[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
AGENCY OVERSIGHT: MISSION, MANAGEMENT, AND PERFORMANCE
=======================================================================
HEARINGS
before the
SUBCOMMITTEE ON HUMAN RESOURCES
of the
COMMITTEE ON GOVERNMENT
REFORM AND OVERSIGHT
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
MARCH 6, 18, AND 20, 1997
__________
Serial No. 105-10
__________
Printed for the use of the Committee on Government Reform and Oversight
U.S. GOVERNMENT PRINTING OFFICE
40-431 WASHINGTON : 1997
________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
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COMMITTEE ON GOVERNMENT REFORM AND OVERSIGHT
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
J. DENNIS HASTERT, Illinois TOM LANTOS, California
CONSTANCE A. MORELLA, Maryland ROBERT E. WISE, Jr., West Virginia
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
STEVEN SCHIFF, New Mexico EDOLPHUS TOWNS, New York
CHRISTOPHER COX, California PAUL E. KANJORSKI, Pennsylvania
ILEANA ROS-LEHTINEN, Florida GARY A. CONDIT, California
JOHN M. McHUGH, New York CAROLYN B. MALONEY, New York
STEPHEN HORN, California THOMAS M. BARRETT, Wisconsin
JOHN L. MICA, Florida ELEANOR HOLMES NORTON, Washington,
THOMAS M. DAVIS, Virginia DC
DAVID M. McINTOSH, Indiana CHAKA FATTAH, Pennsylvania
MARK E. SOUDER, Indiana TIM HOLDEN, Pennsylvania
JOE SCARBOROUGH, Florida ELIJAH E. CUMMINGS, Maryland
JOHN SHADEGG, Arizona DENNIS KUCINICH, Ohio
STEVEN C. LaTOURETTE, Ohio ROD R. BLAGOJEVICH, Illinois
MARSHALL ``MARK'' SANFORD, South DANNY K. DAVIS, Illinois
Carolina JOHN F. TIERNEY, Massachusetts
JOHN E. SUNUNU, New Hampshire JIM TURNER, Texas
PETE SESSIONS, Texas THOMAS H. ALLEN, Maine
MIKE PAPPAS, New Jersey ------
VINCE SNOWBARGER, Kansas BERNARD SANDERS, Vermont
BOB BARR, Georgia (Independent)
------ ------
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
Judith McCoy, Chief Clerk
Phil Schiliro, Minority Staff Director
------
Subcommittee on Human Resources
CHRISTOPHER SHAYS, Connecticut, Chairman
VINCE SNOWBARGER, Kansas EDOLPHUS TOWNS, New York
BENJAMIN A. GILMAN, New York DENNIS KUCINICH, Ohio
DAVID M. McINTOSH, Indiana THOMAS H. ALLEN, Maine
MARK E. SOUDER, Indiana TOM LANTOS, California
MIKE PAPPAS, New Jersey BERNARD SANDERS, Vermont (Ind.)
STEVEN SCHIFF, New Mexico THOMAS M. BARRETT, Wisconsin
Ex Officio
DAN BURTON, Indiana, HENRY A. WAXMAN, California
Lawrence J. Halloran, Staff Director and Counsel
Christopher Allred, Professional Staff Member
Robert Newman, Professional Staff Member
R. Jared Carpenter, Clerk
Ron Stroman, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on:.................................................
March 6, 1997................................................ 01
March 18, 1997............................................... 119
March 20, 1997............................................... 313
Statement of:
Bloom, Thomas R., Inspector General, U.S. Department of
Education, accompanied by Steve McNamara, Assistant
Inspector General for Audit; Dianne Van Riper, Assistant
Inspector General for Investigations; and Cornelia M.
Blanchette, Associate Director, Education and Employment
Issues, U.S. General Accounting Office, accompanied by
Eleanor Johnson, Assistant Director, Education and
Employment Issues; Harriet Ganson, Assistant Director; and
Jay Eglin, Assistant Director.............................. 315
Brown, June Gibbs, Inspector General, Department of Health
and Human Services, accompanied by Michael F. Mangano,
principal Deputy Inspector General, Department of Health
and Human Services; Richard L. Hembra, Assistant
Comptroller General for Health, Education and Human
Services, General Accounting Office, accompanied by Marsha
Lillie-Blanton, Associate Director for Health Services,
Quality and Public Health Issues, General Accounting
Office; and Thomas G. Dowdal, Assistant Director for Health
Financing and Public Health Issues, General Accounting
Office..................................................... 121
Dyckman, Larry, Associate Director, Housing and Community
Development Issues, General Accounting Office, accompanied
by Richard Hale, Associate Director; and Larry Goldsmith,
Senior Evaluator........................................... 28
Gaffney, Susan, Inspector General, Department of Housing and
Urban Development.......................................... 17
Masten, Charles C., Inspector General, Department of Labor,
accompanied by John Getek, Assistant Inspector General for
Audit; and Carlotta C. Joyner, Director, Education and
Employment Issues, General Accounting Office, accompanied
by Harriet C. Ganson, Assistant Director, Education and
Employment Issues, General Accounting Office............... 67
Merriman, William, Deputy Inspector General, Department of
Veterans Affairs, accompanied by Michael Sullivan,
Assistant Inspector General, Department of Veterans
Affairs; David P. Baine, Director of Federal Health Care
Delivery Issues, General Accounting Office, accompanied by
Jim Linz, Assistant Director, Federal Health Care Delivery
Issues, General Accounting Office.......................... 229
Sgro, Beverly, secretary of education, Commonwealth of
Virginia; and Paul Steidler, director of education reform
project, the Alexis de Tocqueville Institution............. 377
Letters, statements, etc., submitted for the record by:
Baine, David P., Director of Federal Health Care Delivery
Issues, General Accounting Office, prepared statement of... 262
Barrett, Hon. Thomas M., a Representative in Congress from
the State of Wisconsin, prepared statement of.............. 6
Blanchette, Cornelia M., Associate Director, Education and
Employment Issues, U.S. General Accounting Office, prepared
statement of............................................... 347
Bloom, Thomas R., Inspector General, U.S. Department of
Education, prepared statement of........................... 317
Brown, June Gibbs, Inspector General, Department of Health
and Human Services, prepared statement of.................. 124
Dyckman, Larry, Associate Director, Housing and Community
Development Issues, General Accounting Office, prepared
statement of............................................... 31
Gaffney, Susan, Inspector General, Department of Housing and
Urban Development, prepared statement of................... 20
Hembra, Richard L. Assistant Comptroller General for Health,
Education and Human Services, General Accounting Office,
prepared statement of...................................... 138
Joyner, Carlotta C., Director, Education and Employment
Issues, General Accounting Office, prepared statement of... 83
Masten, Charles C., Inspector General, Department of Labor,
prepared statement of...................................... 69
Merriman, William, Deputy Inspector General, Department of
Veterans Affairs, prepared statement of.................... 232
Pappas, Hon. Michael, a Representative in Congress from the
State of New Jersey, prepared statement of................. 5
Sgro, Beverly, secretary of education, Commonwealth of
Virginia, prepared statement of............................ 381
Shays, Hon. Christopher, a Representative in Congress from
the State of Connecticut, report entitled, ``The National
Vaccine Injury Compensation Program: A Program Review''.... 178
Steidler, Paul, director of education reform project, the
Alexis de Tocqueville Institution, prepared statement of... 387
OVERSIGHT OF THE DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT AND THE
DEPARTMENT OF LABOR: MISSION, MANAGEMENT, AND PERFORMANCE
----------
THURSDAY, MARCH 6, 1997
House of Representatives,
Subcommittee on Human Resources,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 1:45 p.m., in
room 2247, Rayburn House Office Building, Hon. Christopher
Shays (chairman of the subcommittee) presiding.
Present: Representatives Shays, Snowbarger, Pappas, Towns,
Kucinich, Allen, and Barrett.
Staff present: Lawrence J. Halloran, staff director/
counsel; Christopher Allred and Robert A. Newman, professional
staff members; and R. Jared Carpenter, clerk.
Mr. Shays. I would like to call this hearing to order. This
is the Subcommittee on Human Resources of the Committee on
Government Reform and Oversight.
The dictionary defines ``oversight'' as ``watchful and
responsible care.'' By this definition, constructive oversight
should be vigilant, objective, and careful. It is not an
episodic game of ``Gotcha'' but the methodical examination of
program goals and agency performance.
Last week, we began that systematic review of Federal human
service departments with testimony from Housing and Urban
Development--HUD--Secretary Andrew Cuomo. Today, and in the
weeks ahead, we will hear from the General Accounting Office--
GAO--and the Inspectors General--IG--of the five Cabinet
Departments under the subcommittee's jurisdiction. Their views
on program vulnerabilities and opportunities for improvement
mark an indispensable starting point for our work throughout
this Congress.
We cast our net broadly to match the scope of Federal human
service programs. For fiscal year 1998, the five Departments
within our purview account for more than $500 billion, or 30
percent of total budget authority and outlays. The two
Departments under discussion today, HUD and the Department of
Labor, will make total outlays of almost $70 billion next year.
Broad oversight perspective is also essential as each
Department faces fundamental questions about its overall
mission. In complying with the Government Performance and
Results Act--the GPRA. For the first time, Federal agencies
must adopt strategic plans and meet measurable performance
standards. The deficiencies, inefficiencies, lapses, or losses
described today will tell us where to place our emphasis in
consulting with the Departments on GPRA compliance, and where
to look for measurable progress and improved performance.
Our oversight mission is to safeguard scarce Government
resources from waste, fraud, and abuse, and make sure Federal
programs perform as Congress intended to meet human needs. In
that effort, we rely heavily on the experience and dedication
of our oversight partners, the General Accounting Office and
the Inspectors General. To those who are here, we welcome your
testimony today and look forward to your continued help in the
subcommittee's work.
At this time, I would call Susan Gaffney, the Inspector
General of the Department of Housing and Urban Development, and
Larry Dyckman, associate director of housing and community
development issues, General Accounting Office. And he is
accompanied by Richard Hale and Larry Goldsmith.
Ms. Gaffney, are you accompanied by anyone?
Ms. Gaffney. No, not at the table.
Mr. Shays. I welcome you to sit at the table here and I am
going to swear you in, and then I am going to have Mr. Towns
make a statement. So I will take care of business and then I
will call on you, Mr. Towns.
If you would all raise your right hand.
[Witnesses sworn.]
Mr. Shays. For the record, the witnesses all have answered
in the affirmative.
Mr. Towns, I am sorry.
Mr. Towns. Thank you, Mr. Chairman. Let me thank you again
for having this hearing today. I think you are right on target.
Last week, Secretary Cuomo testified before this
subcommittee that his first two priorities will be resolving
the Section 8 crisis and improving the management of HUD. The
one point I made to the Secretary was that we should not solve
the financial problems of HUD on the backs of the poor. We must
find a way to pay for Section 8 contracts, reform our public
housing system, and pay market rents, without causing
homelessness and massive default of HUD's insured property.
This will be a difficult balance to achieve, but it must be
done.
Mr. Chairman, both HUD and the Department of Labor have
many difficult policy choices to make in the near future. The
Inspectors General for these agencies, along with the General
Accounting Office, will have an important role to play in
helping to make these choices.
I look forward to hearing the testimony, and I yield back
the balance of my time.
Mr. Shays. I thank the gentlemen.
Mr. Snowbarger, the vice chairman of the subcommittee.
Mr. Snowbarger. Nothing, thank you.
Mr. Shays. Mr. Kucinich.
Mr. Kucinich. No.
Mr. Shays. Mr. Barrett.
Mr. Barrett. If I could?
Mr. Shays. You are more than welcome to.
Mr. Barrett. I usually don't have an opening statement, but
I have one that I will summarize. I just want to make sure that
I get this issue in the record. I want to thank you for holding
these timely hearings.
Although HUD's programs continue to pose a risk in terms of
their vulnerability to waste, fraud, abuse, and mismanagement,
many actions the agency has taken to deal with these problems
have had a positive effect. It is clear, however, that
additional steps must be taken to improve HUD's mission,
management, and performance.
I am especially concerned about the existing internal
control weaknesses involved in the sale of federally financed
homes HUD acquires through foreclosure. In my hometown of
Milwaukee, we are witnessing scams in which investors are
purchasing HUD homes under the guise that they will live in the
home. According to an article that appeared in the Milwaukee
Journal Centennial in August 1996, 40 percent of the people
buying foreclosed houses in Milwaukee from HUD falsely claimed
they would be owner-occupant.
The article cites city records showing that 88 houses sold
in Milwaukee by HUD to self-described owner-occupants between
the period January 1, 1995, and March 1, 1996, were not being
lived in by the buyers in April 1996. I am convinced that these
scams are not unique to Milwaukee.
When bidders misrepresent their intent to live in a home
bought from HUD, they unfairly skip over honest investor-
bidders and possibly over genuine owner-occupants. These
investors are defrauding our Government and are abusing a
system that was designed to build healthy neighborhoods and
revitalize neighborhoods. I plan to introduce a bill in the
near future that would help prevent these scams from occurring
in Milwaukee and in other communities around our country.
I won't go into the particulars of the bill, but I urge the
members of this committee and every Member of the House of
Representatives to join me in working to prevent these abuses.
I look forward to hearing the testimony today.
I do have the articles from the paper, and I would ask
unanimous consent to have them entered into the record.
I also would note that I have responses from--that I have
had with HUD on this issue, and part of the response I have
gotten is, this did not cause any loss of funds to HUD, which
is probably true. I am not concerned about that as much as I am
concerned about these neighborhoods.
Ms. Gaffney. I understand.
Mr. Barrett. That is something that during the course of my
5 minutes I will want to discuss with you.
So I would yield back the balance of my time.
Mr. Shays. Thank you, Mr. Barrett.
Mr. Barrett. I ask unanimous consent to have the articles
put in the record.
Mr. Shays. Let me take care of that business and ask
unanimous consent that all members of the subcommittee be
permitted to make any opening statement. The record will remain
open for 3 days for that purpose, and, without objection, so
ordered.
And I also ask unanimous consent that all witnesses be
permitted to include their written statements in the record.
And without objection, so ordered.
And Mr. Barrett, you have requested that information be put
in the record?
Mr. Barrett. Yes.
Mr. Shays. Then that will be done, without objection.
[The prepared statements of Hon. Michael Pappas and Hon.
Thomas M. Barrett, and the information referred to follow:]
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Mr. Shays. Mr. Allen, nice to have you here. Do you have
any comments?
Mr. Allen. No comments.
Mr. Shays. We are going to start with you, Ms. Gaffney, and
ask you to provide your statement.
And then we will go to you, Mr. Dyckman.
STATEMENT OF SUSAN GAFFNEY, INSPECTOR GENERAL, DEPARTMENT OF
HOUSING AND URBAN DEVELOPMENT
Ms. Gaffney. Mr. Chairman, Mr. Towns, members of the
subcommittee, I would like to run down with you quickly how I
see the major categories of problems at HUD. First of all, we
currently have a mission statement that has grown over the
years to the point that it is quite vague and very broad.
The last statement that I have heard is that HUD exists to
create communities of opportunity. As the mission statement has
expanded, broadened, so have the number of HUD programs
increased.
At our last count--and we are updating this now, but 2
years ago when we counted, we counted 240 discrete HUD programs
and activities. During this same period of time, HUD's staffing
has been decreasing dramatically and is projected to continue
decreasing. So in my statement I tell you that we had 16,000
employees in 1980, and by the year 2000 we will have 7,500.
These two things have happened without any apparent concern in
the Congress or at HUD for how they relate.
A third type of problem is that HUD staff really don't know
what they are supposed to be doing these days. We had a
regional structure a few years ago. We changed that, eliminated
the regional structure, said we would now organize along
programmatic lines from headquarters assistant secretaries
straight through program staff in the field, and, shortly after
we did that, we announced that HUD's new approach was going to
be place based, seamless delivery at the locality.
In the face of these kinds of changes, HUD staff are just
unable to define what precisely they are supposed to be doing.
Within HUD, we have a culture that has typically
differentiated program and policy from management. GPRA, that
kind of initiative, that's management; that has nothing to do
with our programs, with our programmatic assistant secretaries.
And what this means, for instance, is, as we downsize, the
downsizing isn't done in conjunction with programmatic changes,
it happens over there, and the programs continue over here. So
we do it on a pro rata share. We just keep cutting them on a
pro rata basis.
We also, to be very blunt about this, have a situation at
HUD where we are surrounded--every one of our programs is
surrounded by very powerful interest groups, and some of these
interest groups have huge amounts of money at stake, and they
hire very high priced lawyers and other representatives.
We also have a situation, Mr. Chairman, as you alluded to,
where decisions--the fiscal consequences of decisions made in
the 1970's and 1980's, when a balanced budget was not a primary
concern, are now upon us, and the consequences are quite
extreme.
We also have a series of management problems. For instance,
we have wholly inadequate financial systems and information
systems. I don't want to go on. There's a litany of such
management problems.
What I would like you to understand is, if you look at this
list of problems, that it would be impossible for HUD to
perform excellently under these circumstances; nobody could.
And I would also like you to understand that they are all
intertwined, all these different levels of problems.
The good news is what you heard from Andrew Cuomo last
year. I think the good news is, he understands these problems.
Mr. Shays. You mean last week?
Ms. Gaffney. What did I say, last year? I am sorry. Last
week. I am sorry.
He understands these problems, and he is dedicated to do
something about them. He also heard about these problems in his
confirmation hearings, which was good news, that the Senate
cared enough to discuss them.
He is developing an integrated policy program management
plan to address these areas of vulnerability that would amount
to a massive overhaul of HUD, because it goes to all of--it
goes to the mission, it goes to the programs, it goes to the
policies, it goes to the people, it goes to the internal
systems; all of that has to be overhauled.
The important thing that you need to know is, much as HUD
is always blamed for this situation, we didn't get there alone,
the Congress was right there with us, and we can't solve these
problems without congressional action. And over the past 2
years, despite the fact that legislation has been put forward
to reform some of these areas, only one of those pieces of
authorizing legislation has been enacted: a consolidation of
Indian housing programs.
To the extent HUD has moved forward, for instance, in
changing public housing, it has done so through authorizing
provisions in appropriations acts. So, if Congress doesn't step
to the plate, HUD's ability to change the situation is slight.
If Congress steps to the plate and HUD doesn't take it
seriously, we are not going to move either.
Two final quick things I would like to say. If Congress and
HUD did step to the plate, then we would have to start worrying
about two things. One is--and I know this is a concern of
yours, Mr. Chairman; I have heard you talk about it before. In
this area of program streamlining, consolidation, and
devolution, we'd better figure out how we are going to have
stewardship, accountability, and oversight.
We keep talking about performance, meaningful performance
measures, and we don't have them, and I don't think it's just
at HUD. And the illustration I want to give you of that is,
under GPRA, people often talk about the PHMAP--the Public
Housing Management Assessment Program--at HUD. This is the
system we use to score public housing authorities, and then,
based on those scores, we call them troubled or not.
That system doesn't consider the quality of housing that
people are living in. So we have situations like Camden, NJ, or
Memphis, TN, where people are living in absolute squalor and
the public housing authorities are deemed to be good
performers.
So my point is, performance measurement counts a whole lot,
and we are not near there.
The second point is, we have got to get serious. If we are
going to do devolution, we have got to get over this kind of
naive belief that the Feds are bad and the States and
localities are full of wisdom and integrity in all cases. We
still have an obligation for stewardship and accountability,
and if they don't meet their obligations, we need to be able to
act, take unpleasant actions, against them, and we have not, at
HUD, been historically willing to do that.
Thank you, Mr. Chairman.
[The prepared statement of Ms. Gaffney follows:]
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Mr. Shays. Thank you, Ms. Gaffney.
Mr. Dyckman.
STATEMENTS OF LARRY DYCKMAN, ASSOCIATE DIRECTOR, HOUSING AND
COMMUNITY DEVELOPMENT ISSUES, GENERAL ACCOUNTING OFFICE,
ACCOMPANIED BY RICHARD HALE, ASSOCIATE DIRECTOR; AND LARRY
GOLDSMITH, SENIOR EVALUATOR
Mr. Dyckman. Thank you, Mr. Chairman.
Again, I just want to introduce my colleagues. To my far
left is Larry Goldsmith. He has done a lot of our high-risk
work. And to my left is Rick Hale, who is the assistant
director in charge of our multifamily housing work.
As you know, 2 years ago before this subcommittee we
discussed the most important management and budgetary problems
facing HUD. Unfortunately, a lot still remains undone, and, as
Ms. Gaffney says, there are serious problems.
For example, HUD has made progress improving its internal
controls, but major problems still persist. HUD has implemented
a new management planning and control program intended to
identify and rank the major risks in each program and develop
strategies to evade these risks. However, we and the Inspector
General question the effectiveness of this program.
Furthermore, even though HUD has reported it has
significantly reduced the number of material internal control
weaknesses, those that remain are very significant and actually
encompass most of the Department. For example, the remaining
weaknesses affect more than $18 billion in housing subsidy
funds that HUD disburses annually.
Much work also remains for HUD to improve its information
and financial management systems. For example, major
improvements to HUD systems will not be completed before the
year 2000. Furthermore, HUD reported in March 1996, that 93 of
116 of its information and financial management systems did not
meet the requirements of the Federal Managers' Financial
Integrity Act and therefore could not be relied on to provide
timely, accurate, and reliable information and reports to
management.
I was encouraged last week, when Secretary Cuomo spoke
before you, that he is going to be putting together a plan and
he feels that within 18 months he will see significant
improvement. We will follow and monitor that program and those
plans very closely.
Now, in addition to wrestling with critical agencywide
management weaknesses, HUD faces a daunting task in managing
the costs associated with, one, renewing Section 8 contracts
for assisted housing; two, re-engineering the assisted
multifamily projects that FHA had insured; and, three, insuring
the soundness of public housing.
Overall, the price of renewing Section 8 contracts is high
and will increase over the next several years. As you can see
on the chart next to you, HUD estimated that it will need over
$9 billion in budget authority for fiscal year 1998, to renew
contracts covering 1.8 million housing units. The figure to my
right shows how the escalating needs for Section 8 budget
authority will soon surpass funding levels for all of HUD's
other programs and that Section 8 may grow to over $21 billion
slightly past the year 2000.
Now let me turn to portfolio re-engineering. That's the
subject of HUD's re-engineering proposal, which consists of
more than 8,600 properties containing about 860,000 apartments.
The properties provide housing for a diverse population,
including families and single adults, as well as those with
special needs such as the elderly and the disabled.
Last year, I think, when we testified before the
subcommittee, we showed a video which showed the variation in
the quality of housing of some of those multifamily projects.
These properties have FHA insurance, loans with unpaid
principal balances of nearly $18 billion, and receive project-
based Section 8 assistance provided under long-term contracts
that HUD executed in the 1970's. Over time, Section 8 subsidies
for these properties have increased dramatically, and today
many of the Section 8 contracts are reaching their expiration.
However, for many properties, reducing the Section 8
subsidies without reducing the outstanding mortgage balances of
these properties would lead to default and billions of dollars
in claims against FHA's multifamily insurance fund.
HUD's fiscal year 1997 appropriation includes a
demonstration program to restructure some of these FHA-insured
mortgages and bring income and expenses in line so that it can
operate at market rents. These types of proposals recognize the
reality that has existed for some time; namely, that the value
of many of the properties in the insured Section 8 portfolio
are far lower than the mortgages on the properties suggest.
A third major program challenge facing HUD is ensuring the
soundness of public housing. About 3 million low-income people,
many of whom are elderly, disabled, live in public housing,
which is run on a day-to-day basis by about 3,300 local housing
authorities. HUD currently provides housing authorities with
$5.4 billion a year to help them operate and modernize their
projects. However, over time, the authorities' expenses have
begun to exceed their funding sources. These are primarily from
HUD's operating subsidies and tenants' rents.
Also, as you know, welfare reform could further reduce many
tenants' ability to pay rent. With funding for housing
authorities increasingly tight, it is crucial for HUD to
accurately identify housing authorities having management or
budgetary problems and do all that it can to help them address
the problems before they become unmanageable.
Last, I would like to comment on something that Ms. Gaffney
said, and it's concerning reaching consensus on HUD's mission.
Since it was created in 1965, HUD has grown to include some 240
programs and activities and hundreds of billions of dollars in
financial commitments.
Over the years, we and others have criticized the
inefficiencies in HUD's organization and the deficiencies in
its management. Leaders in the administration and in the
Congress agree that HUD must, at a minimum, be restructured to
better meet the Nation's housing and community development
needs.
HUD has proposed major changes, including consolidating
programs and devolving responsibility for program design and
implementation to States and localities. While some limited yet
significant improvements to HUD's existing program structure
have been made, a comprehensive re-evaluation of HUD's overall
mission and how it delivers its programs has not yet occurred.
This is even more crucial because, as you know, HUD is
going through a significant downsizing. It used to have about
13,500 employees not too long ago. Its goal now is to go down
to 7,500 employees, and there's a significant question about
HUD's capability to manage the myriad of programs it now
operates with such a small staff.
What is needed now is for the administration and Congress
to agree on the future direction of Federal housing and
community development policy and the best organizational and
program delivery structures to carry that out. This will
involve inherent tradeoffs between the needs of those seeking
HUD's assistance and other demands on the Federal budget.
That concludes my remarks, and we would be happy to answer
any questions.
[The prepared statement of Mr. Dyckman follows:]
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Mr. Shays. I thank you very much.
Before calling on Mr. Towns, I just have to comment that
obviously both of your testimonies seem to work in complement
with each other, but for you to say HUD's high-risk problems
involve weak internal controls, inadequate information and
financial systems, ineffective organizational structure, and
insufficient mix of staff with the proper skills, it makes you
wonder why anyone would want to be Secretary of HUD.
That's the background in which we have to solve the Section
8 problem, the background on which we have to make our local
housing authorities more viable and more efficient. It just
makes you wonder if we are going to be able to do it no matter
who is at the helm.
Mr. Towns, you have the floor.
Mr. Towns. Thank you very much, Mr. Chairman. I would like
to yield to Mr. Barrett, who has to leave.
Mr. Shays. Fine. In fact, we can just call on Mr. Barrett.
Mr. Barrett. Thank you, Mr. Chairman and Mr. Towns.
I look at the graph up there in terms of the Section 8
pressures and how it is going to conflict and cause us some
difficult decisions here, so I certainly don't envy the task
that you face, and, frankly, I envy even less the task that we
as Congress face in resolving those things.
But I would like to spend my time on my parochial issue, if
I may, please, and I apologize to the committee for doing that,
but I need some assistance from you on this.
If I could, the letter that I had sent over to the
Department in part reads, ``While it might be true that these
cases resulted in a minimal financial loss to the Federal
Government, the inspector general's decision fails to recognize
that owner-occupancy misrepresentations can result in real
damage to neighborhoods.'' And, unfortunately, it sends a
message that there is nothing wrong with swindling the
Government and abusing a system created to build healthy
neighborhoods as long as the Government doesn't have to pick up
the tab.
And, again, to sort of put this in a framework for you, we
had a situation where it was clear that there was an individual
that was representing that he was going to live in these homes.
The decision both at the national level and the local level
was, well, we got our money.
And I am hearing, of course, from the people in the
neighborhoods who say, we are trying to rebuild this
neighborhood and the response we get from the Federal
Government is, well, we don't care, we have gotten our money.
And I would like your insight or your thoughts on what we can
do to address that problem.
Mr. Shays. Could I just ask that, first, is this a problem
that both of you are aware of? I mean, it seems to be a pretty
serious problem.
Ms. Gaffney. I am certainly aware of it.
Mr. Dyckman. We haven't done any work directly on that
problem----
Mr. Shays. OK.
Mr. Dyckman [continuing]. Although I have read articles on
it.
Mr. Barrett. I don't mean to----
Mr. Shays. No; you misunderstand the purpose for my
question. You seem to feel that this is a parochial issue, and
I don't view it as that. I view it as a very serious issue and
am happy that you are raising it because there are a whole host
of reasons why this would be wrong.
We are trying to encourage home ownership, we are trying to
encourage neighborhoods to have people own the homes so they
care for it, and so I was wondering if you could just give us a
general overview before you answered the specific question.
Ms. Gaffney. First of all, I have no reason to believe that
it is parochial to your part of the country. I would assume
that it is all over the property disposition program that this
is happening.
I would just like to clarify, and I know, Mr. Barrett, you
understand this in our correspondence back and forth. What has
happened is, we in fact did look into this. We did an
investigation, and we found that the situation was exactly as
Mr. Barrett has related, and that is, people were representing
that they were going to--they were going to be owner-occupants
when, in fact, they had no intention of doing so, and they were
causing dysfunctional situations.
We took our investigative results to a U.S. attorney, who
declined prosecution on the basis that the Federal Government
had not lost any money, and also, I think--to be fair and blunt
about this--on the basis that HUD doesn't seem to care a lot
about this practice.
We then, when the U.S. attorney declined prosecution, went
back to HUD and asked them to take administrative action
against the person, and, to tell you the truth, I don't know
where that stands. I think you had proposed perhaps criminal
sanctions, some kind of increased penalties, for people who
engage in this practice.
What I don't know how to do is, first of all, we need to
get HUD concerned about this, because if you try to prosecute
and you don't have the program people saying they agree it's a
problem, it's hard to get prosecutors involved.
But second, unless we can get the prosecutors to accept the
cases, it doesn't matter what the penalty is. And I am
perfectly willing to work with you to get there.
Mr. Barrett. And clearly, I don't want to put people in
prison for doing this. What I want to do is, I want the problem
to stop, because, again, what I hear from the residents of
neighborhoods who are trying to rebuild the neighborhood is, it
can break the spirit of a neighborhood if you have people who
are putting money--and, frankly, if you have someone who is
going to lie on a form, like to the Government, chances, I
think, are going to be greater they are going to be a lousy
landlord. If this is how they treat the system, this is
probably how they are going to treat tenants as well.
I recognize where the U.S. attorney's office has bigger
fish to fry and there is no financial loss to the Government,
but then to have HUD say, well, it's a minimal loss, yes, it's
a minimal loss in dollar terms, but it makes me question what
the aims and the goals of HUD are. Is it just to run a balance
sheet, or is it to try to encourage homeownership, as the
chairman said?
Ms. Gaffney. Well, of course, it's the latter.
Mr. Barrett. But I would like to see the Department far
more engaged on this issue than it has been. And it's with
mixed feelings that I hear it's not a parochial problem. I am
sorry that it exists in places other than my community, but
maybe that's what we need to have in order to get the
Department to pay some more attention to the problem.
Ms. Gaffney. Mr. Barrett, I will help, but I am not the
Department. You know, we are going to have to try to do this
and get their attention together.
Mr. Barrett. I am looking for allies anywhere.
Ms. Gaffney. You've got it.
Mr. Barrett. I am happy to hear you are going to help.
Ms. Gaffney. OK.
Mr. Barrett. Again, I will yield back the balance of my
time. Thank you, Mr. Chairman.
Mr. Shays. Mr. Pappas.
Mr. Pappas. Thank you, ladies and gentlemen, thank you.
I have a couple of questions, really, that have been
conveyed to me from some of the county governments in the five-
county area that I represent in central New Jersey, and each of
them has experience in dealing with HUD and HUD programs,
specifically the Home Program and the Community Development
Block Grant Program. I am hoping that you could shed some light
on responding to some of their concerns.
There are many nonprofit agencies that, besides fund-
raising from the private sector, really depend upon some of the
funds through both programs for capital improvements, and I
know that there are some percentages that I believe--and
correct me if I am wrong--that there are Federal restrictions
as to the percentage of the overall amount that is given that
can be allocated for facilities or broad categories. You can
correct me if I am wrong in regard to that.
But I think more importantly is the difficulty that some of
these nonprofit agencies have. Many of them are operating with
mostly volunteers, maybe some who are part-time staff people,
who are providing some very critical service to--fulfilling
service needs for populations in my counties and throughout the
country.
A couple of weeks ago, when Secretary Cuomo was here, I did
compliment him that I thought that those two programs worked
well, but at the same time I do know, and it has been
reiterated to me, that some of the paperwork or some of the
reporting that some of these organizations have to follow can
become burdensome.
