the body, and is enabling tissue engineering applications for

cartilage, heart, liver, kidney, and other

tissues for research and commercial development.

• NASA-funded scientists achieved new understanding of the phenomenon of neural

plasticity by studying the rapid and apparently reversible dynamic changes in the

brain as it adjusts to weightlessness in

space. This work helped to reverse a longheld belief that cells in the adult central

nervous system could not grow and adapt.
66 HIGHLIGHTS FROM FY 1994 TO FY 2001

Continued research to identify the molecular mechanisms responsible for neural

plasticity is expected to improve astronaut

health and safety, and NASA is working

with NIH to improve medical care for balance and postural disorders on Earth.

Aero-Space Technology: Aero-Space Technology programs work with the private sector

to develop and test new technologies and experimental vehicles that promise to reduce the

cost of access to space, improve space transportation capabilities, and support revolutionary

new generations of spacecraft. Highlights of

Aero-Space Technology accomplishments during this Administration include:

• NASA and industry developed and testfired two new, revolutionary rocket engines, the XRS-2000 linear aerospike engine and the M-1 Fastrac engine. The engines may power future, low-cost launch

vehicles.

• NASA and industry completed assembly

and conducted ground and captive carry

flight tests of the X-34 experimental test

vehicle. The X-34 is aimed at

demonstrating low-cost, fast-turnaround

launch operations.

Human Exploration and Development of

Space: Human Exploration and Development

of Space programs provide human access to

space on the Space Shuttle, develop and operate research platforms like the International

Space Station, use human skills and expertise

in space to conduct science and test new technologies, and support the development of space

including new space applications. Highlights

of Human Exploration and Development of

Space accomplishments during this Administration include:

• NASA moved the International Space Station from a design plan with no hardware

built to development, launch, and operation. In 1998, the first element of the

International Space Station reached orbit,

and in 2000 it received its first three-person crew, beginning permanent human occupancy. Most of the U.S. flight elements

needed to finish assembly are now at the

launch site.

• Through the Space Flight Operations Contract, NASA successfully consolidated 21

Space Shuttle contracts under a single

prime contractor, reducing the Space Shuttle budget from $3.7 billion in 1992 to $3.0

billion in 2000, and safely flew 48 flights.

• NASA implemented Space Shuttle upgrades including the Super Lightweight

Tank, the Alternate Turbo-Pump, and the

Large-Throat Main Combustion Chamber

to improve Shuttle safety by a factor of

six and increase performance to the Space

Station by more than two-thirds.

National Science Foundation

As the only agency of the Federal Government exclusively devoted to supporting basic

scientific and engineering research and education, NSF has emerged as a leader and

steward of the Nation’s science and engineering enterprise. While NSF represents nearly

four percent of Federal research and development spending, it supports more than half

of the non-medical basic research conducted

at academic institutions. NSF categorizes its

investments in three strategic areas: people,

ideas, and tools. Investments in these areas

work in concert to support the agency’s

mission to maintain U.S. leadership in all

aspects of science and engineering research

and education. During this Administration,

NSF funding increased by 61 percent from

$2.7 billion in 1993 to $4.4 billion in 2001.

People: NSF is committed to facilitating the

creation of a diverse, internationally competitive and globally-engaged work force of scientists, engineers and well-prepared citizens.

Although only about 20 percent of NSF’s annual budget is categorized as an investment

in the ‘‘people’’ category, in actuality, every

dollar NSF spends is an investment in people.

Significant highlights of NSF funding for people during this Administration include:

• 36 Nobel Prizes awarded since 1993 recognize work supported by NSF (13 in Physics, nine in Chemistry, eight in Economics,

and six in Physiology or Medicine). Six of

the Nobel Laureates selected since 1993

began their graduate science careers as

NSF Graduate Research Fellows.

• Bill Nye the Science Guy, an NSF-supported television series, received several

Emmy awards including Outstanding Chil-
4. GENERAL SCIENCE, SPACE, AND TECHNOLOGY 67

dren’s Series. This informal education

show promotes increased comprehension

and application of science facts and concepts among its viewers.

• The Louis Stokes Alliances for Minority

Participation program significantly increased the number of baccalaureate degrees earned by students from underrepresented groups. For example, the Florida/

Georgia alliance has tripled the production

of science and engineering baccalaureate

degrees earned by underrepresented minorities in those States from 416 per year

to 1,380 per year.

Ideas: Investments in ideas support cutting

edge research that yields new and important

discoveries and promotes the development of

new knowledge and applications. More than

half of NSF’s annual budget is categorized as

an investment in ideas. This includes support

for individuals and small groups devoted both

to disciplinary and cross-disciplinary research.

Also included is funding for centers that address scientific and engineering questions and

research problems that require long-term, coordinated efforts of many researchers. Significant highlights of NSF funding for ideas during this Administration follow.

• Scientists supported by NSF completed the

first DNA genome sequence of the model

plant, Arabidopsis, which will provide new

information about chromosome structure,

evolution, intracellular signaling, and disease resistance in plants. Among early

findings is that this flowering plant has

closely related versions of many human

disease genes. That discovery is already

offering clues about why certain human

diseases produce the symptoms they do.

It suggests that plants may eventually be

useful not only as a source of novel medicines, but also as screening tools for testing the potential usefulness of experimental drugs.

• Clinical trials that have significantly improved detection of early stage cervical

cancer were developed after an NSF-funded researcher demonstrated that fluorescence spectroscopy could be used to detect

pre-cancerous cells.

• NSF-funded scientists uncovered the

structural basis that explains a virus’ ability to force host cells to manufacture the

virus’ own protein. This is important for

understanding retroviruses, which are responsible for causing many cancers in

vertebrates.

• NSF-funded scientists have made important contributions to our understanding of

global climate change, including demonstrating that 1997, 1995, and 1990 were

the warmest years since 1400 A.D. They

also have shown that the 1990s were the

warmest decade in the last 1000 years and

that human-induced increases in greenhouse gases appear to be the dominant

factor in the warming seen during the

20th Century.

Tools: Nearly 25 percent of NSF’s annual

budget is categorized as an investment in

state-of-the-art tools for research and education, such as instrumentation and equipment, multi-user facilities, digital libraries, research resources, accelerators, telescopes, research vessels and aircraft and earthquake

simulators. In addition, resources support

large surveys and databases as well as computation and computing infrastructures for all

fields of science, engineering, and education.

Significant highlights of NSF funding for tools

during this Administration include:

• The NSF Supercomputer Centers Program, and its Partnerships for Advanced

Computational Infrastructure successor,

have led the way in adding computational

modeling to theory and experiment as

means for developing scientific understanding. These centers have changed the

way scientific phenomena are analyzed,

modeled, and visualized.

• Two recently completed Gemini Telescopes

will be used to help answer questions

about how stars and planets form, the

structure and evolution of the Milky Way

and other galaxies, and the age and evolution of the universe. Images are among

the sharpest ever obtained by a groundbased telescope, roughly the equivalent of

resolving the separation between a set of

auto headlights from 2,000 miles.
68 HIGHLIGHTS FROM FY 1994 TO FY 2001

• The Laser Interferometer GravitationalWave Observatory project began as a collaboration between physicists and engineers to test the dynamical features of

Einstein’s theory of gravitation and to

study the properties of intense gravitational fields from their radiation. Scientists eventually may be able to identify

objects in deep space that cannot be ‘‘seen’’

from energy given off in the form of light,

X-rays or other electromagnetic radiation.

Department of Energy

DOE’s Office of Science is the single largest

supporter of basic research in the physical

sciences, averaging 40 percent of all Federal

funds in this area over the past decade.

The Office supports research at both universities and DOE’s national laboratories across

such varied disciplines as physics, chemistry,

materials science, geology, environmental

sciences, biology, applied mathematics, and

computer science. Brief highlights of the

Office of Science discoveries during this Administration follow.

• DOE, which began the Human Genome

Project, is now finishing the human genetic map along with its two major partners, NIH and Britain’s Wellcome Trust.

DOE researchers completed a draft sequence of three of the 23 pairs of chromosomes in the human genome. The

Human Genome Project has driven significant public and private developments in

sequencing technology. As a result, the

cost of sequencing a single base pair has

fallen by more than a factor of 1,000. It

is now practical to sequence the entire genome of a large number of organisms. To

date, DOE has completed sequencing the

genomes of 17 microbes with the genomes

of another 28 microbes in various stages

of completion.

• Researchers using the Lawrence Berkeley

Laboratory’s 88-inch cyclotron have extended the periodic table by discovering

two new superheavy elements. International teams of researchers working at

DOE’s Fermilab have nearly completed the

Standard Model of particle physics with

the discovery of the top quark and detection of the tau neutrino. These accomplishments bring the total discoveries by DOE

and its predecessor agency to 18 of the

periodic table’s 27 man-made elements

and 11 of the Standard Model’s 12 constituents of matter.

• DOE researchers were the first to use

positron emission tomography (PET) to

create functional images of the human

brain at work. This has opened up exciting

new opportunities in brain research. DOE

has a long history of achievements in advanced imaging technologies, including the

development of PET.

• Three Nobel Prizes in chemistry and two

Nobel Prizes in physics awarded since

1993 recognize work supported by DOE’s

Office of Science or its predecessor agencies. Examples of the prize-winning work

include an explanation of how cells store

and release energy in the form of adenosine triphosphate, the discovery of

fullerenes, and the development of neutron

scattering techniques. Fullerenes, cagelike forms of pure carbon, are the basis

of an entirely new area of chemistry and

are playing important roles in

nanoscience. Neutron scattering is an important tool for studying a wide range of

economically and scientifically important

materials.

• DOE science is improving our understanding of the role of ecosystem processes

in the global carbon cycle. New measurements from the DOE Ameriflux network

have demonstrated how the exchange of

carbon dioxide between vegetation and the

atmosphere varies among seasons, and by

region and ecosystem. They have also

shown that some ecosystems previously

thought to be carbon ‘‘sources’’ are actually

storing carbon dioxide in the biosphere.

The Office of Science also constructs and

operates the Federal Government’s most extensive system of R&D facilities. These include

particle and nuclear physics accelerators, synchrotron light sources, neutron scattering facilities, supercomputers, and the high-speed

networks that connect scientists and their

data. Each year, DOE’s facilities are used

by more than 15,000 researchers from universities, other Government agencies and private

industry. Highlights of the Office of Science’s
4. GENERAL SCIENCE, SPACE, AND TECHNOLOGY 69

facility-related accomplishments during this

Administration follow.

• Since 1993, the Office of Science has completed, on time and within budget, construction of the Advanced Photon Source,

the Advanced Light Source, the Main Injector at Fermilab, the B-Factory at Stanford, the Relativistic Heavy Ion Collider,

the Continuous Electron Beam Accelerator

Facility, and the Environmental Molecular

Sciences Laboratory. The National Spherical Torus Experiment, a fusion experimental facility, was completed below cost

and ahead of schedule. Construction of

these facilities represents an investment

of more than $2.6 billion.

• This Administration’s Scientific User Facilities Initiatives in 1996 and 2001 have

helped to dramatically increase the effectiveness and productivity of DOE’s facilities. As an example, DOE’s light sources

now serve more than twice the total number of users and four times as many users

from the life sciences as they did in 1993.

Structural biologists are now producing

better than seven times as many protein

structures in a year using synchrotron

light sources as they were in 1993.

• The Office of Science installed the first

supercomputer available to the civilian research community to exceed the one

teraflop peak performance and supported

the development of the first civilian scientific application to achieve over one

teraflop actual performance.

Tax Incentives

Along with direct spending on R&D, the

Federal Government has used tax preferences

to encourage private investment in research.

Current law provides a 20-percent research

tax credit for research and experimentation

expenditures above a certain base amount.

The Tax Relief Extension Act of 1999 extended

the credit from July 1, 1999, thorough June

30, 2004. In addition, the 1999 Act increased

by one percentage point the credit rate applicable under the alternative incremental research

credit, and expanded the definition of qualified

research to include research undertaken in

Puerto Rico and possessions of the United

States. A permanent tax provision also lets

companies deduct, up front, the costs of

certain kinds of research and experimentation,

rather than capitalize these costs. During

this Administration, tax credits and other

preferences for R&D increased 133 percent

from $3.3 billion in 1993 to $7.7 billion

in 2001.
71

5. ENERGY

Table 5–1. Federal Resources in Support of Energy

(Dollar amounts in millions)

Function 270 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 5,832 3,099 1 –47%

Mandatory outlays ..................................................... –1,240 –3,636 193%

Credit Activity:

Direct loan disbursements ....................................... 1,508 1,916 27%

Guaranteed loans ...................................................... 1 30 NA

Tax expenditures ....................................................... 2,420 2,100 –13%

NA = Not applicable.

1The decline in discretionary budget authority is largely the result of restructuring accounts in this function since 1993. Selected funding was moved to the General Science,

Space, and Technology function and to the National Defense function.

Federal energy programs contribute to energy security, economic prosperity, and environmental protection through a range of activities, from protecting against disruptions in

petroleum supplies, to conducting research

on renewable energy sources, to cleaning

up Department of Energy (DOE) facilities

contaminated by years of nuclear-related research activities. In addition to the spending

programs, the Federal Government currently

allocates about $2 billion a year in tax

benefits, mainly to encourage development

of traditional and alternative energy sources.

DOE and Health and Human Services

(HHS) also provide grants to States that

assist low-income residents with energy: DOE

provides grants to States to weatherize lowincome homes, and HHS’ Low-Income Heating

and Energy Assistance Program (LIHEAP)

provides grants to help low-income families

pay their energy bills and also supplements

the home weatherization program. LIHEAP

funding, however, is included in the Income

Security function. (See Chapter 14.)

Energy efficiency rules are also an important

part of the Government’s energy program.

For example, as a result of appliance efficiency

rules, consumers are saving approximately

$4.6 billion annually in reduced energy costs.

The Federal Government has a longstanding

and evolving role in energy. Some programs,

such as DOE’s Weatherization Assistance Program and HHS’ LIHEAP, work with State

agencies through block grants. However, most

Federal energy programs and agencies have

no State or private counterparts and focus

on national concerns. The federally-owned

Strategic Petroleum Reserve, for instance,

protects against supply disruptions and the

resulting consumer price shocks, while Federal

regulators protect public health and the environment and ensure fair, efficient energy

rates. DOE’s applied research and development (R&D) programs in fossil, nuclear, solar/

renewable energy, and energy conservation

speed the development of technologies, frequently through cost-shared partnerships with

industry. These are examples of the basic

principles that form the framework of the

Clinton-Gore Administration’s energy policy:

• reliance on competitive markets as the

‘‘first principle’’ of energy policy;

• support for energy science and technology;
72 HIGHLIGHTS FROM FY 1994 TO FY 2001

• promotion of Government/industry/consumer partnerships;

• use of targeted incentives and regulations

to promote positive actions and to help internalize externalities; and,

• facilitation of international cooperation.

The discussion that follows is organized

around the following seven themes: applied

energy R&D; environmental quality; electricity

production and power marketing; petroleum

supplies and emergency reserves; energy regulation; DOE corporate management and procurement reform; and, the operation of the

Nuclear Regulatory Commission (NRC).

Applied Energy R&D

DOE’s energy R&D investments cover a

broad array of resources and technologies

to make the production and use of all forms

of energy—including solar and renewables,

fossil, and nuclear—more efficient and less

environmentally damaging. These investments

reach beyond what the marketplace demands

today, enhancing our Nation’s energy security,

laying the foundation for a more sustainable

energy future, and opening major international

markets for manufacturers of advanced U.S.

technology.

DOE’s energy efficiency, renewable energy,

and electric energy systems programs, along

with elements of the Fossil Energy and

Nuclear Energy R&D programs, form a major

part of the Administration’s Climate Change

Technology Initiative, which is intended to

find ways to reduce emissions of carbon

dioxide and other greenhouse gases in ways

that benefit our economy rather than constrain

it.

Energy Conservation: DOE’s energy conservation programs are designed to improve

the fuel economy of various transportation

modes, increase the productivity of our most

energy-intensive industries, and improve the

energy efficiency of buildings and appliances.

They also include grants to States to fund energy-efficiency programs and low-income home

weatherization. Each of these activities benefits our economy and reduces emissions of carbon dioxide and other greenhouse gases, and

many rely on partnerships with the private

sector for cost-sharing and commercialization.

During this Administration, funding for energy

conservation has risen from $576 million to

$817 million, a 42-percent increase. A basic

societal improvement to which these programs

have contributed is that the ‘‘energy intensity’’

of the Nation’s economy—the average amount

of energy society uses to create a unit of Gross

Domestic Product—has decreased by 12 percent since 1992.

DOE supports a broad research portfolio

for energy conservation. It is difficult to

predict in advance which particular technologies will be the biggest commercial successes, but a study in the mid-1990s showed

that just five—heat-reflecting windows, highefficiency lights, advanced oil-burners, highefficiency electric motors and compressors,

and software for designing energy-efficient

buildings—could be proven to have saved

consumers over $15 billion in energy costs

at that time, and the cumulative consumer

savings from those technologies today are

estimated at more than $30 billion.

In 1994, the Administration worked with

the U.S. auto industry to create the Partnership for a New Generation of Vehicles (PNGV)

with a goal of creating cars with triple

the fuel economy of conventional vehicles

by 2004. This past year, all three Detroit

automakers demonstrated ‘‘hybrid-electric’’

concept cars capable of offering anywhere

from 70 to 80 mpg in a mid-sized fivepassenger car. Some PNGV technologies are

already in use or will be introduced shortly

into production. PNGV has not only enjoyed

considerable R&D success, it has also served

as a model for Government-industry R&D

collaboration and partnership.

Over the last six years, nearly 80 communities joined the Administration’s Clean Cities

effort, deploying more than 160,000 alternative-fuel vehicles (AFVs) in public and

private fleets and building over 4,800 alternative refueling stations. The vehicles, operating on natural gas, ethanol, propane, and

electricity, will reduce oil use by an estimated

125 million gallons per year. AFVs in Clean

Cities have already reduced criteria pollutant

emissions by more than 100,000 tons.
5. ENERGY 73

DOE’s Federal Energy Management Program reduces energy costs to the Federal

Government—the largest power user in the

country—by helping other agencies improve

their energy efficiency. The Administration

implemented the Energy Policy Act of 1992

and met its goal of a 20-percent reduction

in energy use per square foot by 2000.

More recently, President Clinton signed Executive Order 13123, setting new energy goals

for 2010 to reduce energy consumption by

35 percent in Federal office buildings and

by 25 percent in Federal labs and industrial

facilities, to diminish greenhouse gas emissions by 30 percent, to improve water efficiency, and to increase use of renewable

energy technology.

DOE’s Office of Industrial Technologies has

seen roughly 140 of their technologies commercialized; annual energy savings to the U.S.

economy from those is about 170 trillion

Btu, with another 90 trillion Btu saved

annually from their industry assessment and

technology-transfer programs. Major commercial successes include the Advanced Turbine

Systems program, which has helped industry

develop turbines that are 15 percent more

efficient than previous models, have lower

emissions, and produce electricity for cogeneration systems at a lower price.

DOE’s energy conservation program also

provides grants to States to fund weatherization improvements in low-income residents’

homes. Those improvements often take advantage of the improved building materials and

efficient heating systems developed in the

R&D program. Over the past eight years,

DOE’s weatherization program has weatherized approximately 689,000 low-income homes.

Over the estimated 20-year life of those

improvements, the occupants will save $2.1

billion on their energy bills and will cut

4.9 million metric tons of carbon emissions.

As noted earlier, LIHEAP also provides grants

to States, which assist low-income residents

in paying their energy bills and also supplement the DOE weatherization program grants.

Solar and Renewable Resources: DOE’s

solar and renewable resources programs develop technologies that will help the Nation

use its abundant renewable resources such as

wind, solar, and biomass to produce low-cost,

clean energy that contributes no net carbon

dioxide to the atmosphere. The United States

is the world’s technology leader in wind energy, with a growing export market and production costs that have fallen dramatically. In

addition, photovoltaics are becoming more useful in remote power applications, and new

biofuels plants are being constructed.

The 1990s have seen considerable progress

in the use and cost-competitiveness of solar

and renewable energy. Wind power was the

fastest-growing source of electricity in the

world, and in the U.S. wind power has

dropped in price to less than five cents

per kilowatt-hour (kWh) in good wind sites.

(The program has set a very ambitious goal

of reducing those costs to 2.5 cents per

kWh in 10 years.) From 1990 to 1999,

the production cost per watt of photovoltaic

(PV) panels has dropped by a factor of

six, and shipments of PV panels have roughly

tripled. The cost of geothermal electricity

dropped by one-third between 1990 and 1999,

to as little as 3.5 cents per kWh.

The Administration’s Million Solar Roofs

initiative was established to facilitate the

placement of one million solar roof installations (a mixture of solar heat/hot water

and photovoltaics) by 2010. DOE has now

received commitments from Federal agencies,

State, and local governments, and private

developers for more than one million solar

energy systems, and nearly 100,000 systems

have already been installed.

Electric Energy Systems: These programs

focus on technical advances in electricity transmission and storage and on the efficiency and

reliability of the Nation’s electrical grid. The

largest activity is in high-temperature superconductivity R&D, which can greatly increase

the efficiency of generators and heavy electrical machinery, and which can dramatically

increase the carrying capacity of high-voltage

transmission lines. The practical fruits of a

decade of basic and applied materials research

are just emerging. In 1999, for the first time

in the world, a high-temperature superconducting cable provided commercial grid

electricity to a manufacturing plant—enough

electricity to power a small town. This year,

DOE will make available ‘‘second generation’’
74 HIGHLIGHTS FROM FY 1994 TO FY 2001

high-temperature superconducting wires in

continuous lengths.

Hydrogen: Prior to 1993, the only practical

technology for extracting hydrogen from raw

fuels was large-scale steam reforming, requiring exotic alloys to handle the extreme temperatures and pressures. DOE research in the

past eight years has pursued several avenues.

Steam reformers aided by catalysts can operate at much lower temperatures, allowing the

use of conventional, less expensive alloys and

reducing the capital cost of reformers. Progress

has also been made in technologies such as

plasma reformers and proton-exchange membranes that will allow production of hydrogen

on a smaller, more distributed scale—directly

at fueling stations, for instance. DOE has also

developed advanced storage tanks for hydrogen-fueled vehicles that can store roughly

three times as much hydrogen (and therefore

offer three times the driving range) as conventional tanks, and has made considerable

progress on advanced materials such as carbon

nanotubes that will allow auto manufacturers

much more flexibility in designing fuel systems

than they ever have had before.

Fossil Energy R&D: Fossil fuel energy

R&D programs help industry develop advanced

technologies to produce and use coal, oil, and

gas resources more efficiently and cleanly.

Over the past eight years, federally-funded development of clean, highly-efficient gas-fired

and coal-fired generating systems aimed to reduce greenhouse gas and other air-pollution

emissions, while reducing electricity costs compared to currently available technologies.

These programs also include efforts to discover

effective, efficient, and economical means of sequestering carbon dioxide. The programs also

help boost the domestic production of oil and

natural gas by funding R&D projects with industry to cut exploration, development, and

production costs.

Among the program’s accomplishments:

• In 1999, DOE helped demonstrate a more

efficient and less costly drilling and completion technology that could ultimately

add six trillion cubic feet of domestic gas

reserves, demonstrated four advanced oil

production enhancement technologies that

contributed to adding 46 million barrels

of incremental domestic oil reserves, and

began full-scale component testing of two

advanced, utility-scale turbines that are

more efficient and less polluting than current technologies.

• In 2000, DOE’s Advanced Turbine Systems effort with industry introduced the

first gas turbines to exceed 60-percent efficiency when operated in combined-cycle

mode—the ‘‘four minute mile’’ of turbine

technology. When the effort began in the

early 1990s, the best turbine systems had

efficiencies of only about 50 percent. The

new, higher efficiency can reduce operating costs by about 10 percent, saving

as much as $200 million over the life of

a typical gas-fired 400–500 megawatt combined-cycle plant, while also reducing pollution and greenhouse gas emissions.

Nuclear Energy R&D: Nuclear fission

power is a widely used technology, providing

about 19 percent of the electric power consumed in the United States and about 17 percent worldwide without generating greenhouse

gases. If fossil plants were used to produce

the amount of electricity generated by these

nuclear plants, more than 300 million additional metric tons of carbon would be emitted

each year. Continued R&D addressing the

issues that threaten the acceptance and viability of nuclear fission in the United States will

help determine whether nuclear fission can

continue to supply increasing amounts of economically-priced energy while reducing greenhouse gas emissions. The Administration’s investments have focused on advancing future

nuclear power plant designs, the safety and

life-extension of existing reactors, and the safe

long-term storage of spent nuclear fuel (discussed later in this chapter under Environmental Quality).

Based on the recommendations of the President’s Committee of Advisors on Science and

Technology (PCAST), the Nuclear Energy Research Initiative (NERI) was initiated in

1999 to improve the economics, proliferation

resistance, waste management, and safety

of advanced nuclear energy systems for the

longer-term future. In its first two years,

the NERI program has awarded a total

of 56 innovative R&D projects on a competitive, peer-reviewed basis to universities, national laboratories, and industry. Other
5. ENERGY 75

recommendations from PCAST led to the

creation of the Nuclear Energy Plant Optimization program to consult cost-shared R&D

with industry to develop new technologies

to manage the long-term effects of ageing

and enhance the reliability and safety of

existing U.S. nuclear power plants. Fifteen

projects have begun in the first two years

of this initiative.

Uranium Enrichment: In 1998, the Administration successfully privatized the U.S.

Enrichment Corporation (USEC). The Treasury Department received about $1.7 billion

from the sale of public stock and proceeds from

debt equity. This sale through a public offering

was the biggest privatization since 1986.

USEC was established as a Government corporation under legislation passed by the Congress in the Energy Policy Act of 1992, which

placed it on a path toward privatization, based

on the belief that the private sector can perform this business activity better than the

Federal Government.

Environmental Quality

Environmental Management: The NonDefense Environmental Management and Uranium Enrichment Decontamination and Decommissioning Fund programs are part of the

Nation’s most complex environmental cleanup

program (the remainder being the Defense Environmental Management program), addressing the results of more than five decades of

research and production of nuclear energy

technology and materials. During this Administration, these programs reduced safety and

health risks and managed radioactive and hazardous wastes to protect the environment at:

(1) sites run by DOE’s predecessor agencies;

(2) sites contaminated by uranium and thorium production from the 1950s to the 1970s;

(3) DOE’s inactive uranium processing plant

in Oak Ridge, Tennessee; (4) New York’s

defunct spent nuclear fuel reprocessing center;

and, (5) the gaseous diffusion plants operated

by the now-private USEC.

The successes of these activities ranged

from the removal of low-level radioactive

contamination at sites accessible to the public

such as the Ventron site in Beverly, Massachusetts, to meeting the technical challenge of

solidifying high-level radioactive waste at the

West Valley Demonstration Project vitrification facility. At the beginning of 1993, remedial action was completed at 23 of the

113 sites in the cleanup program. Through

1999, cleanup activities were completed at

an additional 46 sites. In 2000, this Administration continued its focus on protecting

human health and the environment by completing remediation of the King Avenue site

in Columbus, Ohio, and the General Atomics

facility north of San Diego, California, for

a total of 48 sites cleaned up since 1993.

Radioactive Waste: DOE’s Civilian Radioactive Waste Management Program was created by the Nuclear Waste Policy Act (NWPA)

in 1982 to develop a geologic repository for

the disposal of the Nation’s spent nuclear fuel

from commercial nuclear reactors and highlevel radioactive waste from the nuclear weapons program.

Since 1994, the program has focused resources on completing an evaluation of the

technical suitability of the Yucca Mountain

candidate repository site. This effort has

included construction of the Exploratory Studies Facility, a 25-foot diameter, 4.9-mile tunnel

that provides direct access to the geologic

formation that may house a repository block.

In 1998, DOE completed a viability assessment

concluding that the Yucca Mountain site

remains a promising candidate for a geologic

repository. It also identified areas for further

investigation before a decision can be made

on whether or not the site should be recommended. In July 1999, DOE issued a

draft environmental impact statement for the

Yucca Mountain site. It also evaluated potential impacts from the transportation of spent

fuel and high-level waste to it. The Environmental Protection Agency (EPA), under the

authority of the Energy Policy Act, has

issued a draft site-specific radiation standard

for Yucca Mountain. This regulatory framework will be complemented by NRC, which

will adopt EPA’s standards in its licensing

regulation. DOE expects to revise its site

recommendation guidelines to conform to these

regulations.

DOE reached an agreement with PECO

Energy Company in July 2000 to settle

potential litigation over spent fuel storage

costs that PECO has incurred due to the
76 HIGHLIGHTS FROM FY 1994 TO FY 2001

Department’s delay in commencing spent fuel

acceptance. This agreement is a model for

settlement negotiations with other utilities

who have filed suit against the Department

for failure to begin waste acceptance in

1998, as required under the NWPA.

DOE expects to complete a ‘‘Site Recommendation Consideration Report’’ by the

end of 2000, to be followed by a Secretarial

determination in 2001 on whether or not

to recommend the Yucca Mountain site to

the President. The report presents the technical basis for a site recommendation.

DOE Lands: During the past eight years,

over 300,000 acres of land at DOE sites have

been set aside as environmental reserves to

preserve unique habitat and animal species

permanently.

Electricity Production and Power

Marketing

Power Marketing Administrations: The

four Federal Power Marketing Administrations, or PMAs, (Bonneville, Southeastern,

Southwestern, and Western) market electricity

generated at 127 multi-purpose Federal dams

and manage 33,000 miles of federally-owned

transmission lines in 34 States. The PMAs sell

about five percent of the Nation’s electricity,

primarily to preferred customers such as counties, cities, and publicly-owned utilities. The

PMAs face growing challenges as the electricity industry moves toward open, competitive markets.

• Over the past eight years, each PMA has

operated its transmission system to ensure

that service is continuous, reliable, and

balanced—that is, each PMA system

achieved a ‘‘pass’’ rating each month (or

its equivalent in past years) under the

North American Electric Reliability Council performance standards. These measures are used industry-wide and indicate

the reliability and quality of power provided by utilities.

• The Administration proposal to sell Alaska

Power Administration assets to current

customers was signed into law on November 28, 1995. The Eklutna and Snettisham

projects were sold in 1998 for a cash payment of $88 million.

• The Administration modified the purchase

power and wheeling activities of Southeastern, Southwestern, and Western PMAs

to phase down and eliminate Federal appropriations to support these activities

after 2004. This will encourage PMA customers to assume additional responsibility

for the purchase and delivery of power

rather than relying on Federal PMAs.

Tennessee Valley Authority (TVA): TVA

is a Federal Government corporation and one

of the three largest electric power suppliers

in the country. TVA produces four percent of

the Nation’s electric power and transmits that

power over its 17,000 mile transmission network to 158 municipal utilities and rural electric cooperatives that serve eight and a half

million customers in seven States.

During the past eight years, TVA has

taken important steps to improve its power

program’s operating and financial performance:

• In 1992, TVA’s nuclear power program

faced tough management challenges. Two

completed nuclear power units had been

out of service for seven years and one unit

under construction was years behind

schedule. Today, TVA has turned that situation around. It currently has five nuclear units on line and they are part of

an award-winning nuclear power program.

• In 1997, TVA announced its 10-Year Business Plan, a long-term financial strategy

designed to ensure that the Federal power

agency reduces its outstanding debt, operates on a sound financial footing, and is

prepared to supply power at competitive

prices when the Nation’s electric power industry is restructured. Through the end

of 2000, TVA has reduced its long-term

debt by more than $1.7 billion. Before

1997, TVA’s debt had increased every year

for 35 years.

• TVA held rates steady over the past decade with only one 5.5 percent rate increase. During the same period the cost

of living increased more than 40 percent.

(For information on TVA’s non-power activities, see Chapter 10, ‘‘Community and Regional Development.’’)
5. ENERGY 77

Rural Utilities Service: The Department

of Agriculture’s (USDA’s) Rural Utilities Service (RUS) provides electrification, telecommunication, and distance learning and

telemedicine grants and loans. RUS provides

direct and guaranteed loans to rural electric

cooperatives, public bodies, nonprofit associations, and other utilities in rural areas for generating, transmitting, and distributing electricity. Since 1993, RUS has supported construction of 97,000 miles of new or upgraded

electric transmission and distribution lines,

and has approved loans for over 2,500

megawatts of new electric generation capacity.

In order to provide electric service to rural

areas and minimize the potential for loan

defaults, RUS works with the electric service

providers in meeting the demands of a changing industry. For example, in 1997, RUS

assisted Oglethorpe Power Corporation (OPC)

into ‘‘unbundling’’ operating companies into

generation, transmission, and operating companies. The restructuring of OPC resulted

in better and lower cost of service to OPC’s

consumers in Georgia and improved the security of RUS loans to OPC and its member

distribution cooperatives. In addition, from

1997 to 2000, RUS’s assistance in the merger

of Tri-state Generation and Transmission Association and Plains Electric Generation and

Transmission Cooperative, serving Arizona,

New Mexico, Colorado, Wyoming, and Nebraska, prevented the need for $340 million

in RUS debt forgiveness from the Government.

In addition, RUS assists in closing the

‘‘digital divide’’ for rural communities that

have limited access to learning, health care

expertise, and telecommunications. Through

RUS loans, the number of miles of fiber

optic lines in rural America have more than

doubled since 1993. RUS assisted in bringing

first-time telephone service to the San Carlos

Apache Nation in Arizona in 1999. RUS

financing has also facilitated the extension

of mobile wireless and broadband services

to rural America. The RUS Distance Learning

and Telemedicine Program, started in 1993,

was designed specifically to meet the educational and health care needs of rural America by financing computer links in rural

schools and hospitals to transmit educational

programming and medical resources from

urban areas. This program has funded 383

projects in 48 States and territories totaling

$102 million, including $15 million for 52

projects for Native American communities.

In addition, to improve access to the Internet

and to further close the digital divide, the

Administration’s 2001 Budget proposal was

enacted for RUS to provide over $100 million

in USDA assisted financing for a pilot program

designed to increase the broadband access

to rural communities.

Petroleum Supplies and Emergency

Reserves

Strategic Petroleum Reserve (SPR): DOE

maintains SPR and invests in R&D to protect

against petroleum supply disruptions and reduce the environmental impacts of energy production and use. SPR was authorized in 1975,

in response to the oil embargoes of the early

1970s. The Reserve now holds about 540 million barrels of crude oil in underground salt

caverns at four Gulf Coast sites. SPR helps

protect the economy and provide flexibility for

the Nation’s foreign policy in case of a severe

energy supply disruption. The Government has

begun to acquire royalty oil from off-shore

leases and is adding 28 million barrels to SPR,

the first increase since 1994.

DOE recently completed a facilities lifeextension program that marked a major milestone for SPR. Most SPR facilities were

constructed in the late 1970’s and early

1980’s and were nearing the end of their

20-year design life. Under the life-extension

program, DOE redesigned and replaced critical

systems and equipment that had deteriorated,

ensuring that the Reserve will be able to

operate as designed for the next 25 years—

achieving a draw-down rate of four million

barrels per day within 15 days of a Presidential determination, and maintaining that

rate for at least 90 days. The improvements

also have reduced SPR’s operating costs by

$12–$15 million per year.

Regional Heating-Oil Reserve: DOE created the Northeast Home Heating Oil Reserve

in 2000 by exchanging oil from the Strategic

Petroleum Reserve. This regional reserve will

act as an emergency source of heating oil to

residents in New England and the northeast

in the event of a winter shortage of heating

oil.
78 HIGHLIGHTS FROM FY 1994 TO FY 2001

Elk Hills Privatization: On February 5,

1998, DOE concluded the largest divestiture

of Federal property in history. As part of the

Administration’s efforts to return to the private sector those Federal functions that operate more like commercial businesses, the Elk

Hills Naval Petroleum Reserve in California

was sold to Occidental Petroleum for $3.7

billion. Revenue received from the sale was

deposited in the U.S. Treasury for debt reduction.

Energy Regulation

The Federal Government’s regulation of

energy industries is designed to protect public

health, achieve environmental and energy

goals, improve energy security, and promote

fair and efficient interstate energy markets.

Appliance Efficiency Rules: DOE improves the Nation’s use of energy resources

through its appliance energy efficiency program, which specifies minimum levels of energy efficiency for major home appliances, such

as water heaters, air conditioners, and refrigerators, and for commercial-scale heating and

cooling components. The initial efficiency

standards were established in legislation, and

DOE periodically issues rules to revise those

standards or to create standards for new categories of equipment. Over the last eight

years, including this year, DOE will have

issued seven new or revised final rules. As

a result of the appliance efficiency rules that

DOE administers, consumers are saving approximately $4.6 billion annually in reduced

energy costs.

Federal Energy Regulatory Commission

(FERC): FERC has been at the forefront of

the national effort to introduce competition

into previously regulated natural gas and electric power commodity markets. Over the past

eight years, the Commission’s focus has been

shifting from command-and-control (setting

prices and service offerings for individual companies) to oversight and monitoring of regional

and national markets. Early during this period, the Commission implemented Order No.

636, completing the final major step in restructuring the natural gas transportation industry

by requiring natural gas pipelines to separate

their sales and transportation services and

allow open access to their facilities. FERC also

substantially streamlined oil pipeline rates

through indexing. In 1996, the Commission

began to address the generic need for more

competition in electric power, issuing Order

No. 888. This order required all public utilities

that own, operate, or control interstate transmission facilities to offer others the same

transmission service they provide themselves.

Also in 1996, the Commission issued a merger

policy statement, giving guidance for preparing

electric merger applications and paving the

way for quicker Commission response. Order

No. 642, issued in November 2000, finalized

the merger policy.

In 2000, FERC continued the promotion

of competition in electric markets and finetuned aspects of natural gas transportation

markets. Order No. 2000 will lead to the

establishment of regional transmission organizations, providing crucial support for competition in the electric industry. Order No. 637

requires natural gas pipelines to take measures to increase the transparency and efficiency of the pipeline grid. It also temporarily

removes price caps from the resale market.

While undertaking these new policy directions,

the Commission has steadfastly maintained

its responsibility to protect consumers from

potential market power abuse, applying traditional cost-based regulation as necessary. In

addition, FERC has made significant accomplishments in the area of energy projects,

including an alternative licensing process for

hydropower projects.

DOE Corporate Management and

Procurement Reform

Reducing the size of DOE was one of

the Administration’s ‘‘reinventing Government’’

goals. Because so much of DOE’s work is

performed by contractors, simply reducing

the number of civil service employees would

not have a great effect on the total effective

size of the agency, so reductions in contractor

employees were also sought. Over eight years,

direct employment by DOE has been reduced

from 13,000 full-time equivalents (FTE) to

10,200 FTE, and contractor employment has

been reduced from 148,000 FTE to 101,000

FTE.
5. ENERGY 79

Part of the reduction in contractor FTE

is attributable to better contract management

at DOE, which has been an Administration

management priority. Over 80 percent of

DOE’s budget is spent through contracts,

many of them large multi-billion, long-term

contracts to manage and operate facilities.

The Administration has been able to get

DOE to begin to use competitive, performancebased contracting procedures. Since 1994, DOE

completed 28 management and operating

(M&O) contracts worth more than $40 billion.

This exceeds the total number of M&O competitive contracts issued in the entire history

of DOE and its predecessor agencies. In

addition, in 1999, DOE created a project

management office reporting to the Deputy

Secretary to better plan and manage large

projects. The office has implemented procedure

which require programs to define cost, schedule and performance goals for all major

projects. Projects that exceed or do not meet

these goals are being placed on a ‘‘watch

list’’ for monitoring by the Chief Operating

Officer. These improved management practices

will save millions of dollars in contract costs

at DOE.

Nuclear Regulatory Commission (NRC)

NRC, an independent agency, regulates the

Nation’s 103 civilian nuclear reactors and

21,000 academic, medical, and industrial licensees, as well as the disposal of nuclear

waste, in order to ensure public health and

safety and to protect the environment. NRC

international activities also promote adequate

protection of U.S. interests in nonproliferation

and the safe and secure use of nuclear

materials in other countries. To meet the

challenges of a restructured and deregulated

electric utility industry, NRC is committed

to adopting a more risk-informed and performance-based approach to regulation. This regulatory framework will focus NRC and licensee

resources on the most safety-significant issues,

while providing flexibility in how licensees

meet NRC requirements.

While maintaining safety as its highest

priority, over the past eight years, NRC

has renewed the license applications for four

nuclear plants providing each an additional

20 years of operation; implemented a new

reactor oversight process, which focuses inspection efforts on those aspects that present

the greatest risk; approved license transfers

arising from the restructuring of the electric

utility industry; approved two standard reactor

designs and developed regulations that provide

a more predictable and stable regulatory

process for future reactor applications; and

developed the regulatory framework necessary

to review a potential DOE application to

construct and operate a high level nuclear

waste repository at Yucca Mountain, Nevada.
81

6. NATURAL RESOURCES AND

ENVIRONMENT

Table 6–1. Federal Resources in Support of Natural

Resources and Environment

(Dollar amounts in millions)

Function 300 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 21,405 28,778 34%

Mandatory outlays ..................................................... 168 157 –7%

Credit Activity:

Direct loan disbursements ....................................... 39 43 10%

Tax expenditures ....................................................... 1,595 1,550 –3%

The Nation faced a number of serious

environmental problems in 1993. Neighborhoods were blighted by toxic waste dumps

because only 12 percent of the Nation’s

worst sites had been cleaned up despite

12 years of Federal effort. Sixty-two million

people lived in areas with drinking water

that failed to meet Federal standards, and

150 million people lived in areas that failed

to meet air quality standards. Further, many

of the Nation’s most well-known natural treasures, such as Yellowstone National Park,

were endangered by the adverse effects of

encroaching development.

President Clinton came into office committed

to providing the American people with a

cleaner environment, stronger communities,

and a brighter future for families across

the country. Since 1993, the President has

invested in a common sense and cost-effective

approach of using new technologies, pursuing

tougher enforcement of environmental laws,

strengthening public health standards, and

protecting our irreplaceable national treasures.

As a result, the Nation has the cleanest

environment and strongest economy in a

generation. Almost four times as many Superfund sites were cleaned up during the ClintonGore Administration as in the previous 12

years. Compliance with drinking water standards increased from 83 percent of the population served by community water systems

to 89 percent of the population, and the

number of areas out of attainment with

the ozone air quality standard dropped from

98 to 37. In addition, the Administration

has protected from environmental harm tens

of millions of acres of national parks and

forests, national monuments and wilderness

areas, from the red rock canyons of Utah

to the Florida Everglades.

As a part of his effort to protect our

environment and natural resources, the President promoted targeted investments in key

environmental initiatives, and fought back

numerous anti-environmental riders that

would have traded hard-won environmental

safeguards for short-term special interest

gains. Table 6–2 compares 1993 and 2001

funding for high-priority environmental and

natural resources programs in this and other

Government function areas. In 2001, for the

natural resources and environment function

only (Table 6–1), the Congress enacted $28.8

billion in discretionary budget authority to

protect public health, the environment, manage Federal lands, conserve resources, provide

recreational opportunities, and construct and

operate water resources projects. This is an
82 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 6–2. High-Priority Environmental and Natural Resource Programs

(Budget authority, dollar amounts in millions)

1993

Actual

2001

Enacted

Percent

Change:

1993–2001

Lands Legacy Initiative (DOI, USDA, NOAA) 1 ..................................................................... 380 1,689 344%

Farm Conservation Initiative (USDA) (mandatory) 2 ......................................................... 1,584 2,122 34%

Clean Energy Initiative (DOE, USDA, AID, DOC, TDA, EX-IM) ....................................... 251 321 28%

Greening the Globe Initiative (AID, Treasury, USDA) ....................................................... 82 121 48%

Climate Change Technology Initiative (DOE, EPA, USDA, HUD) ................................... ................ 1,239 NA

Clean Water Action Plan (EPA, USDA, DOI, NOAA, Corps) .............................................. ................ 2,303 NA

Salmon Habitat Restoration (NOAA, Corps) ......................................................................... ................ 231 NA

Endangered Species Act (DOI, NOAA) .................................................................................... 75 178 137%

Department of Transportation (DOT):

Mass Transit ............................................................................................................................. 3,774 6,274 66%

Congestion Mitigation and Air Quality .................................................................................. 601 1,661 176%

Environmental Enhancements; Preservation Pilots .............................................................. 114 797 599%

Subtotal, DOT (Select programs) ..................................................................................... 4,489 8,732 95%

Department of the Interior (DOI):

National Park Service Operating Program ............................................................................ 984 1,472 50%

Bureau of Land Management Operating Program ................................................................ 638 817 28%

Fish & Wildlife Service Operating Program .......................................................................... 531 777 46%

Subtotal, DOI (Select programs) ...................................................................................... 2,153 3,066 42%

Department of Agriculture (USDA):

Forest Service Operating Program ......................................................................................... 1,319 1,968 49%

Natural Resources Conservation Service Operating Program .............................................. 577 714 24%

Water/Wastewater Grants and Loans .................................................................................... 508 644 27%

Subtotal, USDA (Select programs) .................................................................................. 2,404 3,326 38%

Environmental Protection Agency (EPA):

Operating Program ................................................................................................................... 2,767 3,866 40%

Subtotal, All EPA .............................................................................................................. 6,923 7,829 13%

Department of Energy (DOE):

Energy Conservation and Efficiency (gross) ........................................................................... 592 817 38%

Solar and Renewable Energy R&D (net) ................................................................................ 249 376 51%

Federal Facilities Cleanup (Environmental Management Program) ................................... 6,396 6,317 –1%

Subtotal, DOE (Select programs) ..................................................................................... 7,237 7,510 4%

Department of Defense (DOD):

Cleanup ..................................................................................................................................... 1,604 2,068 29%

Environmental Compliance/Pollution Prevention/Conservation ........................................... 2,227 2,215 –1%

Subtotal, DOD (Select programs) ..................................................................................... 3,831 4,283 12%

National Oceanic and Atmospheric Administration (NOAA):

Fisheries and Protected Species .............................................................................................. 232 569 145%

Ocean and Coastal Management ............................................................................................. 121 429 255%

Ocean and Atmospheric Research ........................................................................................... 202 345 71%

Subtotal, NOAA (Select programs) .................................................................................. 555 1,343 142%

Partnership for a New Generation of Vehicles (DOE, DOC, NSF, EPA, DOT) ............. ................ 236 NA

U.S. Global Change Research (NASA, DOE, NSF, DOC, USDA, others) ......................... 1,323 1,700 28%

GLOBE—Global Environmental Education (NOAA, NASA, EPA, NSF) ......................... ................ 11 NA

Montreal Protocol (State, EPA) ................................................................................................ 25 38 52%

Global Environment Facility (Treasury) ................................................................................ ................ 108 NA

Multilateral and Bilateral Assistance (International Programs/AID) ............................ 329 334 2%

Total 3 ................................................................................................................................. 31,226 42,322 36%

NA = Not applicable.

1 Includes funding (i.e., coastal management assistance) that is not in the new conservation spending category.

2 Includes funding for the Conservation Reserve Program (CRP).

3Total includes mandatory spending. Total adjusted to eliminate double counts.

Note: Agency abbreviations not explained above: AID (Agency for International Development), Corps (Army Corps of Engineers), DOC (Department of Commerce), DOE (Department of Energy), EX-IM (Export-Import Bank), HUD (Department of

Housing and Urban Development), NASA (National Aeronautics and Space Administration), NSF (National Science Foundation), State (Department of State), and TDA (Trade and Development Agency, International Assistance Programs).
6. NATURAL RESOURCES AND ENVIRONMENT 83

Table 6–3. Lands Legacy 1

(Budget authority, in millions of dollars)

Subcategory

Actual 2001

Enacted

Estimate

1993 2000 2002 2006 2

Land and Water Conservation Fund (LWCF) .................................... 283 467 545 540

State and Other Conservation Programs ............................................ 26 68 270 300

Urban and Historic Preservation ........................................................ 71 113 166 160

Federal Deferred Maintenance—new funds ....................................... ............ ............ 150 150

Payments in Lieu of Taxes (PILT)—new funds ................................. ............ ............ 50 50

NOAA/DOC Coastal Assistance ........................................................... 45 161 283 440

Unallocated ............................................................................................ ............ ............ ............. 120

Total ............................................................................................... 425 809 1,464 1,760 2,400

1Only includes amounts in the new Conservation spending category.

2Total amounts increase each year up to $2.4 billion in 2006. Actual funding levels for each subcategory for

2003–2006 will be determined through the annual appropriations process.

increase of $7.4 billion, or 34 percent, over

the $21.4 billion spent in 1993.

Conservation and Land Management

Lands Legacy: In 1993, the effect of development and urban sprawl on parks, fragile

coastal habitat, and open spaces was not as

widely understood as it is today. In some

areas, uncontrolled growth was undermining

people’s quality of life by fragmenting the

parks and forests that provide outdoor recreation and threatening the ecosystems that provide habitat for wildlife and endangered species.

Over the past eight years, the ClintonGore Administration forged a consensus in

support of reliable funding for conservation

programs that temper the adverse environmental effects of rapid development. In 1999,

the President announced his Lands Legacy

Initiative, which would double conservation

funding and provide dedicated, protected funding for: (1) land acquisition in national parks,

forests, refuges, and other public lands; (2)

grants to States and local communities to

restore urban parks and forests, protect wildlife habitat, and plan for smart growth;

and, (3) protection of marine sanctuaries,

estuaries, and coastal areas. This led to

the enactment in October 2000 of a new

Conservation spending category under the

Budget Enforcement Act that, from 2002

through 2006, will set aside about $2 billion

annually to be used only for specific conservation, preservation, and related programs. This

category dedicates and protects funding to

maintain and build upon current efforts preserving both the great places of this Nation

and the green spaces of local communities.

The conservation investments in this category include funding for 25 distinct programs

in six bureaus within the Departments of

Agriculture (USDA), Commerce (DOC), and

the Interior (DOI). The protected funding

is allocated among six subcategories, plus

an unallocated amount available to all subcategories. Actual funding levels for each program

will be determined through the annual appropriations process. Table 6–3 shows subcategory

allocations for 2002, plus the equivalent funding levels in prior years. The total amount

of protected funding will increase each year,

up to $2.4 billion in 2006.

Forest Planning Improvements: The Administration made improved multiple-use forest planning one of its first and highest priorities for the USDA’s Forest Service. In April

1993, President Clinton convened a Forest

Conference in Portland, Oregon, to bring together scientists, the forest products industry,

environmental groups, Indian Tribes, and

other concerned citizens to discuss issues surrounding the management of Federal lands in

the Pacific Northwest and northern California.

In 1991, the Forest Service had been blocked

by a court injunction from issuing new timber

sales in this area because these sales threatened the habitat of the northern spotted owl.
84 HIGHLIGHTS FROM FY 1994 TO FY 2001

Working with all interested parties, the Forest

Service issued standards one year later that

broke the impasse by allowing timber sales

and protecting key watersheds and valuable

old-growth timber ecosystems. This difficult

but successful process demonstrated again that

economic and environmental interests are not

mutually exclusive, and can be brought together through forest plans that support the

multiple uses for which national forests were

created.

This high standard was expanded and

solidified in the new forest land and resource

management planning regulation that was

completed in October 2000. It replaced a

1982 regulation that emphasized timber production targets. In order to manage multiple

uses in a forest, each national forest develops

a comprehensive plan, incorporating substantial public involvement and sound science,

to guide future forest management. National

forests need to revise their forest plans

to address new information, changed conditions, and/or new issues or trends. The forest

plans cover the permitted uses on the national

forest lands, including recreation uses, concession opportunities, timberland suitability, and

off-road vehicle access. The new rule, emphasizing ecological sustainability, will better

protect the environment, improve public participation in forest activities, and integrate

science more effectively into Forest Service

decisions.

Reform of Payments to States: Because

Federal lands result in a reduction to a county’s property tax base, the Federal Government

returns a percentage of revenues generated

from those lands, some of which are provided

from timber sales, to the States to fund county

schools and road maintenance. The need to address environmental concerns on Federal

lands, however, has caused a reduction in timber sales over the last 10 years and a corresponding reduction in the Federal payments.

To offset the fiscal impact of this reduction

in Federal payments, the Administration proposed legislation that would provide for permanent, stable payments to States, made directly

from the Treasury. These payments would be

greater than the current payments and, importantly, sever the link between funding needs

for county education and road maintenance

from timber sales.

In November 2000, President Clinton signed

the Secure Rural Schools and Community

Self-Determination Act. This law will stabilize

the payments to States and counties at

historically high levels through 2006—increasing payments over five years by almost

$1 billion. The law also creates citizen advisory

committees, and gives local communities the

opportunity to fund environmental restoration

projects on Federal and non-Federal lands

for activities such as salmon habitat restoration or road maintenance projects.

Roadless Conservation Policy: Through

comprehensive rulemaking accompanied by an

environmental impact statement, the Administration established a policy to prohibit most

road construction and reconstruction, as well

as timber harvesting (except as needed for

stewardship purposes) in inventoried roadless

areas of the National Forest System. The Final

Environmental Impact Statement estimated

that almost 60 million acres would be protected. In developing the roadless plan, the

Forest Service sought extensive public input,

holding over 600 public meetings across the

Nation. Hundreds of thousands of people participated in this public process, generating over

one million comments. Roadless areas provide

the large, relatively unbroken blocks of undisturbed lands that are critical to a variety of

terrestrial and aquatic wildlife and plants, including hundreds of threatened, endangered,

and sensitive species. Many inventoried

roadless areas function as biological reserves

and refuges for these species, and play a key

role in maintaining native plant and animal

biological diversity. If the Forest Service had

not acted to protect these areas, there would

have been an increased loss of biodiversity,

due to timber harvest, road-related fragmentation, and invasion by non-native species.

Increased Agricultural Conservation:

Fifty percent of the continental United States

is crop, pasture, and rangeland, and this land

is managed by two percent of the population

who are the Nation’s farmers and ranchers.

USDA’s conservation programs provide farmers and ranchers with financial and technical

assistance to implement best management

practices that protect the environment while

sustaining agricultural productivity and boosting farm income. In response to growing natural resource concerns, USDA, during this
6. NATURAL RESOURCES AND ENVIRONMENT 85

Administration, expanded its conservation mission beyond its original focus of preventing soil

erosion and now provides assistance for a wide

range of activities such as wetlands restoration, wildlife habitat improvement, and farmland protection. The Administration strongly

supported conservation programs as a way to

help farmers and ranchers that were facing

economic hardship while providing environmental benefits to all Americans.

USDA conservation programs restore more

of our Nation’s wetlands than any other

Federal program, and were an important

part of the Administration’s efforts to develop

strong and consistent Federal wetlands policies

and initiatives. USDA’s largest wetlands program is the Wetlands Reserve Program (WRP),

which removes agricultural wetlands from

production through permanent or long-term

easements and restores their natural hydrology. From 1993 to 2000, over 880,000 acres

were enrolled in WRP, leaving only approximately 40,000 acres available under its

975,000 acre cumulative enrollment cap in

2001. However, in 2000, the Administration

persuaded the Congress to increase the cap

by 100,000 acres, extending WRP for at

least one more year.

USDA’s Conservation Reserve Program

(CRP), authorized to enroll 36.4 million acres,

is the Nation’s largest private lands environmental program. It provides farmers with

annual rental payments in exchange for removing land from production for 10–15 years

and restoring natural vegetative cover. The

Administration significantly improved this

popular program by strengthening the Environmental Benefits Index used to determine

eligibility and changing the way payment

rates were determined. As a result, the

environmental quality of enrolled acres has

increased since 1993, resulting in greater

natural resource protection, and taxpayers

have saved hundreds of millions of dollars

through the use of more accurate land rental

rates based on different soil types.

USDA conservation programs also made

up a key component of President Clinton’s

Clean Water Action Plan (CWAP), which

provided a blueprint for restoring and protecting the Nation’s waterways. As part of

the CWAP:

• USDA jointly issued with EPA in March

1999 a Unified Strategy for Animal Feeding Operations, which called for all animal

feeding operations (AFOs) to voluntarily

implement comprehensive nutrient management plans (CNMPs) by 2009 to reduce

polluted runoff. In support of this guidance

and to help producers develop CNMPs, the

Administration sought and obtained additional AFO technical assistance funds. As

a result, USDA was able to steadily increase technical assistance funding for

AFOs from $37 million in 1999 to $75 million enacted for 2001.

