At this time of heightened attention to the costs and effectiveness of all federal programs, the Congress and the Administration have acted to promote a more efficient federal government that stresses managing for results and accountability. These efforts include the Chief Financial Officers Act of 1990 (CFO Act), the Government Performance and Results Act of 1993 (GPRA), and the Government Management Reform Act of 1994 (GMRA). In addition, the Administration has undertaken, under the Vice President’s direction, the National Performance Review (NPR) aimed at making government work better and cost less. We strongly support these efforts as important and necessary steps to improving federal management. SSA has surpassed many other federal agencies in these areas. For example, as a pilot agency under GPRA, SSA has worked to strengthen its strategic management process and to identify and develop performance measures that help its managers, the Congress, and the public assess its performance. In addition, for several years now, it has measured satisfaction levels among some of its customers and used focus groups to understand its customers’ and employees’ views, reflecting the customer service focus promoted by NPR. SSA is also a leader among federal agencies in producing complete, accurate, and timely financial statements as required by the CFO Act and GMRA. For example, for fiscal year 1995, SSA issued audited financial statements 3 months before its legal mandate. Moreover, SSA was among the first federal agencies to produce an accountability report, which is designed to consolidate current reporting requirements under various laws and provide a comprehensive picture of an agency’s program performance and its financial condition. To be most effective, SSA’s ongoing efforts in strategic management, performance measurement, and accountability reporting will need to be continually improved and integrated into the agency’s daily operations and management. SSA has a foundation in place on which it can build to manage the significant policy and program challenges it faces in the future. As the baby boom generation ages, growing numbers of people will receive Social Security retirement and survivors benefits in the years to come, as shown in figure 1. By the year 2015—as baby boomers begin entering their mid-60s—the numbers of individuals receiving benefits will reach an estimated 50.4 million: more than one-third greater than the 37.4 million people receiving Social Security retirement and survivors benefits in 1995. Once on the rolls, retirees can be expected to receive benefits for longer time periods than past recipients. A 65-year-old male who began receiving Social Security benefits in 1940—the first year SSA began paying monthly benefits—was expected to live, on average, about an additional 12 years. By 2015, a 65-year-old male will have a life expectancy of 16 years—a 35-percent increase. During that same time period, the life expectancy for women aged 65 will increase by almost 50 percent—from an average of over 13 years to an average of nearly 20 years. Meanwhile, the ratio of contributing workers to beneficiaries will decline. By 2015, an estimated 2.6 workers will be paying taxes into the Social Security system per beneficiary; in 1950, 16.5 workers were paying Social Security taxes per beneficiary. This retirement explosion threatens the long-term solvency of the Social Security system. Beginning in 2012—16 years from now—the program is projected to start running a deficit. By 2029, without corrective legislation, the trust funds are expected to be depleted, leaving insufficient funds to pay the expected level of retirement, survivors, and Disability Insurance (DI) benefits. payroll taxes to be invested in the stock market. Two of these approaches, however, call for allowing individuals to invest some portion of their payroll taxes in individual retirement accounts. This would be a significant departure from the original program design, in which all trust fund monies are invested and managed centrally. Given the magnitude of the financial problems facing the Social Security system and the nature of the proposals for changing the system, we can expect the debate over the financing and structure of the Social Security system to continue and intensify in the coming years. In our report on SSA’s transition to independence, we noted that the agency’s independence would heighten the need for it to work with the Congress in developing options for ensuring that revenues are adequate to make future Social Security benefit payments. More than a year after gaining independence, however, SSA is not yet ready to fully support policymakers in the current public debate on financing issues. SSA has been involved in financing issues through its Office of the Actuary, which has provided data and analyses to the Advisory Council and policymakers developing financing options. The Office of the Actuary plays a unique role within the agency because it serves both the Congress and the Administration. SSA will also be providing assistance to the Social Security Advisory Board, which was established by the independence legislation to advise the Commissioner and make recommendations to the Congress and the President on SSA program