How can we address that while realizing that there has to
be some accountability for these public funds that are being
used, balance the need to have accountability but also realize
that there's a target or target populations that we are trying
to assist? And many of these community-based nonprofit agencies
play an important role in that social safety net.
How can we better do that?
Ms. Gaffney. I am surprised, you know. The two programs
that get the highest marks in HUD for being flexible and not
burdened with paperwork are Home and CDBG. So I am going to--I
am going to have to look into, or maybe you could, after the
hearing, tell me specifically what paperwork is bothering
people. But it seems to me that the paperwork in HUD
traditionally has surrounded compliance with endless rules and
regulations.
I think we need to have two kinds, paperwork and
monitoring. One, there has to be some financial accountability;
that's clear. And we need audits; I think we can all agree on
that.
I think apart from that, we just need to focus on what is
the purpose, what is the outcome, what are they supposed to be
accomplishing. And I think pretty much if we can verify that
they are accomplishing what they are supposed to be
accomplishing, we could ignore some of the processes that got
them there.
I think to date we tended to concentrate on the processes
and often ignore whether they actually got to where they were
supposed to.
I don't know if that's helpful.
Mr. Pappas. I know, and, again, I am a cheerleader as far
as both programs are concerned. I think they are both very
effective, but I know over the years, as I have dealt with them
in my own county government, that there are those organizations
that, for maybe a variety of reasons, are not able--they get
awarded the grants but they are not able to actually utilize
the funds, and then it gets reverted back, and then it is
distributed elsewhere.
And if the need wasn't there, then they wouldn't have
applied; and if the entities that were approving or did approve
the grant for that particular purpose, they evidently felt it
was an important purpose to be filled as well. So then there
probably have been a dozen instances that I can think of over
the years of programs that have not been completed or projects
have not been completed.
I don't know what the answer is. I am not just saying the
blame is all on HUD, but I know that there have been situations
out in New Jersey that we haven't been able to go from point A
to point B, and I am just wondering whether you, through your
offices, might try to learn if there is some consistent problem
that seems to be causing that more than one place.
Ms. Gaffney. I don't think we have ever looked at it that
way, but if you could give me some of those instances, we will
certainly followup and see if we can find some kind of systemic
problem.
Mr. Pappas. Thank you.
Mr. Shays. Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman.
Let me begin by saying, if Congress provides additional
budget authority to renew the Section 8 contract, what
regulatory or statutory changes would each of you recommend to
improve Section 8? Or would you recommend getting rid of it?
Ms. Gaffney. You talked before about caring about the
people who need help. With this program of these insured--the
multifamily projects that are both insured and assisted through
Section 8, we have a situation that isn't, it seems to me,
designed to benefit the poor people who need housing. This is a
situation where HUD takes all the risk through insurance. The
owners put in little equity. The rents are highly above market.
There's no incentive for the owners to maintain these
properties. So at least 66 percent--two-thirds of them are
above market rents. At least 25 percent of them are in
extremely distressed situations.
It seems to me that if we are going to go forward with this
program of project-based assistance, Mr. Towns, everybody seems
to think of the multifamily housing program as a private sector
housing program, but we have insulated the owners from every
private sector motivation that exists. If we are going to go
forward with this type of housing that is tied to particular
owners and particular projects, I think we'd better introduce
some market incentives, because otherwise we are going to be
right back in the same position in another 5, 10, 20 years.
That's what I think.
Mr. Towns. Thank you, Ms. Gaffney.
Mr. Dyckman. I just want to say something general, and then
I will turn it over to Mr. Hale.
In the past, we have looked at the cost of Section 8
versus, say, public housing, to see whether or not it's
advantageous to go to a vouchering-out system. And there are
all kinds of implications of doing that. Cost, of course, is
one of them, but you really have to look at each project
separately. Some public housing turns out it is cheaper than
Section 8. In different parts of the country, depending on
housing availabilities and prices of rents, in some cases,
Section 8 is less expensive than public housing, so you really
have to look at it on a case-by-case, city-by-city basis.
Mr. Hale. Mr. Towns, just to add to that and to pick up on
what Ms. Gaffney said, in terms of this whole mark-to-market
portfolio re-engineering initiative where we are proposing to
reduce the Section 8 subsidies on multifamily properties by
writing down mortgages on those properties and then also
perhaps providing some sort of tax relief to owners, I think
when we are doing that we need to make sure that we are looking
at not only the interest of the owners but the interests of the
residents and the Federal Government as part of that.
Two things in particular I think that ought to be looked at
very closely are: One, when we are going to do that, we should
not be offering those kinds of advantages to owners and
property managers who have not done an adequate job of
supporting the housing that they own and maintain; and, second,
I think we ought to look at what kind of commitment we are
going to get out of owners when we do that in terms of
maintaining the long-term affordability of that housing for the
residents. If we are offering something to the owners, we also
should get something that makes sense in terms of the
Government and the residents out of that deal.
Mr. Towns. OK. Thank you very much.
So it is really a problem that you would have to address
sort of almost on a regional basis?
Mr. Dyckman. Well, the----
Mr. Towns. I am really trying to understand how we save
some money and at the same time provide quality kind of
housing.
Mr. Dyckman. It depends on what Section 8 issue we are
talking about. If it is a project-based mark-to-market issue,
then the issues are a little bit more focused. But if it is
concerning taking people from public housing and vouchering
them out into Section 8 tenant-based, that might be a different
set of issues, and that's what I was addressing in my comment.
Mr. Towns. Right.
Ms. Gaffney. Can I try to tell you how I see this?
Mr. Towns. Sure.
Ms. Gaffney. The proposal, in very general terms, for
portfolio re-engineering and the way they want to save Section
8 money is, they want to--the HUD wants to mark these mortgages
down to the point where the projects can operate at market
rents. That means that the Federal Government is going to have
to pay a very substantial amount of money. And then, as I
understand it, the owners are going to be able to come back and
get HUD insurance for their projects, and they will continue to
get Section 8 for their projects, and we will start all over
again.
Now, how did we get where we are today? We got to where we
are because the rents kept increasing. HUD kept raising the
rents above market every year. It would seem to me, we still
haven't heard how HUD intends to stop doing that.
The more important thing is, we are looking at a situation
where the owners had no particular motivation to maintain these
properties. They had no equity. They are still not going to
have any equity. So we have got to change the design if we are
going to save money and if we are going to have affordable
housing that is decent; we can't just do it again.
Mr. Towns. Right.
One more question, Mr. Chairman?
Mr. Shays. Yes.
Mr. Towns. I notice the light is on.
Ms. Gaffney, on your written testimony you indicated that
HUD does not have efficient and effective financial management
systems. Is that because HUD lacks the expertise to design
these systems or because HUD lacks the money to purchase them?
That's not clear to me.
Ms. Gaffney. I think the answer, the basic answer, is that
HUD has lacked the will to have such systems because it has not
attached priority to having such systems. And that goes back
to, the people who have been concerned about having integrated
financial systems are kind of the management people in HUD. You
know, that's the accountants and the IG and the administrative
people. But the program people have had more important things
to do. And so there has been a disconnect in getting those
people together and making it a Departmental priority. I think
that's what Mr. Cuomo plans to change.
Mr. Dyckman. If I could just add, I agree completely with
the answer Ms. Gaffney gave. As a matter of fact, in 1984 we
issued a management review of HUD in which we identified a lack
of commitment even then leading up to, I guess, the current day
in terms of the problems with and the causes for inadequate
financial management systems.
But also I think part of it is also trying to identify your
needs and matching your needs with the systems that the
people--that the managers need to manage their programs. I
think there hasn't been a commitment actually to do that until
possibly recently.
Ms. Gaffney. We have spent huge amounts of money on
systems, huge.
Mr. Dyckman. It hasn't been the lack of resources, I don't
believe.
Mr. Towns. The resources are not the problem?
Ms. Gaffney. No.
Mr. Dyckman. I mean, surely you could always use more
resources, but I don't think that's the crux of the problem.
Mr. Towns. The reason I am really sort of staying with this
is that the Secretary indicated that he was going to, I think,
eliminate, I think, 7,500 employees--or, no, the level would be
7,500 by the year 2000.
Ms. Gaffney. Correct.
Mr. Towns. And then I am listening to all of these
problems.
Ms. Gaffney. Right.
Mr. Towns. And then I am thinking about the fact that half
of the people that are there now will be gone, and for some
reason I am beginning to think there would be more problems if
you eliminated half of the people that are there.
Or do you feel that you just have a lot of people around
who don't know what they are doing, so it doesn't matter?
Ms. Gaffney. Not at all. Not at all. That's what I was
trying to say to you before. What has happened is, the staff
cuts have been made in a totally arbitrary fashion, unrelated
to any idea of what that would mean programmatically.
I would say to you, though, that in the systems area,
clearly there's going to be a whole big movement to contracting
out. I would think, and that's going to raise a whole other set
of difficulties because you almost need more highly skilled
people to contract out than you need to do it in house, and I
don't know if that has been addressed.
But of all the areas that are amenable to contracting out,
systems development and implementation is one of the better
ones, because that is an area where HUD has difficulty keeping
top-flight expertise on staff.
Mr. Towns. I am going to close. I wasn't much of a baseball
player. When I came to the plate, I used to strike out all the
time. I want to know what you mean by, ``Congress and HUD both
need to step up to the plate''? What do you really mean by
that?
Ms. Gaffney. What I mean is, I don't think to date that the
Congress has accepted responsibility that it has to solve its--
it has to do its part to solve these problems. It has been--
there have been arguments between the House and the Senate.
There has been a lot of negotiating.
But no one has said, this is out of control; we are going
to enact legislation to solve this; nor has HUD, for its part,
said, until Secretary Cuomo said it, this is out of control; we
are going to do our part to solve it. It simply hasn't
happened.
Mr. Towns. Thank you, Mr. Chairman, for your generosity.
Thank you.
Mr. Shays. Thank you.
Mr. Snowbarger.
Mr. Snowbarger. Thank you, Mr. Chairman. It's nice being a
freshman when Congress is being attacked for your past
activities.
Mr. Shays. You only get to enjoy that experience once.
Mr. Snowbarger. I understand that. I understand that.
And so that I can figure out to you how to get us out of
this mess and not be caught with the same accusations, I want
to followup. It seems to me--and the question, I think, is two
parts for both Ms. Gaffney and Mr. Dyckman.
You have mentioned two areas where Congress needs to step
up to the plate, not just to this general, overall, it is out
of control thing, but one thing I think that Ms. Gaffney
mentioned was, in the area of mission, that Congress needs to
be a part of that answer, and the other part of it is
questioning the will of HUD to carry out the mission once it
has been given one.
I would like to hear your comments about what you think
Congress' role needs to be at this point in time in addressing
both the mission and HUD's will. We have talked about more
incentives for the landlords. What are the incentives for HUD
that we ought to be looking at to carry out the will--that we
might address its mission?
Ms. Gaffney. The type of legislation that I am talking
about is, there have been bills introduced in the Congress now
for the past 2 years to--I don't have this number, but we are
now in the business in public housing of providing grants,
discretionary grants. And I have no idea; there must be 50
different types of programs under public housing under which we
are giving grants. They are little things. It's like the Tenant
Opportunity Program, and they are--people call them boutique
programs.
And typically, what we do is, we provide all these
different types of programs and funds, and then we regulate how
the housing authorities administer those funds by the 50
different categories. There have been bills over the last 2
years that would essentially consolidate those streams of
funding, give more flexibility to the housing authority in
terms of how they spend the funds and then exact more
accountability at the end for the results they achieve.
Now, I find it very difficult to understand why legislation
like that. Why--we desperately need that? We can't, with the
dwindling staff, administer all of those.
The other big area where we must have congressional action,
which is clear from that chart, is in this whole Section 8
area. Legislation has been introduced in that area also, I
think, for 2 years, and the Congress has not acted.
I would tell you, this Section 8 business has lots of--what
shall I call it--interest. I mean, there are a lot of
interested parties.
Mr. Snowbarger. Yes, I have heard from them.
Mr. Dyckman. You know, I took a look--in preparing for this
hearing, I read over HUD's fiscal year 1998 budget
justification. I have to tell you, if you read that budget
justification, it looks like it is an expanding agency. It
doesn't look like it's an agency that's trying to focus in on
its core missions.
Now, I recognize that it's a policy decision to be made by
Congress with assistance from the administration in terms of
what is HUD's mission: How many programs do you need to provide
homeownership opportunities? How many programs are necessary to
provide tenant opportunities programs?
Those are all good programs, but the issue is, when you
have an agency that has internal control programs, when they
are downsizing, when they have management systems that can't
help managers make key decisions, when they cannot get a--not
only a clean opinion but any opinion on their financial
statements--Ms. Gaffney can attest to that because she audited
them--I think you have an agency that really has to examine its
mission, and I think the Congress has a role in doing that.
Now, GPRA, the Government Performance and Results Act, one
of its objectives was to help Congress in a consultation
process with the agencies when the agencies start to define
their missions to come up with strategic plans in how to
measure outcomes. I think that would be a very good opportunity
in addition to the normal type of oversight hearings that
should be held and are being held. I think there's ample
opportunity.
Now, of course, on a case-by-case basis, you have different
programs that need oversight, but I think in a general nature
there is an opportunity for Congress to be part of the
solution.
Mr. Snowbarger. First of all, I don't know that either one
of you addressed the incentives that Congress might be able to
use to sort of reinforce the agency's will to carry out the
mission. And you are welcome to do that in the next question.
Since you avoided it the first time around, you may want to
avoid it the second time around, too. One mention was of 50
different programs, and earlier, I think, both of you indicated
there were 240 separate programs.
Mr. Dyckman. Or activities.
Mr. Snowbarger. Is Congress the source of each one of
those?
Ms. Gaffney. No. Most of them, but not all of them.
Mr. Snowbarger. And so what you are suggesting is that
Congress should be taking a look, as we have in other areas, at
combining those to see if we can't make them more efficient
through adding flexibility or granting flexibility?
Ms. Gaffney. Yes, yes. And I think there are instances
where the Congress--and this is a bitter pill to swallow--
should also be considering whether we should terminate some of
these programs. And let me give you a couple of examples of the
kind of business HUD is in that you might not know about.
HUD insures mortgages for hospitals and for nursing homes,
and hospital mortgages in these days of major changes in health
care have become increasingly risky. But, listen, someone has
to insure hospital mortgages.
I am not opposed to insuring hospital mortgages. I think it
is legitimate to ask, is that HUD's role? Maybe HHS should be
doing that, or maybe the private sector should be doing that.
So, apart from just consolidating, there are questions about
terminating, one would think, too.
Mr. Snowbarger. Mr. Chairman, if I can ask one more
question?
Mr. Shays. Sure.
Mr. Snowbarger. It goes back more specifically to the
Section 8 question, or the issue. Last week, when Secretary
Cuomo was in, he mentioned--and I believe maybe, Ms. Gaffney,
in your testimony you mentioned that there are places where we
are paying 200 percent of fair market value on rents, which I
found just amazing. I couldn't figure out how in the world we
ever got into that, but apparently it was fairly--the Secretary
indicated it is fairly common that we be paying much higher
than market rents.
He indicated that the reason for those were basically the
contracts that HUD entered into in the first place, at least
provisions in those contracts that provided for some kind of
escalator, an automatic escalator.
Why didn't we catch all of these things sooner? How did we
end up at a point where we are paying 200 percent on rents?
And frankly, if we are getting ready to renew some of those
contracts, are we going to be able to back out of the situation
where we are paying 200 percent, or are we going to be stuck?
because someone will say, if you pay me 200 percent, you can
have the property back; we don't necessarily want the property.
Ms. Gaffney. You are absolutely right. You know, this
situation is no surprise. People have known about the
increasing rents, above market rate, for years. They knew it
when they were doing it.
Mr. Snowbarger. They understood when we entered into the
contracts that they were likely to escalate beyond fair market
value?
Ms. Gaffney. It is not clear to me that HUD was locked into
doing precisely what it did by the original contracts. The
reason I question that--I am going to have to find out--is
because we, the Office of Inspector General, and HUD for some
years now have been trying to get the Office of Housing to
change the way it does annual rent adjustments, because the
annual rent adjustments are like an escalator. And they have
been unwilling to work with us to come up with a new approach.
What bothers me is that HUD is now doing a mark-to-mark
demonstration, and we said to them, now is the time to define a
new way of setting the annual rents. They still do not have the
methodology. So that is what scares me about the future. We
still do not have a different way of doing business, and I am
afraid we are going to get into this same situation again.
Mr. Snowbarger. Mr. Chairman, could we allow Mr. Dyckman
some time to respond to that as well?
Mr. Shays. Sure. Definitely.
Mr. Dyckman. Yes. Again, it is my understanding that these
rents were legally arranged and came about simply through
incentives in the contracts. Mr. Hale is going to explain it a
little.
Mr. Hale. Mr. Snowbarger, most of the problem with this
comes under a program that was called New Construction and
Substantial Rehabilitation. As you probably know, it started in
the 1970's and lasted up until 1983, and when that program was
underway, people knew going in that the rents on these
properties were, to a large extent, higher than market rents,
and that was done for a couple of reasons. One, it was to try
stimulate the housing industry; and, two, it was done so that
you could build high-quality housing in neighborhoods that were
not so good. As one of my colleagues has termed it, you would
build an $800-a-month apartment in a $500-a-month neighborhood.
The second thing that has compounded this is that the
annual adjustment factors that are used to mark up the rents
over time, as Ms. Gaffney pointed out, also were very generous,
and they made the problem even worse, so that now we do end up
with the problem that over 70 percent of the properties have
rents that are more than 120 percent of the market rents that
those properties could actually support.
In terms of legal obligations to renew those, it is not so
much a legal obligation as the concern is that if you renew
them at substantially lower rents, that a great many of those
properties would default.
Now, as you also know, in the fiscal year 1997 HUD
appropriations bill, those rents were capped at 120 percent of
fair market rents, and properties were given the choice of
either one of two things. If you were an owner, you could try
to get down and make that property work at 120 percent of the
FMRs; or, second, you could enter into this voluntary portfolio
re-engineering demonstration program, where if you entered into
that, then they would reduce your rents down to market rents,
but also then make an adjustment in your mortgage to try to
allow the property to survive at those lower rents.
Ms. Gaffney. But, Rick, could I just say something?
Mr. Hale. Sure.
Ms. Gaffney. That is at a point in time, that is when you
do the market to market, that is the portfolio re-engineering.
What you need to be concerned about is what happens in the 20
years that follow in terms of how rent increases are going to
be set, and that has not been refined.
Mr. Hale. No, and Susan is absolutely right. I mean, if we
are going to do that, we should not leave everything else the
same so that we still have owners that are not caring about
their properties, we have HUD with no ability to enforce these
properties, to maintain them as decent, safe, and affordable
housing and to make sure that the rents remain affordable, that
they do not constantly continue to creep upward over the next
20 years, or, as she said, we will be back in the same boat
that we are in now, only we will have gone through a massive
effort to get there.
Mr. Snowbarger. Well, frankly, the thing that concerns me
more about what you have said than anything else, Ms. Gaffney,
is that you have not been getting cooperation in terms of
trying to deal with that problem, and it goes back to the whole
question of the role of those within HUD to either cooperate
with you or cooperate with us when and if we are able to change
the programs.
Thank you, Mr. Chairman.
Mr. Shays. Thank you. They were very helpful questions and
helpful answers.
I have a number of questions that I do not think will be
long answers; then I want to get into some detail on a few
issues.
My sense is, from hearing the Secretary and listening to
both of you, that taking management structure aside and systems
aside, our two main focuses need to be--maybe three--Section 8,
the Public Housing Authorities, the troubled public housing
authorities; and, third, I might add, but it is related to
management, obviously, too many programs with too few
resources. Would you add anything to that list? I realize that
there are a lot of other issues that you could look at.
Ms. Gaffney. There are, but I think you are correct that
those are the major----
Mr. Shays. Mr. Dyckman.
Mr. Dyckman. There are other problems at HUD. We have
issued many reports and recommendations concerning many of the
other programs, but those are the key problems, in my
estimation.
Mr. Shays. Well, since there are many others, I am going to
ask each of you to add one to the list that I have given you.
The Section 8, the Public Housing Authority, and too many
programs with too few resources. What would you add?
Mr. Dyckman. I would probably add that restructuring of
FHA----
Mr. Shays. OK.
Mr. Dyckman [continuing]. Whether or not the Government has
to ensure 100 percent of the mortgages for single-family homes,
and also FHA's multi-family insurance program, whether it is
necessary.
We are doing a review, I might add. I have a parochial
interest in saying that.
Mr. Shays. The bottom line is FHA.
Mr. Dyckman. The bottom line is, yes, whether FHA needs to
be streamlined or should the status quo remain or made into a
different government organization?
Mr. Shays. Separated from HUD.
Ms. Gaffney. Indian housing programs.
Mr. Shays. Secretary Cuomo talked about farming out the
responsibility for dealing with the Section 8. While I did not
share it with him at the time, I was thinking, my gosh, the
danger is that we will be back in the whole Section 8 problem
of friends who will get these wonderful contracts to do that
negotiation. Would that be a concern?
Ms. Gaffney. What was the----
Mr. Shays. I want to make sure that I am describing it
correctly, but basically one of his suggestions as a
possibility is they bring in outside consultants to deal with
this problem in various areas around the country, and we know
what outside consultants sometimes mean at HUD. Do you have
that similar concern?
Ms. Gaffney. Oh, contracting out is a major concern to me,
because it is clear to me that generally people think
contracting out is an easy way out. We are just going to get
other folks to do our work for us, you know.
Mr. Shays. Right.
Ms. Gaffney. But, clearly, the oversight and the amount of
work involved in defining the work to be done and overseeing it
is incredibly important, or you are just going to be taken for
a ride.
Mr. Shays. Just try to imagine. I did not mean facetiously
if I were Secretary, I cannot imagine why someone would be
Secretary, because I know that Mr. Cuomo, Secretary Cuomo
enjoys the challenge, but it is almost massive because of what
Joe Hale has talked about, the high-risk problems in terms of
what I consider the structure and management of HUD. Mr.
Dyckman, when you said 240 programs, I forgot, Ms. Gaffney, if
you agreed to the 240.
There is a very strong argument that HUD has to look at
interdisciplinary problems--crime, security, recreation for
kids. They all interact, because kids who are not going to have
activities may end up just playing on the elevators and
wrecking them in the process.
So I understand why there needs to be an interdisciplinary
approach, but that notwithstanding, I tend to sense that maybe
one of our recommendations is going to have to be that based on
your comments you all have made with your years of experience,
that HUD may have to just totally refocus on the core programs,
deal with the public housing, deal with the Section 8, and ship
out a lot of these other programs, and maybe block grant it,
which becomes somewhat controversial to some on your side of
the aisle more than mine.
Now, is your sense that in focusing on the core programs,
that they are going to have to drop some programs, consolidate?
Ms. Gaffney. Yes. Absolutely, yes.
Mr. Shays. Would you agree with that?
Mr. Dyckman. Yes. Well, yes, it is not so much that they
have so many programs, but they seem to have so many programs
doing the same thing or very similar things, so I am not
suggesting that HUD get out of the business of public housing
or vouchers, but why do you need vouchers and certificates? Why
do you need so many different mechanisms to deliver the same
thing?
So, in a sense, it is consolidation, but it may not
necessarily take them out of the basic services that they are
providing right now but just to focus better.
Mr. Shays. But what I get is a sense that Congress has
provided a few new programs over the past few years, but we
have not really provided a critical mass of funds, so we have a
lot of programs but not really truly well funded.
Mr. Dyckman. Well, if a small program requires resources by
the agency to oversee it if they are going to do a good job,
sometimes it does not cost any more money to oversee a large
program versus a small program. I think that is part of their
management problems.
Now, in terms of whether they have enough budgetary
authority to solve the problems of the cities, of course, they
do not, but are we wealthy enough to put all our resources in
solving one set of social problems? That is another issue that
Congress has to face, obviously.
Mr. Shays. We are going to get to the next panel, but the
purpose of today's hearing is to just kind of give us an
overview; and clearly with HUD, we could focus on a lot of
other issues, but we are just trying to--we want you to do
exactly what you are doing, and that is put the emphasis on the
biggest problems.
But I do not understand about the Section 8, and I do not
know if this is the budgetary language that is screwing me up,
but obviously if you are paying a certain subsidy right now to
the Section 8, I do not understand why it costs us more money,
my mind says, to renew. Why more money to renew? Why can't it
cost less?
Ms. Gaffney. I am going to try, because this is the budget-
authority-versus-outlay discussion. I think that is what it is.
Mr. Shays. All right.
Ms. Gaffney. The crisis is in budget authority, and budget
authority is essentially expended at the time of obligation.
Mr. Shays. So the authority is ending, and, therefore, from
a baseline it is down to zero. In terms of actual outlays----
Ms. Gaffney. Actual outlays are not changing at the same
rate--there is not a crisis in outlays. They are much too high,
and they are increasing steadily. It is the budget authority,
because the budget authority for some of these contracts was
provided 20 years ago----
Mr. Shays. I understand.
Ms. Gaffney [continuing]. Thirty years ago in time. Right?
So, now, it is all having----
Mr. Shays. Let me ask one other question in regard to this.
While I am not looking to increase the amount of public
housing, but in one sense, if you have a landlord who owns
property, particularly in a community, we are paying him twice
the true market rate to carry the property. Why does not HUD
just say, ``Goodbye; you can foreclose; we will just take it
over as public housing,'' and then over time recondition it as
their property and hopefully get better benefit? I do not
understand why we would reduce the mortgage requirements of the
owners of these buildings, give them the benefit, and then
just----
Mr. Dyckman. It is a tradeoff, because you have--if you do
not do something, you may have a foreclosed property, and the
Government is afraid that they will take a bigger hit.
Mr. Shays. OK. I guess it is the bigger hit issue. Yes?
Ms. Gaffney. I think there are two answers. One, HUD has
traditionally been reluctant to pay insurance claims, and that
means----
Mr. Shays. It is an up-front sum, is the problem.
Ms. Gaffney [continuing]. That the driving concern has been
the financial situation of the insurance fund. But there is
another consideration, and that is HUD has not been eager over
the years to take enforcement actions of any type against these
owners. That is a clear record.
Mr. Shays. Let me just make sure that you all feel
comfortable or are assured that we are going to focus a good
deal of our time on the Section 8 issue, very up front, and
hopefully make some recommendations. In our report we will talk
about some of our concerns as well of what we do not want to
see HUD do. We are going to need both of your help in that
regard.
Mr. Towns, are you all set?
Mr. Towns. No further questions. I would like to thank the
panel for your help.
Ms. Gaffney. Thank you, Mr. Towns.
Mr. Shays. Well, we enjoy working with----
Ms. Gaffney. Nice to see you.
Mr. Shays. I would just add as well that both of your
organizations, the people in them have been tremendous to work
with, and we have appreciated the cooperation we always get
from you and feel that we truly are partners in this effort,
and it is nice to have such good partners.
Ms. Gaffney. Thank you.
Mr. Shays. At this time, we will call on Charles Masten,
the Inspector General of the Department of Labor, as well as
Carlotta Joyner, who is the Director of Educational Planning
Issues, General Accounting Office. You both are accompanied by
one other individual each, John Getek----
Mr. Getek. Getek.
Mr. Shays [continuing]. And Dr. Harriet C. Ganson. So we
will swear all of you in, if you would remain standing. Raise
your right hand.
[Witnesses sworn.]
Mr. Shays. Thank you. For the record, we will note that all
four have responded in the affirmative. This now is the focus
on the Department of Labor, and we really appreciate all of you
being here. I am sorry we have kept you waiting a bit, and I
think we will do it as I called. We will start with the
Inspector General, and then we will go to the General
Accounting Office.
I am going to leave here for about 5 to 10 minutes, and
then I will be back; but what I think I will do is hear your
statements and then go. So, Mr. Masten.
STATEMENTS OF CHARLES C. MASTEN, INSPECTOR GENERAL, DEPARTMENT
OF LABOR, ACCOMPANIED BY JOHN GETEK, ASSISTANT INSPECTOR
GENERAL FOR AUDIT; AND CARLOTTA C. JOYNER, DIRECTOR, EDUCATION
AND EMPLOYMENT ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED
BY HARRIET C. GANSON, ASSISTANT DIRECTOR, EDUCATION AND
EMPLOYMENT ISSUES, GENERAL ACCOUNTING OFFICE
Mr. Masten. Thank you, Mr. Chairman and members of the
subcommittee. Thank you for inviting the Office of the
Inspector General to discuss management and programmatic issues
facing the Department of Labor. I now possess a different role
in my capacity as IG, so my views will be my views and not
necessarily the official views of the Department or the
official views of the IG.
Mr. Shays. OK. That is what I thought. I just wanted to
make sure they are not your personnel views.
Mr. Masten. The views of the IG. I will summarize the four
issues that I have detailed in my statement and ask that my
entire statement be submitted for the record.
Mr. Chairman, one of the most important issues facing the
Department is improving the effectiveness and efficiency of job
training programs. While programmatic and legislative
improvements have been implemented over the years, our audits
of these programs continue to identify recurring problems,
especially with respect to program performance and grant
management.
Our most significant findings continue to be those programs
generally result in short-term, low-wage jobs. It is my opinion
that job training service will not be maximized, nor costs
minimized, without adequate performance accountability and
oversight of grants by the Department.
The second issue that continues to require major
departmental and congressional attention is that of ensuring
the safety of pension assets, which now total close to $3\1/2\
trillion. Specifically, the Department must be effective in
ensuring that pension funds are deposited fully to the worker's
account in a prompt manner and that these funds are safe while
being held in trust by the plan administrators, service
providers, or trustees.
Our main recommendations are, No. 1, repeal the ERISA's
limited-scope audit provision, which results in inadequate
auditing of almost half of the $2 trillion in pension assets
that are subject to the ERISA audit requirements; and, two,
that the public accountants and plan administrators be required
to report serious ERISA violations directly to the Department
in order to ensure that these violations are reported promptly.
It is my understanding that the administration is once
again working on introducing a proposal that will address both
of these recommendations.
From an investigative perspective, the OIG continues to
focus on identifying abuses by service providers,
administrators, and others, with respect to union pension funds
and investment activities. In fact, my office is currently
conducting investigations of more than $200 million in pension
assets that are suspected of being abused or defrauded.
The third issue facing the Department would be implementing
two major statutory mandates, the Government Performance and
Results Act (GPRA), and the Health Insurance Portability and
Accountability Act (HIPAA). The main challenge for the
Department with respect to GPRA will be ensuring that program
agencies develop outcomes-based performance measures needed to
assess program impact and that its financial systems are
adequate to generate the needed financial and cost information
of DOL programs.
With respect to HIPAA, DOL was given significant additional
regulatory disclosure and enforcement responsibility related to
its administration of ERISA, as well as enhanced authority in
the Government's effort to combat health care fraud.
The challenge the Department will be the rapid
implementation of its provisions while educating the public on
the many requirements and protections, and then enforcing
compliance with its requirements. And as the primary criminal
investigative entity in DOL with respect to HIPAA fraud, my
office will be faced with meeting our statutory
responsibilities while providing adequate coverage to other
priority areas as our resources continue to erode.
Finally, as far as the Unemployment Insurance System, we
have three major concerns. The level of fraud activity related
to this program, particularly as a result of fictitious
employee schemes; two, the Department's ability to ensure that
SESAs convert their computer systems to be ready for the year
2000--not to do this could create inaccuracies in calculating
the length and amount of benefits, worker eligibility, and
employee tax rates--and three, DOL's recent policies that
essentially permit the States to provide electronic access, for
a fee, to State UI wage record information for the purpose of
consumer credit verification.
That concludes the summary of the four areas in my written
statement, and we are prepared to answer any questions any of
you may have.
[The prepared statement of Mr. Masten follows:]
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Mr. Shays. Thank you very much. Ms. Joyner.
Ms. Joyner. Yes. Mr. Chairman, members of the subcommittee,
we, too, are pleased to be here with you today to talk about
the challenges facing the Department of Labor in carrying out
its mission. There are two major challenges that I will
summarize briefly and, I have a longer statement, which you
have received already.
The first of these is the challenge to provide effective
employment training programs that meet the needs of the diverse
target populations and to do so in a cost-efficient manner; and
the second is to ensure worker protection in a way that is in a
flexible, regulatory structure.