• USDA aggressively promoted Conservation

Reserve Enhancement Program (CREP)

agreements with States. CREP agreements combine Federal CRP funds with

State funds to remove environmentally

sensitive areas from production for at least

10 years and restore natural habitat. Currently, 13 States have CREP agreements

with USDA. The New York agreement,

which totals $11 million ($8 million Federal/$3 million State), targets the Catskill

and Delaware River watersheds that supply New York City’s drinking water. It is

estimated the agreement will reduce erosion in these watersheds by 36,000 tons

of soil per year, allowing New York City

to avoid constructing a $6 billion drinking

water filtration plant, while also improving habitat for endangered fish and wildlife.

Everglades Restoration: This Administration provided an unprecedented level of funding to restore the Everglades, which supports

68 threatened and endangered species, and

protects the water supply and bolsters the

economy of south Florida. Since 1993, the Administration directed over $1.7 billion to land

acquisition, water projects, and scientific research for Everglades restoration. Of this total,

over $500 million funded land acquisitions to

help preserve the Everglades in perpetuity.

Many of these funds resulted from the Vice

President’s 1996 Everglades restoration plan,

which proposed $100 million annually over

four years for land acquisition.

In 1999, the Vice President presented to

the Congress the Administration’s long-term

Everglades restoration plan. Developed by
86 HIGHLIGHTS FROM FY 1994 TO FY 2001

private, corporate, and governmental stakeholders, it would increase water storage for

environmental and urban water supplies, enhance natural water flows to the Everglades,

and improve water quality. This Administration secured authorization of the first $1.4

billion in projects for this plan in November

2000. The Federal Government and Florida

will each pay half of the cost of this plan,

estimated at $7.8 billion over the next 35

years.

Wetlands Protection: The Administration

achieved major successes in protecting the Nation’s wetlands. Since 1993, Federal policies

and programs protected wetlands by expanding technical and financial assistance to private landowners to enhance their land and

water management practices; permitting and

regulating developments affecting wetlands

and our Nation’s waters; restoring and creating wetlands; acquiring valuable wetlands

from willing sellers; and educating the public

about the benefits of wetlands. According to

the Interior Department, these efforts contributed to an 80-percent decrease in the annual

wetland loss rate—only 58,500 acres were lost

on average from 1986–1997, down significantly

from the average annual loss of 290,000 acres

in the previous 10 years. This is the largest

decrease in the annual wetland loss rate since

the Federal Government began compiling the

data in the 1950s. Federal activities included

in this effort to protect wetlands are the Interior Department’s Coastal and Partnership

programs and its North American Waterfowl

Management Plan; the Agriculture Department’s Swampbuster and Wetlands and Conservation Reserve programs; the Army Corps

of Engineers and the Environmental Protection

Agency’s Clean Water Act wetlands programs;

the Administration’s Clean Water Action Plan;

and, various additions to national forests,

parks, monuments, wildlife refuges, and other

public lands.

California Bay-Delta Management: In

August 2000, after more than five years of

work, Federal and State policy officials signed

a Record of Decision finalizing the long-term

$8.7 billion CALFED plan for the California

Bay-Delta. This CALFED plan marks the Administration’s successful creation, in cooperation with the State of California and other

stakeholders, of a blueprint for effective management of the Bay-Delta and its water resources, designed to end sixty years of chronic

conflict in the region. The 740,000-acre BayDelta ecosystem not only serves as habitat to

more than 750 plant and animal species, but

also supplies drinking water for two-thirds of

all Californians and irrigation water for over

seven million acres of the most highly productive agricultural land in the world. The

CALFED plan will provide better water quality for all beneficial uses; enhance and increase

habitat and ecological functions in the BayDelta to support plant and animal species; improve water supply reliability for agricultural,

urban and environmental interests; and reduce

the risk to economic activities, water supply,

infrastructure, and the ecosystem from catastrophic breaching of Delta levees. To support

the Bay-Delta during development of the longterm plan, the Administration also provided

from 1998 to 2000 a total of $190 million in

funding to support initial Bay-Delta ecosystem

restoration activities, and $30 million for

related CALFED efforts.

Preservation of Our Natural and Cultural Treasures: For the past eight years,

this Administration took significant measures

to conserve the Nation’s natural and cultural

heritage. Just as we now are grateful for the

far-sighted efforts in the 19th and early 20th

centuries to protect Yellowstone and Yosemite,

so will Americans in the 21st Century appreciate the measures taken by the Administration to conserve our natural and cultural treasures. President Clinton protected more land

in the lower 48 States under the 1906 Antiquities Act—over five million acres—than any

other President, designating new national

monuments and expanding others. Areas protected include: Grand Staircase-Escalante National Monument in Utah, consisting of almost

1.9 million acres of spectacular red rock canyon lands and artifacts from three cultures;

Giant Sequoia National Monument in California, a 328,000 acre monument characterized

by magnificent groves of towering giant sequoias (many as old as 3,200 years) interspersed among bold granitic domes, spires, and

plunging gorges; Grand Canyon-Parashant National Monument in Arizona, a one million

acre protection area situated on the Colorado

Plateau along the North Rim of the Grand

Canyon; and California Coastal National
6. NATURAL RESOURCES AND ENVIRONMENT 87

Monument, made up of thousands of islands,

rocks, exposed reefs, and pinnacles along the

entire coast of California.

The Administration also worked to protect

other natural treasures, such as the majestic

California Desert, and has consistently supported legislation to protect other natural

areas. Most recently, in 2000, the President

signed legislation establishing the Colorado

Canyons National Conservation Area in Colorado, the Santa Rosa/San Jacinto Mountains

National Monument in California, and a

new cooperative management and protection

area for Steens Mountain in Oregon.

Baca Ranch: In July 2000, President Clinton signed the Valles Caldera Preservation Act

authorizing the purchase of the Baca Ranch

in New Mexico, a 95,000-acre swath of forested

mountains and grassy valleys that includes the

Valles Caldera, a one million-year-old collapsed volcano 14 miles in diameter. The purchase of this property was completed later that

year, and title has now transferred to the Forest Service. Located in the Jemez Mountains

region west of Santa Fe, the Ranch also includes one of the Nation’s largest wild elk

herds, and its acquisition will protect important resources, and will offer unparalleled

recreation opportunities for the region and all

Americans.

Headwaters Forest: During 1998, the Administration sought, and the Congress provided, $250 million to acquire the Headwaters

Forest in northern California, the largest privately owned stand of ancient redwoods. As

part of the acquisition, the Administration ensured that Headwaters and its threatened and

endangered inhabitant species were protected.

To promote collaborative species protection,

the Administration developed a scientifically

sound habitat conservation plan. The Federal

Government and the State of California jointly

acquired Headwaters in 1999.

Yellowstone Park: To protect Yellowstone

National Park, the Administration agreed in

August 1996 to acquire Crown Butte, Inc.’s interest in the New World Mine in Montana,

the potential development of which posed a

severe environmental threat to Yellowstone’s

unique landscape and wildlife resources. In

1998, the Administration sought, and Congress

provided, $65 million to proceed with this

agreement, which will preserve one of the

crown jewels of the National Park System.

Crown Butte also dedicated $22 million to

clean up contamination at the site from earlier

mining activities. The Administration worked

with Crown Butte and other parties to complete the acquisition in 1999.

Millennium Initiative to Save America’s

Treasures: The First Lady led an Administration initiative to commemorate the Millennium

by awarding grants through the National Park

Service to support the preservation of the

many historic sites and cultural artifacts that

are also America’s treasures. The Save America’s Treasures program received $95 million

over three years to provide dollar-for-dollar

matching grants for Federal, State, local, and

private entities to restore and preserve cultural artifacts, documents, collections, and historic structures across the Nation. Since 1999,

over 180 projects have been identified, with

others yet to be selected. Projects include restoring the Star Spangled Banner at the

Smithsonian in Washington, D.C., preserving

archeological sites at Mesa Verde in Colorado,

and stabilizing buildings at Angel Island Immigration Station in San Francisco.

Management of the Impacts of Wildfires

on Communities and the Environment: The

devastating wildfires of 2000 highlighted the

need to reassess Federal efforts in addressing

the impacts of wildfires on communities and

the environment. Though wildfires are part of

a natural process essential to the maintenance

of many ecosystems, intensive efforts to suppress all wildfires over the last century have

resulted in the buildup of fire fuels in many

areas, and in unnaturally intense fires that

spread rapidly, burn more completely, and are

often extremely difficult to suppress. Such fires

are more hazardous to communities and the

environment. Through a 55-percent funding increase (to a total $2.9 billion for 2001) the

Administration took immediate steps to address the consequences of fires and problems

that were highlighted during the 2000 fire season. Enacted funding increases totaling $1.6

billion included: $393 million for preparedness

activities to ensure that the Federal wildland

firefighting agencies have the necessary staff

and equipment for future fire seasons; $281

million for fire fuels reduction activities

primarily to alleviate immediate threats to
88 HIGHLIGHTS FROM FY 1994 TO FY 2001

communities in the wildland-urban interface;

and $227 million for the restoration of areas

burned by the 2000 fires.

Promotion of Responsible Mining on the

Public Lands: In 2000, the Department of

the Interior’s Bureau of Land Management

(BLM) completed a multi-year process of revising the agency’s ‘‘3809’’ surface mining regulations that govern hardrock mining on public

lands. The scope and technology of hardrock

mining operations on Federal lands have

changed dramatically since 1980, when the

‘‘3809’’ regulations were originally published.

The final regulations enable the agency to fulfill its duty under Federal law to prevent ‘‘unnecessary or undue degradation’’ of BLM lands

from hardrock mining, thereby protecting public health, public land resources, and the environment. The rules will allow BLM to reject

plans of operation for mines that would cause

‘‘substantial irreparable harm’’ to significant

scientific, cultural, or environmental resources

if the damage cannot be effectively mitigated.

The regulations also strengthen bonding requirements for mining operators to ensure that

these operators, rather than the Nation’s taxpayers, bear the costs of reclaiming mined

lands. In addition, the new regulations specifically address both cyanide leaching practices

and acid mine drainage.

The Endangered Species Act (ESA)—

Making It Work: Administration reforms

have increased ESA flexibility, furthering the

Act’s ability to protect at-risk species and to

reconcile species conservation with the needs

of landowners. These reforms include voluntary conservation agreements (Candidate

Conservation Agreement—CCAs) between Interior’s Fish and Wildlife Service and private

or public parties to implement conservation

measures and monitor activities, preventing

the need to add species to the Endangered

Species list. In 2000, the Fish and Wildlife

Service entered into 20 CCAs with private

landowners or State and local governments

that, together with other efforts, prevented six

species from being listed. Since 1994, the Service has entered into more than 90 CCAs. In

addition, early intervention processes implemented by the Department of Commerce’s National Marine Fisheries Service to identify species before they become endangered effectively

eliminated the need to list five threatened

aquatic species.

The Administration also significantly expanded the use of Habitat Conservation Plans

(HCPs) to address potential conflicts between

development and protection of listed species.

HCPs give the private sector and State,

local, and Tribal governments the flexibility

to propose solutions that permit the protection

of endangered species and conservation of

habitat, while allowing for development. By

the end of 2001, HCPs will protect over

40 million acres and an estimated 435 species.

The Administration was successful in defeating legislative riders that sought to weaken

the Endangered Species Act. For example,

the Administration worked with the Congress

to allow the preservation of sea lions off

the coast of Alaska, and the re-introduction

of grizzly bears into the Bitterroot Mountains

of Montana and Idaho. The Administration

also worked with affected stakeholders to

ensure that necessary changes to the operation

of the Missouri River to protect listed species,

including the pallid sturgeon, the lest tern

and the piping plover, were allowed to go

forward.

National Estuarine Research Reserves—

Protecting and Restoring our Nation’s Estuaries: Since 1993, Commerce’s National

Oceanic and Atmospheric Administration

(NOAA) and its State partners increased the

number of National Estuarine Research Reserves from 22 reserves in 19 States, to 25

reserves in 20 States, with two pending to be

established in 2001. This expansion more than

doubled the protected fragile estuarine habitat

to over one million acres. Estuaries are essential to our environment, serving as filters

where fresh water meets the ocean to help

maintain the health of our coasts.

Protection of National Marine Sanctuaries: In 1993, 11 National Marine Sanctuaries protected 14,733 square nautical miles

of valuable cultural and natural resources

along our Nation’s coasts. Today, as a result

of this Administration’s investments to preserve these unique and important sites, there

are now 13 Marine Sanctuaries covering

18,000 square nautical miles of sensitive underwater habitat and submerged cultural resources, including the newest sanctuary in the
6. NATURAL RESOURCES AND ENVIRONMENT 89

Great Lakes. Other sanctuaries protect whales

off the coast of Hawaii, and splendid coral

reefs around the Florida Keys and American

Samoa. In December 2000, the President designated the first ever Northwestern Hawaiian

Islands Coral Reef Reserve protecting almost

100,000 square nautical miles.

Increased Participation in Coastal Zone

Management: The number of States participating in the Coastal Zone Management program expanded from 29 in 1993 to 33 of 35

possible participants today. These States,

working in partnership with NOAA, developed

voluntary, comprehensive coastal management

programs to keep U.S. coastlines healthy and

productive. While no States had approved

Coastal Zone Management Non-point Pollution

Control programs in 1993, all of the 33 States

now have fully or conditionally approved Nonpoint Pollution Control Programs and the rest

have conditionally approved programs to reduce pollution from runoff, one of the greatest

remaining threats to our Nation’s water quality.

Restoration of Ocean Resources: The National Oceans Conference, held in June 1998,

drew together for the first time a full array

of ocean interests, including government, industry, science, and conservation. The Conference resulted in new initiatives, including

steps to restore coastal reefs, rebuild marine

fisheries, preserve freedom of the seas, provide

public access to military data and technology,

enhance the competitiveness of America’s

ports, and protect our National marine sanctuaries from oil drilling. A follow-up report to

the President and Vice President on the National Oceans Conference was issued in September 1999, which highlighted the importance of preserving the oceans’ complex and

delicate balances. In keeping with the recommendations of the report, the Executive Office of the President convened the Ocean Report Task Force to accomplish key, specific

oceans recommendations. The work of this

task force will be concluded shortly, and has

been very successful. Accomplishments include: gear restrictions protecting northern

right whales; expanded enforcement capabilities for environmental ocean crime detection;

greater protection for sea turtles; and increased funding for marine activities.

Scientific Support for Natural Resources: The management of land and water,

and natural resource protection must be based

on sound and objective natural resource

science.

U.S. Geological Survey (USGS): The Department of the Interior’s USGS provides research

and scientific information to land managers

and the public to better understand ecosystems

and species, land and water resources, and

natural hazards. Over the past eight years,

USGS became more responsive to the Nation’s

pressing and complex natural resource issues

by delivering scientific analysis, products, and

services in a useful, usable format to land

managers, other decision-makers, and the

public. USGS adopted a customer-driven focus

to enhance the relevance and usefulness of

its scientific information, and led the Government in the standardization of scientific information and digital data through major infrastructure efforts such as the National Biological Information Infrastructure. For 2001,

USGS also received increased funding to

expand State partnerships to acquire and

deliver scientific information for decision-making. Examples of significant USGS accomplishments since 1993 include:

• Real-time Data Availability—USGS operates national networks of stream gauges

and seismometers to monitor flooding and

earthquake activity. USGS accelerated the

development of real-time hazards information delivery through significant investments to modernize and improve these

networks and other hazard networks and

provide information in real-time to the

public.

• Assessment of the Nation’s Biological Resources at Century End— In June 1999,

USGS released the first large-scale assessment of the Nation’s natural resources in

a two-volume report, Status and Trends

of the Nation’s Biological Resources. This

report synthesizes current information

within a historical perspective to document how the Nation’s biological resources

are changing.

National Oceanic and Atmospheric Administration (NOAA): The Administration’s support

for the modernization of NOAA’s National

Weather Service (NWS) and for the data
90 HIGHLIGHTS FROM FY 1994 TO FY 2001

collected by NOAA’s National Environmental

Satellite and Data Information Service greatly

improved weather forecasts and flood and

tornado warnings. Support to its Office of

Oceanic and Atmospheric Research provided

advances that now enable NOAA to predict

El Nin ̃o events with a level of skill and

enough lead time that the national and

international economies can save billions of

dollars a year in avoidable costs.

The benefits of the NWS modernization

and associated restructuring are dramatic

and have set the standard for weather agencies worldwide. NWS’s modernization increased warning lead time for flash floods

from 22 minutes in 1993 to an estimated

55 minutes in 2000, and the accuracy of

flash flood warning from 71 percent in 1993

to an estimated 86 percent in 2000; modernization also increased the lead time for tornado

warnings by 100 percent and the accuracy

of tornado warnings by 62 percent. The

extra time and accuracy save lives. In addition,

three-to-four day weather forecasts are as

accurate as the two-day forecasts of 15 years

ago.

In 1993, NOAA identified 43,000 square

nautical miles of waters that were in critical

need of new hydrographic surveys around

major ports and harbors, as well as previously

unsurveyed areas of Alaska. With 98 percent

of cargo by weight coming into U.S. ports,

over half of it hazardous material, and ever

larger vessels pushing the limits of dredged

channels, the mariners’ need for accurate,

updated nautical charts was growing every

day. While NOAA estimated it would take

over 40 years to eliminate this critical survey

backlog, today, that estimate is cut in half,

thanks to increased resources, advances in

technology, and successful partnerships with

the private sector.

Recreational Resources

Enhanced Stewardship: This Administration took key steps to improve our investments

in national parks, wildlife refuges, national

forests, and other public lands, so that future

generations will have the same opportunity to

enjoy these national treasures that we have

today. Discretionary funding to maintain and

restore facilities on these lands has grown by

50 percent, from $1.0 billion in 1993 to over

$1.5 billion in 2001. Federal land management

agencies also now have temporary authority

to collect expanded recreation and user fees,

and reinvest the $200 million in annual fee

revenue in visitor facilities and services. Although this authority is not yet permanent,

the experience over the past few years has

shown that the public is willing to pay fees

when they understand the funds will be used

to support the parks, forests, and refuges they

are visiting.

In addition to increased funding, the Administration initiated important management reforms to improve how these funds are spent.

The Department of the Interior’s National

Park Service, Fish and Wildlife Service, and

BLM have each begun extensive facility condition assessments to determine more accurately

where maintenance has been deferred. Facility

maintenance information systems are being

implemented to identify and track specific

maintenance and construction projects. Each

bureau ranks its projects to prepare a fiveyear list of maintenance and construction

priorities, so that available funds may be

targeted at the most pressing needs. Other

reforms include: the development of capital

asset plans that identify up-front a project’s

cost, schedule, and performance goals; a restructuring of the National Park Service

construction planning process at its Denver

(Colorado) Service Center; and an increased

reliance on standardized designs and private

architectural firms. The Administration also

led the successful effort to improve management of the National Wildlife Refuge System

by establishing wildlife conservation as the

dominant refuge goal and compatible wildlifedependent recreation (including hunting, fishing, wildlife observation and photography,

and environmental education and interpretation) as priority public uses.

Pollution Control and Abatement

The Federal Government helps achieve the

Nation’s pollution control goals by: (1) taking

direct action; (2) funding actions by State,

local, and Tribal governments; and, (3) implementing an environmental regulatory system.

The Environmental Protection Agency’s (EPA)

$7.8 billion in discretionary funds, a $0.9

billion or 13-percent increase over 1993,
6. NATURAL RESOURCES AND ENVIRONMENT 91

69

78

98

1992 1993 1994 1995 1996 1997 1998 1999 2000

0

20

40

60

80

100

120

Number of nonattainment areas for one-hour ozone National Ambient Air Quality Standards (NAAQS) 

Chart 6-1. Air Quality Trends

99

93

59

38 38 37

finances most activities in this area. EPA’s

discretionary funds have three major components—the agency’s operating program, Superfund, and water infrastructure financing.

EPA’s $3.9 billion operating program provides the Federal funding to implement most

Federal pollution control laws, including the

Clean Air, Clean Water, Resource Conservation and Recovery, Safe Drinking Water,

Toxic Substances Control, and the Food Quality Protection Acts. Spending for the operating

program, which grew 40 percent during this

Administration, represents the backbone of

the Nation’s efforts to protect public health

and the environment.

Reduction of Air Pollution: Under the

Clean Air Act, EPA works to make the air

clean and healthy to breathe by setting standards for ambient air quality, toxic air pollutant

emissions, new pollution sources, and mobile

sources. During the last eight years, the Administration took major steps to improve the

quality of the air we breathe, and helped reduce the number of metropolitan areas not in

compliance with the current Federal ozone

standard from 98 metropolitan areas in 1993

to 37 such areas today (see Chart 6–1). EPA

also promulgated new more health-protective

air quality standards for ozone and fine particulate matter that have yet to take effect.

Late in 1999, EPA established new rules

for the sulfur content of gasoline and for

tailpipe emissions from new cars and light

duty trucks that will result in vehicles that

are 77 to 95 percent cleaner than those

of today. These measures, to be phased

in from 2004 to 2009, may prevent thousands

of premature deaths, tens of thousands of

cases of respiratory illness, and hundreds

of thousands of lost work days. Late in

2000, EPA finalized similar rules for sulfur

content in diesel fuel and for heavy duty

truck engine emissions that will also have

a major impact in protecting public health.

In past years, EPA has also issued rules
92 HIGHLIGHTS FROM FY 1994 TO FY 2001

to reduce toxic air pollution from chemical

plants by 90 percent, and put in place

a program to clear the haze and restore

pristine skies to our national parks.

Water Quality Improvement: Under the

Clean Water Act, EPA works to conserve and

enhance the ecological health of the Nation’s

waters, through regulation of point source discharges and through multi-agency initiatives

such as the President’s Clean Water Action

Plan (CWAP). The CWAP focuses on three remaining challenges for restoring and protecting the 40 percent of the Nation’s waterways not attaining water quality standards—

preventing polluted runoff, protecting public

health, and ensuring community-based watershed management. EPA funding for its programs included in the CWAP is $712 million

in 2001, an increase of 67 percent since 1993.

A key component of this total is the $238 million for EPA’s non-point source grant program

to States and Tribes, which has grown more

than 375 percent since 1993. Non-point source

pollution is the most significant remaining contribution to water pollution.

Provision of Safe Drinking Water: Today,

America’s drinking water is significantly safer

than eight years ago. Administration efforts

to strengthen drinking water safety, including

amending the Safe Drinking Water Act in

partnership with the Congress, mean that 89

percent of Americans (as of 1999) get tap

water from drinking water systems that meet

the tough Federal standards in effect as of

1994, an increase of six percentage points since

1994. The Administration also issued regulations requiring water systems to improve filtration and monitoring to protect against contamination by harmful microbes, and issued

annual reports to their customers on the safety

of their drinking water; and it proposed tough

new standards for high risk contaminants,

such as arsenic and radon.

Reform of Food Quality Protection: In

1996, following through on his 1993 proposal,

President Clinton signed legislation to revolutionize the way our food supply is protected

from harmful pesticides. The law overhauls the

system that kept harmful pesticides on the

market too long and safer alternatives off the

market, and includes provisions to better protect children from pesticide risks. So far, EPA

has reassessed 3,551 of the 9,721 existing

pesticide tolerances (i.e. allowable residue on

food) to ensure that they meet the statutory

standard of ‘‘reasonable certainty of no harm’’,

and has worked with pesticide manufacturers

to phase out uses of some of the most high

risk pesticides, including methyl parathion,

azinphos-methyl, chlorpyrifos, and diazinon.

Citizen Empowerment: Requiring industries to share information about chemicals released into the air and water helps empower

citizens to understand the environment around

their homes, schools, and work places and address problems as necessary, creating a powerful incentive for industry to pollute less. In

the decade since the public’s right to know

about chemical releases became law, industry’s

toxic pollution has fallen nearly 50 percent.

The Administration expanded the public’s

right to know by doubling the number of

chemicals subject to reporting requirements

and by increasing by 30 percent the number

of facilities that must report. In addition,

President Clinton required the Federal Government to begin reporting its chemical releases in 1994, and such releases have been

reduced by 60 percent.

The Administration, in 1998, also established the Chemical Right to Know Initiative,

which includes a highly successful, innovative,

voluntary partnership with industry to develop

and provide the public with basic health

data on chemicals released into the environment in high volume. In addition, EPA greatly

expanded the amount of environmental data

available to the public through an initiative

to provide the Nation’s 86 largest metropolitan

areas with real-time environmental information.

Proper Management of Wastes: Under the

Resource Conservation and Recovery Act, EPA

and authorized States prevent dangerous releases to the environment of hazardous, industrial nonhazardous, and municipal solid wastes

by requiring proper facility management and

cleanup of environmental contamination at

those sites. As of the end of 2000, 62 percent

of the Nation’s 2,900 hazardous waste management facilities have approved controls in place

to prevent dangerous releases to air, soil, and

groundwater.
6. NATURAL RESOURCES AND ENVIRONMENT 93

EPA’s underground storage tank (UST) program seeks to prevent, detect, and correct

leaks from USTs containing petroleum and

hazardous substances. Regulations issued in

1988 required that substandard USTs (lacking

spill, overfill, and/or corrosion protection) be

upgraded, replaced or closed by December

22, 1998. By the end of 2000, 86 percent

(an estimated 614,000) of active USTs will

be in compliance with these requirements,

which improves upon the 65 percent (approximately 554,000) of then-active USTs in compliance as of the December 22, 1998, deadline.

Over the past decade, more than 1.4 million

substandard USTs have been permanently

closed.

Climate Change: In October 1997, President Clinton announced immediate actions to

begin addressing the problem of global climate

change, and included the Climate Change

Technology Initiative (CCTI) in the 1999 Budget. In 2001, EPA will devote $123 million to

CCTI, $115 million more than related programs in 1993, focused on the deployment of

under-utilized but existing technologies that

reduce greenhouse gas emissions. By the end

of 2000, greenhouse gas emissions are expected

to have been reduced from projected levels by

approximately 58 million metric tons of carbon

equivalent per year through EPA partnerships

with businesses, schools, State and local governments, and other organizations.

Accelerated Clean-up of Toxic Waste

Sites: During this Administration, EPA’s

Superfund program to clean up abandoned

hazardous waste sites became faster, fairer,

and less expensive. At the end of 2000, a total

of 757 Superfund sites had been cleaned up—

602 of these cleanups completed since 1993,

while only 155 of the sites were cleaned up

during the previous 12 years (see Chart 6–2).

EPA projects that two-thirds, or 900, of the

Nation’s worst toxic waste dumps will be

cleaned up by the end of 2002. EPA’s Superfund administrative reforms have been responsible for saving more than $1.4 billion in future costs by updating cleanup remedy decisions (to determine whether the same level of

protection could be provided at lower cost) at

more than 300 sites. The Agency also streamlined the liability allocation process to reach

settlement with more than 21,000 small volume waste parties at Superfund sites.

Spearheaded by this Administration since

1993, EPA’s brownfields program to clean

up and redevelop lightly contaminated commercial and industrial sites has funded over

2,000 site assessments; generated 7,300 jobs,

and leveraged $2.8 billion in cleanup and

redevelopment funds. The brownfields tax

incentive, enacted as part of the 1997 Taxpayer Relief Act and extended by the 1999

Tax Relief Extension Act, has leveraged additional private investment by allowing businesses to deduct certain cleanup costs on

environmentally contaminated lands.

Support for Needed Infrastructure: In

1996, President Clinton signed into law his

proposal for establishing a new Drinking

Water State Revolving Fund (DWSRF), which

would complement the existing Clean Water

State Revolving Fund (CWSRF). EPA appropriations provide capitalization grants to State

revolving funds, which make low-interest loans

to municipalities to help pay for wastewater

and drinking water treatment systems required by Federal law. DWSRF funding of

$825 million and CWSRF funding of $1,350

million in 2001 kept the programs on track

to achieve the Administration’s goal of capitalizing these funds to the point where they provide a total of $2.5 billion in average annual

assistance for the long term, even after Federal assistance ends. Funding provided during

this Administration resulted in the CWSRF

being capitalized at more than twice the authorized level for the program. Currently, 99

percent of the population served by community

sewerage systems are served by facilities upgraded to meet secondary treatment or better,

as required by the Clean Water Act.

Financial Assistance to Rural Communities: USDA provides financial assistance for

safe drinking water and adequate wastewater

treatment facilities to rural communities

(under 10,000 people). USDA offers this grant

and loan assistance at subsidized interest

rates based on the community’s income. Part

of those funds go toward USDA’s Water 2000

initiative to bring indoor plumbing and safe

drinking water to under-served rural communities. Since 1994, USDA has invested almost

$2.5 billion in loans and grants on high-priority Water 2000 projects nationwide.
94 HIGHLIGHTS FROM FY 1994 TO FY 2001

 1993 1994 1995 1996 1997 1998 1999 2000

0

100

200

300

400

500

600

700

800

900

1,000

Cumulative completions

Chart 6-2. Major Progress in Superfund Cleanups

155

217

278

585

346

410

498

757

670

Through

Calendar

Year

1992

Over the last eight years, the Administration

successfully targeted USDA water and waste

water treatment facility funds to underserved

rural communities, leveraged resources from

other public and private sources, and maintained the strong loan repayment record

of the Water and Waste Disposal program.

During this Administration, USDA financed

2,600 water and wastewater treatment facilities serving over 15 million rural residents.

Of these, over 1,950 were Water 2000 projects.

Other Water Resources

The Federal Government builds and manages water projects for navigation, flood damage reduction, environmental purposes, irrigation and hydropower generation. The Army

Corps of Engineers (DOD) operates nationwide, while the Department of the Interior’s

Bureau of Reclamation operates in the 17

Western States.

Army Corps of Engineers: This Administration’s major accomplishments for the Army

Corps of Engineers include:

• Increased funding of the Corps’ environmental activities by over $400 million (100

percent) from 1993 to 2001, including significant funding increases for restoring endangered salmon on the Columbia and

Snake Rivers (in Washington, Oregon, and

Idaho) and to restore the Florida Everglades. The Administration also successfully fought off legislative riders proposed

by the Congress that would have diminished the Corps’ ability to comply with environmental laws, and secured authorization of its ‘‘Challenge 21’’ program for

projects that combine flood damage reduction with environmental restoration of the

river corridor.

• Secured funding to increase the competitiveness of the Nation’s ports, including

major efforts to deepen the ports of New
6. NATURAL RESOURCES AND ENVIRONMENT 95

York/New Jersey; Los Angeles, California,

and Baltimore, Maryland. The Administration’s proposal to create a new Harbor

Services Fund, which the Congress did not

adopt, would have helped ensure a safe

and economically competitive port system.

• Initiated construction of priority new

projects needed for public health and safety, such as projects to provide increased

flood protection to Grand Forks, North Dakota, following devastating floods in 1997,

and to Sacramento, California.

• Improved the wetlands permit program

significantly, including important changes

to ‘‘nationwide’’ permits that will help

minimize adverse effects of development

on the aquatic environment, especially in

environmentally sensitive areas.

Reinvention of the Bureau of Reclamation: Between 1993 and 2001, the Administration dramatically changed the primary focus

of the Bureau of Reclamation from water resource ‘‘development’’ to water resource ‘‘management’’. Instead of focusing on engineering

projects to harness the West’s rivers and reclaim its arid lands, Reclamation now concentrates on managing existing water efficiently and on resolving water resource conflicts through cooperation among stakeholders.

A major restructuring reduced Reclamation’s

workforce by about 2,000 employees (25 percent below 1993), and eliminated nearly 6,500

pages of regulatory provisions. At the same

time, Reclamation continued to supply water

and power efficiently throughout the West,

generating more than 40 billion kilowatt hours

of energy each year, delivering 10 trillion gallons of municipal, rural and industrial water

to over 31 million people, and providing water

to one out of every five Western farmers.

Resolution of Western U.S. Water Conflicts: This Administration worked to foster

regional cooperation to resolve conflicts in several Western river basins. In the Lower Colorado River Basin, it took critical steps to allow

Arizona, California, and Nevada to better utilize the limited amount of water available from

the Colorado River. The Interior Department,

working through the Bureau of Reclamation,

completed the major water supply features of

the Central Arizona Project and reached a conditional settlement of related repayment

issues. Interior created a Federal/State program to help conserve over 100 threatened and

endangered species from Lake Mead to the

Mexican border. It also reached agreement

with California on a framework plan to ensure

that California moves towards living within its

allocation of Colorado River water. In the Missouri River Basin, the Department of the Interior worked with the governors of Colorado,

Nebraska, and Wyoming to develop the Platte

River Cooperative Agreement, protecting species in the Middle Platte River while providing

regulatory certainty to water and power interests. Additionally, Interior moved to resolve

longstanding conflicts on water rights between

Native American Tribes and U.S. entities. It

advanced or finalized major Tribal water

rights settlements for the Gila River Indian

Community, the San Carlos Apache Tribe, and

the Tohono O’odham Nation in Arizona; the

Shivwits Paiute Band in Utah; the Ute Tribes

in Colorado; and, the Chippewa Cree Tribe in

Montana.
97

7. AGRICULTURE

Table 7–1. Federal Resources in Support of

Agriculture

(Dollar amounts in millions)

Function 350 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 4,297 4,792 12%

Mandatory outlays ..................................................... 16,109 20,356 26%

Credit Activity:

Direct loan disbursements ....................................... 11,132 10,879 –2%

Guaranteed loans ...................................................... 4,564 6,492 42%

Tax expenditures ....................................................... 290 1,080 NA

NA = Not applicable.

The U.S. Department of Agriculture (USDA)

seeks to enhance the quality of life for

the American people by supporting agricultural production; ensuring a safe, affordable,

nutritious, and accessible food supply; conserving agricultural, forest, and range lands;

supporting sound development of rural communities; providing economic opportunities for

farm and rural residents; expanding global

markets for agricultural and forest products

and services; and working to reduce hunger

in America and throughout the world. (Some

of these missions fall within other budget

functions and are described in other chapters

in this Section.)

Farming and ranching are risky. Farmers

and ranchers face not only the normal vagaries

of supply and demand, but also uncontrollable

risk from nature. Federal programs are designed to accomplish two key economic goals:

(1) enhance the economic safety net for

farmers and ranchers; and, (2) open, expand,

and maintain global market opportunities

for agricultural producers.

Over the past eight years, as farm income

rose to a record level and then receded,

the Federal Government has helped to make

U.S. farmers more productive, ensure that

markets function fairly, and provide a safety

net for farmers and ranchers. Among its

other missions, USDA disseminates economic

and agronomic information, ensures the integrity of crops, inspects the safety of meat

and poultry, and helps farmers finance their

operations and manage risks from both weather and variable export conditions. The results

are found in the public welfare that Americans

enjoy from an abundant, safe, and inexpensive

food supply, free of severe commodity market

dislocations. Agriculture, food, and its related

activities account for 15 percent of the total

U.S. personal consumption expenditure.

Conditions on the Farm

The farm economy has swung widely in

the past eight years. By 1993, the farm

sector had recovered from the economic farm

crisis of the 1980s. Net cash income reached

a record $59.1 billion. Production losses that

year, because of widespread flooding in the

Midwest, were ameliorated by a surge of

Federal Government payments. Farm equity

increased and debt ratios fell. Although commodity prices soared to record highs in 1995

through 1997, farm cash income in 1993

remains the record level. Following the historic

tight supplies of major commodities in the

mid-1990s, repeated years of over-production

caused prices to decline beginning in 1998.

Gradually prices and market income are
98 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 7–2. USDA/Commodity Credit Corporation Payments to Farmers

(Outlays, in millions of dollars)

Actual Estimate

1993 1999 2000 2001

Income Assistance .................................................................................. 8,607 5,476 5,049 4,056

Loan Deficiency Payments .................................................................... 352 3,360 6,387 5,259

Conservation Reserve Program and other Conservation Programs ... 1,579 1,754 1,770 2,058

Emergency Assistance ........................................................................... 1,254 5,853 14,504 3,698

Total ..................................................................................................... 11,792 16,443 27,710 15,071

recovering, aided by activities and funding

by the Federal Government.

Economic conditions facing U.S. agriculture

in 2000 continued to challenge the Federal

role. While supplies of farm commodities

continued to exceed demand, prices have

started to recover from the lows of the

past two years. Gross cash receipts rose

slightly (three percent above the previous

year) to $195 billion, well above the average

level for 1990–1995. Net cash income also

rose slightly, remaining above average, due

once again to Federal emergency payments.

Farmers are expected to earn slightly more

from 2001 crop sales due to a larger crop

and improving prices. Livestock prices in

2000 recovered from previous lows, and livestock receipts exceeded the record level of

$96.5 billion in 1997. Crop and livestock

prices are expected to strengthen modestly

in 2001.

Economic conditions in 2000 prompted the

Federal Government to expand spending on

agriculture for a third year, including a

total of $9.1 billion in emergency disaster

relief enacted in both the 2001 Agriculture

Appropriations Act and the Agriculture Risk

Protection Act of 2000. Overall, Federal payments to farmers from USDA’s Commodity

Credit Corporation (CCC, the major farmassistance program) reached a record $28

billion in 2000 (from $10 billion in 1998

and $12 billion in 1993). Table 7–2 provides

detail on these payments by fiscal year,

while Chart 7–1 displays on a calendar/

tax year basis the share of net farm income

that was provided through USDA payments.

Despite generally low commodity prices,

farm assets and equity continue to rise.

Farm sector assets increased in value in

2000, to $1.1 trillion. Farm asset values

are forecast to remain at historically high

levels in 2001, as farm real estate values

increase for the twelfth straight year. Farm

business debt declined slightly in 2000, from

its highest level since 1986; and the debtto-equity and debt-to-asset ratios also improved slightly in 2000, and are much stronger

than on the eve of the financial stress

in the farm sector during the 1980s. Farmer

loan delinquencies are at a low and flat

level. However, continuing low commodity

prices may cause increasing financial stress

for certain producers, although farm income

overall and in most regions is expected to

improve in 2001.

Exports hold the key to future U.S. farm

income. The Nation exports 30 percent of

its farm production, and agriculture produces

the greatest balance of payments surplus,

for its share of national income, of any

economic sector. Agricultural exports reached

a record $60 billion in 1996. Lower world

market prices and bulk export volume reduced

exports to $49 billion in 1999, although

export volume was steady in that period,

but in 2000 exports increased to $51 billion.

In 2001, export growth is likely to continue

to improve gradually to $53 billion, with

the agricultural trade net surplus expected

to reach $13 billion.
7. AGRICULTURE 99

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000

0

10

20

30

40

50

60

70

Dollars in billions on a calendar/tax year basis

Direct Government Payments Net Market Income

Chart 7-1. Federal Payments & Market Income:

Relative Shares of Net Cash Farm Income

The 1996 Farm Bill

President Clinton emphasized, when he

signed the Federal Agriculture Improvement

and Reform Act of 1996 (the 1996 Farm

Bill), that its income safety net was not

sufficient. Events in the agricultural economy,

and the Federal response, since then have

borne out his concern. When commodity prices

dropped in 1998, statutory Federal assistance

was insufficient, prompting a series of emergency funding legislation that has nearly

doubled the 1996 Farm Bill’s income assistance during 1998–2000. In response, the

Administration proposed legislation to amend

the Farm Bill to provide counter-cyclical

farm income assistance that would target

payments to farmers in need when market

income falls below the five-year average level.

Congress did not adopt the legislation, but

the proposal provides important recommendations for the next Farm Bill, which will

be legislated within the next two years.

In the absence of legislative reform, the

Clinton-Gore Administration moved forward

under existing authorities to bolster commodity prices and support for family farmers.

These administrative actions included purchasing surplus commodities to expand humanitarian donations at home and abroad;

freezing the commodity price-support loan

rates instead of allowing them to fall; and,

expanding alternative uses of commodities

through programs such as the bioenergy

initiative in which bonuses are paid to bioenergy producers who increase their purchases

of commodities. These actions increased farm

income by over $500 million for the 2000

crop year.

The 1996 Farm Bill, effective through 2002,

redesigned Federal income support and supply

management programs for producers of wheat,

corn, grain sorghum, barley, oats, rice, and

cotton. Under previous laws dating to the

1930s, farmers who reduced plantings could

get income support payments when prices
100 HIGHLIGHTS FROM FY 1994 TO FY 2001

were low, but farmers had to plant specific

crops in order to receive such payments.

Even when market signals encouraged the

planting of a different crop, farmers had

limited flexibility to do so. By contrast, the

1996 Farm Bill eliminated most such restrictions and, instead, provided fixed, but declining payments to eligible farmers through

2002, regardless of market prices or production

volume. This law thus ‘‘decoupled’’ Federal

income support from planting decisions and

market prices. The law has brought changes

in the crop acreage planted in response

to market signals. In 1997, wheat acreage

fell by six percent, or about five million

acres, from the previous year, while soybean

acreage rose by 10 percent, or over six

million acres.

The 1996 Farm Bill’s elimination of planting

restrictions on farmers meant greater potential

volatility in crop prices and farm income.

Not only can USDA no longer require farmers

to grow less when supplies are great, but

the size of farm income-support payments

no longer varies as crop prices fluctuate.

The 1996 Farm Bill also provides ‘‘marketing

loan’’ payments to farmers when commodity

prices fall below a statutorily set ‘‘loan rate’’.

These payments reached the historic-high

level of nearly $7 billion in calendar year

2000. Payments to farmers were further supplemented by emergency aid: $6 billion was

appropriated in 1999 for 1998 crop-year losses,

and $15 billion was legislated in 2000 to

address both 1999 and 2000 crop-year losses.

Market conditions in 1998–2000 raised the

issue of whether the Federal farm income

safety net was sufficient, and how it should

be improved. Some crop prices significantly

decreased from previous years, but the Farm

Bill’s decoupled income assistance did not

sufficiently adjust upward to compensate. The

recent crop experience also highlighted problems with the crop insurance program, which

is intended to be the foundation of the

farm safety net. Farmers did not have sufficient coverage when they experienced multiyear losses; there was no coverage available

for many commodities including livestock;

and, most fundamentally, coverage that provides adequate compensation was simply not

affordable for many farmers.

Crop Insurance

USDA helps farmers manage their risks

by providing subsidized crop insurance, delivered through the private sector, which shares

the insurance risk with the Federal Government. Farmers pay no premiums for coverage

against catastrophic production losses, and

the Government subsidizes their premiums

for higher levels of coverage. Over the past

three years, an average 65 percent of eligible

acres have been insured, the highest in

the program’s 60-year history. USDA now

targets an average indemnity payout of $1.08

for every $1 in premium, down from the

historical average indemnity of $1.40 for

every $1 in premium. Crop insurance cost

the Federal Government an average of $1.2

billion a year over the last eight years,

including USDA payments to private companies for delivery of Federal crop insurance.

In 1998, the Secretary of Agriculture used

the authority and funds provided in an

emergency farm assistance package to increase

crop insurance premium subsidies, thereby

providing incentives for more producers to

enroll in the program and purchase higher

coverage that might mitigate the need for

future ad hoc crop-loss legislation. The Secretary’s plan was highly successful, as farmers

responded with purchases of unprecedented

insurance coverage levels. Congress has since

followed the Administration’s lead and enacted

further crop insurance discounts in subsequent

years, culminating in codifying the reform

through the Agriculture Risk Protection Act,

enacted in June 2000. With the new legislation, the Administration will have taken

the crop insurance program from a narrow,

ineffective program in 1993 to a comprehensive

program that is the centerpiece of a more

market-oriented farm safety net. Over the

same period, major enhancements and innovative risk management products have been

brought to market, including the first Government program to subsidize the use of options

contracts for the purpose of managing price

risk on milk. The recent reforms will increase

average premium subsidies to over 50 percent,

and also pave the way for the program’s

first livestock policy.
7. AGRICULTURE 101

Trade

The trade surplus for U.S. agriculture declined more than 50 percent from its peak

of $27.4 billion in 1996 to $11.9 billion

in 1999, after experiencing faster growth

in recent decades than any other sector

of the economy. The trade surplus level

in 1993 was $18.6 billion, and averaged

$17.9 billion per year from 1994–1999. The

reduction was largely the result of decreased

commodity prices, and significantly greater

U.S. imports drawn by the strong dollar,

rather than a loss of agricultural export

volume. USDA’s international programs helped

to shape the growth in agricultural exports,

and maintain the volume of foreign demand.

Its Foreign Agriculture Service’s efforts to

negotiate, implement, and enforce trade agreements play a large role in creating a strong

market for exports.

USDA is authorized to spend over $1

billion in 2001 on agricultural export activities,

including subsidies to U.S. firms facing unfairly subsidized overseas competitors, and

loan guarantees to foreign buyers of U.S.

farm products. USDA also helps firms overcome technical requirements, trade laws, and

customs and processes that often discourage

the smaller, less experienced firms from taking

advantage of export opportunities. USDA outreach and exporter-assistance activities help

U.S. companies address these problems and

enter export markets for the first time.

USDA programs also help U.S. firms, especially smaller-sized ones, export more aggressively, and high-value products now account

for more than half of agricultural export

value. By participating in USDA’s Market

Assistance Program (MAP) or USDA-organized

trade shows, firms can more easily export

different products to new locations on their

own. Small and medium-sized firm recipients

(those with annual sales of under $1 million)

now represent nearly all of the MAP brandedpromotion spending, up from 70 percent in

1996.

Most significantly in recent years, the Administration has greatly increased overseas

donations of U.S. commodities, using current

authorities to dispose of crop surpluses. Since

1998, U.S. food aid has tripled to nearly

10 million metric tons annually, at a total

cost of about $5 billion. The donation of

U.S. commodity surpluses has capitalized on

the opportunity to boost U.S. exports of

surplus crops while feeding hungry people

abroad. In 2001, USDA is also implementing

a pilot program, the Global Food for Education

Initiative, to donate $300 million in commodities and associated transportation and distribution costs to create a school lunch program in lower-income foreign countries.

Through this initiative, the Administration

is expanding the overseas donation program

to strengthen the link between good nutrition

and education that has been demonstrated

in the United States.

Conservation

Although the Administration had serious

concerns with the 1996 Farm Bill’s commodity

provisions, it strongly supported the bill’s

extensive conservation provisions, which were

developed with bipartisan cooperation. These

provisions made the 1996 Farm Bill the

most conservation-oriented farm bill in history,

enabling USDA to help farmers and ranchers

protect the natural resource base of U.S.

agriculture while augmenting farm income.

USDA’s Environmental Quality Incentives Program (EQIP) provides cost-share and incentive

payments to farmers and ranchers that implement conservation practices such as integrated

pest management or animal waste management systems. EQIP is also designed to

help farmers comply with Federal, State,

and local environmental regulations, and, by

law, at least half of its funds must be

used to address conservation concerns associated with livestock production. USDA’s Conservation and Wetlands Reserve Programs

are discussed in Chapter 6, ‘‘Natural Resources

and Environment.’’ Another new 1996 Farm

Bill program was the Farmland Protection

Program (FPP), which provides financial assistance to State, local, and Tribal governments to permanently protect farmland from

development and preserve open spaces. The

new Wildlife Habitat Incentives Program

(WHIP) provides financial assistance to landowners that wish to improve aquatic or

terrestrial habitat on their land. Eligible

practices include stream restoration, tree

planting, and prescribed burning.
102 HIGHLIGHTS FROM FY 1994 TO FY 2001

Since the inception of these programs, USDA

has:

• helped approximately 1,000 communities

assess the status of their natural resource

base and develop locally-led natural resource action plans through EQIP;

• worked with non-Federal partners to permanently protect approximately 150,000

acres of prime farmland from development

through the FPP, maintaining communities’ open spaces and helping sustain agriculture-related economies; and,

• entered into nearly 8,500 long-term WHIP

contracts with landowners to improve

wildlife habitat on over 1.3 million acres.

Agricultural Credit

USDA provides over $700 million a year

in direct loans and over $2.6 billion a year

in guaranteed loans to finance farm operating

expenses and farmland purchases. A portion

of direct loans, which carry interest rates

at or below those on Treasury securities,

is targeted to beginning or socially-disadvantaged farmers who cannot secure private

credit.

The Administration acted to increase farm

loan programs in response to the downturn

in the farm economy. USDA’s Farm Service

Agency’s direct and guaranteed farm loans,

which totaled $2.1 billion in 1993, will reach

over $3 billion in 2001—and close to $5

billion including funds that will carry over

from 2000 emergency appropriations. As the

farm crisis became apparent in 1999, USDA

understood farmers could not wait for the

Congress to enact additional funding. The

Administration’s timely response channeled

funds to farm loan programs through administrative transfer authorities. Moreover, USDA

monitoring of loan program activity allowed

for strategic reprogramming of funds across

loan programs to meet producers’ greatest

financing needs. In addition, the Secretary

of Agriculture made it a priority to increase

the amount of USDA lending to beginning

and socially-disadvantaged farmers to 18 percent, while simultaneously reducing delinquencies through the underwriting skills of

staff and the hands-on loan servicing provided

all borrowers. Consistent with the goals of

the Vice President’s Reinventing Government

initiative, this improvement has come at

a time of staff reductions, partially as a

result of the Administration’s efforts to

streamline loan underwriting procedures.

The Farm Credit System and Farmer Mac—

both Government-Sponsored Enterprises—enhance the supply of farm credit through

ties to national and global credit markets.

The Farm Credit System (which lends directly

to farmers) recovered strongly from its financial problems of the 1980s, in part through

Federal help. Farmer Mac increases the liquidity of commercial banks and the Farm Credit

System by purchasing agricultural loans for

resale as bundled securities. In 1996, the

Congress gave the institution authority to

pool loans as well as more years to attain

required capital standards, which Farmer

Mac achieved.

Agricultural Research, Education and

Extension Programs

The Federal Government underwrites agricultural research, education, economics and

statistics programs whose goals are to make

U.S. agriculture more productive and competitive in the global economy. These programs,

currently funded at approximately $2.3 billion

($1.8 billion in 1993), provide for in-house

research by USDA scientists at over 100

Federal facilities; grants for research, education and extension work at eligible institutions, such as land grant colleges and universities; and, economic and statistical support

for USDA programs and the agricultural

sector.

Through its in-house research program,

USDA continued to support increases for

high-priority initiatives of national importance

in human nutrition, food safety, the environment, invasive species, genetics and genomics,

and biobased products. In addition, USDA

continued to emphasize the importance of

competitive peer-reviewed grants for both research and education and extension grants

programs, and saw funding specifically for

these grants more than double during the

last eight years, in large part due to new

authorities in the 1998 Agricultural Research,

Extension, and Education Reform Act, which

includes $120 million in annual mandatory
7. AGRICULTURE 103

agricultural research funding. In addition,

USDA’s Cooperative State Research, Education

and Extension Service increased its support

to minority institutions of higher education

by 47 percent since 1993, as well as to

areas such as integrated pest management

and alternative control technologies (an increase of 53 percent), sustainable agriculture

(an increase of 94 percent), and also initiated

programs for food safety.

USDA economics and statistics programs

improve U.S. agricultural competitiveness by

reporting and analyzing information. The Economic Research Service provides economic

and other social sciences information and

analysis of agriculture, food, natural resources

and rural development policy issues. The

National Agricultural Statistics Service provides estimates of commodity production, supply, price and other aspects of the farm

economy, to help ensure efficient markets

through informed participants.

Marketing and Inspection Programs

USDA’s Animal and Plant Health Inspection

Service is responsible for protecting America’s

productive land from foreign and domestic

plant and animal infestations. As the international movement of people and goods increases, the threat of infestations becomes

even more serious, as shown in recent years

by the outbreaks of citrus canker, plum

pox, Pierce’s Disease, Medfly, and the Asian

Longhorned Beetle. The Administration responded to these and other outbreaks by

seeking appropriations and using existing

emergency authority to provide funding for

invasive species detection and eradication,

as well as compensation for lost income

where appropriate. During 1999 and 2000,

the Administration provided an annual average of $180 million to combat infestations

and compensate losses from them—eight times

the annual amount made available during

the previous six years of the Administration,

and 11 times the annual amount provided

during 1989 through 1992. In addition, in

July 2000, USDA and OMB submitted proposed guidelines to the Congress on the

Federal role in responding to pest and disease

infestations.

The Administration also increased funding

to improve border checks at airports, seaports,

and land border crossings, to intercept dangerous goods. In 2001, almost $240 million

will be available for this purpose. In addition,

in order to comply with World Trade Organization requirements that trade decisions be

based upon scientific, risk-based criteria, the

Administration implemented a policy that

requires countries seeking to import goods

to the United States from regions where

there may be a disease threat to American

agriculture, to undergo a rigorous risk analysis

and be subject to risk mitigation requirements

to reduce the risk to a ‘‘negligible level.’’

These regulatory actions are open to public

scrutiny and comment.

Another growing concern to which the Administration responded is the increasing concentration in the livestock marketing industry,

both horizontally across the entire industry,

and vertically through agreements between

packers and sellers that can limit competition.

The Administration took action to create

a more open market place, by providing

additional funds to investigate anti-competitive

actions in the industry, as well as to implement mandatory livestock reporting requirements that provide up-to-date information

on contractual arrangements to better ensure

a level playing field, particularly for smaller

livestock producers.

In December 2000, the Administration

issued final regulations providing the first

national standards for the production, handling, and processing of organically-grown

crops and livestock. These standards provide

consumers with confidence in the integrity

of products advertised as organic, and provide

farmers with clear guidelines on how to

gain organic certification for their commodities

in order to take advantage of the rapidly

increasing consumer demand for organic products.

USDA was also a leader in the Administration’s initiative to improve food safety, particularly the safety of meat and poultry products.

This initiative is discussed in Chapter 12,

‘‘Health.’’
104 HIGHLIGHTS FROM FY 1994 TO FY 2001

Improved Customer Service

USDA has three agencies with a nationwide

system of field offices, the Farm Service

Agency, the Natural Resources Conservation

Service, and Rural Development. These county

offices deliver a diverse menu of programs

including commodity price support, emergency

disaster, and conservation programs, as well

as farm real estate, operating and rural

housing loan programs. The field operations’

structure and operating procedures of these

agencies had been essentially unchanged in

decades. Their dispersed field office locations,

with their high and increasing costs of maintaining the current delivery system including

separate information technology systems,

prompted significant reform. In 1993, the

Vice President’s National Performance Review

called for creating ‘‘one-stop shopping’’ service

centers from USDA county offices, to significantly improve customer service and achieve

operating efficiencies. The streamlining devised by USDA included three key components:

co-location of county offices, integration of

their information systems, and modernization

of their business processes in keeping with

the new tools provided by enhanced information technology. Throughout the 1990s, with

the support of both the Administration and

the Congress, the field offices were largely

co-located and work began on integrating

business processes and information systems.

Consolidating and relocating the field offices

reduced their number over the last eight

years from over 7,500 offices in 3,700 locations

to approximately 5,500 offices in 2,500 service

centers.

The USDA systems integration initiative,

known as the Common Computing Environment (CCE), is scheduled to be complete

in 2002. The CCE was planned as a common

architecture and shared information system

to replace outdated ‘‘stove-pipe’’ (single agency)

systems currently supported by USDA agencies. The CCE’s goal is to enable new technology and methods to be easily shared

and implemented by all USDA agencies, to

reduce the burden of data collection on its

customers as well as the costs to the Government. The business process reenginering component of this initiative is still under way

and, while dependent on the CCE for completion, will bring USDA agencies into compliance

with the Freedom to E-file Act of 2000.

These new procedures and information systems will allow electronic filing that will

reduce the paperwork burden on those who

participate in multiple USDA programs and

reduce the county-office workload. Many of

the forms used by USDA customers are

now available on line, though e-filing is

not available in most instances. E-filing capability is targeted for completion in the next

two years.

While true one-stop shopping and significantly improved customer service will not

be available until these reforms are complete

and USDA processes and administrative functions are harmonized, USDA made great

strides over the last eight years to modernize

its county-office program delivery.

Civil Rights

Since 1993, USDA’s leadership made improvement of the Department’s civil rights

record one of its top priorities. The Agriculture

Secretary re-established a USDA Office of

Civil Rights, which was closed in the 1980s,

to provide a focal point for USDA’s civil

rights functions and oversight. The Office

is responsible for policy development, analysis,

coordination, and compliance activities. Comprehensive training in civil rights has been

provided to USDA employees, and the accountability of managers has been clarified and

increased. Even with downsizing, representation of minorities and women in USDA’s

work force improved. In addition, the Farm

Service Agency increased its lending to African-American farmers by 67 percent over

the last five years. USDA also worked to

improve its civil rights complaint processing

to reduce the time it takes to resolve cases.

In the late 1990s, African American farmers

filed a class-action discrimination law suit

against USDA, primarily based on charges

of past discriminatory treatment by USDA

loan officers in the county offices. The suit

exposed widespread discriminatory practices,

and USDA settled the suit in 1999. That

settlement, known as the Pigford Consent

Decree, provides payments of $50,000 from

the Department of the Treasury’s Claims,

Judgements, and Relief Acts Fund that is

administered by the Department of Justice,

and forgiveness of USDA debt to thousands
7. AGRICULTURE 105

of African American farmers. As of midDecember 2000, over 9,500 claims have been

paid, totaling about $480 million.