policy. responsible for coordinating all policy planning activities was only partially staffed. Although SSA did not have a specific time frame for when the reorganized policy office would be fully staffed and operational, it did expect to be better prepared to join the public debate over the next year. SSA is in a unique position to inform policymakers and the public about the critical nature of long-term financing issues. Focus groups conducted by SSA have demonstrated that the public’s knowledge of Social Security programs is generally low and the public’s confidence in the Social Security system is undermined by its future financing problems. To address these issues, SSA is conducting a public education campaign that discusses what the current system offers in disability, retirement, and survivors benefits. It also emphasizes that the Social Security system can pay benefits for many more years and that the Congress has time to act before the trust funds are depleted. SSA, however, is not discussing options for maintaining or changing the current system. Feedback SSA has received from its focus groups indicates that addressing the public’s lack of knowledge without also discussing possible options for ensuring the system’s future solvency does not instill confidence and weakens the agency’s credibility with the public. We are concerned that SSA has not seized the opportunity as an independent agency to speak out on the importance of addressing the long-term financing issues sooner rather than later. As we have noted in our previous work, the sooner action is taken to resolve the future funding shortfall, the smaller the changes to the system need to be and the more time individuals will have to adjust their financial and retirement plans. In recent years, disability caseloads have faced unprecedented growth. To manage this caseload growth and the resulting slow processing times, SSA plans to redesign and dramatically improve its disability claims process. However, SSA’s redesign effort has encountered serious implementation problems. Moreover, while SSA is taking steps to improve the process for moving eligible individuals onto the disability rolls more quickly, it has not sufficiently emphasized helping beneficiaries return to work and leave the disability rolls. During the past decade, SSA has faced significant increases in caseloads and expenditures for its two disability programs—DI and SSI. DI, enacted in 1956 and funded through payroll taxes, provides monthly cash benefits to severely disabled workers and their families; SSI was enacted in 1972 and provides assistance to needy individuals with insufficient work histories to qualify for DI. Unlike DI, SSI is funded through general revenues. DI and SSI caseloads and expenditures increased dramatically between 1986 and 1995, and the pace of this growth accelerated in the early 1990s. In 1986, 4.4 million blind and disabled persons under age 65 received DI or SSI benefits; by 1995, this number had soared to 7.5 million—a 69-percent increase. As the number of DI and SSI beneficiaries increased, so did the amount paid in cash benefits. The combined DI and SSI cash benefits increased from $25 billion to $57 billion in 10 years. Adjusted for inflation, the increase in the value of these cash benefits was 66 percent. As these programs have grown, the characteristics of new beneficiaries have changed in ways that pose additional challenges for SSA. Beneficiaries are, on average, younger and more likely to have longer lasting impairments. Increases in beneficiaries with mental illness or mental retardation, especially, have driven this trend. Between 1982 and 1992, for example, mental impairment awards to younger workers increased by about 500 percent. This growing proportion of younger beneficiaries with longer lasting impairments means that the beneficiary population, on average, is likely to spend more time on the disability rolls. In 1992, for example, new DI awardees were, on average, 48 years old. Depending on the type of impairment that qualified them for benefits, these beneficiaries could spend nearly one-third of their adult lives on disability before reaching age 65. As more and more people have filed for disability benefits, SSA has been slow to process initial claims, and appeals and backlogs have grown. To manage the disability caseload growth, increase efficiency, and improve service to its customers, SSA has started a massive effort to fundamentally change how disability decisions are made. Making disability decisions is one of the agency’s most important tasks; it accounted for more than half of SSA’s total administrative budget—about $3 billion—in fiscal year 1995. Even so, claimants face long waits for disability decisions. As of June 1996, the wait for initial decisions averaged 78 days for DI claims and 94 days for SSI claims, with an additional 373-day wait for appealed decisions. Overall, the current disability claims process is not meeting the needs of claimants, the agency, or taxpayers. To deal with these problems, in 1993 SSA formed a team to fundamentally rethink and develop a proposal to redesign the disability claims process. This labor-intensive and paper-reliant process has changed little since the DI program began in the 1950s.