I would also like to talk about how we believe Labor's
ability to meet these challenges will be enhanced by the
improved management initiatives that are envisioned by recent
legislation.
With about $34 billion and 16,000 staff in fiscal 1997,
Labor's programs touch the lives of nearly every American
because of their breadth, from job training to helping people
get jobs, income security when unemployed, and working
conditions when employed. We have provided a chart over here
that gives some information about this.
Just as an overview, as a reminder, there are 24 different
units into which the Department is organized. The chart over
here does not show the over 1,000 field offices around the
country, which, in addition, carry out the mission of the
Department. It also does not show, as a chart could not, the
extent to which these activities are decentralized in nature.
For example, assuming the information one might want to
have, such as the non-billable Fed offices, where they are on
the staff, that kind of information is available only from the
individual units, not from the central office.
As you can see, on the chart--I do not know if you can see
that well--would it be helpful to tip that a little bit?
Mr. Shays. The chart is a little small, if we just lift it
up right over here, Chris. Maybe somebody could help you.
Ms. Joyner. OK. Good. What I will be talking about is the
yellow marks around the middle of the chart, so I can direct
your attention there, if that helps, to the program activities.
Well, you see, that is the problem. There are so many units
that the text has to be so small that you cannot see it.
Mr. Shays. OK. Flip the bottom down there. You can slide it
down a little bit, and then we will be all set. Good. Thank you
for asking.
Ms. Joyner. All right. We would hate to spend the money and
make the chart and have you not be able to see it.
Mr. Shays. That is all right. I am happy you are doing
this.
Ms. Joyner. OK. If you look at the middle level, on
``Program Activities,'' the Bureau of Labor Statistics is the
one to the far left. Obviously, that has an important role in
gathering information on labor statistics, including the CPI.
Of course, there is a major issue now as to how to revise that.
But we will be focusing more on the other program offices to
the right of that.
The two offices responsible for the work force development
activities are the Employment and Training Administration, the
second box and--all the way to the right--the Veteran's
Employment and Training Service. The charge that these two
offices within Labor face in mainly the work force development
mission is that they are doing this in the context of many more
programs than just the ones for which they are responsible.
If you will recall, the last time we testified here, we
pointed out the 163 different employment training programs
under 15 agencies. All 37 of these at that time were not even
in the Department of Labor. We have not gone back to recount
those or to recalculate the $20 billion estimated for those
programs at that time, but what we do know is that a problem
remains that instead of there being a coherent work force
development system to meet the needs of people in this country,
we have a fragmented system with some of those overlapping
target groups and questionable outcomes. This has been said
before as well.
Now, as you know, consolidation legislation was considered
in the last Congress, and you would have had some interest in
that. The Congress was unable to reach agreement on how to
consolidate the programs.
The Labor Department has moved ahead with this to try to
help the States, who themselves have tried on their own to
integrate these programs. The Labor Department has used
initiatives, for example, one-stop career centers, and has
tried to the extent that it is possible without the legislative
change, to try to overcome this kind of fragmentation. But that
has not been enough to fix the problem. It has also implemented
consumer initiatives to get more information about the outcomes
of some of the programs.
But as you are aware, too, with the recent welfare reform
legislation, even more people will be needing assistance in
getting jobs and being trained for jobs, and the system really
is not there to help them. In the Washington Post this morning,
there is an article about the difficulty that employers face in
trying to bring people off the welfare rolls into jobs, and the
biggest problem--and it is not a surprise to us--is it is not
so much the skills, it is employability. That is something that
we have addressed in one of our reports, and, in fact, I have
testified on that matter once before this subcommittee on the
need to focus on employability skills as well as specific job
skills.
Another major challenge has to do with worker protection
issues; that is accounted for by the other four agencies on
that row of program agencies on the chart: Employment Standards
Administration, Mine Safety and Health, Occupational Safety and
Health, and Pension and Welfare Benefits Administration. The
major challenge here is to provide this regulatory oversight in
a way that is less burdensome and at the same time more
effective.
The Department, again, has made some progress in this
direction, and OSHA, for example, illustrates some of that,
with much more partnership initiatives with companies to
supplement their tradition enforcement approach. But that has
not been without criticism and without some difficulties there
as well.
We have also pointed out some opportunities for them to
leverage their resources through sharing information with
contracting agencies. What we found was over $38 billion in
Federal contracts were going to 261 companies that nevertheless
had been cited for significant penalties for safety and health
violations. And so we have made some recommendations to extend,
if you will, their opportunities in that way.
In worker protection as well, congressional action poses
some new challenges and some new activities for them. The
Congress awarded them additional funds last year to examine
ways to substantially improve their wage determination process
under Davis-Bacon, a controversial law. They are now launched
into a major effort to try to find better ways to do that, and
while this has been previously mentioned, they have new
responsibility under the health insurance portability law to
establish some regulations and subsequently to enforce them.
I really do think that some improved management practices
will help them meet both of these challenges. The Government
Performance and Results Act, as has been mentioned, is really
the centerpiece for that, for moving Labor, as other
departments, to a more results-focused, results-oriented
management.
And there are other pieces of legislation that have been
employed in parts of that. The CFO Act, the Chief Financial
Officers Act; the Paperwork Reduction Act, and Clinger-Cohen.
Together these will put them in a position as they move to full
implementation with these, to do several things that are
crucial: to have some integrated information about their
mission and strategic priorities, the performance data to
evaluate their performance toward those goals, to relate their
information and resources and technology to those goals, and
then to have some accurate and audited financial information
about how they are spending their resources toward those goals.
Labor is taking some action in these directions. We feel
that this mission is an urgent one. I am sure you share that
concern about people when they are unemployed, when they are
injured in the work place, about employers trying to find
competent workers and understand the regulations that they are
having to deal with, and then the potential of wasted money
that we really cannot afford to waste. So we are very
encouraged and hope that these management approaches will help
them do better.
[The prepared statement of Ms. Joyner follows:]
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Mr. Shays. Thank you for your comments, and we will begin
with Mr. Towns.
Mr. Towns. Thank you, Mr. Chairman. Let me begin with you,
Ms. Joyner. You have had the opportunity to evaluate a lot of
training programs during your tenure. What would you consider
one of the best programs? Could you give, say, like some
programs that you think are doing well that you have evaluated?
Ms. Joyner. Well, there are several ways to look at the
data. I think that the more or less recent studies that we have
issued, what we did was look at not a fundings-free program,
that is not to say whether it is JTPA, Title II(a) or Job Corps
or anyone of those, but what we tried to do was to look at
individual programs onsite and to see where they seem to be
successful and what really made them successful, and we think
that kind of critique is useful, particularly more so than
trying to see whether all the programs funded in a certain way
are useful--are really working.
And as I mentioned before, in our work on strategies used
by successful programs, we identified four key characteristics
that seem to be common to them. The Labor Department tells us
that they are now using that information, trying to distribute
that message through the JTPA programs, and then States are
using it as they are trying to integrate their work force
development activities.
I mentioned one of those, which was that the successful
programs seem to be those that focus on employability skills,
not just training them to be a welder, but how can they learn
to get to work on time and why that is important; to identify
the kind of barriers that face them, and to alleviate those
barriers, whether it is child care or transportation, that sort
of thing; and also to make sure that there is motivation to
succeed, either to bring into their program the priorities to
those people who are ready to change or help them develop that;
or when you are doing discreet-skills development, to tie it to
the local labor market needs rather than just train them in
construction even if there are no construction opportunities
where they have been trained.
Mr. Towns. Thank you. Youth programs have the same problem
that many of the other agencies have, training programs. They
are all over the lot. You have Veteran's Administration and
they are everywhere. Isn't that part of our problem, that we
cannot centralize them?
Ms. Joyner. Well, it is. You are referring probably to the
Table 2 in our testimony----
Mr. Towns. That is correct.
Ms. Joyner [continuing]. Where we talk about, at least at
that time, in 1995, the fact that there were 19 training
programs that targeted youth--not just that youth could be in
them, but really targeted toward youth; that seven of those
programs were in Labor and that there were five different
agencies----
Mr. Towns. In Veterans----
Ms. Joyner. A total of five. Right. And the same thing with
all of these. We think that is a problem. We think there are a
couple of reasons why the multiple programs is a multiple
series of problems. Again, although we cannot quantify the
amount, we are certain that there are administrative--we are
losing some money here administratively by running so many
different programs.
It also is very frustrating for the young person. Let's say
you want some job training. Where do you go? Which place do you
go to? And you may go to one, and it is not the right one, so
you have to start all over and go somewhere else, and so the
service quality is not going to be as good as if you had a more
integrated approach to work with this enrollment.
Mr. Towns. And I also think that in terms of duplication
problems----
Ms. Joyner. Oh, absolutely.
Mr. Towns. I think that is a real issue, and I think that
is something that we cannot afford the luxury of that anymore.
Ms. Joyner. That is right. To give you an example, one
instance that the one-stop centers are trying to avoid is in
the past when someone would go into one location, they might be
given a test to find out what their interests and their skills
were. They would fill in an application form, and then they
would be sent somewhere else to get one piece of their service
and do the whole thing over again.
And then if they need another service, another piece of the
total package of what they need, they would have to go to
another location, take another set of tests, fill in another
application form. There was cost involved as well as the
frustration to the person trying to get a service.
Mr. Towns. Based on the information that you have been able
to collect and that you say, in terms of what you feel makes up
an effective program, how do we get that information out to
job-training programs in the State?
Ms. Joyner. Well, we have been told by the Labor Department
that they have--well, they asked for many copies of our report.
I know that. I had their number at one time. And, in fact, when
I testified before this committee as a result of that study----
Mr. Towns. I remember.
Ms. Joyner [continuing]. The Assistant Secretary was here,
and he said he made a commitment to get it out, at least
through the JTPA system, and I believe he has, to the service-
delivery areas. They have more recently told us that as they
are working with States that are trying to approach job
training in a more coordinated way, that they are supplying
that information, and also what the Labor Department learned;
they also issued a report a couple of years ago and what works
and what does not in employment training, in education as well
as in the employment training programs. I hope that they have
been trying to make copies of that available throughout the
country as well.
Mr. Towns. Good. Let me just switch over to you, Mr.
Masten. Under the new welfare reform law, what will be the
Department's role in ensuring that welfare recipients get
effective employment counseling and training?
Mr. Masten. Mr. Towns, do you want to ask that question
again? I want to make sure I understand exactly----
Mr. Towns. In the new welfare reform law, what is the
Department's role in ensuring that welfare recipients get
effective employment counseling and training? They would have a
role in this, wouldn't they?
Mr. Masten. They would have a role in it. The number of
training programs in the Department of Labor will play a major
part in the strategy of getting a lot of the recipients off of
the welfare rolls, but as far as the specific function of the
Department of Labor the welfare reform legislation itself, I
cannot give you the various specifics of it. All of the
training programs in the Department of Labor will be part of
the overall strategy to reduce the number of recipients on
welfare.
Mr. Towns. Yes. But I would think they would be involved in
counseling and training. I hope so.
Mr. Masten. That is right, but I am of the opinion that the
GPRA-mandated legislation that is on the books that is forcing
the Department of Labor, as well as the federally run agencies,
to come up with outcome performance measurements, which sadly
are the problems.
When I look at a training program as it involves welfare
recipients and any other group, the bottom line, these
individuals should be able to get jobs that will pay them a
salary that will get them off of welfare and put them into a
job which they have been trained for. It has been my experience
that that has not been the case in most of the programs.
Mr. Towns. Right. Well, let me close it by saying that I
think that your Department--the Labor Department, I should
say--will play a major role in making certain that counseling,
the kind of support of services, and whatever that needs to be
done has to happen in order for this thing to be--for it to be
successful or effective, and that I would just point it out
that I am sure it is not your responsibility totally, but I
think that you have a role, and I am happy to know at least
that something is being discussed.
Mr. Masten. It is one of the problem areas. As I say, what
I look at, I look at the bottom line of those training programs
to get someone off of welfare. I grant you, in teaching them
the skills to get them to work on time, to be able to conduct
an interview, that is fine; but they should also be able to
leave that area and get a job that is going to pay them a
living salary. They should get a job in the area in which they
have been trained for, and I think that is what the GPRA will
demand that the Department of Labor and all the other agencies
put on the table in the future.
Mr. Towns. Thank you.
Mr. Snowbarger. Let me followup. We have talked a lot about
outcome-based performance measures. Other than the fact that
you are now required to do this by law, what value is there in
using the outcomes-based performance measures?
Mr. Masten. Well, for example, JTPA training; if you are
trained to be an accountant or a junior bookkeeper, you are
training to be a junior bookkeeper and you spend 18 months in
that training, if you set the outcome measurement as being how
many people get jobs as a bookkeeper as a result of the
training, you will be able to determine if that program is
working.
By the same token, if you add on the training and the
return on the investment if that person was a recipient of
welfare prior to going into that training program, is likely to
get a job, and as a result of the training, get off of welfare,
it is another measurement that would be in keeping with the
GPRA.
Mr. Snowbarger. Prior to GPRA, what measures were being
used?
Mr. Masten. The measurement was to get the person in any
job, not particularly in the job for which they were trained.
Mr. Getek. I would say entered employment; sometimes it was
the number of hours worked. Some programs--for example, the Job
Corps is 20 hours per week, would be one of the criteria. Some
would measure the amount of dollars that were earned in a
particular hour.
Mr. Snowbarger. And we are saying at this point that those
are appropriate measures?
Mr. Getek. Those are beginning measures. Those are more
output measures. We think that over a period of time, someone
needs to measure what the total outcome is and what the result
is of those outcomes. And, again, somebody getting a livable
wage over some period of time and holding a job for some period
of time other than say, 20 hours a week, would give you some
measure of the return on investment.
Mr. Snowbarger. How long have you been providing these
kinds of programs?
Mr. Getek. These programs go back to, I believe, the MDTA
program, which was in the late 1960's.
Mr. Snowbarger. My final question is: why has it taken so
long to figure out that we have not been measuring programs in
the right way? Do you want me to make that rhetorical? I would
be happy to.
Ms. Joyner. Could I comment? I take your question to be a
general one about result/outcome-oriented measurement, which is
very important for job training, as it is important for all of
Labor's activities, really. And I guess what I would say is
that it is much easier to measure the short-term effects. It is
much easier to measure what you are doing and the immediate
output or what happens, how many got in a job, than it is to
really know 2 years later whether they are self-sufficient.
That takes a greater expenditure of resources. Someone has
to be willing to collect the data over that period of time, and
ultimately, if you want to know if it was the program that was
responsible, you might even need to do some sort of impact
evaluations, which raises the cost up even higher. You might
need to deny the program to someone in order to compare it, as
is being done now with Job Corps.
If we need definitively to know the outcome, the impact, of
Job Corps, you are going to have to compare it with a group
that did not get Job Corps. That gets into issues of political
acceptability, of your son cannot get into Job Corps because
this is an experimental study.
Mr. Snowbarger. You mean that Job Corps may not do for
their son what they have been told it would do.
Ms. Joyner. Absolutely, because these people--programs are
run by people who believe they are doing a good job, and I
think, by and large, want to do a good job; so there is always
a difficulty in convincing people that it will be better to
forego giving this believed good to everyone for the sake of
really knowing what works and what does not.
So I think absent a real, clear message, in fact, even from
the Congress, that we believe it is worth spending some money
to track these participants and get outcome measures and do the
studies, but it has been a hard thing to do.
And I guess what I wanted to add is while we are on the
issue of outcomes, is to look over some of the worker
protection programs. Take OSHA as an example. OSHA has always
been required in approving State-operated programs in which the
States have the option to run their own programs, that the
States had to have a program as effective as that of OSHA.
We did a lot of studies in the late 1980's and early 1990's
on OSHA, and repeated: what is the issue? The OSHA had no idea
how effective it was, so how was it going to know whether the
States were as effective? And what was classically done was if
you do things our way and the process measures match, we will
believe the results are good. And in that area as well, we
recommended and they agreed to, and are now moving toward
actually establishing some results in that area, too. So that
they are now holding inspectors accountable to cite people and
to find violations. They are holding programs accountable to
conduct special emphasis, let's say, on trenching or in
construction that actually reduce injuries in construction.
So it is a focus on the results, not on some interim
measure like citing them for violations.
Mr. Snowbarger. Well, then, a question to both of you is,
is GPRA a sufficient message from Congress that we want to know
the effectiveness of these programs, or do we need to be saying
something more?
Mr. Masten. Well, I think it is very sufficient, and as I
said earlier, not only just for the Department of Labor, but
for the entire Government, because when you get the basic
outcome, and then you know the return on your investment, the
taxpayer will know whether or not it is worth putting the money
out to have the program in the first place. And if it is not,
then the decision comes back on Congress to do away with the
program.
Mr. Snowbarger. Let me ask one final question, Mr.
Chairman. You talked about 163 different programs in 15
different agencies, only 37 of them in the Department of Labor.
Why did you let these guys do that?
Mr. Masten. I like your style.
Mr. Snowbarger. Like you say, I only have 1 year to do
this, so I am going to take advantage of it.
But in all seriousness, here we have a Department of Labor
who, I presume that your mission is, you know, employment and
training administration, and yet you have only captured 37 out
of 163 programs for your own little bailiwick here, I would
think, just in terms of empire-building, you would want all of
them in your department. But beyond that, I mean, it seems to
me that somebody should have been telling us at some point
that, wait a minute. You have that program; it is just over
here, and you are duplicating if you are not on this program,
or that particular concern can be accommodated with this
program with just a little bit of flexibility.
Ms. Joyner. I would say this is actually a point where your
two panels today have something in common----
Mr. Snowbarger. Yes.
Ms. Joyner [continuing]. Which is, here is a problem; let's
create a new program to fix it, and then one ends up ultimately
with lots of programs addressing the same general issue.
Mr. Snowbarger. Well, the thing that concerns me is not
only duplication of programs, but the fact that we have got
them spread over 15 agencies.
Ms. Joyner. Right. In this case, you have the added factor.
That is right.
Mr. Snowbarger. That means you have absolutely no
coordination of those things. Again, I think your point is well
taken with HUD. Why did they develop 240 without telling us,
``We can do that already,'' or ``Give us just a little bit more
authority in this program, and we can do it there''?
Thank you, Mr. Chairman.
Mr. Towns. Let me just say this to Mr. Masten. You know,
you have been before this committee on several occasions and I
am impressed by you and I know that you are a knowledgeable
person, and I just want to go back to something. I cannot leave
it. I tried to go back to New York without raising it.
The form is a big thing. Let's face it, and everybody has
to get up for it. You mentioned about the fact that if
something is not working, then Congress needs to get rid of it.
But there are a lot of things that go into that process
that we have to know in terms of information, in terms of being
able to monitor it, so my question is basically this. Does the
Department of Labor have the necessary personnel, computer
system to monitor the employment counseling and training
programs for welfare recipients throughout the country? Because
it seems to me that that would fall under that department. I
mean, that is my thinking, and I must admit, I cannot say. I
have only been here a year.
Mr. Masten. OK. First of all, Congressman Towns, let me
state for the record, when I said get rid of the program, I
said, if the return on the investment was not sufficient. I
gave the two comparisons of outcomes; I said, if it is not
sufficient--then a decision will have to be made on whether or
not to get rid of it. OK?
Not just get rid of it if it is not working, because we
make recommendations on most of our audits as to what we
believe will make a program better. We make those
recommendations to give the program managers an opportunity to
make them better. So if you can make it better, do it; but if
you cannot make it better and the return is not adequate, then
I am saying that their responsibility is to make a decision to
get rid of it.
To answer your next question on whether or not the
Department of Labor has a management information system----
Mr. Towns. In place.
Mr. Masten [continuing]. In place, the answer is no.
Mr. Getek. It could be better because the role of the
Federal Government, I do not believe, in the past few years has
been what it ought to be. There is not enough monitoring out
there of the things that you have just spoken about, the
counseling and the other areas that affect people who are
coming into the program. It is left, at least for JTPA, up to
the Governors to institute systems.
The Employment and Training Administration has general
oversight, but over the prior few years, there have not been a
lot of Federal folks down there looking at whether people are
getting counseling and education and those kinds of things, and
I believe those were policy decisions. And for the program to
work, I truly believe that you have to have an increased amount
of Federal oversight. It has to work certainly in conjunction
with the people at the local level, but it also has to be that
level.
Mr. Snowbarger. Yes, Ms. Joyner?
Ms. Joyner. If I could go back to the first part of your
question and the previous one related, it is the comment about
the relationship between the Department of Labor, its
employment and training programs, and welfare reform. The point
is to recognize, of course, that under welfare reform each
State will be in control of what each State chooses to do, how
they choose to implement their requirements for work.
They have some flexibility, not as much as they had in the
past, as to what kind of training would meet the work
requirement, and how in that State they are going to integrate
their getting people on welfare into jobs with the existing
job-training structure. So we have some interests in knowing
and some concern that that may not operate as well as it might
at the State level.
Basically, there have been different bureaucracies in each
State. I mean, there are the people who do employment training,
and there are the people who handle the welfare programs, and
they had a job training program, as you know, specifically for
welfare recipients. There have been several, most recently the
Jobs Program, which now is--it is gone as an official program.
So there is the pot of money for the States to use, and our
sense is that one of the things the Department of Labor, the
Federal Department of Labor can do is a part of a more informal
attempting, as we touched on before, more States are trying to
do more integration, working with them.
It is not so much a matter of the Department of Labor
telling them what they have to do--that is not a role that is
envisioned for them in this--but it is more a matter, I think,
of getting information out, making Department of Labor
resources available. Also, from the standpoint of Labor-
operated programs, dealing with potentially more people coming
in and how to balance the needs of more former welfare
recipients who now are needing job training--expanding even
beyond the substantial number of welfare recipients who are
already being aided by Labor programs.
Mr. Towns. Let me just say this. I understand the way we
process and I understand flexibility and I understand one
region might help find something to be successful and another
region might--I understand all of that, believe me. Trust me, I
do, but I think that somewhere along the line, you need to come
up with a pilot project of some of the five States to be able
to feed information in so we will know what we are doing. That
is my concern.
This is a major effort we are going through here, and I
think that we should have some data someplace, and I do not
think we should just leave it to the States because, after all,
it is still Federal money, that they are using, and that is my
concern. And they are probably going to come back and back and
back and back, and I just would like to know what we are doing
and what they are doing with that money, and then maybe we can
learn something. That is all.
Maybe pick five States, seven States, or nine States, but I
think that it has to be done in order for all of us to feel
comfortable. I really do.
Ms. Joyner. We have several studies under way. Some of them
are in a group other than my own--our income security group--
but we are also working with them trying to do some studies. As
you suggest, we believe they need to be done to see what is
happening in States and how the job-training needs and job-
placement needs of welfare recipients are being met in
different States and what can we learn from that.
Mr. Towns. Thank you, Mr. Chairman.
Mr. Shays. I thank the gentleman. One of the reasons why I
believe we have lots of different programs and similar programs
in different departments is that each chairman of the standing
committee wanted a little piece of the action, and they did it
through their committee. It never ceases to amaze me. My first
surprise when I was a freshman was, why did the Department of
Agriculture get into housing? But we have rural housing that
goes through them. That was always a surprise to me.
But the way HUD views its responsibilities, they view their
need as interdisciplinary, so they are going to focus in on
recreation, and they are focusing in on job training, and Labor
is going to focus in on that. One of the big things that we
tried to do, in the Republican Congress last time around was we
tried to use some task force, so we would start to use three
committees that we deal with. We have one committee dealing
with one department and another committee dealing with another
department and another committee dealing with another
department, but they all dealt with the same issue, and we
tried to bring it all together.
Our problem is that we tried to overreach. I do not think
we are going to significantly reorganize the Department of
Labor, but I wonder if, like with HUD, if there should not be
some reorganization. So my first question is going to deal with
the program agencies.
I want each of you to tell me the program agency that you
think is run the most efficiently and the one that has the most
challenges.
Mr. Masten. I could really take a stab and say the OIG is
definitely in--[laughter.]
There is no question about that.
Mr. Shays. Now, where do I see that on program agencies up
there?
Mr. Masten. I have a small program within the OIG. I will
tell them about it.
Mr. Shays. OK.
Mr. Masten. First of all, Mr. Chairman, we have not done an
audit to discern----
Mr. Shays. And I do not want this to come back and haunt
you in the Department, and they say, ``What do you mean?'' I
will put it this way: Which are you the least concerned about,
and which do you have the greatest concern?
Mr. Masten. At this point, I am least concerned about BLS.
Mr. Shays. OK. I am going to ask you to----
Mr. Masten. OK.
Mr. Shays [continuing]. Basically because they have had an
ongoing mission, it is pretty consistent year to year and so
on.
Mr. Masten. Exactly.
Mr. Shays. OK.
Mr. Masten. And I would have--so I would like to say I have
more concern with the Employment and Training Administration--
--
Mr. Shays. OK.
Mr. Masten [continuing]. Because it encompasses most of the
training programs that are part of the strategy of the new
welfare reform and getting the welfare recipients off the
rolls. So that would be a major concern, because they have the
programs that are going to arrange a part of that strategy.
Mr. Shays. Now, you are going to tell us the relationship
that you have with your subordinates, whether they feel they
can be totally up front and honest without having any judgment
on your part.
Mr. Masten. That is really the position that I am in now,
because they are totally up front. [Laughter.]
Mr. Shays. So where would be----
Mr. Getek. You have to go where the money is, and that is
the Employment and Training Administration----
Mr. Shays. OK.
Mr. Getek [continuing]. And they have an impact on a whole
lot of things, and the proposals that are coming out for
welfare reform certainly are going to affect the Employment and
Training Administration.
Mr. Shays. OK. Well, Ms. Joyner?
Ms. Joyner. Well, first of all, your question about most
efficiently managed, I would not have a basis to answer that at
all.
Mr. Shays. OK.
Ms. Joyner. We have not--we did----
Mr. Shays. What shows up on your radar screen the least?
Ms. Joyner. We also have organizationally that another
unit, and I have to admit, within GAO rather than my own that
does more work with the pension and welfare benefits.
Mr. Shays. OK.
Ms. Joyner. But I know that they have had some concerns in
the past, which are less so now, about some of the pension
issues and enforcement issues there. I would share my
colleague's concern.
We, too, try to follow the dollar, and if you are looking
at things that you have gotten in the Employment and Training
Administration with a large flow through of money there, that
would certainly be one that is on the screen. Let me put it
that way.
Mr. Shays. OK. Which is the one that shows up the least in
matters, you hear about the least, the least criticism?
Ms. Joyner. I really am uncomfortable with that.
Ms. Ganson. I would echo that I do not have a basis for
taking an opinion on which is the most efficient. I would say
that the Employment and Training Administration definitely has
the challenge of dealing with all these different employment
and training programs.
I would also say that the Occupational Safety and Health
Administration has a real challenge in terms of changing the
way it operates----
Mr. Shays. Yes.
Ms. Ganson [continuing]. Which it has over time, and I
think is really in the spirit of GPRA in terms of becoming more
customer-oriented.
Mr. Shays. The bottom line there is we know that if they
had to inspect every facility, they would do it about once
every hundred years.
Ms. Ganson. Yes.
Mr. Shays. So they have to--the main project and----
Ms. Ganson. Right. So I do think that they are, in terms
really taking that challenge head on.
Mr. Shays. Now, we have not talked much about--first, when
you talked about employment, is it fair for me to think of the
Veterans' Employment and Training Services faced some of the
same challenges as the Employment and Training Administration?
Do you have some of the same challenges?
Mr. Getek. The programs are similar, except you are
targeting the veterans' groups certainly, and----
Mr. Shays. But it surprised me when I was in the State of
Connecticut as a Member of Congress, that I was talking about
how we did not have any veterans' assistance in our land, and
then I found out the Department of Labor did. You know, the VA
did not, but the Department of Labor did, and that was just
surprising to me how we were----
Ms. Joyner. Well, it is somewhat different, too, in that
the major activities under the Veterans' Employment Training
Services are the people that they find at employment service
centers--employment offices around the country. The LVERs and
the DVOPs--we'll have to think what all this stands for--but
there are people who are designated to work with disabled
veterans and other veterans in general.
They are federally funded, but they are working under the
direction of the State programs, so that when an unemployed
person goes into the Employment Service and says, ``I am
looking for work,'' if you are a vet, then you immediately are
provided with assistance from these people onsite. What, in
fact, we are doing is, starting now, is responding to a request
from the House Veterans' Affairs Committee to try to find out
more about how that is working. But it is quite different from,
say, funding a JTPA program for youth. That is a different kind
of activity program.
Mr. Shays. When the private sector looks to Government,
they use as their guideline basically three people at the most
should make a decision on one issue. Then there is some sense
of ownership and some sense of worth on the part of the
employee. In the Federal level sometimes I hear numbers of 9 or
10 people make a decision; therefore, no one feels they have
made a decision.
And I am wondering when we talk about--I am leading this to
HUD, but you all could respond to it--I am just wondering if in
the whole process of downsizing, if we are able to restructure
so less people have to pass judgment, when they are, in fact,
gone, we might not have enough people to do the job.
Ms. Joyner. It might have an increased sense of
accountability on the part of each person.
Mr. Shays. Well, that would be one obvious benefit, but I
guess what I am saying to you is, if we continue the same
structure where everyone has to pass judgment, then you may
need a lot more people; but if we are willing to have less
people make the decision, I am wondering if then we would not
be able to develop enough.
I think the big challenge for Government is our pay scale,
particularly in terms of Social Security, but I could say it
for the Department of Labor and HUD as well. The most that we
pay that employee as a Federal employee might be $120,000,
where if they were in the private sector, they would be making
hundreds of thousands of dollars, and this, in some cases,
forces us to hire outside consultants because we cannot get the
top-skilled person always. We have a lot of skilled people, but
they take a significant reduction, particularly on the systems
side.
Another question: Let me just end with this issue. I asked
you in terms of the administration within the program agencies,
and you were in some cases telling me about the program as well
and weighing that in your decision of which might be the one
with the biggest challenge. When I look at the pension and
welfare benefits and wonder if that is not a gigantic potential
problem for us, based on some of your comments, what is the
biggest problem as it relates to pensions?
Mr. Masten. First of all, Mr. Chairman, understand that the
pension system involves so much money, it provides the
opportunity for a lot of fraud and abuse. It also draws very
sophisticated and very intelligent people into that system who
can mask fraud and abuse at certain levels and so timely to
determine this.
Mr. Shays. OK.
Mr. Masten. Because of some of the controls that are in
place now, fraud could be taking place in any number of areas
many, many years prior to it ever coming to light----
Mr. Shays. Interesting.
Mr. Masten [continuing]. Because we simply do not have
control procedures in place to catch it. The audit was--excuse
me--John can go into more detail on it, but that is one of the
biggest things. There is so much money there and so much
opportunity for fraud and abuse, it is so timely to detect.
Mr. Shays. OK.
Mr. Getek. Repealing the limited-scope audit provision, we
believe, will go a long way because then you will have the
public accounting firms that are doing the audits now giving an
opinion on all of the dollars.
Mr. Shays. Why do we have a limited-scope audit? What was
the basis for that?
Mr. Getek. I believe when the ERISA laws were passed,
institutions like savings and loans and regulated insurance
companies were exempt because they believed they were reviewed
enough, but obviously the savings-and-loan crisis that we are
aware of causes some questions in that area.
When an accountant gives an opinion, it certainly shows the
amount of work that they have done. When they do not give an
opinion, there is no review of the assets that are in the plan.
Removing the limited scope provision certainly goes a long way
to ensure that the control environment is there and if there is
something wrong, that people, who are in positions of
authority, will be alerted.
Mr. Shays. OK. Now, and the political restraint is just
that the organizations would be fighting us to not have the
kind of----
Mr. Getek. Well, we believe--AICPA is in favor of this now,
I believe, as well as the GAO.
Mr. Shays. OK. Any other comment about the pensions? OK. I
am going to end, unless my colleagues have any questions, just
asking each of you to tell me the one question that you wish we
had asked.
Mr. Masten. One of the questions, obviously enough, is how
my office can continue to do more with less when the program
agencies are given more responsibility and more money to
initiate programs for which I am going to have oversight
responsibility. With my financial resources, how am I going to
be able to take on the additional responsibility and carry out
my mission?
Mr. Shays. And just briefly tell me what were your
resources 2 years ago versus now. Are they about the same, or
they have gone down?