Tax Expenditures

Tax expenditures for agriculture are estimated to be just over $1 billion in 2001.

Expenditures due to the treatment of certain

agricultural income as capital gains rather

than ordinary income increased by over $650

million, or over 500 percent, since 1993.

In addition, legislation in 1999 made permanent the ability for farmers and ranchers

to lower their tax liability by averaging

their taxable income over the prior threeyear period. Producers of certain crops, such

as corn, also receive indirect benefits from

the ethanol tax credit, due to the higher

commodity prices that result from the increased demand for their commodities.
107

8. COMMERCE AND HOUSING CREDIT

Table 8–1. Federal Resources in Support of

Commerce and Housing Credit

(Dollar amounts in millions)

Function 370 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 4,092 2,932 –28%

Mandatory outlays 1 ................................................... –25,562 2,964 NA

Credit Activity:

Direct loan disbursements ....................................... 5,012 1,670 –67%

Guaranteed loans ...................................................... 79,378 229,578 189%

Tax expenditures ....................................................... 160,040 254,680 59%

NA = Not applicable.

1Mandatory outlays in 1993 were offset by nearly $28 billion in deposit insurance collections primarily from the sale of assets and insurance premiums.

During the Clinton-Gore Administration, the

homeownership rate reached a record high

level, increasing investment in the Nation’s

communities and enabling an additional nine

million American families to build personal

equity in a home. Facilitating homeownership

is one of many ways the Government supports

housing and advances commerce. The Government provides direct loans and loan guarantees to ease access to mortgage and commercial credit; sponsors private enterprises that

support the secondary market for home mortgages; regulates private credit intermediaries;

protects investors when insured depository

institutions fail; promotes exports and technology; collects our Nation’s statistics; and,

offers tax incentives.

Restoring the Public’s Trust in the

Department of Housing and Urban

Development (HUD)

The Administration improved HUD operations through a concerted and persistent

management overhaul over the past several

years, aiming toward a more unified and

responsive organization. Today, HUD employees have a clearer mission, one that emphasizes customer service and the achievement

of results. HUD’s information and financial

systems are better. The Department now

has the additional tools to assess how its

intermediaries are performing, set performance goals, and reward and penalize on

the basis of performance. The end product

is a better business organization to deliver

necessary services to the Nation. As the

General Accounting Office reported, ‘‘HUD

continues to make credible progress in overhauling its operations to correct its management deficiencies,’’ and it credited the HUD

Management Reform Plan as ‘‘a major contributor to this progress.’’

Providing Mortgage Credit

The Government provides loans and loan

guarantees to increase homeownership, and

to help low-income families afford suitable

apartments. Housing credit programs of the

Departments of Housing and Urban Development (HUD), Agriculture (USDA), and Veterans Affairs (VA) supported $123 billion

in loan and loan guarantees in 2000, an

increase of almost 10 percent from 1993.

All of these programs have contributed to

the success of the President’s National Homeownership Initiative which, along with a

strong economy, helped boost national homeownership from 63 million in 1993 to 72
108 HIGHLIGHTS FROM FY 1994 TO FY 2001

63 63

65

66

68

69

70

72

1993 1994 1995 1996 1997 1998 1999 2000

0

62

64

66

68

70

72

Millions of homeowners

Chart 8-1. Homeownership Expands to an Additional

 Nine Million Families

million in 2000, exceeding the Administration’s

goal and reaching a record level (see Chart

8–1).

HUD’s Federal Housing Administration

(FHA): The Mutual Mortgage Insurance Fund,

run by the FHA, helps increase access to single-family mortgage credit across the United

States. In 2000, the MMI Fund insured over

$86 billion in mortgages for almost 900,000

households. During this Administration, FHA

strengthened the financial health of the MMI

Fund while guaranteeing more loans for borrowers and reducing the rate of property foreclosures. FHA also now serves more underserved borrowers than it did at the start of

this Administration, e.g., over 80 percent of

FHA borrowers who purchased their homes in

2000 are first-time homeowners, up from 67

percent in 1993, and 42 percent of FHA borrowers who purchased their homes in 2000 belong to a minority group, as compared to only

23 percent in 1993. As noted in Table 8–2,

FHA also insures mortgage loans for multifamily housing as part of its General Insurance and Special Risk Insurance Fund.

USDA’s Rural Housing Service (RHS):

RHS offers direct and guaranteed loans and

grants to help very low- to moderate-income

rural residents buy and maintain adequate, affordable housing. The RHS direct loan program for single family housing provides subsidized direct loans to very-low and low-income

rural residents who would be unable to get

credit elsewhere. The RHS guaranteed loan

program for single family housing guarantees

up to 90 percent of a private mortgage. During

this Administration, the RHS single family

housing programs together provided 500,000

rural families with decent, safe, affordable

homes, significantly reducing the number of

rural residents living in substandard housing.

In 1993, RHS financed approximately 42,000

home loans, and in 2001 it expects to provide

57,000 loans, a 36-percent increase.
8. COMMERCE AND HOUSING CREDIT 109

Table 8–2. Selected Federal Commerce and Housing Credit Programs:

Credit Programs Portfolio Characteristics

(Dollar amounts in millions)

Dollar volume

of direct loans/

guarantees

written in

2000

Numbers of

housing units/

small business

financed by

loans/guarantees written in

2000

Dollar volume

of total outstanding

loans/guarantees as of the

end of 2000

Mortgage Credit:

HUD/FHA Mutual Mortgage Insurance Fund ... 86,274 873,265 449,579

HUD/FHA General Insurance and Special Risk

Insurance Fund ................................................. 12,506 154,492 98,888

USDA/RHS single-family loans ........................... 3,324 51,400 27,697

USDA/RHS multi-family loans ........................... 246 7,400 11,397

VA guaranteed loans ............................................ 20,159 175,559 199,759

Subtotal, Mortgage Credit ............................ 122,509 1,262,116 787,320

Business Credit:

SBA Guaranteed Loans ....................................... 13,195 48,422 45,556

SBA Direct Loans ................................................. 27 65 65

Subtotal, SBA Loans ..................................... 13,222 48,487 45,621

Total Assistance .................................. 135,731 1,310,603 832,941

During this period, RHS also significantly

improved its customer service to its 650,000

housing borrowers, as well as its financial

accountability by centralizing the servicing

of its single family housing direct loan portfolio. Through this effort, RHS established

an escrow system; reduced operating costs,

loan losses, foreclosures and delinquency rates;

and, brought RHS accounting more in line

with the commercial sector. These new efficiencies enabled RHS to provide more subsidized loans with no additional budget authority. Since 1993, the RHS single family housing

programs provided almost $30 billion in direct

loans and loan guarantees.

Veterans’ Affairs (VA): VA recognizes the

service that veterans and active duty personnel provide to the Nation by helping them

buy and retain homes. The Government partially guarantees loans from private lenders,

providing $20 billion in loan guarantees in

2000. One of VA’s key goals has been to improve loan servicing to avoid veteran foreclosures. Over the past several years, VA has

decreased foreclosures by approximately 10

percent.

Ginnie Mae: The Congress created Ginnie

Mae in 1968 to support the secondary market

for FHA, VA, and RHS mortgages through

securitization. Ginnie Mae securitizes the majority of FHA, VA, and RHS mortgages, and

together with the Government-sponsored enterprises that operate in the secondary market

for mortgages, provides lenders with the liquidity to maintain a steady supply of credit

available for housing.

Expanding Access to Decent Housing

The Federal Government provides rental

housing assistance through a number of HUD

and USDA programs. (Spending on housing

assistance is included in Chapter 14, ‘‘Income

Security.’’) These rental assistance programs

provide subsidies for 4.9 million low-income

households.

HUD expanded rental assistance to help

more than 250,000 low-income families from

1993 through 2001. The number of families
110 HIGHLIGHTS FROM FY 1994 TO FY 2001

with severe housing needs has remained

roughly the same from 1993 to 1999, exceeding

five million households throughout the period.

This Administration proposed historic reforms in the public housing and Section

8 rental assistance programs. With bipartisan

support, the Congress enacted the bulk of

these reforms in the Quality Housing and

Work Responsibility Act of 1998, the first

significant housing bill passed in several

years. The Act promotes income mixing in

public housing, which reduces concentrations

of poverty; gives local public housing authorities the flexibility to adopt admissions and

rent policies that do not penalize working

families; and, raises management performance

standards for assisted-housing providers.

The Act also reforms HUD’s housing voucher

program to target more aid to those most

in need; provides local public housing authorities with the flexibility to respond to local

price changes in the rental market; expands

owner participation in the program by adopting private market real estate practices; and

finally, permits the use of vouchers for home

purchase. Actions also were taken to make

it easier for families to use vouchers in

tight rental markets and to protect assisted

tenants from rent increases by providing

additional subsidies where necessary.

As part of its commitment to assure that

all public housing residents live in decent,

safe, and sanitary conditions, the Administration worked to demolish deteriorating, nonviable public housing units and replace them

with either new, less-dense, mixed-income

public housing or housing vouchers. In total,

the Administration demolished nearly 60,000

public housing units and has funded the

future demolition of 50,000 more. The President also established the One Strike and

You’re Out policy in 1996 to create safer

assisted-housing communities. The policy gives

public housing agencies the authority to screen

and evict residents who are involved in

drugs and drug-related crime.

USDA’s RHS ensured that over the last

eight years, 273,600 poor families were able

to continue renting decent, safe affordable

housing in areas that otherwise offer few

rental housing opportunities. RHS provides

direct loans to private developers for the

construction and rehabilitation of rental housing for very low- to low-income residents,

elderly households, and disabled individuals.

RHS combines these loans with Rental Assistance Grants to reduce the rent paid by

very-low income tenants. In 1996, RHS also

began a rural multifamily housing guarantee

loan program.

The Administration also provided housing

assistance and supportive services for the

very low-income elderly and disabled to help

them live as independently as possible, including the conversion of existing elderly housing

to assisted living facilities. Since 1993, HUD

added approximately 75,000 units to the

elderly and disabled housing stock.

Providing Housing Tax Incentives

The Government provides significant support for housing through tax preferences.

The two largest tax benefits are the mortgage

interest deduction for owner-occupied homes

and the deductibility of State and local property tax on owner-occupied homes (which

collectively will cost the Government $87

billion in 2001, a 41-percent increase since

1993). Other tax provisions also encourage

investment in housing. States and localities

can issue tax-exempt mortgage revenue bonds,

whose proceeds subsidize purchases by firsttime, low- and moderate-income home buyers.

Also, installment sales provisions let some

real estate sellers defer taxes. Finally, the

low-income housing tax credit supports the

construction or renovation of 60,000 to 90,000

units of affordable rental housing annually.

The use of this tax credit increased by

114 percent since 1993.

The Community Renewal Act of 2000 increased the amount of low-income housing

tax credits that may be allotted by State

housing agencies to qualifying projects. The

Taxpayer Relief Act of 1997 provided a new

exclusion for capital gains on principal residences that substantially simplifies the tax

treatment of houses for most taxpayers. Under

the provision, taxpayers can exclude up to

$250,000 of capital gain on principal residences ($500,000 for married taxpayers filing

jointly).
8. COMMERCE AND HOUSING CREDIT 111

Promoting Commerce, Technology, and

International Trade

Technology and Intellectual Property

Rights: The Department of Commerce undertakes a range of activities to promote technological innovation. In 1999, the Nation’s intellectual property rights system was strengthened with the passage of the landmark American Inventors Protection Act, which reformed

patent law and converted Commerce’s Patent

and Trademark Office (PTO) into a performance-based organization to better serve America’s entrepreneurs and innovators. PTO also

protects U.S. intellectual property rights

around the world through international treaties.

Despite record growth in applications, PTO

has maintained its average processing time

for both patent and trademark applications.

In 2001, PTO will issue over 165,509 patents,

a 54-percent increase since 1993. Also in

2001, PTO will register 211,500 trademarks,

a 185-percent increase since 1993.

Commerce’s National Institute of Standards and Technology (NIST): NIST works

with industry to develop measurements, standards, and technology to promote American

competitiveness. NIST also assists industry

through the Advanced Technology Program

(ATP) and the Manufacturing Extension Partnership (MEP). Since 1993, NIST has expanded its research into new fields such as

nanotechnology and e-commerce. MEP, which

disseminates technological information and expertise to smaller manufacturers, achieved nationwide coverage in 1997. Today MEP operates 400 assistance centers in all fifty States

plus Puerto Rico. ATP, a public/private partnership, has administered approximately $1.5

billion in Federal matching funds for 468

projects since its inception.

In 2001, NIST laboratories will produce

over 2,200 technical publications, a threepercent increase since 1993. MEP will serve

more than 33,600 clients in 2001, 7,600

more than in 1997. In that same time,

MEP assistance will have increased clients’

sales by $748 million and generated $607

million in additional capital investment. ATP

will fund the research and development of

200 new technologies in 2001, a dramatic

increase over the four studied in 1993.

Commerce’s International Trade Administration (ITA): Since 1993, ITA has greatly

expanded its outreach to small and medium

sized firms to develop their export potential.

In 2000, ITA serviced over 137,000 small to

medium sized businesses, almost double the

1993 level. ITA also supported trade negotiation, market-access, and trade-enforcement activities that greatly benefit the Nation’s economy.

Commerce’s Bureau of Export Administration (BXA): BXA is a regulatory agency

that enforces U.S. export controls. In 2001,

BXA will issue 14,000 licenses for dual-use

commodities (military or civilian use), 5,200

more than in 1996.

Under the Chemical Weapons Convention

(CWC) implementing legislation, BXA leads

international inspections of U.S. chemical production sites and regulates the export of

key toxic and precursor chemicals. Regulations

for CWC inspections were finalized in May

2000, ensuring U.S. compliance with CWC

while protecting the proprietary commercial

information of U.S. industry.

Commerce’s Census Bureau and Bureau

of Economic Analysis (BEA): The Census

Bureau collects, tabulates, and distributes a

wide variety of statistical information about

Americans and the economy, including the decennial census. In addition, BEA prepares and

interprets U.S. economic accounts, including

the Gross Domestic Product. BEA and the

Census Bureau are also leading Government

efforts to monitor and analyze the impacts of

the new Digital Economy.

Since 1993, the Census Bureau has completed a wide array of demographic and

economic surveys and censuses, including the

constitutionally-mandated decennial census of

population, which is used for apportioning

seats in the House of Representatives across

States, redistricting within States, and the

distribution of nearly $200 billion in Federal

funds to States and localities. During Census

2000, the Census Bureau mailed or hand

delivered census forms to 120 million households nationwide. Non-response follow-up

interviews were also conducted with approximately 42 million households. This year,

the 67-percent mail response rate improved

over the 65-percent response rate for the
112 HIGHLIGHTS FROM FY 1994 TO FY 2001

1990 Census, arresting a decades-long decline

in mail response. The Census Bureau also

completed, on schedule and ahead of the

1990 Census pace, the collection of data

from the remaining households that did not

respond by mail (33 percent). While the

Census Bureau must await the results of

the Accuracy and Coverage Evaluation survey

to determine the ultimate accuracy and completeness of Census 2000, the Census Bureau

is classifying Census 2000 as an operational

success.

Small Business Administration (SBA):

SBA assists and promotes small business by

expanding access to capital through guaranteed private sector loans. SBA guaranteed over

$14.5 billion in small business loans in 2000.

SBA loans carry longer terms and lower interest rates than those for which small businesses

would otherwise qualify. Between 1993 and

2000, SBA guaranteed $80.6 billion in loans

compared to the $78.0 billion in loans guaranteed between 1953 and 1992. SBA also provides technical assistance and venture capital.

A key component of the Administration’s

economic development strategy over the past

eight years has been to increase access to

capital and credit for women- and minorityowned firms. Between 1993 and 2000, SBA

provided $12 billion in loans to women,

which is more than double the $5.7 billion

provided in the previous nineteen years between 1973 and 1992. Likewise, SBA provided

$18.4 billion in loans to minorities between

1993 and 2000, which is more than double

the $7.9 billion provided between 1953 and

1992. Further, Federal contract awards to

minority-owned firms increased to $6.2 billion

in 1999 from $3.4 billion in 1990.

Complementing SBA’s loan programs are

technical assistance programs, which increase

the borrower’s probability of success. For

instance, to date, SBA has not experienced

any defaults on its direct microloan program,

which has a substantial technical assistance

component. This suggests that technical assistance has had a positive impact. The Administration also increased the number of small

businesses receiving counseling and training

to 1.15 million in 2000 from 900,000 in

1993. Outreach efforts are expected to reach

1.2 million small businesses in 2001.

The New Markets initiative, enacted in

December 2000, is the Administration’s most

recent effort to foster private-sector investment

in rural and inner-city communities. New

Markets Venture Capital, New Markets Technical Assistance, and the BusinessLINC programs provide $250 million in public and

private capital, plus technical assistance to

increase entrepreneurial success and mentoring opportunities for aspiring small businesses.

Federal Trade Commission (FTC): The

FTC enforces various consumer protection and

antitrust laws that prohibit fraud, deception,

anti-competitive mergers, and other unfair and

anti-competitive business practices in the marketplace. Since 1992, the FTC has obtained

judgments for over $800 million in consumer

redress and established a consumer complaint

database that is shared with more than 270

law enforcement partners. The FTC continues

to protect the marketplace by successfully

monitoring a record number of corporate merger transactions that have tripled in volume

over the last eight years. Congress recently

enacted Administration-proposed legislation

that will make the merger-review process more

equitable by establishing a new three-tiered

fee structure that increases the bottom filing

threshold.

Federal Communications Commission

(FCC): As the introduction of wireless, Internet-based and new communication technologies

continues to grow, the FCC has focused on

market-based solutions in a deregulatory environment. The FCC’s market-based auctions

program has been a driving force in promoting

efficient use of the spectrum and recovering

a fair return to the general public for this

resource, including over $20 billion in actual

and estimated cash receipts through 2001. The

auctions program also fostered a four-fold increase in the number of wireless phone subscribers and enabled a 40-percent drop in wireless phone bills. Over the past four years, local

telephone service competition increased significantly in large part due to the FCC’s aggressive implementation of the Telecommunications Act of 1996. Over the past three years,

the FCC fully funded the E-rate program to

wire 82 percent of public schools and 51

percent of public libraries to the Internet. The

FCC also expanded services to those in
8. COMMERCE AND HOUSING CREDIT 113

underserved communities, including Native

Americans and the 54 million Americans with

disabilities.

Providing Tax Incentives for Commerce

The tax law provides incentives to encourage

business investment. The Government taxes

capital gains at a lower rate than other

income. The tax law provides more generous

depreciation allowances for machinery, equipment, and buildings. This business incentive

will cost the Government $33 billion in

2001, a 68-percent increase since 1993. Other

tax provisions benefit small firms generally,

including the graduated corporate income tax

rates, preferential capital gains tax treatment

for small corporation stock, and write-offs

of certain investments. Credit unions, small

insurance companies, and insurance companies

owned by certain tax-exempt organizations

also enjoy tax preferences.

The Taxpayer Relief Act of 1997 significantly

changed the tax treatment and lowered tax

rates for long-term capital gains. Also, during

the last four years, several capital gains

provisions were enacted to limit certain perceived abuses related to capital gains taxes.

The capital gains tax incentive cost the

Government $6 billion in 1993, but it will

cost the Government almost $42 billion in

2001. In addition, the law does not tax

gains on inherited capital assets that accrue

during the lifetime of the original owner.

Tax law changes during this Administration

also provided an increase in expensing for

small businesses, and an increase in the

top corporate tax rate.

Regulating Financial Institutions and

Markets

Federal Deposit Insurance: Federal deposit insurance protects depositors against

losses when insured commercial banks, thrifts

(savings institutions), and credit unions fail.

From 1985 to 1995, this insurance protected

depositors in over 1,400 failed banks and 1,100

failed thrifts, with total deposits of over $700

billion. As of June 2000, the Bank Insurance

Fund, the Savings Association Insurance

Fund, and the Credit Union Share Insurance

Fund insured total deposits of more than $3.3

trillion. Five agencies regulate federally-insured depository institutions to ensure their

safety and soundness: the Office of the Comptroller of the Currency regulates national

banks; the Office of Thrift Supervision regulates thrifts; the Federal Reserve regulates

State-chartered banks that are Federal Reserve members; the Federal Deposit Insurance

Corporation regulates other State-chartered

banks; and, the National Credit Union Administration regulates credit unions.

Securities and Exchange Commission

(SEC) and Commodity Futures Trading

Commission (CFTC): The SEC regulates U.S.

capital markets and the securities industry

and facilitates capital formation. The CFTC

regulates U.S. futures and options markets.

Both regulators have protected investors during a period of unprecedented growth in our

Nation’s financial markets. Between calendar

years 1990 and 1999, trading volume on stock

exchanges and NASDAQ increased by nearly

five times, and dollar volume increased by

more than nine times. Additionally, an increasing number of Americans now participate in

the Nation’s financial markets. For example,

the number of households that own mutual

funds has increased by 60 percent since 1994.

Today, nearly half of all households own mutual funds.
115

9. TRANSPORTATION

Table 9–1. Federal Resources in Support of

Transportation

(Dollar amounts in millions)

Function 400 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 13,973 19,058 36%

Obligation limitation ................................................. 20,391 38,475 89%

Mandatory outlays ..................................................... 1,746 2,169 24%

Credit Activity:

Direct loan disbursements ....................................... 34 669 NA

Guaranteed loans ...................................................... ................. 546 NA

Tax expenditures ....................................................... 1,815 2,220 22%

NA = Not applicable.

Effective and safe transportation is an

indispensable component of our economy and

society. The Nation’s prosperity and growing

standard of living over the past eight years

is due in no small part to the growing

strength of our transportation system and

the policies that have supported it. Our

system is now safer, more accessible, and

better prepared to meet the challenges and

opportunities presented by economic success,

technological innovation, and environmental

preservation needs. The Clinton-Gore Administration has provided a strong, effective foundation on which to shape the transportation

system in the 21st Century.

The Federal Government funded transportation programs at $37 billion in 1993. Over

the past eight years, transportation funding

increased by $22 billion, or 59 percent. Funding for roads, bridges, transit, and railroads

has increased by 75 percent, and for aviation,

42 percent. Funding for the safety, security,

and efficiency of our Nation’s waterways

has risen 14 percent. These increases were

secured particularly because of bipartisan

efforts to enact highway and aviation reauthorization laws. The Transportation Equity Act

for the 21st Century (TEA-21) and the Ford

Aviation Investment and Reform Act for the

21st Century (AIR-21) are laws that will

ensure increasing transportation resources as

needs continue to grow.

Through transportation investments, the Administration has positively influenced transportation safety, mobility, economic growth,

the human and natural environment, and

national security. These strategic areas have

been the focus of the Department of Transportation’s (DOT) multi-year Strategic Plan and

annual Performance Plans in managing for

results. DOT’s 1999 performance report

showed that the Department met or saw

positive trends in 77 percent of its performance

goals.

Safer Operations

Improving transportation safety has been

the number one transportation objective of

this Administration. Highway fatality and

injury rates have been pushed to all time

lows, even with an increasing amount of

traffic. Seat belt use is up and the percent

of highway fatalities that are alcohol-related

is down. If the highway fatality rate of

1992 had held steady, instead of declining

as it has, approximately 4,000 more people

would have died last year. The commercial

aviation fatal accident rate has declined from

the beginning of the decade. Recreational

boating fatalities have declined despite a
116 HIGHLIGHTS FROM FY 1994 TO FY 2001

1993 1995 1999

0

1.5

1.6

1.7

1.8

Chart 9-1. Highway Fatality Rate has Dropped

Fatality rate per 100 vehicle miles travelled

steady increase in the number of boats on

the water. The rail-related fatality rate has

fallen significantly since 1993.

Highways: The Administration has

strengthened Federal programs that reach out

to State and local partners, industry, and

health care professionals to identify the causes

of crashes and develop new strategies to reduce deaths, injuries, and resulting medical

costs. These partnerships have yielded results—in 1999, for example, the Nation’s safety belt use rate was 19 percent higher than

in 1991.

Alcohol related highway fatalities in 1999

represented 38 percent of all highway deaths—

more than a 12-percent reduction from the

1993 level. Success in reducing alcohol related

deaths was recently reinforced by securing

a .08 Blood Alcohol Content sanction that

will encourage States to adopt this stronger

threshold standard for drunk driving. The

.08 standard is 20 percent more stringent

than the prior .10 Blood Alcohol Content

standard.

Overall, highway-related fatalities have

reached record lows. In 1993, the rate of

highway-related fatalities and injuries per

100 million vehicle miles traveled was 1.7

for fatalities and 137 for injuries. In 1999,

the fatality rate had fallen to 1.5 and the

injury rate was 120. (See Chart 9–1.)

The Administration has laid a strong foundation for further improvements in road safety.

The National Highway Traffic and Safety

Administration issued a final rule aimed

at making child safety seat restraint systems

safer and easier for parents. Future motor

vehicles will include child restraint systems

that are standardized and independent of

vehicle seat belts.

Improving the safety of commercial trucking

has also been a key safety focus. The newlyestablished Federal Motor Carrier Safety Administration (FMCSA), created in 1999 with
9. TRANSPORTATION 117

bipartisan support, is increasing motor carrier

enforcement, improving data, and expanding

roadside inspections. States are now receiving

dedicated funding to heighten enforcement

of commercial drivers (e.g., truck and bus

drivers) licenses in an effort to keep improperly registered vehicles and drivers off our

Nation’s highways. FMCSA develops uniform

standards that improve commercial motor

vehicle and driver safety, helps coordinate

law enforcement activities, and aligns interstate trucking safety requirements.

FMCSA is currently engaged in dialogue

with interested parties and the public regarding proposed changes to its motor carrier

hours-of-service regulation. Proposed stronger

rules based on the latest scientific data

on driver fatigue were developed and promoted

by the Administration.

Transit: The Federal Transit Administration has focused resources on safety and security technologies, establishing a compliance

audit program, and providing training and

technical assistance to help transit agencies

increase the safety and security of their riders

and employees. In 1993, the rate of transitrelated fatalities and injuries per 100 million

passenger miles traveled was 0.61 and 129,

respectively. By 1999, the fatality rate had

fallen to 0.53, and the injury rate to 115.

Aviation: The Federal Government’s most

visible transportation safety function is air

traffic control and navigation. The Federal

Aviation Administration (FAA) handles over

two flights a second, moving 1.8 million passengers safely each day. In 2000, the FAA performed over 293,000 aviation safety inspections.

The Administration devoted considerable attention to improving aviation safety over

the last eight years. The White House Commission on Aviation Safety and Security produced a comprehensive set of policy, regulatory, and research-based recommendations

aimed at improving the aviation system over

the long term. Most of these recommendations

have been implemented by the Administration,

such as the development and dissemination

of improved aviation safety data, development

and deployment of explosives and weapons

detection technology, and expanded research

into aging aircraft.

In addition, FAA has significantly expanded

the safety inspector workforce to meet the

demands of growing air traffic. Since 1993,

the FAA has added 681 safety inspectors

to its workforce. FAA inspectors are also

better equipped with the skills and technology

needed to identify safety issues, and have

that information better disseminated to assess

trends and make more informed, risk-mitigating decisions.

Efforts to improve aviation safety have

yielded results. The commercial aviation fatal

accident rate has fallen by 47 percent since

1992.

Waterways: The Coast Guard also plays a

key safety role on our waterways. In an average year, through its search and rescue operations, the Coast Guard saves thousands of

lives and approximately $2.5 billion dollars in

property. In addition, the Coast Guard guides

vessels through busy ports, operates reliable

and safe navigation systems, regulates vessel

design and operation, enforces U.S. and international safety standards, provides boating

safety grants to States, and supports a 35,000-

member voluntary auxiliary that provides safety education and assists regular Coast Guard

units.

A key measure of the Administration’s

success in waterway safety is the reduction

in the number of recreational boating fatalities. From 1993 through 1999, recreational

boating fatalities have fallen even though

the number of boats has increased. (See

Chart 9–2.)

Railroads: The Federal Railroad Administration has improved railroad safety, in particular by strengthening the Safety Assurance

and Compliance program. The program brings

together rail labor, management and the Federal Government to determine root safety problems. From 1993 through 1999, the railroadrelated fatality rate fell by 37 percent.

Effective Infrastructure and Efficiency

Investment

In 1999, the U.S. transportation system

served more than 260 million people and

six million businesses. It supported 4.6 trillion

passenger-miles and 3.9 trillion cargo tonmiles. The Administration pursued policies
118 HIGHLIGHTS FROM FY 1994 TO FY 2001

1993 1995 1999

0

775

800

825

850

875

900

Chart 9-2. Reduced Boating Fatalities

Number of fatalities

over the last eight years aimed at maintaining

and improving the condition of the system

to support this tremendous volume, while

at the same time advancing the quality,

efficiency, and the intermodal character of

the Nation’s infrastructure. Federal investments have ensured that the Nation will

meet commerce transportation needs and ultimately advance economic growth and international competitiveness through improved

economic efficiency.

Innovative Financing: The Administration

implemented a number of new transportation

financing innovations designed to streamline

procedures, improve existing programs, and

implement new ideas for improving the Nation’s transportation infrastructure. In total,

these initiatives are helping advance over 200

projects, representing a total capital investment of $24 billion. For example, the new

Transportation Infrastructure Finance and Innovation Act (TIFIA) program provides Federal

credit assistance to major transportation investments of critical national importance, such

as: intermodal facilities; bridges; highway

trade corridors; and transit and passenger rail

facilities with regional and national benefits.

In 2000, $37 million of TIFIA funding supported $638 million in credit assistance.

The Administration also implemented other

innovative financing tools during the past

eight years, such as Grant Anticipation Revenue Vehicle bonds (GARVEEs) and the Railroad Rehabilitation and Improvement Financing program (RRIF). With GARVEE bonds,

a State can pledge its future Federal highway

apportionments as a source of revenue for

repayment of the bonds. Five States have

issued highway GARVEE bonds totaling $942

million. A final rule implementing the RRIF

program, which can provide up to $3.5 billion

in loans and loan guarantees for rail projects,

became effective in September of 2000.
9. TRANSPORTATION 119

Highways and Bridges: More than 957,000

miles of roads and bridges are eligible for Federal-aid Highway support, including the National Highway System and Federal lands

roads. The Administration has recognized and

supported a strong partnership between the

Federal, State, and local governments in improving our road and bridge infrastructure to

achieve national transportation goals. In 1999,

State and local governments provided 63 percent of highway and bridge infrastructure

spending, most of which is generated through

their own fuel and vehicle taxes. From 1993

through 2001, the Administration will provide

$211 billion to maintain and expand roads and

bridges with funding from Federal motor fuels

taxes. Annual investments of these dollars

have risen significantly. The Administration

utilized nearly $26 billion of motor fuel taxes

in 2000 for highways and bridges compared

to $18 billion in 1993. As a result, almost

5,000 miles of the National Highway System

that were in unacceptable condition in 1993

are now in acceptable condition, and the percentage of our Nation’s bridges deemed structurally deficient has fallen.

Transit: As with highways, the Federal

Government assists State and local governments to improve mass transit. A portion of

the Federal motor fuels tax goes to the Highway Trust Fund’s Mass Transit Account, which

funds transit grants to States and urban and

rural areas. Federal capital grants comprise

about half of the total spent each year to maintain and expand the Nation’s 6,000 bus, rail,

trolley, van, and ferry systems. Together,

States and localities invest over $3.5 billion

a year on transit infrastructure and equipment

above funding provided by the Federal Government.

The Administration has led efforts to increase investments in the Nation’s transit

systems. In 2000, the Federal Transit Administration spent $5.6 billion on improving and

expanding transit infrastructure. This compares with $2.8 billion in 1993. The Federal

Government’s role has been important in

financing new urban bus and rail transit

systems, as well as rural bus and van

networks. Millions of Americans choose transit

for their daily commute, easing roadway

congestion and reducing air pollution. Others

depend on public transportation due to age,

disability, or income. (See Chart 9–3.)

Our leadership in transit has expanded

economic opportunity. The Job Access and

Reverse Commute program is assisting welfare

recipients and low income individuals reach

employment opportunities. By the end of

1999, 1,742 new employment sites had been

reached, giving dedicated workers access to

an unprecedented number of jobs nationwide.

Overall, transit ridership has grown significantly in recent years, from 36.2 billion

passenger miles in 1993 to 43.1 billion in

1999. Nearly 300 miles of new rail transit

service have been opened since 1993, and

another 150 miles is under construction or

has a Federal commitment for construction.

The new lines under development will serve

over 500,000 riders per day.

Passenger Rail: Rail service plays an important role in improving transportation mobility, and it offers an environmentally sound alternative to adding highway capacity to congested corridors. The Administration has

worked with Amtrak to improve its financial

position to ensure intercity passenger rail service is an integral part of our intermodal transportation system. Both the Taxpayer Relief Act

of 1997 and the Amtrak Reform and Accountability Act of 1997 have provided critical resources to address its capital needs and place

Amtrak on a glide path to self-sufficiency.

Amtrak has substantially improved its capital infrastructure and the quality of its

services. Federal funding has been targeted

to those investments which make good financial sense for the long-term health of the

company and generate substantial benefits

for the general public. For example, Amtrak

successfully introduced Acela Express highspeed rail service along the Northeast Corridor. This service has reduced train travel

time between Boston and New York by

29 percent. The Administration has supported

legislation that authorizes Amtrak to issue

$10 billion in tax credit bonds over ten

years for capital improvement purposes.

However, Amtrak faces a number of challenges to its long term financial viability.

In a recent report to the Congress, the

General Accounting Office (GAO) concludes

that Amtrak will need to continue to work
120 HIGHLIGHTS FROM FY 1994 TO FY 2001

1993 1995 1999

0

36

37

38

39

40

41

42

43

44

Chart 9-3. Transit Ridership is Up Significantly

Billions of passenger miles

to reduce system-wide operating losses, increase labor productivity, and improve passenger service. GAO indicates that Amtrak

has capital needs exceeding $9 billion through

2015. These needs include safety improvements on tunnels and bridges in the Northeast

Corridor.

Aviation and Airports: The Administration

has made important progress in modernizing

our aviation infrastructure through the FAA:

modern workstations for air traffic controllers

are being deployed; technologies to improve

separation of aircraft are substantially increasing aviation capacity; and, efficiency and safety-enhancing global position system (GPS)-

based navigation systems are nearing final development to reduce dependency on older

ground-based systems.

Progress has also been made in improving

the condition and capacity of our airports.

While the Federal Government contributes

a relatively small portion of money spent

on airport infrastructure, Federal investment

has nevertheless helped improve airport runway conditions since 1993, and therefore

access and capacity. Airport Improvement

Program funds augment other airport funding

sources, such as bond proceeds, State and

local grants, and passenger facility charges,

which airports are permitted to assess on

passengers. With 98 percent of the U.S.

population living within 20 miles of a publicuse airport, most citizens now have excellent

access to air transportation.

To ensure the effective and efficient use

of aviation resources, the Administration led

efforts to implement acquisition, financial

and personnel reforms at the FAA. Procurement reforms have enabled the FAA to

pre-screen contractors to ensure that firms

have the capabilities and experience to deliver

technology systems that improve air traffic

control. Personnel reform has resulted in

a pay-for-performance system focusing employees on key agency goals. Financial reform
9. TRANSPORTATION 121

is helping the agency better understand its

costs.

While these reforms are critical, they do

not go far enough to address more fundamental problems in the management of our

air traffic control system. This past December,

the Administration announced the creation

of a performance-based organization, or ‘‘PBO’’,

within the FAA to focus solely on the efficient

operation of the air traffic control system.

The PBO will be run by a Chief Operating

Officer, with oversight provided by an Air

Traffic Services Subcommittee of the FAA’s

Management Advisory Council. The Administration also directed DOT to assess impediments to market mechanisms for promoting

more effective and efficient use of airport

runway capacity, such as congestion pricing.

Market mechanisms must also encourage better use of FAA services and efficient agency

management, and the Administration called

on the Congress to replace ticket taxes with

cost-based fees on commercial users for FAA

services.

The Administration has succeeded in improving aviation access and economic growth

through ‘‘open skies’’ agreements with other

nations. Through the efforts of the DOT,

the United States has open skies agreements

with over 50 countries. More of our citizens

now have improved access to the world,

at a lower cost.

National Security and Maritime Transportation: A commitment to marine transportation infrastructure has led to improved national competitiveness and strengthened our

national security. Due to steps taken by the

Maritime Administration and the Military

Traffic Management Command, the percentage

of DOD-designated ports able to meet DOD

readiness requirements increased from 57 percent in 1997 to 93 percent in 1999. Federal

loan guarantees issued by the Maritime Administration have made it easier to build and

renovate vessels in U.S. shipyards. In 1999,

loan guarantees were awarded for the construction of two large cruise passenger vessels,

the first to be built in the United States in

50 years. The Maritime Administration and

the Coast Guard are co-leading a new effort

to develop more comprehensive coordination,

leadership, and cooperation among Federal,

State, and local agencies and private sector

owners and operators of the Marine Transportation System.

Investments in the Coast Guard have made

a difference in our Nation’s war on drugs.

The Coast Guard has invested in measures

to improve its military readiness through

fleet modernization, increased maintenance

resources, improved logistics and expanded

training levels. As a result, the maritime

cocaine seizure rate has doubled since 1993.

The Coast Guard has made the largest annual

drug seizure in its history in each of the

past two years—about 51 and 57 metric

tons in 1999 and 2000, respectively. Nonetheless, the Coast Guard’s fleet is aging and

will require additional investment in order

to maintain its effectiveness.

Expanded Transportation Access

Progress has also been made in areas

of the country, such as Appalachia and the

Mississippi Delta region, where accessibility

is limited. Between 1993 and 1999, 349

miles of the Appalachian Development Highway System were built, bringing the total

miles completed to 80 percent of the goals.

In the Mississippi Delta region, $2.1 billion

in discretionary grants have been made available since 1993 to facilitate investment in

highways, transit and job access.

The Administration has also worked to

improve transportation along critical borders

and corridors where traffic is rapidly growing

due to expanded trade in the Western Hemisphere. Since 1993, over $360 million has

been provided through the Borders and Corridors Program for the planning, design, construction and related activities of projects

that develop the 43 corridors identified by

the Congress, and for other significant corridors and projects along the Canadian and

Mexican borders.

Improved Environmental Protection

Undesirable environmental consequences

can be an unfortunate by-product of our

transportation system. The Administration has

sought to avoid or mitigate transportation’s

adverse effects on the environment. Reducing

air pollution from vehicles has been a focal

point. Since 1993, programs such as Conges-
122 HIGHLIGHTS FROM FY 1994 TO FY 2001

tion Mitigation and Air Quality Improvement

have contributed to reducing vehicular emissions. Minimizing water pollution through

the prevention of oil spills has also been

a priority. More than half of the oil used

in the United States is imported, most of

it arrives by tanker. Since 1993, the Coast

Guard has helped reduce the amount of

oil spilled into the Nation’s coastal waters

by over 50 percent.

Aircraft noise also has substantially decreased in recent years. Progress has been

achieved through mandated replacement of

older aircraft with newer, quieter models,

and phase-out of older, noisier airplanes is

now complete. Compared with 1993, about

two-thirds fewer people are exposed to high

levels of aircraft noise around our Nation’s

airports.

Significant progress has also been made

in the protection of our Nation’s wetlands.

Occasionally, transportation projects, particularly the construction of highway bridges,

affect wetlands. This Administration has

avoided adversely affecting wetlands wherever

possible. When impacts were unavoidable,

wetlands were replicated at a ratio of 2.3

acres per acre affected.

Successful Research, Development and

Technology

The Administration has invested heavily

in important transportation research through

the Department of Transportation and NASA

to enable the continual evolution of our

transportation system into one that is growing

in efficiency, safety, and environmental compatibility.

Investments in Intelligent Transportation

Systems (ITS) are improving mobility, productivity and safety. For example, the installation

of ramp meters has increased freeway capacity

in Seattle by 10 percent and reduced accident

rates on freeways in Minneapolis by over

20 percent. Automatic vehicle location technology on buses in Baltimore improved ontime performance by 23 percent. Incorporating

ITS into new roadways saves an estimated

35 percent of the cost of providing the

same capacity through traditional highway

construction alone.

The Administration has sought to develop

cutting-edge technologies to take advantage

of the transportation opportunities of the

GPS. The Coast Guard developed and implemented the Differential GPS system used

by mariners worldwide, and began expanding

the system for nationwide use. Similarly,

FAA developed the Wide-Area Augmentation

System, which improves the accuracy and

integrity of the GPS signal for aviation

and other uses.

Through the National Research Plan for

Aviation Safety, Security, Efficiency, and Environmental Compatibility, NASA and the FAA

coordinate closely on the development of new

technologies to meet the challenges of the

Nation’s growing air system. For example,

NASA has developed technologies that could

safely increase airport runway capacity by

five percent. The FAA is using a NASAdeveloped system to improve aircraft sequencing at one of the world’s busiest airports,

Dallas-Fort Worth, preventing an estimated

$9 million annually in aircraft delay costs.

Another NASA system is improving the efficiency of ground operations at six highvolume airports.

This Administration has strongly supported

the Advanced Vehicle Technologies Program,

which combines the best in transportation

technologies and innovative program management to produce new vehicles, components,

and infrastructure to respond to mediumand heavy-duty transportation needs, performance requirements, and environmental standards. This program improves the overall energy efficiency and U.S. competitiveness while

reducing emissions and transportation dependence on petroleum. Since 1993, this public/

private partnership initiated over 300 projects

with 450 companies and helped develop technologies such as hybrid electric transmissions,

auxiliary power units and motors, and advanced battery and charger systems.
123

10. COMMUNITY AND REGIONAL

DEVELOPMENT

Table 10–1. Federal Resources in Support of

Community and Regional Development

(Dollar amounts in millions)

Function 450 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 9,600 10,997 15%

Mandatory outlays ..................................................... 760 –670 NA

Credit Activity:

Direct loan disbursements ....................................... 2,383 2,332 –2%

Guaranteed loans ...................................................... 297 3,456 NA

Tax expenditures ....................................................... 850 1,400 65%

NA = Not applicable.

Investing in our communities helps bring

prosperity to all Americans. Federal support

for community and regional development helps

build the Nation’s economy and helps economically distressed urban and rural communities

secure a larger share of America’s prosperity.

The Federal Government spends nearly $11

billion a year, and offers about $1.4 billion

in tax incentives to help States and localities

create jobs and economic opportunity, and

build infrastructure to support commercial

and industrial development. Federal programs

have stabilized and revitalized many of these

communities, allowing them to expand their

economic base and support their citizens,

particularly those in need.

During the past eight years, the ClintonGore Administration has succeeded in promoting high-employment, low-poverty policies

that have assisted communities in tackling

the challenges of a new economy shaped

by technological innovation and information

processing. Growth in the technology sector

accounts for more than 25 percent of all

new jobs, and these positions are primarily

located in cities and suburbs. From 1992

to 1998, many communities registered dramatic decreases in unemployment, which fell

in urban areas from 8.5 percent to 5.1

percent.

The Administration’s community and economic development agenda has been built

on the following components:

• Assisting communities in making the transition to the new economy by increasing

access of under served communities to the

capital and technical expertise they need

to take advantage of untapped markets for

labor, retail, and land.

• Addressing the challenges of an aging and

increasingly diverse population by helping

communities address the affordable housing crisis one that threatens regional competitiveness and family self-sufficiency.

• Giving communities the tools and resources that they need to build safe and

livable communities.

Housing and Community Development

The communities experiencing the greatest

economic growth often have the most severe

housing problems, affecting both low and

middle income residents who find it increasingly difficult to obtain housing that they

can afford. The Department of Housing and
124 HIGHLIGHTS FROM FY 1994 TO FY 2001

Urban Development (HUD) provides communities with funds to promote commercial

and industrial development, enhance infrastructure, and develop strategies for providing

affordable housing close to jobs. HUD also

provides grants and sponsors research to

reduce the hazards created by lead-based

paint in housing.

Community Development Block Grants

(CDBG) provide funds for various community

development activities directed primarily at

low-and moderate-income persons. CDBG

funds go to improving housing, public works

and services, promoting economic development,

and acquiring or clearing land. Seventy percent of CDBG funds go to more than 1,000

central cities and urban counties, and the

remaining 30 percent go to States to award

to smaller localities. The Section 107 setaside within CDBG, the University Partnerships Program, provides grants to academic

institutions including Historically Black Colleges and Universities, Hispanic Serving Institutions, and Tribal Colleges. The Indian

CDBG, also a set-aside within the CDBG

program, focuses mainly on public infrastructure, community facilities, and economic development on reservations.

HUD’s HOME Investment Partnership Program supports construction of new housing,

rehabilitation of existing homes, acquisition

of standard housing, home ownership counseling assistance, and tenant-based rental

assistance.

The 1993 to 2001 accomplishments for

the CDBG, HOME, and lead-based paint

programs include:

• producing approximately 1,495,284 units

of rehabilitated and newly constructed

housing for ownership and rental through

the CDBG program;

• creating more than 1,103,595 jobs through

CDBG;

• awarding more than $12.2 billion to

HOME Participating Jurisdictions;

• constructing, renovating, or rehabilitating

more than 600,000 housing units with

HOME funds; and,

• developing in 2000 a strategy to virtually

eradicate childhood lead poisoning by

2010, through the President’s Task Force

on Environmental Health Risks and Safety Risks to Children (a group that includes

HUD, EPA, HHS, and other Federal agencies).

Empowerment Zones and Economic

Development Tax Incentives

Empowerment Zones (EZs) provide tax incentives and grants to carry out 10-year,

community-wide strategic plans to revitalize

designated areas. Under the leadership of

the Vice President and the Community Empowerment Board, which the Vice President

has chaired, this Administration has enjoyed

considerable success in developing and expanding EZs. Since the first communities were

designated in 1994, the accomplishments for

the Administration’s EZ and Enterprise Community (EC) program include:

• leveraging more than $12 billion in additional public and private sector investment

in community revitalization efforts;

• serving more than 319,648 EZ/EC residents through educational programs including Head-Start, GED and vocational

education programs;

• providing job training for more than

200,000 EZ/EC residents;

• creating more than 120,000 jobs within

the EZ/ECs; and,

• securing an additional $200 million in

2001 grant funding for EZs.

In 1994, the Administration designated nine

Round I EZs, two Supplemental EZs (which

were designated full EZs in 1998) and 95

ECs. Three of the EZs and 30 of the ECs

were in rural areas and administered by

the Department of Agriculture (USDA). These

Round I EZs and related ECs leverage private

investment, expand affordable housing and

home ownership opportunities, mobilize grassroots leadership, and help create jobs. In

January 1999, the Administration designated

15 new urban EZs and five new rural EZs

(administered by USDA) from more than

268 distressed areas that applied for new

designations. These EZs, along with the 20

new rural ECs, have begun implementation

of their comprehensive strategies to redevelop
10. COMMUNITY AND REGIONAL DEVELOPMENT 125

their areas. Recently, the Community Renewal

Tax Relief Act of 2000 also provided for

the designation of nine additional EZs, with

seven in urban areas and the remainder

in rural areas.

Tax benefits for EZs include:

• a 20-percent wage credit on the first

$15,000 of qualified wages paid to zone

residents working in the zone;

• higher up-front deductions for investments

in equipment; and,

• special tax-exempt financing for certain

zone property used by enterprise zone

businesses.

Enterprise Communities are eligible for

the tax-exempt financing benefits.

In addition, certain economically depressed

census tracts within the District of Columbia

were designated as the D.C. Enterprise Zone

following the passage of the Taxpayer Relief

Act of 1997. The benefits extended to the

D.C. Zone include: the wage credit and upfront deductions, capital gains preferences

for certain investments, and a first-time home

buyer tax credit.

Community Capacity Building

The Department of Commerce’s Economic

Development Administration (EDA) provides

assistance to communities to help build capacity and address long-term economic challenges

through its nationwide program delivery network. EDA’s public works grants help build

or expand public facilities to stimulate industrial and commercial growth, such as industrial parks, business incubators, access roads,

water and sewer lines, and port and terminal

developments. EDA also assists communities

in addressing sudden and severe economic

downturns and in adjusting to downsizing

and closure of defense facilities.

Since 1993, EDA’s accomplishments include:

• in total, creating and retaining 511,000

jobs, investing $3.3 billion in grants, and

generating $19.6 billion in private-sector

leveraged investment;

• awarding 1,540 public works grants, totaling $1.4 billion, for infrastructure development; and,

• awarding 650 grants totaling $501 million

to support disaster recovery efforts, and

another 580 grants totaling $830 million

to assist communities in rebuilding their

economies following defense-related industry downsizing and base closures.

Community Development Financial

Institutions

The Treasury Department’s Community Development Financial Institutions (CDFI) Fund

seeks to promote economic revitalization and

community development in distressed areas

by increasing the availability of capital and

leveraging private sector funds. The CDFI

Fund provides financial and technical assistance to a diverse set of specialized, private,

for-profit and nonprofit financial institutions

known as community development financial

institutions. CDFIs have a primary mission

of community development and include community development banks, credit unions,

loan funds, venture capital funds, and microenterprise loan funds.

Accomplishments for the CDFI Fund include

leveraging more than $3 billion in community

development loans and investments through

CDFI core awardees. These investments have:

• supported more than 6,000 micro enterprises;

• created or maintained about 41,000 jobs;

• developed or rehabilitated more than

52,000 units of affordable housing; and,

• supported up to 823 community facilities,

including childcare centers, health care

centers, charter schools and job training

centers.

Rural Community Advancement

Because their needs are different, no single

approach will help both urban and rural

communities. To address this, the Administration developed the new Rural Community

Advancement Program (RCAP). RCAP combined 12 separate USDA rural development

programs into Performance Partnerships in

which the Federal Government provides more

flexibility while requiring more accountability

for how the money is spent. RCAP grants,

loans, and loan guarantees help build rural

community facilities, such as health clinics,
126 HIGHLIGHTS FROM FY 1994 TO FY 2001

day care centers as well as water and

wastewater systems. RCAP also provides similar programs to assist rural businesses, including cooperatives, to increase employment and

diversify the rural economy. Under RCAP,

States have increased flexibility within the

three funding ‘‘streams’’ for Water and Wastewater, Community Facilities, and Business

and Industry. USDA State Directors have

the authority to transfer up to 25 percent

of the funding between any of the programs

contained within a stream in order to tailor

RCAP assistance to the specific rural economic

development needs of individual States.

USDA rural development accomplishments

since 1993 include:

• creating 122,000 jobs through RCAP;

• constructing 2,560 treatment facilities

serving more than 15 million rural residents through RCAP’s wastewater program;

• increasing USDA assistance to rural businesses from $100 million in 1993 to more

than $1.3 billion in 2001 assistance that

contributed to the creation of 336,000 jobs;

and,

• overseeing the development of rural EZ/

ECs. More than 180 rural communities

completed the strategic planning process

needed to be considered for Round 1 EZ/

ECs. To ensure continuing benefits for

those communities not awarded EZ/EC

status, USDA designated them as ‘‘Champion Communities,’’ eligible to receive priority assistance when competing for any

type of USDA housing, business or utility

funds.

Commitment to Native Americans

The Department of Interior’s (DOI) Bureau

of Indian Affairs (BIA) helps Native American

Tribes, organizations, and individuals improve

their economies, natural resources, and communities. BIA administers more than 56

million acres of Indian trust lands, and

assists Indian landowners in developing agricultural, grazing, forestry, mineral, oil, and

gas resources. In addition, BIA helps Indian

businesses secure private capital through its

loan guarantee program and partnerships

with other Federal agencies. BIA also assists

Tribal governments in providing law enforcement, fire protection, employment training,

housing assistance, and other community services. BIA provides support for 185 elementary

and secondary schools, and 25 Tribal community colleges, and maintains more than 7,000

buildings, including school and dormitory facilities, 3,000 employee housing units, and

more than 200 dams and irrigation facilities.

Working with Federal, State, and local transportation agencies, BIA maintains and improves nearly 50,000 miles of road and 770

bridges that provide access to schools, employment, health, and other public services.

As part of President Clinton’s Native American Programs Initiative, BIA accomplishments

since 1993 include:

• successfully managing a 12-percent increase in elementary and secondary student enrollment, improving academic performance and daily attendance, while lowering student dropout rates;

• investing $304 million to replace 19 of

BIA’s most dilapidated schools and dormitories, and more than $467 million to

rehabilitate or repair other elementary

and secondary schools;

• guaranteeing $369 million in private sector investments to create or expand Indian

businesses and provide thousands of jobs

on reservations;

• hiring more than 500 police officers, investigators, dispatchers, and detention personnel to improve public safety on Indian

reservations. (With the Justice Department, BIA invested an additional $174

million in Indian law enforcement personnel, training and equipment during

1999 to 2001, the first three years of a

four-year modernization program.)

• investing $144 million to rehabilitate 20

of the most hazardous dams on Indian reservations to ensure safe and efficient operations for residents and neighboring communities;

• improving the quality of life for more than

4,500 low-income families by repairing or

replacing substandard homes on Indian

reservations; and,
10. COMMUNITY AND REGIONAL DEVELOPMENT 127

• working with DOI’s Special Trustee for

American Indians to install modern trust

fund accounting and management systems

to provide more accurate and timely information on payments to more than 262,000

Tribal and individual accounts.

DOI is often perceived as the lead agency

on Indian policies and programs. However,

more than a dozen Federal agencies participated in the President’s Native American

Programs Initiative, which raised Governmentwide funding for Indian Programs from $5.4

billion in 1993 to $9.4 billion in 2001 (increases of $1.1 billion, or 14 percent, over

2000, and 75 percent over 1993). The 2001

Budget requested an increase of $1.2 billion

over the 2000 enacted level, the largest

single-year increase ever requested for Native

American programs. Among the agencies with

the largest increases between their 1993

and 2001 appropriations for Indian programs

are: the Indian Health Service in the Department of Health and Human Services (an

additional $777 million, or 42 percent, over

the 1993 level), BIA ($496 million, or 30

percent), the Department of Education (nearly

$1.4 billion, or 302 percent), HUD ($326

million, or 81 percent), and the Department

of Transportation ($66 million, or 33 percent).

There are four basic categories of programs

and services provided by the Federal Government to Native American Tribes, as well

as to individuals and families residing on,

near, and in some cases off reservation:

health care, education, economic and infrastructure development, and other basic services (see Table 10–2). Major accomplishments

under the Native American Programs Initiative include:

Health Care: The Indian Health Service received a $777 million increase since 1993 to

address major health problems affecting Native Americans and Alaska Natives. This funding enabled IHS to improve the quality of, and

access to, basic medical care. IHS targeted

health problems that disproportionately affect

Native Americans, such as diabetes and alcohol and substance abuse. As a result of IHS’s

monitoring, prevention education, and treatment activities, IHS diabetic patients’ average

blood sugar levels decreased by eight percent

between 1994 and 1999.

Education: In 2001, the Department of

Education received an increase of about $35

million from the 1993 level for Indian Education Programs. These programs serve students attending BIA-administered schools or

public schools with high concentrations of Native American students, and are designed to

address the unique academic and cultural

needs of Native American children. In the last

two years, American Indian Teacher Corps and

the American Indian Administrator Corps

were established to increase the number of

skilled professionals in classrooms with high

concentrations of Native American students.

Since 1993, BIA was provided an increase

of more than $140 million for the operation

of its elementary and secondary school system.

In 2001, BIA received a record total of

$293 million, $160 million over 2000, for

the repair, rehabilitation, and maintenance

of these schools. Also in 2001, the Department

of Education received $1.2 billion to rehabilitate elementary and secondary schools across

the country, including a $75 million setaside for public schools with high concentrations of Native American students.

Four Federal agencies (DOI, Agriculture,

Education, and HUD) contributed to 28 Tribal

Colleges and Universities (TCU) to help improve and expand TCUs capacity to serve

Native American students. Three new institutions were established between 1993 and

1997. In 1993, total operating funding for

these institutions was $24 million, with BIA

as the sole provider of these funds. Appropriations for 2001 allowed the four agencies

to provide a total of $72 million, or 27

percent over 2000, for core operations, curriculum development, student recruitment,

student services, professor training, research

capacity-building, Tribal outreach, technical

assistance, and facilities construction and renovation.