Mr. Masten. Down. They have definitely gone down, Mr.
Chairman. In fact, I recall that I had to go to the Secretary
in this last go-round and ask for $500,000 so that I would not
have to lay off anyone.
Mr. Shays. OK. But is your personnel still pretty static,
or is it actually----
Mr. Masten. My personnel has gone down as well because it
was mandated that we get down to a certain FTE every year to
the year ninety----
Mr. Shays. Nine.
Mr. Masten [continuing]. 1999, and we have not met that. In
addition to the need for resources, we have the oversight
responsibility. We have had to rearrange our entire priorities
in order to address certain things. We do not have money, for
example, to conduct national audits. We have to go to small
audits and change our priorities, and that leaves the big
problem that you had focused on.
Mr. Shays. Well, we have five departments to oversee, and I
think that we made a decision that we were going to focus on
HHS, and basically in Labor I feel that we focus the least
amount on, and there I think that we have to do a lot more this
year. The advantage is that we have staff now who have worked
for 2 years, so I feel like we are going to be able to
accomplish a little bit more, and I really look forward to
seeing if we can provide a little more oversight on our side,
and we might be more sympathetic for your position, too, as
well. We will not ask you to do more, though.
OK. Ms. Joyner, a question that you wish we had asked or--
--
Ms. Joyner. Yes. It is a matter of following up on the
amount of inquiry that you were following earlier, when you
talked about the different departments and which ones faced the
most challenges and which were most efficiently run and so
forth, and trying to work across the different program
agencies. I was hoping that you would then go ahead and ask
what could be done to integrate the activities and really
focusing on a smaller number of issues instead of focusing on
the broader issue----
Mr. Shays. I would like to ask you to respond to that
question. I mean, we get involved in reorganization. The
committee gets involved in establishing the price, but the
whole issue of reorganization is an issue that we did not spend
any time on in the last years, and it is something I am eager
to get into.
Ms. Joyner. OK.
Mr. Shays. So do you want to just give me a taste of what
you might suggest?
Ms. Joyner. OK. Yes. But what I think will play--will help
in this regard is not necessarily the boxes on the chart----
Mr. Shays. Yes.
Ms. Joyner [continuing]. But it is, in fact, your
consultation role with the agencies, as required by the
Government Performance and Results Act. They are expected to
come up with agency-wide mission statements and goal statements
and measures that they will use to track performance toward
that. I would encourage you to ask them to talk with you about
their worker protection activities as a whole rather than what
is OSHA doing, you know, what are each of the other agencies
doing, too. How are you pulling together all of your resources
in the whole department toward that particular part of your
mission, and how might you improve that, and how will you tell
me next year what result, what progress you made toward it,
and, similarly, in any other mission.
Mr. Shays. The individual we would call I would think would
have a primary responsibility to the under secretaries in each
of the departments.
Ms. Joyner. I am not sure how the departments are handling
their consultation with----
Mr. Shays. The under secretary in Labor is really the
management person whose prime responsibility is----
Mr. Masten. The deputy secretary.
Mr. Shays. I am sorry. I call it the ``under secretary,''
and you call it the ``deputy secretary''?
Mr. Masten. Right. The under secretary, I believe, was in
the good old days.
Mr. Shays. OK. The No. 2 person in the department is the
one who is usually in charge of the administrative function.
Mr. Masten. That is correct.
Mr. Shays. OK. Well, you have whetted our appetite, and
this is really the purpose for these hearings, and I thank you
very much, and we look forward again to working with you. And
it is something that I just think we have a lot of
opportunities, so I look forward to that.
I will say to you, my sense is that this Republican
Congress--it tends to not focus a lot of time and attention in
a favorable way on the Department of Labor--is going to be a
little more receptive to making some significant changes
without feeling like we have to totally reinvent the Department
of Labor. And I think if that is the case, then we might see
some real progress.
Do you have any comment you want to make?
Mr. Towns. No. Thank you, Mr. Chairman.
Mr. Shays. Do you feel a lot better having asked that one
question that you were considering waiting and going home and
not asking? Do you feel better now?
Mr. Towns. I feel much better, Mr. Chairman.
Mr. Shays. Thank you very much. This is a partnership, if
you do not know, among all of us. Thank you. I will now close
this hearing.
[Whereupon, at 4 p.m., the subcommittee was adjourned.]
OVERSIGHT OF THE DEPARTMENT OF HEALTH AND HUMAN SERVICES, AND THE
DEPARTMENT OF VETERANS AFFAIRS: MISSION, MANAGEMENT, AND PERFORMANCE
----------
TUESDAY, MARCH 18, 1997
House of Representatives,
Subcommittee on Human Resources,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:05 a.m., in
room 2247, Rayburn House Office Building, Hon. Christopher
Shays (chairman of the subcommittee) presiding.
Present: Representatives Shays, Snowbarger, Gilman, Pappas,
and Kucinich.
Staff present: Lawrence J. Halloran, staff director and
counsel; Robert Newman, and Marcia Sayer, professional staff
members; R. Jared Carpenter, clerk; Ron Stroman, minority
professional staff; and Jean Gosa, minority administrative
clerk.
Mr. Shays. I'd like to call this hearing to order and to
welcome our witnesses and our guests, as well. This hearing
continues the subcommittee's review of the cabinet departments
within our oversight jurisdiction. We asked the Inspectors
General, the IGs, and the General Accounting Office, or GAO, to
comment on the mission, management, and performance of the
Department of Health and Human Services and the Department of
Veterans Affairs.
Together, these two Departments will spend $417 billion
next fiscal year--fully one-quarter of total Federal outlays.
Seventy-seven percent of those outlays, or $320 billion, will
be spent purchasing or providing health care.
In the last Congress, this subcommittee held eight hearings
examining ways to improve the Federal effort against health
care fraud. Our persistence, particularly that of our
subcommittee colleague, Mr. Schiff, was rewarded when these
proposals were included in the Kennedy-Kassebaum Health Care
Bill signed by the President.
The most significant of those proposals made fraud against
all health care providers a Federal criminal offense.
Consistent with legislative proposals offered by the
subcommittee's ranking member, Mr. Towns, the new law also
gives the Department of Justice, the HHS--Health and Human
Services--IG, and others increased stable funding to wage the
fight against health care fraud.
So some progress has been made to improve the performance
and protect the integrity of Federal health care programs. But,
as we will hear in today's testimony, HHS and VA programs
remain vulnerable to waste, mismanagement, and fraud.
Our subsequent oversight hearings and the focus of our
consultations with the departments on the implementation of the
Government Performance and Results Act will be guided to a
great extent by the views expressed today by our capable
oversight partners, the Inspectors General of the General
Accounting Office.
And so, again, I'd like to welcome our guests and recognize
our two members, Mr. Snowbarger, who is the vice chairman of
the subcommittee. Do you have any opening comments?
Mr. Snowbarger. No. Thanks, Mr. Chairman.
Mr. Shays. Our gentleman from New Jersey, would you like to
make a comment?
Mr. Pappas. No, thank you.
Mr. Shays. OK. Now, I would note that presently we have no
member from the minority side here. Mr. Towns, who has been a
very faithful partner, is still in New York. But this is the
kind of hearing that, frankly, we work on a bipartisan basis,
and sometimes I've left this committee and given the gavel to
Mr. Towns. So we're equal partners in this process. And I'll
invite the minority counsel to ask questions if there's
something the minority feels that we need to get on the record.
So we'll do that. And at this time, we have before us Ms.
June Gibbs Brown, the Inspector General of the Department of
Health and Human Services, and Michael Mangano is accompanying
her; he will not have a statement, but will respond.
And then Richard Hembra, Assistant Comptroller General for
Health, Education and Human Services, General Accounting
Office, accompanied by Marsha Lillie-Blanton, and also Thomas
G. Dowdal.
Mr. Dowdal. Dowdal. Right.
Mr. Shays. Did I say it right?
Mr. Dowdal. Yes.
Mr. Shays. OK. What I need to do, as you know, we swear in
Members of Congress, we swear everybody who comes before the
committee, and that way we don't have to get into a value
judgment. So we're just going to do what we always do.
[Witnesses sworn.]
Mr. Shays. OK. For the record, all our witnesses have
responded in the affirmative, and we will start with you, Ms.
Brown.
Ms. Brown. Thank you, Mr. Chairman.
Mr. Shays. And I'm going to ask that you turn that mike on.
We're going to use the clock only as a basis of knowing how
long you've spoken. But we want your statement on the record.
And actually, if I could, two housekeeping things before we
begin. I would ask unanimous consent that all members of the
subcommittee be permitted to place any opening statement in the
record and that the record remain open for 3 days for that
purpose. Without objection, so ordered.
And I ask further unanimous consent that all witnesses be
permitted to include their written statements in the record.
And without objection, so ordered. We're going to have the
clock on for 5 minutes and then we'll roll it over again. OK?
And just do it automatically. Leave it on red for a second,
just so we keep track. And then flip it again.
Is the other mike not working? Seriously? You know, before
we begin, I'd just like to see if it's plugged in here, Jared,
so----
Ms. Brown. I think it's the switch.
Mr. Shays. And then if you could just check. Yes. That is
on.
STATEMENTS OF JUNE GIBBS BROWN, INSPECTOR GENERAL, DEPARTMENT
OF HEALTH AND HUMAN SERVICES, ACCOMPANIED BY MICHAEL F.
MANGANO, PRINCIPAL DEPUTY INSPECTOR GENERAL, DEPARTMENT OF
HEALTH AND HUMAN SERVICES; RICHARD L. HEMBRA, ASSISTANT
COMPTROLLER GENERAL FOR HEALTH, EDUCATION AND HUMAN SERVICES,
GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY MARSHA LILLIE-
BLANTON, ASSOCIATE DIRECTOR FOR HEALTH SERVICES, QUALITY AND
PUBLIC HEALTH ISSUES, GENERAL ACCOUNTING OFFICE; AND THOMAS G.
DOWDAL, ASSISTANT DIRECTOR FOR HEALTH FINANCING AND PUBLIC
HEALTH ISSUES, GENERAL ACCOUNTING OFFICE
Ms. Brown. Thank you, Mr. Chairman, for the opportunity to
present this panel what we think are some of the greatest
challenges to the HHS program outlays.
Mr. Shays. OK.
Ms. Brown. I would like to single out for your
consideration three program areas in Medicare, home health,
hospice, and durable medical equipment.
Far and away, the home health benefit is one, of the most
vulnerable components of the Medicare program. Expenditures
have increased five-fold. The number of visits has more than
doubled over the past 6 years, from $3.5 billion, for
approximately 2 million beneficiaries, in 1990, to $16.9
billion for 3.7 million beneficiaries, in 1996.
By comparison, spending in the Medicare program as a whole
grew 84 percent over that same period. Unfortunately, fraud and
abuse significantly impact the high growth rates of home
health. We have now completed audits of eight home health
agencies in Florida, Pennsylvania, and California. These audits
revealed error rates for these agencies ranging from 19 to 64
percent. We found visits that were not reasonable or necessary,
patients that were not home-bound, services not properly
authorized by a physician, and bills for services not rendered.
Preliminary data from additional audits underway in the
other States indicate similarly high error rates. We also found
extreme and seemingly unjustifiable variation in services
rendered by home health agencies, with an average of 33 visits
per episode for lower cost providers and 102 for higher cost
agencies. We have recommended more effective reviews of home
health agencies, case management, adequate funding of fiscal
intermediaries, and more involvement of beneficiaries through
explanation of benefits and their own certification for home
bound status.
However, the problems are so pervasive that a legislative
restructuring of Medicare's payment system is called for.
Options include prospective payment, capitation payments,
beneficiary cost-sharing, and benefit targeting. We are also
concerned about the substantial growth in Medicare payments for
the lengths of stays for patients in hospice care.
Our 1994 review of Medicare hospice eligibility in Puerto
Rico disclosed large numbers of hospice beneficiaries who were
not terminally ill and, therefore, not eligible for the
benefit. Twenty million dollars was inappropriately paid for
services rendered to them. In audits of 12 large hospices
located in Illinois, Florida, Texas and California, we found
that 65 percent of the patients who were in hospice over 210
days, or 7 months, did not qualify for the benefit. These
audits identified $83 million in overpayments.
A particular vulnerability exists with regard to hospice
services provided to nursing home residents. We will continue
to investigate hospice providers who are blatantly enrolling
Medicare beneficiaries that do not qualify for the benefit.
HCFA took strong action to resolve the problem in Puerto Rico,
including decertification of problem providers. So we know that
strong management action can go a long way to solving this
problem.
However, we believe that congressional action is also
warranted. We recommend legislation to reduce Medicare payments
after 210 days. This would provide appropriate incentives to
the hospices to enroll only those beneficiaries who meet
Medicare guidelines, while still affording them some financial
protection and resources to care for patients who live longer
than expected. We also recommend reducing hospice payments for
patients living in nursing homes to more accurately reflect the
increment of additional services provided by the hospices to
them.
More progress has been made in dealing with this
problematic area. Particularly, HCFA established four durable
medical equipment regional carriers, or DMERCs, who specialize
in making Medicare payments for these items. Unfortunately, we
continue to see problems in the durable medical equipment. Our
studies have found overutilization of wound care supplies,
overutilization and false billing of incontinence supplies,
fraudulent billing for body jackets, and excessive payments for
oxygen services, nebulizer drugs and interim nutrition therapy.
Like the hospice program, problems are particularly pronounced
in a nursing home setting.
I am happy to report that in addition to discovering
problems, we are also developing new and effective ways to deal
with them. One good example of this is the problem with
incontinence supplies. And I have a chart here which I would
like to call your attention to. Our exposure of these billing
abuses couple with a coordinated national investigation
involving more than 20 separate cases in a concentrated effort
by the Health Care Financing Administration's durable medical
equipment carriers, has turned the escalated reimbursements
downward. By the end of fiscal year 1995, the abusive practices
we identified had all but disappeared, and Medicare is now
saving more than $104 million per year as a result.
While such administrative remedies can be effective, we
believe that fundamental reforms are also needed. We recommend
legislation to authorize competitive bidding, to make it easier
for the Health Care Financing Administration to reduce
inherently unreasonable payment levels, and to fold payments
for some supplies into the payments made to nursing homes.
Home health, hospice and medical equipment and supplies are
serious vulnerabilities. We have other concerns, as well, and
we continue to find false bills for lab services, excessive
prices for prescription drugs, and inappropriate billing of
hospital outpatient services, for example. Once again, I
appreciate the opportunity to appear before you today and share
with you some of our concerns related to waste, fraud and abuse
in HHS programs.
I'd be happy to respond to any questions.
[The prepared statement of Ms. Brown follows:]
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Mr. Shays. Thank you, Ms. Brown. Mr. Hembra.
Mr. Hembra. For many years, GAO, the IG, and others have
looked at individual HHS programs. In fact, I think it would be
pretty clear that you could structure a given hearing and spend
hours speaking to any particular program. Instead, today, I'd
like to elevate the discussion and focus on three interrelated
challenges that we believe face HHS. These are issues that get
at the core of how HHS manages its programs, and they transcend
any individual agency within HHS or its programs. We also
believe that if HHS can successfully meet these challenges,
it's going to go a long way to improve its efficiency and
effectiveness.
Let me begin with the first challenge that we see, and that
I would put under the ``umbrella'' of program results. Like
many other Federal organizations, HHS has a long history of
having problems with accountability, the effectiveness of its
coordination, how it provides effective oversight.
I don't find this surprising. If you look at the
Department, it's one of the largest in the Federal Government.
Last year, its budget was about $320 billion. Next year it
could climb to $375 billion. It has 11 key operating divisions.
It has 300 programs. It has 60,000 employees. It has numerous
contractors it relies on. It has tens of thousands of grantees
it looks to. And, it has partnerships it has formed with other
Federal Government agencies, with the State governments and
local jurisdictions.
Expressing the frustration that the Congress has had with
management, in general, a few years ago, Congress put into
place a number of pieces of legislation, such as the Government
Performance and Results Act, the Government Management Review
Act, the Chief Financial Officer's Act. And all of these had
one thing in common. They all focused the spotlight on
instilling discipline in how Federal departments and agencies
managed their set of responsibilities.
With GPRA, we've got an opportunity now, for HHS to define
a cohesive mission, develop a 5-year strategic plan, set into
place specific performance goals, and identify ways in which to
adequately and accurately measure how the department is
carrying out its responsibilities. With regard to GPRA, I think
we would share the view that the next 6 months are quite
critical.
By the end of this fiscal year, HHS, along with other
Federal Government agencies, have to put together that 5-year
strategic plan, and it has to begin to position itself to
determine whether or not its programs are doing what they were
intended to do. So we have a very challenging period ahead of
us with regard to this Department. The second issue has to do
with having timely and reliable information. The Paperwork
Reduction Act, the Clinger-Cohen Act all set in place an
information framework that would support a performance-based
work environment.
This is very appropriate, because, once again, HHS has long
managed with incomplete and unreliable information. And not to
mention the fact that they have had to rely, because of the
size and the way that it carries out its responsibilities, on
numerous other partners to provide it with information on how
its programs are working.
I think welfare reform is a classic example. It brings with
it a new set of requirements for HHS. It demands accurate and
timely information from the States on how they're carrying out
their welfare reform responsibilities. And we're talking about,
in recent years, one of the most major social paradigm shifts
in how we deal with supporting low income families.
The last issue, which ties back to the Inspector General's
comments, focus on vulnerable programs. I think it is unfair
for a department like HHS to look to others such as GAO, the
Inspector General, the Office of Management and Budget, to
identify for it where its program vulnerabilities lie. And this
is certainly the case with Medicare. It's a classic example,
that, even though HHS and HCFA have known for decades of
problems within the Medicare program, it wasn't until several
years ago that GAO and others identified Medicare as very high-
risk, and began to put in place a set of actions to get HHS and
HCFA better focused on how to deal with the problems associated
with Medicare.
With regard to vulnerable programs, we can't just simply
look at something like Medicare, that consumes a large part of
HHS' budget, and say, ``That is the vulnerable program.'' I
think this is a department that has an opportunity to
constantly look at its programs, be proactive, be vigilant in
saying to itself, ``Where do our vulnerabilities lie and what
do we need to do about them?''
And I think this all ties back to the tools that are now
available through GPRA, through GMPA, through CFO and the CIO
legislation, to give----
Mr. Shays. You speak in tongues, sir.
Mr. Hembra. Yes. I do. To give this Department an
opportunity to begin to live up to the American public's
expectation and function in a more efficient and effective
manner. And with that, I would be happy to respond to any
questions.
[The prepared statement of Mr. Hembra follows:]
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Mr. Shays. Thank you. We've been joined by Mr. Gilman, the
chairman of the International Relations Committee, as well as
Mr. Kucinich. And what I'm going to do--I'm going to yield my
time to Mr. Gilman, because I know he has other places to go.
I'm particularly nice to this gentleman, because when I was
first elected, he was, even then, a seasoned veteran, and he
was very nice to me. So----
Mr. Gilman. Thank you, Mr. Chairman. You've been very nice
to all of us, to take care of all of our problems. And I want
to commend you, Chairman Shays, for your diligent work, and for
the opportunity to review, learn, and discuss the important
issues confronting a number of our Government agencies.
And I thank our panelists for being here today, to help us
better understand where we're going and why. We are all
concerned, of course, as we try to reduce and eliminate
unneeded Federal programs, to try to reduce the Federal
bureaucracy and Federal spending, and cutting regulatory red
tape, and returning some common sense to the numerous
Government regulations out there.
I particularly welcome the opportunity for this committee
to hear testimony from the General Accounting Office and the
Office of the Inspector General concerning the budget and
operations of the Veterans Administration. And I realize that
panel hasn't testified yet.
And I regret I'm not going to be able to stand by, but my
assistant, Todd Berger, will be here, and will be taking some
notes. And I look forward to reading your testimony. Like many
other Government agencies, the VA is reacting to efforts to
balance the budget by finding new ways to improve efficiency.
And as many of you are aware, the VA has been involved in a
Nation-wide relocation of its resources. And that's being done,
supposedly, to make certain that health care funds are going to
be distributed in the most equitable manner between the various
regions. However, under the plan, VA facilities in the
Northeast are being particularly hard hit.
VA officials have assured me that no veteran is going to be
denied future care despite reductions in funding. However, many
of us, particularly those of us in the Northeast, remain
skeptical with regard to that claim. And while we welcome the
goal of greater efficiency, I have concerns that the veterans'
needs are going to fall victim to the goal, particularly in the
area of veterans' health care.
And at a time when our veterans population is growing
older, efficiency is an administrative, not a medical concept,
and it is my chief concern that in the future, under this
evolving VERA plan, a decision to refuse treatment to a veteran
will be a medical judgment, not an efficiency decision.
It's a simple fact that many of our veterans in the
Northeast fall into special categories: the mentally ill, the
homeless, alcoholics, drug abusers, and spinal cord injured.
These veterans clearly have conditions which are neither easily
treated on an outpatient basis nor more efficient to treat in
such outpatient conditions.
However, they are still deserving of basic triage rights.
And I hope that in the future, these veterans are going to be
allowed to have their status and place in our VA health system
be determined by a physician, through a medical examination,
and not through any administrative evaluation of their
application before such an examination. Medical judgment on
treating these future cases should never be superseded by the
goal of efficiency. To do so would be nothing short of the
beginning of the breakdown in the relationship between our
national Government and our veterans.
So Mr. Chairman, I look forward to further testimony and
working with you on this serious problem. And with your
permission, I'm going to leave several questions to be answered
as part of the record. Thank you, Mr. Chairman.
Mr. Shays. I thank the gentleman. Mr. Snowbarger.
Mr. Snowbarger. Thank you, Mr. Chairman. I think my
questions are for Mr. Hembra. You were referring to vulnerable
programs. I presume you mean programs that are vulnerable to
fraud and abuse. Is that an accurate statement? Or----
Mr. Hembra. I think the common definition that we've used
in the Government has to do with fraud, waste, and abuse. I'm
not sure that we should necessarily hold ourselves to that
definition. It's one thing to identify a key program and put it
on a high risk list and say we're going to focus a lot of
attention on that. But within the Department of HHS, I think
there are other----
Mr. Shays. Excuse me. Can I have you put the mike a little
closer to you? Yes.
Mr. Hembra. I think within HHS, there are clearly other
programs worth looking at for different reasons. And I think
you have to extend that to the beneficiaries of the programs.
And a couple that come to my mind--one is Head Start. Head
Start, right now, is about a $3.5 billion program. It has over
1,400 grantees that it looks to to administer the program. It
provides benefits to young children around 4 years of age. It's
serving a population, I think, of over 800,000. GAO and the
Inspector General have found problems with that program. To me,
that's one that warrants closer scrutiny by HHS and the
Administration of Children and Families.
I think another area that offers vulnerability is----
Mr. Snowbarger. Can I interrupt?
Mr. Hembra. Yes.
Mr. Snowbarger. I'm not quite sure I understand why you
were suggesting that Head Start be looked at, and for what
reason.
Mr. Hembra. Well, I think because of the amount of money
that's going into the program, because of the number of
grantees that the money is flowing into to provide services. I
think because of the vulnerable population served, that being a
young children population, and past problems that HHS and ACF
have had with how the grantees have administered those
programs, problems that have surfaced in the day-to-day
operation of the Head Start centers, and what has been
historically problems with getting corrective action taken.
Mr. Snowbarger. Are these accounting problems? I mean, the
ability of the agency to determine whether or not the money has
been spent properly, maybe not in a fraudulent way, but----
Mr. Hembra. I think it goes beyond just how the money is
being spent, although it certainly ties to that. But when you
look at--you're looking at problems that could affect the
health and safety of children--the adequacy of the facilities
and things of that nature. And it's for those reasons that I
would suggest that you can't just simply look to a large dollar
program and say, ``That's the one that, perhaps, is most
vulnerable.''
Mr. Snowbarger. Could you identify for us, maybe, specific
vulnerabilities that would lead you to focus on home health,
nursing homes, medical equipment, supplies, hospice, the
programs that we've been talking about this morning?
Mr. Hembra. Yes. I think we can certainly do that. In fact,
maybe I'll ask Mr. Dowdal if he could respond to that.
Mr. Dowdal. There's been a lot of growth in the number of
suppliers of services in that area. There's been lots of
identified problems by both the Inspector General's office and
our office related to medical supplies being billed by the
agencies. There's been tremendous growth in the number of
visits per person who receives home health care. And the growth
in the number of home health agencies has been very high.
There are a lot of questions about whether the services
that are being provided are covered by Medicare. There's many
other issues like that surrounding all three of those areas--
home health, SNFs, and durable medical equipment.
Mr. Snowbarger. To what do you attribute the growing number
of suppliers, growing number of visits per patient? Why do we
see all those things going up so much?
Mr. Dowdal. Some of the reason is that once people figure
out there's a way they can get a lot of money out of a program,
then other people find out about it and want to get into that
same action. And you end up with a lot more agencies or
suppliers. And a lot of them are not as legitimate as they're
supposed to be. Now, there's been some steps made to try to
identify ways of making sure that the suppliers that get into
the program are legitimate and have a real business and are not
just some fly by night. But there's still that problem going
on.
Mr. Snowbarger. Has the growth in this field maybe
outstripped the agency's ability to control and account for how
they're spending----
Mr. Dowdal. There was a combination of factors, that was
part of the problem, too. In fact, over the period from 1989 to
1996, the money available to do the reviews and the checking on
that actually decreased. And that led to less ability to review
claims. For example, home health agencies in 1987--they were
looking at approximately 60 percent of the claims that came in
to make sure that they were valid.
Today, they're looking at less than 3 percent. Well, last
year they were. Now, the Kassebaum-Kennedy bill did get us some
additional money, so we expect that the percentage will go up
again, but not anywhere near as high as it was back in the mid
eighties.
Mr. Snowbarger. Are these contracts for services and
supplies currently competitively bid? I think one of you
mentioned maybe a need to see it goes to competitive bid--or,
suggested that.
Mr. Dowdal. Currently, their Medicare doesn't competitively
bid for that. There is some demonstration programs that they're
getting started--one of them in the durable medical equipment
area down in--I believe it's South Carolina. We have discussed
in the past the issues related to getting competitive bids, at
least on some kinds of items where there--you know, you don't
have to worry about the big difference in quality.
You know, where you get your Depends--it's not going to
matter which company, because they're all going to be giving
you the same thing. Items like that. We think there's
opportunities for at least trying competitive bidding.
Mr. Snowbarger. Ms. Brown. I saw you reaching for the
microphone.
Ms. Brown. Yes.
Mr. Snowbarger. OK. Mike.
Mr. Mangano. Actually, the only one of these three
industries that would be subject to--that potentially could be
subject to competitive bidding, would be the durable medical
equipment industry, itself. Right now, the Health Care
Financing Administration does not have the opportunity to
wholesale competitively bid. Nor do they have the opportunity
to reduce prices when they're inherently unreasonable.
HCFA is required to go through a regulatory process, which
can take 2 to 4 years, to reduce those prices. In the meantime,
they're losing millions of dollars. These are two kinds of
abilities that any insurance company in this business has. We
think it's particularly a difficult problem when you get into
nursing homes. Durable medical equipment companies basically
market their goods to nursing homes because there are a lot of
patients there.
When Ms. Brown was showing you that chart on incontinence
supplies, all of that $100 million that was lost each year was
because of things that were billed that should never have been
billed. These were incontinence supplies that were billed when
they weren't really in connection with a prosthetic device as
is required by the regulations on medical equipment.
Most of these billings were in areas of nursing homes,
where they could go in and sell things. Mr. Chairman you may
remember about a year ago when Ms. Brown came in and showed a
female urinary collection pouch. This was an incontinence
supply that was being billed, when actually what was being
delivered to the nursing homes were adult diapers. That's the
kind of abuse that occurs here.
We think that HCFA ought to have the ability to
competitively bid, reduce inherently unreasonable costs and, in
the case of nursing homes, consolidate the billing for
supplies. The nursing home is going to bill for supplies, not
the individual DME suppliers who are billing for each
individual beneficiary.
Mr. Snowbarger. What's been the success of HHS in following
up on things that are improperly billed in terms of getting
return of the money and that type of thing?
Mr. Mangano. Well, I think we've got a real good record in
capturing people when they do bill that way. But you have to
understand that we're dealing on an exception basis. That is,
we go out there and find out when somebody tells us that
somebody is inappropriately billing, or prospectively, when we
go in and we see billings having an extraordinary increase in
one particular year.
But just to give you an idea, the Medicare program last
year had 800 million claims for Medicare Part B, of which
durable medical equipment would be a part of. It's impossible
for us to try and catch all of these abuses. Once we do catch
them, though, we do get good cooperation from the U.S.
attorneys to apply damages to these cases. But I also want to
give you the other side of that.
Many of these companies are small, and the money is gone by
the time we get around to court cases. One particular case
would be a typical example of a home health agency in which we
found that 70 percent of the claims were erroneous. But they
were basically a holding company for a lot of subcontractors.
By the time we caught up with them, they went Chapter 11 and
there was no more money to be gotten back for Uncle Sam.
Mr. Snowbarger. Thank you, Mr. Chairman.
Mr. Shays. I thank the gentleman. Mr. Kucinich.
Mr. Kucinich. Thank you very much, Mr. Chairman and members
of the committee. I appreciate this opportunity to ask some
questions. And there's an area that I'd like to focus in on. As
a member of the Ohio Senate before I came to Congress, I was
responsible for helping to promote a rather wide-ranging
inspection of the Government's policies with respect to
Medicare HMOs.
And our State Senate Health Committee actually held a dozen
hearings on the policies of HMOs in the State of Ohio. And
those hearings produced substantial evidence of HMOs attempting
to deny care merely to promote their own profits at the expense
of the health of their patients. I see in today's front page of
the New York Times that we have a national problem which
relates to HMOs not--or constructively denying the appeal
rights of millions of elderly Americans.
We understand. I mean, all of us in politics understand.
There's only one reason that they would do it, because the way
the system is set up, the less money the HMOs spend, the more
money they make.
Now, that being the case, I have just a few questions.
First of all, the Department, I understand, has been looking at
this, but have you done--to Ms. Brown--have you done any
investigation of the number of appeals that have been required,
the number of appeals that have been denied, and have you come
to a conclusion about how many people may have tried to appeal,
but couldn't because of the way the system is set up?
Ms. Brown. Yes, sir. We just finished four reports of
different aspects of the--of this particular area--and found
some of the things that were reported in the morning paper,
including the fact that most people didn't realize they had
appeal rights; therefore, didn't exercise them, or they found
that it was very difficult to exercise those rights.
These weren't investigations which are, again, into
criminal or civil matters. But we have done a lot of background
work to let us know what that environment is so we could
continue working in there.
Mr. Kucinich. How would you, Mr. Chairman--how would the
Department let the millions of Americans that are in this
program know about their appeal rights? Do you send them
notices? What do you do?
Mr. Mangano. Yes. The primary way that the Medicare program
lets its beneficiaries know about that, is through the medical
handbook that they issue each year. When we had completed these
reviews that Ms. Brown just mentioned, we had recommended that
the Health Care Financing Administration take a more vigorous
approach to letting the beneficiaries know about their appeal
rights.
They have agreed to make changes in their handbook, as well
as to put bulletins out to beneficiaries to let them know what
their appeal rights are. One of the difficulties here is that,
in an HMO, they get one fee to provide all the health care
needs for the Medicare beneficiaries. And a lot of this is the
responsibility of the HMO to do it. So HCFA's role should be
two fold. One, to let its beneficiaries know what its rights
are. And when those rights have been violated, to intervene at
that point.
Mr. Kucinich. Mr. Chairman, I would suggest that the
Department has more of a responsibility than what has been
taken here. Because this is--these are taxpayers' moneys. That
money does not belong to the HMOs, I will suggest. These are
Federal tax dollars. And my question to you is: what are you
doing to make sure people are aware of their rights to appeal?
Because, my background is also in committees, and I can
tell you that a single shot theory of committee, like putting
it into a handbook is not adequate. And it seems to me that you
ought to have some structured series of messages to communicate
to this national population of elderly so that they will know,
so that it's common knowledge that if you are not sure of what
your rights are, that you can refer to--that you can be
repeatedly advised as to what your rights are so they can be
exercised.
Mr. Mangano. Yes.
Mr. Kucinich. Now, I mean, what are you--you mentioned the
handbook. You mentioned some bulletins. But what----
Mr. Mangano. Yes. We're doing even more than that. One of
the alliances that we formed in our office was in working with
the Administration on Aging, which has a network of ombudsmen
across the country that deal with all matters relating to
senior citizens, particularly in nursing homes.
One of the things we're doing is passing on to them the
kinds of things we're finding out as problems is our reviews.
They're putting forth forums in a variety of parts of the
country to let the public know about that.
We're also working with the AARP. Ms. Brown was interviewed
for an article for their publication that will be coming up
very soon. We're going to be supplying that publication with a
lot of do's and don't's, things that beneficiaries ought to be
careful about. And when you see this problem, let our office
know about it or let the Medicare program know about it, as
well.
Mr. Kucinich. Are you prepared to cancel the contracts of
any HMOs that are aggressively refusing the appeal rights of
the elderly who are in this program?
Mr. Mangano. OK. Of course, we don't have any program
responsibility over the Medicare program. But if we found that
an individual HMO was denying a person's rights, we would take
action against them. We would recommend that the Medicare
program take actions in terms of disallowances and excluding
them from the program.
Mr. Kucinich. One final question, Mr. Chairman. Have you--
--
Mr. Shays. The gentleman has 10 minutes, so if you----
Mr. Kucinich. OK. Great. Well, thank you, Mr. Chairman.
Have you any information of a single HMO in America which has
been--whose contract has been canceled because of their
practices in dealing with their elderly patients?
Mr. Mangano. I am aware of several that have been canceled.
In fact, I can think of one or two that the OIG got involved in
in which we did initial audits and investigations in the
Medicare program and canceled them from their program.
Mr. Kucinich. Are you going--will the Department followup--
and maybe the Inspector would say this--will the Department
followup on the court order that was issued by Judge Marquez,
setting the July 1st deadline? He gave certain--a certain
prescription, if you will, for remedying what he felt were some
defects in the administration of the program. Are you intending
to followup on that or are you going to appeal the Judge's
ruling?
Ms. Brown. Well, we have had several meetings with the
Department regarding our findings. Managed care in Medicare is
a fairly new area. All of the incentives are quite different
than the incentives were for people who had basically--too much
money was being paid out. Because of the nature of HMOs, we
have a whole new set of incentives here for people to take
advantage of. We have the authority for any kind of patient
abuse or neglect, which could be one of the concerns here--in
neglect--to have them eliminated from the program.
We've had quite a few meetings, but, I don't know exactly
what they're going to do on the Judge's decision yet. But the
Department is very concerned about it. We have done quite a bit
of work in the area so we can bring the Secretary up to date on
what's actually happening out there. I'd be glad to supply that
for the record when I find out more about that particular
decision.
Mr. Kucinich. I think it would be helpful for at least this
Member. And perhaps the others would agree.
Ms. Brown. OK.
Mr. Kucinich. For us to get some information about what the
Department intends to do to--in a comprehensive way--to be
certain that anyone whose--finds their services denied, reduced
or terminated, is able to appeal that, that we would be fully
informed as to what's being done to make sure that all the
participants, the millions of participants in this program,
will have their rights defended.
Because what's happening, Mr. Chairman, is that there is an
active marketing campaign to draw millions and millions more of
elderly Americans into this program. And the people who are
doing the marketing could care less about providing care to the
elderly. There's a transition from health as a right in a
democratic society to health as a market driven commodity.
And what I believe is we need the Department to be more
than just a casual observer in this, we need you to be the
umpires. And if somebody does something and they're out, they
ought to be out. And you're the only ones who can do that for
the American people. And if we are going to continue to see
this transit to managed care paradigm, where HMO Medicare has
more and more patients--and they're predicting that the growth
may triple within the next 10 years--then, you know, the
responses that we receive in committees like this have to be
more substantial and definitive about the rights which patients
have.
Because it's the articulation of those rights which will
make the programs that you are involved in real. And I suggest
that perhaps it's time for a patients' bill of rights codified,
so that we are not in a position where we have to learn of
elderly people who have every right to decent health care being
denied it or being refused the information which would enable
them to get better care. This is the other side of the issue
the President raised about the gag order.
Mr. Shays. Yes.
Mr. Kucinich. It's one thing for a physician to be told
that he cannot give the information to his patient so that his
or her patient could proceed to get better health care and
exercise more options, and it's another thing--and it's still
another thing to constructively deny that person an opportunity
to get good health care because they don't even know what their
appeal rights are. Thank you.
Mr. Shays. I thank the gentleman. Mr. Pappas.
Mr. Pappas. Thank you, Mr. Chairman. Thank you folks for
being here. I have two unrelated questions--unrelated to each
other and unrelated to what we've been hearing you folks talk
about so far. But I read an article in the February 27, 1997,
issue of the Washington Times in which the point was made that
the U.S. Health Care Financing Administration, which is a part
of the Department of Health and Human Services, will pay some
$400 million to 41 New York hospitals simply to train 2,000
fewer medical residents, which would be a 20 percent decrease.
Is that true?
Mr. Mangano. Yes, it is.
Ms. Brown. Yes.
Mr. Pappas. Why are we doing that when market forces, I
think, should be the ones to dictate how many people enter a
particular field?
Mr. Mangano. Of course, that was not our decision. That was
the decision of the Health Care Financing Administration.
Basically what they were responding to is the growing notion,
as people are aware, that there is a glut of physicians in this
country, and there are too many in training to meet the market
needs. So what HCFA basically did was said, ``We'll help
downsize the number of physicians by paying teaching hospitals
not to train them.''
So I believe that particular program will last--it's either
4 to 6 years in which they'll be reducing the number of
physicians by 20 percent in New York. And they're giving an
incentive to the hospital to reduce the number of residents and
interns in training by paying the hospital as though they were
there.
Mr. Pappas. How long has this been going on?
Mr. Mangano. This was just announced in February.
Mr. Pappas. OK. And the figure is approximately $400
million?
Mr. Mangano. That is correct.
Mr. Pappas. Is that just for 41 New York hospitals?
Mr. Mangano. That is correct.
Mr. Pappas. And is the $400 million just for 1 year or is
it for that 4- to 6-year period?
Mr. Mangano. I believe it is for the entire period.
Mr. Pappas. And what about other hospitals in other parts
of the country?
Mr. Mangano. Of course, as soon as they announced this
program, hospitals in other parts of the country have asked to
get in on this. HCFA has--this is under their demonstration
authority. They're demonstrating whether this is a good
approach or not a good approach. So the position of HCFA is
they have one State that they're working with. And that's the
State of New York. And usually under these demonstration
projects, if it works out well there, they may decide to expand
it to other States. But they may not.
Mr. Pappas. Mr. Chairman, I would just say that I would
question whether this is an advisable expenditure for us to be
making. I certainly would like your comments. I was----
Mr. Shays. Well, if the gentleman would yield?
Mr. Pappas. Sure.
Mr. Shays. I mean, the purpose of this hearing is not to
delve too deeply into any particular issue, but to just kind of
whet our appetite and yours and know where you're coming from,
and for us to then decide how we want to allocate our very
scarce resources. And this may be an area that we need to look
at.
Mr. Pappas. OK.
Mr. Hembra. Mr. Pappas, I might add something. We need to
understand--for years and years and years, teaching hospitals
were basically reimbursed with additional payments--both
Medicare and Medicaid--to teach physicians as part of their set
of responsibilities relative to the Medicare/Medicaid
population that were treated in those facilities. And I think
that amount of money is--off the top of my head--something like
about $6 billion a year that go toward graduate medical
education payments.
And this begins to completely move back, recognizing what
is an overabundance of physicians. And from what we have read--
we have not looked closely at it, because it's a new policy
change--but the way in which the media has covered it, it's not
very clear whether this has been well-thought-through by HHS
and HCFA.
Mr. Pappas. I would----
Ms. Lillie-Blanton. Could I also respond?
Mr. Pappas. Yes. Sure.
Ms. Lillie-Blanton. Because I think what's important, as
you've mentioned, is that we really are faced with an
oversupply of physicians in this country. And in all fairness
to HCFA, I would say the attempt was, how do you begin to
reduce that supply? But we've got a broader issue, I would say,
to look at. And that is the training of foreign physicians,
which, in many cases, have benefited from those resources and
the dollars.
We also have to realize that many of those foreign
physicians who have trained to those dollars have been
providing care to medically underserved areas. So as we cut the
supply of physicians in one area, we've got to look at its
potential consequences for another area. And then I would say,
within HHS, we need to look at the multiple health professions
development initiatives, some of which actually is continuing
to provide funding for the training of new providers.
And so, while on one level we realize we've got an
oversupply of providers, on another level we know we have
problems in the distribution of providers. And so I would say
that, on the issue of human resources development, it is a
broader issue from a policy perspective for us to look at how
this Nation should handle its problems of human resources in
health professions.
Mr. Pappas. I would appreciate--not here--but some
additional information other than what I have read in the
newspaper about that particular program. So if you could supply
that for me--whoever--I would appreciate it. Point other than
trying to verify if this is the case, the point I will just
mention and then I'll move on is, I question whether this is an
appropriate role for HHS and the cost.
These are comments. The other issue is one that I dealt
with in another meeting of the subcommittee on another subject,
where we have representatives of another department--USDA--and
three agencies that are part of HHS--FDA, the National
Institutes of Health, and the Center for Disease Control. We're
talking about an issue of--I guess it's--I'll just forget the
technical term--mad cow disease. What is the technical term?
Do you remember? OK. It's easy for you to say. And the
question I asked the three agencies from one department and
another department all involved in research--and I guess, just
a comment that I felt it was--I was surprised that there was
not one of these agencies that was designated or agreed upon as
the ``lead agency.'' And I would just encourage you folks to
encourage that as just a policy that, evidently, has not been
instituted.
Because, if we're looking for greater accountability, as, I
think, the taxpayers require, and, certainly, we want, and I'm
sure you want, as well. I think that as a matter of course,
there should be a lead agency involved in any kind of a joint
research project or joint project, because if something goes
wrong, there's going to be a lot of finger pointing. And it
doesn't make it easier for folks like yourselves, in
particular. Thank you, Mr. Chairman.
Mr. Shays. Thank the gentleman. For someone who likes to
get at waste, fraud, and abuse, HHS is a candy store. And for
just a variety of reasons. And it's not a Republican-Democrat
issue. I'm just looking and thinking how we could use our
entire committee staff just to look at one area. You have the
Administration for Children and Families. You have the
Administration on Aging. And you have the Health Care Financing
Administration (HCFA), Agency for Health Care Policy and
Research, Center for Disease Control, Agency for Toxic
Substances, Disease Registry, Food and Drug Administration
(FDA), Health Resource and Service Administration, Indian
Health Services--I mean, I'm just thinking how we could spend
so much time dealing with the pathetic success of health care
in Indian reservations--National Institutes of Health,
Substance Abuse and Mental Health Service Administration.
I'm just wondering, when you look at a department so large
I think when you added Social Security in with it there, the
budget was larger than the gross domestic product of Canada.
I'm not quite sure that's right, now that I've said it, but
close to it. I'm just curious how you all decide which
wrongdoing, what area of fraud you're going to get at, what
area of waste you're going to get at, given that you could
almost just close your eyes and do that? Is that what you do--
close your eyes and just kind of put your finger down, and say,
``OK. This is it?''
Ms. Brown. No, sir. And it's a pretty complicated process.
Of course, we're constantly doing various research to see where
there are anomalies in the payment schemes that are going on.
And that often points, as it did in the incontinence supplies
chart where we have a sudden spurt, and it isn't accountable
because of some new disease or increase in patient population
or something of that nature.
We're constantly looking at all of those to see whether or
not there is some new scheme that has emerged that has allowed
people to over bill certain programs. We look at all of the HHS
programs, actually. But now that the new health legislation has
passed, we do have a limitation we didn't have before. We have
increased resources as a result of that, all of those resources
that were voted in for health care have to be used just on
health care.
Mr. Shays. Right.
Ms. Brown. And that's about 70 percent of our budget. It's
about 30 percent, then, that is used for all the other
programs. So for the first year, we're having to track very
carefully exactly how much goes into each area. So that's one
constraint.
Mr. Hembra. From GAO's standpoint, we have a pretty
disciplined approach to planning strategically and in a more
tactical fashion. As you're well aware, Mr. Chairman, a good
part of that is working with the committees on both the House
and Senate, to ensure that the work that we do best fits the
needs of the authorization, the appropriations, the budget, and
the oversight committees.
Mr. Shays. Does GAO--is it more legislatively directed in
that sense? Let me ask it this way: does the Inspector
General's office have a little freer hand in what it looks at?
And is the GAO a little more guided by congressional areas of
focus?
Mr. Hembra. I'd like to let June speak first to this.
Ms. Brown. Yes. We have independence that has been provided
to us under the IG Act. So that, the Department or Congress--
nobody can really tell us how to use our resources. And I have
the responsibility, then. We have a long planning process. We
have a strategic plan we go through. We look at all the
emerging areas like home health and some of the new effects on
nursing homes and hospice, when laws change and so forth.
Mr. Shays. But you're open to suggestions as well as
requests?
Ms. Brown. Absolutely.
Mr. Shays. And sometimes you do work that's just in
response to requests you, obviously, then, had to have deemed
were necessary areas.
Ms. Brown. Yes. But we encourage both Department officials
and Members of Congress, if they are aware of any problem area,
to let us know. There have been a few cases where we've had to
turn that down because the priority was lower.
Mr. Shays. Right.
Ms. Brown. And we have that authority. But of course,
that's where we get a lot of the good leads that would show us
where problems----
Mr. Shays. Does the GAO?
Mr. Hembra. Yes. From a GAO standpoint, I think currently,
if you look across GAO, probably about 85 percent of our work
is what we call congressionally directed.
Mr. Shays. Gotcha.
Mr. Hembra. Either through legislative mandates or through
specific requests that come in from committees or even
individual Members.
Mr. Shays. And some of those legislative mandates are
continual, ad infinitum? They are annual requirements that you
have to look at?
Mr. Hembra. They are. But they're much less today than they
were in the past. We've worked pretty successfully with the
leadership on both the House and Senate side to eliminate a
number of those. Of course, our resource base has dropped
considerably over the last couple years. But we do have
flexibility. I don't want to suggest that we sit back and wait
for someone from the Hill to ask us to do a job.
Mr. Shays. No. If you see an area that you want to look at,
you can look at it?
Mr. Hembra. Yes. Within the resource constraints.
Absolutely.
Mr. Shays. Right.
Mr. Hembra. And we do that quite a lot.
Mr. Shays. OK. In terms of the presentation of the
Inspector General focus on home care, medical equipment and
supplies and hospice benefits, let me just get a sense of this.
We had fascinating hearings on the whole issue of medical
supplies and pricing. And let me just say, I made a reference
to it in my opening statement.
This committee takes tremendous pride in Title II of the
health care reform bill, which had three titles. Title II was
the whole issue of getting at health care fraud, making health
care fraud a Federal offense for all payers, private and
public. And that was the work of both Jay Owens, the Inspector
General, as well as the administration.
But that was a big plus. What we didn't do was see any
movement toward legislation that we developed based on our
hearings, dealing with the repricing of durable goods. I want
to just understand if the system is still as crazy as I recall
it, that, basically, we have rules and regulations that we the
Government and we the buyers have to follow, that basically
outline what we will pay for a good and service, and that if it
is underpriced, we end up with no sellers.
In other words, there's no law that requires a seller to
buy if we aren't paying a market rate. If we pay an above-
market rate, we obviously have a lot of sellers, but we don't
have--but we have the requirement that we have to buy at that
price unless we go through a process to refigure the pricing
mechanism. Now, this is what I want to go through.
Now, basically, we follow section 1842BA of the Social
Security Act, and we have to determine that it's grossly
excessive or grossly deficient--our pricing. Is that correct?
Ms. Brown. Yes, sir.
Mr. Dowdal. Yes.
Mr. Shays. So if it's very excessive or very deficient,
technically, we don't meet the test. We can overpay if its very
excessive and very deficient, but we can't reprice unless it's
grossly deficient?
Ms. Brown. Yes. And there's a long process that you have to
go through.
Mr. Shays. Yes.
Ms. Brown. The same as changing any regulatory matters,
which takes 2 to 3 years. So I know you've held hearings in the
past where we've presented some of this data and have brought
the public's attention to it, which I certainly applaud.
Because we need some mechanisms for adjusting prices in such a
fast changing market as this. We need the authority to do
competitive bidding when that's appropriate as well.
Mr. Shays. Yes. My recollection was confirmed, that we did
issue a report on this, but we need to followup. Does GAO want
to respond to this? Did you all get into this?
Mr. Dowdal. Yes. We've done a number of jobs where we've
recommended that more authority be given to the agency to
reduce prices when they're obviously out of whack with what the
market is paying for them. We've been issuing reports on that
since the late eighties, in fact.
Mr. Shays. OK. Well, this is one thing that I, certainly,
am going to spend some of my time on, because the only thing
gross about the system is that we allow it to continue. If it's
excessive, we should change the price. So that will be one
thing. And I appreciate you highlighting that. Did you want to
respond in any way?
Ms. Brown. Well, I only mentioned that there are things
like oxygen concentrators, which we have reported on. And we're
paying twice what the VA is paying. And they're able to
competitively bid, where HHS is not.
Mr. Shays. Now, twice is astounding. The explanation on the
other side would be that VA buys in bulk and it--Medicare and
Medicaid would be buying in--is it both Medicare and Medicaid
that we're talking about?
Mr. Mangano. Our reviews were in the Medicare area.
Mr. Shays. Right.
Mr. Mangano. And just to give you the specific figures, VA
pays about $128 a month for an oxygen concentrator, Medicare
pays $345 for one.
Mr. Shays. I mean, it just boggles my mind.
Mr. Mangano. That is correct.
Mr. Shays. Now, the other thing that boggled my mind--I'd
just like both of you to respond, both GAO and Inspector
General. We have a system where if doctors submit bills, we--my
recollection is that we review 1 percent of the bills and about
4 percent of the billing charges, and that we pay it and then
have to go back and try to capture it. It's only in those bills
that we check. Is that process still continued? Has HCFA
changed that system at all?
Mr. Mangano. The process is really driven by some pieces of
legislation that require Medicare to pay its bills within a
time limit, I believe it's within 30 days.
Mr. Shays. Right.
Mr. Mangano. And they must pay those bills within that
timeframe. As a result, what the Medicare program does,
primarily--is does a lot of post-payment review. But as we've
mentioned earlier, only about 2 percent of the claims ever go
through that post-payment review. The only way they can catch
it prospectively is through what they call ADITs.
Mr. Shays. Is that the auto-adjudicated system that we're
talking----
Mr. Mangano. Yes. There's--that's correct. There are ADITs
that the contractors--the Medicare contractors, the insurance
company which runs the program--have in their system. So, if a
bill looks grossly out of whack, it rings a bell on and ADIT.
They can go in and look at the particular bill.
Mr. Shays. But the fact is that if someone broke their
ankle and had a chest x-ray, that bill would get through the
system.
Mr. Hembra. That is correct.
Mr. Shays. Because we don't have an auto-adjudicated system
that would get that disconnect.
Mr. Hembra. Right.
Mr. Shays. And have we seen any process since our hearings
last year on that?
Mr. Hembra. Not really.
Mr. Shays. OK. You almost feel overwhelmed. Both those two
areas just strike me as being such absurdities. So I'm going to
continue a little bit and then--do you have any more questions
for this panel? You can just turn the clock off. That's the one
power of a chairman: I control the clock.
I love it. In terms of the whole information systems, we're
learning that the IRS may have wasted $3 billion. When I look
at it, I find that the details don't support $3 billion, but
support hundreds of millions if not billions. Are we in the
same danger with HHS, with its information systems?
But the problem is that if a business had such an important
element of its business--information systems--they would spend
$1 million or $2 million to hire the best and the brightest.
And they would pay them and they would get their money back ten
fold. Here, we're limited, I gather, by what a civil servant
can make. Is part of the problem that we don't have the
expertise? First, I want to know, do we have a problem with
information systems? I'd like for you to expand a little bit
more, since the Comptroller General, you introduced it. And are
we in danger of coming to concluding that we, too, have wasted
hundreds of million, if not billions of dollars in information
systems, and don't presently have a good system or systems?
Mr. Hembra. If you look back, Mr. Chairman, what you find
is, as information needs would surface, you would see agencies
pretty much creating stand alone, stove pipe systems to deal
with a specific information need. And of course, with the
advancement of technology, clearly the capability has expanded
tremendously.
If you look at HHS--and you could go down specifically and
look at Medicare, because there is a multi-million dollar
system's investment that's being made now with regard to the
Medicare transaction system, which will ultimately replace
about nine different information systems that HCFA and its
contractors use in processing claims.
Is HHS vulnerable with regard to information systems? GAO
has a lot of work across the Government that says, ``Of
course.'' And there has been millions and hundreds of millions
of dollars wasted. Fortunately, I think----
Mr. Shays. And you're working with Mr. Horn's committee on
this area--management systems?
Mr. Hembra. Yes. That is correct. That is correct.
Fortunately, there's a couple of things happening. In general,
and if--take you back to my statement--the Paperwork Reduction
Act, the Clinger-Cohen Act and the creation of Chief
Information Officers, were all geared toward bringing some
sense of order to how agencies went about determining what its
information management needs were and how they were going to go
about phasing those in.
We had looked early at HCFA's Medicare transaction system,
found some problems that they were having, and have been
working pretty closely with HCFA on MTS. And so I think there's
less likelihood of seeing something similar to IRS happening
within HCFA and its Medicare program. I think one thing that
HHS has to do to make sure that it doesn't get out of hand, is
make sure that it integrates its information management needs
as part of it overall GPRA process of developing a strategic
plan.
You can't do that outside of the process. It's an integral
part of what's going on. The second thing HHS, I believe, HHS
needs to take a look at is, with regard to the Chief
Information Officer as well as the Chief Financial Officer--the
Secretary has chosen to triple hat an individual within the
Department, the Assistant Secretary for Management and Budget,
giving that individual also the title of Chief Information
Officer and Chief Financial Officer.
Clearly, with regard to the Chief Information Officer, we
don't believe that that's consistent with the legislation. And
it certainly calls into question whether one individual has the
capacity at a senior management level to carry that wide range
of responsibilities.
Mr. Shays. Have you conveyed that concern?
Mr. Hembra. That information has been discussed, but
there's been no change within HHS.
Mr. Shays. OK.
Ms. Lillie-Blanton. Could I respond to that also?
Mr. Shays. Sure. Sure.
Ms. Lillie-Blanton. I think there is a particular challenge
in developing information systems for HHS. And that's, in part,
because HHS works so closely with States. And I think welfare
reform is an example of that, but Medicaid is also an example,
where you are relying on data and information systems which are
collected at the State and local level.
And we now have a major restructuring in our system of
welfare. The Federal Government, HHS in particular, is to
monitor compliance with that, but it's got to monitor
compliance based on information that is supplied by the States.
And you have, in many cases, States with very limited data
information capacity, management information systems.
And it just presents, I would say, a major challenge for
HHS to assistant, to develop, to monitor, with the information
that will come from different States, sometimes which may not
be comparably collected, sometimes which may not have the same
kind of control system, sometimes sexual harassment just may
very well be different types of information.
So I would say that there is a particular challenge. We
have seen, with the experience of Medicaid, that even when
there is some Federal oversight in trying to assist with--
because the Federal Government does collect--has two different
data systems for the Medicaid program that it collects. But
even with those, we have some very serious problems in the data
that is collected through HHS data information systems. So it
is a very serious problem.
Mr. Shays. Now, as you talk, I'm thinking that in my home
town we have two companies that, 10 years ago, didn't exist.
And today they're billion dollar companies. And yet they
realize in 10 years they may not exist again. The change is so
rapid. And I've been wondering for a while if one of the best
arguments for why we need to try to have government do a little
less, and then do everything else better, is that it just may
not be able to keep up with the change.
One of my concerns in Government is that too many people
make the decision before it finally comes to fruition, whereas
in the private sector now, they've empowered two or three
people in that chain to ultimately make very big decisions. Do
you want to comment?
Let me just tell you my plan. I'm going to invite either
staffs to ask a few questions if they want, only because really
what we're just trying to do is flush out where we want to
focus our time. And so, it's really, I think, appropriate to
have our staff weigh in here if they want. But did you want to
say something first?
Ms. Brown. Well, I wanted to comment on the new system that
they're developing, that----
Mr. Shays. They being--and for which system?
Ms. Brown. I'm sorry. HCFA is developing----
Mr. Shays. OK.
Ms. Brown [continuing]. For Medicare.
Mr. Shays. Right.
Ms. Brown. And this will be a gigantic system that is far
larger than any insurance company, of course, would have.
Mr. Shays. This is MTS or----
Ms. Brown. MTS. Yes. We are able to bring a lot of things
to their attention, particularly through doing the financial
system audits. We have identified a lot of problem areas and a
lot of areas that have to be treated differently in the system.
So we have a process for working with them on that, which I
think will help a great deal. I did want to point out that
there is not requirement, not even the capability for them--
being HCFA--demanding the Social Security number of the
providers until this latest legislation passed--Kassebaum-
Kennedy.
HCFA didn't have unique provider numbers, either. And both
of those are going to seriously undermine the effectiveness of
a system. So I think they do need Social Security numbers. Even
when we exclude somebody from the program, there's no way of
tracking how many other areas they might be billing in.
Mr. Shays. Let me just say--I'm going to call on the
majority counsel--but my purpose is to ask if there was a
question that you wish we had asked, if you want to respond to
the question we never asked you, but wished we did. And also, I
find that those who come and testify who say the least
sometimes have more time to think about something they want to
say. So with the power invested in me, I'm going to provide the
three of you who didn't make opening statements to get some
closing words and see if you're willing to risk saying a
comment that your boss may not like.
Mr. Dowdal. Well, that's never stopped me before.
Mr. Shays. Good. Well, we'll come to you in a second. OK.
Do you have a question you want to----
Mr. Halloran. Yes. I just would ask each of you to comment
on block grants in general and the kinds of accountability
systems you see that the Department should use in maintaining
the flexibility that are built in the block grants and, yet,
being able to provide the accountability that you want and we
want in terms of the money that's spent. It's a difficult
balance. You talked about data problems, which is one area. But
where have you seen in the block grant programs we have, where
has it worked, and what kind of emerging problems might you see
as we roll out bigger block grants such as the welfare reform?
Ms. Lillie-Blanton. Well, actually, let me just give you
something that I would say HHS is doing now that might be an
approach to use, because I think we have had problems with
block grants in the past. HHS has begun to develop what is
called performance partnership grants. And they've used that
approach with SAMHSA, the Substance Abuse and Mental Health
Services Administration, and CDC. In the process of the
performance partnership grants, there is negotiation with
States on the goals and outcomes that they want to see
achieved. And so, rather than holding a State----
Mr. Halloran. And the form of the data that will prove it?
Is that part of the deal?
Ms. Lillie-Blanton. The process has varied, but certainly--
I'd have to look back to find out how specific and how
prescriptive they are in the data goals, the data elements that
would be used to document outcomes. But certainly, along with
the broad objectives--the broad goals are objectives, which are
measurable objectives. At least with that process you have a
way of working with an entity--a State or, in some cases, it
could be a local community--in trying to negotiate what you
want to achieve, even if you didn't look at all the details of
how it's achieved.
So certainly, I would say the goals and the outcomes would
be an approach that we could use that still give States some
decent flexibility in how they design their programs, but at
least the accountability system, from the point of the Federal
Government, can be monitored because you have defined what you
wanted to achieve. That's a part of the pilot efforts that are
now underway.
It's still not certain how well that can work with the
broad array of what--of programs that HHS has. Welfare reform,
for example, is an example where that is a little different.
And when I talked about the demands on welfare reform--just to
take a couple of them--one are the time limits and the work
force participation requirements.
In that case, Congress has to set some goals, measurable
goals. But the data systems, at this point, are not in place to
document and monitor them. So it is a balancing act. With the
performance partnership grants, I think, are a way that we
could try to work on some level. When you move to goals that
are so broad, that cut across all the States, such as welfare
reform, it means we've got to talk about more uniform data
collection systems that can help guide and develop.
And you know, it could mean resources to assist in
developing those infrastructures. But otherwise, I think that
we will be comparing apples and oranges even as we give out
performance bonuses--for example, for declines in out of
wedlock births. I think that that just becomes problematic, but
yet, the intent is a desirable goal.
Ms. Brown. If I could comment. The President's council on
integrity and efficiency, which is a group of all the
Presidential appointed Inspectors General, did a study on just
this. It isn't recommending one way or another, but it explains
what vehicles could be included in any legislation or other
provisions of a grant, and what the results might be. If the
grant doesn't provide for oversight, there would be no way, in
spite of any efforts and whatever data we had, we would not be
able to go in and audit against anything.
So that would be one extreme. This report goes on and
explains some of the possible vehicles for gaining some level
of oversight. I'd be glad to provide that report so you could
get a balance of all the IGs' views.
Mr. Shays. Ms. Brown or Mr. Hembra. Is there any question
you wished we had asked that--I mean, there's a lot of things
we could have--but--so nothing--Mr. Mangano, do you have any
comment you wanted to--?
Mr. Mangano. No. I don't think so.
Mr. Shays. Ms. Brown, any comment? Mr. Dowdal.
Mr. Dowdal. Yes. I think I'd like to re-emphasize that the
GPRA process provides a real good opportunity for everyone to
take a look at the processes and everything that the agency
has, to meet the goals that have been given to it under the
laws. And by using that opportunity to better design their
systems for controlling costs, I think HCFA can get around a
lot of the problems that currently are evident in the waste and
abuse and fraud and mismanagement area. So I think--I hope that
the GPRA process works as well as it should.
Mr. Shays. Knowing what your mission is and how you're
going to carry it out is obviously very important. I find that
it also--we try to do it--obviously, the task is much easier in
our own offices. But knowing your mission, your strategy, your
projects, and your tactics, and getting your staff to talk
about it is very energizing. So it can be a tremendous tool if
it's used well.
And I know that you both are expressing concern. You know,
I guess this year is the moment of truth of whether the
departments take it seriously or not and take advantage of it.
Let me say that we're going to go to our next panel, but the
dialog, obviously, continues. You know that you can pick up the
phone any time and we feel that we can do the same.
So I'll just emphasize, again, my interest in making sure
that we look at the worst of the worst or look at the areas
where we can have the greatest impact and change, given that
there is so much that we can look at. And given that we have
this problem on this side, we also understand that you have
that same challenge. So we're very patient when we see
something that doesn't work, and say, ``My gosh, why didn't you
all get at it?'' Because you've got more than enough to do. So
thank you very much.
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Mr. Shays. Our next panel is going to focus on the
Department of Veterans Affairs: William Merriman, Deputy
Inspector General, Department of Veterans Affairs, accompanied
by Michael Sullivan, Assistant Inspector General, Department of
Veterans Affairs, and David Baine, Director of Federal Health
Care Delivery Issues, General Accounting Office. Mr. Baine, do
you have anyone else accompanying you? Could you, in the mike,
tell us who will be accompanying you? How many? One or two? OK.
Would you state the name for us so our transcriber can----
Mr. Baine. Sure, Mr. Chairman. This is Mr. Jim Linz, an
assistant director in our group, who has been involved in
veterans programs for more than 15 years.
Mr. Shays. Well, it's great to have him accompany you, and
we'll swear all--now, do we have anyone else? Do we have--good,
OK. We're all set there, then. I'm going to ask you to stand at
this time so I can swear you in.
[Witnesses sworn.]
Mr. Shays. Thank you. For the record, all four have
responded in the affirmative. And we're going to start first
with Mr. Merriman, who is the Inspector General. And then we'll
go to you, Mr. Baine.
Mr. Merriman. Mr. Chairman and members of the subcommittee.
Mr. Shays. Excuse me. If we could just switch these names
around up front here, just to make sure we've got them matching
here. Thank you. All set? I'm sorry. Thank you.