Economic and Infrastructure Development: Since 1993, the Economic Development

Administration (EDA) in the Department of

Commerce provided 660 grants to Indian

Tribes and organizations totaling $96.5 million. These funds were matched by more than

$41 million in local share and were expected

to leverage about $25 million in private sector

investment. The combined investment led to
128 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 10–2. Selected Native American Programs

(Budget authority, dollar amounts in millions)

1993

Actual

2001

Enacted

Change:

1993–2001

Percent

Change:

1993–2001

Health Care:

Indian Health Service—BA only (HHS) .......................................... 1,858 2,635 777 42%

Indian Health Service Program level, including receipts ............... 2,022 3,194 1,172 58%

Education:

BIA School Construction, Repair, Maintenance (BIA/DOI) ........... 90 293 203 226%

School Construction For Public Schools Serving High Concentrations of Native Americans (Education) ........................................ 4 75 71 1,775%

BIA School Operations (BIA/DOI) ................................................... 343 489 146 43%

Indian Education Assistance for Public and BIA Schools Serving

High Concentrations of Native Americans (Education) ............. 81 116 35 43%

Support of Tribal Community Colleges (Multiagency) .................. 24 72 48 200%

Economic Development:

New Markets and Other Activities—Economic Development

Administration (Commerce) ......................................................... 3 17 14 467%

Digital Opportunity and Other Activities (NSF) ............................ * 10 10 NA

Small Business Development (SBA) ................................................ * 2 2 NA

Community Development Financial Institute (Treasury) ............. * 5 5 NA

Rural Community Advancement Program/RCAP (USDA) ............ * 24 24 NA

Commercial Code Implementation and Other Activities—Administration on Native Americans (HHS) ......................................... 35 46 11 31%

Infrastructure and Other Basic Services:

Indian Reservation Roads and Bridges:

Road/Bridge Construction (DOT) ................................................. 200 263 63 32%

Road/Bridge Maintenance (BIA/DOI) .......................................... 30 27 –3 –10%

Indian Housing:

Housing and Urban Development ................................................ 401 727 326 81%

Housing Improvement Program (BIA/DOI) ................................ 20 20 .................. ..................

Joint Indian Country Law Enforcement:

Department of Justice ................................................................... 4 219 215 5,375%

BIA/DOI ......................................................................................... 93 153 60 65%

Subtotal, Law Enforcement ...................................................... 97 372 275 284%

Capacity Building and Other Basic Services:

Environmental Protection Agency ............................................... 38 196 158 416%

Improved Trust Services (BIA/DOI) ............................................ 84 104 20 24%

Operation of Indian Programs (BIA/DOI) ................................... 1,364 1,742 378 28%

Total Government-wide Funding for Native American

Programs ......................................................................................... 5,360 9,387 4,027 75%

* Less than $500 thousand.

NA = Not applicable.

Note: Columns are not additive.

the preservation and/or creation of more than

5,600 jobs over the life of the projects. Of the

EDA grant amounts, about $21.6 million supported 63 ongoing Native American planning

programs throughout the Nation. EDA anticipates awarding an additional $17 million in

grants in 2001.

USDA’s loan and grant program activity

to Native American communities and individuals increased from approximately $10 million

in 1993 to approximately $95 million in

1999. Funds were provided through the Rural

Housing Service, Rural Utilities Service, and

the Rural Business and Cooperative Service.

In 2001, additional funds are available for

economic development through the $24 million

appropriated to Tribes from USDA’s Rural

Community Advancement Program.
10. COMMUNITY AND REGIONAL DEVELOPMENT 129

In 1999, the Smithsonian Institution dedicated the site for the National Museum

of the American Indian (NMAI) on the National Mall, in Washington, DC. The Administration worked closely with the Congress

to secure both the authorization and the

funding for this proposal. Located at the

foot of Capitol Hill, the Museum will provide

excellent exposure for Native American artifacts and related museum activities. The

Smithsonian Institution also operates the

George Gustav Heye Center of the NMAI

at the U.S. Custom House in New York

City, and the Cultural Resources Center

in Suitland, Maryland.

Since 1993, the Department of Transportation has constructed 2,100 miles of roads,

maintained 22,000 miles, and replaced or

rehabilitated 225 bridges under the Indian

Reservation Roads Program (IRR). The Administration also worked to expand public transportation services for residents of Indian

communities.

HUD worked with the Congress to pass

the Native American Housing Assistance and

Self-Determination Act of 1996 (NAHASDA).

The Act was an important affirmation of

Tribal self-governance because it provided

funding for housing directly to Indian Tribes

and Alaska Native Villages. The legislation

set up a housing block grant program that

promotes both flexibility and accountability.

The appropriation for the block grant increased by 24 percent between 1997 and

1998, the first year after NAHASDA’s enactment. Annually, more than 500 Tribes received

housing funds through the block grant.

Other Basic Services: The Departments of

Justice and the Interior worked together to

address rising crime rates on Indian reservations. The agencies contributed $281 million

in 1999, $336 million in 2000, and $372 million in 2001 toward Indian Country law enforcement. This funding was used to hire,

train, and retain additional officers and dispatchers, provide additional equipment, replace high-mileage vehicles, construct detention and court facilities, and ensure improved

law enforcement services and protection on or

near Indian reservations.

In October 1994, the Environmental Protection Agency established the American Indian

Environmental Office to oversee the development and implementation of the EPA’s Indian

policy and programs. Funding for Tribal environmental issues and programs increased fivefold from 1993 to 2001, from $38 million

to $196 million. In 2001, Tribes received

$53 million in General Assistance Program

Grants, supporting Tribal environmental program capacity building. In 1999, 270 Tribes

were operating environmental programs, an

increase from 90 Tribes in 1995.

The Department of the Interior implemented

several efforts to improve Indian trust fund

management systems and procedures to ensure more timely and accurate information

and revenue payments to more than 350,000

Tribal and individual landowners.

Regional Development Programs

Federal efforts have been instrumental in

shaping the economic development and prosperity of many U.S. regions through targeted

assistance programs. Two areas in which

longstanding efforts have been underway are

the Tennessee Valley and the Appalachian

Region. More recently, this Administration

also has leveraged Federal resources to provide

substantial financial and technical assistance

to the District of Columbia and the Mississippi

Delta Region, both of which have struggled

with unique financial and economic problems.

Tennessee Valley: The Tennessee Valley

Authority (TVA) contributes to the economic

prosperity of the seven-State Tennessee Valley

region by supplying it with economical electric

power and through its management of a complex river system, an integrated effort consisting of navigation, flood control, water supply, and recreation programs. TVA pays for

its river management program through proceeds from the agency’s $6.8 billion power program, user fees and sources other than appropriations. TVA’s vision statement, Generating

Prosperity in the Valley, established three

clear goals for the agency: 1) supplying lowcost reliable power; 2) supporting a thriving

river system; and, 3) stimulating economic

growth.
130 HIGHLIGHTS FROM FY 1994 TO FY 2001

Highlights of TVA’s accomplishments since

1993 include:

• Supporting the creation of thousands of

jobs and billions of dollars of investments

in the Valley’s economy over the past decade as a result of TVA’s stable power

rates. TVA’s 10-year financial plan adopted in 1997 is designed to ensure that

TVA’s price of power remains stable and

competitive.

• Establishing a Regional Resource Stewardship Council in 1999 a 20-member citizen’s

advisory body to provide input to improve

TVA’s management of the natural resources of the Tennessee Valley. TVA’s

Clean Water Initiative also has helped

build partnerships with local residents,

business and industry, and government

agencies for watershed protection and improvement. TVA’s Constructed Wetlands

Initiative has helped to remove hazardous

materials from water that must be returned to nearby streams and rivers.

• Expanding an existing manufacturing

credit to industries and establishing an

economic development loan fund to help

launch new businesses, grow existing businesses, and stimulate economic growth

throughout the region. TVA’s $300 million

annual payments to State and local governments in lieu of taxes provide additional benefits to the region.

The energy programs of TVA are discussed

in Chapter 5, ‘‘Energy.’’

Appalachian Region: The Appalachian Regional Commission (ARC) targets its resources

to highly distressed areas, focusing on critical

development issues on a regional scale, and

making strategic investments that leverage

other Federal, State, local, and private participation and resources. These investments have

paid off in this region, which historically lags

behind the rest of the Nation in economic performance.

Since 1993, ARC-supported activities

throughout Appalachia have been responsible

for:

• creating nearly 160,000 jobs;

• providing more than 185,000 households,

and nearly 6,000 businesses, with access

to new or improved water, sewage, or

waste management systems;

• providing educational and worker training

programs to more than 415,000 students;

and,

• placing nearly 1,200 physicians in health

professional shortage areas.

District of Columbia: In response to the

District of Columbia’s financial crisis in the

early 1990’s, this Administration worked with

the Congress to establish the District of Columbia Financial Responsibility and Management Assistance Authority (the Control Board)

to assist the District in regaining financial stability. In 1997, the comprehensive plan proposed by President Clinton to revitalize the

District and allow for home rule was passed

by the Congress as the National Capital Revitalization and Self-Government Act (the Revitalization Act). Through the Revitalization Act

and other financial and management reform

acts, this Administration succeeded in:

• providing more than $2 billion in savings

to the District over the next five years;

• increasing the Federal match rate for

Medicaid in the District from 50 to 70 percent;

• assuming responsibility for funding State

justice functions, such as incarceration of

adult felons, supervision of parolees, and

financing of the D.C. Courts; and,

• relieving the District of $5 billion of unfunded pension liability that D.C. had inherited from the Federal Government in

the late 1970s.

In addition to securing passage of the

Revitalization Act, this Administration:

• initiated further changes to the D.C. Medicaid formula, saving the District an addition $9 million per year;

• supported the Taxpayer Relief Act, which

provided $1.2 billion in tax relief over five

years to District residents and businesses;

and,

• proposed the College Access Act, which

provides $17 million per year for D.C. high

school students to attend out-of-State colleges at in-State tuition rates.
10. COMMUNITY AND REGIONAL DEVELOPMENT 131

Table 10–3. Delta Regional Authority and Associated Agency Funding

(Budget authority, in millions of dollars)

Agency 2001

Enacted Description

Delta Regional Authority .............. 20 The newly created Delta Regional Authority will use funds

for area development and technical assistance.

Department of Transportation ..... 226 Funds will support a variety of highway infrastructure and

transportation projects.

Department of Health and

Human Services ......................... 7 Funds will support new Rural Health Outreach grants in

the Delta, which will provide services like primary care,

dental care, mental health services, and emergency care.

Department of Agriculture ........... 6 Funds were provided for technical assistance grants and to

finance intermediaries that re-lend to rural businesses

and community development corporations.

Mississippi Delta Region: This Administration also has been committed to bringing

economic prosperity to areas such as the Mississippi Delta Region, an area comprising some

of the most distressed communities in the Nation. In the Delta region, poverty remains at

175 percent of the national average. Per capita

income in the Delta’s distressed counties is

only 53 percent of the national average. In

2001, the Congress supported the President’s

request to create and fund the Delta Regional

Authority (DRA) to promote economic development in the region. The DRA will provide a

framework for coordinated Federal, State, and

local government efforts to meet the development challenges in this region. The Congress

also supported the President’s request to boost

funding in the region for transportation and

other development-related activities (see Table

10–3 for the DRA and associated agency funding summary).

Disaster Relief and Insurance

The Federal Government provides financial

help to cover a large share of the Nation’s

losses from natural disasters. Since 1993,

the two major Federal disaster assistance

programs—the Federal Emergency Management Agency’s (FEMA) Disaster Relief Fund

and the Small Business Administration’s

(SBA) Disaster Loan program have provided

more than $32 billion in emergency assistance.

The Federal Government shares the costs

with States for infrastructure rebuilding;

makes disaster loans on uninsured losses

to individuals and businesses; and provides

grants for emergency needs and housing

assistance, unemployment assistance, and crisis counseling.

This Administration has shifted much of

FEMA’s focus to preventing disasters, an

effort that has garnered nationwide support.

Since 1993, FEMA has provided $2.3 billion

to States and communities following disasters

for hazard mitigation projects, efforts to reduce

the costs of future disasters. Recent Stafford

Act changes, enacted in 2000, will ensure

that a higher percentage of the assistance

provided following future disasters will be

for hazard mitigation activities. In addition

to these post disaster response activities,

FEMA has worked to establish ‘‘disaster resistant communities’’ across the country. Participating communities assess their risks from

earthquakes, floods, hurricanes and other disasters, and adopt prioritized mitigation plans.

Communities participating in FEMA’s flood

insurance program, which provides the only

source of affordable flood insurance to property

owners, must mitigate future losses by adopting and enforcing floodplain management

measures that protect lives and new construction from flooding. FEMA is also modernizing

its inventory of flood plain maps and taking

measures to mitigate properties experiencing

repetitive flood damages.
132 HIGHLIGHTS FROM FY 1994 TO FY 2001

The 1993 to 2001 accomplishments for

FEMA include:

• Providing more than $22 billion in disaster relief and grants to families and individuals, as well as State and local governments, to help communities rebuild following natural disasters. While dispensing

this assistance, the agency has revamped

its programs, delivering disaster assistance much more quickly and effectively

than in the past.

• Leading successful responses for the more

than 350 disasters declared by the President during this Administration in partnership with SBA and other Federal agencies, as well as State and local emergency

response agencies. FEMA assistance and

leadership paid off in helping communities

recover from the 1993 Midwest floods, the

1994 Northridge earthquake, the 1995

Oklahoma City bombing and numerous

hurricanes, tornadoes, and floods.

• Undertaking a nationwide initiative,

Project Impact, to make communities

aware of their disaster risks and more disaster resistant. Since the program was

begun in 1997, FEMA has signed up nearly 250 communities and 1,500 business

partners.

• Overseeing tremendous growth in the

number of policies issued by the National

Flood Insurance Program, which has

grown from 2.7 million to 4.2 million policyholders, with insurance coverage worth

more than $500 billion.

The 1993 to 2001 accomplishments for

the SBA Disaster Loan Program include:

• Offering disaster loan assistance under

606 Presidential and SBA disaster declarations and 823 agriculture disaster declarations in the United States, its territories, and possessions. SBA has approved

386,000 disaster loans totaling more than

$10.6 billion for homes, businesses, and

nonprofit institutions.

• Reducing the paperwork burden for loan

applicants and simplifying the loan application process. SBA also has speeded loan

processing by introducing automated loan

documentation and approval systems.
133

11. EDUCATION, TRAINING, EMPLOYMENT,

AND SOCIAL SERVICES

Table 11–1. Federal Resources in Support of Education, Training, Employment, and Social Services

(Dollar amounts in millions)

Function 500 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 38,192 61,121 60%

Mandatory outlays ..................................................... 13,548 10,737 –21%

Credit Activity:

Direct loan disbursements ....................................... 2,701 19,060 NA

Guaranteed loans ...................................................... 14,751 28,238 91%

Tax expenditures ....................................................... 21,855 59,450 172%

NA = Not applicable.

President Clinton has made increased support for elementary and secondary education

and expanded access to postsecondary training

the hallmark of his Administration. The President’s education strategy is simple and

straightforward—we must invest more in our

schools and demand more in return. Over

the past eight years, Federal spending for

all levels of education and training has

increased dramatically, tax-advantaged support for education has been expanded to

reach more people, and access to student

aid has been broadened while the cost of

repaying loans has been reduced and made

more flexible. Taken together, the improvements and expansions in the range of support

for education and training is unprecedented,

and has put postsecondary training within

reach of almost anyone who wants it. In

2001, discretionary spending for education,

training, and social services programs is $61

billion, 60 percent above the level when

the Clinton-Gore Administration took office,

while direct loans have increased sevenfold,

guaranteed loans have nearly doubled, and

tax expenditures have more than doubled.

(See Table 11–2.)

DEPARTMENT OF EDUCATION

Elementary and Secondary Education

Federal spending for elementary and secondary education addresses important national

needs, such as equal opportunity and the

use of challenging academic standards, to

improve student achievement. Most low-performing children in high-poverty schools receive extra educational assistance through

the Title I (Education for the Disadvantaged)

program. Other programs provide related support for children with disabilities and limited

English proficiency; fund teacher and administrator training; help finance and encourage

State, district, and school reforms; help reduce

class sizes; and, support research and technical

assistance. The Administration’s long-term

goal has been to help all children, especially

low-income and minority children, raise their

levels of achievement so that they can meet

challenging academic standards.

Through the Goals 2000: Educate America

Act and Improving America’s Schools Act

(IASA), the Federal focus in K-12 education

began to change in 1994 from supporting

individual programs to emphasizing schoolwide and school system reforms based on

challenging academic standards for all
134 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 11–2. Selected Education, Training, and Related Programs

(In millions of dollars)

1993

Actual

2001

Enacted

Change:

1993–2001

TAX EXPENDITURES:

Hope Scholarships Credit ............................................................................ ................. 4,480 4,480

Lifetime Learning Credit ............................................................................ ................. 2,570 2,570

Student Loan Interest Deduction ............................................................... ................. 370 370

DISCRETIONARY BUDGET AUTHORITY:

Department of Education:.

Title I—Education for the Disadvantaged/Accountability .................... 6,709 9,533 2,824

Eisenhower Teacher Quality and Professional Development ................ 275 567 292

Class Size Reduction ................................................................................ ................. 1,623 1,623

21st Century Community Learning Centers ......................................... ................. 846 846

School Renovation .................................................................................... ................. 1,200 1,200

Special Education ..................................................................................... 2,966 7,440 4,474

Education Technology .............................................................................. 23 872 849

Bilingual and Immigrant Education ...................................................... 237 460 223

Charter Schools ........................................................................................ ................. 190 190

Safe and Drug-Free Schools and Communities ..................................... 582 644 62

Adult Education ....................................................................................... 305 561 256

Pell Grants ................................................................................................ 6,372 8,756 2,384

Pell Grant maximum award (in dollars) ................................................ 2,300 3,750 1,450

Federal Work-Study ................................................................................. 617 1,011 394

GEAR UP .................................................................................................. NA 295 295

TRIO .......................................................................................................... 388 730 342

Department of Labor:

Youth Opportunity Grants .......................................................................... ................. 275 275

Responsible Reintegration for Young Offenders ....................................... ................. 55 55

Job Corps ...................................................................................................... 966 1,400 434

Dislocated Worker Assistance ..................................................................... 651 1,590 939

Department of Health and Human Services:

Head Start .................................................................................................... 2,776 6,200 3,424

Administration on Aging ............................................................................. 839 1,103 264

National Service:

Corporation for National and Community Service ................................... 284 767 483

Cultural Agencies:

Smithsonian Institution .............................................................................. 344 455 111

National Endowment for the Arts ............................................................... 174 105 –69

National Endowment for the Humanities ................................................... 177 120 –57

STUDENT LOANS (face value of loans issued):

Direct Loans .................................................................................................. NA 10,860 10,860

Guaranteed Loans ......................................................................................... 15,993 23,903 7,910

Consolidated Loans ....................................................................................... 1,487 14,238 12,751

NA = Not applicable.

students. These laws support State and local

standards-based reform efforts, promote the

use of technology in education to improve

learning, and help upgrade the quality of

teaching. This new approach to education

helped free States and schools from unnecessary Federal process restrictions, providing

greater flexibility while requiring more accountability for results. Early results show

that the standards-based reform coupled with

strong accountability is having a significant

impact. For example, all but one State has

content standards in at least reading and

math, compared to only 14 States before

Goals 2000 and IASA. And, in States that

have fully implemented these types of reforms,

student achievement is on the rise, particularly among poor and minority children.

In addition to creating a new framework

for reform through standards and accountability, this Administration launched several

initiatives to ensure that all students have

the opportunity to achieve to high standards.
11. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 135

The Class Size Reduction, 21st Century Community Learning Centers, Reading Excellence,

and technology initiatives all invested Federal

dollars in effective approaches to improving

achievement through smaller, more individualized classes, extra learning time, early literacy

efforts, and educational technology so that

students master the skills and material they

need to succeed in school. In addition, the

Administration initiated a School Renovation

program to help local school districts make

urgently-needed repairs to their classrooms

and ensure that students have a safe place

to learn.

Title I Grants to Local Educational

Agencies (Education for the Disadvantaged): Title I helps over 12 million disadvantaged students in 46,000 high-poverty schools

master the basics and achieve to the same

high standards as other students. As a result

of revisions that this Administration proposed

for the program in 1994, Title I now holds

disadvantaged students to high academic

standards, requires that testing and teaching

reflect those standards, and holds schools accountable for improvements. These are precisely the reforms that a 1998 RAND study

of North Carolina and Texas credits with producing rapid achievement gains in those States

and reversing decades of low expectations for

disadvantaged students. Funded at $6.1 billion

in 1993, Title I received a total of $8.6 billion

in 2001, a 41-percent increase. In 2000, the

Administration initiated the Title I Accountability Fund to help districts identify failing

schools, intervene with proven strategies, and

report on their results. The Fund provides

$225 million in grants in 2001.

The reforms launched in 1994, coupled

with the increased funding, have helped

schools implement more effective programs.

For example, 54 percent of all Title I elementary schools now have after-school programs

to extend learning time rather than taking

students out of the regular classroom for

assistance. In 1994, only nine percent of

Title I elementary schools had before- or

after-school programs. The most recent data

available suggest progress among students

most likely to be served by the Administration’s Title I reforms, including:

• Reading and math scores for nine-year

olds in our highest poverty schools (75 percent or higher poverty) rose by nearly a

grade level between 1992 and 1996.

• Between 1994 and 1998, the lowest-achieving fourth-graders showed substantial

gains in reading, largely accounting for the

rise in the average reading score among

all fourth-graders nationally.

Teacher Quality and Professional Development: Funding for the Eisenhower Professional Development State Grants, the largest

Federal program dedicated to providing teacher training, has nearly doubled from $246 million when President Clinton took office to $485

million in 2001. This Administration has

paired this investment in teacher quality with

its leadership in promoting high-quality professional development that prepares teachers to

meet the high academic standards adopted by

nearly all States and districts. In addition, this

Administration has supported innovative

teacher recruitment and recognition strategies

to improve public school education. In 1994,

it created the Troops to Teachers program,

which has proved successful in helping skilled

and experienced military service members become teachers in high-poverty schools. This

Administration also has strongly supported the

National Board for Professional Teaching

Standards, thus helping to raise the number

of teachers meeting standards of national excellence from 282 in 1995 to 9,498 in 2000.

In addition, this Administration has taken

the lead on extending teacher preparation

to pre-school professionals by securing funding

in 2001 for the Early Childhood Educator

Professional Development program. The 2001

enacted level also provides new funding for

recruitment efforts to improve teacher quality

by attracting recent college graduates with

outstanding academic records to become fully

qualified teachers through nontraditional

routes.

Class Size Reduction: In 1999, President

Clinton launched an initiative to reduce class

sizes in the early grades to an average of 18

students by 2005. First funded at $1.2 billion,

this initiative will help communities recruit,

hire, and train 100,000 qualified teachers to

provide more individualized attention in the

grades when students are building their
136 HIGHLIGHTS FROM FY 1994 TO FY 2001

foundation for learning. Already, an estimated

29,000 teachers have been hired, and at the

2001 level of $1.6 billion, approximately 8,000

more teachers are being added. Research

shows that students in smaller classes outperform their peers in larger classes, and that

this is particularly true for minorities and students in inner-city schools. Initial reports for

the Federal program are positive, including:

• In the grades and schools in which Class

Size Reduction teachers have been hired,

districts report that class sizes have

dropped from an average of 23 to 18.

• Hiring 29,000 teachers has reduced class

sizes for some 61,000 additional teachers

and a total of 1.7 million students in

23,000 schools.

• Anecdotal reports from districts show improvements in student achievement. For

example, in Washington, D.C., participating schools have increased the percentage of students reading above the basic

level.

21st Century Community Learning Centers/After School Programs: Initiated as a

$1 million demonstration program in 1995,

21st Century Community Learning Centers

was expanded to be an $846 million initiative

by this Administration in 2001 to help students have a safe, supervised place to continue

learning before and after school and during

the summer. The program provides grants to

public schools, which generally partner with

community-based organizations, to provide tutoring, homework assistance, enrichment opportunities, and recreational activities for children and adults in urban and rural communities. Many school districts make the program

part of a comprehensive approach to turning

around troubled schools by providing children

the extra help they need to meet challenging

academic standards. Extended learning time

has not only been shown to increase achievement in reading and math, but to decrease

youth violence and drug use. The 2001 level

will support about 6,700 centers serving approximately 1.3 million children.

Reading Excellence: A student’s most basic

skill to master is reading. Although reading

problems can be particularly severe for disadvantaged students, students with reading

difficulties represent a cross-section of American children. On the 1994 National Assessment of Educational Progress, 40 percent of

fourth-graders failed to reach the ‘‘basic’’ reading level and only 30 percent attained the ‘‘proficient’’ level. In 1997, this Administration

launched the America Reads Challenge to provide extra help to meet the goal that every

child will read well and independently by the

end of the third grade, and obtained enactment

of new legislation—the Reading Excellence Act

(REA)—that began funding State and local

programs on July 1, 1999.

REA supports competitive grants to highpoverty schools to improve the teaching and

learning of reading. Seventeen States received

three-year REA grants with 1999 funds, and

10 more received grants from 2000 funds.

With the $286 million available for 2001,

all the remaining States and territories are

expected to receive grants, bringing the number of children served to 1.1 million.

In response to the America Reads Challenge,

more than 1,400 colleges have committed

nearly 27,000 Federal Work-Study students

to tutor children in reading. In addition,

each college or university that participates

in the Federal Work-Study program must

include at least one tutoring or family literacy

project as part of its community service

activities, giving priority to the employment

of work-study students as reading tutors

in schools participating in reading reform

efforts.

School Renovation: About one-quarter of

the Nation’s school districts report that at

least one building is in less than adequate condition, and one-fifth rate the condition of their

life-safety features (e.g., fire alarms and sprinkler systems) as less than adequate. Based on

President Clinton’s proposal to provide funds

to help local school districts make critical facilities repairs, the 2001 appropriation included authorization and funding for a new

$1.2 billion program including funds for emergency repairs to schools. Projects may include

fire and safety code repairs and repairs to

roofs, plumbing, and electrical systems. The

program includes a $25 million demonstration

that will support innovative financing methods

to help charter schools meet their facilities

needs. Federal support for school construction
11. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 137

is also provided through Qualified Zone Academy Bonds, which are discussed in the Tax

Incentives paragraph of this section.

Special Education: Under the Individuals

with Disabilities Education Act (IDEA), the

Education Department works with States to

ensure that more than six million children

with disabilities receive a ‘‘free appropriate

public education.’’ During this Administration,

Federal support for special education programs

authorized under the IDEA increased by more

than 150 percent, from nearly $3.0 billion in

1993 to $7.4 billion in 2001, and the Federal

share of special education costs increased from

eight percent to 15 percent.

In 1997, the IDEA reauthorization focused

attention not only on guaranteeing access

to public schools, but also on ensuring that

students with disabilities receive a highquality education based on the same challenging standards as their nondisabled peers.

As of July 1, 1998, all States were required

to have performance goals and strategies

in place for students with disabilities aged

three to 21, and to report their progress

toward meeting those goals on a biennial

basis. By July 1, 2000, all States were

required to include special education children

in State and district-wide regular assessments

or provide alternate assessments to measure

educational performance. Based on the latest

data available, during this Administration:

• The number and percentage of students

with disabilities who leave high school

with a regular diploma has increased from

114,000, or 52 percent, of all students with

disabilities in 1994, the earliest year comparable data are available, to 149,000, or

57 percent, in 1999.

• The percentage of students with disabilities who dropped out of school decreased

from 35 percent in 1994 to 29 percent in

1999.

Education Technology: The Administration’s education technology programs serve to

make modern computers and technologies accessible to all students, connect classrooms to

the Internet, make high-quality educational

software an integral part of the curriculum,

and enable teachers to integrate technology effectively into their instruction. This Administration’s investment in educational technology

has grown from $23 million in 1993 to $872

million in 2001.

The Administration was instrumental in

creating the education rate (E-rate) in the

Telecommunications Act of 1996 to provide

discounts for schools and libraries to purchase

high-speed Internet access, internal wiring,

and telecommunications services. Since the

beginning of the program in 1998, E-rate

commitments of $5.6 billion have helped

dramatically increase the number of schools

and individual classrooms connected to the

Internet. In 1994, only 35 percent of all

public schools and three percent of classrooms

had a connection to the Internet, but by

1999, 95 percent of all public schools and

63 percent of public school classrooms were

connected to the Internet.

Not only did nearly all schools connect

to the Internet during this Administration,

but teachers were better prepared to take

advantage of new technological tools in the

classroom. In 1994, 51 percent of teachers

had recently participated in professional development on the use of technology, as compared

to 78 percent of teachers in 1998. Programs

created during this Administration, like the

Technology Literacy Challenge Fund and Preparing Tomorrow’s Teachers to Use Technology, have expanded technology training

opportunities for teachers to better prepare

students for the new opportunities in the

21st Century.

Hispanic Education Action Plan: To address the disproportionately low educational

achievement and high dropout rates of Latino

and limited English proficient (LEP) students,

the Administration created the Hispanic Education Action Plan (HEAP). Since its inception

in 1998, the HEAP initiative has aimed to increase funding levels for select programs that

help Latino and LEP students improve their

levels of academic achievement, high school

graduation, postsecondary participation, and

opportunities for lifelong learning. HEAP programs include Title I, Adult Education, Bilingual Education, and TRIO. The 2001 appropriation includes $1 billion in increases over

the 2000 level for all HEAP programs. Overall

funding for programs included in this initiative
138 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 11–3. Hispanic Education Action Plan (HEAP)

(Budget authority, in millions of dollars)

Program

Enacted Change:

1998–2001 1998 2001

State Agency Migrant Program ...................................................... 305 380 75

High School Equivalency Program ................................................. 8 20 12

College Assistance Migrant Program ............................................. 2 10 8

Bilingual Education ......................................................................... 199 296 97

Adult Education ............................................................................... 361 561 200

Hispanic-serving Institutions ......................................................... 12 69 57

Federal TRIO Programs .................................................................. 530 730 200

Migrant Youth Job Training Program (Labor) ............................. NA 5 5

Migrant and Seasonal Youth Opportunity (Labor) ....................... NA 12 12

GEAR UP ......................................................................................... NA 295 295

Title I, Grants to local educational agencies ................................. 7,375 8,602 1,226

Total, HEAP ............................................................................... 8,792 10,979 2,187

NA = Not applicable.

has increased by 25 percent since 1998. (See

Table 11–3.)

Bilingual Education: The population of

LEP students has grown dramatically over the

last two decades. Between school years

1992–1993 and 1996–1997, the LEP population

in 10 States (Alabama, Alaska, Florida, Idaho,

Nebraska, Nevada, North Carolina, Oregon,

South Carolina, and Tennessee) grew by more

than 50 percent. The Bilingual Education program provides funds to school districts to teach

English to LEP students and help them meet

the same challenging State standards required

of all other students. The program also funds

professional development programs to address

the growing need for certified bilingual education and English as a second language (ESL)

instructors. The Administration proposed and

won over $100 million in increases for Bilingual Education between 1993 and 2001, a 51-

percent increase. The funding level of $296

million in 2001 will produce nearly 18,000

teachers who specialize in teaching LEP children.

Public School Choice: Public School Choice

programs offer enhanced parent and student

choice within the public school system and provide participating schools with the freedom to

pursue innovative education strategies in return for stronger academic accountability. This

Administration has made public school choice

a priority through support of the Magnet

Schools program and the Charter Schools program. When President Clinton took office, only

a handful of Charter Schools existed. This Administration launched the Federal Charter

Schools Program in 1994; it was first funded

in 1995 at $6 million. Due in part to support

from the Charter School program, there are

currently over 2,000 charter schools in operation nationwide, and 36 States have charter

school legislation. At the current rate of

growth, the President’s goal of having 3,000

charter schools in operation by 2002 will be

met. In 2001, the Charter School program is

receiving $190 million, a $45 million increase

from the previous year. The Magnet School

program is receiving $110 million in 2001.

Safe and Drug Free Schools and Communities: Since 1993, this program has provided almost $5 billion to help 97 percent of

all school districts implement drug and violence prevention efforts. In 2001, the program

is receiving $644 million, including $117 million for the Safe Schools/Healthy Students initiative, $50 million for the Middle School Coordinator Initiative, and $10 million for Project

SERV (School Emergency Response to Violence). The Coordinator Initiative will help

1,300 middle schools hire a director of violence

and drug prevention programs in order to link

school programs with community resources.

Project SERV will provide emergency assistance to schools that suffer violent acts or other

traumatic crises.
11. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 139

Adult Education: For many disadvantaged

adults, Adult Education programs provide the

only opportunity to gain literacy skills and obtain the knowledge and skills necessary to attain employment and self-sufficiency and to

complete their secondary education. To meet

the rapidly growing need for these services

across the Nation, the Administration has proposed and won several funding increases for

Adult Education since 1993. This Administration also has created the English Literacy/

Civics initiative (EL/Civics) which assists recent immigrants and other LEP adults in

learning English while obtaining skills to navigate effectively key institutions of American

life. In 2001, the Adult Education program is

funded at $561 million, an increase of 84 percent since 1993. The 2001 level includes $70

million for the EL/Civics initiative, up from

only $7 million in 1999.

Postsecondary Education

The economic power of higher education

is growing steadily as technology and knowledge increasingly drive our Nation’s economy.

Whereas young men and women in 1980

who completed at least a bachelor’s degree

earned 19 percent and 52 percent more,

respectively, than their peers with no more

than a high school diploma, by 1998 the

earnings differential had grown to 56 percent

among men and 100 percent among women.

Jobs that require a college degree are growing

twice as fast as others.

The most recent data reveal that under

this Administration, more students than ever

before are attending college and earning degrees. In 1993, 62 percent of all high school

graduates went on to college. By 1998, this

figure had risen to 66 percent. Only 44

percent of low-income high school graduates

enrolled in higher education immediately in

1993, compared to 51 percent in 1997. And

black high school graduates, who attended

college at a rate of 51 percent in 1993,

had increased that rate to 59 percent by

1997. Over 32 percent of 25- to 29-yearolds had earned at least a bachelor’s degree

in 1999, up from 27 percent in 1993.

This Administration’s initiatives included

a new early intervention program for disadvantaged students, lower fees and interest

rates on student loans, and the largest investment in student aid since the GI Bill, including new tax credits to make college more

affordable. Since 1993, the new college tax

credits and the greater availability of Federal

assistance for low-income families have opened

the door to higher education for millions

of students who otherwise could not afford

it. The Federal Government is providing

over $60 billion in student aid in 2001,

including the Hope Scholarship and Lifetime

Learning tax credits, compared to only about

$25 billion in 1993.

Hope Scholarships and Lifetime Learning Tax Credits: These tax benefits to help

families pay for postsecondary education were

proposed by President Clinton in 1996 and enacted in 1997. The Hope Scholarship helps

make the first two years of college universally

available by providing a tax credit of up to

$1,500 for tuition and fees for the first two

years of college (indexed for inflation after

2001). The Lifetime Learning tax credit provides a 20-percent tax credit on the first

$5,000 of tuition and fees for students beyond

the first two years of college, or taking classes

part-time (in 2003, this increases to $10,000

of tuition and fees). In 1999, these tax credits

were claimed by an estimated 10 million families struggling to pay for college. For the 2000

tax year, 5.6 million families are eligible for

about $5 billion in Hope tax credits, and 7.2

million families are eligible for almost $2.4 billion in Lifetime Learning tax credits. Both

credits are phased out for joint filers between

$80,000 and $100,000 of modified adjusted

gross income, and for single filers between

$40,000 and $50,000 (also indexed for inflation

after 2001).

Student Loans: In 2000, the Federal student loan programs provided more than $41

billion to nearly 5.8 million borrowers to help

finance the cost of higher education. Recognizing that the cost of borrowing is a large

burden for many students, this Administration

has fought to reduce the cost of loans through

lower fees and interests rates, as well as increased competition. Additionally, the Administration has worked diligently to improve

management of the programs. Since 1993, the

Administration has:
140 HIGHLIGHTS FROM FY 1994 TO FY 2001

• reduced federally-required loan origination

fees from as high as seven percent to three

percent of loan principal—saving students

$4 billion;

• changed the interest rate formula for student loans from a fixed to a variable interest rate and subsequently reduced the new

rate by nearly one percent—saving students $5 billion;

• enhanced competition through the creation

of the Federal Direct Student Loan Program which provided a catalyst to improving loan benefits and services for students—saving taxpayers $4 billion;

• increased loan repayment options through

the creation of the Income Contingent Repayment plan, which allows students to

repay their loans as a share of their income;

• reduced from 22.4 percent to 6.9 percent

the cohort default rate (defaults within

their first two years of repayment on a

loan)—saving taxpayers $7 billion; and,

• quadrupled collections on defaulted loans

from $1 billion in 1993 to nearly $4 billion

in 2001 through better portfolio management—saving taxpayers $7 billion over the

past eight years.

As a result of these reforms, students

have saved more than $9 billion in loan

costs while taxpayers have saved $18 billion

through better management of the programs.

Pell Grants: Pell Grants provide need-based

scholarships for about four million college students each year. When President Clinton took

office in 1993, the Pell Grant maximum award

was $2,300—the same as it was when President Bush took office in 1989. During this Administration, the maximum award has increased 63 percent to $3,750 in 2001. Total

funding for Pell Grants increased 35 percent,

from $6.5 billion in 1993 to $8.8 billion in

2001.

Work-Study: The Work-Study program

helps needy undergraduate and graduate students finance postsecondary education through

part-time employment. Work-Study jobs both

expand opportunity and teach responsibility

and employment skills. In 1996, President

Clinton set a goal of supporting one million

Work-Study students each year by 2000, over

250,000 more students than in 1993. This goal

was achieved in 2000 and maintained in 2001.

Federal Work-Study funds have increased 64

percent since 1993, from $617 million to $1.0

billion.

President Clinton also created the America

Reads and America Counts initiatives within

the Work-Study program, enabling college

students to earn aid by serving as reading

and math tutors in their communities. In

1998–1999, nearly 27,000 Work-Study students served as reading tutors.

GEAR UP: In his 1998 State of the Union

address, President Clinton proposed a new initiative to help make a difference for students

in high-poverty schools. GEAR UP (Gaining

Early Awareness and Readiness for Undergraduate Programs) is based on the President’s

proposal to provide early, sustained intervention and extra financial assistance to help lowincome middle- and high-school children prepare for college. GEAR UP supports partnerships of schools, colleges, and community organizations to help raise expectations for whole

grade levels of students in high-poverty

schools. In 2001, funding for GEAR UP increases to $295 million, providing services to

1.2 million disadvantaged students.

TRIO: This Administration also has expanded the TRIO programs to promote college

success for disadvantaged young people. TRIO

programs help low-income, first-generation college, and disabled individuals achieve academic success beginning in middle school,

throughout college, and into graduate school.

Since 1993, funding for the programs has nearly doubled, from $388 million to $730 million.

Up to 765,000 students will receive services

in 2001.

Within the TRIO programs, President Clinton proposed College Completion Challenge

Grants (CCCG) to help reduce the college

dropout rate. Although college enrollment

rates have risen, 37 percent of students

who go on to postsecondary school drop

out before they get a certificate or degree.

The problem is especially acute for minorities:

29 percent of African Americans and 31

percent of Hispanics drop out of college

after less than one year, compared to 18

percent of whites. CCCG is designed to
11. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 141

address this problem with a comprehensive

approach including pre-freshmen summer programs, support services, and increased grant

aid to students. In 2001, key components

of the CCCG proposal were enacted that

will help improve the chances of success

for nearly 18,000 low-income college students.

Student Aid Delivery System Modernization: The Education Department manages the

delivery of student aid benefits to nearly nine

million students in approximately 5,300 postsecondary schools, and oversees the direct and

guaranteed loan systems affecting 37 million

individuals, 4,100 lenders, and 36 guarantee

agencies. This Administration has made modernization of student financial aid management one of its highest priorities. In the Higher Education Amendments of 1998, the Administration succeeded in converting the Office of

Student Financial Assistance (OSFA) into the

Government’s first-ever Performance-Based

Organization (PBO). This new organization

has unprecedented flexibility in procurement,

operations and management of Federal student financial assistance programs. OSFA’s

mission includes improving customer service at

lower cost through better contracting practices

and use of new information technology. In its

first 18 months of operation, the new OSFA

has made significant progress in: (i) modernizing its 13 legacy, stove-pipe computer systems into an integrated, customer-oriented system; (ii) implementing web-based technologies

that allow students to conduct student aid

functions online; and, (iii) reducing projected

operating costs by reforming contracting to

share risks and rewards with private sector

firms.

Student Aid Income Verification: In

2000, as part of this Administration’s Priority

Management Objective to ensure that the right

person gets the right benefit, the Departments

of Education and Treasury performed test

matches of income data reported by students

on their aid applications against IRS data. The

agencies began work on a pilot program that

will help the Department of Education prevent

improper or erroneous student aid payments

before they are made and maximize the aid

available to needy students.

Vocational Rehabilitation Services: The

Vocational Rehabilitation (VR) program helps

individuals with disabilities prepare for and

obtain gainful employment to the extent of

their capabilities. Since 1993, funding for the

VR program has increased 28 percent, from

$1.9 billion to $2.4 billion. The 1998 reauthorization of the VR program required all States

to develop challenging, State-specific goals

based on a comprehensive assessment of the

vocational rehabilitation needs of individuals

with disabilities, and to describe the strategies

that will be used to address those needs. In

2000, States first reported their progress toward meeting these goals. To further expand

employment opportunities for individuals with

disabilities, State VR agencies are also required One-Stop partners under the Workforce

Investment Act of 1998, and participate as

Employment Networks under the Ticket to

Work and Workforce Incentives Improvement

Act of 1999.

• The number of individuals with disabilities who secured employment under the

VR program increased from approximately

194,000 in 1993 to 232,000 in 1999. The

percentage of these individuals who obtained competitive employment increased

from 82 percent in 1993 to 84 percent in

1999.

• The performance of VR agencies improved

even while they served more individuals

with significant disabilities. Of those individuals achieving an employment outcome

through the VR program, in 1999 nearly

85 percent had a significant disability, up

from 73 percent in 1993.

Education Tax Incentives

The President proposed the Hope Scholarship and Lifetime Learning tax credits to

make college more affordable for lower- and

middle-class families in 1996; the Taxpayer

Relief Act of 1997 (TRA) enacted these credits.

The TRA also created education IRAs for

higher education savings and allowed student

loan interest to be deductible; both benefits

have income limits. The TRA provided a

tax credit to holders of Qualified Zone Academy Bonds (QZABs). Proceeds of QZABs

may be used for renovation of and purchase

of equipment for schools that are high-poverty

or in enterprise communities or empowerment

zones. During this Administration, a tax
142 HIGHLIGHTS FROM FY 1994 TO FY 2001

provision allowing employees to exclude employer-provided educational assistance for undergraduate training from their gross income

has been extended several times.

DEPARTMENT OF LABOR

Elementary, secondary, and postsecondary

investments enable Americans to acquire the

skills to get good jobs in an increasingly

competitive global economy. In addition, most

workers acquire skills on the job or through

employer-provided assistance to enhance worker skills and productivity. However, some

workers need additional assistance. In addition

to Pell Grants, student loans, and tax credits,

the Federal Government will spend some

$7.1 billion in 2001 on Department of Labor

(DOL) programs that finance job training

and related services, a $1.2 billion, or 21

percent, increase from the 1993 level. In

addition to these increases, the Administration

has made a number of systems changes

that have moved the employment and training

system from a fragmented group of categorical

programs to a consolidated and integrated

system with a focus on the needs of its

customers—workers looking for new and better

jobs, and employers looking for skilled workers.

The Workforce Investment Act (WIA) of

1998: The culmination of many years of work

by this Administration and the Congress, the

WIA took full effect on July 1, 2000, as the

Job Training Partnership Act was repealed

and all States began to fully implement the

WIA requirements. The Act calls for a streamlined, customer-focused job training system

overseen by local business-led Workforce Investment Boards that provide a single point

of entry to services in each community. The

WIA reflects the basic principles set out by

President Clinton for this transformation, including: streamlining services through OneStop Career Centers; empowering individuals

with the information and resources they need

to choose the appropriate training; providing

universal access to a core set of employment

services such as job search assistance; increasing accountability, including core performance

indicators; ensuring a strong role for the private sector and the local boards that develop

and oversee programs; facilitating State and

local flexibility; and, improving the quality of

youth job training services.

Youth Activities: The WIA consolidated the

funding streams for DOL’s summer jobs and

year-round youth training programs into one

formula grant that provides a variety of services to economically disadvantaged youth.

These WIA reforms were intended to provide

more intensive and comprehensive services to

youth and achieve better programmatic outcomes in terms of future education and employment. By consolidating the funding

streams of the two youth programs, the WIA

provides local governments the flexibility to

design the education and training program

that best meets the needs of youth in their

areas. Funding for the consolidated program

is $1.1 billion in 2001, serving roughly 660,000

participants. This program is part of the Department’s efforts to reach the nearly 11 million young people between 16 and 24 who are

not in school.

Youth Opportunity Grants: The Youth Opportunities initiative, first piloted in 1993, addresses the special problems of out-of-school

youth, especially in inner-cities and other

areas where unemployment and poverty rates

are high. This model uses a saturation servicedelivery approach, concentrating resources in

high-poverty communities in order to bring

about fundamental change in neighborhoods

served. It combines Federal, State and local

resources with private-sector involvement to

create a comprehensive approach to job training, education, and career counseling. The

2001 appropriation provides $275 million for

the third year of five-year competitive grants

to 36 communities and expands to an additional two to three communities—serving 5,000

more disadvantaged youth than the 58,000

served in 2000.

Responsible Reintegration for Young Offenders (RRYO): Building on lessons learned

through the Youth Offender demonstration,

the 2001 appropriation provides $55 million

to establish partnerships between the criminal

justice system and local One-Stop delivery systems created under the WIA. Young offenders

up to age 35 will have access to comprehensive

services—including education, training, drug

treatment, and support services—that can help

them successfully reenter the community and
11. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 143

the economic mainstream. This initiative is

being administered through collaboration

among the Departments of Justice, Labor, and

Health and Human Services. The three Departments are working with State and local

agencies and communities to develop programs

that address every element of the re-entry

challenge. In 2001, the RRYO program will

support services for almost 14,000 young exoffenders.

Job Corps: Founded in 1964, Job Corps

serves severely disadvantaged youth ages 16

through 24 by providing skill training, education, and support services. It is primarily

a residential program with approximately 88

percent of students living at Job Corps centers.

This successful program has expanded during

this Administration. In 2001 with funding of

$1.4 billion, Job Corps will have 121 centers

across the country serving nearly 74,000 students—16 percent more than in 1993.

Dislocated Worker Employment and

Training Activities: The 2001 funding of almost $1.6 billion for this program will provide

training and employment services to about

883,000 displaced workers. The amount more

than doubles the 1993 funding level of $651

million, and nearly triples the participant level

to 883,400. In 2000, 80 percent of participants

are expected to be employed six months after

leaving the program in jobs that replace, on

average, 98 percent of their pre-dislocation

earnings.

One-Stop Career Centers/Employment

Service: The Employment Service provides a

free labor exchange for all job seekers and employers and operates in the One-Stop delivery

system established by the WIA. Funds for

2001, a total of roughly $1 billion, support a

range of information and services, including

self-service access to job and labor market information, either through the Internet or in

local offices, as well as staff-assisted services

for those needing more help. This level is a

12-percent increase over the 1993 funding of

$895 million for the Employment Service.

In 1994, President Clinton initiated a program of planning and implementation grants

for States to establish networks of OneStop Career Centers in their States. These

Centers were designed to streamline access

to multiple employment and training programs, with a total of $977 million provided

for this purpose since 1994. As a result

of the Administration’s efforts, the WIA institutionalized One-Stops as the primary mode

of training and employment service delivery.

During this Administration, the growth of

the Internet transformed the way labor exchange services are delivered. Job-seekers

and employers could be linked electronically

without the need to visit the local Employment

Service office. Information on local jobs could

expand to cover regional and national labor

markets. In this new environment, workers

who want to learn about job openings can

use DOL’s popular America’s Job Bank (AJB)

web site, which lists an average of 1.5

million job vacancies each day and has over

10 million job searches each month. Employers

can search through resumes posted on the

AJB web site, with over 500,000 listed daily.

Work Incentive Grants: In 2000, President

Clinton initiated a $20 million program of competitive grants to partnerships or consortia in

each State to provide services and information

for individuals with disabilities who want to

return to work. These partnerships work with

the One-Stop system to augment its capabilities to provide timely and accurate information

that people with disabilities need to get jobs

and learn about the benefits available to them

when they return to work.

Welfare-to-Work Grants: Moving people

from welfare to work has been the primary

goal of Federal welfare policy. In addition to

the $16.5 billion per year provided through the

Temporary Assistance for Needy Families Program, President Clinton obtained a total of $3

billion to help achieve this goal through Welfare-to-Work grants over 1998 and 1999. These

competitive and formula grants provide welfare recipients with the job placement services,

transitional employment, and job retention and

support services they need to achieve economic

self-sufficiency. Working closely with the Congress, the Administration later secured critically needed changes to the program’s eligibility and reporting requirements. These

streamlined criteria allow the Welfare-to-Work

grants program, within existing resources, to

better serve the eligible population and report

program results with minimal burden. In light

of this, in 2001, States’ authority to obligate
144 HIGHLIGHTS FROM FY 1994 TO FY 2001

these funds was extended for two years. This

program also is discussed in Chapter 14, ‘‘Income Security.’’

Skills Shortage Grants: A new program

of high-tech skills shortage grants, funded by

employer-paid visa application fees for foreign

workers, was initiated in 1999. To date, this

program has provided about $96 million to

help workers keep pace with the rapidly

changing economy and to provide employers

with the skilled workers they need. In 2001,

an estimated $167 million is available for

these purposes.

Workplace Protections: DOL regulates

compliance with various laws that protect individuals in the workplace a minimum wage for

virtually all workers, prevailing wages and

equal employment opportunity for workers on

Government contracts, overtime pay, restrictions on child labor, and time off for family

illness or childbirth. (For discussion of workplace safety programs, see Chapter 12,

‘‘Health.’’) Given dramatic changes in the type

of jobs in and composition of the U.S. work

force in recent years, DOL has tailored its

compliance efforts to continue ensuring effective worker protection.

For example, DOL has focused many of

its compliance activities on low-wage industries like garment, agriculture, and health

care industries that have the lowest compliance rate and in which the most egregious

violations occur. In 2001, DOL’s goal is

to increase compliance by five percent among

employers who were previous violators and

the subject of repeat investigations in these

targeted industries. DOL also has worked

to increase industry’s compliance with labor

protections through voluntary compliance initiatives and outreach to new and small

businesses.

Worker Benefits: The Administration has

led successful efforts to provide better benefits

to workers. Among the President’s first acts

in 1993 was to propose, and then sign, the

Family and Medical Leave Act. The Act allows

workers to take up to 12 weeks of job-protected, unpaid leave to care for a newborn or

newly adopted child, attend to their own serious health needs, or care for a seriously ill

parent, child, or spouse. These protections

make it less likely that employees will have

to choose between work and family. To date,

over 35 million workers have taken advantage

of this benefit.

In 1996, President Clinton successfully

sought a $1 increase in the minimum wage

over two years bringing it to $5.15 an

hour providing an additional $1,800 a year

to a full-time, full-year minimum wage earner.

This increase helped approximately 10 million

workers. The Administration also made equal

pay a prominent issue. Intended in part

to address the gap in pay between men

and women, in 2001 DOL is planning to

dedicate $17 million to equal pay efforts

such as training women in nontraditional

jobs and providing employers with assistance

to assess and improve their pay policies.

In 2000, the Congress failed to complete

work on a $1 increase in the minimum

wage, which remains essential and which

will, over time, still be inadequate for the

minimum wage to keep pace with our Nation’s

prosperity.

International Child Labor/Bureau of

International Labor Affairs (ILAB): As a

result of the Administration’s efforts, the

United States now is a world leader in ensuring that globalization helps raise labor conditions around the world. The 2001 appropriation provides $148 million for this purpose,

nineteen times greater than in 1993. A focal

point of the Administration’s priorities has

been the elimination of abusive and exploitative child labor. In 2001, President Clinton

successfully secured a 50-percent increase, for

a five-year total of $195 million, to support

the International Labor Organization’s (ILO)

International Program for the Elimination of

Child Labor (IPEC). Over the last five years,

these projects have provided educational opportunities to some 120,000 children in several

developing countries and have provided their

families with viable economic alternatives to

having their children work. The 2001 appropriation includes $37 million for a new bilateral assistance child labor initiative aimed at

improving and expanding access to basic education as part of a comprehensive strategy to

eliminate child labor. Lastly, the

Administration secured $45 million to help

developing countries implement core labor

standard initiatives and strengthen social
11. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 145

safety net programs for workers in developing

economies.

Labor Tax Incentives

The Targeted Jobs Tax Credit, which provided employers with a tax credit on wages

paid to disadvantaged workers, was extended

retroactively in 1993 to cover workers hired

from 1992 to 1994. This credit was replaced

by the more tightly targeted Work Opportunity

Tax Credit in 1996. In 1997, the Taxpayer

Relief Act created the Welfare-to-Work Tax

Credit to encourage employers to hire recipients of long-term family assistance. This

tax credit also is discussed in Chapter 14,

‘‘Income Security.’’

DEPARTMENT OF HEALTH AND

HUMAN SERVICES

Head Start: Head Start gives low-income

children a comprehensive approach to child development, stressing language and cognitive

development, health, nutrition, and social competency. Between 1993 and 2001, funding for

Head Start increased 123 percent to $6.2 billion. Enrollment, which stood at 714,000 children in 1993, is expected to reach 936,000 children in 2001, well on the way to achieving

the President’s goal of serving one million children annually by 2002. The 1994 reauthorization of Head Start established Early Head

Start, a new program targeted at pregnant

women and low-income families with children

under age three. Within the 936,000 children

expected to be served in 2001, more than

50,000 infants and toddlers will be enrolled

in Early Head Start.

Foster Care and Adoption Assistance:

The Administration for Children and Families

administers a number of programs that focus

on preventing maltreatment of children, protecting children from abuse and neglect, and

finding permanent placements for children

who cannot safely return to their homes. The

First Lady has played a prominent role in promoting the adoption of children living in foster

care and in working for passage of the Adoption and Safe Families Act of 1997 (ASFA),

landmark legislation which reformed our Nation’s child welfare system by putting considerations of children’s health and safety first. The

Adoption Incentives program, enacted into law

as part of ASFA in 1997, was one of the innovative recommendations advanced in the President’s Adoption 2002 Initiative to focus attention on the needs of children awaiting permanent adoptive families. The program has resulted in unprecedented increases in the number of children adopted. In 1999, 46,000 foster

care children were adopted, up from 23,000

in 1994, the first year for which reliable figures are available, and well within reach of

meeting the President’s goal of 56,000 adoptions by 2002, double the number in 1996. This

is the first significant increase in adoption

since the national foster care program was established nearly 20 years ago.

The Administration also worked with the

Congress to enact the Foster Care Independence Act. Nearly 20,000 young people leave

foster care each year when they reach age

18 without an adoptive family or other guardian. The Foster Care Independence Act doubled the amount of funding available to

$140 million annually to ensure that those

young people get the tools they need to

make the most of their lives by providing

them better educational opportunities, access

to health care, training, housing assistance,

counseling, and other services.

Aging Services Programs: The Administration on Aging (AoA) administers information and assistance, home and communitybased support services for older people, and

programs that protect the rights of vulnerable,

at-risk older people. Since 1993, funding for

AoA programs has increased 32 percent, from

$839 million in 1993 to $1.1 billion in 2001.

As a result, AoA and its partners have been

able to expand delivery of such important services as home-delivered meals from 103 million

meals served in 1993 to an anticipated 176

million meals in 2001, a 71-percent increase.

In addition, in 2000, the President signed into

law legislation to reauthorize the Older Americans Act, which included the Administration’s

proposal to support families caring for loved

ones who are ill or disabled. In 2001, $125

million is available for this new long-term care

program.
146 HIGHLIGHTS FROM FY 1994 TO FY 2001

Health and Human Services Tax

Incentives

The Taxpayer Relief Act of 1997 made

taxpayers eligible for a child tax credit for

each dependent child under the age of 17

to help make it easier for parents to participate in the labor force. The credit amount

per child was $400 in 1998 and rose to

$500 in 1999 and subsequent years. The

credit is gradually phased out for taxpayers

with adjusted gross income in excess of

the following thresholds: $110,000 for married

taxpayers filing a joint return, $75,000 for

a single tax-payer or head of household,

and $55,000 for married taxpayers filing

a separate return. This tax credit will provide

over $19 billion in benefits in 2001.