STATEMENTS OF WILLIAM MERRIMAN, DEPUTY INSPECTOR GENERAL,
DEPARTMENT OF VETERANS AFFAIRS, ACCOMPANIED BY MICHAEL
SULLIVAN, ASSISTANT INSPECTOR GENERAL, DEPARTMENT OF VETERANS
AFFAIRS; DAVID P. BAINE, DIRECTOR OF FEDERAL HEALTH CARE
DELIVERY ISSUES, GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY JIM
LINZ, ASSISTANT DIRECTOR, FEDERAL HEALTH CARE DELIVERY ISSUES,
GENERAL ACCOUNTING OFFICE
Mr. Merriman. Mr. Chairman and members of the subcommittee,
I'm pleased to be here today to discuss the Department of
Veterans Affairs. With your permission, I'd like to enter my
prepared statement for the record and use this opportunity to
summarize some of the key issues facing the VA. When the IG
testified before the subcommittee 2 years ago, VA was at the
crossroads of change.
Since then, VA has made notable progress. While VA works
continuously at improvement, it remains faced with what appears
to be overwhelming challenges for the 21st century. Amongst
these challenges include responding to the changing health care
needs of veterans and providing more accurate and timely
benefits. While VA has made progress, there remains much to be
done. Also, since many of the changes implemented by VA are in
the early stages, it will take some time before we are able to
evaluate the results.
Regardless, the IG remains focused on working with Congress
and VA in efforts to constantly improve VA's programs and
activities. To this end, I would like to briefly elaborate on
three areas. Collectively, these areas embrace matters critical
to the accomplishment of VA's mission and reflect major themes
pursued by the IG. In the area of health care, a VA goal is to
move from an in-patient to an out-patient based system.
In recent years, the IG has conducted a series of audits
and evaluations which address this goal. For example, we've
determined that the lack of reasonable staffing methodologies
resulted in unexplained disparities in the allocation of
resources. While VHA developed the veterans equitable resource
allocation model to address resources based on work load, the
use of this model will require close management attention and
monitoring.
VHA initiated a reorganization in 1995. While this
represents a major milestone in the reform of VA's health care
system, it is too early to determine whether it will produce
the intended results. Although the IG is optimistic, the scope
and pace of reorganization presents special challenges for VHA
to ensure the continuation of high quality health care.
Another important challenge facing the VA involves reducing
the backlog in claims and appeals. VHA has about 327,000 claims
currently pending and an average processing time of about 5
months per claim. IG efforts are focusing on ways to help VA
reduce processing times and improve the accuracy of benefits.
We are nearing completion of a series of related reviews. We
will issue a summary report later this year. On management
accountability, the enactment of several pieces of legislation
in recent years, such as the Chief Financial Officer's Act and
the Government Performance and Results Act, have provided a
statutory framework for enhancing the performance and improving
accountability.
In regard to our audits of VA's consolidated financial
statements, significant improvements in financial report
reliability have been achieved. While VA's efforts over the
last 5 years have enabled us to provide this year's unqualified
opinion, work remains to be done to assure control weaknesses
are continually addressed. Our early reviews of the
implementation of GPRA show that VA was a long way from
achieving the ultimate goal using performance measures as a
tool for improving VA operations.
However, VA has made significant progress in the area as
the Chief Financial Officer has been working with all VA
activities to shift VA's focus to overall program results.
Before closing, I'd like to address two additional matters
important to cost effective management of both VA and the
Federal Government. First, continuation of our authority to
conduct post-award audits of Federal Supply Schedule contracts
for medical supplies and equipment and for pharmaceuticals is
at risk.
Proposed regulatory changes would severely limit our
ability to conduct such audits. Our work in this area combined
with the benefits already realized has convinced us that the
elimination of the right to conduct post-award audits of FSS
contracts will result in higher health care costs for the VA.
Mr. Shays. Before you continue, who is advocating that
change?
Mr. Merriman. There's a proposed change for the Federal
FAR, Federal Acquisition Regulations, that we're negotiating
with GSA at the current time. Industry is advocating a change
to the Federal Acquisitions Regulations which would remove our
right to conduct post-award contract audits.
Mr. Shays. That's for all departments or just the VA?
Mr. Merriman. That would be for GSA and the VA for those
Federal Supply Schedules that are managed by the two
departments. The General Services Administration has a
responsibility for managing the Federal Supply Schedules. They
delegate the responsibilities for pharmaceuticals and for
medical supplies and equipment to the VA to manage. So if a
rule were to be passed that eliminated the right to contract
audits, we would not be able to do it in medical supplies and
equipment.
There's separate legislation that might allow us to still
audit pharmaceuticals. But the proponents of this rule would
say that the IG still has the authority under the IG Act. We do
if fraud is suspected. We could conduct an investigation. We
could do an audit. But we have a program with the department
where we do the contract auditing for them on a reimbursable
basis. And we've delivered, in the last 3--a little over 3
years--about $50 million have been returned to the Government
based upon our efforts.
Mr. Shays. Now, is this a proposed rule that you're having
to comment on? Is this already in process?
Mr. Merriman. The rule has been proposed. It's still in the
comment stage. The comments are being considered by GSA at this
time. We are working with them.
Mr. Shays. Yes. I'm going to just come back in a second on
that. Why don't you finish your statement?
Mr. Merriman. OK. Second, the IG audited VA's OWC program,
the workman's compensation program, in 1993 as a part of a
governmentwide review. To address the report's findings, VA
moved accountability and responsibility for these costs from
the central office to facility level. Each facility is required
to monitor its OWC program and return employees to duty as soon
as possible in order to reduce costs.
We initiated a pilot investigative project with selected VA
medical centers to help them identify individuals receiving OWC
payments under fraudulent circumstances. I believe there is a
potential for significant savings to the Government in this
area. This concludes my statement, Mr. Chairman. I'd be pleased
to respond to any questions you might have.
[The prepared statement of Mr. Merriman follows:]
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Mr. Shays. Thank you. Mr. Baine.
Mr. Baine. Thank you, Mr. Chairman. Good morning.
Mr. Shays. Good morning.
Mr. Baine. As you know, the effectiveness of VA's programs
and activities has a profound effect on the welfare of our
Nation's 26 million veterans. In fiscal year 1996, VA's
approximately 222,000 workers delivered a wide array of
medical, disability, pension, housing, insurance, education,
and burial services at a cost of nearly $38 billion. Two years
ago, we testified before this subcommittee on some of the
challenges facing, specifically, the VA health care system.
Today, I would like to discuss VA's progress in addressing
those challenges. In addition, I would like to touch briefly on
some issues facing the Veterans Benefits Administration, VA's
efforts to implement the Government Performance and Results Act
and other recent legislation to improve the management of
Government programs and changes that could be made in veterans
benefits and in the operation of VA programs to help reduce the
budget deficit.
Mr. Shays. I don't think you have enough time to do all
that.
Mr. Baine. I probably don't. But I'm going to try. We
believe significant improvements have occurred in the
efficiency of the VA health care system. VA's new veterans
integrated service network structure clearly values efficiency
and customer service. This reorganization contains several
elements that we believe hold promise for providing the
management framework needed to realize the system's full
potential.
Consistent with the requirements of GPRA, the Veterans
Health Administration established five basic goals for its
health care system. And under each goal, it has established
objectives and performance measures for gauging the progress
toward meeting those goals. Under its new structure, VA has
consolidated management of nearby hospitals to reduce
administrative costs, increased the use of ambulatory surgery,
and reduced the average lengths of stay.
Under Dr. Kizer's leadership, the VA has a new emphasis on
both efficiency and customer service. A few years ago, Mr.
Chairman, we testified that VA could reduce inconsistencies in
veterans' access to care by better matching medical centers'
resources to the volumes and demographic makeup of veterans
requesting services at the VA meld centers. Next month, VA
plans to implement a new resource allocation system.
Under this system, the networks that have the highest costs
per veteran user will lose funds while networks with the lowest
cost per veteran user will gain funds. We applaud VA's effort
to try to develop a straightforward, simple method for
allocating resources. We don't believe, however, that VA has
determined the right amount of dollars that need to be shifted
to ensure equity of access, primarily because it has not
ascertained the reasons for differences between the costs per
veterans in each of the networks.
VA recognizes that its allocation system is not perfect and
is continuing to explore ways to improve it. For example, both
VA and we are currently trying to develop the data to more
fully explore the potential effects of population-based
allocations.
In our testimony 2 years ago, we focused on several major
challenges facing VA, the first of which was uneven access to
health care. During the last 2 years, VA has made a lot of
progress in this area. First, eligibility for VA health care
was expanded. Now all veterans are eligible for comprehensive
in-patient and out-patient care subject to the availability of
resources. Second, VA has begun to establish community-based
out-patient clinics to improve veterans' access to out-patient
care. Third, VA's contracting authority was revised last year
by the Congress to make it easier for VA to buy services from
private providers.
A second major challenge was the decline in use of VA
hospitals. As VA's effort to increase the efficiency of its
health care system have gained momentum during the last 2
years, the decline in VA hospital use has accelerated. As work
loads continue to decline at the hospitals, VA's investment in
its hospital's infrastructure increasingly detracts for its
ability to shift resources to other needs.
A third major challenge was identifying and addressing
unmet health care needs of veterans. We suggested that the
health care system retarget resources to provide care for
higher income veterans with non-service connected conditions
toward lower income veterans and those without adequate health
care insurance. VA, however, through its current legislative
proposals, appears to be going in the other direction.
Like VHA, VBA also faces several important challenges in
administering its comp and pen programs. First, the disability
rating schedule has not been economically validated for the
last 45 years. Second, VA could be unable to issue compensation
and pension checks at the beginning of the year 2000.
Mr. Shays. Let me just--I don't quite--since I'm the only
Member here right now.
Mr. Baine. OK.
Mr. Shays. And so we can be a little more informal here.
Mr. Baine. Sure.
Mr. Shays. I don't understand what you just said about the
45 years, not being validated. What do you mean? What hasn't
been validated?
Mr. Baine. The disability rating schedule is made up of two
primary components--there's a medical component and an economic
component. The economic component hasn't been validated by VA
for the last 45 years. And what that means, Mr. Chairman, is
those diseases or compensatable diseases for which compensation
was paid 45 years ago--for example, somebody lost an arm and
got X number of dollars.
As time has gone on in the last 45 years, mental illness,
for example, has taken on more of an important role, but the
economics of this condition have not been looked at for 45
years.
Mr. Shays. I understand.
Mr. Baine. Third, veterans frequently wait over 2 years for
resolution of disability compensation and pensions claims. And
fourth, hundreds of millions of dollars in overpayments of
compensation and pension benefits are made because VBA so far
hasn't focused much on the prevention of such payments.
Let me turn now real briefly to VA's implementation of the
Government Performance and Results Act, the Chief Financial
Officer Act and information management legislation.
While VA has not completed its GPRA strategic plan, its
budget submission includes many of the elements that will be
included in that plan in September. The budget submissions for
both the major administrations also included strategic planning
documents. Similarly, VA has established a sound financial
management structure, as Mr. Merriman has pointed out, and is
in the process of trying to appoint a Chief Information
Officer. However, OMB has some concerns about whether VA's
appointment of its Chief Financial Officer as the information
officer will comply with the Clinger-Cohen legislation.
Mr. Chairman, we periodically report to the Congress on
options for reducing the budget deficit, and issued a report
last week in which 10 specific suggestions, or 10 specific
options were included for the VA. And I won't dwell on that.
But those are included in our statement, and we'd be glad to
talk about any one of them. Thank you very much.
[The prepared statement of Mr. Baine follows:]
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Mr. Shays. Thank you. Let me just say that a lot of your
statement was not given orally but is on the record for our
staff. And when Members of Congress say they're going to read
your statement, that's a stretch. But I do know that the staffs
will read them in preparation for our hearings. I'm trying to
develop a theory that may just fall flat on its face. I'm just
going to focus now on Gulf war illnesses and so on, just as a
means at looking at the mission of the VA. So it has greater
implications.
You, Mr. Baine, drew on it in the fact that you said that
compensation hasn't been really looked at in 45 years for
disability. I have a general theory that clearly, first off,
the VA and the DOD and the CIA all want, in my judgment, that
any of our soldiers who fought in the Persian Gulf to be justly
diagnosed, treated, and compensated. But I don't think the
system is allowing that to happen.
And one of my general theories is that the VA has just not
responded to the whole issue of biological or chemical
exposure. In other words, that they don't have the expertise,
so they have a doctor that has no health care expertise in
chemical exposure. And what I've learned since I've basically
questioned the VA's ability to look at chemical exposure, is
that the medical science, in general, doesn't know how to
diagnose or treat chemical exposure. And there are very few
people in the country who have any expertise in it.
My point is, when I look at the VA, do I see a dynamic
organization that is quick to change or do I see an
organization that is very slow to change? And more
specifically, have either of you looked at the issue of the
skills of the doctor versus the kinds of challenges that our
soldiers faced, not just in the Persian Gulf but earlier.
Mr. Baine. I might--go ahead.
Mr. Merriman. I'd say that it might be looked at as an
organization that is slow to change because of its size and how
it's developed over the years. But when you think about the
skills that are available to the VA, you have to look in terms
of the VA physicians, themselves, and the employees of the
affiliations that they've developed over the years. So at least
theoretically, they have access to medical expertise that goes
beyond the VA's employed VA physicians.
Mr. Shays. In other words, the Westhaven Hospital in
Connecticut draws on Yale University?
Mr. Merriman. Many of them have dual appointments.
Mr. Shays. Right.
Mr. Merriman. OK. So there is that to be considered. I'm
sorry. The second part?
Mr. Shays. Just the issue of its ability to respond to
change. And then the second is, do you feel that the
expertise--the health expertise--matches the health needs of
our veterans?
Mr. Merriman. I would say----
Mr. Shays. And I gave, as an analogy, the whole issue of
chemical exposure.
Mr. Merriman. Right. I would look at it differently. I'd
look at the needs of the veterans might be more toward not
necessarily what happened to them in war time, but diseases now
that they've grown older. We would have taken issue in the past
with the focus on specialty care in the VA, some of which,
perhaps, was driven with affiliation relationships. And we
would have said that there needed to be more of an emphasis on
primary care.
They are moving toward that. They are using some of their
leverage now to ensure that more of the residents or trainees
that come into the VA system, are trained in primary care to
meet the overall multi-system problems of an aging veterans
population.
Mr. Shays. You're making an argument that the large
population are aging veterans that may have illnesses that
aren't directly related to their service.
Mr. Merriman. Well, interrelated.
Mr. Shays. Interrelated. OK. It doesn't really address the
potential warfare of the eighties and beyond, the issue of--if
it's not an area you focused in on, I don't want to push you on
it.
Mr. Merriman. We haven't. That's about as far as I can go
on it.
Mr. Shays. OK.
Mr. Baine. Mr. Chairman, could----
Mr. Shays. Your response was helpful. Yes. Thank you.
Mr. Baine. Could I just make one comment?
Mr. Shays. Sure, you can make as many comments as you want.
Mr. Baine. I agree with Mr. Merriman in terms of the VA
having traditionally been fairly slow to change because it's a
large organization and it's a big boat to turn around. In the
last 2, 3 years, however, Dr. Kizer has attempted to turn the
boat around in many respects. With regard to your specific
question, I think that is a concern that we have, too. When
folks from the Persian Gulf conflict get into the VA system are
they treated in the same way as everybody else that goes in the
VA, or are there special things that the VA is doing.
And that's something that we're trying to look at right
now. We've just started some work to see whether there's any
difference between somebody who perhaps has been exposed to
chemical and biological agents, how they're treated vis-a-vis
how anybody else is treated in the VA hospital.
Mr. Shays. Well, you raised the question of the
associations of universities. Westhaven had in its protocol for
questioning Persian Gulf veterans early on, questions about
chemical exposure and so on, because the doctor who was
responsible was a doctor who focused in on work place
illnesses. So there was this--but that was almost by luck, that
they got into that issue a little sooner.
Mr. Baine. That's what we're trying to explore, is see the
extent to which those kinds of things are happening in the VA
system.
Mr. Shays. Now, Dr. Kizer's name has come up more than once
today. Do you think he's been relatively successful in trying
to bring about change in the VA?
Mr. Baine. My own personal belief is that he has. You have
to----
Mr. Shays. First off, let me just ask--do you give him
credit for trying to start with? Do both of you feel that he's
trying to make major changes?
Mr. Merriman. Oh, yes.
Mr. Baine. Yes, sir.
Mr. Shays. So both of you are on record as saying that he's
making major effort here?
Mr. Baine. Right.
Mr. Merriman. That is correct.
Mr. Shays. And your sense is he's having an impact, that
the Department is responding.
Mr. Baine. I don't think there's any question that he's
having an impact.
Mr. Merriman. I agree.
Mr. Baine. I mean, if you go out into the field, to the
networks and to the medical centers, you will, I think, come
away with the appreciation that he is having an impact.
Mr. Shays. Mr. Merriman.
Mr. Baine. People have various views of that.
Mr. Shays. Right. They may not agree with the change, but--
yes. Mr. Merriman, do you feel----
Mr. Merriman. I agree. And his relationship with our office
is a whole different world than what we have been used to in
the past, even in the planning process.
Mr. Shays. What? Trying to respond to your concerns and
criticisms? In other words, what is different about that
relationship?
Mr. Merriman. First of all, his willingness to participate
in the development of our projects.
Mr. Shays. OK.
Mr. Merriman. He, personally, will give us suggestions to
include in our plan, which we will discuss with him, and put in
or not in as we see fit. But his willingness to discuss our
recommendations, to sit down and have a good thorough
discussion of it, and take action on problems that we're
finding.
If he agrees with us early on in our audit, he won't wait
until we conclude the process. He will initiate action when he
sees it. On the other hand, if he questions our methodology,
he'll demand proof that we're right. But we have a very good
working relationship with him. And I think he does deserve a
lot of credit for the changes that are happening in VHA.
Mr. Shays. What would the VA disagree most with your
written testimony? Not what you said, because you were both
pretty positive about the VA. Where would you have your biggest
disagreement with the VA? I'll start with Mr. Baine.
Mr. Baine. My----
Mr. Shays. Yes.
Mr. Baine. My sense is that VA would probably disagree most
with our characterization of its intention to target higher
income non-service connected veterans to enhance its patient
base.
Mr. Shays. OK.
Mr. Baine. That's my----
Mr. Shays. I'm going to come back to that. What would you
say that your biggest disagreement with----
Mr. Merriman. Other than perhaps not identifying more
positive aspects of their work, I don't know the----
Mr. Shays. They just want you to talk about the positive.
Mr. Merriman. We tried to provide a balance.
Mr. Shays. So we know they're normal. OK.
Mr. Baine. It's always interesting, because one of the
things that we've tried to do over the last several years, as a
courtesy to VA, when we prepare a testimony like this, is go
talk to the programmatic people. And Jim and I had that
experience a few days ago. And there were 40 people in the room
and it was fair to say that most--somebody disagreed with
almost everything.
Mr. Shays. Let the record reflect the sarcasm. OK. I still
want you all to be son of a bitches a little bit. Otherwise----
Mr. Merriman. We're allowed to do that.
Mr. Shays. Sons of bitches? The district I represent, the
4th Congressional District in Connecticut, has 10 towns and a
number of hospitals. Four of those hospitals are concentrated
in about a five-town area. And studies show that we may only
need one of them to provide acute care. Some of the hospitals
could refocus and provide other care, but acute care we only
need one hospital the size--one-fourth of what we have now,
basically.
When I look at a VA hospital, I would think that you have
the same challenges in some areas. What's wrong, though, with
the VA trying to expand its client base for economies of scale?
Otherwise, there may be no hospital if it can't become more
efficient. So what would be wrong with the VA focusing in on
increasing its enrollment?
Mr. Baine. There's nothing specifically wrong, Mr. Shays,
with the VA trying to expand its patient base. Our concern is
that there are a fair number of veterans that have special care
needs.
Mr. Shays. Right.
Mr. Baine. And you pointed out some of them--spinal cord
injury, PTSD, chemical and biological injuries or illnesses--
those kinds of things that VA is specifically tasked and
expected to provide care for. As it moves toward a re-
engineered health care system it seems to us, at the present
time, that VA is targeting folks who can provide an income
stream to VA to supplement the appropriation that it gets.
Mr. Shays. Yes.
Mr. Baine. And they has been a concern of ours for several
years. It's one where Dr. Kizer doesn't necessarily agree with
us. But we believe that it's a valid concern. And with regard
to your comment about--in your district there are four or five
hospitals in five towns--VA is facing essentially the same
thing.
It's taken about 50,000 beds out of service or converted
those beds to other uses over the last 20 years or so. And it
is facing the same kinds of things that those hospitals in your
district are facing. Now, the question actually becomes--and
it's a question for both the Congress and the administration,
it seems to me--what portion of the $17 billion health care
budget should go for the maintenance of the infrastructure.
There's a choice to be made. Are you going to maintain the
infrastructure at the current level, or are you going to change
the mix and try to provide veterans benefit in maybe a
different way?
Mr. Shays. Which the veterans are looking at out-patient
clinics and expanding them, obviously. But that can potentially
take away its client base from its acute care or it sometimes
can feed into the system.
Mr. Baine. Yes.
Mr. Shays. But there are some of us that take the unpopular
view, but hold it quite dearly, that I would like a veteran to
be able to have a veterans' card that enabled them to go to any
hospital in the world--in the country, rather.
Mr. Baine. Right.
Mr. Shays. And be able to get a care that would be special
to that veteran, not necessarily in a VA facility. Have either
of you looked at the economics of that issue? Not the political
viability. Maybe the political viability tells you don't want
to look at the economic viability.
Mr. Merriman. We have not. No.
Mr. Shays. OK.
Mr. Baine. No. We haven't looked specifically at the
economics of the thing. We have, however, looked at VA's
initiative to establish these community-based out-patient
clinics.
Mr. Shays. What----
Mr. Baine. The first batch of 12, I think it was, or 15,
perhaps--and, basically, what we found was that a large portion
of the population that was going to be served by those
community-based out-patient clinics or access points, as VA was
calling them then, were veterans who were non-service connected
and higher income. So the outreach effort reached the
population who, perhaps, could either pay some portion of the
cost of their care through copays or, as in some of the VA
legislative proposals, they were Medicare eligible.
Mr. Shays. Let me just get into one other area that--in the
President's budget, it says the Veterans Health Administration
is the Nation's largest trainer of health care professionals.
About 108,000 students a year get some or all of their training
in VA facilities through affiliations with over 1,000
educational institutions.
The program provides training to medical, dental, nursing
and associated health care professional student to support VA
and national work force needs. Have you looked into this--in
other words, we're looking at training hospitals in Medicare
and Medicaid and how we pay for it. But the VA, evidently, is
the largest trainer of doctors. Is that through the VA funded
system that we have this?
Mr. Baine. Yes. It's through the VA funded system. As Bill
said, with the affiliated institutions.
Mr. Shays. Right.
Mr. Baine. With the--VA has affiliation agreements with--
I've forgotten exactly how many universities and medical
schools. And VA sees it as part of its mission, the mission to
train residents and other health care providers. We've done
some work with regard to the affiliation agreements. Bill's
group has done a fair amount of work with regard to the
affiliation agreements and found some problems.
Mr. Shays. Yes. Let me ask him. Mr. Merriman, I'm going to
have you respond. But I'll introduce this question. Is it
almost the sense that the tail is wagging the dog? Is the VA
saying what they want or is it the affiliates saying what they
want?
Mr. Merriman. We had problems in the past that we thought
that the VA wasn't using the leverage it had to direct the
affiliations along the lines that would be more appropriate for
the department. It's another area that Dr. Kizer came to us on,
asking for what we had found in the past with respect to
affiliation problems. And he had a major initiative to go out
and restructure the agreements with the affiliations and the
Department. I guess I'd ask Mr. Sullivan to elaborate a little
bit more on some of our work in that area.
Mr. Sullivan. Yes. In regard to the number of affiliations,
the VA--in their 173 hospitals--120 of them are affiliated with
major universities around the country. Dr. Kizer, in one of his
initiatives in which we also participated, has addressed the
resident issue, the issue you brought up earlier--or Mr.
Pappas, I believe, brought up about the schools being paid not
to train residents and so forth.
Mr. Shays. Yes.
Mr. Sullivan. Dr. Kizer's study has resulted in a decrease
in the number of residents that are being trained by VA. I
think his program calls for a 3-year process where the number
of residents decrease by X percent each year.
Mr. Shays. Does it represent a cost to the VA or a benefit?
In other words, sometimes you get the residents and they stay
up 30, 40 hours before getting any rest and do a lot of the
yeoman work. So how does the VA view this, as more of a benefit
or a cost?
Mr. Sullivan. I think it becomes a benefit. We had problems
in the past about overuse of the residents in place of the
attending physicians that VA would expect to have caring for
their patients. But I think the decrease in cost is also vital.
I think that has helped, and will help in the future as they
have a decrease in the number of residents.
Mr. Baine. One other of the tensions, I think, in the
business with the affiliations agreements and the residents and
so forth is that historically and traditionally, many of the
specialties and subspecialties have been trained in VA
facilities. As VA moves to a more primary care type model,
that's creating some tension with the affiliated institutions
as to whether we're going to have primary care doctors or
whether we're going to have specialists and subspecialists.
Mr. Shays. When I was in the Peace Corps, they were
constantly doing tests on--trying to determine what volunteer--
let me back up. They had a high rate of volunteers not
finishing their assignments--in some cases more than 50
percent. So they'd invest money. They'd send a volunteer to a
country. The village would be excited. And the next thing, the
volunteer leaves and the village is very unhappy.
And we made more enemies than friends sometimes. So there
was a study to decide--a lot of studies to decide who would
make it and who wouldn't. And I began to think that, in some
cases, they were playing with our minds. I mean, they took
married couples and would say some things to one select group.
And they would take another group--in the experience that I
had--and say something quite different, and see how we would
react.
Then when I got my MBA, I read some of the studies that
they had done on us, which, having been in Government a long
time, I get the feeling sometimes the Government is quite
willing to do things that in the private sector we wouldn't
condone in terms of using the Army, in a sense, as guinea pigs
for seeing where we're headed here and what would be the
outcome.
And I'm raising, maybe, a sensitive question: do you have
information that would make us want to look at this? Is there a
tendency to use the veteran population as an opportunity to do
certain tests--psychological or physical--that we might not see
happen in the private sector? Do they represent a control group
that becomes a real temptation for the associate hospitals?
Mr. Merriman. That was a long introduction to a question. I
don't think that it's any different than any normal teaching
hospital. In other words, the residents are there for training.
And an individual patient may be looked at by more--more
physicians in training than normally would be the case. But I
think it's a----
Mr. Shays. OK. I'm looking at the issue of a company
culture, in a sense. We know that the military much less
sensitive than the private sector to the USAFE chemicals. You
can have a soldier in the Persian Gulf spraying lindane on
Iraqi soldiers as a disinfect, et cetera, in an enclosed tent
without ventilation and without any effort to accommodate
temperature.
And they can do it all day long, day in and day out,
whereas in this country we would never, ever allow that to
happen. We can have chemicals on military bases that are
exposed to the environment that we would not allow in the
private sector. We aren't closing down some military bases
because of chemical abuse and cleanup costs. I'm just talking
about a culture. Is there a culture in the VA that is more
similar to the DOD model than the private sector model?
Mr. Baine. My experience, and, I think, that of Jim would
indicate that that, perhaps, was more of a problem 20 years ago
than it is now.
Mr. Shays. OK.
Mr. Baine. In terms of experimentation and those kinds of
things, there have been some instances where VA was doing
research on atomically exposed veterans and so forth. And there
were some stories and tales that came out of those experiences.
My sense is that there is much less of that now, although we
haven't done any specific work about that.
Mr. Shays. Let me say this--if either of you have a sense
that that may not be accurate, I would want the committee to be
notified.
Mr. Baine. We'll do that.
Mr. Shays. I realize that it would be foolish to comment on
something you don't have any--your point is that you don't have
the concern I have. But if you find that there may be in a
certain area, I would want you to contact the committee and
then we could pursue it quietly and see if there's any
substance to it.
Mr. Baine. We'd be glad to.
Mr. Shays. Any closing comments that any of the four of you
want to make before we adjourn? Mr. Sullivan.
Mr. Sullivan. I just might mention two issues: benchmarking
and broadcasting. I think what we're finding in a system as
large as VA is, that there's a number of good things that go on
around the country that we found in our audits.
We like to report those things. And what we tell the
Department is, they should broadcast those things. And we found
a number of those things along those lines. I think that's
something we have to bring forward to the committee: the good
and the bad.
Mr. Shays. OK. Mr. Linz, do you have any comment you want
to make?
Mr. Linz. Yes. One of the things I'd like to go back to
is----
Mr. Shays. Just put the mike a little closer and push it
down a little bit.
Mr. Linz. One of the things I'd like to go back to is a
comment you made earlier about having four hospitals in your
district and maybe only needing one.
Mr. Shays. Right.
Mr. Linz. And also the question of, well, what's wrong with
VA attracting additional users. It creates a difficult policy
decision because every patient VA attracts is one more patient
taken away from a private sector hospital. So that's kind of
the problem.
Mr. Shays. Yes.
Mr. Linz. If you've got a community that has one private
sector hospital and one VA hospital, which one do you want to
save?
Mr. Shays. Yes. But the bottom line is, we delude ourselves
if we think we're going to save a VA facility that is totally
underutilized. I mean, the bottom line is, let's be up front
and make a decision now rather than let it be strangled to
death by underutilization.
Mr. Baine. The issue, Mr. Chairman, of the VA
infrastructure for health care, I believe is going to be an
issue for some time. And it's an issue which the Members of
Congress are going to have to face.
Mr. Shays. Yes.
Mr. Baine. And it's a real, real tough one, because it
involves employees. You know, there are 220,000 employees in
VA. And when you close a facility, that affects a lot of
employees.
Mr. Shays. It does. But if we can make the veterans,
themselves, players in this process--if they know what the
alternative is--what this country needs is some brave people
who look at their own areas and say, ``Hey, listen. We've got
to deal with this now.''
Mr. Linz. Mr. Chairman, the work we did several years ago
on the veterans' health programs in other countries basically
showed that as veterans in those countries were given greater
access to community hospitals, that demand for care in their
veterans hospitals further declined, and eventually both
Australia, Canada, the United Kingdom ended up closing their
veterans facilities. They now provide all of the veterans care
essentially through public hospitals and----
Mr. Shays. The model that I particularly like is for a
veteran to be able--I think the veterans obviously feel that--a
variety of things. One, if they are dependent on the local
hospital, that this so-called card that I make reference to
could disappear overnight because there's not an infrastructure
and a lobby group that could keep it, necessarily.
So that's one legitimate concern. But my view is that the
veterans hospital should be those hospitals that carve out
particular expertise, and that we give the very best service to
those veterans who have those particular needs. Transportation
costs are so much less now that even moving people from one
State to another, providing they get really great care, there's
an acceptance level there.
So let me just do one last thing that I wish I had done
before I had asked what I thought was the last question. On the
post-award audits: I was trying to think, well, why would the
Government want to allow people to cheat the system either
intentionally or not intentionally, but, ultimately, short
change the taxpayers by denying a post-audit. And I gather the
post-audit can be expensive for the private sector? Is that the
argument?
Mr. Merriman. Can be expensive in the private sector?
Mr. Shays. In other words, that they have to, then, respond
after the fact?
Mr. Merriman. They would argue that there's cost involved
to the post-award audit. Obviously there's some. But in today's
modern environment, what we do is pull their automated sales
tapes and compare them. What we're really looking for--they
come to us, and we say--we strike a contract with them and say
that we want the best price that you give for a comparable
customer.
We may not always be the comparable customer for what we're
buying. So we may not get the lowest price. But we want the
best price for a comparable customer. And that if there's been
adjustments to these prices over time, that we'd like to know
about it and realize the benefits from it. That's what we're
checking for. And basically, we can do that fairly quickly by
pulling their automated sales tapes and taking a look at what
their sales are.
Mr. Shays. So there's not as big a cost to them other than
to defend their actions, but there could be a big cost to them
if, in fact, they had not followed the law the way they're
supposed to and then had to adjust their price, which would be
a legitimate reason to want the post-audit?
Mr. Merriman. Yes.
Mr. Shays. I'm trying to think logically why the people who
defend the taxpayers would even honor this process. I'm trying
to be a little sympathetic to why I'm surprised that this is
already in the stage where we're in comment, and wondering who
would have wanted to promote it. So we're going to obviously do
some checking on this.
Mr. Merriman. You'll find it comes under the mantle of
procurement reform. And there's many good things being done to
streamline procurement and to reform it. This is an area that,
I think, we've demonstrated, needs to have the oversight that
we're providing to it.
Mr. Shays. Yes.
Mr. Merriman. And it can't be done on a pre-award basis,
which is what some people would say.
Mr. Shays. A pre-award basis means once the price is there,
you've got to live with it?
Mr. Merriman. That's right. They'd say that when the
contractor comes in, we have the opportunity to audit his
proposal at that time. But the kinds of contracts we're dealing
with in pharmaceuticals and medical supplies and equipment deal
with hundreds of contractors coming in for contracts that
stretch over years with thousands of items on them. We cannot
catch all the problems at that point.
Mr. Shays. And I think I have sympathy for their view.
Their view might be that if you told them that they had to sell
for less, they wouldn't have sold. So in other words, if they
were selling a particular good at $100, and you determine they
had sold it to someone else for $90, you could then go back and
say, ``For all of those, we want the $90 price instead of the
$100 price.'' They would have to take that hit of $10.
Whereas, if you did it up front, they might say, ``We may
have sold it for $10 somewhere else, but we made a mistake.
We're not going to sell it to the Government for $10, so we'll
just lose out on the sale.'' In other words, the advantage of
doing it up front is they say, ``Fine, we won't sell.''
Whereas, doing it after the fact, they've already sold it and
then have to make up the dollars. I'm trying to think of the
most logical argument for why it's gotten this far. That seems
logical to me.
Mr. Merriman. All we would say is, either up front or
afterwards, abide by your contract.
Mr. Shays. OK.
Mr. Merriman. And commercial contracts aren't immune to
these same things.
Mr. Shays. OK.
Mr. Merriman. We've seen commercial contracts where one
commercial firm will put in a provision that they have a right
to audit the contracts of their suppliers, or that they have a
right to price reductions.
Mr. Shays. Right. Well, that's a very strong argument.
Well, this will be something we'll take a look at in the
committee, and then maybe do even more on it. But we have a
comment period that's ending pretty quickly?
Mr. Merriman. I believe the comment period has ended.
Comments are being considered by GSA at this time.
Mr. Shays. OK. I thank you. Any other additional comment
before we adjourn? With that, thank you for all your good work.
I look forward to working with you all again. This hearing is
adjourned.
[Whereupon, at 12:15 p.m., the subcommittee was adjourned.]
[Additional information submitted for the record follows:]
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OVERSIGHT OF THE DEPARTMENT OF EDUCATION: MISSION, MANAGEMENT, AND
PERFORMANCE
----------
THURSDAY, MARCH 20, 1997
House of Representatives,
Subcommittee on Human Resources,
Committee on Government Reform and Oversight,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:10 a.m., in
room 2247, Rayburn House Office Building, Hon. Christopher
Shays (chairman of the subcommittee) presiding.
Present: Representatives Shays, Snowbarger, Towns, and
Kucinich.
Staff present: Lawrence J. Halloran, staff director and
counsel; Doris F. Jacobs, associate counsel; Robert Newman,
professional staff member; R. Jared Carpenter, clerk; Ronald
Stroman, minority professional staff member; and Ellen Rayner,
minority chief clerk.
Mr. Shays. I would like to call this hearing to order, and
welcome our witnesses and our guests.
According to the President's 1998 budget, the Federal
Government plays a crucial, if limited, role in providing
education for a lifetime, from pre-school to adult career
training. Leading that effort, the Department of Education will
spend $32 billion next year on programs touching almost every
aspect of American learning, from helping States teach
disadvantaged elementary school students to providing college
tuition assistance.
Our witnesses today will help the subcommittee understand
how well the Department of Education meets its crucial mission,
and how well the Department limits its role in deference to the
primary responsibility of State and local educators. Both are
important measures of the Department's performance.
Last year, both the Inspector General and the General
Accounting Office told the subcommittee of serious problems
with the Department's management and oversight of student aid
programs. Of particular concern was virtually unregulated
access to Federal tuition funds by private, for-profit
institutions, or proprietary schools, without regard to the
quality of their programs. Again this year GAO, the General
Accounting Office, concluded complicated procedures, flawed
structures, and weak management of student aid programs pose a
high risk of waste and abuse of Federal funds.
Today, the IG and GAO will review what progress has been
made, and what problems remain, in the effort to maximize the
effectiveness and maintain the integrity of Federal tuition
assistance programs.
Our second panel will comment on the Department's
performance as an intergovernmental partner with the States,
counties, cities, towns, and villages in the crucial task of
educating Americans, young and old.
This is a very interesting hearing for us. We appreciate
the witnesses who will appear before us, and at this time I
would like to invite vice chairman of the subcommittee, Vince
Snowbarger, if he has any comments.
Mr. Snowbarger. I will pass, Mr. Chairman. Thank you.
Mr. Shays. Thank you.
We have two panels. Our first panel is Thomas R. Bloom,
Inspector General of the Department of Education, accompanied
by Steven McNamara, Assistant Inspector General for Audit and
Dianne Van Riper, Assistant Inspector General for
Investigations. We also have Ms. Cornelia Blanchette, Associate
Director of Education and Employment Issues, U.S. General
Accounting Office, accompanied by Eleanor Johnson, Assistant
Director of Education and Employment Issues.
Would there be anyone else who might be responding to a
question?
Ms. Johnson. Yes.
Mr. Shays. We have Harriet Ganson and Jay Eglin, if you
both would stand as well when we swear witnesses. That way we
won't have to swear you in later. We swear in all our
witnesses, including Members of Congress, when they testify; so
if you would stand we will administer the oath. Raise your
right hand.
[Witnesses sworn.]
Mr. Shays. For the record, all of our witnesses have
responded in the affirmative. I guess we will start with Mr.
Bloom. Is that the way you want to start?
What I want to do, we are going to turn on the light. It is
5 minutes and then we will leave the red on a little bit, and
then we will turn the green on again just to give you a sense
of how long you are talking. Your testimony is important so you
should feel to give it as you choose.
I might at this time, even though the minority isn't here,
but this is pretty standard practice, just do two housekeeping
orders, I ask unanimous consent that all members of the
subcommittee be permitted to place any opening statement in the
record and that the record remain open for 3 days for that
purpose, and without objection, so ordered.
I also ask further unanimous consent that all witnesses be
permitted to include their written statements in the record.
And without objection, so ordered.
So you can kind of ad-lib a bit if you want, but your full
statement will be put in the record. Mr. Bloom.
STATEMENTS OF THOMAS R. BLOOM, INSPECTOR GENERAL, U.S.
DEPARTMENT OF EDUCATION, ACCOMPANIED BY STEVE MCNAMARA,
ASSISTANT INSPECTOR GENERAL FOR AUDIT; DIANNE VAN RIPER,
ASSISTANT INSPECTOR GENERAL FOR INVESTIGATIONS; AND CORNELIA M.
BLANCHETTE, ASSOCIATE DIRECTOR, EDUCATION AND EMPLOYMENT
ISSUES, U.S. GENERAL ACCOUNTING OFFICE, ACCOMPANIED BY ELEANOR
JOHNSON, ASSISTANT DIRECTOR, EDUCATION AND EMPLOYMENT ISSUES;
HARRIET GANSON, ASSISTANT DIRECTOR; AND JAY EGLIN, ASSISTANT
DIRECTOR
Mr. Bloom. Thank you, Mr. Chairman, Mr. Snowbarger. I do
have Steve McNamara, who is the Assistant Inspector General for
Audits, and Dianne Van Riper, Assistant Inspector General for
Investigations to help me answer some more detailed questions.
You have asked us to address management and programmatic
issues at the Department of Education. We have submitted to you
a quite lengthy written testimony that we would like submitted
for the record. We believe we have highlighted a lot of
important issues in that testimony. But I would like to take a
few minutes to highlight three or four of those issues that we
think are the most important.
The first issue would be I guess under the umbrella of
systems and data integrity and personnel in the systems area.
In the area of student financial assistance programs, we
really have many of the characteristics of a good commercial
bank. We make a lot of loans or we guarantee a lot of loans. In
fact, our portfolio each year increases about $40 billion, for
a current total portfolio of about $110 billion that we either
own through the direct loan program or guaranteed through the
FFEL program, so we are very much like a bank.
As a former private sector bank consultant, I know a little
bit about the banking industry, and banks are becoming more and
more like technology companies. And the more--the better a bank
is in technology in dealing with data and dealing with
information, the more successful they are.
So I'd like to kind of draw an analogy. If the Department
of Education in some instances is a lot like a bank and a
successful bank is a good technology company, the Department of
Education, to be the most efficient and effective, should have
a lot of characteristics of a good technology company. We
should have well-integrated, well-designed systems to provide
timely, accurate, and complete data. And you need the people
power to make that happen. And that would start with a strong
chief information officer.
This will come as no surprise to anyone, but the Department
has a long way to go before they would be recognized as an
outstanding technology company. And we believe there is a lot
of effort that needs to be put in that area. It is a formidable
task, though.
I was reading an article just a couple of weeks ago that
said in the Washington, DC, area there is a shortage of over
18,000 technical people, systems people. There is a huge
shortage in the Washington, DC, area, and being in the
Government sector, that shortage is probably even more acute.
So it is a formidable task that the Department has to get
us up to strength in the human resource effort but one that we
really need to have a concerted effort to make sure that we
have the best technology people that we could possibly have. So
systems is a very important area, and we spend a lot of time in
our written testimony talking about the importance of that.
The last time I was here, you may recall, I addressed the
vocational school situation, and I just want to highlight two
things I highlighted last time. One is we believe that
differentiation should be made between the way that trade
schools, non-degree granting schools are regulated and the way
a 4-year institution is regulated, and we just wanted to
emphasize that again. We also want to emphasize the fact that
we believe that non-degree granting programs need to have
performance measures. We believe that there ought to be
regulated performance measures.
We have emphasized what we call the 70/70 where we believe
at least 70 percent of the folks that start a trade school
should graduate and 70 percent of those ought to have jobs. And
I think those ought to graduate with jobs, and we believe those
ought to be the minimum standards, and you have heard us talk
about that before.
Another important area has to do with a report that we have
issued very recently. It has to do with matching income levels
on the applications for student financial aid to what people
put on their tax returns and the information that the IRS has.
Currently, we do not and cannot verify the student loan
application information with the IRS.
We did do an aggregate audit within the last year and we
found that in 4 percent of the instances, there was an
understatement of income if you compared what the IRS has and
what is on the application. In 4 percent of the cases our
students said their income was less than what they reported to
the IRS. And I am a strong believer in privacy. I am a CPA and
a strong believer in income privacy. But I do believe that if
you are getting Federal money, that the Department, with all
the safeguards that are necessary, ought to be able to match an
individual's adjusted gross income on their tax return to what
was submitted in application.
The law here, I guess, is fairly complicated, but I believe
there probably needs to be a legislative fix to get the IRS on
top of that.
The last thing I want to mention is the year 2000 problem.
You have probably heard others talk about it. I don't think the
Department of Education is in any worse shape than any of the
private sector companies or the other Government Departments,
but it is important. It is something we need to focus on. It is
something that the Department needs to focus on and it is
something that we will be keeping our eyes on. Those are my
comments for the oral testimony.
Mr. Shays. Thank you very much.
[The prepared statement of Mr. Bloom follows:]
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Mr. Shays. Ms. Blanchette.
Ms. Blanchette. We are pleased to be here today to discuss
challenges the Department of Education faces in carrying out
its mission.
To begin, I'd like to focus your attention on two charts
that we have brought to set the context for our comments.
Mr. Shays. Can you hold on 1 second? Might I interrupt your
statement, I am deciding whether we quickly vote now. We have
10 minutes. Is your statement about 10 minutes?
Ms. Blanchette. It is shorter than 10 minutes.
The Shays. Then we will hear you out and go vote.
Ms. Blanchette. As shown in the first chart to my right,
more than $500 billion a year is spent on education in the
United States, with the Department and other Federal agencies
contributing about 9 percent of the total. The 9 percent does
not include Federal student financial aid. That aid is in the
``all other'' category.
The importance of education to the well-being of the Nation
is reflected in the second chart to my right. It shows the link
between education and employment. The higher the level of
education, the lower the unemployment rate.
This morning I will discuss two major challenges the
Department faces in striving to achieve its mission. First,
ensuring access to postsecondary institutions while protecting
the financial interests of the Federal Government; and second,
promoting access to and excellence in elementary, secondary,
and adult education. My discussion is based on work we have
done over several years.
The postsecondary student aid programs make available
billions of dollars in loans and grants to promote access.
However, access is becoming more and more problematic,
particularly for low-income students as the cost of attending
college increases.
For example, a public college education has become less
affordable in the last 15 years, a period during which tuition
has risen nearly three times as fast as household income.
Students and their families have responded to this
affordability gap by drawing more heavily on their own
resources and greatly increasing their borrowing.
A growing proportion of Federal student aid for
postsecondary education has been through loans rather than
grants. Policymakers have expressed concern that this trend in
financial aid patterns has diminished college access for low-
income students. Work we have done on the relative
effectiveness of grants and loans in helping students stay in
college until graduation indicates that this concern may be
valid.
While the Department's student aid programs have provided
millions of students access to postsecondary education, the
Department has been less successful in protecting the financial
interest of U.S. taxpayers. Student aid programs still suffer
from complex processes, structural limitations, and management
weaknesses. In fiscal year 1996, for example, while the
Department made more than $40 billion available in student aid,
the Federal Government paid out over $2.5 billion to make good
its guarantee on defaulted student loans. Student aid programs
have many participants and each program has its own
complicated, cumbersome processes. Further, with both the FFEL
and direct loan programs, the Department has two programs that
are similar in purpose but operate differently.
Structural limitations are twofold. First, the Federal
Government bears almost all the risk for loan losses, and,
second, the loan programs now have more high-risk students who
are from low-income families who attend proprietary schools
than in the past. While both circumstances increase access,
they also jeopardize the Federal investment.
Management weaknesses include: (1), not adequately
overseeing schools that participate in the program, thereby
allowing extensive fraud, abuse, and mismanagement; (2),
managing each program through a separate administrative
instruct with poor or little communication among programs; and
(3), using inadequate management information systems that
contain unreliable data. Both the Congress and the Department
have made changes that have likely resulted in some
improvements; however, these changes have not been sufficient
to resolve the Department's difficulties in managing the
student aid programs.
In promoting access and excellence in elementary,
secondary, and adult education programs, the Department
provides over $11 billion. The challenge for the Department in
this arena is ensuring that these programs are providing the
intended outcomes. To do this, the Department must make sure
the programs have clearly defined objectives and that it has
complete, accurate, and timely information about the programs's
operations. In some circumstances, the Department doesn't have
these prerequisites.
The possible second challenge involves the proposed
partnership to Rebuild America's Schools Act, which if enacted
would be administered by the Department. If this proposed
solution to the Nation's school facilities problem is enacted
into law, the Department's challenge will be to ensure that the
Department has qualified staff to administer the program and
financial and information management systems to provide
complete, accurate, and timely operational data.
To meet its challenges, the Department must adopt improved
management practices, the Results Act, the expanded CFO Act,
the Paperwork Reduction Act, and the Clinger-Cohen Act provide
powerful tools in the form of a statutory framework for
improving agency operations and accountability. The Department
has made progress in implementing these laws but work remains
to be done.
Mr. Chairman, this concludes my statement. I will be happy
to answer any questions you or any members of the subcommittee
have.
Mr. Shays. Thank you.
[The prepared statement of Ms. Blanchette follows:]
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Mr. Shays. This is a challenge. I have a feeling that this
is going to be a weird day because this is a motion to adjourn.
I think this may be the only vote but there may be other
motions to adjourn, so I am hoping we will be back in 15
minutes, but if we are not, we will try to call up and give you
an idea. We are in temporary recess.
[Brief Recess.]
Mr. Shays. Sorry for the delay. I thought there was going
to be a second vote. What do I know? We will start with the
vice chairman.
Mr. Snowbarger. Thank you, Mr. Chairman. I am hoping that I
can formulate this question correctly.
I have always had some concern about the heavy involvement
of the Federal Government in these student loans, particularly
in direct student loans. And that concern has been on two
fronts. No. 1, can we do it efficiently? No. 2, are we
interfering, perhaps, with the private sector; are we competing
with the private sector?
I was just able to read the beginning section, the overview
of this report, and glanced through the testimony that you
provided in writing, and very frankly, my questions have not
been answered. In fact, my questions have been heightened. And
my concern is, can the Federal Government be effectively
involved in these programs given the fact that it requires a
massive amount of data gathering, analysis? Sooner or later we
have to get into probably collection efforts, on and on. I
mean, can we do this efficiently? Are there better ways to do
it?
Ms. Blanchette. I guess we can both take a stab at it. I'll
make a couple of points and then turn it over to the IG and
then perhaps Mr. Eglin, our Assistant Director, who handles
most of our higher education work would have some further
comments.
A couple of observations, the Department spent a lot of
effort, dollars and staff years, I'm sure, in terms of giving
special focus to the direct loan program. And one of the
comments and observations we made earlier in testimony was that
perhaps it was to the detriment of the guaranteed student loan
program. Because of that focus, the Department has actually
done a pretty good job to date.
Second observation: A lot of the activity involved with
direct lending is actually done by servicers under contract,
not directly by the Department: Servicers collect loans;
service the loans while the student is in school; and do other
activities that you would think the Department does because of
the nature of the program but it is done under contract to the
Department. And so that makes up for some of the perhaps
shortfalls of the Department if it had to do those things.
Mr. Bloom. I would certainly agree with those comments. But
let me start and say that the FFEL program, which is a
guaranteed student loan program, was severely broke 5 years
ago, 6 years ago. And so something dramatic needed to be done.
The good news about the direct student loan program is that
it has focused the FFEL program to become a much, much better
program. It concerns me that it took kind of what I think of as
a dramatic move to get this old legislative program, which at
the last hearing I think I showed you how it worked. It is a
very cumbersome program. But they have come a long way. The
FFEL program has come a long way with the added competition of
direct loans.
The GAO is right. There was a lot of emphasis placed on the
direct loan program and it has come up reasonably well and
reasonably efficient, but not as efficient as it could be if
this was a technology company.
So I guess we are better off now than we were 5 years ago,
and I think most people would agree to that. Whether that's
ideal or not, that's a good and fair question, one that could
be debated on a lot of different fronts.
Mr. Snowbarger. Well, both of you said in one way or
another, we are doing a good job or we are doing a much better
job. Who is ``we''? What are we referring to? Are we talking
about both loan programs? Are we talking about the direct loan
program versus the guaranteed loan program? Who is doing a good
job?
Mr. Bloom. Well, let me take a stab at it first. The
guarantee loan program, particularly the guarantee agencies and
the lenders, have really started to clean up their act. Let me
back up and say that for a 1995 audit, the audit of the
Department's 1995 financial statements, we got a disclaimer of
opinion. We, the Department of Education, got a disclaimer of
opinion because of how bad the data was in the FFEL program,
the old program.
Now, remember that's old information, that's 1995. But that
is pretty dramatic. And those weren't the only problems in the
FFEL program, but I think that it is kind of indicative of the
data gathering problem that the guarantee agencies had and that
the Department had to get that information.
Things have gotten much, much better. Competition is a
wonderful thing sometimes, and in this case, the direct loan
program has been a wake-up call for the banks and a wake-up
call for the guarantee agencies. And part of that--because of
that competition, I believe the programs are better today. Now,
whether that's the best way to do it going forward, interesting
debate.
Ms. Blanchette. I would concur, and I will allow Mr. Eglin
to add.
Mr. Eglin. I think that I agree that the competition, I
think, has been good because it has allowed the guaranteed
program and the participants, the lenders and the agencies, to
be much more efficient.
Also, as you know, the Congress has kind of tweaked some of
the subsidies that were provided to the lenders and the
guaranty agencies under the FFEL program, and what that has
done, I think, is kind of more of a consolidation within that
program to make it more efficient.
The question still remaining is which is the best, and I
think there's a lot of interest in that. There are some studies
under way. The Department has a major study under way that is
looking at many elements of the direct program in comparison to
the FFEL program to see which one is delivering--which have
been more efficient.
Mr. Snowbarger. Again, I don't doubt the benefit of
competition and what it's going to do. I just question who the
competitor ought to be.
The other question I have is about the inefficiencies of
the guarantee programs: do you have some feel for the reasons
for the inefficiencies? Was it the regulations that were placed
on either the lenders, the schools, whatever? Or did it come
from the Department not being able to follow through and
followup on compliance?
Mr. Eglin. It's probably a little of both. As we point out
in the high-risk report, part of it is the structure in which
the program was established. And it was established almost 30
years ago and things are a lot different than they were then.
And there is a lot more electronic information that can be
processed much quicker. We don't need to have lenders as close
to schools and students and parents as we did 30 years ago, so
there are a lot of things that have changed.
And the fact that we depend on lenders and guaranty
agencies to keep our books contributes to some of the problems
with the financial statements. By the time it gets to the
Department there is a lot of validation that needs to be done.
Some of the agencies and some of the lenders, not necessarily
deliberately, the information is tough to be validated and that
has contributed to a lot of our problems.
So with that structure with thousands of lenders and 50
guaranty agencies, plus all the schools and students, that's a
lot of folks participating in the FFEL program. There is a lot
of money involved, and a lot of small transactions. A lot of
$2- and $3,000 loans. It is not like $100- and $200,000
mortgages.
Ms. Blanchette. To add to that, in that environment, as Mr.
Bloom indicated and as we reported in our high-risk report and
as I mentioned this morning, the data systems are horrendous.
Not only do the different systems not communicate with each
other or allow the Department to communicate across programs,
in many instances there is no way to detect errors. And so with
the many players and small-dollar transactions with different
systems for different programs not communicating with one
another, it just adds to the problem.
Mr. Snowbarger. Are there things that we need to do
legislatively to change the way that the system operates or are
those internal within the Department?
Mr. Eglin. Well, it is probably a little of both. I think
the Congress has provided a lot of guidance and made a lot of
changes to the statute, almost annually. And it's--it probably
has contributed to some of the structure that the Department
operates within. And conversely, as I think we also point out
in the high-risk report, the Department in how it manages it,
the data systems, as Ms. Blanchette mentioned, as well as some
of the other problems, contribute to this. So it is not an easy
fix. And I think what the competition between the two programs
has done has allowed efficiencies to surface because of the
fact that they were competing with another program.
Ms. Blanchette. And to add to that, with improvements in
financial systems and the information systems, some of the
problems would be reduced, if not eliminated. Now that's not an
easy effort and it takes a long time.
Also, as we said in our statement for this hearing, with
adherence to legislative mandates such as the CFO Act and the
Clinger-Cohen Act with respect to technology, and the Results
Act, if the Department can garner the discipline that those
acts require, and do the things that they should be doing under
those acts, then it should be able to improve the financial aid
program substantially.
Mr. Bloom. Again, I agree with just about everything said
there. You asked what you all might do, what Congress might do.
I think we need to look at the role of the guaranty agencies.
And I guess to draw the picture, you have thousands of
financial institutions and banks making loans and they work
through I think it is 37 or 39 guaranty agencies. And all the
guaranty agencies have different systems, different ways to
format the data. I think we have to look at what guaranty
agencies do, whether we need so many of them.
Again, I'm a big believer in competition, but you know
there are 37 of them. They don't really compete against each
other. Maybe we need significantly fewer guaranty agencies. It
is a pretty hot political issue, though.
And then you asked has the Department--could the Department
have done a better job? I think the Department could have rode
hard on the guaranty agencies much more than they have,
particularly I think in the last 10 or 15 years to get the
data, to force them to get the data. The interesting thing
about the 1995 audit is that it really was a catalyst to get
the guaranty agencies to work with the Department, and their
association, NCHELP, has been very interested in working with
us to make the data better because they now see that it is in
their better interest. There hasn't been enough pressure put on
by the administration and we do have somewhat of a flawed
design that you in Congress could take care of.
Mr. Snowbarger. Let me follow up. Specific suggestions for
legislation? You said that there are plenty of things that we
could do, and that is nice, but I still haven't heard anything
specific that we can do that you are proposing.
Mr. Bloom. Well, I'll--I'll give you--there are three
specific things in my testimony. They don't all relate directly
to direct lending, but I'd like to get them to the record
again. One is the IRS match. Give us the ability to get in and
check our records with the IRS records. Very important to us.
The other is performance measures for schools. There are
bad schools out there that aren't educating these kids. Let's
legislate mandated performance measures. Seventy percent
graduation rate. Seventy percent placement rate.
And the third thing would be separate regulations for the
trade schools. The nondegree granting schools ought to be
regulated differently than a 4-year university. Harvard
shouldn't be regulated the same way as the Steve McNamara
School of Beauty. They are different entities. I made that up.
There is not----
Ms. Blanchette. We were going to look into that, Steve.
Mr. Snowbarger. Let me go back to the IRS match. We have
gone through the process of applying for student loans for a
child.
Mr. Shays. You personally?
Mr. Snowbarger. Me, personally. Yes. Me personally on the
line for these things, too. I know I had to give an awful lot
of information, including at least 1 year's tax returns, if not
two.
Are we assuming that people are giving fraudulent tax
returns? I find it hard enough to fill out a form once, much
less going back to fill out an IRS form the second time to
defraud someone.
Mr. Bloom. Well, they have. There are many people who have
come up with fake 1040's. In fact, there have been ``marketing
companies out there that have been in the business of producing
fraudulent tax returns.'' So that's a big issue.
The other thing is, and I don't know whether it's the
regulations or the statute, we only ask for verification--it is
a sample. It's 30 percent of the students actually have to
bring their tax returns in for verification. It would just be
so much easier if we could, we the Department, could send over
the list with the adjusted gross income number, the social
security number, and the name over to the IRS and the IRS could
kick back those that don't match within a certain tolerance. We
wouldn't want all the ones that are $1 off or $10 off, but they
could send back the nonmatches so that the population that we
would be looking at would be relatively small and there would
be good reason for looking at it.
As I said in my oral testimony, I am a big believer in
privacy, and the Privacy Act, and privacy of our tax returns.
But I think it is different when you are asking for Federal
money. We ought to take whatever steps we can to ensure as much
privacy as possible. But I do believe that match ought to be
made.
Mr. Snowbarger. Is that perhaps just as simple as having
them sign a release?
Mr. Bloom. This ends up being a fairly complicated question
with the IRS. There are some folks that believe that the IRS
could now do it, but there are folks at the IRS that believe
that maybe they can't. It is a real tickling legal question.
Steve.
Mr. McNamara. We currently have a program called the Income
Contingent Repayment Program in Direct Loans which makes people
make payments on their loans according to their income and
their ability to repay. To get into that program now you have
to sign a waiver so that the IRS can tell us your income. So it
would be probably something similar to what we currently have
under ICR.
What we found was that a lot of people lied. We had several
people, four or five or six, who made somewhere between
$300,000 and $1.6 million and they said that they didn't file a
tax return. And so in our audit we turned up a lot of folks
that made a lot of money that said they didn't file or didn't
make any money. This would protect us from that.
Mr. Snowbarger. Well, I hear you saying that at least for
some programs you ask for that waiver to be signed, and the IRS
is not cooperating with that? Or----
Mr. McNamara. No, they are cooperating with the Income
Contingent Repayment match. But that's only for that program.
We don't have the authority--IRS is very reluctant to give
anybody any information.
Mr. Snowbarger. They may become a little more compliant
here in a little bit if they're still around.
Thank you, Mr. Chairman.
Mr. Shays. I thank the gentleman.
I have a number of questions and I just want to preface it
by saying that the purpose of this hearing really is to educate
the staff and your testimonies give a lot more detail and we
are going to followup on it. But I am just wrestling in general
with a number of different issues. I would like both of you to
tell me where the Department is most vulnerable to waste,
fraud, and abuse.
Ms. Blanchette. Where in terms of which programs?
Mr. Shays. Yes. Just emphasize again where you think it is
most vulnerable to waste, fraud, and abuse.
Ms. Blanchette. Well, of course the postsecondary financial
aid programs as a general category.
Mr. Shays. That was the one that I really highlighted in my
opening statement, because it seems to me, one, it is both in
terms of process, but also in terms of the amount of dollars
involved. Would you agree with that, Mr. Bloom?
Mr. Bloom. Yes, absolutely. That's where we spend almost 75
percent of our time in the IG's office looking at student
financial assistance.
Mr. Shays. How much of the total amount of the Department
of Education's budget is in higher education loans and grants?
Mr. Bloom. Well--half. Plus remember we have the guarantee
portion--the guaranteed financial loans that are kind of above
and beyond. That's a contingent liability and $40 billion a
year goes out in that program, but of course we only pay out $2
billion a year in guarantees.
Mr. Shays. $2 billion, is that covering losses?
Mr. Bloom. That's the losses. Not net of recoveries, but
the gross loss number.
Mr. Shays. And then we recover some?
Mr. Bloom. Yes. In fact, recently we have been recovering
almost as much as we have been losing. But that's--remember, we
are collecting----
Mr. Shays. You have a big pile.
Mr. Bloom. You have a big pile from which you are
collecting from and at some point that pile is going to
dwindle.
Mr. Shays. Let's just take higher ed, loans and grants
aside, and then tell me where the biggest area of potential
waste, fraud, and abuse is.
Mr. Bloom. I guess this probably relates to student
financial aid to a certain extent but it really is the systems
area. The other programs tend to be pretty straightforward
grants out with pretty good controls in a lot of instances.
Mr. Shays. I will get back to the chief information
officer, because I want to pursue that a second.
Ms. Blanchette.
Ms. Blanchette. I'm hard pressed to identify a particular
program, but I will say--and there are certainly lots of
probably programs that we haven't looked at in detail but for
the few that we have over the course of a number of years, the
problem with accountability is the nature of the beast. So to
speak, education. We have the Federal Government supporting
education in this country, but the responsibility lies with
States and the control is at a local level. So even when
Federal funds are used to help disadvantaged populations----
Mr. Shays. You are not always sure how it is spent.
Ms. Blanchette. We are not sure how it is spent and that is
by design.
Mr. Shays. So what I am hearing you say is that if there is
a grant application, you look at the grant, the grant makes
sense, but there is a lot of flexibility in how the grant is
spent and not necessarily tremendous oversight.
Ms. Blanchette. Right, absolutely.
Mr. Shays. Isn't there another problem in the Department
that you have a lot of small grants without any critical mass?
Ms. Blanchette. That's right.
Mr. Shays. There are some grant programs that are not
funded that are on the books. I remember we eliminated a number
of them, and I remember the political heat that we took for it
and they hadn't been funded for years. But it didn't matter
because they had some great sounding names and it sounded like
I had lost my mind in not wanting these programs to continue.
So one would be a concept of critical mass, a lot of little
programs and a lot of oversight.
Have we ever taken a look at some of these smaller programs
and figured out the administrative costs versus how much
actually gets out into the field?
Ms. Blanchette. We looked in general in terms of the money
that goes to SEAs, and I'll let Eleanor Johnson talk about that
because she led that effort.
Mr. Shays. She is looking at you like she doesn't want to.
Ms. Johnson. I have my magic pin.
We did look on some very small studies at Chapter 1 several
years ago and we looked how the money was spent on the local
level. Seventy-three percent went right to the classroom
directly. There was another, I believe, 18 percent that went
for support services of various sorts and only 10 percent went
to administration.
Generally, there is a specific amount, a specific
percentage of the grant which is set aside for administrative
purposes. To our knowledge, there has not been a case where
more than that amount has actually been spent on administrative
things and not gone to the classroom.
Mr. Shays. The Chief Financial Officer has been around for
how long now?
Mr. Bloom. The Chief Financial Officer Act was a 1990 act.
Mr. Shays. Right. But how long have we had a Chief
Financial Officer?
Mr. Bloom. Since 1991.
Mr. Shays. Some departments took a heck of a long time.
Have you seen a positive impact of having a Chief Financial
Officer?
Mr. Bloom. Absolutely. Of course, I was a Chief Financial
Officer at a department.
Mr. Shays. Well, you are disqualified.
Mr. Bloom. I think it has been a tremendous impact. I think
everyone would say the Chief Financial Officer Act has been a
tremendous success.