The Small Business Job Protection Act

of 1996 included two tax provisions to assist

families who adopt children: a nonrefundable

tax credit for the first $5,000 in adoption

expenses per child, and an exclusion of up

to $5,000 per adoption for certain employerpaid or employer-reimbursed adoption expenses. Both the credit and the exclusion

are phased out gradually for taxpayers with

incomes between $75,000 and $115,000.

NATIONAL SERVICE

The President set as one of his first

legislative objectives the establishment of a

national service program. As a result, one

of this Administration’s earliest successful

legislative initiatives was the establishment

of the Corporation for National and Community Service (CNCS) in 1993. CNCS consolidated several existing volunteer programs

and created the AmeriCorps program to engage Americans of all ages and backgrounds

in community-based service. Through Corporation-supported projects, over 1.7 million participants serve each year in community organizations to address the Nation’s unmet, critical

needs. The 2001 appropriation includes $767

million for the Corporation, a $483 million,

170 percent increase over 1993. The major

programs the Corporation oversees are

AmeriCorps, the National Senior Service

Corps, and Learn and Serve America.

AmeriCorps: Since the launch of

AmeriCorps in September 1994, more than

200,000 participants have served in communities across the country tutoring hundreds of

thousands of children, responding to natural

disasters in more than 30 States, establishing

or expanding more than 40,000 neighborhood

safety patrols, and building or rehabilitating

more than 25,000 homes for the homeless. For

their service, AmeriCorps members are eligible

to receive educational awards that help pay

for college or job training, or repay student

loans. To date, AmeriCorps members have

qualified for almost $450 million in education

awards. In 2001, nearly 50,000 members will

have the opportunity to help communities

meet their pressing needs.

National Senior Service Corps (NSSC):

The NSSC uses the talents, skills, and experience of more than 500,000 older Americans

to help solve local problems as Foster Grandparents, Senior Companions, or as Retired and

Senior Volunteers (RSVP). The 2001 appropriation includes $189 million for the NSSC,

a $61 million, 48-percent increase over 1993.

Members help meet a wide range of community needs, serve one-on-one with young people

with special needs and help other seniors live

independently in their homes. In 2000, the

RSVP program tutored more than 30,000 students in grades K-6 and helped meet the needs

of more than 10,000 terminally ill patients in

homes, hospitals, and hospices across the country.

Service Opportunities for Youth: Learn

and Serve America supports service-learning

programs in schools and community organizations that engage youth in addressing education, public safety, environmental, and other

human needs. In 2000, more than one million

students participated in these programs, which

range from designing neighborhood playgrounds to preparing food for the homeless.

The 2001 appropriation provides $43 million

for Learn and Serve.

CULTURAL AGENCIES

The Smithsonian Institution and Other

Cultural Agencies: The Smithsonian Institution, the National Gallery of Art, the U.S. Holocaust Memorial Museum, and the John F.

Kennedy Center for the Performing Arts all

play a significant role in the cultural life of

Washington D.C., and the Nation. During this
11. EDUCATION, TRAINING, EMPLOYMENT, AND SOCIAL SERVICES 147

Administration, these agencies have continued

their record of sharing their knowledge and

collections with the American public, as well

as maintaining and expanding their physical

facilities to house their unique assets.

Highlights of the past eight years include:

• The dedication of the U.S. Holocaust Memorial Museum in April, 1993, by President Clinton. Since then, the Museum has

welcomed over 15 million visitors, including 63 heads of state.

• The opening of the National Gallery of Art

Sculpture Garden in May 1999, and unprecedented exhibitions organized by and

presented at the Gallery, including those

of paintings of the Dutch artist Vermeer

in 1995–1996 and Van Gogh in 1998–1999.

Federal appropriations for the National

Gallery increased 38 percent during this

Administration, from $55 million in 1993

to $76 million in 2001.

• The celebration of the Smithsonian’s 150th

birthday party on the Mall in August

1996, and the national tour of ‘‘America’s

Smithsonian’’ to commemorate the Institution’s 150th year. In addition, the Smithsonian created its web site in 1995, which

has allowed universal public access to

Smithsonian exhibitions and artifacts.

Federal appropriations for the Smithsonian increased 32 percent during this Administration, from $344 million in 1993 to

$455 million in 2001.

• The Kennedy Center unveiled its state-ofthe-art renovation of its concert hall in

1997. Federal appropriations for the Kennedy Center more than doubled during

this Administration, from $14 million in

1993 to $34 million in 2001.

• The groundbreaking for two new Smithsonian museums—the National Museum of

the American Indian on the Mall and the

extension of the National Air and Space

Museum at Dulles Airport—and the opening of the Woodrow Wilson Center’s new

quarters on Pennsylvania Avenue.

The Commission of Fine Arts and the

National Capital Planning Commission have

responsibilities for the arts and architecture

of the Nation’s capital city. The National

Capital Planning Commission completed its

long-range plan that will guide development

in the D.C. central area for the next 50

to 100 years, including creating opportunities

for new museums and memorials and preserving the open space of the National Mall.

The Commission of Fine Arts approved designs

for numerous monuments and buildings, including the Franklin D. Roosevelt Memorial,

which opened in 1997.

The National Foundation on the Arts

and the Humanities: The National Endowment for the Arts (NEA) , the National Endowment for the Humanities (NEH), and the Institute of Museum and Library Services (IMLS)

provide support for important cultural, educational and artistic programs for communities

across America. These agencies fund education

and lifelong learning programs as well as

projects to increase public access to performances, exhibitions, and our Nation’s cultural

treasures held by museums, libraries, archives,

and historical organizations. The agencies

were able to maintain their roles over the last

eight years because the Administration won

bipartisan support in the face of severe critics

in the Congress.

• NEA has moved forward in several dramatic ways over the past several years,

placing an emphasis on outreach and focusing on grants to more people and places

for education, services for young people,

and preservation of cultural heritage.

More grants are going to smaller organizations in small and medium-sized communities. NEA has also taken administrative

steps to reform aspects of its grant review

process thus increasing its accountability.

In 2001, NEA is receiving $105 million

in funding, with $7 million for its new

Challenge America program. Through

Challenge America, NEA will award

grants, directly or in partnership with

States, to communities across America

that focus on arts education and enrichment, after-school programs, access to the

arts for underserved communities, and

community arts development initiatives.

• In keeping with Administration priorities,

NEH has focused its programmatic efforts

on developing new audiences for humanities programming, on innovative uses of
148 HIGHLIGHTS FROM FY 1994 TO FY 2001

technology, and on the education of our

Nation’s students. In 1996, NEH launched

a major Teaching with Technology initiative that encouraged schools across the

country to make use of new technologies

to bring the humanities to their students

in creative and challenging ways. In 1998,

NEH joined with MCI Communications

Corporation and the Council of Great City

Schools to develop EDSITEment, a humanities-rich meta-web site designed for

teachers and students alike. More recently, NEH has embarked on an ambitious, agency-wide effort, Extending the

Reach, that seeks to make all NEH programs more accessible to underserved regions and audiences. In 2001, NEH received a $5 million increase over 2000 for

a total of $120 million, allowing the agency to continue its emphasis on extending

the reach of NEH’s programs to underserved areas.

• IMLS has inaugurated several programs

over the past eight years which encourage

educational endeavors ranging from after

school programs to mentorships to helping

museums and libraries maximize the potential of digital media in their activities.

In 1994, museums that made outstanding

contributions in community service were

honored with the first National Award for

Museum Service, followed by the establishment of the National Award for Library Service in 2000. In 2000, a new,

comprehensive funding program called National Leadership Grants was established,

supporting innovation and collaboration in

library and museum services. Through

this program, IMLS is aggressively working to help museums and libraries build

electronic networks and use technology to

make their resources more accessible. In

2001, IMLS’ Office of Museum Services

was funded at $25 million and the Office

of Library Services received $207 million

in the 2001 appropriation. IMLS will promote access to learning and information

resources held by museums and libraries

through electronic linkages, helping all 55

State library agencies expand electronic

access to materials and increase Internet

access, and providing technical support to

museums in putting collections information on-line.
149

12. HEALTH

Table 12–1. Federal Resources in Support of Health

(Dollar amounts in millions)

Function 550 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 20,697 38,884 88%

Mandatory outlays ..................................................... 79,775 138,907 74%

Credit Activity:

Direct loan disbursements ....................................... 78 ................. –100%

Guaranteed loans ...................................................... 340 32 –91%

Tax expenditures ....................................................... 53,295 99,750 87%

Since 1993, the Clinton-Gore Administration

has worked to expand access to affordable

quality health care for all Americans. When

President Clinton took office in 1993, the

ability of the Nation’s health care system

to deliver high quality care was in question

and the public health delivery system was

badly in need of repair: many children were

not immunized against deadly diseases; cigarette use among youth was increasing; the

number of HIV/AIDS deaths was spiraling;

and, mental health was a low priority. Health

care costs were rising at a rapid rate and

the rate of the uninsured—especially uninsured children—was growing. Fraud and abuse

plagued the Medicare and Medicaid programs

and the Medicare Trust Fund was projected

to be insolvent by 1999.

In the past eight years, the Clinton-Gore

Administration has significantly improved the

Nation’s health care system. The strong economy, preventing medical fraud and abuse,

and the Balanced Budget Act (BBA) of 1997

extended the solvency of the Medicare Trust

Fund to 2025. Chief among the Administration’s accomplishments to expand health care

coverage to the uninsured is the creation

of the State Children’s Health Insurance

Program (SCHIP). Enacted in the BBA of

1997, SCHIP now provides coverage to over

three million children and has helped reduce

the number of uninsured children. The Administration has also been successful in expanding

Medicaid coverage options to other vulnerable

groups of uninsured, including workers with

disabilities, women with breast cancer, and

low-income families.

In addition to expanding access to health

care, the Administration initiated targeted

efforts to improve the quality of care by

promoting patient protections in managed

care, protecting patients’ privacy, establishing

programs to reduce medical errors, and working to eliminate health disparities. Federal

Government spending and tax incentives have

provided direct health care services; promoted

disease prevention; furthered consumer, occupational, and patient safety; and, promoted

research. The results of these Federal activities include measurable improvements in the

health of Americans. For example:

• life expectancy increased from 75.5 years

in 1993 to an all time high of 76.7 years

in 1998;

• the infant mortality rate decreased from

837 deaths per 1,000 live births in 1993

to 720 deaths in 1998, a decrease of 14

percent;

• United States deaths related to HIV infection decreased dramatically from 37,267

deaths in 1993 to 13,426 deaths in 1998,

a decrease of 64 percent; and,
150 HIGHLIGHTS FROM FY 1994 TO FY 2001

• the teenage pregnancy rate declined from

116 pregnancies per 1,000 teenage women

in 1990 to 98 pregnancies in 1996, a decrease of 16 percent.

The Federal Government is expected to

spend about $178 billion on health-related

activities and allocate about $100 billion

in tax incentives in 2001, compared to $100

billion in Federal spending and $53 billion

in tax expenditures in 1993.

Health Care Services and Financing

Medicaid: Since 1993, the Administration

has worked to expand Medicaid coverage to

children and families, provide important new

health insurance options for people with disabilities, improve the quality and availability

of long-term care services, and protect the fiscal integrity of the Medicaid program. This

Federal-State health care program served

more than 33 million low-income Americans

in 2000, including a fourth of the Nation’s children. Medicaid is the largest single purchaser

of maternity care as well as of nursing home

and other long-term care services. The Federal

Government spent almost $118 billion on the

program (57 percent of the total) in 2000 while

States spent approximately $89 billion (43 percent).

Expanding Coverage: Over the past eight

years, the Administration has expanded coverage to a number of vulnerable uninsured

groups.

• The President signed the Ticket to Work

and Work Incentives Improvement Act of

1999, which created new coverage options

for workers with disabilities. The Administration also took regulatory action giving

States flexibility to expand coverage to

tens of thousands of people with disabilities who will no longer need to impoverish

themselves to qualify for benefits.

• The Personal Responsibility and Work Opportunity Reconciliation Act of 1996

(PRWORA) gave States the flexibility to

expand Medicaid coverage to more families, and put aside $500 million for States

to simplify their eligibility systems and to

conduct outreach. The President has taken

several actions to improve coverage for

those moving from welfare to work, including guidance to States to ensure that families that remain eligible for Medicaid do

not lose their health care coverage, and

the creation of a performance bonus for

States with high or improved rates of coverage.

• The President signed legislation granting

Medicaid eligibility to uninsured women

with breast and cervical cancer and to

young people leaving the foster care system. Coverage will be provided to approximately 22,000 women diagnosed with

breast cancer and to 24,000 youth leaving

foster care per year, when these options

are fully implemented.

• The Administration has actively worked

with States to develop Medicaid waivers

that expand coverage and test new delivery and financing arrangements within

the budget of the existing program.

Long-Term Care Initiative: To encourage

the development of long-term care insurance

and ensure that those who need long-term

care services receive them, the President

promoted a comprehensive long-term care

initiative, including tax incentives for longterm care, a new State option to support

families who provide long-term care, and

the availability of private long-term care

insurance for Federal employees. The Administration approved over 200 Medicaid home

and community-based waivers nationwide,

helping hundreds of thousands of people

receive critical health care services at home

rather than in an institution. The Health

Care Financing Administration (HCFA) issued

guidance to the States to assist them in

addressing the Supreme Court’s Olmstead

decision, which moves States towards providing services to people with disabilities

in the ‘‘most integrated setting’’ appropriate.

Program Integrity: The President successfully worked with the Congress to enact

legislation that curbed double-digit growth

in Disproportionate Share Hospital payments

in the early 1990s. In October 2000, the

Administration issued a proposed regulation

aimed at curbing questionable State reimbursement practices through the manipulation

of upper payment limits for certain public

providers. The regulation was issued in January 2001.
12. HEALTH 151

State Children’s Health Insurance Program (SCHIP): In an effort to reduce the

growing number of uninsured children, SCHIP

was one of the Administration’s highest priorities in the BBA of 1997. The single largest

investment in children’s health care since the

creation of Medicaid in 1965, SCHIP provides

$40 billion over 10 years for States to expand

health insurance coverage to uninsured children in families with too much income to qualify for Medicaid but too little to afford private

coverage. States have broad flexibility to design their programs, while beneficiaries are

protected through basic Federal standards. All

fifty States, the District of Columbia and the

five U.S. Territories have implemented SCHIP.

HCFA and the States have succeeded in

meeting the SCHIP/Medicaid goal of decreasing the number of uninsured children by

enrolling children in SCHIP and Medicaid.

In 1999, the number of uninsured children

declined for the first time since the Census

Bureau began collecting health insurance data

in 1987. Medicaid enrollment increased by

more than a million children in 1999, while

over three million children were enrolled

in SCHIP as of January 2001.

The Administration has sought to build

on the goals of SCHIP. In its 2001 Budget,

the Administration proposed a 10-year, $76

billion initiative that would convert SCHIP

into the FamilyCare Program and provide

coverage to uninsured parents of children

currently enrolled in SCHIP. The Administration has also sought to expand outreach

activities to ensure that all children eligible

for federally-sponsored health insurance programs receive coverage.

Medicare, Medicaid, and SCHIP Benefits

Improvement and Protection Act of 2000

(BIPA): The Administration worked to secure

enactment of the BIPA, which invests about

$35 billion over five years to address some of

the overly aggressive payment reductions from

the BBA of 1997 and provide enhanced beneficiary protections in Medicare and Medicaid.

The bill:

• increases payments to safety net, rural

and teaching hospitals, and other health

care providers;

• extends Medicaid coverage for people leaving welfare for work;

• makes it easier for States to enroll uninsured children in Medicaid and SCHIP;

and,

• improves Medicare preventive benefits.

The BIPA builds on the Balanced Budget

Refinement Act of 1999 which also addressed

the adequacy of provider payments.

Nursing Home Quality Initiative: The

President worked to improve the quality of

long-term care by helping States strengthen

nursing homes enforcement tools to ensure

that facilities meet Federal quality standards,

and by increasing Federal oversight of nursing

home quality and safety standards. This funding has allowed States to improve and target

nursing home inspections and respond to resident and family complaints more quickly.

Public Health Care Services

Health Research: The Administration has

increased funding for biomedical research at

the National Institutes of Health (NIH) by

over $10 billion, almost doubling the 1993 level

of $10.4 billion. The Federal Government’s

support of basic and clinical biomedical research is a key to improving human health.

The priority the Administration has placed on

funding for biomedical research has led to tremendous advancements in the diagnosis, treatment, and prevention of disease and illness

in the last eight years.

• On June 26, 2000, NIH announced the

completion of the sequencing of the human

genome, which has the potential to revolutionize the ways health professionals diagnose, treat, and cure disease.

• In response to findings that putting babies

on their backs to sleep decreases the risk

of Sudden Infant Death Syndrome, NIH

launched a national Back to Sleep public

education campaign in 1994 to heighten

awareness among parents and health care

providers.

• NIH-funded researchers were able to uncover new therapies to prevent breast cancer in high-risk populations.
152 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 12–2. Food Safety Initiative

(Budget authority, dollar amounts in millions)

1997

Actual

2001

Enacted

Percent

Change:

1997–2001

Department of Agriculture ........................................... 57 165 189%

Department of Health and Human Services ............... 114 257 125%

Total ............................................................................ 171 422 147%

• NIH-funded research also led to the development of new immune-based therapies to

prevent rejection of transplanted organs.

Children’s Hospital Graduate Medical

Education (GME): Medicare is the largest explicit financier of physician training in the

United States. Since free-standing children’s

teaching hospitals do not serve the elderly,

they qualify for almost no Federal Medicare

GME support. To level the playing field in

GME financing, and to ensure that the health

care work force includes sufficient numbers of

physicians trained to care for children, this

Administration proposed funding in 2000 specifically for Children’s Hospital Graduate Medical Education. In 2001, $235 million was provided, a 487-percent increase over the 2000

funding level of $40 million. Through this investment, the program seeks to increase the

number of residents who train in children’s

hospitals by providing a level of Federal GME

support more consistent with other hospitals.

Patient Safety: In response to a December

1999 Institute of Medicine study reporting that

preventable medical errors may cause up to

98,000 deaths in the United States annually,

the Administration launched a new initiative

aimed at improving patient safety. The Agency

for Healthcare Research and Quality will pursue a $50 million research agenda in 2001 and

plans to create a new Center for Patient Safety. In 2001, the Food and Drug Administration

(FDA) received a 35-percent increase in funding over 2000, to $27 million, to fund the modernization of its existing adverse event reporting systems. Information on adverse events

and medical errors is submitted to the FDA

by doctors, consumers, manufacturers, and

other medical professionals.

Public Health Regulation and Safety Inspection: The Administration has increased

funding for FDA by 57 percent from $826 million in 1993 to $1.3 billion in 2001. This increase, in conjunction with the 1997 FDA Modernization Act, signed into law by President

Clinton, has reduced review times for new

drugs, medical devices, and biologics. For example, average drug review times have decreased since the beginning of the Administration from nearly three years to just over one

year. Consumers now have improved access to

breakthrough medical technologies that can

improve and save lives, while being assured

that new products are both safe and effective.

Food Safety Initiative: In 1997, the President announced the Food Safety Initiative, a

comprehensive initiative to improve food safety

and reduce foodborne illness. In 1998, the

President created the President’s Council on

Food Safety to strengthen coordination and

planning across the Federal food safety agencies. Funding for the Food Safety Initiative at

the Department of Health and Human Services (HHS) increased from $114 million in 1997

to $257 million in 2001, an increase of 125

percent (see Table 12–2). This additional funding allowed for increased FDA inspections of

high risk food production facilities and improved outbreak response, surveillance, and

public education by both the Centers for Disease Control and Prevention (CDC) and the

FDA. Illness from bacterial foodborne pathogens decreased by 20 percent from 1997 to

1999.

The landmark Pathogen Reduction/Hazard

Analysis Critical Control Point (PR/HACCP)

rule was also published in 1994, modernizing

the Nation’s meat and poultry inspection

system for the first time in nearly 100
12. HEALTH 153

years by utilizing more science-based approaches to inspection. Preliminary foodborne

illness surveillance data suggest that significant reductions in the incidence of foodborne

illnesses have occurred since FSIS began

adoption of the HACCP system. Salmonellosis

(salmonella enteritidis) declined 48 percent

from 1996 to 1998, and Campylobacteriosis

declined 26 percent from 1996 to 1998. These

gains were achieved not only through vigorous

product testing for deadly pathogens, but

also through daily inspection provided by

more than 7,000 Food Safety and Inspection

Service (FSIS) inspectors and veterinarians.

Funding for the FSIS in the U.S. Department of Agriculture (USDA) increased from

$495 million in 1993 to $697 million in

2001, an increase of 41 percent. FSIS inspects

the Nation’s meat, poultry, and egg products,

ensuring that they are safe, wholesome, and

not adulterated. In 1994, the Department

of Agriculture Reorganization Act established

the Office of the Under Secretary for Food

Safety and consolidated USDA food safety

inspection activities in a new public health

mission area of USDA within FSIS.

Smoking as a Public Health Problem:

Tobacco use is the second leading cause of

death in the United States, and is the largest

preventable cause of death. Over 400,000 people die prematurely each year due to tobaccorelated illnesses. The Administration has undertaken concerted, comprehensive efforts to

make clear the public health menace that

smoking represents, particularly to our Nation’s youth, and to back up those efforts with

specific policy, legislative, and revenue proposals.

• Education and prevention efforts to curb

youth smoking: In 2001, more than $100

million was provided for the Centers for

Disease Control’s tobacco education and

control efforts—a tenfold increase since

1993. The focus of these efforts was to

deglamorize tobacco, warn young people of

its addictive nature and deadly consequences, and help parents discourage

their children from taking up the habit.

• Price increases and penalties to reduce

youth smoking: Public health experts

agree that the single most effective way

to cut youth smoking is to raise the price

of cigarettes and other tobacco products.

The BBA of 1997 increased cigarette excise taxes by 10 cents per pack (from 24

cents to 34 cents) in January 2000, which

adds an additional five cent excise tax per

pack in January 2002. Since 1997, smoking rates for youths aged 12–17 have decreased from 19.9 percent to 15.9 percent

in 1999.

The Administration’s last three budgets

have pressed for further, major cigarette

price increases and have included strong

disincentives for the tobacco companies to

stop targeting children. To build on the

momentum of price increases stemming

from the Tobacco Settlement Agreement

between tobacco companies and the States,

the Administration’s 2001 Budget proposed a combination of additional excise

tax increases and a youth smoking assessment. Congress failed to enact these proposals.

• Authority to regulate tobacco products: In

1995, the Administration and the FDA

wrote strong, effective rules to prevent

children under age 18 from buying any

tobacco product, anywhere in the United

States. The FDA was also prepared to end

tobacco advertising aimed at young people.

In March 2000, the Supreme Court ruled

that the FDA must have explicit authorization from the Congress before it can

regulate tobacco. In response, the Administration has urged the Congress to give

the FDA’s tobacco regulations the force of

law, building on bipartisan efforts in 1998

where a clear majority of Senators backed

explicit legislative authority for FDA to

regulate tobacco.

• Justice Department litigation against tobacco companies: The Administration is

also pursuing litigation against tobacco

manufacturers for deceiving the public

about the dangers of smoking. This lawsuit is part of a continuing effort to hold

tobacco companies accountable for their

conduct and to force the industry to forfeit

all illicit profits. The Administration has

repeatedly urged the Congress to provide

the necessary funding to continue these

Justice Department litigation efforts. The

Administration succeeded in persuading
154 HIGHLIGHTS FROM FY 1994 TO FY 2001

Table 12–3. Government-wide HIV/AIDS Spending

(Budget authority, dollar amounts in millions)

Agency 1993

Actual

2001

Enacted

Percent

Change:

1993–2001

Health and Human Services ....................................... 3,708 10,110 173%

Social Security Administration ................................... 675 1,312 94%

Veterans ........................................................................ 299 358 20%

U.S. Agency for International Development .............. 117 330 182%

Office of Personnel Management ................................ 175 293 67%

Housing and Urban Development ................................ 100 258 158%

Defense .......................................................................... 155 110 –29%

Justice/Bureau of Prisons ............................................ 5 15 200%

Labor ............................................................................. 1 12 –1,100%

Other agencies .............................................................. 1 1 .................

Total ........................................................................... 5,236 12,799 144%

the Congress not to legislate limitations

and, therefore, funding to continue this

litigation remains available for 2001.

Childhood Immunizations: In 1993, the

President launched a major Childhood Immunization Initiative to improve immunization

rates among children in the United States. As

part of this initiative, the Administration established the Vaccines for Children (VFC) program in 1994 to ensure the availability of recommended vaccines for low-income children.

Since 1993, the Administration has tripled

funding for childhood immunizations from

$341 million in 1993 to over $1 billion in

2001—an increase of 300 percent. Childhood

immunization rates are now at an all-time

high, with 90 percent of children receiving critical vaccines by the age of two.

Domestic and Global HIV/AIDS: The Administration has demonstrated its leadership

in addressing HIV/AIDS, both domestically

and internationally, through funding increases

for research, prevention, and treatment activities. Since 1993, research on HIV/AIDS at NIH

has doubled, from $1.1 billion to an estimated

$2.2 billion in 2001. This research has increased our understanding of HIV dramatically

and led to the development of highly effective

antiretroviral therapies that have extended the

lives of people with HIV/AIDS. Funding for

domestic HIV/AIDS prevention has grown from

$498 million in 1993 to $788 million in 2001,

an increase of $290 million, or 58 percent,

which has helped reduce the rate of newly reported HIV/AIDS cases in infants due to

perinatal transmission by 73 percent. The Administration has also increased funding for the

Ryan White CARE Act by 369 percent, or $1.4

billion, from 1993 through 2001, enabling approximately 500,000 people to access HIV/

AIDS related medical and support services

each year, including lifesaving drug therapies.

The Administration’s contribution to the HIV/

AIDS epidemic in the United States has resulted in a 70-percent decline in HIV/AIDS

mortality since 1995 and AIDS is no longer

among the top 15 causes of death—it was the

eighth leading cause in 1996.

To address the HIV/AIDS epidemic internationally, in 1999 the Administration established the Leadership and Investment in

Fighting an Epidemic (LIFE) Initiative, an

interagency effort to slow the spread of

HIV/AIDS abroad, primarily in sub-Saharan

Africa. With USAID and the Departments

of Defense and Labor, the Centers for Disease

Control and Prevention received $35 million

in 2000 and $105 million in 2001, an increase

of $70 million (199 percent) for prevention

activities internationally. The U.S. funding

will contribute to the United Nations goal

of reducing the incidence of HIV infection

25 percent among 15–24 year olds by 2005.

Mental Health: The Surgeon General’s

1999 report on mental health states that one

in five Americans is living with a mental

health disorder, and that less than two-thirds

of adults with severe mental illness receive
12. HEALTH 155

treatment. Reflecting its commitment to improving mental health, it supported the law

that gives parity to mental health benefits in

private health plans. The Administration also

increased funding for mental health services

through the Substance Abuse and Mental

Health Services Administration. The 2001

funding level for Mental Health is $782 million, a $151 million increase over 2000, more

than doubling the 1993 level. The largest part

of this increase is an additional $64 million

for the Mental Health Block Grant, which supports State efforts to develop community-based

systems of care for the most seriously mentally

ill where patients can receive the necessary

treatment and supports to live self-fulfilling,

productive lives. This increase will bolster

States’ youth violence abatement programs,

jail diversion programs for youth, post-incarceration and post-hospitalization programs,

suicide prevention programs for youth and the

elderly, and will better equip States in responding to the mental health needs of persons

moving from welfare to work. Increases for

mental health services also include:

• $42 million for Knowledge Development

and Application activities;

• $25 million for new Targeted Capacity Expansion grants for early intervention and

prevention, as well as local capacity expansion;

• $9 million for Children’s Mental Health

Services;

• $6 million for grants to assist the homeless; and,

• $5 million for grants to ensure protections

for the mentally disabled against abuse,

neglect and civil rights violations.

Substance Abuse Treatment and Prevention: Funding for substance abuse treatment

and prevention services has increased by $501

million, or 31 percent, since 1993. The 2001

funding level of $2.1 billion includes $1.67 billion for the Substance Abuse Block Grant to

assist States in their efforts to prevent and

treat substance abuse. In 2001, Block Grant

funding will serve over 1.6 million people.

While national levels of illicit drug use among

12–17 year olds increased from 1992 until

1997, a combination of Federal, State, and

local investments in treatment and prevention

has contributed to a 21-percent decline in that

population’s rate of use between 1997 and

1999.

Family Planning: Since 1970, the Title X—

Family Planning program has been the cornerstone of a national network to reduce unintended pregnancy and prevent adolescent pregnancy. The Federal effort has contributed to

a 17-percent decline in the teenage pregnancy

rate since it peaked in 1990. The Administration has increased family planning funding by

46 percent from $173 million in 1993 to $254

million in 2001. In addition to providing contraceptive services and abstinence education,

the family planning program also finances sexually transmitted disease prevention and

treatment, including the prevention of HIV

transmission. Since 1996, the number of HIV

tests administered by family planning clinics

has increased by over 50 percent enabling

more HIV infected individuals to enter into

care and treatment. The Administration has

consistently fought legislative riders limiting

women’s access to contraceptive health services. For example, in 2001, the Administration

fought successfully to exclude language that

would have restricted public health funds for

emergency contraception health services in primary and secondary schools.

Indian Health Service (IHS): The Administration has demonstrated its commitment to

addressing major health problems affecting

Native Americans and Alaska Natives through

a $1.2 billion, or 58-percent, funding increase

for the IHS since 1993. This funding enabled

IHS to improve the quality and access to basic

medical care for Native Americans, and also

target a number of health problems, such as

diabetes, that disproportionately affect Native

Americans. IHS efforts in monitoring, prevention education, and treatment have resulted

in an eight percent improvement in the average blood sugar levels of IHS’ diabetic patients

between 1994 and 1999.

Racial Disparities in Health: In 1998, the

President established the national goal of

eliminating disparities in health status among

racial and ethnic groups by the year 2010 in

six key health areas where minority groups

were disproportionately affected: infant mortality, cancer, immunizations, cardiovascular

disease, HIV/AIDS, and diabetes. As part of
156 HIGHLIGHTS FROM FY 1994 TO FY 2001

this effort, $10 million was provided in 1999

to fund demonstration projects to better understand and address these racial disparities in

health. In 2001, these projects were funded

at $38 million, an increase of $28 million, or

279 percent. Through the Agency for

Healthcare Research and Quality, the Administration invested more than $40 million annually in 2000 and 2001 to fund health disparities research. In 1999, the Administration created the Initiative to Address HIV/AIDS in Racial and Ethnic Minority Communities, with

a $167 million investment in HIV/AIDS research, prevention, and treatment to reduce

disparities. This investment has since grown

to $357 million in 2001. In 2001, NIH will

establish the Center for Research on Minority

Health and Health Disparities to lead NIH’s

efforts to reduce health disparities. NIH conducts over $1 billion of research annually on

minority health and health disparities.

Consolidated Health Centers: Through a

network of roughly 700 clinics, the Consolidated Health Centers provide preventive and

primary care services to over nine million patients in the poorest rural and inner city areas.

These services reduce hospitalizations and

emergency room use and help prevent more

expensive chronic disability care. Funding for

Consolidated Health Centers has increased by

71 percent from $683 million in 1993 to $1,169

million in 2001. Through this funding, Consolidated Health Centers will continue their efforts to eliminate health disparities by assuring access to high-quality healthcare.

Community Access Program (CAP): In

1999, the Administration launched a new initiative to coordinate health care systems, increase the volume of services delivered, and

establish an accountability system to ensure

adequate care for the uninsured. CAP grant

funds will be tailored to meet a community’s

health care needs, including developing management information systems, streamlining patient intake, coordinating patient referral arrangements, and providing comprehensive

services for the uninsured. In 2000, $25 million was awarded to 23 communities and, with

the $125 million provided in 2001, at least

100 new communities will receive CAP grants.

Response to the Threat of Bioterrorism:

Over the past three years, the Administration

has marshalled substantial resources to deal

with emerging threats relating to potential terrorist use of biological and chemical weapons.

These efforts are part of a broader, multi-agency effort to address counterterrorism. HHS

funding for medical and public health preparedness related to these threats has increased from $16 million in 1998 to an estimated $326 million in 2001. Key components

of the Administration’s bioterrorism strategy

include establishing a medical stockpile of vaccines and therapeutics, improving vaccine research and development, intensifying public

health surveillance activities, conducting medical responder training and exercises, and supporting State and local governments to help

prepare for potential bioterrorist threats.

Consumer Product Safety Commission

(CPSC): The CPSC is an independent Federal

regulatory agency that helps keep American

families safe by reducing the risk of injury

or death from consumer products. CPSC safety

standards annually prevent approximately 150

to 200 infant deaths from poorly designed

cribs. Since 1993, financing for CPSC’s efforts

to develop voluntary safety standards, enforce

mandatory standards, and recall harmful products has grown by 24 percent from $42 million

in 1993 to $53 million in 2001.

Workplace Safety and Health

In 2001, the Federal Government will spend

more than $670 million per year—almost

40 percent more than 1993—to promote safe

and healthful conditions for over 100 million

workers in six million workplaces, through

the Department of Labor’s Occupational Safety

and Health Administration and Mine Safety

and Health Administration. Through a combination of enforcement, compliance assistance,

strategic partnerships, and regulatory approaches, these agencies protect workers from

illness, injury, and death caused by occupational exposure to hazardous substances and

conditions. Their efforts have contributed to

significant improvements in the Nation’s workplaces.

From 1993 to 1998, the most recent year

for which data are available, the overall

occupational injury and illness rate has

dropped 21 percent, to a record low of

6.7 cases per 100 thousand full-time equivalent
12. HEALTH 157

workers. The mining industry experienced

a 28-percent reduction in its occupational

injury and illness rate during the same

period.

From 1993 to 1999, the number of occupational fatalities dropped four percent, from

6,271 to a record low of 6,023. Mine fatalities,

which during the 1970s ranged from 200

to 300 per year, in 1999 numbered 79.

Federal Employees Health Benefits

Program (FEHBP)

Established in 1960 and administered by

the Office of Personnel Management (OPM),

the FEHBP is America’s largest employersponsored health benefit program, providing

over $19.5 billion in health care benefits

a year to about nine million Federal workers,

annuitants, and their dependents. About 85

percent of all Federal employees participate

in the FEHBP, and they select from more

than 250 participating health plans across

the country. The FEHBP is widely viewed

as a model health care program. Many of

the accomplishments noted below are examples

of this leadership.

OPM has greatly improved the quality

and quantity of health plan information provided to enrollees, consumer protections, and

the scope of health benefits covered by the

program. In 1993, the annual health benefits

open season guide provided program enrollees

little more than cost information regarding

the program’s participating carriers. By 1999

these materials had been enhanced to provide

accreditation, performance, and customer satisfaction information in plain language consumers can easily understand. The FEHBP

became fully compliant with the President’s

Patients’ Bill of Rights in 2000, providing

enrollees even stronger rights of information

disclosure, choice of providers and plans,

rights of complaint and appeal, and other

consumer protections.

Between 1993 and 1999, FEHBP benefits

were greatly expanded. OPM adopted several

important benefits policies to improve access

to women’s health services. They include:

benefits for the diagnosis and treatment of

infertility problems; benefits for mammography screening consistent with National Cancer Advisory Board recommendations; coverage

for breast reconstructive surgery; coverage

for high dose chemotherapy in conjunction

with bone marrow transplants for breast

and certain ovarian cancers; guaranteed hospital stays for mastectomy, as well as for

maternity conditions subject to the Newborns’

and Mothers’ Health Protection Act of 1996;

direct access to obstetricians and gynecologists

consistent with the President’s Patients’ Bill

of Rights; and, the provision of a full range

of contraceptive drugs and devices approved

by the Food and Drug Administration.

In addition, OPM provided guidance to

FEHBP-participating carriers on family-focused services: i.e., the provision of benefits

for childhood immunizations; offering supplemental dental and vision coverage; benefits

for routine screening and diagnostic testing

for colorectal cancer and other diseases; making health plan pre-authorization and referral

procedures customer-friendly; and, other customer service enhancements. Also, the

FEHBP’s benefit structure now provides parity

in the provision of mental health and substance abuse benefits, and FEHBP carriers

are instituting initiatives to improve health

care quality through the prevention of medical

errors and enhancements in patient safety.

OPM implemented premium conversion in

the FEHBP in 2000. Under this arrangement,

Federal employees use pre-tax dollars to

pay health insurance premiums to the program. Premium conversion uses Federal tax

rules to let employees deduct their share

of health insurance premiums from their

taxable income, thereby reducing their taxes

and making health coverage more affordable.

Long-Term Care Insurance Program:

Since 1998, OPM worked with the Administration, the Congress, and other stakeholders to

bring about the enactment of a group longterm care insurance program for Federal employees and retirees, United States Postal

Service employees and retirees, active duty

and retired military personnel, and certain

qualified relatives. Passed in 2000, the Act enables approximately 13 million people to

choose long-term care insurance by October

2002, on an enrollee-pay-all basis. OPM is in

the process of developing a flexible long-term

care product, including provisions for nursing
158 HIGHLIGHTS FROM FY 1994 TO FY 2001

home care, personal care, home health care,

and adult day care.

Tax Incentives

In the past eight years, the Administration

has improved health tax policy. The Administration supported allowing self-employed people to deduct a part (60 percent in 2001,

rising to 100 percent in 2003 and beyond)

of what they pay for health insurance for

themselves and their families. The Health

Insurance Portability and Accountability Act

of 1996 added a number of tax incentives

as well, including clarifying the taxation

of qualified long-term care insurance premiums, expenses and benefits; modifying the

taxation of accelerated death benefits under

life insurance contracts; and expanding penalties provided under the Consolidated Omnibus Budget Reconciliation Act of 1995 to

enforce group health plan portability, access,

and renewability requirements. The Administration has also supported the development

of drugs for certain rare diseases or conditions

through the Orphan Drug Credit.
159

13. MEDICARE

Table 13–1. Federal Resources in Support of

Medicare

(Dollar amounts in millions)

Function 570 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 2,829 3,372 19%

Mandatory outlays ..................................................... 127,903 218,820 71%

At the beginning of the Clinton-Gore Administration, Medicare was projected to become

insolvent in 1999. Throughout the past eight

years, the Administration proposed and secured important legislation and took appropriate administrative actions that strengthened the Medicare program and modernized

it for the 21st Century. The Administration’s

stewardship of Medicare has resulted in the

longest Medicare Trust Fund solvency in

a quarter century, extending the life of the

Medicare Trust Fund by a total of 26 years

and offering beneficiary premiums that are

nearly 20 percent lower today than projected

in 1993.

Plan to Restructure Medicare

The Administration also proposed a new

and comprehensive plan to strengthen and

modernize Medicare for the 21st Century.

The Administration’s plan prepares the program for its upcoming health, demographic,

and financing challenges. This initiative

would: (1) make Medicare more competitive

and efficient; (2) modernize and reform Medicare’s benefits, including the provision of

a long-overdue voluntary prescription drug

benefit and cost-sharing protections for preventive benefits; and, (3) dedicate part of the

non-Medicare/Social Security surplus to the

program to extend the life of the Medicare

Trust Fund as an alternative to beneficiary

cuts or further provider reductions.

Make Medicare More Competitive and

Efficient: The Administration’s proposal

would make the traditional fee-for-service program more competitive through the use of

market-oriented purchasing and quality improvement tools to improve care and constrain

costs. It would provide new or broader authority for competitive pricing within the existing

Medicare program, incentives for beneficiaries

to use physicians who provide high quality

care at reasonable costs, coordinated care for

beneficiaries with chronic illnesses, and other

best-practice private sector purchasing mechanisms. The President’s competitive defined

benefit proposal would, for the first time, inject

true price competition among managed care

plans into Medicare, which make it easier for

beneficiaries to make informed choices about

their plan options and, over time, save money

for both beneficiaries and the program.

Modernize Medicare’s Benefits: The President’s initiative would also modernize Medicare’s benefit structure by adding a long-overdue voluntary outpatient prescription drug

benefit. The Administration’s proposal offers a

broad-based benefit through the Medicare program. A broad-based benefit ensures that all

Medicare beneficiaries receive a standard, affordable drug benefit and is the only means

by which to provide effective assistance. This

historic drug benefit has no deductible and

pays for half of the beneficiary’s drug costs

from the first prescription filled each year up

to $5,000 in spending when fully phased-in.
160 HIGHLIGHTS FROM FY 1994 TO FY 2001

This benefit also ensures that beneficiaries’ liability for drug cost sharing is limited to

$4,000. The benefit provides beneficiaries with

a price discount similar to that offered by

many employer-sponsored plans for each prescription purchased—even after the $5,000

limit is reached. The Administration’s plan ensures low-income beneficiaries assistance with

cost-sharing. The Administration estimates the

costs of this benefit at $253 billion over 10

years.

Extend the Life of the Trust Fund: While

the President’s Medicare plan would strengthen the program and make it more competitive

and efficient, no amount of policy-sound savings would be sufficient to address the fact

that the elderly population will double from

almost 40 million today to 80 million over the

next three decades. The President’s proposal

would take the Hospital Insurance (HI) Trust

Fund off-budget, ensuring that its surpluses

are not used for any other purposes and, therefore, will be used for debt reduction. The proposal would transfer the $115 billion of interest savings due to the resulting debt reduction

to the HI Trust Fund to ensure that it remains

solvent until at least 2030.

Without new financing, excessive and

unsupportable provider payment cuts or beneficiary cost sharing increases would be needed.

Protecting the Medicare surplus for Medicare

is necessary in order to maintain solvency

of the Trust Fund into the future.

Legislative Successes

During the last eight years the Administration advocated strongly for several pieces

of crucial legislation that have been instrumental in making Medicare more efficient

and extending its Trust Fund solvency through

program reforms and increased program integrity efforts.

The Omnibus Budget Reconciliation Act

of 1993 (OBRA 1993): The President proposed

and later signed, on August 10, 1993, legislation that was the Administration’s first step

towards improving Medicare solvency. OBRA

1993 increased the percentage of Old-Age and

Survivors and Disability Insurance benefits

that are subject to the income tax, transferring

the increased revenues to the Medicare HI

Trust Fund. OBRA 1993 also reduced the

growth rates of Medicare payments to providers such as hospitals, skilled nursing facilities, and home health agencies.

The Health Insurance Portability and

Accountability Act of 1996 (HIPAA): The

President also proposed and, on August 21,

1996, signed additional legislation, HIPAA,

which created a new and stable source of funding to fight Medicare fraud and abuse. It provided mandatory funding to the Health Care

Financing Administration (HCFA) for specified

program integrity functions such as medical

review and audit. It also provided mandatory

funding for the Office of the Inspector General

in the Department of Health and Human Services (HHS) and the Department of Justice for

investigation and prosecution of fraudulent

providers in the Medicare program. Since

HIPAA’s passage, nearly $1.6 billion in fraud

and abuse savings has been returned to the

Medicare Trust Fund. Moreover, the HCFA actuaries attribute some of the recent decreases

in Medicare expenditures to certain efforts to

combat fraud and abuse. The actuaries conclude that the Department of Justice investigations, subsequent indictments, and the possibility of triple damages may have prompted

hospitals to reduce the incidence of ‘‘up-coding’’

(i.e., excessive billing for hospital procedures)

which has contributed to the increased solvency of the Medicare Trust Fund.

HIPAA also provided the Administration

with the authority to develop a single set

of national standards for all health care

providers and health plans that engage in

electronic administrative and financial transactions to promote more cost-effective electronic claims processing and coordination of

benefits. Implementation of this law will

eliminate administratively burdensome, duplicative, and wasteful billing requirements for

health care providers and insurers.

The Balanced Budget Act of 1997 (BBA):

In 1997, the Administration secured enactment

of this legislation, which balanced the budget,

modernized the Medicare program, and added

at least 10 years to the life of the Medicare

Trust Fund. The BBA included a series of

structural reforms, bringing Medicare in line

with the private sector and preparing it for

the baby boom generation. These reforms included: 1) increased number of health plan
13. MEDICARE 161

options; 2) improved Medicare managed care

payment methodology and informed beneficiary choice; 3) new prospective payment systems for skilled nursing facilties, home health,

inpatient rehabilitation hospital, and hospital

outpatient departments; and, 4) new privatesector purchasing tools such as competitive

bidding for durable medical equipment.

The BBA also made important changes

to beneficiary services which include: 1) a

waiver of cost-sharing for mammography services and the provision of annual screening

mammograms for beneficiaries age 40 and

over; 2) a diabetes self-management benefit;

3) Medicare coverage of colorectal screening

and cervical cancer screening; 4) coverage

of bone mass measurement tests to help

women detect osteoporosis; and, 5) increased

Medicare reimbursement rates for certain

immunizations to protect seniors from pneumonia, influenza, and hepatitis.

The Medicare, Medicaid and SCHIP Balanced Budget Refinement Act of 1999

(BBRA): After the BBA’s enactment, it became

clear that some of the payment reductions

needed modification. The Administration

worked to secure enactment of the BBRA, addressing the larger than intended cuts in payments to Medicare providers. Complementing

the over 25 actions taken by the Administration to improve Medicare payment methodologies, the BBRA increased Medicare payments

for hospitals, nursing homes, home health

agencies, managed care plans, and other Medicare providers. The bill modified the hospital

outpatient department prospective payment

system by smoothing the transition for certain

hospitals that are greatly affected by enactment of this system.

In addition, the BBRA increased payments

for rehabilitative therapy services, provided

longer coverage of immunosuppressive drugs,

and established limits on outpatient department coinsurance. The law altered HCFA’s

plan for risk adjustment for managed care

plans by allowing for a five-year phasein plan. The law also provided an entry

bonus for managed care plans entering counties not previously served and for plans

that had previously announced that they

were withdrawing from certain counties.

The Medicare, Medicaid, and SCHIP

Benefits Improvement and Protection Act

of 2000 (BIPA): The Administration worked

to secure enactment of the BIPA, which invests about $35 billion over five years in order

to address some of the overly aggressive payment reductions resulting from the BBA of

1997 as well as other shortcomings in the

Medicare program. The BIPA addressed the

needs of health care providers by increasing

Medicare reimbursement to hospitals, nursing

homes, home health agencies, and other providers. The BIPA expanded the preventive

benefits available to all Medicare beneficiaries

including new nutrition therapy and glaucoma

screening and ensured greater access to colon

and cervical cancer screening. It reduced the

cost-sharing that beneficiaries have to pay for

hospital outpatient services; provided permanent coverage of drugs that help prevent the

rejection of organ transplants; and facilitated

the use of therapeutic adult day care services

for persons with Alzheimer’s disease. Finally,

the BIPA established an improved coverage

and appeals process for beneficiaries to ensure

that they have access to the health care services they need.

Administrative Actions

In addition to securing important legislation,

the Administration has used its administrative

authority to improve and modernize the Medicare program. One of the major administrative

efforts was Operation Restore Trust, which

aimed to reduce Medicare fraud through

provider and beneficiary awareness. Its Nursing Home Initiative, to improve the quality

of care for Medicare beneficiaries residing

in nursing homes, resulted in a major increase

in enforcement actions. The Administration

also launched efforts to increase beneficiaries’

awareness of Medicaid’s cost sharing assistance programs; long-term care options; and,

preventive services including a major drive

to increase the number of seniors receiving

flu shots.

Most significantly, the Administration took

action to increase access to clinical trials

for Medicare beneficiaries. Previously, Medicare did not pay for items and services

related to clinical trials because of their

experimental nature, i.e., their unknown benefits and potential risks to Medicare
162 HIGHLIGHTS FROM FY 1994 TO FY 2001

beneficiaries. The absence of Medicare coverage has been a contributing factor to these

low participation rates by the elderly. On

June 7, 2000, the President issued an Executive Memorandum directing the Medicare program to revise its payment policy and immediately begin to reimburse providers explicitly

for the cost of routine patient care associated

with participation in clinical trials. The President also directed HHS to take additional

action to promote the participation of Medicare

beneficiaries in clinical trials for all diseases,

including: activities to increase beneficiary

awareness of the new coverage option; actions

to ensure that the information gained from

important clinical trials is used to inform

coverage decisions by properly structuring

the trial; and reviewing the feasibility and

advisability of other actions to promote research on issues of importance to Medicare

beneficiaries.

Medicare Management Reform

In its 1999 Budget, the Administration

introduced its management reform initiative

to address the challenges facing HCFA. These

challenges include modernizing its administrative infrastructure, meeting pressing statutory

deadlines for program changes from BBA,

BBRA, and HIPAA, and the need to be

highly responsive to its customers. This initiative was designed to improve HCFA’s management of the Medicare program through a

continuing reform process by increasing

HCFA’s flexibility to operate as a prudent

purchaser of health care while also increasing

accountability. HCFA has evaluated its personnel needs and potential hiring flexibility,

developed a long-term human resources strategic plan, increased accountability to constituencies, and implemented structural reforms

to improve relationships between HCFA’s central and regional offices and HHS. Additionally, the Administration transmitted to the

Congress its contracting reform legislative

proposal, which is designed to introduce competition into the Medicare contracting environment and allow HCFA to select contractors

from a wider pool. Finally, the President’s

2001 Budget also included a proposal to

fund a contractor oversight initiative to ensure

that contractors have appropriate controls

in place. This initiative builds on HCFA’s

successes in guarding program integrity in

the Medicare program.

In summary, the Administration has taken

important steps to ensure that the Medicare

Trust Fund remains viable for coming generations through both legislative and administrative actions. The President has proposed

a plan for the future of the program that

is progressive and will modernize the program

for the 21st Century. These changes are

crucial to ensure that upcoming generations

receive quality health care.
163

14. INCOME SECURITY

Table 14–1. Federal Resources in Support of Income

Security

(Dollar amounts in millions)

Function 600 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 31,918 39,546 24%

Mandatory outlays ..................................................... 175,949 213,012 21%

Credit Activity:

Direct loan disbursements ....................................... 85 20 –76%

Guaranteed loans ...................................................... ................. 83 NA

Tax expenditures ....................................................... 74,150 131,900 78%

NA = Not applicable.

Declining Number of Families in Poverty

A good indicator of the Nation’s state

of income security is the poverty rate. Since

passage of the Clinton-Gore Administration’s

economic plan in 1993, the poverty rate

has declined from 15.1 percent in 1993 to

11.8 percent in 1999, a rate lower than

any other year in the 1980s or 1990s. Furthermore, poverty among those aged 65 or older

in 1999 was at an all-time low of 9.7

percent; and poverty among children in families declined from 22 percent in 1993, a

height last seen in the mid-1960s, to 16.3

percent in 1999, lower than any other level

in the 1980s or 1990s. Also noteworthy

is that the 1999 poverty rate of black children,

while still a high 32.7 percent, was the

lowest level ever measured.

These improvements have been driven by

an historic economic recovery and landmark

legislation designed to move families from

welfare to work by making work pay and

providing support to low-income working families. As evidence of this legislation’s success,

less than five percent of families with children

did not work in 1999, compared to nine

percent in 1993. Furthermore, the poverty

rate among working families with children

declined from 12.6 percent in 1993 to 11

percent in 1999.

Earned Income Tax Credit: The decline

in poverty among working families tells only

part of the story. As the growing economy increased employment opportunity, expansions

to the Earned Income Tax Credit (EITC) in

1993 were making work pay. The Administration’s 1993 expansion increased benefits significantly for those with two or more children,

and allowed workers who live with their children at least half of the tax year to claim

a credit. As a result of these expansions, credits paid through the EITC program increased

from $15.5 billion in 1993 to nearly $31 billion

in 1999, and the number of families receiving

assistance from the program increased by a

quarter, from 15 million to 19 million.

The EITC also has been effective in attracting more workers to the labor market. One

study estimates that the EITC alone was

responsible for 34 percent of the increase

in annual employment of single mothers

from 1992 to 1996.

Ending Welfare as We Know It

Even before the 1996 welfare reform legislation, many States were well on their way

to changing their welfare programs to jobs

programs. By granting Federal waivers, the

Administration allowed 43 States—more than

all previous Administrations combined—to
164 HIGHLIGHTS FROM FY 1994 TO FY 2001

require work, time-limit assistance, improve

child support enforcement, and/or encourage

parental responsibility. The vast majority of

States have chosen to build on their welfare

demonstration projects approved by the Administration in their implementation of welfare reform.

In 1996, the President signed the Personal

Responsibility and Work Opportunity Reconciliation Act (PRWORA), a bipartisan welfare plan that has dramatically changed the

Nation’s welfare system. The law replaced

the Aid to Families with Dependent Children

program with the Temporary Assistance for

Needy Families (TANF) program, which provides $16.7 billion annually in block grants

to the States. The law contains strong work

requirements, time limits on assistance, performance bonuses to reward States for moving

welfare recipients into jobs and reducing

out-of-wedlock births, State maintenance-ofeffort requirements, comprehensive child support enforcement, and supports for families

moving from welfare to work including increased funding for child care. State strategies

are making a difference in the success of

welfare reform, specifically in job placement,

child care, and transportation.

Cash Assistance: Since January 1993, the

welfare rolls have fallen by nearly 60 percent—from 14.1 million to 5.8 million—resulting in the fewest number of people on welfare

since 1968. The percent of Americans on welfare is now at 2.1 percent, the lowest level

since 1963. In August 1999, the Council of Economic Advisers (CEA) reported that the single

most important factor contributing to this historic decline is the implementation of welfare

reform. Of the caseload reduction from 1996

to 1998, the CEA estimated that approximately one-third was due to Federal and State

policy changes resulting from welfare reform

and about 10 percent was due to the strong

economy.

Employment: At President Clinton’s insistence, the 1996 welfare reform legislation included both rewards and penalties to encourage States to place people in jobs. According

to reports filed by 46 States, more than 1.2

million welfare recipients nationwide went to

work in just the one-year period between October 1998 and September 1999. Retention rates

also were promising: 78 percent of those who

got jobs were still working three months later.

States also reported an average earnings increase of 31 percent for former welfare recipients, from $2,027 in the first quarter of employment to $2,647 in the third quarter.

The first three years of data on work

activity since welfare reform also show that

all States met the law’s work participation

requirements for overall work activity levels.

Nationally, 38 percent of all welfare recipients

were working or in work-related activities

in 1999. The data also show that nationwide,

the percentage of welfare recipients working

has increased to nearly five times the level

it was when the President took office, rising

from seven percent in 1992 to an all-time

high of 33 percent in 1999. The vast majority

of working recipients are in paid employment,

with the remainder involved in community

service or subsidized employment.

Welfare-to-Work Grants: Because of the

President’s leadership, the 1997 Balanced

Budget Act included $3 billion over 1998 and

1999 for Welfare-to-Work grants to help States

and local communities move long-term welfare

recipients and certain noncustodial parents

into lasting, unsubsidized jobs. Funds can be

used for job creation, job placement and job

retention efforts, including wage subsidies to

private employers and other critical post-employment support services. The Department of

Labor provides oversight, but most of the dollars are placed through local business-led

boards into the hands of those who are on

the front lines of the welfare reform effort.

For 1998 and 1999, the Administration awarded 190 competitive grants that support innovative local strategies to help noncustodial parents and individuals with limited English proficiency, disabilities, substance abuse problems, or a history of domestic violence get and

keep employment. This program also is discussed in Chapter 11, ‘‘Education, Training,

Employment, and Social Services.’’

Welfare Recipient Hiring: The Welfare-toWork Tax Credit, enacted in the Taxpayer Relief Act of 1997, offers employers a tax credit

equal to 35 percent of the first $10,000 in

wages in the first year of employment, and

50 percent of the first $10,000 in wages in

the second year for a total credit of up to
14. INCOME SECURITY 165

$8,500 for each welfare recipient hired and retained. This credit complements the Work Opportunity Tax Credit, which offers a credit of

up to $2,400 for the first year of wages for

eight groups of job seekers. From 1997 to 2000,

employers were eligible to claim these tax

credits for over 1.4 million newly-employed

welfare recipients and other disadvantaged individuals. Both credits are currently available

through December 2001. These credits also are

discussed in Chapter 11.

In addition, at the President’s urging, the

Welfare to Work Partnership was launched

in May 1997 to lead the national business

effort to hire people from the welfare rolls.

The Partnership began with 105 participating

businesses, and has now grown to more

than 20,000 businesses of all sizes and industries. Since 1997, these businesses have hired

an estimated 1.1 million welfare recipients,

surpassing the challenge the President set

in May 1998. In addition, the Small Business

Administration is addressing the unique and

vital role of small businesses that employ

over half of the private work force, by

helping small businesses throughout the country connect with job training organizations

and job-ready welfare recipients. Federal agencies also have played a role and have hired

nearly 50,000 welfare recipients.