Mr. Shays. Ms. Blanchette, would you say tremendous or just
a success?
Ms. Blanchette. Well, I am not within the group at GAO that
looks at implication of the Chief Financial Officer Act, so I
don't know that I would want to distinguish between the
successful and tremendously successful.
Mr. Shays. Wouldn't you come in contact with the Chief
Financial Officer in your work?
Ms. Blanchette. GAO does, yes, and I would imagine--Mr.
Eglin is over here saying yes.
Mr. Shays. And do you have any opinion whether it has been
a good positive or strong positive?
Ms. Blanchette. I will let Jay answer this, but of course
it has been positive because you have someone focusing on the
financial.
Mr. Shays. Not necessarily. I don't make that assumption
nor do you actually, right? I mean, the intent is good and so
on, and so it would be logical, but I don't know if it is
really working.
Ms. Blanchette. Right.
Mr. Eglin. I think that in the student financial aid area
it has made a significant impact on making some improvements.
As we have talked, there were a lot of problems with data
integrity and accuracy in the data systems, and I think the
Office of the Chief Financial Officer has done a lot to build
that organization up and build up the systems to complement
that.
And as Mr. Bloom mentioned earlier, the Department has a
set of financial statements together and however they may not
have been able to get a clean opinion, that was pulled
together. It has come a long way in the last couple of years,
and I think we have seen the CFO has had a lot to do with that.
Mr. Shays. The Chief Information Officer does not yet exist
in the Department of Education, correct?
Mr. Bloom. Actually, there is an Office of Chief
Information Officer. They had named an acting chief information
officer. I think he took that position in July 1996. Now Leo
Kornfeld was the fellow who occupied that chair. Leo left
earlier this month. He resigned. He retired. That position is
now vacant. It is a very important position.
Mr. Shays. We had one of the other departments that
combined the CFO and the CIO, and I think that goes contrary to
the intent of our legislation. I am not sure but I suspect that
someone in that position in the private sector would be making
a quarter of a million dollars.
Mr. Bloom. At least.
Mr. Shays. And just imagine how amazing it is to think in
terms of the Department, the Social Security Department, the
incredible information systems they have there, and their
inability to compensate someone in a way that would be
commensurate with the kind of benefit they could provide to the
entire Nation.
So I guess I am going to ask this question: Do you think
that the Department is taking seriously the intent of our
legislation that we really want a chief information officer and
we want someone who is full time and who is going to be there a
while?
Mr. Bloom. Well, I believe they are certainly interested.
I'd like to see them----
Mr. Shays. Interested? Everybody is interested.
Mr. Bloom. I'd like to see that level of interest
heightened on that part. I would like to see them--and it may
cost a few dollars--to hire a recruiting firm or whatever
circumstances you need to find that person who wants to do some
good government service. Many of us have taken pay cuts to
serve in these positions, and I'd like to see a concerted
effort to find that chief scientist from IBM or someone from
Apple that would see this as a challenge.
But you really have to have heightened interest to make it
happen, and I think it takes secretarial involvement. When a
secretary of a Department of Education calls you up and asks to
you take a job, it's kind of hard to say no.
Mr. Shays. The Government Performance and Results Act? Is
it being taken seriously by the Department of Education?
Mr. Bloom. I think the short answer is yes. In certain
parts, they are doing a really good job on that, particularly
the strategic plan side. They came up with a strategic plan
earlier than was called for in the legislation. Actually, they
were one of the first to have a strategic plan.
They are in the process of completing their performance
measures. They've asked us to take a look at them, and they've
asked us to use a critical eye to make sure they're measuring
the right things and they are going to measure them in the
right way.
You know, I think they've got a good start. Again, it is
one of those things, we need to keep their interest, and we
need to keep focused on it, and I think the Congress ought to
continue to ask those questions and put the pressure on them.
We are going to continue to ask those questions because, again,
you have heard me say what you measure you get, and I really
believe that we need to measure.
Mr. Shays. Now, I basically have a few more questions. Do
you have any more, Vince? OK.
Getting to higher education loans--excuse me, let me just
ask you about Head Start. There was a concern on the part of
Congress that we were putting more money into the Head Start
program than the communities were able to absorb. Did you have
any sense that that was happening or a concern that that might
be?
Mr. Bloom. That's not anything that--I don't know the
answer.
Mr. Shays. It is actually HHS. I'm sorry. It's HHS. Head
Start is an HHS program, and you would not--even though I view
it as education, this would not--you would not interface with
this in any way.
Mr. Bloom. We haven't in the past. It is a good question,
whether we should or not.
Mr. Shays. One of the things we learned which was really
shocking to us is that 49 percent of all the education programs
in the Federal Government are outside the Department of
Education. Which tells you that various chairmen of various
committees wanted that education program and since they didn't
oversee the Department of Education they just put it in their
own department. But if we were really intending to have a
Department of Education it would strike me that we would bring
some of these education programs all in one area.
Let me conclude on this last point, and that is we had an
amazing hearing--I thought it was amazing. But we had a hearing
that basically left me dumbfounded that we would have spent
$750 million in 1 year for a school of cosmetology program. Are
we finding that the money just goes where the proprietary
schools manage to get students? If you told me we should be
putting $750 million in student loans in cosmetology or to help
fill the void of high-tech needs in the greater DC area, there
is no contest to me. Considering that half the students in
cosmetology never end up doing cosmetology.
Mr. Bloom. That's an excellent point that really supports
our saying if you put measurements on these schools for
graduation rates and placement rates, then the job marketplace
would determine where the students are.
Right now, it is whoever is out there--whoever has got the
best rope to rope in the students. Stay home some afternoon and
watch what's on TV. Who's got the commercials on TV? It's the
proprietary schools. It's the trade schools, the cosmetology
schools.
Mr. Shays. Your point to the committee is that if we want
ultimately for it to go to where we might consider there are
great national interests, that the mere fact requires that a
certain percent have jobs will begin to kind of focus some
money in those areas.
Mr. Bloom. We believe that strongly.
Mr. Shays. Mr. McNamara, did you want to comment?
Mr. McNamara. Absolutely. Mr. Chairman, we testified a
couple of years ago when we put out what we call the Hair MIR
or the Cosmetology MIR; and basically what that said is what
Mr. Bloom just said. That, right now, we make money available
to students to go wherever they want to go; and unscrupulous
schools that don't offer an education can get them in their
program, leave them with no education and no way to pay back
their loan; and millions and millions of dollars can be going
to places where it doesn't do any good.
What we recommended then is by simply putting measures on
that that will require them, in effect, to be real schools, it
should radically change the student aid program.
Mr. Shays. Is there a question that you wish we had asked?
And some of those who have accompanied the Inspector
General and GAO, if you all would like to just make closing
comment. I learn a lot from those who just sit and listen.
Ms. Johnson, do you have any closing comment you would want
to make?
Ms. Johnson. We have been spending the last 3 or 4 years
not really looking a lot, as far as elementary and secondary
education is concerned, at the Department programs. We have
spent most of our resources gathering basic information about
some of the needs in education finance around the country.
The question that really comes to my mind, do we know that
the programs are getting the money to the place where we
intended it to go? When I looked at some of the very excellent
strategic plans that the Department has put out and also what
they're looking at in terms of analysis, they're looking at a
lot of program effectiveness, but they aren't necessarily
looking at the financial management that goes along with that,
except in very specific instances like bad data. And because I
am with GAO and, therefore, financial management is close to my
heart, that is one of the questions that I would ask.
Mr. Eglin. I think most of the issues on the student
financial aid side have pretty well been documented by the
high-risk report that we issued, and that speaks for itself. I
think those are issues that are still dear to our heart, also.
Ms. Van Riper. We say in investigations that our work
begins when other people's work ends, and the majority of our
work in investigation is centering on the trade and the
technical schools with the short-term programs.
I would also second what has already been said about
performance measures. We have a case inventory of about 325
major complex investigations, 67 percent of which are of the
larger entities like banks, guaranty agencies and schools. All
of the school investigations are trade and technical short-term
programs. Performance measures would go a long way in handling
some of the fraud and abuse that we are seeing in student aid
programs.
Mr. McNamara. I don't have anything. Thank you, Mr.
Chairman.
Mr. Shays. Mr. Bloom or Ms. Blanchette, do you have any
closing comments?
Ms. Blanchette. I would just emphasize a point we made--
great time for my voice to go out; right? I would like to
emphasize a point we made in our statement and that I made in
my summary of the statement.
The problems that the Department has in terms of its
managing not only its higher ed programs but some of its
elementary and secondary programs as well stem from I think a
lack of discipline in management. It's not because there are
people there necessarily who don't want to do a good job or who
want to defraud anyone, but they come to work every day, and
they probably spend their time putting out fires and taking
care of problems rather than having systems in place that allow
them to make sound, rational management decisions.
And with improved technology, as Mr. Bloom indicated, and
with some of the processes that have come into place because of
recent legislation that we have mentioned here today, that
discipline is going to be imposed on the Department as well as
other Federal agencies. And if those systems remain in place
and if oversight continues and, therefore, gives the officials
an incentive to keep things in place, then I think things will
improve. But in the absence of processes and systems that allow
competent people to do their jobs, things aren't going to get a
whole lot better.
Harriet.
Ms. Ganson. Yes, just in terms of what you were saying
about what the committee could do, I think that what you have
done in terms of the Results Act and the Clinger-Cohen Act has
provided the framework for improvement. Part of the GPRA is to
have consultations with Congress.
This is a good opportunity for the committee to talk with
the Department of Education about the strategic plan, about
their performance measures, and about the financial management
issues that Ms. Johnson talked about. I know that the
Department has started the process of meeting with the
committees and subcommittees about their performance plans and
getting input in terms of what those measures should be.
Mr. Shays. You just really triggered something that I was
thinking that this committee should do and a number of us
should go and meet, Mr. Towns, with the Secretary in an
informal way, in their offices, and have them tell us where
they're headed and get a sense that way of what they're doing,
and then have a more formal hearing later on. I think that
would be really interesting.
I thank you for your contribution, and I would say to you
that the Department of Education did not get as much attention
from our committee in the past years as I think it will get in
the next 2, so we look forward to our paths crossing a little
more often.
At this time, I am going to call our next and last panel.
It is Beverly Sgro, secretary of education, Commonwealth of
Virginia--please remain standing, and we will swear you in--and
Paul Steidler, director of education reform project, the Alexis
de Tocqueville Institution.
Do you have anyone accompanying you or are all on your own
here?
Mr. Steidler. No, I do not.
Ms. Sgro. No, I am on my own also.
[Witnesses sworn.]
Mr. Shays. Thank you very much.
STATEMENTS OF BEVERLY SGRO, SECRETARY OF EDUCATION,
COMMONWEALTH OF VIRGINIA; AND PAUL STEIDLER, DIRECTOR OF
EDUCATION REFORM PROJECT, THE ALEXIS dE TOCQUEVILLE INSTITUTION
Mr. Shays. Why don't you, Mr. Steidler, just tell me what
your institution is and where you're based; and then we will go
with Ms. Sgro.
Mr. Steidler. Yes. We are a think-tank based in Arlington,
VA, that focuses on a number of issues; but education is one of
the largest.
Mr. Shays. OK. Welcome.
Ms. Sgro. Thank you.
Mr. Shays. You didn't have far to come, did you?
Ms. Sgro. No, I didn't. I came from Richmond and did a
little other business while I was here this morning. No moss
grows under our feet, sir.
It is a pleasure for me to be here with you, Mr. Chairman
and members of the subcommittee. I want to start with giving
you a little brief introduction of Virginia, because I think it
is very pertinent to what you are attempting to do today.
In Virginia, we have seriously addressed the issue of
educational reform to meet the needs of all of our students in
the Commonwealth. We accomplished a great deal with the support
of our citizens and without the interference of the Federal
Government.
We believe, as do the citizens of this great country, that
education is primarily a State function. The March 14, 1997,
Wall Street Journal/NBC news poll reinforces this position. The
poll indicates that almost half of Americans believe that the
primary responsibility for education still rests with the
States and local governments, a quarter see State government as
having the primary responsibility for education reform, and
only 13 percent think the Federal Government should play a
major role.
Virginia has established high academic standards that are
measurable and understandable; Statewide tests that assess
student performance on those standards; a system of
accountability that ties school accreditation to student
performance; and a system of public reporting that will provide
the public with information on how we are progressing toward
those standards at the school, school division, and Statewide
level.
The American Federation of Teachers recently reported that
Virginia, and Virginia alone, received an exemplary rating for
its standards in the four academic subjects of English, math,
science and history. We involved over 5,000 citizens
representing teachers, school administrators, parents, business
persons, the State Board of Education and educational experts
in this community effort by civic-minded individuals who
volunteered their time. This process is in stark contrast to
the failed efforts of the Federal Government that contracted
with revisionist historians at the University of California at
Los Angeles to produce a set of national history standards at a
cost of $2.2 million.
Virginia has accomplished these important educational
reforms in 3\1/2\ years with no Federal funding. Governor
George Allen and the citizens of Virginia believe that
education is one of the most important responsibilities of
State government, and we believe that we can continue to make
progress without the excessive and sometimes inappropriate
involvement of the Federal Government.
I believe the role of the Federal Government should be
limited primarily to two areas.
The first is funding and coordinating the collection and
dissemination of useful data that can be used by State
policymakers to compare their State relative to other States.
The U.S. Department of Education and other Federal agencies are
in a unique position to collect, collate and distribute data
relative to education and demographics that are helpful to
policymakers. While this is an important function of the U.S.
Department of Education, often the data is not published in a
timely manner. Its usefulness is greatly decreased. If the
Department were not attempting so many other programs, it could
produce these reports in a more timely fashion.
Second issue I think is important for the Federal
Government is one that's kind of interesting since you have
just had a very lengthy discussion on student financial aid.
But I am still going to say that thing is a role that the
Federal Government should be playing. However, I will add the
caveat that I think it can be done much more efficiently and
certainly in a more effective manner as well.
College student financial aid has been relatively
successful for students because these programs are established
to provide loans and grants directly to students. In fact,
these programs should be and probably are a good example of
vouchers to students. It is important to have these programs
administered from the Federal level since it gives students
greater flexibility and greater choice.
Attending out-of-State institutions is possible because the
money can follow the student. In fact, it would be advantageous
if Federal aid to public education were distributed in much the
same way for students--a specific amount per student could be
allocated to each State. And the money would follow the student
no matter where the student attended school--be it a charter
school, a public school, or other type of facility.
But all of us know, the reach of the Federal Government
extends well beyond these two functions. Its role extends well
beyond its contribution.
Since inception, the budget of the U.S. Department of
Education has doubled; and, at the present time, there are 760
Federal education programs in 39 different departments and
agencies.
A compelling example of the disproportionate role of the
U.S. Department of Education is illustrated by its involvement
in special education programs. When the Education of the
Handicapped Act--now the Individuals with Disabilities
Education Act--was passed initially, the Federal Government
indicated that it intended to fund 40 percent of the costs
associated with the legislation. Currently, however, Federal
funding covers only 8 to 9 percent of the mandates in special
education. States and local governments cover more than 90
percent of those costs. In Virginia, the State contributed $158
million to its special education requirements. Localities spend
another $520 million. The Federal Government contributes only
$57 million. Yet the regulations that are forced on local
school systems by the U.S. Department of Education for special
education programs are the most intrusive, pervasive and time
consuming that school administrators face in any school year.
Just recently, the Fourth Circuit Court ruled in favor of
Virginia and against the U.S. Department of Education which
argued that students in special education could not be
suspended from school or expelled even when their dangerous or
egregiously inappropriate behavior was in no way related to
their disability. The U.S. Department of Education position
defies logic and common sense.
According to the U.S. Department of Education, a student
with a minor reading disability could not be disciplined for
striking a teacher, for bringing a loaded handgun to school or
for selling drugs. Imagine the message this policy sent to our
students. One student bragged to teachers and students that he
could do anything he wanted because school administrators could
not discipline him for any reason.
Despite our best efforts to reason with the U.S. Department
of Education, this agency threatened to withhold Virginia's
allocation for special education even after our policy of
disciplining special education students only when it could be
established that their behavior was not related to their
disability had been in existence for years.
This type of interference in the rights of States to
develop and administer policies is an usurpation of the State's
role in education by the Federal Government. This particular
case has been in litigation for more than 3 years.
The role of the Federal Government should be reduced
substantially, and the block granting of funds should be
implemented. Similar to the model that Congress adopted in
welfare reform, education matters should be turned over to the
States so that each State can establish its own model for
education reform.
Some programs will be emulated by others, much like our own
academic standards in English, math, science and history. Our
standards of learning are being studied, and in some cases
adopted, by more than 30 States at this time. Other programs
that are less successful will be discarded. Thus, national
success in educational reform will grow out of individual State
efforts. Adopting this model will result in the decrease of the
hundreds of programs at the U.S. DOE that are ineffective. The
money saved by reducing the Federal bureaucracy should be
returned to the States and sent directly to the classroom,
where students will benefit from these tax dollars.
I hope that you will act now to strengthen and increase the
flexibility that is presently purported and which was
originally claimed. If you set general priorities, give us
``true'' block grants and the room to work, States will produce
results.
There will always be a local, State and Federal partnership
in education. However, in a true partnership, everyone has
something to give, and none of the partners are perceived as
intruders.
Thank you very much for allowing me to address, and I would
be glad to answer any questions.
[The prepared statement of Ms. Sgro follows:]
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Mr. Steidler. Mr. Shays, Congressman Towns, thank you for
the opportunity to testify today about the U.S. Department of
Education's mission, management and purpose.
One of the most critical education problems we face today
is the quality of elementary and secondary schools in the inner
cities. Yet, there are a plethora of Department of Education
programs that are of questionable value to students in these
schools as the programs in large part benefit bureaucracies,
teachers, and students that are not poor.
The array of these trickle-down programs include a literacy
program for prisoners, Goals 2000, professional development
assistance for teachers, and even something called parent
training.
It is, however, the primary Federal education program for
the poor, Title I, that should be examined most closely. Title
I has a mixed history at best.
Since its inception in 1965, Title I has been reauthorized
eight times, most recently in 1994. The program, which has
spent roughly $100 billion, was envisioned as a way to help
disadvantaged children. Many studies have questioned its
effectiveness. For example: In 1980, noted education scholar
Jonathan Kozol observed, ``If Title I were not a mere expanded
version of the errors of the past, we would not have more
illiterate adults today than in the year in which that
legislation took effect.''
A 1987 Phi Delta Kappan report found, ``The children who
are tutored under Chapter 1--now Title I--do somewhat better on
the average in the basic skills in the early grades than
similarly disadvantaged pupils who have not been tutored. But
by the middle grades this advantage disappears.''
In 1992, the Commission on Chapter 1, a group of 28
education leaders, criticized the $6.1 billion program--then in
52,000 schools--particularly for its practice of pulling out
students from regular classes for extra help, thus stigmatizing
them.
The U.S. Department of Education's Final Report on the
National Assessment of the Title I Program, released in
February 1993, stated, ``The program today does not appear to
be helping to close the learning gap.''
Is Title I now meeting its purpose of improving educational
opportunities for low-achieving children living in low-income
areas? Currently, an area is eligible to receive Title I funds
if it has at least 10 low-income children and these children
represent just 2 percent of the student population. At the risk
of stating the obvious, many areas that are not poor now can
and do receive significant amounts of Title I funds.
Title I funds are now increasingly being used for school-
wide programs which allow schools to, ``upgrade the entire
educational program in the school to support systemic reform.''
As a result, this may lead Title I grants to serve 10 million
children in 1998 versus approximately 7 million in 1996. This
raises questions about the dilution of Title I aid to the
neediest children.
Indeed, there are other indications that the aid is not
going to those who need it most. Research by the Alexis de
Tocqueville Institution found that the 15 wealthiest counties
in the U.S. received $56 million in Title I aid in fiscal year
1996.
Education Week, a highly respected publication in the
education field, has also found disturbing signs about the
program. It recently noted that Marin County, America's
wealthiest county, will have 20 school districts sharing $1.2
million in Title I money in the current fiscal year. In nearby
San Francisco, Jefferson Elementary School, in a neighborhood
with a 14 percent poverty rate, receives no Title I money.
At a time of continued deterioration among inner-city
schools and concern about the focus and effectiveness of
Department of Education programs, there are three steps that
Congress can take to bring education decisionmaking closer to
the people who need assistance.
First, Title I money could be provided in the form of a
block grant so that States will direct the funds to the areas
that need them most.
Another alternative would be to allow States to use Title I
and other Federal education funds in combination with State,
local and private money to provide scholarship/voucher
opportunities for students in problem-plagued schools. Here,
low-income parents would have an opportunity to decide what is
best for their children. The scholarship/voucher plans would
immediately enable many of our most disadvantaged children to
obtain a much better education.
Third, Congress could reduce or eliminate many trickle-down
programs to finance scholarships/vouchers. Modest savings of
$500 million, for example, would provide enough money for over
165,000 poor children to have a $3,000 voucher to attend a
private or parochial school of their choice. Bolder measures,
of course, would have more of an impact.
I thank you for your time and look forward to your
questions.
Mr. Shays. Thank you very much.
[The prepared statement of Mr. Steidler follows:]
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Mr. Shays. Basically, two messages are coming through loud
and clear. Some of it gets more into an ideological debate than
a debate on, say, financial or data information.
The general message I'm hearing from the Education
Secretary of Virginia is that you believe that the Government's
role should be limited and primarily in two areas. The message
I'm getting from you, Mr. Steidler, is that you believe that
the money is misdirected to wealthier areas primarily--and
what?
Mr. Steidler. I believe that we are not getting the maximum
bang for the buck of money that's going out there. There are a
lot of places that are getting money that clearly do not need
it as much as other areas do.
Mr. Shays. The report--no one can accuse me of self-
interest, since Fairfield County, which I represent, is one of
your targeted 15 communities. But what would be helpful is to,
say, take Bridgeport, which is one of those communities in
Fairfield which is 1 of the 10 poorest in terms of the number
of students who are poor per capita in the country. So you have
a Fairfield, CT--not the county, the town of Fairfield--which
has a 3-percent minority population and a very wealthy
community next door to Bridgeport, CT, which has an 85-percent
minority population.
I would generally agree with you that, for instance, one
reason why we tried to change the school lunch program was that
we subsidize all children 30 cents for school lunches--all
students. And given my congressional salary of $133,000 and my
wife's salary as a teacher, we make approximately $200,000. I
am dumbfounded to know why my daughter should be subsidized.
What we allowed in our bill last year, 2 years now, was to
allow State and local governments to direct money away from New
Canaan, CT, for students who could afford lunches and direct it
to the Bridgeports and the Stanfords in my district that
couldn't.
Which really leads me to a question: Isn't the real issue
with the State departments, local departments, that they would
just like a little more flexibility on how they spend the
money? Could you elaborate on that?
Ms. Sgro. Yes, that is one of the most difficult things for
us, is that we have the opportunity to acquire Federal money,
so to speak, and then it comes with so many regulations with it
that it becomes, in some cases, very, very difficult for us to
manage the money and to put it exactly where we want it, which
is in the desk with those little children in the classroom. We
want to get all of that money there, but sometimes we don't
have the flexibility, and a program that might be wonderful for
California might not be very advantageous for Virginia.
So the greater flexibility that we can have, the less
tentacles that come with the dollars, the more likely we are to
have real education reform and to have children who really are
learning and are prepared for the work force.
Mr. Shays. Mr. Towns.
Mr. Towns. Thank you very much, Mr. Chairman.
Madam Secretary, what are your views on vouchers?
Ms. Sgro. Virginia has not discussed vouchers in any formal
setting at all. We have attempted for the last 4 years in the
general assembly to institute--implement--get a bill passed for
charter schools. We were unsuccessful in this last general
assembly session. But Virginia, at this point, is not
interested in vouchers per se.
Mr. Towns. Thank you. Why do you think that vouchers are
the solution? What happens to those children that are not lucky
enough to get a voucher?
Mr. Steidler. The first thing I would say, Congressman, is
that providing vouchers and looking for systemic public school
reform are by no means mutually exclusive issues. And I think
one of the unfortunate things about the debate that has gone on
is that, by saying that you support vouchers, you are somehow
deemed not to support those changes that are going to affect
public school reform.
Again, I would just make that point that those two issues
are by no means mutually exclusive; and whether one favors or
opposes vouchers, that this should be recognized.
I think another thing that is quite telling about the need
for vouchers is that while hopefully the education system as a
whole in many troubled areas will be fixed in the next couple
of years, that is often scant comfort for the mother of a 7th
or 8th grade child who is looking for an immediate way in which
their child's education can be improved. And by providing a
voucher or scholarship program to them, they are immediately
able to get into a much better school and out of a school that
might be chronically troubled and take a number of years to get
fixed.
I would also add that I think it's the option aspect that
should be very important here for States and localities. By
giving them the flexibility about how to deploy these funds,
that that is something where they are going to be able to make
the decisions that will be most appropriate for their
communities.
Mr. Towns. If the State does not assume, say, a certain
academic level of excellence, then the Federal Government
should not be involved in that at all?
Mr. Steidler. I think----
Mr. Towns. I want to make it very clear. And, of course,
block grants do the kind of things that you are saying and then
all of a sudden we realize that nothing is really happening.
What role should the Federal Government play? After all, that
is our money?
Mr. Steidler. I'm not sure what role the Federal Government
should play in that case.
I would make the observation that I think one of the
difficult things that we have now is that many people in
communities feel very frustrated about pushing for education
change because they perceive that there are controls in
Washington that are in effect and that it is much more
difficult to effect that change. And I think that by block
granting money, you put the money closer to the people who are
affected by it and you give them more possibility to petition
those who can make change and who can institute meaningful
reforms.
Just getting back to the Title I situation, I would also
make the observation that when Congress reauthorized the
measure back in 1994, it has taken a stab at improving the
program. Hopefully, the program will be improved and function
much better than it has over the past 29 years or so since its
initial inception.
But I think that if you allow States and localities to find
ways in which to deploy that money and make it much more
effective, you are going to have more opportunity for getting
the right deployment of funds and the right programs in place.
Ms. Sgro. Mr. Towns, may I respond to that also?
Mr. Towns. I was going to ask you to.
Ms. Sgro. Thank you. I will jump in first.
In Virginia, one of the aspects of our reform that we
believe is critically important, first step was establishing
standards.
The second was to establish a testing assessment program in
which the test is really designed to test the standards, which
is kind of a unique idea and not very prominent idea across our
Nation.
The third part is probably the piece that you're asking
for, and that is a report card. We are going to publicize how
each school--how the children perform in each of those schools
across the State, so that parents can actually see how well
their children are doing compared with the other children in
the State.
We also have a component in our test that will allow us to
compare our students with other students across the United
States. That's an important mechanism.
I believe that if Congress were to grant block grants to
the States then States can be held accountable by the public,
by the taxpayers, the people who are sending the money up here.
They will have every opportunity to vote in, vote out those
local school boards and influence the people who are running
their schools; and I think people will be very intolerant if
they see that one school is not performing well and another
school is performing well.
We have several measures on that report card, not just a
single test. Let me assure you of that.
I would not be a proponent of that. But looking at
retention rates, looking at dropout rates, looking at
attendance records of students and teachers and how many
special education students are receiving services, those kinds
of measures--what is the behavior of the children? How many
serious disciplinary incidences have occurred in a school? And
you want to see a school that is always improving, and a school
that is not should be held accountable.
Mr. Towns. Thank you.
On that note, let me go into something else which I am
certain you have heard it and this will not be brand new to you
when I say it.
One of the major criticisms of the Virginia new educational
standards is that you rely too heavily on rote memory and not
enough on critical thinking skills. How would you respond to
that? I know it is not new. You have heard it.
Ms. Sgro. I have heard it a few times, just once or twice
in the last several years. Quite honestly, I would----
Mr. Shays. Would you repeat your answer? Because he needs
to hear it twice.
Ms. Sgro. I would be so bold to say, Mr. Towns, that that
really is a specious argument, that in fact our standards
provide the academic basic skills, knowledge that a student
needs to have in order to, in fact, do critical thinking, if
you want to separate it. I do not think that you can separate
critical thinking from what is taught.
Clearly, if you don't know how to--you don't have the
basics of fixing a car, you don't have any idea how those
pieces go together, you are not going to be able, as a
wonderful car mechanic, be able to hear it go down the street
and do a diagnosis as so many of our best people do. The same
is true in the academic arena as well. You have to know when
certain wars were fought and who are major leaders for this
Nation and be able to create the framework that goes with that.
So I think that really and truly is a specious argument.
Mr. Towns. Well, let me thank you for your comments and to
say to you, Mr. Steidler, I am still concerned about those
youngsters who, for some reason, that will not be able to get a
voucher and be left out there, because something has to be done
for them. And I am not sure I understand what you would do for
them. That's not clear to me. I just wanted to say that
important part.
I understand in terms of--but the point is that those who
are not fortunate enough, what would happen to them, that's the
part that troubles me. And we might be leaving out somebody who
has a cure for cancer.
Mr. Steidler. Yes. I would just emphasize again that I do
not believe that the two issues are mutually exclusive. We
should have high standards and we should be willing to spend
what needs to be spent to improve the quality of education in
the public school system.
I think another thing that is very critically important is
that schools need to be freed up of regulations, but I think
they also need greater flexibility in terms of how they
operate. They need more ability to be able to reward those
teachers who are the best and the brightest to pay them what
they need, and they need the flexibility to get rid of those
teachers who are incompetent or who are just not doing the job.
And that involves making some fundamental changes in terms of
how the schools interact with the teacher unions.
You know, I'm not saying that a voucher program for a few
children is going to be the silver bullet out there, but it
does provide--it does provide a mechanism for many children to
immediately get a much better education. I think it would also
help put pressure on some systems that have been very
unresponsive to change to undertake those changes that are
appropriate.
I would just like to make the final observation that it
strikes me as very mindboggling that right now the
administration has proposed what is, in effect, a voucher
program for college students where somebody--someone who is
making $95,000 a year can send their child to Notre Dame and
get a substantial tax break on that or any private and
parochial school of their choice; and we are not providing that
same opportunity to those parents of secondary and elementary
schoolchildren that are in areas that are quite troubled and
need to get some immediate help.
Mr. Shays. I am going to weigh in a quick second. May I?
Mr. Towns. Sure.
Mr. Shays. I would love to experiment, say, in the city of
DC, with a voucher system; and I would love then to see its
impact. But, right now, what we have done is we have imprisoned
some students in some schools that are in pathetic conditions.
Having said that, I haven't been to some of these schools.
I have read about them. One of the things that may be
interesting as a committee is to use DC, as kind of our testing
area and also, just in terms of our information area, is really
see how good or bad the DC schools are. And then just see what
possible alternatives.
I would quickly like to know why charter schools failed,
because they seem to me to be a happy compromise between the
voucher. Why did they fail in Virginia? Was it a partisan
debate?
Ms. Sgro. It was a partisan debate. Yes, it failed on a
partisan vote.
Mr. Shays. Was the VEA--do you call it the VEA there?
Ms. Sgro. Yes, VEA. They weighed in very heavily against
charters. They have been against charters since the outset of
this debate.
It was interesting, because Secretary Riley was there at
the very closing week of our general assembly, and I certainly
wrote him a letter. He was the guest speaker at the Democratic
Caucus fundraiser, and I personally wrote him a letter and
requested that he speak with the Democratic members of the
general assembly to explain the benefits of vouchers, the fact
that Virginia would be eligible to compete for additional
funding to get them started. I think he was quite--of course,
he is very much in favor of them but was not able to carry the
day for really partisan reasons, unfortunately.
Mr. Shays. But the administration here in DC, does it
support the concept of charter schools?
Ms. Sgro. Yes, very much so. It was an interesting week,
because the President had just made his very strong endorsement
of charter schools, Secretary Riley had, and just our
Democratic Members in Congress were still reticent to pass a
charter school law. And, in honesty, that is probably the very
weakest charter school bill that has been put forward across
the United States.
Mr. Towns. I thank both of you for your testimony.
Mr. Shays. Thank you both for being here. We appreciate you
being here.
Ms. Sgro. Thank you very much. We appreciate the
opportunity.
[Whereupon, at 12:05 p.m., the subcommittee was adjourned.]
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