Teen Pregnancy Prevention: Significant

components of the President’s comprehensive

effort to reduce teen pregnancy became law

when the President signed the welfare reform

legislation. PRWORA requires unmarried

minor parents to stay in school and live at

home or in a supervised setting; encourages

‘‘second chance homes’’ to provide teen parents

with the skills and support they need; and

provides $50 million a year for five years in

new funding for State abstinence education activities. Data show that teen birth rates have

declined nationwide by 20 percent from 1991

to 1999, and are now at the lowest rate on

record since tracking began 60 years ago.

These improvements are seen among younger

and older teens, married and unmarried teens,

all States and all ethnic and racial groups.

Rewards for High Performing States:

The 1996 welfare reform legislation included

$200 million annually for awards to States

that perform especially well in achieving the

goals of TANF and $100 million for States that

reduce out-of-wedlock births. In December

1999, the President announced that 27 States

were awarded the first high performance bonuses to reward superior results or improvement in moving people from welfare to work.

A year later, 28 States received the second

round of awards. Each year, the $200 million

in bonuses went to the top 10 States with the

best records in each of four categories related

to moving parents on welfare into jobs and

their success in the work force.

Through regulations to award future high

performance bonuses, the Administration also

has put in place new incentives for States

to provide programs that help working families

succeed and encourage the formation of twoparent families. The final regulation retains

the original job entry and success in the

work force measures, and adds measures

for participation in Medicaid and the State

Children’s Health Insurance Program (SCHIP),

participation in the Food Stamp program,

receipt of child care subsidies by eligible

families, and family formation and stability.

These new measures will ensure that welfare

reform will continue to move millions of

families from dependence to independence

by encouraging work, supporting working families to help them succeed and stay off

welfare, and increasing the number of children

living with married parents. A total of $140

million in bonus funds is available annually

for the work measures, with $60 million

available for the work support and family

formation measures.

In 1999 and 2000, HHS awarded bonuses

of $20 million to each of four States and

the District of Columbia for achieving the

Nation’s largest decreases in out-of-wedlock

births. These bonuses were awarded under

the welfare reform law, which provided $100

million annually for up to five States with

the largest reductions in the proportion of

out-of-wedlock births that also show decreases

in their abortion rates. Nationwide, the 1999

birth rate for unmarried women was six

percent lower than its high in 1994, and

three percent lower than in 1992.
166 HIGHLIGHTS FROM FY 1994 TO FY 2001

Creating Comprehensive Support for

Working Families

Child Care: The number of children with

parents who work outside of the home is higher than ever before and child care expenses

are often the second or third largest item in

a low-income working family’s household budget. The 1996 welfare reform law increased

child care funding by $4 billion over six years

to provide child care assistance to families

moving off welfare and to other low-income

families. The Administration also secured additional discretionary funds for subsidies and

quality enhancement, which were major components of its comprehensive child care initiative to address the struggles our Nation’s

working parents face in finding child care they

can afford, trust and rely on and that will

help to prepare their children for success in

school.

An important element of that initiative

was to increase the availability of child

care subsidies. The Child Care and Development Fund (CCDF) provides grants to States

to subsidize and improve the quality of

care for low- and moderate-income children.

Under this Administration, Federal funding

for child care subsidies has more than doubled,

increasing from $1.8 billion in 1993 to an

estimated $4.4 billion in 2001. In 2001,

the discretionary contribution to the CCDF

increased by $817 million, bringing total

discretionary child care spending to $2 billion

and allowing the program to serve nearly

150,000 additional children. Combined with

the child care funds provided in welfare

reform, the new discretionary funds will enable

the program to serve over 2.1 million children

monthly in 2001.

Child Support: An important component of

the Administration’s policies to help working

families is to ensure that unmarried parents

receive the support they are entitled to under

the law from noncustodial parents. The 1996

welfare reform law included significant provisions to strengthen child support enforcement.

Among other changes, the legislation streamlined paternity establishment procedures, provided for State and Federal registries of newly

hired employees, established statewide support

collection and distribution centers, and initiated tough new penalties when child support

obligations are not met. In addition, in 1998,

the President signed legislation enacting

tougher penalties for parents who repeatedly

fail to support children living in another State

or who flee across State lines. Today, parents

who owe child support can have their wages

garnisheed, their bank accounts seized, their

Federal loans denied, and their tax refunds

withheld to help make up what they owe.

Since the Administration took office, child

support collections have doubled from $9

billion in 1993 to $18 billion in 2000. The

number of fathers taking responsibility for

their children by establishing paternity rose

to a record 1.5 million in 1999 (the most

recent data available), nearly triple the 1993

figure of 554,000. In addition, a new program

established under PRWORA has identified

nearly 900,000 delinquent parents with accounts valued at $3 billion. In 2001, net

Federal costs for child support will be an

estimated $2.4 billion.

Child support is an important source of

income for poor children. One study estimates

that in 1997, child support lifted a half

million children out of poverty, and that

for poor children who receive child support,

it represents, on average, over one-quarter

of their family’s income.

Individual Development Accounts

(IDAs): In 1992 during his campaign, the

President proposed Individual Development

Accounts (IDAs) as a way to empower lowincome families to save for a first home, a

post-secondary education, or to start a new

business. The 1996 welfare reform law authorized the use of TANF grants to create IDAs.

In addition, in 1998 the President signed legislation creating a five-year $125 million demonstration program. Households that are eligible for TANF, qualify for the EITC, or have

incomes below 200 percent of the Federal

guidelines, and have a net worth below

$10,000 are eligible to participate in the demonstration. In 1999 and 2000, the Department

of Health and Human Services awarded nearly

$20 million to 65 grantees that will establish

over 16,000 savings accounts for low-income

workers. The 2001 Budget included $25 million

for IDAs to create over 20,500 new accounts.

Food Stamps: As parents leave welfare for

work, their continued access to nutritional as-
14. INCOME SECURITY 167

sistance is a critical factor in making the transition to self-sufficiency. It is also important

that States reach out to low-income working

families who may be eligible for food stamps

since the assistance could keep them off welfare. In 1993, the food stamp program assisted

nearly 27 million individuals at a cost of $23.6

billion. Both participation and funding have

declined dramatically since then due to the

strong economy, the success of moving people

from welfare to work, changes in eligibility

rules, and other consequences of welfare reform. In 2001, food stamps is expected to serve

approximately 17.5 million people at a cost of

$19.6 billion.

The Administration has taken a number

of actions to simplify program administration

for States, make the program more workable

and easier for low-income working families

to navigate, provide guidance to States on

what their responsibilities are and how to

improve practices, and use bonuses and sanctions to hold States accountable. In 1999

and 2000 the President took executive actions

to help ensure working families who need

food stamps have access, including: regulations

to provide for transitional food stamp benefits

for 3,000 individuals leaving TANF in 2001,

with 20,000 individuals receiving assistance

when fully implemented; longer reporting cycles for almost 200,000 individuals in 2001,

with four million individuals benefitting when

fully implemented; reviews of State processes

to ensure that States comply with program

rules; a public education campaign; and new

steps that allow States to reinvest liabilities

incurred due to high payment error rates

in activities that improve access. In addition,

a regulatory action making it easier for

some recipients to own a car and still receive

food stamps followed by legislation proposed

by the Administration permitting States to

use more generous TANF rules for vehicles

when determining food stamp eligibility, in

combination, will benefit 76,000 individuals

in 2001, and when fully implemented, will

benefit nearly 460,000 individuals, most of

whom live in working families with children.

Special Supplemental Nutrition Program for Women, Infants, and Children

(WIC): WIC provides vouchers for nutritious

supplemental food packages, nutrition education and counseling, and health and immunization referrals to low-income women, infants,

and children. During this Administration,

funding has grown by over 40 percent to over

$4 billion, and the program now helps nearly

half of all infants. In 2000, approximately 7.2

million individuals participated in the program

monthly and funding for 2001 is sufficient to

support participation by just over 7.3 million

people.

Income Assistance to Aged, Blind and

Disabled Individuals: The Supplemental Security Income (SSI) program, administered by

the Social Security Administration (SSA), provides benefits to needy aged, blind, and disabled adults and children. On average in 2000,

6.3 million individuals received Federal SSI

benefits on a monthly basis. These benefits totaled $31 billion in 2000. SSI uses the same

disability eligibility criteria as the Social Security Disability Insurance Program. Policies affecting both programs are discussed in Chapter

15, ‘‘Social Security.’’

SSI Children: The 1996 PRWORA legislation created new eligibility criteria for children

to receive SSI to ensure that only needy children with severe disabilities received benefits.

Between 1990 and 1996, the number of children eligible for SSI benefits more than tripled

from approximately 309,000 to more than

955,000. This growth was due, in part, to the

difficulty in determining whether a child’s impairment was of comparable severity to an impairment that would disable an adult.

PRWORA eliminated this somewhat broader

standard, and created a new definition of

childhood disability that states a child’s impairment, or combination of impairments, is

considered disabling if it causes marked and

severe functional limitations.

In February 1997, SSA published final

interim rules that applied the new definition

of disability to applicants as well as 288,000

child beneficiaries, approximately 100,000 of

whom would ultimately lose coverage. To

ease the transition for the families of these

children, an Administration proposal was enacted to continue Medicaid coverage to children who lost their SSI benefits as a result

of PRWORA. SSA has since identified ways

to clarify the rules and simplify the processes.

The final regulations went into effect on

January 2, 2001.
168 HIGHLIGHTS FROM FY 1994 TO FY 2001

Unemployment Compensation: Unemployment compensation, overseen by the Department of Labor’s Employment and Training Administration, provides benefits to individuals

who are temporarily out of work through no

fault of their own and whose employer has

previously paid payroll taxes to the program.

State payroll taxes finance the basic benefits

paid out of a dedicated trust fund. States set

benefit levels and eligibility criteria; benefits

are not means-tested and are taxable. Regular

benefits are typically available for up to 26

weeks of unemployment. Additional benefits

are often provided when unemployment is high

and rising.

Spending on the unemployment compensation program varies based on economic conditions and demonstrates the Administration’s

success in achieving economic growth and

low unemployment. In 1993, the unemployment rate was seven percent, and total

spending on those benefits exceeded $36 billion. By 2000, as a result of the strong

economy and the wide availability of jobs,

the unemployment rate was four percent

and total spending on those benefits was

less than $22 billion—a decrease of almost

40 percent since 1993.

President Clinton worked to improve access

to unemployment compensation to help new

parents afford family leave. A Department

of Labor regulation, effective in August 2000,

allows States to create experimental birth

and adoption unemployment compensation

programs that provide partial wage replacement for parents caring for newborns and

newly adopted children.

Addressing the Gaps in Welfare Reform

Restoration of Benefits for Legal Immigrants: The Administration believes that legal

immigrants should have the same economic opportunity, and bear the same responsibility,

as other members of society. Upon signing the

1996 PRWORA law, the President pledged to

work toward reversing the cuts in benefits to

legal immigrants that were unrelated to the

goal of moving people from welfare to work.

Since that time, the President’s leadership has

resulted in significant benefit restorations for

immigrants.

More than half a million noncitizens would

have been affected by PRWORA’s Supplemental Security Income (SSI) eligibility restrictions in 2003. Legislation enacted after

PRWORA restored eligibility to about three

quarters of these individuals. The Balanced

Budget Act of 1997 and the Noncitizens’

Benefit Clarification and Other Technical

Amendments Act of 1998 provided $11.5

billion over five years to restore Medicaid

and SSI to 380,000 disabled and elderly

legal immigrants who were living in the

U.S. when the welfare law was enacted

on August 22, 1996. These restorations provided critical assistance to legal immigrants

who were unable to work to support themselves.

PRWORA also made most immigrants ineligible for food stamps, an important source

of nutrition assistance for many working

families, as well as for those unable to

work. PRWORA would have denied food stamp

eligibility to almost 600,000 noncitizens in

2002. Legislation enacted after PRWORA restored eligibility to approximately 30 percent

of these individuals. In response to the Administration’s request, the Agricultural Research,

Extension, and Education Reform Act of 1998

included $818 million over five years to

restore food stamp benefits to an estimated

175,000 elderly, disabled, and other needy

immigrants, including 45,000 children who

lawfully resided in the United States as

of August 22, 1996.

These accomplishments restored important

nutrition and income security protections to

large categories of vulnerable noncitizens.

Nevertheless, most noncitizen adults (except

for refugees and certain other special categories of immigrants) are ineligible for food

stamps unless and until they acquire 40

quarters of employment coverage, even if

they have been in the U.S. since before

enactment of PRWORA. With regard to SSI,

similar restrictions apply to most noncitizens

entering the U.S. after August 22, 1996.

Immigrants entering the U.S. after that date

also are banned from Medicaid until they

have been in the United States at least

five years, a provision that is expected to

affect 430,000 immigrants in 2003.
14. INCOME SECURITY 169

Employee Retirement Benefits

Federal Employee Retirement Benefits:

The Civil Service Retirement System (CSRS)

and the Federal Employees’ Retirement System (FERS) provide pension coverage for approximately 2.7 million active employees, and

pay out benefits to about 2.4 million retired

employees and survivors. Both systems provide

a defined benefit pension. FERS employees

(those hired since January 1, 1984) are also

covered by Social Security and a defined contribution plan—the Thrift Savings Plan (TSP).

CSRS employees may contribute to TSP but

do not receive the automatic and matching

agency contributions enjoyed by FERS enrollees. Since 1993, the number of annuitants (retired employees and survivors) has grown by

10 percent, from 2.2 million to 2.4 million, and

the annuity payments have increased by over

one-third, from $35 billion to $47 billion.

Over the past eight years, the service

provided to this growing customer population

has improved markedly. For example, in

1993 there was no self-servicing of customer

service requests. This has increased to over

30 percent today. This improved service is

being delivered more efficiently. For example,

with fewer staff, processing times for annuity

claims have been reduced substantially. This

better and more efficient service is reflected

in customer satisfaction surveys, which show

an improvement from around 80 percent

in 1993 to well over 90 percent today in

annuitant satisfaction with the handling of

service requests. Other notable accomplishments since 1993 include preserving the benefits structure during an extremely tight budgetary environment, providing through legislative action a more equitable treatment of

employees placed in the wrong retirement

system, and creating a greater incentive for

employees to save by enabling them to contribute to the TSP immediately upon being

hired.

Private Pensions: The Department of Labor’s Pension Benefit Guaranty Corporation

(PBGC) insures against company bankruptcy

the pensions of about 42 million workers and

retirees who earn defined benefit pensions. Before 1992, PBGC’s books could not be audited.

Worse, PBGC had for many years run an accounting deficit; that is, each year its liabilities

had exceeded its assets. After well-publicized

bankruptcies in the airline and steel industries, PBGC had for some years been talked

of as the next savings and loan crisis.

That situation has turned around. With

improved internal controls, PBGC has received

‘‘clean’’ audit opinions since 1993. Primarily

due to the Administration’s 1994 law (the

Pension Protection Act) that increased PBGC

revenues and also due to improved economic

conditions and fewer bankruptcies, PBGC has

been running annual surpluses and is predicted to end 2001 at $9 billion in the

black. With its finances stabilized, PBGC

is improving customer service. PBGC is working to shorten the time to calculate final

benefit levels from six years in 1997 to

three years in 2002. (Retirees are getting

approximate pensions while PBGC is setting

final benefit levels.)

Also at the Department of Labor, the

Pension and Welfare Benefits Administration

(PWBA) establishes and enforces safeguards

to protect the roughly $4 trillion in private

pension assets. More than 90 million participants and beneficiaries are now in private

pension plans.

PWBA is working to recover more benefits

through customer assistance—an estimated

$54 million for 2001 compared to $15 million

in 1995. During this period PWBA corrected

prohibited transactions and recovered or protected plan assets totaling more than $1

billion. At the same time, PWBA is more

speedily processing the exemptions that allow

certain financial transactions that are needed

by pension plans, reducing the time taken

to 200 days in 2001, a 17 percent improvement

from the 1999 average of 242 days. PWBA

has, moreover, simplified the annual report

(the Form 5500) filed by companies that

sponsor pensions. PWBA has also sped the

processing of this data, in order to move

more quickly to protect pensions and to

keep participants better informed about their

pension assets.

Tax Incentives for Retirement Savings:

The Federal Government encourages retirement savings by providing income tax benefits

to both individuals and companies. These tax

benefits have been expanded and also simplified so that more companies can offer
170 HIGHLIGHTS FROM FY 1994 TO FY 2001

pensions. The Administration developed the

new SIMPLE pensions (Savings Incentive

Match Plans for Employees), which is an easy

way for companies to set up 401(k)-like retirement accounts for their workers. Generally,

earnings devoted to workplace pension plans

and to many traditional IRAs receive beneficial

tax treatment in the year earned and ordinarily are taxed only in retirement, when

lower tax rates usually prevail. Moreover, taxpayers can defer taxes on the interest and on

the other gains that add value to these retirement accounts. The new Roth Individual Retirement Accounts (IRAs) however, allow contributions to be made from after-tax earnings,

but account earnings are free from tax when

used in retirement, which is a novel tax benefit.

President Clinton also signed into law expanded eligibility for deductible IRAs. So

that more middle-income taxpayers with workplace retirement plans could open the valuable

deductible IRAs, the Taxpayer Relief Act

of 1997 generally doubled, over time, the

income limits for participation. Previously,

single taxpayers with adjusted gross incomes

below $25,000 could open full deductible IRAs,

with the maximum size of the IRA phasing

out until the income limit of $35,000 was

reached. Married taxpayers with joint returns

were eligible at higher income levels, with

a phase-out range of $40,000 to $50,000.

Under the new law, the IRA phase-out ranges

increase until the eligibility limits are $50,000

to $60,000 for single taxpayers (2005 and

thereafter) and $80,000 to $100,000 for couples

filing jointly (2007 and afterwards). This

law also greatly expanded (to $150,000 to

$160,000) the deductible IRA income limit

for taxpayers not in workplace retirement

plans but whose spouses are. Another law

increased the maximum size of spousal IRAs

for non-working spouses.

Additionally, President Clinton succeeded

in making IRAs more flexible through legislation enacted in the Health Insurance and

Portability and Accountability Act of 1996.

That law allows the long-term unemployed

to make penalty-free withdrawals from IRAs

in order to pay their health insurance premiums and also for large medical expenses.

All the pension and retirement-saving tax

incentives amount to an estimated $115 billion

in 2001—decidedly the largest set of preferences in the income tax system—and nearly

double the amount in 1993. Total tax expenditures included in this function have increased

from $74 billion in 1993 to an estimated

$132 billion in 2001.
171

15. SOCIAL SECURITY

Table 15–1. Federal Resources in Support of Social

Security

(Dollar amounts in millions)

Function 650 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 2,640 3,447 31%

Mandatory outlays ..................................................... 301,986 431,406 43%

Tax expenditures ....................................................... 23,655 25,980 10%

When the Social Security Act was enacted

in 1935, President Roosevelt envisioned a

program that would eliminate the blight

of poverty from the lives of elderly Americans

and allow them to maintain their dignity

and independence. While the original goal

was to provide income insurance to protect

workers upon retirement, the program has

evolved over time to include spouses, dependents, survivors and disabled workers. The

Old-Age, Survivors, and Disability Insurance

(OASDI) programs, commonly known as Social

Security, have met President Roosevelt’s goal

and are considered among the most successful

domestic programs in our Nation’s history.

The importance of Social Security has been

emphasized throughout the Clinton-Gore Administration. This Administration helped the

program serve today’s population better, and

took action to ensure that the program will

remain strong to serve future generations.

The President’s balanced budget proposal for

1999 marked a turning point in that regard.

Once this Administration had conquered the

budget deficit, it set to work to solve the

generational deficit—the budgetary pressure

that was projected to result from the aging

of the population, especially the baby boom

generation.

In 1995, the Social Security Administration

(SSA) became an independent agency, focused

on building the public’s confidence in Social

Security by improving customer service, public

education, and program integrity. Since that

time, the programs have strengthened the

incentives for both retirement and disability

beneficiaries to work.

The Role of Social Security

The OASDI programs are crucial to the

economic well-being of tens of millions of

Americans. Social Security will spend about

$434 billion in 2001 to provide more than

45 million beneficiaries with comprehensive

protection against loss of income due to

the retirement, disability or death of a worker.

The Old-Age and Survivors Insurance program

(OASI) insures retired workers and their

eligible spouses, children, and survivors. In

2000, Social Security paid out almost $289

billion to 31 million retired workers and

dependent family members, and about $59

billion in benefits to seven million survivors

of deceased workers. The Disability Insurance

program (DI) provides a similar type of

insurance to workers who become disabled,

and to their dependents. In 2000, Social

Security paid over $54 billion in benefits

to more than six million disabled workers

and family members.

The Government will collect an estimated

$512 billion in Social Security taxes in 2001.

These taxes will be credited to the OASI

and DI trust funds, along with almost $60

billion of interest on Treasury securities held

by the trust funds.
172 HIGHLIGHTS FROM FY 1994 TO FY 2001

Many beneficiaries would face a high risk

of poverty without the income protection

provided by Social Security. When President

Roosevelt signed Social Security into law,

most seniors were poor. Since then, Social

Security benefits have significantly improved

the well-being of the Nation. The poverty

rate among those 65 and older was 12.2

percent in 1993, and reached an all time

low of 9.7 percent in 1999. Without Social

Security, nearly half of older Americans would

live in poverty.

Save Social Security First

Social Security’s most important revenue

source is the payroll tax. Currently, the

Social Security trust funds are expected to

run a cash surplus until 2015. Current economic and demographic forecasts indicate,

however, that cash revenues will fall short

of expenditures after that time, and the

trust funds will exhaust their reserves in

2037 unless corrective action is taken. After

2037, payroll taxes are projected to cover

72 percent of benefits.

In an effort to find a long-term solution,

President Clinton’s 1998 State of the Union

Address called for a commitment to ‘‘save

Social Security first.’’ The President was

about to submit the first balanced budget

proposal in almost 30 years, projecting that,

with continued fiscal discipline, budget surpluses would continue for several decades.

Rather than spend this surplus, the President

proposed saving it until meaningful steps

were enacted to preserve Social Security.

The President used 1998 to engage in

a national discussion about Social Security

reform. He led the way with a series of

regional nonpartisan forums to build public

awareness of the issues, and to build public

consensus for action. The year-long national

dialogue culminated with a White House

Conference on Social Security.

The following year, the President proposed

a program to save Social Security through

a commitment to sustained fiscal responsibility. Rather than dissipate all of the currently projected on-budget surpluses on new

spending or tax cuts, the President proposed

a balanced approach to prepare the Nation

for the challenges ahead by paying down

the entire debt held by the public by 2013

and by encouraging economic growth. The

President’s 2000 and 2001 Budgets outlined

this approach, which proposed transfers to

the trust funds approximately equal to the

interest saved by dedicating the Social Security surpluses to debt reduction. The President’s plan would extend the solvency of

the trust funds to 2057.

The President’s commitment to save Social

Security first has driven the budget debate.

Rather than dissipating all of the currently

projected on-budget surpluses on new spending

or tax cuts, the President has encouraged

a balanced and bipartisan approach to prepare

the Nation for the challenges ahead. The

President’s initiative in starting a conversation

about Social Security led to a political imperative stronger than law; there now exists

a broad consensus that fiscal responsibility

requires that the Social Security surplus

not be used to finance other activities or

policies. By calling attention to this issue,

the President helped to raise the bar of

fiscal behavior in a fashion that will have

enduring favorable consequences for the economy.

While the Administration’s legislative proposal has not been enacted, his call to

protect the Social Security surplus has become

the basis for policy discussions in this area.

The debate over fiscal policy in the near

future will continue to be heavily influenced

by this approach. This development, plus

the expanded public consciousness and understanding of the Social Security issue that

arose from the Administration’s efforts, will

contribute to budget and retirement policy

in the coming years.

Changes to the Social Security Program

While the underlying principles of the Social

Security program have remained the same,

the program has continued to evolve to

meet the needs of today’s population. Since

1993 there have been numerous initiatives

to strengthen Social Security and bolster

public confidence in the programs, while

making them more accessible and efficient.

The changes also reflect shifts in public

attitudes and technological advances.
15. SOCIAL SECURITY 173

The Social Security Administration: The

Social Security Independence and Program Improvements Act was enacted in 1994. This law

established the Social Security Administration

as an independent agency within the executive

branch as of 1995. Creating an independent

SSA helped to streamline Government operations to serve the American people better,

and reinforced the commitment to maintain

the confidence of all Americans in the Social

Security program.

During its six years as an independent

agency, SSA consistently has earned high

marks for its management, and for its strategic planning efforts that emphasize service

and effective program administration. The

1999 Government Performance Project—an

independent, comprehensive study of management performance conducted jointly by the

Maxwell School of Citizenship and Public

Affairs at Syracuse University and Government Executive magazine—ranked SSA at

the top of 15 Federal Government agencies.

The project gave SSA an overall grade of

‘‘A,’’ and highlighted SSA’s ‘‘stellar service’’

and use of technology to improve transactions

with its customers and employees. SSA was

also one of the first organizations to recognize

the potential information system difficulties

related to the year 2000, and was the first

agency to be fully prepared.

In addition to administering the Social

Security programs, SSA also runs the Supplemental Security Income (SSI) program for

low-income aged, blind and disabled individuals, which is discussed in Chapter 14,

‘‘Income Security.’’ In addition, the agency

provides services that support the Medicare

program on behalf of the Health Care Financing Administration.

Work Incentives: In 1993, the Administration made a commitment to a 21st Century

vision of America, with opportunity and responsibility for all American citizens. Part of

this vision included rewarding work throughout an individual’s life cycle, even if the individual is over the traditional retirement age

of 65 or has a disabling impairment. Administration proposals laid the foundation for this

vision.

• Eliminating the earnings test for

those over the normal retirement age.

The Social Security system was designed

to encourage older Americans to retire by

withholding benefits from workers over

the normal retirement age (currently age

65). This was during the Great Depression, when young workers with families

faced an economy with a 25-percent unemployment rate. Today, the unemployment

rate is about four percent. One in four

Americans between 65 and 69 has at least

one part-time job, and 80 percent of baby

boomers intend to work past age 65.

In 1993, retirement beneficiaries under

the age of 70 faced the possibility of losing

some or all of their Social Security benefits

if they were working. Recognizing the

changes in the labor force and work preferences, the Administration worked with

the Congress to raise the level of allowable

earnings for individuals between the normal retirement age and 69. The Senior

Citizens’ Right to Work Act, enacted in

1996, would have gradually increased the

retirement earnings test level over a

seven-year period. However, by 2000, with

a balanced budget and a projected surplus,

the Administration signed the Senior Citizens’ Freedom to Work Act, which eliminated the retirement earnings test for individuals between the NRA and 69. This

law benefitted the 800,000 older working

Americans who received reduced benefits,

and also encouraged countless more to

seek work.

• Encouraging individuals with disabilities to return to work. Both the DI

and SSI programs also evolved to reflect

changes in the economy, demographics,

technology, medicine, and other areas.

Many beneficiaries with disabilities, for

example, want to be independent and to

work—and with the appropriate support,

they can achieve these goals.

Legislative Initiatives. The Administration

strongly advocated for and the President

signed the Ticket to Work and Work Incentives Improvement Act of 1999 to help

disability beneficiaries enter or return to

the work force. Specific to SSA, this law

expands beneficiaries’ choices of employ-
174 HIGHLIGHTS FROM FY 1994 TO FY 2001

ment service providers, extends Federal

health benefits for beneficiaries who

return to work, and authorizes SSA to

carry out demonstration projects to identify effective ways to help disabled beneficiaries return to work.

Executive Initiatives. In 1999, the President supported SSA’s proposal to increase

the amount an individual can earn and

maintain eligibility for disability benefits

to $700 from $500 a month, the level at

which it had been fixed since 1990. To

ensure that the measure keeps pace with

the economy, the President further directed that, beginning in 2001, this

amount will be annually indexed to average wages. Also in 2001, the amount an

individual can earn during a ‘‘trial work

period’’ month (a month during which disabled beneficiaries can test their ability

to work without affecting their benefits)

will increase from $200 to $530, and it

will be indexed to average wages in subsequent years. This amount also had been

fixed since 1990.

Public Education and Customer Service:

The Vice President’s National Partnership for

Reinventing Government designated SSA, as

one of the 32 agencies that deal directly with

the public, as a High Impact Agency. As a

High Impact Agency, SSA made a commitment

to achieve a number of significant concrete

measurable goals regarding public understanding of its programs, customer service, and

efficiency.

As part of this effort, SSA conducted a

survey to measure the public’s baseline level

of knowledge of Social Security programs.

In 1998, only 55 percent of the public was

generally knowledgeable about Social Security

programs and had a basic understanding

of the program concepts. SSA’s current goal

is that by 2005, nine out of 10 Americans

(age 18 and over) will be knowledgeable

about Social Security programs.

• Social Security Statements. Another of

SSA’s commitments was to improve the

public’s understanding of how Social Security affects their lives. In 2000, to reach

America’s work force, SSA launched the

largest customized mailing ever undertaken by a Federal agency, sending Social

Security Statements to approximately 133

million workers age 25 and older who are

not receiving Social Security benefits. This

annual mailing provides a clear statement

of the individual’s earnings history and an

estimate of his or her future benefits, as

well as program information and a summary of the long-term financial challenges

the program faces.

• Social Security Online. In 1994, SSA

launched its web site, Social Security Online (www.ssa.gov). Since that time, SSA

has expanded its web site to serve the

public better. For example, Social Security

Online provides ‘‘pamphlets’’ on programs

and services, a ‘‘benefits planner’’ to assist

in financial planning, reports and studies,

a field office locator, and answers to frequently asked questions. Via Social Security Online, individuals also can apply for

retirement benefits and replacement Medicare cards, download selected forms, submit inquiries to SSA, and subscribe to the

electronic monthly newsletter, ‘‘e-News.’’

SSA estimates 15 million individuals were

attracted to its web site in 2000, up from

22,000 just six years ago.

• Payment Cycling. In 1997, SSA began

‘‘payment cycling’’ to pay new beneficiaries

on one of three Wednesdays during the

month, instead of paying all beneficiaries

on the same day of the month. This balanced the distribution of Social Security

payments and workload throughout the

month, enabling SSA to maintain quality

public service to a growing beneficiary

population.

• Improved Disability Adjudication

Process. SSA also committed to streamline its processes, especially disability

claims processing and appeals. Disability

claims determinations are very complex

and time consuming. SSA currently is testing a streamlined disability eligibility determination process on a prototype basis

in 10 States. SSA’s Office of Hearings and

Appeals is also implementing changes to

improve efficiency and reduce case processing times.
15. SOCIAL SECURITY 175

Program Integrity

SSA is committed to ensuring that eligible

individuals receive benefits, and that they

are paid the correct amount. SSA is also

committed to ensuring that only eligible individuals receive benefits. To improve the integrity of its programs, SSA improved its data

collection, entered into data sharing agreements with other agencies or institutions

when appropriate, and expanded its debt

collection tools, among other efforts. One

of the Administration’s most cost-effective

initiatives was improving its continuing disability review (CDR) program. Regularly

scheduled disability reviews, which may be

a questionnaire or a full medical review,

are among SSA’s most effective mechanisms

for determining whether its disability beneficiaries maintain program eligibility.

In the early 1990s, a large backlog of

CDRs built up, due to an unprecedented

increase in initial disability claims workloads

and a decline in the number of CDRs processed. In 1993, SSA conducted only 48,000

CDRs, as it directed its efforts toward developing and introducing a more efficient CDR

questionnaire process. In 1996, the Administration and the Congress worked together

to provide dedicated resources for SSA to

conduct more than eight million CDRs, to

eliminate its backlog and maintain current

workloads. The agency is on target for meeting

this goal. In 2000, SSA invested $605 million

to conduct more than 1.8 million CDRs.

SSA estimates approximately $6 in savings

for every $1 in costs over the lifetime of

this initiative.

Tax Expenditures

Social Security recipients pay taxes on

their Social Security benefits only when their

overall income, including Social Security, exceeds certain income thresholds. The exclusion

of Social Security income below these thresholds reduces total income tax revenue by

an estimated $26 billion in 2001.

Deficit reduction legislation in 1993 raised

the maximum portion of retirement benefits

that could be subject to taxation from 50

percent to 85 percent. All of the revenue

from this change in the taxation of Social

Security benefits is transferred to improve

the solvency of the Medicare Hospital Insurance Trust Fund.
177

16. VETERANS BENEFITS AND SERVICES

Table 16–1. Federal Resources in Support of

Veterans Benefits and Services

(Dollar amounts in millions)

Function 700 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 16,235 22,512 39%

Mandatory outlays ..................................................... 19,848 22,918 15%

Credit Activity:

Direct loan disbursements ....................................... 2,211 1,709 –23%

Guaranteed loans ...................................................... 35,434 29,548 –17%

Tax expenditures ....................................................... 1,980 3,490 76%

The Federal Government provides benefits

and services to veterans and their survivors

of conflicts as long ago as the SpanishAmerican War and as recent as the Gulf

War, recognizing the sacrifices of wartime

and peacetime veterans during military service. The Federal Government spends over

$45 billion a year on veterans benefits and

services, and provides over $3 billion in

tax benefits to compensate veterans and their

survivors for service-related disabilities; provides medical care to veterans including lowerincome and disabled veterans; and helps

returning veterans prepare to reenter civilian

life through education and training. In addition, veterans benefits provide financial assistance to needy veterans of wartime service

and their survivors. Along with direct Federal

funding, certain tax benefits help veterans.

The law keeps all cash benefits that the

Department of Veterans Affairs (VA) administers (i.e., disability compensation, pension,

and Montgomery GI Bill benefits) free from

tax.

About seven percent of veterans are military

retirees who can receive either military retirement from the Department of Defense (DOD)

or veterans benefits from the VA. Active

duty military personnel are eligible for veterans housing benefits, and they can contribute to the Montgomery GI Bill (MGIB)

program for education benefits that are paid

later. VA employs 21 percent of the Federal

Government’s non-DOD civilian work force—

approximately 220,000 people, about 195,000

of whom deliver or support medical services

to veterans.

The veteran population continues to decline

and age (see Chart 16–1). These demographic

shifts result in changes in the types of

benefits and services needed by veterans.

Further, as technology improves, access to,

and the quality of service improves.

Veterans Health Administration (VHA)

Over the last eight years, VA has undergone

sweeping reform that enabled its health care

delivery system to provide medical care in

a more efficient, outpatient-oriented system

emphasizing continuity of care. VA provides

health care services to 3.5 million veterans

through its national system of 22 integrated

health networks, consisting of 172 medical

centers, 766 ambulatory clinics, 134 nursing

homes, 40 domiciliaries, and 206 veteran

centers. VA is an important part of the

Nation’s social safety net because over half

of its patients are lower-income veterans

who might not otherwise receive care. It

also is a leading health care provider for

veterans with substance abuse problems, mental illness, HIV/AIDS, and spinal cord injuries
178 HIGHLIGHTS FROM FY 1994 TO FY 2001

1990 1995 2000 2005 2010 2015 2020

0

10

20

30

Number of veterans in millions

Veterans Under 65

Veterans Over 65

Chart 16-1. Veterans Population 

Declines and Ages

Source: Department of Veterans Affairs

because private insurance usually does not

fully cover these conditions.

Despite obstacles, VHA has dramatically

transformed itself into a more efficient health

care provider, with increased emphasis on

quality and continuity of care. Early in

the Clinton-Gore Administration, VHA began

realigning 172 separate hospital campuses

into 22 Veterans Integrated Service Networks

(VISNs). This reorganization provided a new

framework for management and change. The

22 network directors were empowered and

held accountable to provide improved access

and quality to needed health care services,

while eliminating redundancy. In 1996, the

Administration worked with the Congress

to enact the Eligibility Reform Act. This

allowed for the dramatic modernization of

the system by allowing VA to treat patients

in the most appropriate care setting,

prioritizing veterans for eligibility, and allowing liberal contracting and sharing authorities

(e.g., VA provides medical care services to

DOD active duty military on a contract

basis). Prior to eligibility reform, VA had

to provide care as defined in statute. In

many cases, it could only provide care on

an inpatient basis. This requirement proved

to be extremely costly, inefficient, and burdensome to VA and its veteran patients. Even

simple procedures were being performed in

hospitals. The shift from inpatient to outpatient care has allowed VHA to evolve

into a more responsive health care delivery

system.

Under this Administration, VA has aggressively shed unnecessary personnel and replaced them with direct patient care services,

expanded contract services and sharing agreements, and centralized procurement to capitalize on its buying power. In addition,

VA has implemented national pharmaceutical

formularies, realigned clinical support services,

and consolidated, privatized, or franchised

some ancillary services, such as laundry,
16. VETERANS BENEFITS AND SERVICES 179

food preparation, payroll/human resource administration, and fire protection.

VA’s quality of care, based on industry

standards, is very high and continually improving. VA has become a leader in such

patient-safety techniques as bar-coding, which

ensures that patients receive the correct drugs,

and a comprehensive medical-error reporting

system that helps find common errors and

develop prevention processes. Over the last

four years, VA has completely shifted to

coordinated care by establishing clinical

teams—consisting of physicians, nurses, pharmacists, etc.—to provide care in a more

consistent and thorough manner. Prior to

1997, patients were randomly assigned to

available medical staff. Today, each veteran

is assigned to a team and continually sees

the same providers, improving continuity of

care and patient satisfaction.

VA also formed partnerships with the National Committee on Quality Assurance, the

American Hospital Association, the American

Medical Association, the American Nurses

Association, and other national associations

to ensure quality patient care. The Chronic

Disease Care Index measures VA physicians’

adherence to established industry practice

guidelines for key diseases affecting veterans.

It has increased from 44 percent to 90

percent over the past six years. Similarly,

the Prevention Index measures adherence

to disease prevention and screening guidelines

and has seen an increase from 34 percent

to 81 percent over the past six years.

In summary, the reengineering of VA health

care has resulted in significant reductions

in the cost per patient while quality of

care increased. This included restructuring

veterans’ health care to include the organizational, financial, and management change

associated with the VISNs, shifting care to

more appropriate care settings with an emphasis on primary care, and implementing clinical

and administrative efficiencies including consolidations and integrations. More specifically,

since 1993:

• patients treated per year increased by over

35 percent (from 2.8 to 3.8 million). Further, 107 percent more homeless patients

were treated in 2000 compared to 1993;

• annual inpatient admissions decreased 38

percent (317,688 fewer admissions) by

2000 while ambulatory care visits increased by 56 percent to 39.3 million (14.1

million increase);

• approximately 1,300 sites of care delivery

have been organized under 22 Veterans

Integrated Service Networks; and,

• over 350 new community-based outpatient

clinics have been established.

Veterans Benefits Administration (VBA)

VBA processes veterans’ claims for benefits

in 57 regional offices across the country.

These benefits include compensation for service-connected disabilities, pensions for lowincome veterans, vocational rehabilitation,

education, home loans, and life insurance.

Since 1993, VBA has realigned 57 regional

offices into nine service delivery networks.

It has established nine Regional Loan Centers

for housing loans and four Regional Processing

Offices for education claims in an effort

to improve efficiency and quality of services

to its customers. VBA has also taken steps

to integrate information technology into claims

processing to improve timeliness and quality

of service delivery. It has also implemented

a ‘‘balanced scorecard,’’ a tool that has helped

management to weigh the importance of and

measure progress toward meeting VBA’s strategic goals, which include:

• improving responsiveness to customers’

needs and expectations;

• improving service delivery and benefit

claims processing; and,

• ensuring best value for the available taxpayers’ dollar.

VBA monitors its performance in awarding

disability benefits claims through measures

of accuracy, customer satisfaction, processing

timeliness, and unit cost.

Disability Compensation: Veterans with

disabilities resulting from, or coincident with,

military service receive monthly compensation

payments based on the degree of disability.

The payment does not depend on a veteran’s

income or age or whether the disability is the

result of combat or a natural-life affliction. It

does depend, however, on the average decline
180 HIGHLIGHTS FROM FY 1994 TO FY 2001

in earnings capacity that the Government presumes for veterans with the same degree of

disability. Survivors of veterans who die from

service-connected injuries receive payments in

the form of dependency and indemnity compensation. Compensation benefits are indexed

annually by the same cost-of-living adjustment

as Social Security. While the veteran population is declining, the compensation caseload

is currently remaining relatively constant due

to changes in eligibility, better outreach efforts, and increasingly complicated disabilities

as veterans age.

Since 1993, compensation benefits have been

expanded for Gulf War- and Vietnam-era

veterans. Initially, VA established six ‘‘presumptive’’ service-connected disabilities for

Vietnam veterans for herbicide exposure under

the Agent Orange Act; there are currently

nine presumptive conditions. The development

of presumptive disabilities makes it easier

for disabled veterans to obtain compensation

benefits by eliminating the burden to prove

that the disabling event occurred during

military service. In 1994, VA designed and

implemented criteria for the first time to

compensate veterans with chronic disabilities

resulting from undiagnosed illnesses (otherwise known as Gulf War Syndrome). In

1997 and 2000 respectively, the Administration worked with the Congress to impart

monetary benefits, heath care, and vocational

rehabilitation to the children of Vietnam

veterans who suffered from spina bifida or

birth defects—extending benefits to children

for the first time.

Education Benefits: The Government originally created the MGIB as a test program,

with more generous benefits than the postVietnam-era education program, to help veterans move to civilian life and to help the

Armed Forces with recruitment. Service members who choose to enter the program have

their pay reduced by $100 a month in their

first year of military service. VA administers

the program and pays basic benefits once the

service member becomes eligible. Since 1994,

the benefit automatically increases each year

in relation to the general inflation rate.

Moreover, the Veterans Benefits and Health

Care Improvement Act of 2000 allows servicemembers to increase their benefits by up to

$150 over the basic monthly amount by contributing an additional $600.

MGIB beneficiaries receive a monthly check

based on whether they are enrolled as fulltime or part-time students. They can get

36 months worth of payments, but they

must certify monthly that they are in school.

DOD may provide additional benefits to help

recruit certain specialties and critical skills.

The MGIB also provides education benefits

to members of the Selected Reserves. DOD

funds these benefits, and VA administers

the program. Over 90 percent of MGIB beneficiaries use their benefits to attend a college

or university. Basic benefits available now

total over $23,400 per recipient, compared

to $12,600 in 1992 (an 86-percent increase).

National Cemetery Administration (NCA)

VA provides burial in its national cemeteries

for eligible veterans, active duty military

personnel, and their dependents. VA manages

119 national cemeteries across the country.

In addition, VA has jointly funded 47 State

veterans cemeteries through its State Cemetery Grants Program. Since 1993, NCA has

expanded service by opening five new national

cemeteries (Kent, Washington; Schuylerville,

New York; Elwood, Illinois; Dallas, Texas;

Rittman, Ohio), provided grants to States

to establish 25 new State veteran cemeteries,

and acquired 3,000 acres of land to meet

burial demands. NCA improved service by

installing 24 information kiosks and by encouraging non-VA national and State veterans

cemeteries to place headstone orders online. In addition, VA will establish six additional national cemeteries in areas of the

United States in which the need for burial

space is greatest. Those areas are: Atlanta,

Georgia; Detroit, Michigan; Miami, Florida;

Sacramento, California; Pittsburgh, Pennsylvania; and, Oklahoma City, Oklahoma.
181

17. ADMINISTRATION OF JUSTICE

Table 17–1. Federal Resources in Support of

Administration of Justice

(Dollar amounts in millions)

Function 750 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 14,613 29,982 105%

Mandatory outlays ..................................................... 302 672 123%

The Clinton-Gore Administration pursued

successful initiatives to reduce crime and

improve the Nation’s legal system: the Community Oriented Policing Services Program;

reform of the Immigration and Naturalization

Service; strengthening firearms enforcement;

reducing juvenile crime, especially gun-related

violence; preventing terrorism; combating drug

use; and, protecting all Americans by supporting increases for civil rights enforcement,

the Legal Services Corporation, and Violence

Against Women Act programs.

In 2001, the Federal Government will expend almost $30 billion in discretionary budget

authority on the administration of justice—

including law enforcement, litigation, judicial

and correctional activities—more than double

the amount spent in 1993, and an 80-

percent increase in constant dollars terms.

Total Federal, State, and local resources devoted to the administration of justice have

grown by 80 percent, from $98 billion in

1993 to an estimated $175 billion in 2001

(see Chart 17–1), a 55-percent increase in

constant dollars terms. While States and

localities bear most of the responsibility for

fighting crime, the Federal Government plays

a critical role, both in supporting State

and local activities and investigating and

prosecuting criminal acts that require a Federal response.

Although crime is affected by varying factors, the fact that the national crime rate

has dropped at the same time that Federal

anti-crime spending has increased suggests

a causal relationship. Representing the lowest

annual serious crime count since 1985, the

1999 Crime Index total was estimated at

approximately 11.6 million offenses. Down

19 percent from 1992, this represented the

eighth consecutive annual decline in the Crime

Index.

Funding for the administration of justice

function includes: (1) law enforcement; (2)

litigation and judicial activities; (3) correctional activities; and, (4) criminal justice

assistance to State and local entities. Discretionary budget authority for law enforcement

is still the largest portion of this funding

(42 percent) in 2001. However, the most

dramatic change since 1993 has been in

criminal justice assistance, which has grown

458 percent, an average increase of 24 percent

per year (see Chart 17–2).

Law Enforcement

Department of Justice (DOJ): The Department of Justice represents 70 percent of

total Federal spending for law enforcement,

enforcing diverse Federal laws dealing with

national security, terrorism, illegal immigration, violent crime, drug smuggling, white collar crime, and many other criminal acts. In

carrying out these activities, DOJ works closely with other Federal agencies, and with State

and local law enforcement agencies, often

through joint task forces.
182 HIGHLIGHTS FROM FY 1994 TO FY 2001

0

20

40

60

80

100

120

140

160

180

200

Chart 17-1. Administration of Justice Expenditures

Dollars in billions

Note: Federal data includes discretionary expenditures only.

Federal

State

Local

1993 1994 1995 1996 1997 1998 1999 2000 2001

• National Security and Terrorism: Since

1993, DOJ, with strong support from the

Administration and the Congress, has

acted aggressively to prevent, mitigate,

and investigate acts of terrorism, including

the use of weapons of mass destruction

and the emerging threat of cybercrime.

The Department spent $782 million in

2000 to combat terrorism, primarily in the

FBI ($467 million) and the Office of Justice Programs ($152 million).

The FBI has primary responsibility for

preventing domestic acts of terrorism. If

an incident should occur, it is the lead

investigative agency. The FBI also has developed the capacity to mitigate and investigate cyber attacks against the Federal

Government, the Nation’s critical infrastructure, and American businesses. The

Criminal Division within DOJ provides

prosecutive assistance for all terrorist incidents, including cyberterrorism, serving as

a focal point for such efforts at all levels

of law enforcement.

The Nation must be prepared to deal with

terrorist events involving the use of weapons of mass destruction, such as biological,

chemical, or nuclear weapons. State and

local public safety agencies would be responsible for managing the consequences

of such incidents if they should occur. DOJ

and other Federal agencies support the

necessary training and equipping of the

State and local agencies to ensure their

readiness. The FBI houses the National

Domestic Preparedness Office, which coordinates all Federal programs supporting

State and local ‘‘first responders.’’

• Immigration Enforcement and Services:

DOJ’s Immigration and Naturalization

Service (INS) protects the U.S. borders

from illegal immigration while providing

services to legal aliens. To keep pace with

one of the busiest periods of immigration-
17. ADMINISTRATION OF JUSTICE 183

1993 1994 1995 1996 1997 1998 1999 2000 2001

0

5

10

15

20

25

30

35

Chart 17-2. Federal Justice Expenditures

Dollars in billions

Note: Data includes discretionary expenditures only.

Law Enforcement

Litigation/Judicial

Criminal Justice

Assistance

Corrections

related activity in the Nation’s history and

to meet the expanded scope and complexity of the INS mission, the Administration and the Congress increased the

agency’s budget by more than 180 percent,

from $1.5 billion in 1993 to $4.3 billion

in 2000. Staffing levels grew at a similar

pace, with INS adding 15,200 employees

since 1993, for total agency staffing level

of 32,000 in 2000.

From 1993 through 2000, the INS received

nearly 6.9 million applications from immigrants who applied for citizenship—more

than the total in the previous 40 years

combined. By 1998 the backlog of naturalization applications had grown to more

than 1.8 million and processing time was

over 27 months. In response, the Administration provided additional resources,

streamlined the process, ensured dedicated

leadership and measured performance. By

the end of 2000, the application backlog

was below one million for the first time

in four years and INS had achieved its

citizenship processing time goal of six to

nine months while maintaining high levels

of integrity.

INS achieved dramatic results in stemming the flow of illegal aliens into the U.S.

by following an aggressive border management strategy that combined additional

Border Patrol agents, technology and border barriers. From 1993 to 2000, INS increased the number of Border Patrol

agents by 132 percent from 3,965 to over

9,200 agents. These agents improved the

quality of life in border communities

through targeted enforcement operations.

—Operation Gatekeeper reduced illegal

entries along the San Diego border to

their lowest level in 25 years and contributed to a 34-percent drop in overall

crime rates in the San Diego area. Once

the busiest illegal crossing area in the

Nation, San Diego Chief of Police David
184 HIGHLIGHTS FROM FY 1994 TO FY 2001

Bejarano stated that after Operation

Gatekeeper San Diego ‘‘. . . is without

question the quietest and safest the border has ever been in this area.’’ Similar

results were achieved through targeted

INS enforcement operations in select locations in Texas, Arizona, and New

Mexico.

—Every year since 1993, INS has set new

records for the incarceration and removal of illegal aliens, restoring credibility to the Nation’s immigration laws.

Preliminary figures for 2000 show

181,572 removals, more than a quadrupling of the 1993 number. Much of

this growth is attributable to the dramatic rise of criminal removals in cooperation with other law enforcement

agencies, which reached over 69,000 in

1999—more than 20 times the number

in 1993.

Department of the Treasury: Within the

Department of the Treasury, the U.S. Customs

Service, Bureau of Alcohol, Tobacco and Firearms (ATF), U.S. Secret Service, and other bureaus enforce laws related to drug and contraband at our borders; commercial fraud; firearms trafficking; arson and explosives crimes;

and financial crimes, including money laundering, counterfeiting, and credit card fraud.

In addition, the U.S. Customs Service regulates the importation and exportation of goods;

ATF regulates and enforces criminal laws pertaining to alcohol, tobacco, firearms, and explosives; and the Secret Service protects the

President, Vice President, and visiting foreign

dignitaries. The Federal Law Enforcement

Training Center provides basic and advanced

training to Treasury and other law enforcement personnel. The Financial Crimes Enforcement Network supports law enforcement

agencies in the detection, investigation and

prosecution of domestic and international

money laundering. In addition, DOJ and

Treasury have annually submitted to the Congress two strategies for combating money laundering as required by the Money Laundering

and Financial Crimes Strategy Act of 1998.

During the last eight years, the Treasury

Department’s law enforcement bureaus have:

• successfully met the challenge of dramatically increased import levels due to the

implementation of the North American

Free Trade Agreement (10.6 million formal

and informal entries in 1993 as compared

to 21.4 million in 1999);

• achieved a trade compliance level of 83

percent for all imported goods, a revenue

collection compliance rate of 98.8 percent,

and began development and implementation of the Automated Commercial Environment (ACE), an automated import system designed to effectively process an ever

increasing volume of trade, in accordance

with regulations of the 1993 Customs

Modernization Act; and,

• maintained law enforcement capabilities

in a rapidly changing technological environment, such as the use of encryption by

criminals and the introduction of digital

communications equipment and Internet

communications impervious to traditional

court-approved wiretaps.

Gun Violence Prevention Efforts: To address the continuing problem of gun violence,

the Administration has sought to improve enforcement of firearms laws and aggressively

implement provisions of the Brady Act. Keeping guns out of the hands of criminals has

made America’s streets safer. Since 1993, the

number of crimes committed with firearms has

declined by 35 percent.

• DOJ, working with the States, is now conducting computerized background checks

on all firearm purchases. As of 1999, the

Instacheck system has been used to block

more than 611,000 illegal gun sales since

the program was implemented;

• The ATF has invested in the development

and dissemination of investigative information, including tripling the number of

crime gun traces from 79,191 in 1994 to

225,000 in 2000, establishing a ballistics

information system, efficiently providing

follow-up analysis of Brady background

check information, and establishing regular reporting of national and local crime

gun information to assist law enforcement

agencies and the firearms industry;

• The Treasury Department also provides

firearms expertise and technical assistance

to State and local law enforcement, the

U.S. Attorneys Office and local prosecutors
17. ADMINISTRATION OF JUSTICE 185

to craft solutions responsive to the specific

needs of each community such as the Boston Gun Project/Boston Ceasefire and

Project Exile in Richmond.

Federal Drug Control Activities: The Office of National Drug Control Policy established a comprehensive, 10-year National Drug

Control Strategy that incorporated aggressive

societal goals for anti-drug programs. Achieving these goals depends not only on the Federal Government, but on State, local, and foreign governments, the private sector, religious

institutions and not-for-profit agencies, and on

the behavior of individuals. Although some

progress has been realized, particularly among

high school age youth, drug use in the United

States remains unacceptably high and imposes

substantial costs on society. Recent accomplishments in this area include:

Overall drug use in the United States

is substantially below the level found 20

years ago. The number of current users

of illicit drugs has dropped from 14.1 percent

to 6.7 percent of the population over the

age of 12. Most of this change occurred

before 1988, and since that year the rate

of overall drug use remained statistically

unchanged.

• Drug use among youth has declined by

more than one-third (37 percent) since

1979. More recently, reported levels of

drug use increased during the 1990s,

starting in 1992, and continued to increase

until 1997. The rate of current use of any

illicit drug among 12–17 year-olds declined

21 percent between 1997 and 1999, the

first statistically significant drop in four

years.

• A decline in the perceived risk of harm

from the regular use of marijuana among

students in high school and junior high

school, which began in the early 90s, has

stopped, and in some cases perceptions of

risk may be increasing. Among 8th grade

students surveyed in 2000, about 75 percent believe there is a great risk of physical or other harm from regular use of

marijuana, an increase of 4 percent since

1996. Among 10th graders, about 65 percent perceive such a risk, essentially the

same level as the past four years. Among

12th grade students, 58 percent reported

believing regular marijuana use presents

a great risk, compared to 60 percent in

1996.

• An ambitious, comprehensive communications strategy that uses a variety of media

and messages to educate and encourage

youth to reject illicit drugs has been implemented. This Youth Anti-Drug Media

Campaign is a research-based program developed by experts in behavior change,

drug prevention, teen marketing, advertising and communications, and representatives from professional, civic, and community organizations. A recent survey of

teenagers and their parents found that 90

percent of both groups recalled seeing at

least one Campaign-funded ad in the prior

month.

In 2001, $19.2 billion was appropriated

for Federal drug control programs administered by approximately 50 Federal agencies,

representing about 1 percent of the total

Federal budget and about 3 percent of all

discretionary funds. The amount appropriated

for Federal drug control programs has increased by $6.5 billion, or 51 percent, since

1992. Chart 17–3 depicts annual Federal

funding for the five major types of drug

control activities. The total for 2000 includes

the $1.3 billion Plan Colombia program discussed in Chapter 3, ‘‘International Affairs.’’

Civil Rights Laws: Federal responsibility

for enforcing civil rights laws that provide protections from discrimination on the basis of

race, color, religion, gender, national origin,

disability, age, and marital status is accomplished by several principal agencies, including

the Civil Rights Division of the Department

of Justice, the 94 U.S. Attorneys offices, the

Equal Employment Opportunity Commission

(EEOC), and the Department of Housing and

Urban Development (HUD). The Civil Rights

Division has primary litigation authority for

the enforcement of the Civil Rights Act of

1964, the Voting Rights Act of 1965, the Fair

Housing Act, the Equal Credit Opportunity

Act, the Freedom of Access to Clinic Entrances

Act, and a number of criminal and civil statutes, including laws prohibiting police misconduct. HUD enforces laws that prohibit discrimination in the sale or rental, provision of

brokerage services, or financing of housing.
186 HIGHLIGHTS FROM FY 1994 TO FY 2001

1993 1994 1995 1996 1997 1998 1999 2000 2001

0

5

10

15

20

Treatment

Prevention

Domestic Law Enforcement International Interdiction

Chart 17-3. Federal Drug Control Spending

Dollars in billions

The EEOC enforces laws that prohibit employment discrimination.

• Over the past eight years, approximately

400 defendants were prosecuted and convicted on Federal hate crime charges for

interfering with federally protected rights

of African American, Latino, Native American, and Jewish victims. In 1996, following a rash of fires at churches in the

South, the President and Attorney General

created the National Church Arson Task

Force. Co-chaired by the Assistant Attorney General for Civil Rights, the interagency task force opened nearly 1,000 investigations into arson, bombings at our

Nation’s houses of worship and prosecuted

more than 300 defendants.

• To reduce its backlog, in the past decade

the EEOC has implemented changes to

speed processing, notably through the

prioritization of charges and greater use

of mediation services. By the end of 1999,

the EEOC had reduced its private-sector

backlog to just over 40,000 complaints, a

15-year low.

• During this Administration, HUD’s Office

of Fair Housing and Equal Opportunities

doubled the number of enforcement actions brought against perpetrators of housing discrimination. HUD is now achieving

a rate of 60 to 70 enforcement actions a

month, compared with 25 to 30 enforcement actions during the Administration’s

first term.

• The Administration fought vigorously, but

unsuccessfully, to expand the Federal Government’s ability to combat hate crimes

by removing jurisdictional obstacles and

by giving Federal prosecutors the ability

to prosecute hate crimes based on sexual

orientation, gender, or disability, along

with those based on race, color, religion,

and national origin.
17. ADMINISTRATION OF JUSTICE 187

Table 17–2. Civil Rights Enforcement Funding

(Budget authority, in millions of dollars)

Actual 2001

Enacted 1999 2000

Equal Employment Opportunity Commission ............................ 279 281 304

Justice: Civil Rights Division ....................................................... 69 82 92

Education: Office for Civil Rights ................................................ 66 71 76

Labor: Federal Contract Compliance ........................................... 65 73 76

Housing and Urban Development: Fair Housing Activities

Grants ......................................................................................... 40 44 46

Health and Human Services: Office for Civil Rights ................. 21 23 28

Agriculture: Civil Rights Programs ............................................. 5 18 20

Transportation: Office of Civil Rights .......................................... 2 7 8

Labor: Civil Rights Center ............................................................ 5 6 6

Environmental Protection Agency: Office of Civil Rights .......... 3 5 5

Total ........................................................................................ 555 610 661

Litigation and Judicial Activities

Department of Justice: United States Attorneys offices are the chief prosecutive arm

of the Federal Government within their judicial district and are responsible for the majority of criminal and civil litigation for the

United States. Each U.S. Attorney’s office is

responsible for investigating and prosecuting

alleged violations of Federal law brought to

their attention by Federal, State, and local law

enforcement agencies.

Their mission of bringing to trial and

convicting those who violate Federal law

is supported by the six litigating divisions

of DOJ. These six divisions—the Civil, Criminal, Civil Rights, Environment and Natural

Resources, Tax, and Antitrust Divisions—

specialize in specific areas of law and have

activities that range from providing prosecutive assistance to U.S. Attorneys offices,

to bringing their own substantial cases to

trial.

Legal Services Corporation: The Federal

Government, through the Legal Services Corporation (LSC), promotes equal access to the

Nation’s legal system by providing funding for

civil legal assistance to low income clients who

seek redress of grievances. Each year LSC

helps to provide high quality legal assistance

to approximately one million clients in such

areas as domestic violence, child custody, visitation rights, evictions, access to health care,

and unemployment and disability claims.

Judicial Branch: The Judicial Branch is

comprised of over 2,100 trial judges, magistrates, and bankruptcy judges, in addition to

the nine justices of the Supreme Court. The

system is made up of a three-tiered hierarchy

with the Supreme Court at the top, the 13

courts of appeals in the middle, and the 94

district courts, the Court of International

Trade, and the Court of Federal Claims at the

bottom. The Federal judicial system is empowered by Article III of the Constitution to ensure that certain rights and liberties are extended to all persons. The system has witnessed historic growth in recent years that is

chiefly attributable to the expanding jurisdiction of Federal courts in the form of over 200

new Federal laws, and the increased criminal

filings in district courts along the Southwestern United States border where five districts now account for 27 percent of all criminal filings nationwide.

Correctional Activities

Between 1993 and 2001, the Federal Government will have spent almost $4 billion

on constructing new prisons. During that

time, the Federal prison population has grown

by over 64 percent, from 88,565 in 1993
188 HIGHLIGHTS FROM FY 1994 TO FY 2001

to145,969 in 2000. The past three years

show record growth in the Federal prison

population. Between 1998 and 2000, over

33,000 inmates were added to the Federal

prison system. During 1999, the Federal

prison population, rose by 13.4 percent, an

increase of 11,296 prisoners, the largest 12-

month gain ever reported. To respond to

the rapid inmate growth, Federal prison facilities grew from 72 in 1993 to 97 in 2000,

with an additional 21 institutions partially

funded and in some phase of design or

construction. With the Federal inmate population expected to double over the next seven

years, the Bureau of Prisons must develop,

and continually refine, its projections of inmate

growth, as well as expertly manage its portfolio of properties available for expansion,

renovation, and development to house this

population. In 2001, the Administration requested, but the Congress did not provide,

advance appropriations of $1.3 billion for

Federal prison construction. Current inmate

population projections, however, clearly illustrate the need for a long term capital plan

for prison facilities construction.

Overcrowding has surged in recent years

and is expected to remain at 32 percent

system-wide by the end of 2000. Federal

prison population growth is due to tougher

sentencing guidelines, the abolition of parole,

minimum mandatory sentences, and significant increases in investments in Federal

law enforcement investigations (e.g., FBI) and

prosecutions (e.g., U.S. Attorneys). Drug offenders now account for 57 percent of inmates

in the Federal system. The Federal Bureau

of Prisons has enrolled approximately 34

percent of all inmates in one or more education

programs and 100 percent of eligible inmates

in residential drug treatment programs.

The total U.S. inmate population, of which

the Federal prison system represents less

than one tenth, reached a record 2 million

in December 2000. State inmate populations

have grown, albeit at a slower pace, due

in part, to sentencing requirements tied to

Federal prison grant funds.

The National Capital and Self Government

Revitalization Act of 1997 transferred the

State function of operating prisons from the

District of Columbia Department of Corrections to the Bureau of Prisons, which will

be responsible for housing all D.C. adult

sentenced felons. Since passage of the Act,

the Bureau of Prisons has accepted 2,903

D.C. inmates of the approximately 8,800

D.C. adult felony inmates. All remaining

D.C. adult felony inmates will be transferred

to the Federal prison system when the Lorton

facility is closed or by December 31, 2001,

whichever is earlier.

Criminal Justice Assistance for State and

Local Governments

Providing Community Policing: Since

1992, the Federal Government has strengthened its role in providing States and local communities with resources in their fight against

crime. State and local law enforcement assistance funding from the Department of Justice

has grown five-fold over this period, reaching

almost $5.2 billion in 2001, including $538 million to assist crime victims. The most significant of these new Federal partnerships with

State and local government has been the Community Oriented Policing Services (COPS) program, which was charged by President Clinton

with carrying out his commitment to put an

additional 100,000 additional community policing officers on the street. In 1999 the COPS

program funded its 100,000th officer, and the

program is now on track towards the new goal

of funding up to 150,000 officers by 2005.

• As of October 2000, COPS has funded

109,000 officers, of which 70,000 are now

on the street, working to make America’s

neighborhoods safer places to live and

work. COPS grants have gone to over

12,000 law enforcement agencies, 62 percent of all law enforcement agencies in the

United States.

• COPS has provided training to over

128,000 law enforcement personnel and

community members, encouraging officers

and citizens to work more closely together

to fight and prevent crime. As of June

1999, almost 90 percent of local police departments (serving a population of 25,000

or more) had full-time personnel engaged

in community policing. State and local law

enforcement agencies had over 112,600

sworn personnel engaged in community

policing, up from 21,239 in 1997.
17. ADMINISTRATION OF JUSTICE 189

Stopping Violence Against Women: The

Administration has worked with the Congress

to increase funding for programs combating violence against women. First authorized as part

of the 1994 Crime Act, the Violence Against

Women Act programs have grown from $26

million in 1995 to $289 million in 2001, and

have helped encourage States, local governments and tribal units to treat domestic violence, sexual assault, and stalking as serious

criminal offenses. The number of organizations

providing legal assistance to domestic violence

victims has grown from 54 in 1998 to 100 in

2000, an 85-percent increase.

Strengthening Indian Country Law Enforcement: Native Americans are almost twice

as likely to be the victim of a violent crime

as other Americans. In 1997, the President directed the Justice and Interior Departments

to jointly address this disparity and the rising

crime rates on and near Indian reservations.

The 1999 Budget launched a four-year Indian

Country Law Enforcement Initiative, which

reached an enacted level of $370 million by

2001. The increases have been used to hire,

train, and retain officers and dispatchers, provide additional equipment, replace vehicles,

and improve court facilities.
191

18. GENERAL GOVERNMENT

Table 18–1. Federal Resources in Support of

General Government

(Dollar amounts in millions)

Function 800 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Discretionary budget authority ................................. 11,642 14,011 20%

Mandatory outlays ..................................................... 1,540 2,283 48%

Credit Activity:

Direct loan disbursements ....................................... ................. 16 NA

Tax expenditures ....................................................... 37,205 71,300 92%

NA = Not applicable.

The General Government function encompasses the central management activities of

the executive and legislative branches. Its

major activities include Federal finances (tax

collection, debt financing, currency and coinage, Government-wide accounting), personnel

management, and general administrative and

property management.

Four executive branch agencies are responsible for these activities: the Department

of the Treasury (2001 enacted level of $14.0

billion), the General Services Administration

($590 million), the Office of Personnel Management ($207 million), and the Office of Management and Budget in the Executive Office

of the President ($69 million).

Department of the Treasury

Treasury is the Federal Government’s financial agent—collecting revenue, making payments and managing the Government’s finances. It produces and protects the Nation’s

currency; helps set domestic and international

financial, economic, and tax policy; enforces

economic embargoes and sanctions; regulates

financial institutions and the alcohol, tobacco,

and firearms industries; and protects citizens

and commerce against those who counterfeit

money, engage in financial fraud, violate

our border, and threaten our leaders. Treasury’s law enforcement functions are discussed

in Chapter 17, ‘‘Administration of Justice.’’

Treasury has enjoyed eight years of success

in delivering its missions. In 2000 Treasury

collected $2 trillion in tax and tariff revenues

due under law; issued nearly $2 trillion

in marketable securities and savings bonds

to finance the Government’s operations and

promote citizens’ savings; and, produced nine

billion Federal Reserve Notes, 17.5 billion

postage stamps, and 27.2 billion coins.

Internal Revenue Service (IRS): The Clinton-Gore Administration inherited an IRS with

an outdated organizational structure, work

processes and technology. Confronted with a

steadily increasing workload (well over one-billion documents each year), IRS was failing to

provide the level of service expected by America’s taxpayers.

Since 1993, the IRS has been transformed.

As required by the bi-partisan IRS Restructuring and Reform Act of 1998, IRS reorganized into four operating divisions, each focused on serving groups of taxpayers with

similar needs (i.e., wage and investment earners, small business and self-employed, middle

and large corporate, and tax exempt and

government entities). This transformation is

the most fundamental organizational modernization of the IRS since the early 1950s.
192 HIGHLIGHTS FROM FY 1994 TO FY 2001

IRS also adopted a new mission statement

that reflects both its customer service and

enforcement roles: ‘‘to provide America’s taxpayers with top quality service by helping

them understand and meet their tax responsibilities and by applying the tax law with

integrity and fairness to all.’’

Currently, the IRS is engaged in a massive

effort to modernize its outdated technological

infrastructure to dramatically improve compliance, productivity, and customer service. The

management capacity to succeed in this extraordinarily complicated effort was instituted

over the last three years. IRS will require

another decade to complete the full program.

IRS introduced a new balanced performance

measurement system to improve its management. Over the last several years, balanced

measures of business results (including quality

and quantity measures), customer satisfaction,

and employee satisfaction were developed for

each major work product (e.g., examinations,

telephone customer service, etc.). In addition,

IRS is engaged in a long-term study to

improve its understanding of taxpayer compliance burden so that this burden can be

minimized.

IRS managed its growing workload while

implementing its modernization program. In

2000, IRS:

• provided 92.2 million refunds to taxpayers

on 127.7 million individual returns (83.7

million refunds on 114.2 million returns

in 1993); and,

• received 28 percent of individual tax returns electronically (11 percent in 1993).

Financial Management Service (FMS):

The FMS seeks to improve the quality of Federal Government financial management by

providing financial services and information to

Federal program agencies and other clients.

Over the past eight years, FMS has drastically

improved its electronic payment and collection

systems; and, in doing so, has been able to

better serve its customers. For example, the

percentage of payments transmitted electronically has increased from 50 percent in 1995

to 70 percent in 2000. In addition, FMS received over 75 percent of its collections electronically in 2000, compared to 28 percent in

1995. FMS also has been successful providing

debt collection and debt management services

to Federal agencies to aid in its implementation of the Debt Collection Improvement Act

(DCIA). Since the passage of the DCIA in

1996, Treasury has collected approximately

$9.1 billion in delinquent debt.

Bureau of Public Debt (BPD): BPD handles all Treasury debt financing operations and

promotes the sale of U.S. savings bonds. During this Administration, BPD streamlined and

consolidated the issuance and redemption process, allowing the Bureau to:

• consistently issue at least 99 percent of

over-the-counter bonds within three weeks

of their purchase; and,

• announce auction results within one hour

90 percent of the time (100 percent in

1999 and 2000).

U.S. Mint: The U.S. Mint—a self-financing

entity which returns almost $3 billion to the

Treasury each year—produces the Nation’s

coinage and manufactures numismatic products (commemorative coins, medals, and bullion) for the public as well as safeguards the

Government’s holdings in monetary metals.

Highlights of the Mint’s activities during the

last eight years follow:

• The implementation of the 50 States Commemorative Quarter Program in 1999. Approximately every 10 weeks, through 2008,

the Mint will issue a new State quarter.

• The issuance of the new golden dollar in

2000. To date, the Mint estimates that it

will produce close to two billion dollar

coins.

• Achieving impressive customer service

goals. In 1999, the Mint received a high

customer satisfaction rating from buyers

of numismatic and commemorative coins.

Exceeding the scores of many private sector firms in the American Customer Satisfaction Index (ACSI), the Mint scored

among the highest of the 29 ‘‘high impact’’

Federal agencies evaluated by ACSI.
18. GENERAL GOVERNMENT 193

Bureau of Engraving and Printing

(BEP): BEP produces all U.S. currency, about

half of U.S. postage stamps, and other Government securities. During this Administration,

the Bureau increased its capacity to produce

currency. Over the past eight years, BEP efficiency and cost-effectiveness have increased,

allowing the Bureau to:

• successfully redesign and issue new $100,

$50, $20, $10, and $5 bills, which contain

many new features intended to make our

currency secure and to defeat high-tech

printing equipment; and,

• meet all Federal Reserve and United

States Postal Service orders as requested.

General Services Administration (GSA)

GSA provides policy leadership and expertly

managed space, products, and services to

support the administrative needs of Federal

agencies. Over the past eight years, GSA

has expanded the range of choices available

to its customers for office space, supplies,

and administrative services. It has also

strengthened its role as the central management agency for administrative services policies. During this same period, GSA reduced

its staffing by 30 percent, from 20,248 to

14,027, and increased its annual operating

revenues by nearly 60 percent, from $8.4

billion to $13.3 billion. Highlights of GSA’s

activities over the past eight years follow.

• In 1995, GSA centralized its policy and

regulatory authorities into an Office of

Government-wide Policy (OGP) reporting

directly to the Administrator. Since then

OGP has begun a complete revision of

GSA regulations to replace overly complex

and outdated policies with simpler, ‘‘plain

language’’ guidance. OGP has also modernized its Government-wide information

systems that capture agency data on the

management of various administrative activities such as real property holdings,

motor vehicles, aircraft, and travel.

• The Public Buildings Service (PBS) is

GSA’s largest business activity and provides real estate and related services for

more than 100 Federal organizations.

Since 1993, PBS has constructed 86 new

Federal buildings, of which 37 were courthouses. During this same period, PBS

completed major repair and alteration

projects on 156 Federal buildings. PBS

currently manages almost 186 million

square feet of space in Federal buildings

and nearly 153 million square feet of space

in leased buildings. During the past six

years, PBS has improved its responsiveness to its agency customers by reducing

the average time for an agency to lease

space through GSA from 244 days to 136

days. In 2000, PBS operated Government

owned space at a cost 13 percent below

the private sector and since 1985 has reduced its energy consumption by 20 percent.

• The Federal Supply Service (FSS) has

begun a fundamental shift in its business

model. In 1993, agencies ordered $926 million in supplies from FSS warehouses and

purchased $2.9 billion in supplies and

services directly from vendors on FSS’

Multiple Award Schedules contracts. Last

year, agencies ordered $781 million from

FSS warehouses, but purchased more than

$11.4 billion through the Multiple Award

Schedules contracts. FSS has also led the

Federal Government in simplifying the

processes used by agencies to order and

pay for supplies and services. GSA Advantage! is an FSS web site through which

agencies can order more than 800,000 supply items on-line. GSA’s Smart Pay program offers agencies charge cards through

which they can purchase goods and services and charge travel expenses. Agency

charges through this FSS program have

grown from $2.3 billion in 1993 to $10.1

billion in 1999.

• The Federal Technology Service (FTS) is

the smallest of the three GSA business

units but has made the greatest contribution to GSA’s revenue growth. In the last

eight years, FTS revenues increased over

21⁄2 times, from $1.1 billion in 1993 to almost $4.2 billion in 1999, most of the increase coming from the sales of information technology services. During this period, FTS also negotiated new long-distance telecommunications contracts that

bring the average cost of a long-distance

phone call below five cents per minute.
194 HIGHLIGHTS FROM FY 1994 TO FY 2001

Office of Personnel Management (OPM)

OPM provides human resource management

leadership and services to Federal agencies

and the 1.8 million employees in the civil

service. OPM works closely with agencies

to create effective policies and systems to

recruit, develop, manage and retain the high

quality and diverse work force needed to

deliver results. OPM provides policy guidance,

advice, and direct personnel services and

systems to the agencies. It operates USAJOBS,

a worldwide job information and application

system. It provides fast, friendly, accurate,

and cost-effective retirement, health benefit,

and life insurance services to Federal employees, annuitants, and agencies. See Chapter

12, ‘‘Health,’’ for a discussion of the health

benefits program and Chapter 14, ‘‘Income

Security,’’ for a discussion of the retirement

program.

OPM provides oversight of the Federal

merit system, through on-site evaluations that

are conducted on a four-year cycle for the

30 major departments and agencies, and

a five-year cycle for 35 small agencies. These

oversight reviews ensure that agencies are

adhering to the merit system principles (5

USC 2301), and other policies and principles

such as veteran’s preference and protection

from prohibited personnel practices, while

allowing agencies enough flexibility to focus

on results, not process.

Over the past eight years OPM achieved

considerable success in refocusing its mission

and goals to ensure that the Federal work

force is effectively poised to meet the challenges of the 21st Century. It positioned

itself to help agencies better align human

resources management to support agency

goals. OPM privatized its training and background investigations programs, the latter

resulting in the first Government Employeeowned Stock Ownership Plan (ESOP). The

ESOP has exceeded expectations of success

many times over. Extensive use of automation

and application of state-of-the-art information

technology has provided agencies with the

tools needed to better recruit, train, retain

and manage their work forces to best serve

the American people.

As the Government’s central human resources management agency, OPM presided

over dramatic work force changes experienced

by the Executive Branch during the last

decade. Between 1993 and 1999, the Federal

work force declined by 17 percent, or 377,000

full time equivalent (FTE) positions, resulting

in the smallest Federal work force in 39

years (see Chart 18–1). Almost all of the

14 Cabinet Departments and large independent agencies have reduced their work

force. OPM itself reduced its work force

by 45 percent during this period. (It should

be noted that some argue that the work

force needed to deliver the mission of the

Federal Government also includes uniformed

military, postal workers, contractors, grantees,

and State and local government employees,

putting the work force needed to do the

job closer to 16.8 million in 1999.) These

work force reductions accompanied intensive

management reform efforts to achieve a Government that works better, costs less, and

gets results Americans care about.

OPM’s significant accomplishments in 2000

included: new procedures for evaluating senior

executives that reinforce excellence and accountability; a career intern hiring program

to attract top quality, diverse applicants;

regulations to allow repayment of student

loans as a recruitment incentive; higher pay

rates to attract and retain key Federal information technology workers; child care tuition

assistance to support low-income employees;

an Executive Order increasing the opportunity

for individuals with disabilities to be employed

in the Federal work force; and USA Staffing—

a fully automated system for posting vacancies, accepting and rating applications, and

notifying applicants and agencies of results.

Office of Management and Budget (OMB)

OMB assists the President by preparing

the Federal budget and overseeing its execution in the departments and agencies. In

helping formulate the President’s spending

plans, OMB coordinates the review and examines the effectiveness of agency programs,

policies, and procedures; assesses competing

funding demands among agencies; and, provides policy options. OMB works to ensure

that proposed legislation, and agency testimony, reports, and policies are consistent

with Administration policies, leveraging use

of interagency programs and Councils. On
18. GENERAL GOVERNMENT 195

1993 1994 1995 1996 1997 1998 1999 2000

0

1,700

1,800

1,900

2,000

2,100

2,200

Chart 18-1. Trends in Federal Employment

Civilian employment as measured by full-time equivalents in thousands

(Excluding Postal Service)

Total FTE employment minus the 

temporary work force required for the 

2000 Census. 

Total FTE Employment

behalf of the President, OMB often presents

and justifies major policies and initiatives

related to the budget and Government management before the Congress. It performs

a critically important function in representing

the President’s position during face-to-face

negotiations with members of the Congress

over budget and policy issues. In addition,

OMB is often called upon to provide Government-wide policy development and coordination on issues of importance to the national

interest, such as the U.S. policies on responding to the crisis in Kosovo and on the

protection of our natural resources.

OMB has a central role in developing,

overseeing, coordinating, and implementing

Federal procurement, financial management,

information, and regulatory policies. OMB

helps to strengthen administrative management, develop better performance measures,

and improve coordination among Executive

Branch agencies.

Over the past eight years, OMB has exercised its leadership and oversight role on

a number of significant Government-wide efforts. Examples include: (1) continued implementation of the Chief Financial Officers

Act, which resulted in 15 agencies receiving

unqualified audit opinions on 1999 financial

statements; (2) the Government Performance

and Results Act, which resulted in a closer

integration of budget and performance data

and a Government-wide performance plan;

(3) the Government Management Reform Act,

which led to agencies’ issuing accountability

reports for the first time; (4) the ClingerCohen Act, which put in place sound information technology resources capital planning

and investment control, with performance

based acquisition strategies, all firmly linked

to budget requests; (5) provided overall coordination of Y2K resource allocations for the

agencies; and, (6) the Federal Acquisition

Streamlining Act, which has resulted in the

Government buying better goods and services
196 HIGHLIGHTS FROM FY 1994 TO FY 2001

for fewer dollars and has propelled acquisition

reform throughout the Government. A series

of Priority Management Objectives was established and issued in the annual budget,

focusing top management attention on the

most pressing management improvements

needed in Government.

OMB produced the annual budget for 2001

using a state-of-the art off-site secure data

center to improve efficiency and timeliness,

improve services to agency customers, and

ensure Y2K compliance. In 2001, OMB is

investing in additional information technology

applications to improve efficiency and effectiveness of the OMB’s staff in completing an

ever-increasing workload under continually

shrinking deadlines. In addition, OMB staffing

is being increased to permit completion of

more thorough technical and analytical work

in key functional areas such as financial

management, procurement, regulatory analysis, economic forecasting, and technology

systems investment analyses.

Tax Incentives

The Federal Government provides significant tax incentives that benefit State and

local governments and U.S. possessions. The

two largest are the deductibility of State

and local taxes ($46 billion in 2001) and

the exclusion of interest on State and local

bonds ($23 billion in 2001). During this

Administration, the effectiveness of tax incentives has been improved through reform of

the possession credit and the expansion of

credits to holders of qualified zone academy

bonds.

• The Omnibus Budget and Reconciliation

Act (OBRA) of 1993 reduced the cost of

the possession tax credit and greatly improved its effectiveness in creating jobs in

the possessions. Before OBRA 1993, U.S.

corporations operating in a possession received a credit for the U.S. tax liability

on their income in the possession. These

profits tended to be very high because valuable intangible assets such as patents

and trademarks were routinely transferred

to the possessions corporation. Treasury

studies indicated that the revenue loss per

job created by possession corporations was

very high, in excess of 100 percent of the

compensation paid. In 1993, the President

proposed to convert the income-based possession credit to an activity-based credit.

The credit would be limited to 60 percent

of the wages paid. The compromise

reached in OBRA 1993 permits taxpayers

to choose between the wage credit and a

substantially reduced income-based credit,

phasing down eventually to 40 percent of

its pre-OBRA level. The cost of the program has been reduced by about 40 percent or almost $2 billion per year. Employment in possessions corporations has

risen.

In 1994, the Congress further restricted

the possession credit by imposing base period constraints on future credits. In the

1996 Small Business Job Protection Act,

the Congress enacted the complete termination of the possession credit for all taxable years beginning after December 31,

2005.

• The Taxpayer Relief Act of 1997 provided

a tax credit to holders of Qualified Zone

Academy Bonds (QZABs). The law created

$400 million of authority to issue QZABs

for 1998 and 1999 and allocate it among

State education agencies. The proceeds of

the bonds may be used for renovation of

and equipment in Zone Academies, i.e., elementary or secondary schools in enterprise communities or empowerment zones

or having 35 percent or more of their pupils eligible for the free and reduced-price

lunch program. Private entities must

make a contribution to the school program

equal to 10 percent of the face amount

of the bonds. Holders of the bonds receive

the tax credit in lieu of interest payment;

issuers are responsible for repayment of

principal. An additional $400 million of

bond authority was provided for 2000 and

2001 by the Ticket to Work and Work Incentives Improvement Act of 1999.
197

19. NET INTEREST

Table 19–1. Net Interest

(Dollar amounts in millions)

Function 900 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Mandatory outlays ..................................................... 198,736 210,234 6%

Tax expenditures ....................................................... 1,130 490 –57%

The Federal Government pays large

amounts of interest to the public, mainly

on the debt it incurred to finance the excess

of past budget deficits over surpluses. Net

interest closely measures these Federal interest transactions with the public.

The Government also pays interest from

one budget account to another, mainly because

the Government invests its various trust

fund balances in Treasury securities. Net

interest does not include these internal payments.

Falling Interest Burden

The amount of net interest depends on

the amount of debt held by the public,

as well as on the interest rates on the

Treasury securities that comprise the debt.

In 1993, the Administration inherited a large

and growing debt, coupled with the prospect

of large and growing budget deficits for

many years into the future. Net interest

had grown from $14.4 billion (or 1.4 percent

of GDP) in 1970 to $198.7 billion (or 3.0

percent of GDP) in 1993, and was projected

to grow still further without a change in

policy. Over the same period, net interest

had increased from 7.3 percent of total outlays

to 14.1 percent. Largely as a result of fiscal

policy actions under the Clinton-Gore Administration, and the strong economic performance

over the past eight years, the unified budget

deficit of $290 billion in 1993 became an

estimated surplus of $256 billion in 2001;

thus, the long, upward trend for net interest

has ended. In dollar terms, net interest

began to decline in 1998 with the first

budget surplus in recent years. By 2001,

net interest is projected to be $210.2 billion,

about $34 billion below its 1997 peak (though

still about $11 billion above the level of

1993). As a percentage of GDP, net interest

will fall from 3.0 percent in 1993 to an

estimated 2.0 percent in 2001. As a percentage

of total outlays, it will fall from 14.1 percent

in 1993 to an estimated 11.3 percent in

2001, freeing resources for other purposes

(see Chart 19–1).

The projection at the start of the Administration was that net interest would continue

to increase in dollars and as a percentage

of GDP for the foreseeable future, thereby

leaving less budgetary resources available

for programs, and threatening the long-term

sustainability of the budget. This trend for

net interest has improved radically, however,

largely as a result of fiscal policy actions

and the strong economic performance over

the past eight years. The Omnibus Budget

Reconciliation Act of 1993 and the Balanced

Budget Act of 1997 reduced the size of

the projected deficits. Actual budget performance exceeded expectations, as the economy

grew more strongly than expected; receipts

grew faster, and outlays slower, than expected.

The unified budget turned to surplus in

1998, and the surpluses grew larger in 1999

and 2000. As a consequence, the debt held

by the public fell from $3.8 trillion at the
198 HIGHLIGHTS FROM FY 1994 TO FY 2001

1970 1975 1980 1985 1990 1995 2000 2005 2010

0

5

10

15

Chart 19-1. Net Interest

Percent of total outlays

end of 1997 to $3.4 trillion at the end

of 2000.

The swing to surplus in the unified budget

increased national saving and enhanced economic growth. The prospect of continuing

surpluses implies that net interest will continue to fall toward zero over the next

few years. This improvement is one of the

most important reasons for the projected

long-term stability of the budget, and is

a vital foundation for the Nation’s preparation

for the aging of the population, including

the impending retirement of the baby-boom

generation.

Components of Net Interest

Net interest is defined as interest on Treasury debt securities (gross), minus the interest

received by on-budget and off-budget trust

funds, and adjusted for the receipts and

outlays that are recorded as ‘‘other interest’’

(discussed later in this chapter).

An important part of the net interest

function is to bring together the payment

and receipt of interest from one Government

account to another. The largest portion of

these transactions involves the payment of

interest to trust funds, which have invested

their cash surpluses in Treasury securities.

Within the interest function, the payments

of interest to trust funds are included in

interest on Treasury debt securities (gross)

and the receipts of interest by trust funds

are shown, as negative amounts, in interest

received by trust funds. A similar treatment

is given to several special funds, such as

the Nuclear Waste Disposal Fund and Abandoned Mine Reclamation Fund. For these

special funds, payments of interest are included in interest on Treasury debt securities

(gross) and the receipts of interest are shown,

as negative amounts, in ‘‘other interest.’’

A smaller category of intragovernmental interest payment occurs primarily in connection

with Federal credit programs, when certain
19. NET INTEREST 199

Government accounts borrow from the Treasury, which, in turn, must borrow from the

public. In these instances, the payment of

interest on the Treasury’s borrowing from

the public is shown as interest on Treasury

debt securities (gross) and Treasury’s receipt

of interest from the borrowing agency is

shown as ‘‘other interest.’’

Thus, the net interest total includes, where

possible, both the paying side and the receiving side of intragovernmental interest payments. The exception to this practice occurs

where only the paying side is included in

the interest function, as happens with payments of interest to revolving funds, such

as the Bank Insurance Fund, Exchange Stabilization Fund, or Employee Life Insurance

Fund. The payments to these funds are

shown as interest on Treasury debt securities

(gross), but the receipts by these funds are

reported as offsetting collections within the

fund, rather than offsetting receipts in the

interest function. This practice leaves net

interest as a close, though not precise, measure of the interest paid to the public.

Interest on Treasury Debt Securities

(Gross): Interest on Treasury debt securities

(gross) rose from $292.5 billion in 1993 to an

estimated $361.2 billion in 2001. The underlying debt includes the rising amount of trust

fund balances in on-budget and off-budget Government accounts. At the end of 2000, the

gross Federal debt totaled $5.6 trillion, compared to $4.1 trillion at the end of 1992. However, most of the growth in the gross Federal

debt occurred by 1998; during the last two

years, gross debt has increased only slightly,

as the decrease in debt held by the public has

been approximately matched by an increase

in trust fund balances. For the period

1993–2001, the increase in debt held by trust

funds was greater than the increase in total

Treasury debt securities (gross).

Interest Received by Trust Funds: As

noted earlier in this chapter, interest received

by trust funds is deducted from the interest

on Treasury debt securities (gross) to determine net interest. Total trust fund interest receipts were $82.3 billion in 1993, increasing

to an estimated $142.1 billion in 2001.

The receipts of Social Security’s Old-Age

and Survivors Insurance and Disability Insurance trust funds are the largest of all the

trust funds (and are excluded from the budget,

and thus shown as ‘‘off-budget,’’ under current

law). Because Social Security accumulated

large surpluses between 1993 and 2001, its

interest earnings rose from $26.8 billion in

1993 to an estimated $69.0 billion in 2001.

The other large trust funds which earn

interest (which are on-budget) include the

civil service retirement and disability fund

(whose interest rose from $25.7 billion in

1993 to an estimated $35.3 billion in 2001);

the military retirement fund (whose interest

increased from $9.8 billion to $12.6 billion);

and, the Medicare Hospital Insurance trust

fund (whose interest declined from $10.6

billion in 1993 to $9.2 billion in 1998, as

that program generated small deficits between

1995 and 1997; however, reforms enacted

in 1997 and slower-than-expected cost increases have resulted in an increase in the

fund balance and an increase in interest

received to an estimated $12.2 billion in

2001).

Other Interest: Other interest includes both

interest payments and interest collections.

Receipts of interest are included for credit liquidating accounts and the Federal Financing

Bank (which borrowed from the Treasury,

mostly to support certain Federal credit programs). Receipts of interest are also included

for special funds, as described earlier. Payments of interest include IRS payments on certain refunds, and payments to credit financing

accounts that have deposited cash balances

with the Treasury.

Budgetary Effect, Including the Federal

Reserve

The Federal Reserve System buys and

sells Treasury securities in the open market

to implement monetary policy. The interest

that Treasury pays on the securities owned

by the Federal Reserve is included in net

interest as a cost, but virtually all of it

comes back to the Treasury as ‘‘deposits

of earnings of the Federal Reserve System.’’

These budget receipts will total an estimated

$27.9 billion in 2001.
201

20. UNDISTRIBUTED OFFSETTING

RECEIPTS

Table 20–1. Undistributed Offsetting Receipts

(Dollar amounts in millions)

Function 950 1993

Actual

2001

Estimate

Percent

Change:

1993–2001

Spending:

Mandatory outlays ..................................................... –37,386 –47,177 26%

Undistributed offsetting receipts fall into

two categories: (1) the Government’s receipts

from performing certain business-like activities, such as proceeds from oil and gas

leases on the Outer Continental Shelf; and,

(2) collections of Federal agencies’ contributions to Federal employees’ retirement plans.

Receipts from all business-like activities are

offset against budget authority and outlays,

instead of being recorded as governmental

receipts, so that the budget totals represent

the amount of resources allocated by the

Government rather than by the market mechanism. Unlike most business-like receipts,

which are offset within the same function

as the spending that gives rise to the receipt,

some are so large that it would distort

the functional totals to distribute them by

function. Instead, they are undistributed by

function and offset against the budget totals.

Receipts of agency retirement contributions

are offset against the payments, so that

the budget totals measure the Government’s

transactions with the public. These

intrabudgetary transactions are important for

allocating costs to programs that incur the

cost, but they have no net impact on total

budget authority and outlays. They are offset

against total budget authority and outlays

because offsetting them within the functions

in which the payments are recorded would

cause the totals for those functions to seriously

understate current expenditures.

Rents and Royalties on the Outer

Continental Shelf

The Department of the Interior’s Outer

Continental Shelf (OCS) lands leasing program, which began in 1954, currently generates about 26 percent of total U.S. domestic

oil production and 27 percent of domestic

natural gas production. Since the OCS program’s inception, it has held 150 lease sales,

covering areas three to 200 miles offshore

and generating over $134 billion in rents,

bonuses, and royalties—mainly for the General

Fund of the Treasury—with an estimated

$6 billion in OCS receipts in 2001. OCS

revenues also provide nearly all funding for

the Land and Water Conservation Fund.

In 1998, the Clinton-Gore Administration extended a leasing moratoria for environmentally

sensitive areas—offshore California, Oregon,

and Washington; the Eastern Seaboard; the

southwestern coastline of Florida, including

the Everglades; and, certain parts of Alaska.

Employee Retirement

In 2001, Federal agencies are expected

to pay an estimated $39.5 billion on behalf

of their employees to the Federal retirement

trust funds, the Medicare health insurance

trust fund, and the Social Security trust

funds. (The major programs of the Federal

retirement trust funds are the Military Retirement System, the Civil Service Retirement

System, and the Federal Employees’
202 HIGHLIGHTS FROM FY 1994 TO FY 2001

Retirement System.) As civilian and military

employees’ pay rises, agencies must make

commensurate increases in their payments

to recognize the rising cost of retirement.

The amount of receipts also changes with

increases or decreases in the number of

employees and changes in the retirement

accruals charged to agencies. The agency

payments and trust fund receipts are offsetting

and do not affect the unified budget totals.

Under the 1997 Balanced Budget Act, agency

contributions for employees covered by the

Civil Service Retirement System were increased from seven percent of salary to

8.51 percent beginning in 1998. These higher

contributions are set to expire in 2003.

Other Undistributed Offsetting Receipts

In 1993, the President and the Congress

gave the Federal Communications Commission

(FCC) authority to assign spectrum licenses

through competitive bidding, which has proven

to be a very efficient and effective way

to allocate this finite public resource. Until

the auction program was implemented in

1994, valuable spectrum licenses were awarded for free through lotteries or time-consuming

comparative hearings. Through auction, the

FCC awards licenses about 40 percent faster

than lotteries and 70 percent faster than

comparative hearings. By the end of 2001,

the FCC will have auctioned over 14,300

licenses and collected over $20 billion in

actual and estimated cash receipts—encouraging the development of innovative telecommunications services and ensuring that

the public is compensated for the private

use of a public resource.
203

IV. CURRENT SERVICES

ESTIMATES AND THE PENDING

POLICY AGENDA
205

IV. CURRENT SERVICES ESTIMATES AND

THE PENDING POLICY AGENDA

The current services baseline shows what

receipts, outlays, surpluses, and budget authority would be if no changes were made

to laws already enacted. It is an essential

starting point in developing the annual budget.

Although it is not intended to be a prediction

of the final outcome of the budget process,

it serves several useful purposes. First, it

provides a measuring stick against which

competing proposals can be compared. The

extent to which proposals change the level

of services provided under current law can

be readily determined and communicated.

Second, it warns of future problems, either

for Government fiscal policy as a whole

or for individual tax and spending programs.

The baseline levels of surpluses can provide

policymakers with important information on

what resources are available for priority needs.

OMB follows the rules in the Budget Enforcement Act (BEA) that specify how to

develop baseline estimates. These rules require

largely mechanical applications of estimating

models. Receipts and mandatory programs

are projected based on continuation of existing

laws into the future. In some instances,

the way the rules were written can understate

the full demands on future resources. For

example, baseline rules require that certain

provisions of law that affect receipts and

mandatory programs expire as specified under

current law. In a number of cases, these

provisions have been routinely extended in

the past. Because it is widely assumed that

they will again be extended at their expiration,

the failure to include them in baseline estimates understates virtually certain demands

on resources. A more prudent approach would

be to include these expiring provisions as

part of the baseline before considering further

policy changes.

In this section of the document, we show

the baseline estimates, discuss baseline anomalies and provide an adjusted baseline, provide

alternative formulations for the discretionary

baseline, and finally discuss and summarize

pending Administration policies that provide

an important reference point.

Baseline Issues

Anomalies are created by the mechanical

nature of the BEA baseline rules. This section

discusses those anomalies and what they

mean for the overall baseline.

Expiring Mandatory and Receipts Provisions: The BEA rules require that expiring

provisions of law not specifically covered by

a BEA exemption be assumed to expire as

scheduled in the current services baseline. As

a result, a number of provisions that in the

past have been routinely reauthorized by the

Congress are not assumed to continue in the

baseline estimates. Extension of expiring provisions of the tax code that have been previously extended would reduce tax receipts by

$118 billion over the 10 years, 2002 through

2011. Similarly, emergency farm aid is assumed only for the current crop year even

though emergency aid has been provided to

farmers routinely in recent years. If aid at the

average level of the past three years were provided each year, total spending would increase

by $74 billion over the projection period. Some

savings provisions that have been routinely extended are also affected by the BEA rules. For

example, customs user fees are due to expire

at the end of 2003. If extended, these fees

would yield $14 billion over the projection period. Table IV–1 provides a listing of expiring

receipts and mandatory provisions that have

been extended in the past.
206 FY 2002 BASELINE PROJECTIONS

Table IV–1. Accounting for Expiring Provisions

Estimate

2002 2002–2006 2002–2011

Revenue Provisions

(Revenue effect, in billions of dollars)

Tax credit for first-time D.C. homebuyers ..................................... ................ –0.1 –0.2

D.C. enterprise zone/renewal community designation .................. ................ .................. –0.1

Contributions of computer technology and equipment to schools ................ –0.3 –1.1

Archer Medical Savings Accounts (MSAs) ..................................... –* –0.1 –0.2

Round I and Round II empowerment zones ................................... ................ .................. –1.7

Tax credit for research and experimentation expenditures .......... ................ –9.9 –48.9

Work opportunity tax credit ............................................................ –0.1 –1.6 –5.0

Welfare-to-work tax credit ............................................................... –* –0.4 –1.3

Exclusion for employer-provided educational assistance .............. –0.2 –1.8 –4.2

Expensing of Brownfields environmental remediation costs ........ ................ –1.0 –2.6

Generalized system of preferences (GSP) 1 ..................................... –0.3 –1.8 –4.2

Wind and biomass tax credit ........................................................... –* –0.2 –0.7

Net income limitation on percentage depletion from marginal

wells ............................................................................................... –* –0.1 –0.3

Qualified zone academy bonds ........................................................ –* –0.1 –0.7

Exceptions provided under Subpart F for active financing income ............................................................................................... –0.9 –7.2 –16.2

Treatment of nonrefundable personal credits under AMT ........... –0.3 –9.0 –39.1

IRS letters of determination ............................................................ ................ 0.1 0.3

Luxury tax on passenger vehicles 1 ................................................. ................ 0.5 1.3

Abandoned mine reclamation fund 1 ............................................... ................ 0.4 1.6

FUTA surtax of 0.2 percentage points 1 ......................................... ................ .................. 5.5

Total, revenue provisions ............................................................ –1.8 –32.3 –117.8

Mandatory Provisions

(Outlay effect, in billions of dollars)

CCC conservation technical assistance .......................................... * 0.2 0.4

CCC emergency farm income and crop/livestock loss assistance 7.3 36.6 73.3

Customs user fees ............................................................................. ................ –4.6 –13.8

Medicaid transitional medical assistance ....................................... 0.4 2.1 5.0

Recreation fee demonstrations ........................................................ ................ 0.1 0.5

Veterans housing:

Fee increase of .75 for loans ....................................................... ................ .................. –0.6

Fee for subsequent loans ............................................................ ................ .................. –0.3

Inclusion of resale losses in net calculation .............................. ................ .................. –*

Veterans compensation and pensions:

IRS income verification ............................................................... ................ –* –0.1

Round down COLAs .................................................................... ................ –0.2 –0.8

Limit VA pensions to Medicaid-eligible recipients ................... ................ .................. –0.5

Total, mandatory provisions ................................................... 7.7 34.1 63.0

Total, revenue and mandatory provisions (surplus impact) ......... –9.5 –66.5 –180.8

* $50 million or less.

1 Net of income offsets.
IV. CURRENT SERVICES ESTIMATES AND THE PENDING POLICY AGENDA 207

Table IV–2. Major Anomalies Caused by BEA Baseline Rules

(In billions of dollars)

Estimate

2002 2002–2006 2002–2011

Reflect previously enacted caps for specific programs:

Highways:

Budget Authority .................................................................. 2.1 10.9 23.1

Outlays ................................................................................... 0.6 7.7 19.3

Mass transit:

Budget Authority .................................................................. 0.4 3.2 7.1

Outlays ................................................................................... * 1.4 5.0

Conservation programs:

Budget Authority .................................................................. 0.3 2.6 7.3

Outlays ................................................................................... –0.2 2.1 6.6

Subtotal, reflect enacted caps:

Budget Authority .................................................................. 2.7 16.8 37.5

Outlays ................................................................................... 0.4 11.1 30.9

Examples of major anomalies:

Reflect outyear cyclical Census spending:

Budget Authority .................................................................. 0.1 1.3 9.5

Outlays ................................................................................... 0.1 1.2 9.4

Reflect lack of outyear needs for Woodrow Wilson Bridge:

Budget Authority .................................................................. –0.6 –3.2 –6.7

Outlays ................................................................................... –0.2 –2.3 –5.8

Total:

Budget Authority ....................................................................... 2.2 14.8 40.2

Outlays ....................................................................................... 0.3 10.1 34.5

* $50 million or less.

Non-Defense Discretionary Anomalies in

the Baseline: Application of BEA baseline

rules to each program and account can lead

to exaggerated or understated program levels

in some instances, thus misstating the funding

needed to meet future demands. For example,

there are two instances where there are already enacted caps for specific discretionary

programs at levels above the inflation-adjusted

levels required by the BEA. The Transportation Equity Act for the 21st Century

(TEA–21) established new caps for highway

and mass transit spending that created a guaranteed spending level tied to the collections

of receipts in the Highway trust fund. Failure

to acknowledge the higher TEA–21 levels leads

to an understatement of transportation spending of $24 billion over the 10-year projection

period. Likewise, the new conservation spending category established in this year’s appropriations bills provides dedicated funding,

which may be appropriated for conservation

programs. The BEA baseline underfunds these

programs by $7 billion over 10 years compared

to the newly enacted caps.

There are also specific programmatic reasons

that BEA baseline rules fail to accurately

estimate funding needs. For example, the

decennial census was just completed and

enacted spending for the census in 2001

is relatively low. However, spending on the

census will need to increase as the cycle

for the next census begins. If the spending

on the census follows its traditional path,

spending would be $9 billion higher over

the 10-year projection period than projected

under BEA baseline rules. Other anomalies

created by BEA rules are the result of
208 FY 2002 BASELINE PROJECTIONS

Table IV–3. Bridge from BEA Baseline Surplus to Anomaly Adjusted

Baseline Surplus

(In billions of dollars)

Estimate

2002 2002–2006 2002–2011

On-budget surplus (excluding HI) applying BEA rules ............. 69 474 1,914

Adjustments for:

Extension of expiring provisions:

Revenues. ............................................................................ –2 –32 –118

Mandatory programs .......................................................... –8 –34 –63

Reflect previously enacted caps for specific programs ........ –* –11 –31

Adjust for major anomalies ................................................... * 1 –4

Related debt service ............................................................... –* –10 –56

Subtotal, adjustments ................................................................ –10 –86 –271

Surplus with adjustments ............................................................ 58 388 1,643

* $50 million or less.

oddities in the 2001 appropriated level. For

example, one-time funding was provided in

2001 for the construction of the Woodrow

Wilson Bridge across the Potomac River.

The baseline, however, assumes continued

funding at the same level into the future

in the bridge account. Table IV–2 provides

a listing of several large anomalous results

that arise from application of BEA baseline

rules.

Baseline Alternatives

Discretionary, or annually funded, programs

are estimated by adjusting the current year

enacted level by inflation into future years.

In recent years, discretionary appropriations

have grown above the rate of inflation and

at the same time discretionary programs,

both for defense and non-defense purposes,

were at all time lows as a percent of

GDP in 1999. While the inflation adjustment

specified by the BEA is an approximate

measure to maintain the purchasing power

of Federal programs, there are several other

approaches to projecting discretionary funding

needs that should be considered.

• Many programs would be expected to need

more funding to serve an increasing population. A reasonable expected growth rate

for discretionary spending might be inflation plus population growth. For example,

funding for the Child Care and Development Block Grant provides assistance to

a set number of children per year under

baseline rules. As the population of young

children grows, a smaller percentage of

them will be assisted under the program

at this funding level. If population were

factored in to the baseline calculations for

discretionary programs, outlays for discretionary programs would grow by $362 billion over 10 years.

• Another reasonable expected growth pattern for discretionary spending is to allow

it to grow with the economy. Outlays for

discretionary programs would grow by

$979 billion over 10 years compared with

the inflation adjustment in the current

services estimates.

• Unlike other agencies, budgeting for the

Department of Defense (DOD) is based on

multi-year plans with large research, procurement, and construction needs. It is

normal to measure changes in funding for

DOD from the previous long-term plan

rather than a baseline developed under

BEA baseline rules. The level under BEA

baseline rules would protect the value of

the $112 billion defense budget authority

increase provided by the President in the

2000 Budget, subsequent changes in law,
IV. CURRENT SERVICES ESTIMATES AND THE PENDING POLICY AGENDA 209

and would be sufficient to accommodate

potential increases. This baseline level

would continue high levels of readiness,

offset the impact of higher fuel and inflation costs, and finance the expanded

health care and pay provisions enacted in

the 2001 National Defense Authorization

Act.

Pending Policy Proposals

While this Administration has many legislative and budgetary achievements, there are

a number of policy goals that remain unfinished. The following section discusses a number of examples of both legislation and funding

that reflect this remaining agenda. (See Table

IV–4.)

Medicare and Social Security Lockboxes:

The Administration remains committed to solvency the long-term solvency problems of

medicare and social security. Locking away the

trust fund surpluses ensures that these resources are used to reduce public debt and

not used for other purposes. The medicare and

social security chapters of Section III discuss

the specifics of the Administration’s proposals.

Medicare Prescription Drug Benefit: The

President proposed to modernize the medicare

benefit structure by adding a long-overdue voluntary outpatient prescription drug benefit.

The Administration’s proposal offers a broad

based benefit through the medicare program

which ensures that all medicare beneficiaries

receive a standard, affordable drug benefit.

This historic drug benefit has no deductible

and pays for half of the beneficiary’s drug costs

from the first prescription filled each year up

to $5,000 in spending when fully phased-in.

It also ensures that beneficiary liability for

drug cost sharing is limited to $4,000. The

benefit provides beneficiaries with a price discount similar to that offered by many employer-sponsored plans for each prescription

purchased—even after the $5,000 limit is

reached. The Administration’s plan ensures

low-income beneficiaries assistance with costsharing. The Administration estimates the

costs of this benefit at $253 billion over 10

years.

Equity in Benefits for Legal Immigrants:

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA)

placed eligibility restrictions on benefits to

legal immigrants that were unrelated to the

goal of moving people from welfare to work.

In addition to restrictions on Supplemental Security Income, hundreds of thousands of legal

immigrants face restrictions on access to food

stamps and medicaid, which presents important health implications for noncitizens as well

as citizen children. While subsequent legislation substantially restored benefit eligibility to

many immigrants who were in the United

States when PRWORA was enacted, the remaining restrictions leave too many immigrants in a precarious position should they suffer a disabling injury or other hardship that

affects their ability to support themselves and

their families, including their citizen children.

For example, children and pregnant women

who are legal immigrants are not eligible for

health insurance through medicaid or SCHIP

for five years. PRWORA restrictions contributed to a 22-percent decline in Medicaid/

SCHIP coverage of legal immigrant children

between 1995 and 1999. Nearly half of immigrant children lack a regular source of health

care, often ending up in expensive emergency

rooms. For reasons of equity and public health,

these restrictions should be reversed. In addition, although the Administration sought legislation to eliminate the disparate treatment of

refugees under our immigration laws, it was

not successful. It is important that work continue to provide full parity for Salvadorans,

Guatemalans, Hondurans, Haitians, and Liberians with other refugees. It is unjust to treat

refugees fleeing repression by some dictators

better than those fleeing other equally oppressive regimes. A fair, uniform set of procedures

for all of these refugees must be created.
210 FY 2002 BASELINE PROJECTIONS

Table IV–4. Pending Policy Proposals

(Budget authority, in millions of dollars)

Program 2000

Enacted

2001 2001

Funding

Shortfall

Program

Shortfall

Request Enacted 2002–2011

Education:

After School ................................................................. 453 1,000 846 –154 –1,818

Eisenhower Title II Teaching to High Standards .... 23 690 485 –205 –2,421

Teaching to High Standards, National Activities .... 23 255 82 –173 –2,043

School Renovation ...................................................... ................ 1,300 1,200 –100 –1,181

Class Size Reduction .................................................. 1,300 1,750 1,623 –127 –1,500

Head Start .................................................................. 5,267 6,267 6,200 –67 –791

National Service ......................................................... 437 534 463 –71 –838

National Endowment for the Arts ............................ 98 150 105 –45 –531

National Endowment for the Humanities ................ 116 150 120 –30 –354

Civil Rights:

Outreach for Socially-Disadvantaged Farmers ........ 3 10 3 –7 –83

Civil Rights Division (Justice) ................................... 82 98 92 –6 –71

Legal Services Corporation ........................................ 304 340 330 –10 –118

Equal Employment Opportunity Commission ......... 281 322 304 –18 –213

Fair Housing (HUD) ................................................... 77 50 46 –4 –47

Environment:

Natural Resources Conservation Service ................. 661 747 714 –33 –390

Clean Water Action Plan ........................................... 57 105 76 –29 –342

Climate Change (including Climate Change

Technology Initiative and Montreal Protocol) ...... 151 324 173 –151 –1,783

Wetlands Reserve Program ....................................... 145 259 147 –112 –1,322

Coastal Zone Management Grants ........................... 59 159 77 –82 –968

Solar and Renewable Energy .................................... 310 410 375 –35 –413

California Bay-Delta .................................................. 60 60 ................ –60 –708

Everglades Restoration .............................................. 95 135 118 –17 –201

Columbia River Salmon Restoration ........................ 68 91 81 –10 –118

Clean Water Action Plan ........................................... 196 211 202 –9 –106

Brownfields (HUD) ..................................................... 25 50 25 –25 –295

Superfund .................................................................... 1,270 1,337 1,270 –67 –791

Clean Air Partnership ................................................ ................ 85 ................ –85 –1,004

Environmental Quality Improvement Program ....... 174 325 174 –151 –1,783

International:

International Development Association .................... 771 836 775 –61 –720

Global Environment Facility ..................................... 36 176 108 –68 –803

Other Multilateral Development Banks ................... 172 237 158 –79 –933

Nonproliferation, Anti-terrorism, Demining, and

Related Programs ................................................... 218 353 312 –41 –484

Export/Import Bank ................................................... 796 1,010 911 –99 –1,169

Middle East ................................................................. ................ 750 ................ –750 –1,200

International Population/Family Planning .............. 328 484 368 –116 –1,370

Other International Funding ..................................... 2,137 2,390 2,288 –102 –1,204

Counterterrorism:

Bioterrorism (FDA) .................................................... 8 12 5 –7 –83

Counterterrorism ........................................................ 822 1,039 927 –112 –1,323

Research, Development, and Technology:

Agriculture Research Initiatives ............................... 159 324 174 –150 –1,771

Bioproducts/Bioenergy ............................................... 57 94 63 –31 –366

Food and Nutrition Service Research ....................... ................ 17 1 –16 –189

Advanced Technology Program ................................. 211 200 191 –9 –106

National Science Foundation ..................................... 3,897 4,572 4,426 –146 –1,724

Connect America’s Families ...................................... ................ 50 ................ –50 –590

DTV Transition for Public Broadcasters .................. 27 110 44 –66 –779
IV. CURRENT SERVICES ESTIMATES AND THE PENDING POLICY AGENDA 211

Table IV–4. Pending Policy Proposals—Continued

(Budget authority, in millions of dollars)

Program 2000

Enacted

2001 2001

Funding

Shortfall

Program

Shortfall

Request Enacted 2002–2011

Law Enforcement:

COPS/21st Century Policing Initiative ..................... 903 1,135 937 –198 –2,338

Gun Prosecutors ......................................................... ................ 150 75 –75 –886

Community Prosecutors ............................................. 10 50 25 –25 –295

Immigration and Naturalization ............................... 2,992 3,270 3,224 –46 –543

Native American Law Enforcement .......................... 350 508 391 –117 –1,381

Customs Air and Marine Enforcement ..................... 109 157 133 –24 –283

Labor:

Dislocated Workers .................................................... 1,589 1,771 1,590 –181 –2,137

International Labor Activities ................................... 70 167 148 –19 –224

Youth Opportunity Grants ........................................ 250 375 275 –100 –1,181

Fathers Work/Families Win ...................................... ................ 255 ................ –255 –3,011

One-Stop Career Centers ........................................... 130 174 170 –4 –47

Youth Violence ............................................................ ................ 115 75 –40 –472

Minimum Wage Increase (Older Americans/Youth

Activities) ................................................................. ................ 139 ................ –139 –1,641

Health:

Family Planning ......................................................... 239 274 254 –20 –236

Housing and Community Development:

HUD Incremental Vouchers ...................................... 347 643 453 –190 –2,243

Empowerment Zones .................................................. 70 200 90 –110 –1,299

America’s Private Investment Companies ............... 20 37 ................ –37 –437

Community Development Financial Institutions ..... 115 125 118 –7 –83

Distressed Public Housing (HOPE VI) ..................... 575 625 575 –50 –590

Fund for Rural America ............................................. 60 60 30 –30 –354

Amtrak/Expanded Intercity Rail Service ................. 571 989 521 –468 –5,526

Maintaining Basic Government Services:

FAA Operations/Safety .............................................. 5,968 6,592 6,544 –48 –567

IRS Operations and Modernization .......................... 8,218 8,939 8,855 –84 –992

Critical Infrastructure Protection (GSA) .................. ................ 15 8 –7 –83

Repair and Alterations of Public Buildings ............. 666 721 679 –42 –496

Construction of Public Buildings .............................. 87 679 395 –284 –3,353

Bureau of Indian Affairs Operations ........................ 1,640 1,795 1,741 –54 –638

Bipartisan Family Opportunity Act for

Children with Disabilities: Children with

disabilities have special health care needs;

they are more likely to be ill as well as use

more hospital days than other children. Because private insurance is often inaccessible

or unaffordable for people with disabilities,

many parents of children with special needs

turn down jobs, raises, and overtime to keep

their income low enough so that their children

qualify for medicaid. The Family Opportunity

Act would establish a new medicaid buy-in option for children with disabilities in families

with income up to 300 percent of poverty

($42,000 for a family of three). The original

bill had 78 cosponsors in the Senate (S. 2274)

and 140 cosponsors in the House (H.R. 4825).

The Congressional Budget Office cost of the

provision is $2.1 billion over five years and

$7.3 billion over 10 years.

Class Size Reduction: The 2001 appropriation provided $1.6 billion to help school districts hire and train 37,000 high quality teachers to reduce class sizes in the early grades

to an average of 18 students per class. This

was the third installment in the bipartisan

commitment to hire 100,000 teachers by 2005

to reduce class sizes in grades 1–3.

School Modernization: According to a

recent report by the National Center for

Education Statistics, half of the nation’s public

schools need repairs at a total estimated cost

of $127 billion. The 2001 appropriation
212 FY 2002 BASELINE PROJECTIONS

established a new $1.2 billion school renovation grant program that will help schools finance emergency repairs. This initiative was

one component of a two-part strategy proposed

by the Clinton-Gore Administration this past

year. The second component—also essential to

adequately address our substandard schools—

was legislation that won 230 cosponsors in the

House of Representatives that would have authorized Federal tax credits to support $25 billion in local School Modernization Bonds.

After-School Programs: Statistics provided

by the General Accounting Office (GAO), the

National Institute on Out-of-School Time, and

other surveys show that the lack of affordable,

accessible after-school opportunities for schoolage children means that an estimated eight

million and up to as many as 15 million

‘‘latchkey children’’ on any given day go home

to an empty house after school. Studies by the

FBI and youth-advocacy groups have found

that the peak hours for juvenile crime and

victimization are from 2 p.m. to 8 p.m.-hours

when youth are most often without supervision. The 2001 appropriation provided $846

million, compared with the Administration’s

request of $1.0 billion, to fund after-school programs for approximately 1.3 million children.

A significant expansion of this program is necessary to meet the needs of ‘‘latch-key’’ children and their parents as well as providing

every child in a failing school the opportunity

to receive extended learning services.

National Security Investments: While the

concerted efforts of the Administration have

increased the international affairs budget function from its nadir in FY 1996, overall spending levels have decreased significantly in real

terms—almost nine percent since 1993, and

over 19 percent since 1986. At the same time,

the costs of pursuing U.S. national interests

overseas continue to increase, as we attempt

to adequately protect our diplomats overseas,

continue efforts to encourage peace in the Middle East and transitions to democracy in Eastern Europe and the former Soviet Union, respond to increasingly severe man-made and

natural disasters, and increase efforts to control the global spread of HIV/AIDS, stem the

flow of drugs to our shore, and address other

global problems that directly impact our quality of life in the United States. In order to

meet these needs, the effort to gain bipartisan

approval of an international affairs budget

that effectively and efficiently funds our pursuit of these national interests should continue.

Since the terrorist bombings of two embassies in Africa in 1998, the Administration

has embarked upon an unprecedented program

of security initiatives around the world. The

Administration initiated a long-term capital

program. Because it will take a multi-year

effort to address these vulnerabilities, advanced appropriations of $3.4 billion over

the 2002 through 2005 period were proposed

to sustain that program.

The leadership provided by the United

States in seeking stability in the Middle

East serves our overall national interest,

because conflict in the region poses such

significant threats to U.S. political, economic,

and security interests. As an integral part

of the ongoing effort to achieve a comprehensive Middle East peace agreement, there

is a pending request of $750 million in

supplemental 2001 funding and an additional

$500 million in 2002 funding that has been

recommended to assist those countries and

parties in the Middle East that undertake

constructive steps to move the process forward.

It is imperative that the United States continue forward with its efforts to bring the

parties together in a workable solution to

this conflict, which could in turn open the

door to a final comprehensive peace agreement.

Current BEA Baseline Definitions and

Estimates

The BEA established different estimating

rules for the two major categories of receipts

and outlays: those controlled by authorizing

legislation (direct spending and receipts) and

those controlled through the annual appropriations process (discretionary spending).

Direct Spending and Receipts: Direct

spending includes the major entitlement programs, such as social security, medicare, medicaid, Federal employee retirement, unemployment compensation, food stamps and other

means-tested entitlements. It also includes

such programs as deposit insurance and farm

price and income supports, where the Government is legally obligated to make payments
IV. CURRENT SERVICES ESTIMATES AND THE PENDING POLICY AGENDA 213

under certain conditions. Receipts and direct

spending are alike in that they involve ongoing

activities that generally operate under permanent authority (they do not require annual appropriations), and the underlying statutes generally specify the tax rates or benefit levels

that must be collected or paid, and who must

pay or who is eligible to receive benefits. The

current services baseline assumes that receipts

and direct spending continue in the future as

specified by current law. In most cases, that

is what will occur without enactment of new

legislation.

The BEA requires that current services

estimates assume extension of two types

of authority. First, expiring provisions affecting excise taxes dedicated to a trust fund

are assumed to be extended at current rates.

During the projection period of 2001 through

2011, taxes deposited in the Highway trust

fund, Airport and Airways trust fund, Aquatic

Resources trust fund, and Leaking Underground Storage Tank trust fund are scheduled

to expire. The current services baseline assumes extension of these taxes, increasing

receipts by $287 billion over the period.

Second, direct spending programs that will

expire under current law are assumed to

be extended if their 2001 outlays exceed

$50 million. Programs that will expire under

current law but are extended throughout

the projection period include food stamps,

farm price supports, child nutrition programs,

and temporary assistance to needy families

(TANF). Provisions of law not specifically

covered by the two exceptions discussed above

are assumed to expire as scheduled in the

current services baseline.

Discretionary Programs: Discretionary

programs differ in one important aspect from

direct spending programs—Congress usually

provides spending authority for discretionary

programs one year at a time. The spending

authority is normally provided in the form of

annual appropriations. Absent appropriations

of additional funds in the future, discretionary

programs would cease to exist after remaining

balances were spent. The BEA requires that

the baseline assume that discretionary programs will maintain program resources at the

enacted level for the current year in real terms

throughout the projection period. The BEA

also specifies that non-pay funding be inflated

using the GDP deflator and that pay-related

funding be inflated using the rate of growth

in average wages for private sector employees.

Current Estimates: The current services

baseline surplus, as defined by the BEA, is

$256 billion in 2001 and $277 billion in 2002

under current assumptions. Table IV–5 presents current services receipts, outlays, and

surpluses for the 10-year projection period.

They are shown on a unified budget basis. The

table also shows the surplus separately for offbudget social security and Postal Service, the

Hospital Insurance trust fund, and all other

programs. The estimates are based on the economic assumptions presented in Section II of

this document, which are summarized in Table

IV–8.

Many other assumptions must be made

in order to calculate the baseline estimates.

These include the number of beneficiaries

who receive payments from the major benefit

programs and annual cost-of-living adjustments in the indexed programs. Assumptions

on baseline caseload projections for the major

benefit programs are shown in Table IV–9,

while assumptions about various cost-of-living

adjustments are shown in Table IV–8. It

is also necessary to make assumptions about

extension of expiring programs and provisions,

as discussed above, and other important program parameters. These include assumptions

about the timing and substance of regulations

that will be issued over the projection period,

the use of administrative discretion provided

under current law, and other assumptions

about the way programs operate. Table IV–10

provides a list of many of these assumptions

and their impact on the baseline estimates.

It is not intended to be an exhaustive

listing; the variety and complexity of Government programs are too great to provide

a complete list. Instead, some of the more

important program assumptions are shown.

Receipts. Table IV–6 shows baseline receipts

by major source. Total receipts are projected

to increase by $85 billion from 2001 to

2002, and by $1,224 billion from 2002 to

2011, largely due to assumed increases in

incomes resulting from both real economic

growth and inflation.
214 FY 2002 BASELINE PROJECTIONS

Table IV–5. Current Services Estimates, 2000–2011

(In billions of dollars)

2000

Actual

Estimate

2001 2002 2002–2006 2002–2011

Receipts ..................................................................... 2,025 2,125 2,210 12,086 27,587

Outlays:

Discretionary:

Department of Defense (DOD) ........................ 282 289 291 1,570 3,380

Non-DOD ........................................................... 335 365 390 2,068 4,421

Subtotal, discretionary ......................................... 617 654 682 3,637 7,801

Mandatory:

Social security ................................................... 406 431 451 2,506 5,849

Medicare ............................................................ 194 219 226 1,279 3,030

Medicaid ............................................................ 118 129 143 845 2,135

All other ............................................................. 231 225 239 1,304 2,957

Subtotal, mandatory ............................................ 949 1,004 1,059 5,935 13,971

Net interest ........................................................... 223 210 192 761 818

Total, outlays ............................................................ 1,789 1,868 1,933 10,333 22,591

Surplus ..................................................................... 236 256 277 1,753 4,996

Social security and postal service ....................... 150 158 174 1,060 2,551

Medicare hospital insurance ............................... 30 27 35 218 532

Remaining on-budget ........................................... 57 71 69 474 1,914

Memorandum:

Adjustments for expiring provisions and discretionary anomalies ............................................. .......... .......... –10 –86 –271

Resulting surplus ................................................. 236 256 267 1,666 4,725

Table IV–6. Baseline Receipts by Source

(In billions of dollars)

Estimate

2001 2002 2011

Individual income taxes ...................................... 1,061 1,097 1,766

Corporation income taxes ................................... 212 214 277

Social insurance receipts. ................................... 688 725 1,145

Excise taxes .......................................................... 71 74 96

Estate and gift taxes ........................................... 31 33 50

Customs duties .................................................... 21 23 36

Miscellaneous receipts:

Federal reserve deposits ................................ 28 33 47

Other ................................................................ 11 11 17

Total, miscellaneous receipts ......................... 39 44 64

Total, governmental receipts .............................. 2,125 2,210 3,434
IV. CURRENT SERVICES ESTIMATES AND THE PENDING POLICY AGENDA 215

Individual income tax receipts are estimated

to increase by $36 billion from 2001 to

2002 under current law. This growth of

3.4 percent is primarily the result of the

effect of increased collections resulting from

rising personal incomes. Individual income

taxes grow at an average annual rate of

5.4 percent between 2002 and 2011. Corporation income taxes under current law are

estimated to increase by $2 billion, or 0.9

percent, from 2001 to 2002 due to higher

corporate profits. These taxes continue growing

at an annual average growth rate of 2.9

percent from 2002 through 2011.

Social insurance receipts are estimated to

increase by $36 billion between 2001 and

2002 and by an additional $421 billion between 2002 and 2011. The estimates reflect

assumed increases in total wages and salaries

paid, and scheduled increases in the social

security taxable earnings base from $80,400

in 2001 to $126,600 in 2011.

Excise taxes are estimated to increase by

$25 billion from 2001 to 2011, in large

part due to increased economic activity. Other

baseline receipts (estate and gift taxes, customs duties, and miscellaneous receipts) are

projected to increase by $58 billion from

2001 to 2011.

Outlays. Current services outlays are projected to grow from $1,868 billion in 2001

to $1,933 billion in 2002, a 3.4 percent

increase. Between 2002 and 2011, they are

projected to grow at an average annual

rate of 3.5 percent. Outlays for discretionary

programs increase from $654 billion in 2001

to $682 billion in 2002, and to $876 billion

in 2011, largely reflecting increases in resources to keep pace with inflation.

Outlays for entitlement and other mandatory programs are estimated to grow from

$1,004 billion in 2001 to $1,059 billion in

2002, and to $1,822 billion in 2011, due

in large part to changes in the number

of beneficiaries and to automatic cost-ofliving adjustments and other adjustments

for inflation. Social security outlays grow

from $451 billion in 2002 to $756 billion

in 2011, an average rate of 5.9 percent.

Over the same period, medicare and medicaid

are projected to grow at annual average

rates of 6.6 percent and 8.7 percent, respectively, outpacing inflation. Unemployment

compensation also grows substantially over

the projection period. Spending on agriculture

programs declines by $7 billion from 2001

to 2002, reflecting the expiration of emergency

aid. Net interest payments to the public

are estimated to decline over the period,

reflecting reduced borrowing by the Government resulting from projected surpluses over

the period. Toward the end of the period,

net interest payments turn negative reflecting

earnings on excess balances. Policy decisions

will be required on the use of the surpluses

that are accumulated as excess balances.
216 FY 2002 BASELINE PROJECTIONS

Table IV–7. Change in Baseline Outlays by Category

(In billions of dollars)

Estimate Change from:

2001 2002 2011 2001–2002 2002–2011

Discretionary:

Department of Defense (DOD) ............................ 289 291 383 2 91

Non-DOD .............................................................. 365 390 493 25 103

Subtotal, discretionary ............................................ 654 682 876 27 194

Mandatory:

Social Security ...................................................... 431 451 756 20 305

Medicare ................................................................ 219 226 402 8 175

Medicaid ................................................................ 129 143 303 14 160

Federal employee retirement and disability ...... 81 84 126 3 42

Unemployment compensation ............................. 22 26 48 3 22

Agriculture ............................................................ 20 13 10 –7 –3

Undistributed offsetting receipts ........................ –47 –51 –70 –4 –19

All other ................................................................ 148 166 247 18 81

Subtotal, mandatory ................................................ 1,004 1,059 1,822 55 763

Net interest .............................................................. 210 192 –75 –18 –267

Total, outlays ............................................................ 1,868 1,933 2,623 64 691
Table IV–8. Summary of Economic Assumptions (Dollar amounts in billions) 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 20

Gross Domestic Product (GDP): Levels, dollar amounts in billions: Current dollars ............................................................ 9,830 10,402 10,954 11,543 12,163 12,817 13,501 14,208 14,936 15

Real, chained (1996) dollars ........................................ 9,244 9,569 9,876 10,192 10,518 10,855 11,198 11,541 11,883 12

Percent change, year over year: Current dollars ............................................................ 7.4 5.8 5.3 5.4 5.4 5.4 5.3 5.2 5.1 

Real, chained (1996) dollars ........................................ 5.4 3.5 3.2 3.2 3.2 3.2 3.2 3.1 3.0 

Inflation measures (percent change, year/year): GDP chained price index ................................................ 1.9 2.1 2.0 2.1 2.1 2.1 2.1 2.1 2.1 

Consumer price index (all urban) .................................. 3.3 2.9 2.5 2.6 2.7 2.7 2.7 2.7 2.7 

Unemployment rate, civilian (percent) .............................. 4.1 4.1 4.4 4.6 4.7 4.8 4.9 5.0 5.1 Interest rates (percent): 91-day Treasury bills ...................................................... 5.6 6.0 5.8 5.5 5.3 5.3 5.3 5.3 5.3 

10-year Treasury notes ................................................... 6.2 5.8 5.8 5.8 5.8 5.8 5.8 5.8 5.8 

Memorandum Related programmatic assumptions: Automatic benefit increases (percent): Social security and veterans pensions ....................... 2.4 3.5 2.5 2.5 2.7 2.7 2.7 2.7 2.7 

Federal employee retirement ...................................... 2.4 3.5 2.5 2.5 2.7 2.7 2.7 2.7 2.7 Food stamps ................................................................. 1.8 1.8 3.1 2.5 2.7 2.7 2.7 2.7 2.7 

Insured unemployment rate ........................................... 1.7 1.7 1.9 2.0 2.0 2.0 2.0 2.1 2.1 
Table IV–9. Beneficiary Projections for Major Benefit Programs (Annual average, in thousands) 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 20

Federal family education loans .......................................... 3,847 4,003 4,112 4,264 4,422 4,587 4,760 4,941 5,129 5Federal direct student loans .............................................. 1,902 2,053 1,960 2,031 2,105 2,182 2,263 2,348 2,436 2Foster care and adoption assistance ................................. 517 551 592 639 689 742 800 860 926 Medicaid .............................................................................. 33,400 33,900 34,300 34,700 35,100 35,500 35,900 36,300 36,700 37State Children’s Health Insurance Program .................... 2,100 2,600 2,900 3,200 3,300 3,000 2,900 2,700 2,600 2Medicare-eligible military retiree health benefits 1 ......... .............. .............. .............. 1,617 1,646 1,666 1,684 1,701 1,717 1

Medicare: Hospital insurance .......................................................... 39,131 39,581 40,016 40,493 41,028 41,601 42,232 42,985 43,879 44

Supplementary medical insurance ................................. 37,254 37,673 38,007 38,377 38,803 39,255 39,760 40,361 41,124 41

Railroad retirement ............................................................ 682 664 645 626 609 593 578 565 553 Federal civil service retirement ......................................... 2,372 2,387 2,408 2,432 2,459 2,488 2,518 2,544 2,567 2Military retirement ............................................................. 1,950 1,964 1,977 1,990 2,000 2,010 2,018 2,026 2,034 2Unemployment compensation ............................................ 6,920 7,360 7,890 8,250 8,390 8,570 8,760 8,980 9,170 9Food stamps ........................................................................ 17,163 17,481 18,156 18,703 18,822 19,019 19,247 19,476 19,692 19Child nutrition .................................................................... 29,686 30,208 30,739 31,239 31,653 32,015 32,345 32,674 33,008 33Supplemental security income (SSI): Aged .................................................................................. 1,203 1,185 1,172 1,162 1,153 1,143 1,134 1,124 1,113 1

Blind/disabled .................................................................. 5,125 5,142 5,220 5,313 5,414 5,519 5,625 5,728 5,826 5

Subtotal, SSI ................................................................ 6,328 6,327 6,392 6,475 6,567 6,662 6,759 6,852 6,939 7

Child care and development fund 2 ................................... 1,816 2,058 2,116 2,144 2,153 2,153 2,153 2,153 2,153 2

Social security (OASDI): Old age and survivor insurance ..................................... 38,205 38,860 39,201 39,546 39,914 40,361 40,860 41,400 42,019 42

Disability insurance ........................................................ 6,559 6,741 6,982 7,262 7,599 7,963 8,342 8,730 9,116 9

Veterans compensation ....................................................... 2,607 2,632 2,681 2,720 2,750 2,773 2,784 2,790 2,790 2Veterans pensions ............................................................... 635 610 587 568 550 535 522 510 501 

1Mandatory funding of this program begins in 2003.2 Includes mandatory child care entitlement to States, discretionary Child Care and Development Block Grant, and TANF transfers.
Table IV–10. Impact of Regulations, Expiring Authorizations, and Other Assumptions in th

(In millions of dollars) Category Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

REGULATIONS Old age and survivors insurance (OASI) and disabilty in- surance (DI): Disabilty redesign prototypes ............................................ 70 155 360 751 1,247 1,776 2,321 2,887 3,4

Ticket to Work and Self-Sufficiency (767P) ...................... ............... 2 2 3 –10 –20 –29 –41 –Administrative procedures for imposing penalties for false or misleading statements ...................................... –1 –1 –1 –1 –1 –1 –1 –1 Reduction of Title II benefits under family maximum in cases of dual enrollment ................................................. 13 14 14 15 16 17 18 19 Trial work period ................................................................ 7 6 5 5 4 3 3 2 

Medicare, HI: BIPA Codifying regulations ............................................... 2,780 5,035 3,180 3,330 3,460 3,160 2,670 2,640 2,7

BBRA Codifying Regulations ............................................. 2,675 2,210 1,019 665 477 660 633 649 6BBA 1997 Codifying Regulations ...................................... –41,680 –49,460 –56,135 –62,905 –68,620 –74,130 –80,125 NA NDisabilty redesign prototypes ............................................ ............... 1 14 38 88 174 286 407 5

Medicare, SMI: BIPA Codifying regulations ............................................... 2,030 3,260 3,900 4,520 5,680 6,705 7,165 7,555 8,1

BBRA Codifying Regulations ............................................. 3,943 2,992 1,624 468 210 289 255 265 2BBRA Administrative Clarification Codifying Regula- tions .................................................................................. 800 930 1,150 1,510 1,790 1,860 2,060 2,240 2,4BBA 1997 Codifying Regulations ...................................... 4,865 8,430 11,675 11,760 11,965 12,210 12,560 NA NDisabilty redesign prototypes ............................................ ............... 1 13 36 85 170 284 409 5

Medicare, HI and SMI: Identification of potential organ, tissue, and eye donors 115 160 200 240 NA NA NA NA N

Medicare clinical trials expansion ..................................... 620 690 790 840 900 960 1,020 1,090 1,1Extending TRICARE coverage to medicare-eligible mili- tary retirees ..................................................................... ............... 110 330 380 410 440 460 490 5

Medicaid: BIPA Codifying regulations ............................................... 220 650 –1,980 –2,910 –4,100 –4,970 –5,520 –6,080 –6,7

BBRA Codifying Regulations ............................................. 375 279 158 114 99 107 110 119 1BBA 1997 Codifying Regulations ...................................... –660 –1,071 –1,628 –1,825 –1,985 –2,126 –2,350 NA NSSI childhood disability standard to implement welfare reform (Medicaid effect) .................................................. –125 –135 –150 NA NA NA NA NA NRemoval of the 100 hour limitation on employment ....... 140 160 175 190 210 225 245 265 21902 (R) (2) regulation ....................................................... 40 125 220 230 245 255 270 280 2Disabilty redesign prototypes ............................................ 3 40 120 310 576 876 1,204 1,553 1,9

Medicare and Medicaid: Net Medicaid and Medicare effects of upcoming SSA regulation on the substantial gainful activity earnings threshold .......................................................................... –9 –11 –13 –19 –38 –46 –60 –83 –Supplemental security income (SSI): Disabilty redesign prototypes ............................................ 4 30 81 188 335 437 510 664 7

Ticket to Work and Self-Sufficiency (767P) ...................... ............... –1 3 4 –6 –16 –27 –36 –
Table IV–10. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the 

Continued (In millions of dollars) Category Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Title XVI cross-program recovery (746P) .......................... –15 –15 –15 –40 –30 –15 –15 –15 –Administrative procedures for imposing penalties for false or misleading statements ...................................... –2 –1 –1 –1 –1 –1 –1 –1 Student earned income exclusion ...................................... 3 3 3 3 4 4 4 4 

Veterans medical care: Nursing home co-pays ........................................................ ............... –41 –82 –82 –82 –82 –82 –82 –Environmental Protection Agency: Pesticide registration fees .................................................. ............... –25 –26 –27 –28 –30 –31 –32 –

Pesticide tolerance fees ...................................................... ............... –40 –57 –43 –14 ............... ............... ............... ..........

EXPIRING AUTHORIZATIONS Provisions extended in the baseline (effect of extension): Spending: Child care entitlement to States ....................................... ............... ............... 2,717 2,717 2,717 2,717 2,717 2,717 2,7

Child nutrition: Summer food service program ....................................... ............... ............... ............... 377 403 427 451 478 5

State administrative expenses ....................................... ............... ............... ............... 144 152 160 167 174 1

CCC commodity program assistance ................................. ............... ............... 9,641 8,555 8,403 8,488 8,437 8,383 8,3Compact of free association ............................................... ............... ............... ............... 144 144 144 144 144 1Food stamps: Benefit costs .................................................................... ............... ............... 18,187 18,983 19,951 20,939 21,875 22,913 23,8

State administrative expenses ....................................... ............... ............... 2,034 2,099 2,165 2,234 2,377 2,451 2,5

Employment and training .............................................. ............... ............... 337 342 347 352 358 363 3Other program costs ....................................................... ............... ............... 71 69 69 70 70 72 Nutrition assistance for Puerto Rico ............................. ............... ............... 1,370 1,407 1,445 1,484 1,524 1,565 1,6

Food donations on Indian reservations ......................... ............... ............... 75 76 78 79 81 83 The emergency food assistance program commodities ............... ............... 100 100 100 100 100 100 1

Fund for Rural America ..................................................... ............... ............... ............... 32 43 53 61 61 Future Agriculture and Food Systems initiative ............. ............... ............... ............... 6 48 90 120 120 1NAFTA transitional trade adjustment assistance ........... ............... 30 60 69 70 72 73 74 Promoting safe and stable families ................................... ............... 46 241 293 299 305 305 305 3Temporary assistance for needy families (TANF): State family assistance grants (SFAG) ......................... ............... ............... 16,489 16,489 16,489 16,489 16,489 16,489 16,4

SFAG to territories ......................................................... ............... ............... 78 78 78 78 78 78 Bonus to reward high performing States ...................... ............... ............... ............... 200 200 200 200 200 2

Bonus to reward decrease in illegitimacy ..................... ............... ............... 100 100 100 100 100 100 1Tribal work program ....................................................... ............... ............... 8 8 8 8 8 8 

Trade adjustment assistance ............................................. ............... 282 323 355 367 378 390 402 4

Revenues: Airport and airway trust fund taxes 2 .............................. ............... ............... ............... ............... ............... ............... ............... 14,476 15,9

Aquatic resources trust fund taxes 2 ................................. ............... ............... ............... ............... ............... 310 318 324 3Highway trust fund taxes 2 ............................................... ............... ............... ............... ............... ............... 33,678 34,910 35,869 36,8

Leaking Underground Storage Tank taxes 2 .................... ............... ............... ............... ............... 104 211 214 221 2
Table IV–10. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the 

Continued (In millions of dollars) Category Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Provisions not extended in the baseline (effect of exten- sion) 3. Spending: Census: survey of program dynamics ............................... ............... ............... 10 10 10 10 10 10 

Civil service retirement: Increased non-Postal agency contributions for employ- ees of 1.51 percent ....................................................... ............... ............... –316 –373 –327 –287 –242 –192 –1Medicare, HI: Reduction in PPS Capital Payments (BBA 4402) ........ ............... ............... –180 –220 –230 –240 –260 –270 –2

Reduction in PPS Capital Payments (BBA 4412) ........ ............... ............... –130 –150 –160 –170 –180 –190 –1

Medicare, SMI: Medicare low income premium assistance .................... ............... ............... 80 90 100 110 120 130 1Medicaid: Emergency services for undocumented aliens .............. ............... 25 25 25 25 25 25 25 Spectrum auction authority ............................................... ............... ............... ............... ............... ............... ............... ............... ............... –5Veterans medical care: pharmaceutical copay ................. ............... ............... –120 –120 –120 –120 –120 –220 –2

OTHER IMPORTANT PROGRAM ASSUMPTIONS Child support enforcement (CSE): Effect of hold harmless payments to States ..................... 10 10 ............... ............... ............... ............... ............... ............... ..........

Effect of enhanced automated system matching rates .... 32 13 ............... ............... ............... ............... ............... ............... ..........Penalties for Family Support Act systems and State- wide Disbursement Unit requirements ......................... –148 –194 –100 –15 ............... ............... ............... ............... ..........Effect of enhanced rate of paternity testing ..................... 8 8 9 9 10 10 10 11 

Food stamps: Tax offset, recoupment, and general claims collection .... –177 –177 –177 –177 –177 –177 –177 –177 –1

Quality control liabilities ................................................... –68 –72 –77 –76 –80 –87 –92 –96 –1Allocation of administrative costs between public assist- ance programs ................................................................. –197 –197 –197 –197 –197 –197 –197 –197 –1State incentive payments ................................................... 42 46 47 49 50 52 53 55 Non-employment and training costs of BBA changes to work requirement for able-bodied adults without de- pendents ........................................................................... 90 105 110 115 120 125 130 135 1Administrative actions to promote employment and training program ............................................................. 15 25 30 31 32 33 34 35 

Medicare: Medicare Integrity Program (MIP) 4 ................... –10,660 –10,970 –11,290 –11,290 –11,290 –11,290 –11,290 –11,290 –11,2

Medicaid: Home and Community Care for the Frail Elderly (Sec- tion 1929) ......................................................................... 100 110 120 130 140 150 160 170 N

Financial management recoveries ..................................... –171 –187 –204 –223 –244 –267 –291 –316 –3Vaccines for Children, total program costs ....................... 775 796 792 784 821 853 796 813 8
Table IV–10. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the 

Continued (In millions of dollars) Category Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Personal Responsibility and Work Opportunity Rec- onciliation Act of 1996 .................................................... –800 –1,650 –1,885 NA NA NA NA NA NAllocation of administrative costs between public assist- ance programs ................................................................. 311 355 393 432 471 509 549 593 648 Hour Maternity Stay ..................................................... 20 20 20 20 20 20 20 NA NAdoption and Safe Families Act of 1997 ........................... 2 2 2 2 3 3 4 NA NSSI change in effective date for benefits (medicaid ef- fect) ................................................................................... 10 15 15 15 15 20 20 20 N

HHS Inspector General: Audit and Investigative Recov- eries ..................................................................................... –840 –980 –1,050 –1,050 NA NA NA NA NState children’s health insurance program (Title XXI) ....... 4,035 3,355 4,072 4,260 4,290 4,370 4,460 4,560 4,6Approved Demonstrations: 5 Medicare: Costs ............................................................................. 1,314 3,499 5,835 5,523 86 ............... ............... ............... ..........

Replacement Benefits .................................................. 1,328 3,528 5,879 5,565 88 ............... ............... ............... ..........

Medicaid: Costs ............................................................................. 29,373 26,352 1,664 1,524 10 1 ............... ............... ..........

Replacement Benefits .................................................. 29,373 26,352 1,664 1,524 10 1 ............... ............... ..........

Joint medicare and medicaid: Costs ............................................................................. 2,234 2,308 2,337 2,307 ............... ............... ............... ............... ..........

Replacement Benefits .................................................. 2,052 2,115 2,144 2,107 ............... ............... ............... ............... ..........

OASI, DI, SSI: Expansion of tax refund offset to debts previously writ- ten off (OASI, DI) ............................................................ –44 –44 –44 –44 –44 –44 –44 –44 –

Performance of continuing disability reviews (baseline levels) (OASI, DI, SSI) .................................................... –485 –975 –1,425 –1,820 –2,260 –2,520 –2,735 –3,160 –3,4Collection of overpayments: OASI ................................................................................. –981 –976 –973 –971 –971 –971 –971 –971 –9

DI ...................................................................................... –335 –353 –361 –366 –368 –368 –368 –368 –3SSI .................................................................................... –783 –822 –842 –851 –856 –856 –856 –856 –8

Debts written off as uncollectable (no effect on outlays): OASI ................................................................................. 94 93 92 91 90 90 90 90 

DI ...................................................................................... 272 287 294 297 299 299 299 299 2SSI .................................................................................... 526 488 450 412 374 374 374 374 3

DI:Payments to states for vocational rehabilitation .......... 86 73 63 53 37 41 45 49 

Limitation on prisoner’s benefits ................................... –38 –38 –43 –46 –51 –57 –62 –66 –Research and demonstration projects ............................ 6 12 12 12 12 6 ............... ............... ..........

OASI: limitation on prisoner’s benefits ............................. –16 –17 –18 –20 –22 –25 –26 –29 –SSI: Payments from states for state supplemental benefits –3,554 –3,660 –3,785 –3,914 –4,073 –4,168 –4,263 –4,387 –4,1

Payments for state supplemental benefits .................... 3,554 3,660 3,785 3,914 4,073 4,168 4,263 4,387 4,1
Table IV–10. Impact of Regulations, Expiring Authorizations, and Other Assumptions in the 

Continued (In millions of dollars) Category Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Fees for administration of State supplement: Treasury share ............................................................. 150 152 153 155 157 159 160 162 1

SSA share ..................................................................... 100 106 115 123 132 141 151 160 1

Research and demonstration projects ............................ 37 41 30 30 30 30 30 30 Payments to states for vocational rehabilitation .......... 71 58 59 59 57 54 52 49 Performance of non-disability redeterminations .......... –279 –221 –27 –17 –10 –8 –6 –4 

Ticket to work grant programs: Infrastructure grant program ............................................ 16 25 30 35 40 41 42 43 

Demonstration to maintain independence and employ- ment ................................................................................. ............... 4 11 15 18 24 18 13 

TANF: Transfers from TANF to SSBG ......................................... 600 500 600 700 700 700 700 700 7

NA = Not available.1 Not shown on the table are medicare and medicaid regulations that have not been specifically priced. 2 Net of income offsets. 3 See Table 2 in this Section for a listing of additional expiring provisions. 4 These amounts reflect gross MIP savings that are not offset with MIP costs. 5 Estimates for demonstrations reflect Federal costs of the projects. Replacement benefits represent the program costs in the absence of the de

ferences represent the net impact of the demonstration projects on the baseline. DoD Medicare Subvenstion demonstration is reflected under BBA97 
Table IV–11. Baseline Receipts by Source (In billions of dollars) Source 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Individual income taxes ........................................ 1,004.5 1,061.3 1,097.1 1,139.4 1,188.3 1,250.3 1,319.6 1,396.8 1,479.4 1,568Corporation income taxes ..................................... 207.3 211.9 213.7 216.8 221.8 230.1 238.8 248.1 256.9 264Social insurance and retirement receipts ............ 652.9 688.4 724.8 763.4 801.2 851.2 891.7 938.0 983.5 1030Excise taxes ........................................................... 68.9 71.4 74.2 76.4 78.5 80.9 82.8 85.2 87.7 90Estate and gift taxes ............................................. 29.0 31.2 33.0 35.5 38.1 36.4 36.7 38.5 41.3 43Customs duties ...................................................... 19.9 21.4 23.2 24.4 25.0 26.1 27.6 29.1 30.4 32Miscellaneous receipts: Federal Reserve System deposit of earnings ... 32.3 27.9 32.6 33.4 34.8 36.4 37.9 39.5 41.4 43

Other ................................................................... 10.5 11.2 11.2 12.0 12.8 13.3 14.2 13.3 13.9 14

Total, miscellaneous receipts ........................ 42.8 39.2 43.8 45.4 47.6 49.7 52.1 52.8 55.3 58

Total, governmental receipts ................................ 2,025.2 2,124.6 2,209.7 2,301.3 2,400.6 2,524.7 2,649.3 2,788.4 2,934.4 3,088
Table IV–12. Baseline Outlay Totals by Category (In billions of dollars) Category 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Outlays: Discretionary: Defense ........................................................... 295.0 303.7 306.7 321.1 331.0 340.7 350.6 360.1 369.2 379

Non-Defense ................................................... 322.0 350.5 374.9 388.7 397.5 408.0 418.3 429.8 441.7 452Subtotal, discretionary .................................. 617.0 654.1 681.5 709.8 728.5 748.7 768.9 789.9 810.9 832

Mandatory: Social Security ................................................ 406.0 431.4 451.3 473.6 498.7 526.4 556.2 588.9 624.5 664

Medicare and Medicaid ................................. 312.0 347.7 369.2 394.2 421.6 456.8 482.6 522.2 561.5 603Means-tested entitlements 1 ......................... 105.2 108.7 114.5 120.2 125.0 132.3 134.6 136.5 144.1 148

Other mandatory ............................................ 125.5 116.2 124.2 122.8 129.3 147.9 153.5 160.3 172.6 182

Subtotal, mandatory ...................................... 948.8 1,004.0 1,059.2 1,110.8 1,174.4 1,263.3 1,326.8 1,407.9 1,502.7 1,599

Net interest ........................................................ 223.2 210.2 192.0 173.8 154.6 132.8 107.8 81.2 51.4 18Total Outlays ..................................................... 1,789.0 1,868.3 1,932.8 1,994.4 2,057.5 2,144.8 2,203.5 2,279.1 2,364.9 2,450

1 Food stamps, TANF/family support, SSI, child nutrition, EITC, veterans pensions, children’s health insurance fund.
Table IV–13. Baseline Outlays by Function (In billions of dollars) Function 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

National defense: Department of Defense—Military .................... 281.2 288.0 290.4 304.2 313.7 323.1 332.7 341.9 350.7 360

Other ................................................................... 13.3 15.3 16.1 16.6 16.7 17.1 17.2 17.6 17.9 18Total, National defense ..................................... 294.5 303.2 306.5 320.8 330.5 340.1 349.9 359.5 368.6 378

International affairs .............................................. 17.2 15.5 18.7 18.4 18.3 18.6 19.1 19.8 20.5 21General science, space, and technology ............... 18.6 19.7 20.7 21.4 22.1 22.6 23.1 23.6 24.1 24Energy .................................................................... –1.1 –0.6 –0.3 * –0.7 –0.7 –0.3 –0.4 2.0 2Natural resources and environment .................... 25.0 27.5 29.7 30.7 31.4 32.2 33.1 34.1 35.1 36Agriculture ............................................................. 36.6 25.5 18.8 15.5 14.5 14.6 15.0 15.4 15.8 16Commerce and housing credit .............................. 3.2 7.1 6.1 3.9 3.4 4.2 3.8 5.6 5.5 6Transportation ....................................................... 46.9 51.1 55.3 58.2 60.5 62.8 64.6 66.2 67.9 69Community and regional development ................ 10.6 10.6 11.5 11.7 11.9 11.9 11.9 12.0 12.2 12Education, training, employment, and social services ............................................................... 59.4 66.1 76.7 80.5 81.5 83.3 85.5 87.8 90.4 92Health .................................................................... 154.5 172.9 190.5 208.6 224.6 241.7 259.7 279.4 300.6 323Medicare ................................................................. 197.1 222.1 229.8 244.2 257.8 278.0 287.8 309.9 330.2 352Income security ..................................................... 247.9 258.3 272.4 285.7 297.2 312.2 322.9 333.1 349.3 361Social security ....................................................... 409.4 435.0 454.9 477.3 502.5 530.3 560.3 593.1 628.9 669Veterans benefits and services ............................. 47.1 45.3 50.8 53.3 56.0 61.0 60.6 60.3 64.8 67Administration of justice ...................................... 28.0 29.4 32.4 33.1 35.3 36.2 37.1 38.3 39.5 40General government .............................................. 13.2 16.7 16.9 17.0 17.7 18.0 18.4 19.1 19.6 20Net interest ............................................................ 223.2 210.2 192.0 173.8 154.6 132.8 107.8 81.2 51.4 18Allowances ............................................................. ............... –0.1 –* 0.1 0.1 0.1 0.2 0.2 0.2 0Undistributed offsetting receipts: Employer share, employee retirement (on- budget) ............................................................ –30.2 –31.3 –32.6 –36.2 –37.6 –39.2 –40.8 –42.4 –44.3 –46

Employer share, employee retirement (off- budget) ............................................................ –7.6 –8.3 –8.5 –9.2 –9.9 –10.7 –11.4 –12.2 –13.1 –14Rents and royalties on the Outer Continental Shelf ................................................................ –4.6 –6.1 –5.2 –4.5 –4.3 –4.1 –3.9 –3.8 –3.6 –3Sale of major assets ........................................... ............... ............... ............... –0.3 ............... ............... ............... ............... ............... ..........Other undistributed offsetting receipts ........... –0.2 –1.6 –4.4 –9.7 –9.7 –1.3 –0.7 –0.7 –0.7 Total, Undistributed offsetting receipts ........... –42.6 –47.2 –50.7 –59.8 –61.4 –55.3 –56.8 –59.1 –61.7 –63

Total ...................................................................... 1,789.0 1,868.3 1,932.8 1,994.4 2,057.5 2,144.8 2,203.5 2,279.1 2,364.9 2,450

* $50 million or less.
Table IV–14. Baseline Outlays by Agency (In billions of dollars) Agency 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Legislative Branch ................................................ 2.9 3.1 3.0 3.1 3.2 3.3 3.4 3.5 3.6 3Judicial Branch ..................................................... 4.1 4.5 4.6 4.7 4.8 5.0 5.2 5.3 5.5 5Agriculture ............................................................. 75.7 69.1 64.1 63.4 64.4 66.5 69.0 71.6 74.1 76Commerce .............................................................. 7.8 5.8 5.0 5.2 5.1 5.1 5.1 5.3 5.5 5Defense—Military ................................................. 281.2 288.0 290.4 304.2 313.7 323.1 332.7 341.9 350.7 360Education ............................................................... 34.0 38.2 45.2 48.5 49.3 50.2 51.2 52.4 53.7 54Energy .................................................................... 15.0 16.8 17.6 18.3 18.6 18.9 19.1 19.5 20.4 20Health and Human Services ................................ 382.6 429.4 457.6 486.3 516.5 554.3 582.6 624.8 666.6 711Housing and Urban Development ....................... 30.8 37.2 35.1 35.3 34.5 35.0 35.6 36.5 36.9 37Interior ................................................................... 8.0 9.0 10.1 10.4 10.6 11.0 11.3 11.7 12.0 12Justice .................................................................... 19.6 20.5 22.9 23.4 23.8 24.3 25.1 25.9 26.7 27Labor ...................................................................... 31.4 35.0 39.6 43.1 44.8 47.3 50.0 52.9 56.0 58State ....................................................................... 6.8 9.4 9.2 8.9 8.8 8.9 9.1 9.3 9.6 9Transportation ....................................................... 46.0 50.6 55.0 57.7 59.9 62.2 64.0 65.6 67.3 69Treasury ................................................................. 391.2 389.5 384.9 381.2 379.5 374.7 368.4 363.1 356.2 347Veterans Affairs .................................................... 47.1 45.2 50.7 53.2 55.9 60.9 60.5 60.2 64.7 67Corps of Engineers ................................................ 4.3 4.4 4.7 4.8 4.9 5.0 5.2 5.3 5.5 5Other Defense Civil Programs ............................. 32.9 34.4 35.4 38.2 39.3 40.5 41.6 42.9 44.2 45Environmental Protection Agency ....................... 7.2 7.5 7.7 7.9 8.1 8.4 8.6 8.8 9.1 9Executive Office of the President ......................... 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0Federal Emergency Management Agency ........... 3.1 3.1 2.9 3.1 2.9 2.8 2.6 2.4 2.4 2General Services Administration ......................... * 0.6 –0.1 0.4 0.6 0.7 0.7 0.7 0.7 0International Assistance Programs ..................... 12.1 11.5 12.6 12.6 12.6 12.8 13.1 13.5 13.9 14National Aeronautics and Space Administration 13.4 13.8 14.3 14.7 15.2 15.6 15.9 16.3 16.7 17National Science Foundation ............................... 3.5 3.9 4.3 4.5 4.7 4.8 4.8 4.9 5.0 5Office of Personnel Management ......................... 48.7 51.0 53.4 56.3 59.9 63.6 67.4 71.5 76.1 80Small Business Administration ........................... –0.4 –0.9 0.9 0.9 0.9 0.9 1.0 1.0 1.0 1Social Security Administration ............................ 441.8 463.8 487.3 511.1 537.8 569.8 599.0 630.8 670.9 712Other Independent Agencies ................................ 10.6 12.5 17.8 16.3 16.9 18.4 19.5 21.3 23.5 24Allowances ............................................................. ............... 0.6 0.4 0.5 0.5 0.6 0.6 0.6 0.6 0Undistributed Offsetting Receipts ....................... –172.8 –189.3 –204.4 –224.1 –240.5 –250.1 –269.2 –291.0 –314.5 –339Total ...................................................................... 1,789.0 1,868.3 1,932.8 1,994.4 2,057.5 2,144.8 2,203.5 2,279.1 2,364.9 2,450

* $50 million or less.
Table IV–15. Baseline Discretionary Budget Authority by Function (In billions of dollars) Function 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

National defense: Department of Defense—Military .................... 287.7 296.1 306.0 314.4 323.2 332.2 341.5 351.1 361.1 371

Other ................................................................... 13.4 15.0 15.3 15.7 16.0 16.4 16.8 17.2 17.6 18Total, National defense ..................................... 301.2 311.0 321.3 330.1 339.2 348.6 358.3 368.3 378.6 389

International affairs .............................................. 23.5 22.7 23.2 23.7 24.3 24.9 25.5 26.1 26.7 27General science, space, and technology ............... 19.2 20.8 21.3 21.8 22.3 22.8 23.3 23.9 24.4 25Energy .................................................................... 2.7 3.1 2.9 2.9 3.0 3.1 3.5 3.6 4.2 4Natural resources and environment .................... 24.7 28.8 29.7 30.4 31.3 32.2 33.1 34.1 35.1 36Agriculture ............................................................. 4.5 4.8 5.3 5.4 5.6 5.8 5.9 6.1 6.3 6Commerce and housing credit .............................. 7.1 2.9 3.0 3.0 2.9 2.8 2.6 3.5 3.7 3Transportation ....................................................... 15.2 19.1 19.7 20.3 20.9 21.6 22.2 22.9 23.6 24Community and regional development ................ 13.7 11.0 11.8 12.1 12.4 12.6 12.9 13.2 13.5 13Education, training, employment, and social services ............................................................... 44.4 61.1 64.4 65.8 67.2 68.7 70.2 71.7 73.3 74Health .................................................................... 33.8 38.9 39.8 40.7 41.7 42.7 43.7 44.8 45.8 46Medicare ................................................................. 3.0 3.4 3.5 3.7 3.8 4.0 4.2 4.3 4.6 4Income security ..................................................... 30.0 39.5 44.1 45.6 47.0 48.5 49.7 50.8 52.0 53Social security ....................................................... 3.2 3.4 3.6 3.7 3.8 4.0 4.1 4.3 4.4 4Veterans benefits and services ............................. 20.9 22.5 23.4 24.2 25.0 25.9 26.8 27.7 28.7 29Administration of justice ...................................... 27.0 30.0 31.1 32.0 33.1 34.2 35.3 36.5 37.7 39General government .............................................. 12.4 14.0 14.8 15.3 15.9 16.4 16.9 17.5 18.1 18Allowances ............................................................. ............... –0.6 ............... ............... ............... ............... ............... ............... ............... ..........Total ...................................................................... 586.6 636.5 662.9 680.6 699.4 718.5 738.2 759.4 780.8 802
Table IV–16. Baseline Discretionary Budget Authority by Agency (In billions of dollars) Agency 2000 Actual Estimate 2001 2002 2003 2004 2005 2006 2007 2008 2009 

Legislative Branch ................................................ 2.5 2.7 2.8 2.9 3.0 3.1 3.2 3.3 3.4 3Judicial Branch ..................................................... 3.7 4.0 4.1 4.3 4.4 4.6 4.7 4.9 5.0 5Agriculture ............................................................. 16.9 19.0 19.9 20.4 21.0 21.6 22.2 22.8 23.5 24Commerce .............................................................. 8.7 5.1 5.1 5.2 5.3 5.3 5.2 5.5 5.7 5Defense—Military ................................................. 287.7 296.1 306.0 314.4 323.2 332.2 341.5 351.1 361.1 371Education ............................................................... 29.4 39.9 42.7 43.6 44.5 45.4 46.4 47.4 48.4 49Energy .................................................................... 17.8 19.7 19.9 20.2 20.7 21.2 21.7 22.2 23.2 23Health and Human Services ................................ 45.5 53.9 55.2 56.5 57.8 59.2 60.7 62.2 63.7 65Housing and Urban Development ....................... 23.1 30.8 34.9 36.1 37.3 38.5 39.3 40.2 41.0 42Interior ................................................................... 8.5 10.2 10.7 10.8 11.1 11.4 11.8 12.2 12.5 12Justice .................................................................... 18.8 21.0 21.7 22.4 23.1 23.9 24.6 25.4 26.3 27Labor ...................................................................... 8.8 11.9 12.3 12.7 13.1 13.5 13.9 14.3 14.7 15State ....................................................................... 7.8 7.5 7.7 7.9 8.1 8.3 8.5 8.8 9.0 9Transportation ....................................................... 14.5 18.5 19.1 19.7 20.3 20.9 21.5 22.2 22.9 23Treasury ................................................................. 12.5 14.0 14.6 15.1 15.7 16.3 16.8 17.5 18.1 18Veterans Affairs .................................................... 20.8 22.4 23.3 24.1 24.9 25.8 26.7 27.6 28.6 29Corps of Engineers ................................................ 4.1 4.6 4.7 4.8 4.9 5.1 5.2 5.4 5.5 5Other Defense Civil Programs ............................. 0.1 0.1 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0Environmental Protection Agency ....................... 7.6 7.8 8.0 8.2 8.5 8.7 8.9 9.1 9.4 9Executive Office of the President ......................... 0.3 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0Federal Emergency Management Agency ........... 3.9 2.4 2.5 2.5 2.6 2.6 2.7 2.8 2.8 2General Services Administration ......................... –* 0.5 0.8 0.8 0.8 0.8 0.8 0.9 0.9 0International Assistance Programs ..................... 13.6 13.0 13.2 13.5 13.8 14.1 14.4 14.7 15.0 15National Aeronautics and Space Administration 13.6 14.3 14.6 15.0 15.3 15.7 16.1 16.5 16.9 17National Science Foundation ............................... 3.9 4.4 4.5 4.6 4.7 4.8 4.9 5.0 5.1 5Office of Personnel Management ......................... 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0Small Business Administration ........................... 0.9 0.3 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1Social Security Administration ............................ 5.6 6.0 6.3 6.5 6.7 6.9 7.2 7.4 7.7 8Other Independent Agencies ................................ 5.8 6.3 6.6 6.7 6.9 7.0 7.4 8.4 8.6 8Allowances ............................................................. ............... –0.6 ............... ............... ............... ............... ............... ............... ............... ..........Total ...................................................................... 586.6 636.5 662.9 680.6 699.4 718.5 738.2 759.4 780.8 802

* $50 million or less.
231

V. LIST OF CHARTS AND

TABLES
233

LIST OF CHARTS AND TABLES

LIST OF CHARTS

Page

II. The Turnaround in the Budget and the Economy

II–1. Unified Budget Surpluses Follow Years of Deficits ............................................. 14

II–2. Publicly Held Debt has been Brought Under Control .......................................... 15

II–3. On-Budget Deficits have been Turned into Surpluses ......................................... 16

II–4. The Budget was Balanced by Lower Spending and Increases in Receipts ........ 17

II–5. Among the G-7 Countries the United States will have the Largest

Budget Surplus in 2001 ...................................................................................... 18

II–6. The Employment: Population Ratio Reached a Record High in 2000 ................ 19

II–7. Net National Saving Recovered in the Clinton Years .......................................... 20

II–8. Real Business Fixed Investment has Soared Since 1992 .................................... 21

II–9. Productivity has Accelerated Along with Investment .......................................... 22

II–10. The Misery Index is Near Its Lowest Level in Over Thirty Years ..................... 23

II–11. Long-Term Budget Projections Require Caution .................................................. 26

III. Major Functions of the Federal Government

Natural Resources and Environment

6–1. Air Quality Trends .................................................................................................. 91

6–2. Major Progress in Superfund Cleanups ................................................................ 94

Agriculture

7–1. Federal Payments & Market Income: Relative Shares of Net Cash

Farm Income ........................................................................................................ 99

Commerce and Housing Credit

8–1. Homeownership Expands to an Additional Nine Million Families ..................... 108

Transportation

9–1. Highway Fatality Rate has Dropped ..................................................................... 116

9–2. Reduced Boating Fatalities .................................................................................... 118

9–3. Transit Ridership is Up Significantly ................................................................... 120

Veterans Benefits and Services

16–1. Veterans Population Declines and Ages ................................................................ 178

Administration of Justice

17–1. Administration of Justice Expenditures ................................................................ 182

17–2. Federal Justice Expenditures ................................................................................. 183

17–3. Federal Drug Control Spending ............................................................................. 186

General Government

18–1. Trends in Federal Employment ............................................................................. 195

Net Interest

19–1. Net Interest ............................................................................................................. 198
234 LIST OF CHARTS AND TABLES

LIST OF TABLES

Page

I. The President’s Transmittal Message—Summary Tables

I–1. Baseline Totals ......................................................................................................... 7

I–2. Baseline Totals by Category ................................................................................... 8

I–3. Federal Government Financing and Debt ............................................................. 9

II. The Turnaround in the Budget and the Economy

II–1. Economic Assumptions ............................................................................................ 24

III. Major Functions of the Federal Government

Introduction

1–1. Federal Resources by Function ............................................................................... 40

National Defense

2–1. Federal Resources in Support of National Defense .............................................. 43

2–2. U.S. Conventional Force Structure ........................................................................ 44

2–3. Strategic Forces ....................................................................................................... 49

2–4. Overall Funding for Unconventional Threats ....................................................... 50

International Affairs

3–1. Federal Resources in Support of International Affairs ......................................... 53

General Science, Space, and Technology

4–1. Federal Resources in Support of General Science, Space, and Technology ........ 61

4–2. Selected Research Increases ................................................................................... 61

4–3. Research and Development Investments ............................................................... 62

4–4. 21st Century Research Fund .................................................................................. 63

Energy

5–1. Federal Resources in Support of Energy ............................................................... 71

Natural Resources and Environment

6–1. Federal Resources in Support of Natural Resources and Environment .............. 81

6–2. High–Priority Environmental and Natural Resource Programs .......................... 82

6–3. Lands Legacy ........................................................................................................... 83

Agriculture

7–1. Federal Resources in Support of Agriculture ........................................................ 97

7–2. USDA/Commodity Credit Corporation Payments to Farmers ............................. 98

Commerce and Housing Credit

8–1. Federal Resources in Support of Commerce and Housing Credit ........................ 107

8–2. Selected Federal Commerce and Housing Credit Programs:

Credit Programs Portfolio Characteristics ......................................................... 109

Transportation

9–1. Federal Resources in Support of Transportation .................................................. 115

Community and Regional Development

10–1. Federal Resources in Support of Community and Regional Development ......... 123

10–2. Selected Native American Programs ...................................................................... 128

10–3. Delta Regional Authority and Associated Agency Funding ................................. 131

Education, Training, Employment, and Social Services

11–1. Federal Resources in Support of Education, Training, Employment, and Social

Services ................................................................................................................. 133

11–2. Selected Education, Training, and Related Programs .......................................... 134

11–3. Hispanic Education Action Plan (HEAP) ............................................................... 138
LIST OF CHARTS AND TABLES 235

LIST OF TABLES—Continued

Page

Health

12–1. Federal Resources in Support of Health ................................................................ 149

12–2. Food Safety Initiative .............................................................................................. 152

12–3. Government-wide HIV/AIDS Spending .................................................................. 154

Medicare

13–1. Federal Resources in Support of Medicare ............................................................ 159

Income Security

14–1. Federal Resources in Support of Income Security ................................................ 163

Social Security

15–1. Federal Resources in Support of Social Security .................................................. 171

Veterans Benefits and Services

16–1. Federal Resources in Support of Veterans Benefits and Services ....................... 177

Administration of Justice

17–1. Federal Resources in Support of Administration of Justice ................................. 181

17–2. Civil Rights Enforcement Funding ......................................................................... 187

General Government

18–1. Federal Resources in Support of General Government ........................................ 191

Net Interest

19–1. Net Interest .............................................................................................................. 197

Undistributed Offsetting Receipts

20–1. Undistributed Offsetting Receipts .......................................................................... 201

IV. Current Services Estimates and the Pending Policy Agenda

IV–1. Accounting for Expiring Provisions ........................................................................ 206

IV–2. Major Anomalies Caused by BEA Baseline Rules ................................................ 207

IV–3. Bridge from BEA Baseline Surplus to Anomaly Adjusted Baseline Surplus ..... 208

IV–4. Pending Policy Proposals ........................................................................................ 210

IV–5. Current Services Estimates, 2000–2011 ................................................................ 214

IV–6. Baseline Receipts by Source .................................................................................... 214

IV–7. Change in Baseline Outlays by Category .............................................................. 216

IV–8. Summary of Economic Assumptions ...................................................................... 217

IV–9. Beneficiary Projections for Major Benefit Programs ............................................. 218

IV–10. Impact of Regulations, Expiring Authorizations, and Other Assumptions in

the Baseline ......................................................................................................... 219

IV–11. Baseline Receipts by Source .................................................................................... 224

IV–12. Baseline Outlay Totals by Category ....................................................................... 225

IV–13. Baseline Outlays by Function ................................................................................. 226

IV–14. Baseline Outlays by Agency .................................................................................... 227

IV–15. Baseline Discretionary Budget Authority by Function ......................................... 228

IV–16. Baseline Discretionary Budget Authority by Agency ........................................... 229
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